**UNITED
      STATES**


**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 June 30,
                2008





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.**


(Exact
      name of registrant as specified in its charter)





Georgia
            
            58-1640130(State
                of Incorporation)
            
            (I.R.S.
                Employer Identification No.)





201
      Maple
      Street


P.O.
      Box
      280


Carrollton,
      Georgia 30112


(Address
      of principal executive offices)








(770)
      832-3557


(Registrant’s
      telephone number, including area code)





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 ý No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a small reporting company. See
      definition of “large accelerated filer,” accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one).





Large
                Accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filer ̈
            Smaller
                reporting companyý





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No ý





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 July 15, 2008Common
                Stock, no par value
            
            6,057,594





**WGNB
      CORP.**





**INDEX
      TO FORM 10-Q**





**Item Number**
              **in Form 10-Q**
            
            **Description**
            
            **Page****Part
                I**
            
            **Financial
                Information**Item
                1.
            
            Financial
                Statements
            
            1Consolidated
                Balance Sheets as of June 30, 2008 and December 31, 2007
            
            2Consolidated
                Statements of Operations for the Three Months Ended June 30, 2008
                and June
                30, 2007
            
            3Consolidated
                Statements of Comprehensive Income for the Three Months Ended June
                30,
                2008 and June 30, 2007
            
            4Consolidated
                Statements of Operations for the Six Months Ended June 30, 2008 and
                June
                30, 2007
            
            5Consolidated
                Statements of Comprehensive Income for the Six Months Ended June
                30, 2008
                and June 30, 2007
            
            6Consolidated
                Statements of Cash Flows for the Six Months Ended June 30, 2008 and
                June
                30, 2007
            
            7Notes
                to Consolidated Financial Statements
            
            9Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            15Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            24Item
                4T.
            
            Controls
                and Procedures
            
            24**Part
                II**
            
            **Other
                Information**Item
                1.
            
            Legal
                Proceedings
            
            25Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            25Item
                3.
            
            Defaults
                Upon Senior Securities
            
            25Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            25Item
                5.
            
            Other
                Information
            
            25Item
                6.
            
            Exhibits
            
            26Signatures
            
            27





**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.





**WGNB
      CORP.**


**Consolidated
      Balance Sheets**


**As
      of June 30, 2008 and December 31, 2007**




June 30,
              2008
            
            December 31,
              2007(unaudited)
            
            (audited)AssetsCash
                and due from banks
            
            $
            21,519,160
            
            
            6,004,621Interest –
                bearing funds in other banks
            
            
            2,912,357
            
            
            1,463,719Federal
                funds sold
            
            
            19,384,000
            
            
            18,377,000Cash
                and cash equivalents
            
            
            43,815,517
            
            
            25,845,340Securities
                available for sale
            
            
            119,933,770
            
            
            122,693,244Securities
                held to maturity, estimated fairvalues
                of $7,475,126 and $7,901,389
            
            
            7,475,126
            
            
            7,901,839Loans,
                net
            
            
            634,161,296
            
            
            645,738,663Premises
                and equipment, net
            
            
            17,959,085
            
            
            18,356,970Accrued
                interest receivable
            
            
            4,670,090
            
            
            5,927,168Cash
                surrender value of life insurance
            
            
            3,721,748
            
            
            3,639,550Goodwill
                and other intangibles, net
            
            
            29,174,092
            
            
            29,433,841Foreclosed
                property
            
            
            29,450,741
            
            
            10,313,331Deferred
                taxes
            
            
            6,354,769
            
            
            6,389,057Income
                tax receivable
            
            
            3,242,875
            
            
            -Other
                assets
            
            
            9,589,834
            
            
            7,425,520$
            909,548,943
            
            
            883,664,523Liabilities
                and Stockholders’ EquityDeposits:Demand
            
            $
            76,050,527
            
            
            67,614,983Interest
                bearing demand
            
            
            224,599,732
            
            
            220,137,199Savings
            
            
            20,083,945
            
            
            19,122,668Time
            
            
            171,761,862
            
            
            170,112,285Time,
                over $100,000
            
            
            249,241,630
            
            
            229,390,354Total
                deposits
            
            
            741,737,696
            
            
            706,377,489Federal
                Home Loan Bank advances
            
            
            52,000,000
            
            
            54,500,000Securities
                sold under repurchase agreements
            
            
            20,000,000
            
            
            20,000,000Junior
                subordinated debentures
            
            
            10,825,000
            
            
            10,825,000Accrued
                interest payable
            
            
            2,949,812
            
            
            3,990,807Other
                liabilities
            
            
            7,364,756
            
            
            7,820,335Total
                liabilities
            
            
            834,877,264
            
            
            803,513,631CommitmentsStockholders’
                equity:Preferred
                stock, no par value, 10,000,000 shares authorized; no shares issued
                or
                outstanding
            
            
            -
            
            
            -Common
                  stock, no par value in 2008 and $1.25 par value in 2007, 20,000,000
                  shares
                  authorized; 6,057,594 shares issued andOutstanding
            
            
            37,868,224
            
            
            7,571,993Additional
                paid-in capital
            
            
            -
            
            
            30,199,481Retained
                earnings
            
            
            37,415,234
            
            
            41,786,537Accumulated
                other comprehensive income (loss)
            
            
            (611,779
            )
            
            592,881Total
                stockholders’ equity
            
            
            74,671,679
            
            
            80,150,892$
            909,548,943
            
            
            883,664,523


*See
      accompanying notes to unaudited consolidated financial
      statements.*


2


**WGNB
      CORP.**


**Consolidated
      Statements of Operations**


**For
      the Three Months Ended June 30, 2008 and 2007**


**(unaudited)**


For the Three Months EndedJune 30, 2008
            
            June 30, 2007Interest
                income:Interest
                and fees on loans
            
            $
            9,819,841
            
            
            11,298,066Interest
                on federal funds sold
            
            
            71,525
            
            
            93,187Interest
                on investment securities:U.S.
                Government sponsored enterprises
            
            
            617,750
            
            
            256,607State,
                county and municipal
            
            
            776,016
            
            
            356,318Other
            
            
            347,426
            
            
            320,143Total
                interest income
            
            
            11,632,558
            
            
            12,324,321Interest
                expense:Interest
                on deposits:Demand
            
            
            899,083
            
            
            1,411,185Savings
            
            
            16,335
            
            
            50,204Time
            
            
            4,568,673
            
            
            3,557,492Interest
                on FHLB and other borrowings
            
            
            796,376
            
            
            707,091Total
                interest expense
            
            
            6,280,467
            
            
            5,725,972Net
                interest income
            
            
            5,352,091
            
            
            6,598,349Provision
                for loan losses
            
            
            8,100,000
            
            
            375,000Net
                interest income (expense) after provision for loan losses
            
            
            (2,747,909
            )
            
            6,223,349Other
                income:Service
                charges on deposit accounts
            
            
            1,534,394
            
            
            1,010,759Mortgage
                origination fees
            
            
            53,865
            
            
            97,987Brokerage
                fees
            
            
            123,346
            
            
            144,805ATM
                network fees
            
            
            357,770
            
            
            212,661Gain
                on sales of securities available for sale
            
            
            58,746
            
            
            -Gain
                on sale of foreclosed properties
            
            
            108,977
            
            
            -Miscellaneous
            
            
            272,691
            
            
            333,354Total
                other income
            
            
            2,509,789
            
            
            1,799,566Other
                expenses:Salaries
                and employee benefits
            
            
            3,578,258
            
            
            2,931,017Occupancy
            
            
            1,025,214
            
            
            645,911Expense
                on loans and foreclosed property
            
            
            554,549
            
            
            42,673Other
                operating
            
            
            1,763,939
            
            
            1,098,837Total
                other expenses
            
            
            6,921,960
            
            
            4,718,438(Loss)
                earnings before income taxes
            
            
            (7,160,080
            )
            
            3,304,477Income
                tax benefit (expense)
            
            
            2,865,947
            
            
            (1,050,843
            )Net
                (loss) earnings
            
            $
            (4,294,133
            )
            
            2,253,634Basic
                (loss) earnings per share
            
            $
            (0.71
            )
            
            0.45Diluted
                (loss) earnings per share
            
            $
            (0.71
            )
            
            0.45Dividends
                declared per share
            
            $
            0.1050
            
            
            0.2034


*See
      accompanying notes to unaudited consolidated financial
      statements.*


3


**WGNB
      CORP.**


**Consolidated
      Statements of Comprehensive Income**


**For
      the Three Months Ended June 30, 2008 and 2007**


**(unaudited)**




For the Three Months EndedJune 30, 2008
            
            June 30, 2007Net
                (loss) earnings
            
            $
            (4,294,133
            )
            
            2,253,634Other
                comprehensive loss, net of tax:Unrealized
                losses on investmentsecurities
                available for sale:Unrealized
                losses arising during the period
            
            
            (2,121,602
            )
            
            (676,815
            )Associated
                income tax benefit
            
            
            721,345
            
            
            230,117Reclassification
                adjustment for gain realized
            
            
            (58,746
            )
            
            -Associated
                taxes
            
            
            19,974
            
            
            -Change
                in fair value of derivatives for cash flow hedges:Decrease
                in fair value of derivatives for cash flow hedgesarising
                during the period
            
            
            421,235
            
            
            -Associated
                tax benefit
            
            
            (143,220
            )
            
            -Other
                comprehensive (loss) income
            
            
            (1,161,014
            )
            
            (446,698
            )Comprehensive
                (loss) income
            
            $
            (5,455,147
            )
            
            1,806,936





*See
      accompanying notes to unaudited consolidated financial statements.*


4


**WGNB
      CORP.**


**Consolidated
      Statements of Operations**


**For
      the Six Months Ended June 30, 2008 and 2007**


**(unaudited)**




For the Six Months EndedJune 30, 2008
            
            June 30, 2007Interest income:Interest
                and fees on loans
            
            $
            22,121,955
            
            
            22,126,660Interest
                on federal funds sold
            
            
            124,691
            
            
            166,283Interest
                on investment securities:U.S.
                Government sponsored enterprises
            
            
            1,282,521
            
            
            542,280State,
                county and municipal
            
            
            1,533,076
            
            
            718,669Other
            
            
            701,422
            
            
            661,932Total
                interest income
            
            
            25,763,665
            
            
            24,215,824Interest
                expense:Interest
                on deposits:Demand
            
            
            2,151,660
            
            
            2,809,107Savings
            
            
            63,546
            
            
            98,596Time
            
            
            9,307,794
            
            
            6,958,365Interest
                on FHLB and other borrowings
            
            
            1,576,573
            
            
            1,479,005Total
                interest expense
            
            
            13,099,573
            
            
            11,345,073Net
                interest income
            
            
            12,664,092
            
            
            12,870,751Provision
                for loan losses
            
            
            8,850,000
            
            
            750,000Net
                interest income after provision for loan losses
            
            
            3,814,092
            
            
            12,120,751Other
                income:Service
                charges on deposit accounts
            
            
            3,073,657
            
            
            1,965,448Mortgage
                origination fees
            
            
            170,912
            
            
            199,043Brokerage
                fees
            
            
            234,551
            
            
            300,606ATM
                network fees
            
            
            742,936
            
            
            419,116Gain
                on sales of securities available for sale
            
            
            105,669
            
            
            -Gain
                on sale of foreclosed properties
            
            
            121,258
            
            
            -Miscellaneous
            
            
            495,487
            
            
            648,635Total
                other income
            
            
            4,944,470
            
            
            3,532,848Other
                expenses:Salaries
                and employee benefits
            
            
            7,204,623
            
            
            5,809,496Occupancy
            
            
            2,048,058
            
            
            1,307,482Expense
                on loans and foreclosed property
            
            
            847,617
            
            
            94,457Other
                operating
            
            
            3,402,569
            
            
            2,203,935Total
                other expenses
            
            
            13,502,867
            
            
            9,415,370(Loss)
                earnings before income taxes
            
            
            (4,744,305
            )
            
            6,238,229Income
                tax benefit (expense)
            
            
            2,281,144
            
            
            (2,004,190
            )Net
                (loss) earnings
            
            $
            (2,463,161
            )
            
            4,234,039Basic
                (loss) earnings per share
            
            $
            (0.41
            )
            
            0.85Diluted
                (loss) earnings per share
            
            $
            (0.41
            )
            
            0.84Dividends
                declared per share
            
            $
            0.3150
            
            
            0.4000





*See
      accompanying notes to unaudited consolidated financial
      statements.*


5


**WGNB
      CORP.**


**Consolidated
      Statements of Comprehensive Income**


**For
      the Six Months Ended June 30, 2008 and 2007**


**(unaudited)**





For
                the Six Months EndedJune
                30, 2008
            
            June
                30, 2007Net
                (loss) earnings
            
            $
            (2,463,161
            )
            
            4,234,039Other
                comprehensive loss, net of tax:Unrealized
                losses on investmentsecurities
                available for sale:Unrealized
                losses arising during the period
            
            
            (1,671,996
            )
            
            (584,765
            )Associated
                income tax benefit
            
            
            568,479
            
            
            198,820Reclassification
                adjustment for gain realized
            
            
            (105,669
            )
            
            -Associated
                taxes
            
            
            35,927
            
            
            -Change
                in fair value of derivatives for cash flow hedges:Decrease
                in fair value of derivatives for cash flow hedgesarising
                during the period
            
            
            (47,577
            )
            
            -Associated
                tax benefit
            
            
            16,176
            
            
            -Other
                comprehensive loss
            
            
            (1,204,660
            )
            
            (385,945
            )Comprehensive
                (loss) income
            
            $
            (3,667,821
            )
            
            3,848,094





*See
      accompanying notes to unaudited consolidated financial
      statements.*


6


**WGNB
      CORP.**


**Consolidated
      Statements of Cash Flows**


**For
      the Six Months Ended June 30, 2008 and 2007**


**(unaudited)**




For the Six Months EndedJune 30, 2008
            
            June 30, 2007Cash
                flows from operating activities:Net
                (loss) earnings
            
            $
            (2,463,161
            )
            
            4,234,039Adjustments
                to reconcile net (loss) earnings to net cashprovided
                by operating activities:Depreciation,
                amortization and accretion
            
            
            920,612
            
            
            457,790Provision
                for loan losses
            
            
            8,850,000
            
            
            750,000Gain
                on sale of premises and equipment
            
            
            (2,089
            )
            
            (5,070
            )Income
                from bank owned life insurance
            
            
            (82,198
            )
            
            -Gain
                on sale of securities available for sale
            
            
            (105,669
            )
            
            -Net
                gain on sale of foreclosed property
            
            
            (121,258
            )
            
            -Stock-based
                employee compensation expense
            
            
            98,000
            
            
            84,500Change
                in:Income
                tax receivable
            
            
            (3,242,875
            )
            
            -Other
                assets
            
            
            (299,942
            )
            
            (913,180
            )Other
                liabilities
            
            
            (1,494,691
            )
            
            207,502Net
                cash provided by operating activities
            
            
            2,056,729
            
            
            4,815,581Cash
                flows from investing activities:Proceeds
                from the sale of available for sale securities
            
            
            7,328,485
            
            
            -Proceeds
                from maturities of securities available for sale
            
            
            6,934,784
            
            
            44,543,174Proceeds
                from maturities of securities held to maturity
            
            
            427,211
            
            
            756,030Purchases
                of securities available for sale
            
            
            (13,121,930
            )
            
            (32,592,278
            )Net
                change in loans
            
            
            (17,959,559
            )
            
            (43,346,413
            )Purchases
                of premises and equipment
            
            
            (452,837
            )
            
            (1,098,423
            )Proceeds
                from the sale of premises and equipment
            
            
            3,778
            
            
            5,070Proceeds
                from sales of foreclosed property
            
            
            2,226,215
            
            
            107,506Capital
                expenditures for foreclosed property
            
            
            (421,631
            )
            
            (270,929
            )Net
                cash used by investing activities
            
            
            (15,035,484
            )
            
            (31,896,263
            )Cash
                flows from financing activities:Net
                change in deposits
            
            
            35,360,207
            
            
            47,678,958Repayment
                of FHLB advances
            
            
            (2,500,000
            )
            
            -Net
                change in federal funds purchased
            
            
            -
            
            
            (2,475,000
            )Dividends
                paid
            
            
            (1,910,025
            )
            
            (1,936,096
            )Proceeds
                from exercise of stock options
            
            
            -
            
            
            61,319Offering
                costs
            
            
            (1,250
            )
            
            -Net
                cash provided by financing activities
            
            
            30,948,932
            
            
            43,329,181Change
                in cash and cash equivalents
            
            
            17,970,177
            
            
            16,248,499Cash
                and cash equivalents at beginning of period
            
            
            25,845,340
            
            
            13,233,448Cash
                and cash equivalents at end of period
            
            $
            43,815,517
            
            
            29,481,947





*See
      accompanying notes to unaudited consolidated financial
      statements.*


7


**WGNB
      CORP.**


**Consolidated
      Statements of Cash Flows, continued**


**For
      the Six Months Ended June 30, 2008 and 2007**


**(unaudited)**





For the Six Months EndedJune 30, 2008
            
            June 30, 2007Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            14,140,568
            
            
            11,302,376Income
                taxes
            
            
            -
            
            
            2,166,000Non-cash
                investing and financing activities:Transfer
                of loans to foreclosed property
            
            
            30,307,064
            
            
            1,561,400Loans
                to facilitate the sale of foreclosed property
            
            
            9,486,328
            
            
            -Change
                in unrealized gains/losses onsecurities
                available for sale, net of tax
            
            
            (1,173,259
            )
            
            (385,945
            )Change
                in fair value of derivatives for cash flowhedges,
                net of tax
            
            
            (31,401
            )
            
            -Change
                in dividends payable
            
            
            (1,883
            )
            
            280,538





*See
      accompanying notes to unaudited consolidated financial
      statements.*


8


**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, First National Bank of Georgia (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 June 30, 2008, and the results of its
      operations and its cash flows for the three and six month periods ended June
      30,
      2008 and 2007. All such adjustments are normal and recurring in nature. The
      financial statements included herein should be read in conjunction with the
      consolidated financial statements, related notes thereto and the report of
      independent registered public accounting firm included in the Company’s Annual
      Report on Form 10-K for the year ended December 31, 2007, which included the
      results of operations for the years ended December 31, 2007, 2006 and
      2005.





**(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.





SFAS
      No.
      128, “Earnings Per Share,” requires that employee equity share options,
      non-vested shares and similar equity instruments granted to employees be treated
      as potential common shares in computing diluted earnings per share. Diluted
      earnings per share should be based on the actual number of options or shares
      granted and not yet forfeited, unless doing so would be anti-dilutive. The
      Company uses the “treasury stock” method for equity instruments granted in
      share-based payment transactions provided in SFAS No. 128 to determine diluted
      earnings per share.





Set
      forth
      below is a table showing a reconciliation of the amounts used in the computation
      of basic and diluted earnings per share. Only a reconciliation of amounts for
      the periods ended June 30, 2007 is presented. No presentation for the periods
      ended June 30, 2008 is set forth below because inclusion of potential common
      shares in the diluted loss per share calculation for these periods would be
      anti-dilutive. Reconciliation of the amounts used in the computation of both
      “basic earnings per share” and “diluted earnings per share” for the periods
      ended June 30, 2007 is as follows:




For the Quarter Ended June 30, 2007EarningsNet Earnings
            
            Common Shares
            
            per ShareBasic
                earnings per share
            
            $
            2,253,634
            
            
            5,003,790
            
            $
            0.45Effect
                of dilutive securities – Stock Options
            
            
            -
            
            
            41,277
            
            
            (0.00
            )Diluted
                earnings per share
            
            $
            2,253,634
            
            
            5,045,067
            
            $
            0.45For the Six Months Ended June 30, 2007EarningsNet Earnings
            
            
            Common Shares
            
            
            per ShareBasic
                earnings per share
            
            $
            4,234,039
            
            
            5,002,545
            
            $
            0.85Effect
                of dilutive securities – Stock Options
            
            
            -
            
            
            40,169
            
            
            (0.01
            )Diluted
                earnings per share
            
            $
            4,234,039
            
            
            5,042,714
            
            $
            0.84




9


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**





**(3)
      Stock Compensation Plans**





The
      Company accounts for its stock based employee benefit plans in accordance with
      SFAS No. 123 (revised 2004) (“SFAS No. 123 (R)”), *Share-Based
      Payment* .
      SFAS
      No. 123 (R) addresses the accounting for share-based payment transactions in
      which the Company receives employee services in exchange for equity instruments
      of the Company. SFAS No. 123 (R) requires the Company to recognize as
      compensation expense the “grant date fair value” of stock options granted to
      employees in the statement of operations using the fair-value-based
      method.




The
      Company recognized $47,500 and $44,750 of stock-based employee compensation
      expense during the three months ended June 30, 2008 and 2007, respectively,
      and
      $98,000 and $84,500 of stock-based compensation during the six months ended
      June
      30, 2008 and 2007, respectively, associated with its stock option grants. The
      Company is recognizing the compensation expense for stock option grants with
      graded vesting schedules on a straight-line basis over the requisite service
      period of the award as permitted by SFAS No. 123 (R). As of June 30, 2008,
      there
      was $545,037 of unrecognized compensation cost related to stock option grants.
      The cost is expected to be recognized over the remaining vesting period of
      five
      years.





The
      grant-date fair value of each option granted during 2008 and 2007 was $3.37
      and
      $6.39, respectively. The Company did not grant any options during the second
      quarters of 2008 or 2007. The fair value of each option is estimated on the
      date
      of grant using the Black-Scholes Model. The following weighted average
      assumptions were used for grants in 2008 and 2007:





2008
            
            2007Dividend
                yield
            
            
            3.09
            %
            
            2.72
            %Expected
                volatility
            
            
            22
            %
            
            20
            %Risk-free
                interest rate
            
            
            3.50
            %
            
            4.83
            %Expected
                term
            
            
            6.5
                years
            
            
            6.6
                years




**(4)**  **Fair
      Value** ******




Effective
      January 1, 2008, the Company adopted Financial Accounting Standards Board
      (“FASB”) Statement No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”), which provides a framework for measuring fair value under generally
      accepted accounting principles. SFAS No. 157 applies to all financial
      instruments that are being measured and reported on a fair value basis.




The
      Company utilizes fair value measurements to record fair value adjustments to
      certain assets and liabilities and to determine fair value disclosures.
      Securities available for sale, derivatives and certain deposits are recorded
      at
      fair value on a recurring basis. Additionally, from time to time, the Company
      may be required to record at fair value other assets on a nonrecurring basis,
      such as impaired loans and foreclosed property. These nonrecurring fair value
      adjustments typically involve application of lower of cost or market accounting
      or write-downs of individual assets.




Fair
      Value Hierarchy




Under
      SFAS No. 157, the Company groups assets and liabilities at fair value in three
      levels, based on the markets in which the assets and liabilities are traded
      and
      the reliability of the assumptions used to determine fair value. These levels
      are:





Level
                1 –
            Valuation
                is based upon quoted prices for identical instruments traded in active
                markets.Level
                2 –
            Valuation
                is based upon quoted prices for similar instruments in active markets,
                quoted prices for identical or similar instruments in markets that
                are not
                active, and model-based valuation techniques for which all significant
                assumptions are observable in the market.Level 3 –
            Valuation
                is generated from model-based techniques that use at least one significant
                assumption not observable in the market. These unobservable assumptions
                reflect estimates of assumptions that market participants would use
                in
                pricing the asset or liability. Valuation techniques include use
                of option
                pricing models, discounted cash flow models and similar
                techniques.





Following
      is a description of valuation methodologies used for assets and liabilities
      recorded at fair value.


10




**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**





**(4)**  **Fair
      Value, continued**




Securities
      Available for Sale




Securities
      available for sale are recorded at fair value on a recurring basis. Fair value
      measurement is based upon quoted prices, if available. If quoted prices are
      not
      available, fair values are measured using independent pricing models or other
      model-based valuation techniques such as the present value of future cash flows,
      adjusted for the security’s credit rating, prepayment assumptions and other
      factors such as credit loss assumptions. Level 1 securities include those traded
      on active exchanges such as U.S. Treasury securities that are traded by dealers
      or brokers in active over-the-counter markets. Level 2 securities include
      mortgage-backed securities issued by government sponsored enterprises, corporate
      debt securities and municipal bonds. Securities classified as Level 3 include
      asset-backed securities in less liquid markets.




Loans




The
      Company does not record loans at fair value on a recurring basis. However,
      from
      time to time, a loan is considered impaired and an allowance for loan losses
      is
      established. Loans for which it is probable that payment of interest and
      principal will not be made in accordance with the contractual terms of the
      loan
      agreement are considered impaired. Once a loan is identified as individually
      impaired, management measures impairment in accordance with SFAS No. 114, *Accounting
      by Creditors for Impairment of a Loan* ,
      (“SFAS
      No. 114”). The fair value of impaired loans is estimated using one of several
      methods, including collateral value, market value of similar debt, enterprise
      value, liquidation value and discounted cash flows. Those impaired loans not
      requiring an allowance represent loans for which the fair value of the expected
      repayments or collateral exceed the recorded investments in such loans. At
      June
      30, 2008, substantially all of the impaired loans were evaluated based on the
      fair value of the collateral. In accordance with SFAS No. 157, impaired loans
      where an allowance is established based on the fair value of collateral require
      classification in the fair value hierarchy. When the fair value of the
      collateral is based on an observable market price or a current appraised value,
      the Company records the impaired loan as nonrecurring Level 2. When an appraised
      value is not available or management determines the fair value of the collateral
      is further impaired below the appraised value and there is no observable market
      price, the Company records the impaired loan as nonrecurring Level
      3.




Foreclosed
      Assets




Foreclosed
      assets are adjusted to fair value upon transfer of the loans to foreclosed
      assets. Subsequently, foreclosed assets are carried at the lower of carrying
      value or fair value. Fair value is based upon independent market prices,
      appraised values of the collateral or management’s estimation of the value of
      the collateral. When the fair value of the collateral is based on an observable
      market price or a current appraised value, the Company records the foreclosed
      asset as nonrecurring Level 2. When an appraised value is not available or
      management determines the fair value of the collateral is further impaired
      below
      the appraised value and there is no observable market prices, the Company
      records the foreclosed asset as nonrecurring Level 3.




Goodwill
      and Other Intangible Assets




Goodwill
      and identified intangible assets are subject to impairment testing. A projected
      cash flow valuation method is used in the completion of impairment testing.
      This
      valuation method requires a significant degree of management judgment. In the
      event the projected undiscounted net operating cash flows are less than the
      carrying value, the asset is recorded at fair value as determined by the
      valuation model. As such, the Company classifies goodwill and other intangible
      assets subjected to nonrecurring fair value adjustments as Level 3.




Derivative
      Financial Instruments




The
      Company uses interest rate swaps to manage interest rate risk. The valuation
      of
      these instruments is determined using widely accepted valuation techniques
      including discounted cash flow analysis on the expected cash flows of each
      derivative. This analysis reflects the contractual terms of the derivatives,
      including the period to maturity, and uses observable market-based inputs,
      including interest rate curves and implied volatilities. The fair values of
      interest rate swaps are determined using the market standard methodology of
      netting the discounted future fixed cash receipts and the discounted expected
      variable cash payments. The variable cash payments are based on an expectation
      of future interest rates (forward curves derived from observable market interest
      rate curves).


11


**WGNB
      Corp.**




**Notes
      to Consolidated Financial Statements**






**(4)**  **Fair
      Value, continued**




To
      comply
      with the provisions of SFAS No. 157, the Company incorporates credit valuation
      adjustments to appropriately reflect both its own nonperformance risk and the
      respective counterparty’s nonperformance risk in the fair value measurements. In
      adjusting the fair value of its derivative contracts for the effect of
      nonperformance risk, the Company has considered the impact of netting any
      applicable credit enhancements such as collateral postings, thresholds, mutual
      puts and guarantees.




Although
      the Company has determined that the majority of the inputs used to value its
      derivatives fall within Level 2 of the fair value hierarchy, the credit
      valuation adjustments associated with its derivatives utilize Level 3 inputs,
      such as estimates of current credit spreads to evaluate the likelihood of
      default by itself or the counterparties. However, as of June 30, 2008, the
      Company has assessed the significance of the impact of the credit valuation
      adjustments on the overall valuation of its derivative positions and has
      determined that the credit valuation adjustments are not significant to the
      overall valuation of its derivatives. As a result, the Company has determined
      that its derivative valuations in their entirety are classified in Level 2
      of
      the fair value hierarchy.




Assets
      and Liabilities Recorded at Fair Value on a Recurring Basis




The
      table
      below presents the recorded amount of the Company’s assets and liabilities
      measured at fair value on a recurring basis as of June 30, 2008 aggregated
      by
      the level in the fair value hierarchy within which those measurements
      fall:


Description
                
                Level
                    1
                
                Level 2
                
                Level
                    3
                
                Balance
                    at
                  June
                    30, 2008AssetsSecurities
                    available for sale
                
                $
                -
                
                
                119,933,770
                
                
                -
                
                
                119,933,770Total
                
                $
                -
                
                
                119,933,770
                
                
                -
                
                
                119,933,770LiabilitiesDerivative
                    financial instruments-cash flow hedge
                
                $
                -
                
                
                77,212
                
                
                -
                
                
                77,212Total
                
                $
                -
                
                
                77,212
                
                
                -
                
                
                77,212







Assets
      Recorded at Fair Value on a Nonrecurring Basis






The
      Company may be required, from time to time, to measure certain assets at fair
      value on a nonrecurring basis in accordance with U.S. Generally Accepted
      Accounting Principles. These include assets that are measured at the lower
      of
      cost or market that were recognized at fair value below cost at the end of
      the
      period. The table below presents the Company’s assets measured at fair value on
      a nonrecurring basis as of June 30, 2008 by the level in the fair value
      hierarchy within which those measurements fall:


Description
              
              Level 1
              
              Level 2
              
              Level 3
              
              Balance at
                June 30, 2008AssetsLoans
              
              $
              -
              
              
              48,868,864
              
              
              -
              
              
              48,868,864Foreclosed
                  property
              
              
              -
              
              
              29,450,751
              
              
              -
              
              
              29,450,751Total
              
              $
              -
              
              
              78,319,615
              
              
              -
              
              
              78,319,615




12





**WGNB
      Corp.**




**Notes
      to Consolidated Financial Statements**




**(5)
      Non-performing Assets**





Non-performing
      assets consist of foreclosed property, non-accrual loans and loans 90 days
      past
      due still accruing. The table below summarizes nonperforming
      assets:


June 30, 2008
              
              December 31, 2007Foreclosed
                  property
              
              $
              29,450,741
              
              
              10,313,331Non-accrual
                  loans
              
              
              56,050,301
              
              
              46,351,870Loans
                  90 days past due still accruing
              
              
              2,779,403
              
              
              1,204,130Total
              
              $
              88,280,445
              
              
              57,869,331





Non-performing
                assets consist primarily of 20 residential real estate construction
                and
                development properties ranging in balance from $1 million to $8 million.
                All properties are being actively marketed for sale and management
                is
                continuously monitoring the properties for proper
                valuation.





**(6)
      Commitments**





Derivative
      Instruments and Hedging Activities





The
      Company entered into a series of interest rate swap agreements in the total
      notional amount of $41,156,509 on September 19, 2006 related to its issuance
      of
      brokered certificates of deposit. The interest rate swap contracts had various
      notional amounts and maturity dates, receive fixed rates and pay floating rates
      stated in terms of basis points plus or minus 1 Month LIBOR. The 1 month LIBOR
      rate at the initiation of the contracts was 5.33%, but the pay floating rate
      changed each month on the monthly reset date of each contract at a spread which
      remained constant. The 1 month LIBOR rate of the contracts was 2.74% and the
      total notional amount of the contracts was $31,100,476 as of April 4, 2008
      when
      the Company sold the swaps for a gain of $637,970 that it is amortizing over
      the
      original term of the swaps in accordance with SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .  The
      Company had designated the swap contracts as a fair value hedge and,
      accordingly, recorded the fair value of the derivative as well as the fair
      value
      of the item being hedged on its balance sheet. Changes in the fair value of
      the
      swap contracts and the item being hedged were recorded in current period
      earnings prior to the sale of the swaps.





**(7)
      Stockholders’ Equity**





On
      May
      22, 2008 the Company filed a Form S-3 with the Securities and Exchange
      Commission to register 500,000 shares of its common stock for its Direct Stock
      Purchase and Dividend Reinvestment Plan. The plan offers holders of the
      Company’s common stock and new investors the opportunity to reinvest their
      dividends into the Company’s common stock or purchase common stock with optional
      cash payments of $250 to $10,000 per month without the payment of brokerage
      commissions or service charges.





On
      June
      10, 2008 the Company’s shareholders voted to amend WGNB Corp.’s Amended and
      Restated Articles of Incorporation in order to increase the number of authorized
      shares of WGNB Corp.’s common stock from 10,000,000 shares having a $1.25 par
      value per share to 20,000,000 shares having no par value, and authorize the
      creation of 10,000,000 shares of preferred stock having no par value which
      could
      be designated by the Board in one or more series in the future.


13


**WGNB
      Corp.**




**Notes
      to Consolidated Financial Statements**







**(8)
      Recent Accounting Pronouncements**





**** Disclosures
      about Derivative Instruments and Hedging Activities





In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities.* SFAS
      No.
      161 is an amendment to SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      The
      objective of SFAS No. 161 is to expand the disclosure requirements of SFAS
      No.
      133 with the intent to improve the financial reporting of how and why an entity
      uses derivative instruments and how derivative instruments and related hedged
      items affect an entity’s financial position, financial performance and cash
      flows. The statement is effective for financial statements issued for fiscal
      years beginning after November 15, 2008. The Company does not anticipate the
      new
      accounting principle will have a material effect on its financial position
      or
      results of operations.


14


**Item
      2.**  **Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





The
      following analysis compares WGNB Corp.’s results of operations for the three-
      and six-month periods ended June 30, 2008 and 2007 and reviews the important
      factors affecting WGNB Corp.’s financial condition at June 30, 2008 compared to
      December 31, 2007. These comments should be read in conjunction with the
      Company’s consolidated financial statements and the accompanying notes appearing
      elsewhere 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 we 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 our organization, compensation and benefit plans;




·
            the
                effect on our competitive position within our 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
                possibility that we may become subject to a formal agreement with
                our
                primary regulators and may be restricted in our use of brokered deposits;




·
            the
                effect of changes in the business cycle and downturns in local, regional
                or national economies.




·
            the
                matters described under Part I, Item 1A, Risk Factors in the Company’s
                Annual Report on Form 10-K for the year ended December 31, 2007.





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, 2007
      (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 the Notes
      should be reviewed for a greater understanding of how the Company’s financial
      performance is recorded and reported.


15





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, 2007 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*





The
      net
      loss for the six months ended June 30, 2008 was $2.46 million, or $0.41 per
      diluted share, a decrease of $6.70 million when compared to net earnings for
      the
      six months ended June 30, 2007 of $4.23 million, or $0.84 per diluted share.
      The
      net loss for the three months ended June 30, 2008 was $4.29 million, or $0.71
      per diluted share, compared to net earnings of $2.25 million, or $0.45 per
      diluted share, for the three months ended June 30, 2007. The net loss, both
      year
      to date and quarter to date 2008, is primarily attributable to continued asset
      quality deterioration.





Revenue
      and expense attributable to First Haralson Corp.’s operations, which we acquired
      in July 2007, are included in our first and second quarter 2008 results, but
      not
      in the first or second quarter 2007 results. In general, as we analyzed the
      combination of the two companies, we expected that non-interest income and
      non-interest expense would increase by approximately 45 and 55 percent,
      respectively. In addition, we expected net interest income to similarly increase
      commensurate with the earning assets and interest-bearing liabilities acquired
      from First Haralson. The merger generally contributed to net interest income
      and
      net interest margin in a positive manner. However, the charge-off of accrued
      interest and interest carry related to non-performing assets has had an overall
      detrimental effect on our net interest income. The acquired loans of First
      Haralson have not contributed to our level of non-performing assets. Rather,
      the
      revenues and expenses of First Haralson have performed as expected.
      Consequently, the merger has not had a materially dilutive or accretive effect
      in the first twelve months of operations of the combined companies.





The
      three
      major developments in the operations and earnings of the Company are: (i) the
      increase in the loan loss provision; (ii) the charge-off of accrued interest
      on
      impaired loans; and (iii) expenses related to carrying foreclosed property
      and
      collecting on impaired loans. The Company recorded a loan loss provision in
      the
      amount of $8.10 million in the second quarter of 2008 compared to $375 thousand
      in the second quarter of 2007. The year to date loan loss provision was $8.85
      million for 2008, compared to $750 thousand for the year to date 2007. The
      Company has charged-off interest on impaired loans in the amount of $1.73
      million for the first six months of 2008 of which $1.42 million was charged-off
      in the second quarter of 2008, compared to no charge-offs in 2007. This
      charged-off interest is recorded as a reduction of interest income and is
      reflected in net interest income for the six month period ended June 30, 2008.





The
      detrimental impact of non-performing assets will likely reduce earnings through
      the remainder of 2008 and possibly into 2009 as the residential real estate
      downturn continues. The downturn may even be exacerbated as energy and food
      prices increase, job losses increase and the national economy further weakens.
      We have maintained an aggressive loan review and problem loan evaluation
      process. We recognized additional non-performing assets in the second quarter
      of
      2008 and are likely to experience further write-downs if our borrowers’
financial condition continues to weaken by the carrying costs of residential
      real estate developments without sufficient sales. There continues to be
      inherent risk in terms of the credit quality of our residential construction
      and
      development portfolio, but the three most critical issues facing us are: (i)
      the
      length of time our borrowers can remain in operation and service their debt
      given little or no sales volume; (ii) the extent real estate values further
      decline during any period of loan workout, through foreclosure and eventual
      sale; and (iii) the impact that associated charge-offs and expenses to carry
      the
      real estate will have on our earnings and capital.





Non-performing
      assets totaled $88.3 million, or 13.0 percent of total loans including
      foreclosed property as of June 30, 2008 compared to $6.6 million, or 1.3 percent
      of total loans including foreclosed property, as of June 30, 2007 and $57.9
      million, or 8.7 percent of total loans including foreclosed property, as of
      December 31, 2007. The $88.3 million in non-performing assets was comprised
      primarily of 20 loan relationships ranging in outstanding balances from $1
      million to $8 million. The residential real estate construction and development
      portfolio, not including impaired and non-accrual loans, was $89.5 million
      as of
      June 30, 2008. This performing residential real estate construction and
      development portfolio is comprised primarily of 26 loan relationships ranging
      in
      balance from $1 million to $8 million. The allowance for loan and lease loss,
      which is continually evaluated by management and the board, totaled $17.4
      million, or 2.7 percent of total loans. While we believe that we have properly
      valued our foreclosed property as evidenced by our ability to sell $11.7 million
      of foreclosed property for approximately its carrying value through the first
      six months of 2008, we must continually evaluate the carrying values of property
      and impaired loans in order to maintain fair values.


16







Net
      interest income in the first six months of 2008 decreased $207 thousand, or
      1.6
      percent, from the same period in 2007. The charge-off of uncollectible interest
      on impaired loans had a significant impact on net interest income for the first
      half of 2008. Had we not charged-off interest on impaired loans the increase
      in
      net interest income would have been $1.52 million, or 11.8 percent, comparing
      the six months ended June 30, 2008 to the same period in 2007. Net interest
      income includes the earning assets acquired in the First Haralson merger for
      the
      six months ended June 30, 2008, but does not include the earning assets of
      First
      Haralson for the six months ended June 30, 2007. Non-performing assets in 2008
      could have had a much greater impact on net interest income had we not completed
      the merger. The net interest margin for the first six months of 2008 was 3.36%,
      compared to 4.62% for the first six months of 2007.





Total
      non-interest income increased $1.41 million, or 40.0 percent, comparing the
      first six months of 2008 to 2007. Total non-interest income increased $710
      thousand, or 39.5 percent, comparing the three months ended June 30 2008 and
      2007. The increase in non-interest income for the six month period was primarily
      attributable to a $1.10 million, or 56.4 percent, increase in service charges
      on
      deposit accounts. In addition, ATM network fees increased by $324 thousand,
      or
      77.3 percent, from year to date June 30, 2007 to year to date June 30, 2008.
      The
      increase in service charges on deposit accounts as well as ATM network fees
      were
      primarily attributable to the addition of First Haralson’s revenues to the
      Company in the first six months of 2008.





Total
      non-interest expense increased $4.09 million, or 43.4 percent, comparing the
      six
      months ended June 30, 2008 with that of 2007. Likewise, total non-interest
      expense for the second quarter of 2008 increased by $2.20 million, or 46.7
      percent, compared to the second quarter of 2007 which reflects our operations
      prior to the First Haralson merger. We have separately stated expense on loans
      and foreclosed property in order to emphasize further the impact that
      non-performing loans and foreclosed property had on the earnings of the Company.
      Expense on loans and foreclosed property includes fees for updated appraisals
      on
      impaired loans and foreclosed properties, legal expenses incurred during loan
      workouts and eventual foreclosure, closing costs on the sale of loans, past
      due
      real estate taxes on foreclosed property, insurance on foreclosed property
      and
      maintenance and other holding costs on properties owned. For the six months
      ended June 30, 2008, expense on loans and foreclosed property was $848 thousand
      compared to $94 thousand in the same period ended June 30, 2007. Comparing
      the
      quarterly periods is similarly dramatic. Expense on loans and foreclosed
      property for the second quarter of 2008 was $555 thousand compared to $43
      thousand for the second quarter of 2007.





Salaries
      and employee benefits increased by $1.40 million, or 24.0 percent, comparing
      the
      six months ended June 30, 2008 to the six months ended June 30, 2007. We have
      ceased accruing executive and lender bonuses and profit sharing bonuses in
      2008
      due to the impact of non-performing assets on the earnings of the Company.
      The
      increase in salaries and employee benefits for the period is attributable to
      the
      addition of the First Haralson staff in the merger. Occupancy expense has also
      increased due to the merger. Occupancy expense for the six months ended June
      30,
      2008 increase by $741 thousand, or 56.6 percent, when compared to the same
      period in 2007. Other operating expense increased by $1.20 million, or 54.4
      percent, comparing the six months ended June 30, 2008 and 2007.





*Net
      Interest Income*





Net
      interest income for the six months ended June 30, 2008 decreased by $207
      thousand, or 1.6 percent, when compared to the same period in 2007. The
      year-to-date average yield on earning assets decreased by 196 basis points,
      from
      8.59 percent as of June 30, 2007 to 6.63 percent as of June 30, 2008. The
      year-to-date average cost of funds decreased 98 basis points during the same
      time period, from 4.21 percent as of June 30, 2007 to 3.23 percent as of June
      30, 2008. The comparative net interest margins were 3.36 percent and 4.62
      percent (a 126 basis point decrease) for the year-to-date periods ending June
      30, 2008 and 2007, respectively. Comparing the quarterly periods ended June
      30,
      2008 and 2007, net interest income decreased by $1.25 million, or 18.9 percent.





The
      Company has experienced a dramatic decrease in its net interest income and
      net
      interest margin over the past six months. As described in previous filings,
      the
      Company’s sensitivity to interest rate risk is low. That is, the impact of
      changing market rates, either up or down, does not materially impact our net
      interest margin. Despite the rapid decline of market interest rates over the
      past twelve months, net interest income and the net interest margin were not
      materially compressed by the declining rate environment. The reduction of net
      interest income and the net interest margin are almost entirely due to the
      increase in non-performing assets. The increase in non-performing assets impacts
      net interest income in two primary ways: (i) the charge-off of previously
      accrued interest on impaired loans is recorded as a reduction of interest income
      on loans; and ( ii) the increase in non-performing assets creates a drag on
      the
      net interest margin because the Company is utilizing interest-bearing deposits
      to fund non-performing assets carried on the balance sheet.




17


A
      bank
      generates earnings on its ability to maximize the spread between the amount
      of
      interest it earns on its liquid assets, investment securities and loans and
      minimize the interest it must pay on deposits, Federal Home Loan Bank advances
      and securities sold under repurchase agreements (its funding liabilities).
      To
      the extent that interest that had been accruing in previous periods on loans
      that have become impaired has to be “backed-out” (because the interest has
      become uncollectible in a current period), charged-off interest can have a
      dramatic effect on net interest income. Because of the current economic
      environment we are in, that amount can be large based of the volume of loans
      that have become impaired. Year to date in 2008, the Company has charged-off
      $1.73 million on approximately $88.0 million of impaired loans. The average
      amount of interest that was charged-off on loans amounted to slightly greater
      than ninety days. Had that interest income remained collectible, our net
      interest income would have been $1.73 million higher. Similarly, instead of
      experiencing a decrease in net interest income, the Company would have
      experienced an increase of net interest income in the amount of $1.52 million
      which is closer to normalized earnings of the Company without non-performing
      loans.





To
      illustrate the impact that charged-off interest has had on our net interest
      margin, it is necessary to understand what the yield on loans and earning assets
      would have been once the charged-off interest is added back to interest income.
      The yield on loans for the six months ended June 30, 2008 was 6.41 percent.
      If
      charged-off interest is added back, the yield on loans is a more normalized
      6.94
      percent, a 53 **** basis
      point increase. Likewise, the yield on earning assets would have been
      7.06 **** percent **** compared
      to the actual yield of 6.63 percent. Isolating the impact of charged-off
      interest, the net interest margin would have been 3.79 percent instead of 3.36
      percent as reported.





A
      second
      manner in which non-performing assets impact net interest income and the net
      interest margin relates to holding or funding non-performing assets with
      interest-bearing deposits and advances. To illustrate the impact of carrying
      a
      non-performing asset on the net interest margin calculation, assume a bank
      has a
      loan that was formerly accruing interest at 6.00 percent and its cost of funds
      is 3.00 percent. That bank has a positive 3.0 percent spread when the loan
      is
      accruing and collecting interest (performing). However, once the loan migrates
      to impaired or non-performing status, the bank has a negative 3.00 percent
      spread (based on 0 percent interest accrual and a 3.00 percent cost of funds).
      With respect to the Company, we have a year to date average balance of impaired
      non-accrual loans in the amount of $38.6 million which are included in the
      net
      interest margin calculation to determine the yield on our residential
      construction, acquisition and development (construction A&D) loan portfolio.
      Our actual year to date yield on the construction A&D portfolio is 4.20
      percent including charged-off interest. To understand the impact of those
      non-performing loans on that yield, one would reduce the average balance of
      the
      construction A&D portfolio by the non-performing loans, added back the
      charged-off interest and recalculated the yield. The yield on that portfolio
      would have been 7.09 percent without the non-performing loans included in the
      calculation and after adding back the charged-off interest.





Net
      interest income for the quarterly period ended June 30, 2008 decreased by $1.25
      million, or 18.9 percent, when compared to the second quarter of 2007. Again,
      the decrease is primarily attributable to the second quarter charge-off of
      accrued interest in the amount of $1.43 million, or 82.7 percent of the total
      interest charged-off in 2008. The Company is likely to continue to charge-off
      interest if construction A&D borrowers continue to default although at a
      lesser rate than that experienced for the second quarter of 2008. The normal
      course of impairment and ultimate work out or foreclosure on a loan can take
      from 90 to 120 days. Normal terms for a construction A&D loan requires
      quarterly interest payments. We typically attempt to collect on 90 to 120 days
      of interest when the payment is due or becomes 30 days delinquent. In some
      cases, a loan with a balance of $4.0 million at 6.00 percent interest can have
      accrued interest of approximately $60,000 at its due date. If that loan goes
      30
      days delinquent before we impair and non-accrue the loan, we may charge-off
      $80,000 of interest on the loan if it becomes uncollectible.





The
      average cost of funds for the six month period ended June 30, 2008 decreased
      98
      basis points from the same period in 2007. The weighted average cost of demand
      deposit accounts decreased by 128 basis points, from 2.71 percent in the first
      six months of 2007 to 1.43 percent for the same period in 2008. Likewise, the
      weighted average cost of time deposits decreased basis points from 5.15 percent
      for the six months ended June 30, 2007 to 4.68 percent in the same period of
      2008, an overall decrease of 47 basis points. The weighted average cost of
      time
      deposits will continue to decrease as market rates remain low because, as time
      deposits mature, they will reprice downward to reflect the current rate
      environment. The weighted average cost of junior subordinated debt, Federal
      Home
      Loan Bank advances and securities sold under repurchase decreased by 183 basis
      points, from 5.47 percent through June 30, 2007 to 3.64 percent through June
      30,
      2008.





Our
      mix
      of funding liabilities has not significantly changed since June 2007 despite
      the
      merger with First Haralson and management’s desire to maintain more liquidity on
      its balance sheet during the current credit downturn. The average balance of
      demand deposits as a percentage of total funding liabilities declined from
      39.9
      percent for the six month period ended June 30, 2007 to 39.0 percent for the
      same period in 2008. The average balance of time deposits (particularly time
      deposits greater than $100 thousand) as a percentage of total funding
      liabilities remained relatively unchanged from 50.1 percent through June 30,
      2007 to 50.2 percent through the same period in 2008. Management continually
      seeks to maximize demand deposits as a percentage of funding liabilities.


18


As
      the
      mix of deposits changes to a higher percentage of time deposits rather than
      more
      rate sensitive transaction accounts, the deposits’ ability to reprice extends.
      As this occurs, the Bank’s interest rate risk position will become more asset
      sensitive thereby benefiting its net interest margin in a rising rate
      environment. Over the past twelve months, the cost of long-term funding has
      increased as short-term funding has decreased (a steepening of the yield curve).





*Non-Interest
      Income*





Total
      non-interest income for the first six months of 2008 increased $1.41 million,
      or
      40.0 percent, when compared to the first six months of 2007. Service charges
      on
      deposit accounts increased $1.11 million, or 56.4 percent, during the first
      six
      months of 2008 compared to the first six months of 2007. This increase is
      primarily attributable to the addition of First Haralson’s customer base. Prior
      to the merger, First Haralson was averaging approximately $180 thousand per
      month in service charges on deposit accounts which would result in an increase
      of approximately $1.08 million for the first six months of 2008. Service charges
      on deposit accounts for the second quarter ended June 30, 2008 increased by
      $524
      thousand, or 51.8 percent, when compared to the second quarter ended June 30
      2007. Again, the increase in the quarterly amount of service charges on deposit
      accounts are attributable to the added revenue from the merger.





Mortgage
      loan origination fees for the first six months of 2008 decreased by $28
      thousand, or 14.1 percent, from the same period in 2007. This decrease is
      attributable to the slowdown in residential real estate sales that is discussed
      throughout this Report. In addition, we are experiencing more stringent
      underwriting standards from secondary market lenders. Brokerage fees have
      decreased by $66 thousand comparing the six months ended June 30, 2008 to the
      same period in 2007. This again is reflective of the changing economic times.
      Because the equity markets are highly volatile, investors tend to shy away
      from
      participating in the stock market which, in turn, translates into lower
      brokerage fees. Management continues to believe that this department will grow
      over the long term and remain a viable long-term business strategy for the
      Company. ATM network fees, like service charges on deposit accounts, have
      increased because of the merger. ATM network fees increased by $324 thousand,
      or
      77.3 percent, for the six months ended June 30, 2008 compared to the same period
      in 2007. The majority of the increase was attributable to the revenue
      contribution of First Haralson’s operations. Before the merger, First Haralson’s
      average ATM network fees were approximately $53 thousand per month which would
      account for approximately $318 thousand of the increase in ATM network fees.
      The
      increase in ATM network fees comparing the second quarters 2008 and 2007 was
      $145 thousand, or 68.2 percent. This reflects a slightly downward trend in
      the
      increase in ATM network fees for the quarter.





The
      Company recognized a gain on the sale of investment securities in the first
      quarter of 2008 in the amount of $44 thousand and $59 thousand in the second
      quarter of 2008. Management sold several shorter term bonds and recognized
      a
      small gain. The proceeds of the sale were re-invested in longer term bonds
      to
      take advantage of the steepening yield curve that has developed over the past
      six months. Gain on sale of foreclosed property includes both gains on sales
      of
      foreclosed property in the amount of $152 thousand and write-downs of foreclosed
      property in the amount of $31 thousand, **** for
      a net
      gain of $121 thousand. Management is continually evaluating the market value
      of
      our properties, making adjustments as part of our fair value process as we
      gain
      market intelligence. The Company has sold $11.7 million of foreclosed property
      for 96 percent of its original loan amount overall. Not included in this line
      item is a sale of a previously charged-down impaired participation loan in
      the
      original amount of $2.0 million back to the originating bank for $1.6 million.
      Because of a $400 thousand previous charge-down in the impairment evaluation
      of
      the loan, we recorded no gain or loss on that loan sale. While we are not
      satisfied with the amount of impaired non-accrual loans and foreclosed property,
      we do find some comfort in our fair value process that sales prices of the
      impaired loans and properties has been close to our valuation.





Miscellaneous
      income decreased by $153 thousand, or 23.6 percent, when comparing the first
      six
      months of 2008 with that of 2007. The Company recorded a positive market value
      adjustment on its interest rate swap in June of 2007 in the amount of $136
      thousand but, because of the settlement of the swap in April 2008, no longer
      records market value adjustments. Additionally, in the first quarter of 2007,
      the Company recorded income in the amount of $107 thousand from a business
      development partnership in which it is a member which was non-recurring in
      nature in 2008. Miscellaneous income for the second quarter ended June 30,
      2008
      decreased $61 thousand, or 18.2 percent, when compared to the second quarter
      ended June 30, 2007. Again, the Company recorded the increase in the value
      of
      its interest rate swap in the second quarter of 2007 and no such increase took
      place in 2008.


19


*Non-Interest
      Expense*





Non-interest
      expense increased $4.09 million, or 43.4 percent, in the first six months of
      2008 when compared to the same period in 2007. This increase includes a $1.40
      million, or 24.0 percent, increase in salaries and benefits. Salaries and
      benefits were expected to increase to a larger extent as a result of the merger.
      However, because of the elevated loan loss provision, charged-off interest
      and
      charged-down foreclosed property the Company is currently experiencing, our
      executive and lender bonus, profit sharing and 401k accruals were $813 thousand
      less for the first six months of 2008 than they were in the same period of
      2007. As
      of
      June 30, 2008, we had 270 full time equivalent employees compared to 188 full
      time equivalent employees at June 30, 2007. We have added 81 full time
      equivalent employees (for an increase of 43.1 percent) as a result of the First
      Haralson merger. The additional employee count in the first half of 2008 as
      a
      result of the merger accounted for all of the increase in salaries and benefits
      from the first half of 2007. The same is true when comparing the second
      quarterly periods ending June 30, 2008 and 2007. In addition to the First
      Haralson acquisition, we added two staff members as a result of the commercial
      loan production office we opened in July 2007 and we added five staff members
      to
      operate our second Banco De Progreso location in Coweta County in December
      2007.





Occupancy
      expenses for year-to-date 2008 increased $741 thousand, or 56.6 percent, from
      the same period in 2007. The increase in occupancy expense was primarily
      attributable to the merger. We added five branches and First Haralson’s main
      office to our locations. The increase in depreciation attributable to the added
      fixed assets accounted for $268 thousand of the increase. Maintenance of our
      branch system and banking equipment increased by $203 thousand from the first
      six months of 2007 to 2008. Our telephone system has been upgraded to
      accommodate the entire branch system. Telephone expense has increased by $125
      thousand from the first half of 2007 to the first half of 2008. However, we
      expect that telephone expense will be reduced significantly for the remainder
      of
      2008 as we migrate to one telephone system. The remainder of the increase is
      attributable to utilities, insurance and property taxes.





Expense
      on loans and foreclosed property has increased dramatically since the Company
      began experiencing collection problems on its construction A&D loan
      portfolio. Included in expense on loans are appraisal and legal fees related
      to
      the collection and impairment valuation process, past due real estate taxes
      on
      foreclosed property, maintenance and other holding costs of owning property,
      insurance on foreclosed property and other collection costs. The expense on
      loans and foreclosed property was greater in the second quarter of 2008 since
      more foreclosure and sales activity took place in this period. As the Company
      continues to hold property, these types of expenses are likely to continue.
      Consequently, we remain focused on decreasing the holding time of our foreclosed
      properties and the collection costs of impaired loans. One challenge we face
      in
      this endeavor, however, is that the market for quick sale of these assets is
      currently poor or non-existent. Until the market firms, we may consider holding
      some select foreclosed properties and implementing other alternatives in order
      to maximize our return on the properties or impaired loans.





For
      the
      first six months of 2008, other operating expenses increased $1.20 million,
      or
      54.4 percent, from the same period in 2007. Comparing the three months ended
      June 30, 2008 and 2007, the increase was $665 thousand, or 60.5 percent. We
      now
      are amortizing a core deposit premium of $286 thousand in the first half of
      2008
      which did not occur in the first half of 2007. ATM network expense also
      increased by $162 thousand from 2007 to 2008. Supplies and postage and software
      and processing costs related to maintaining a larger customer base have
      increased by $248 thousand, or 42.9 percent. The remaining $503 thousand
      increase is attributable to: (i) professional fees related to audit and
      accounting; (ii) deposit insurance and regulatory fees resulting from our larger
      deposit base; (iii) directors fees resulting from our expanded board; and (iv)
      approximately twenty other line items that are included in other operating
      expenses.





*Income
      Taxes*





Income
      tax benefit for the first six months of 2008 was $2.3 million compared to
      expense of $2.0 million for the same period in 2007. The effective tax rate
      for
      the period ended June 30, 2008 was 48.1 percent compared to 32.1 percent for
      the
      same period in 2007. The increased effective rate is due to the elevated loan
      loss provision and other charge-offs and expenses related to the increase in
      non-performing assets and an increased amount of municipal securities and other
      tax advantaged investments in the Bank’s earning asset mix as a ratio to its
      taxable earning asset mix.





*Provision
      and Allowance for Loan Losses*





Management
      continually evaluates the adequacy of the allowance for loan losses, which
      is
      determined based on management’s judgment concerning the amount of risk inherent
      in the Company’s loan portfolio as of the evaluation date. In making its
      informed judgment, management considers such factors as the change in levels
      of
      non-performing and past due loans, 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 June 30,
      2008
      was $17.4 million, or 2.67 percent of total loans, compared to $12.4 million,
      or
      1.88 percent of total loans, at December 31, 2007. Management believes that
      the
      allowance for loan losses is adequate to absorb possible losses in the loan
      portfolio.


20


Through
      our problem loan identification program, we strive to identify those loans
      that
      exhibit weakness and classify them on a classified and criticized loan list.
      Management has elected to meet with lenders and credit staff more often and
      in
      greater detail than it may have in a more stable credit quality period. Special
      attention is given to construction A&D loans in order to accurately evaluate
      the exposure to loan loss of this portfolio. This migration analysis assigns
      historical loss amounts to pools of loans according to classifications of risk
      ratings in order to calculate a general allowance to the overall portfolio.
      In
      cases where significant weaknesses exist in a specific loan, a specific reserve
      is assigned to such loan.





Changes
      in the allowance for loan losses for the six month period ended June 30, 2008
      compared to June 30, 2007 are as follows:





**Allowance
      for Loan Loss**




**For the Six Months Ended****June 30, 2008**
            
            **June 30, 2007**Balance at beginning of period
            
            $
            12,422,428
            
            
            5,748,355Charge-offs:Commercial,
                financial and agricultural
            
            
            60,883
            
            
            13,385Real
                estate – construction
            
            
            3,706,671
            
            
            12,540Real
                estate – mortgage
            
            
            267,299
            
            
            104,090Consumer
                loans
            
            
            161,260
            
            
            43,834Total
                charge-offs
            
            
            4,196,113
            
            
            173,849Recoveries:Commercial,
                financial and agricultural
            
            
            11,698
            
            
            6,166Real
                estate – construction
            
            
            199,641
            
            
            429Real
                estate – mortgage
            
            
            1,904
            
            
            7,785Consumer
                loans
            
            
            77,763
            
            
            34,566Total
                recoveries
            
            
            291,006
            
            
            48,946Net
                charge-offs
            
            
            (3,905,107
            )
            
            (124,903
            )Provision
                for loan losses
            
            
            8,850,000
            
            
            750,000Balance
                at end of period
            
            $
            17,367,321
            
            
            6,373,452Ratio
                of net charge-offs during the period toaverage
                loans outstanding
            
            
            .59
            %
            
            .03
            %Ratio
                of allowance to total loans
            
            
            2.67
            %
            
            1.24
            %





*Non-Performing
      Assets and Past Due Loans*





Non-performing
      assets, comprised of real estate owned through foreclosure, non-accrual loans
      and loans for which payments are more than 90 days past due, totaled $88.3
      million at June 30, 2008, or 13.0 percent of total loans and foreclosed
      property, as compared to $57.9 million, or 8.7 percent of total loans and
      foreclosed property, at December 31, 2007. In recognition of the potential
      impact of the residential real estate downturn, management began to raise the
      credit standards for those construction A&D borrowers. The suddenness and
      the severity with which the downturn came in the last quarter of 2007 and the
      first half of 2008 was, however, more than anticipated. We did not participate
      in sub-prime lending. However, the impact that sub-prime mortgage lending had
      on
      the absorption rate of home sales in the market area was also unanticipated.
      When sub-prime lenders began to experience credit quality problems related
      to
      increased rates in the adjustable sub-prime market, that type of lending ceased.
      Further, as homes that were built and lots were developed to meet the sub-prime
      and conforming mortgage demand came to market, not only had the sub-prime demand
      decreased sharply, but homes which were subject to sub-prime lending began
      emerging back on the market in foreclosure. This resulted in a (by some
      estimates) 28 to 36 month supply of homes for sale in the market and a five
      to
      six year supply of developed lots in some areas. The declining demand for
      housing is now being further exasperated by a downturn in the national economy,
      rising energy prices and a volatile stock market.





The
      excess of supply of residential property and floundering national and local
      economy has had a negative impact on our residential construction A&D
      borrowers. They are experiencing much longer than expected sales time and,
      therefore, the holding period and expense of the homes or residential lots
      was
      much higher than expected. As time passes, the borrowers have been paying the
      interest and ownership carry on the properties, which has diminished their
      financial capacity to continue to hold the property. Thus, we have been
      experiencing an increased number of past due loans which has led to impairment
      of the loan and possible foreclosure for some borrowers. In addition, some
      borrowers may file for protection under bankruptcy laws which can further
      lengthen the collection period of the loan. Approximately 80% of the total
      amount of non-performing assets as of June 30, 2008 was made up of twenty loan
      relationships with balances of $1 million to $8 million per
      relationship.


21


Federal
      regulations require us to review and assess the quality of our assets on a
      regular basis.  In addition, our regulators have the authority to
      identify problem assets and, if appropriate, require them to be categorized
      as
      classified assets. There are three classifications for problem assets:
      substandard, doubtful and loss. “Substandard assets” must have one or more
      defined weaknesses and are characterized by the distinct possibility that we
      will sustain some loss if the deficiencies are not corrected. “Doubtful assets”
have the weaknesses of substandard assets with the additional characteristic
      that the weaknesses make collection or liquidation in full on the basis of
      currently existing facts, conditions and values questionable, and there is
      a
      high possibility of loss.  An asset classified “loss” is considered
      uncollectible and of such little value that continuance as an asset of the
      institution is not warranted. The regulations also provide for a “special
      mention” category, described as assets which do not currently expose us to a
      sufficient degree of risk to warrant classification but do possess credit
      deficiencies or potential weaknesses deserving our close attention. When we
      classify an asset as substandard or doubtful we establish an allowance for
      potential loan losses. If we classify an asset as loss, we charge off an amount
      equal to 100% of the portion of the asset classified loss.





At
      June
      30, 2008, approximately $135.7 million of the Bank's loans, which
      includes $88.5 million in impaired loans, foreclosed
      property and loans 90 days past due and accruing, were classified "substandard"compared to $19.3 million at June 30, 2007, and $35.1 million of assets
      were classified as “special mention” at June 30, 2008 compared to $11.2 million
      at June 30, 2007. We also had $2.6 million of assets classified as “doubtful” as
      of June 30, 2008 while only an immaterial amount for the previous year. None
      of
      our assets were classified as “loss” for either year.





Management
      has performed impairment analyses on each troubled loan relationship and
      continues to focus on the credit quality of its residential construction A&D
      loan portfolio. The impairment analysis entails evaluating the net realizable
      value of the properties which were held as collateral for the loans. The
      properties are re-appraised and those new appraisals are evaluated by
      management. Generally, there is greater uncertainty in real estate values in
      times of a market downturn. As expected, the updated values came in at less
      than
      the original appraisal and, therefore, led management to suspend the accrual
      of
      interest and in certain instances charge-down the balance of the impaired loans.
      As part of its evaluation of the collectibility of the impaired asset,
      management must continue to make value judgments on the properties or loans
      through updated appraisals and its knowledge of the market. There can be no
      assurance that residential real estate values will not continue to decline
      or
      that more loans will become impaired, thereby causing more potential suspension
      of accrued interest or further charge-down of loans.





Management’s
      most critical priority is disposing and maximizing the net realizable value
      of
      the non-performing assets. Management will be considering multiple avenues
      to
      reduce non-performing assets. The holding period of non-performing assets must
      be minimized as these assets bear a cost to carry for us in both interest carry
      and maintenance and real estate taxes. We believe that the ultimate outcome
      of
      this cycle of economic downturn is the largest uncertainty management faces
      over
      the next twelve months. We also believe, however, that we are in a market that
      has high historical and projected population and income growth potential.





**Financial
      Condition**





*Overview*





Total
      assets were $910.0 million at June 30, 2008, an increase of $25.9 million,
      or
      2.9 percent, from December 31, 2007. Most of the growth in assets was
      attributable to growth in the Bank’s liquidity position. Cash and cash
      equivalents at June 30, 2008 grew by $18.0 million, or 69.5 percent, from
      December 31, 2007. During the same period, total deposits grew by $35.4 million,
      or 5.0 percent. As of June 30, 2008, the Bank had $19.4 million in federal
      funds
      sold. Management is seeking to maintain more liquidity on the balance sheet
      in
      response to the credit downturn. Our priority is to maintain a safe and sound
      liquidity position to meet the credit and deposit needs of our customers. We
      do
      not intend to significantly grow the Bank’s balance sheet in order to maintain a
      safe and sound capital position.





*Assets
      and Funding*





At
      June
      30, 2008, earning assets totaled $753.3 million, or 82.8 percent of total
      assets, compared to $739.3 million, or 83.6 percent of total assets, as of
      December 31, 2007. As discussed above, liquidity growth made up the majority
      of
      earning asset growth for the six month period in 2008.


22


Major
      classifications of loans at June 30, 2008 and December 31, 2007 are summarized
      as follows:





**Loans**
            
            **June 30, 2008**
            
            **December 31, 2007**Commercial,
                financial and agricultural
            
            $
            64,064,832
            
            
            63,038,467Real
                Estate – mortgage
            
            
            330,375,932
            
            
            313,836,443Real
                Estate – construction
            
            
            219,112,161
            
            
            242,216,730Consumer
            
            
            39,591,556
            
            
            40,872,282**Total**
            
            **$**
            **653,144,481**
            
            
            **659,963,922**Unearned
                interest
            
            
            (1,615,864
            )
            
            (1,802,831
            )Allowance
                for loan losses
            
            
            (17,367,321
            )
            
            (12,422,428
            )**Net
                Loans**
            
            **$**
            **634,164,296**
            
            
            **645,738,663**





At
      June
      30, 2008, interest-bearing liabilities increased $24.4 million, or 3.4 percent,
      compared to December 31, 2007. Interest-bearing demand deposits have increased
      by $4.5 million, or 2.0 percent, and time deposits have increased by $21.5
      million, or 5.4 percent, since the beginning of 2008. Non-interest-bearing
      deposits increased $8.4 million, or 12.5 percent, in the first six months of
      2008. Most of the time deposit growth has been in the over $100 thousand
      category. Time deposits under $100 thousand have grown by $1.6 million, or
      1.0
      percent, while time deposits over $100 thousand have grown $19.9 million, or
      8.7
      percent, since December 31, 2007. While the Bank used brokered deposits
      historically on a very limited basis prior to the end of 2004, robust loan
      demand has outpaced deposit growth in the Bank’s market area. The Bank uses
      brokered deposits more frequently than in the past since they can be acquired
      at
      a reduced cost and in larger volumes as opposed to more pricy deposits
      obtainable from the local market which are typically subject to increased
      bidding by the denovo banks. The growth in brokered deposits from December
      31,
      2007 to June 30, 2008 was $26.6 million, or 29.2 percent, and these brokered
      deposits now constitute 16 percent of total deposits compared to 13 percent
      as
      of December 31, 2007. A material portion of brokered deposits do not mature
      until January 2009.





*Liquidity
      and Capital Resources*





Net
      cash
      provided by operating activities totaled $2.1 million for the six months ended
      June 30, 2008. Net cash used by investing activities for the period totaled
      $15.0 million and consisted primarily of $18.0 million of cash flow to loans
      outstanding. The Company transferred $30.3 million of loans to foreclosed
      property and financed $9.5 million of the $11.7 million of foreclosed property
      it sold in the six months ended June 30, 2008. Net cash provided by financing
      activities was $30.9 million which was the result of an increase in total
      deposits of $35.4 million and a decrease in Federal Home Loan Bank advances
      of
      $2.5 million. Liquidity is managed on a daily basis based on cash flows
      anticipated through loan funding and deposit flow. The Bank also manages forward
      liquidity needs based on loan pipeline data, anticipated deposit maturities
      and
      cash flows in its contingency funding process.





Total
      stockholders’ equity at June 30, 2008 was 8.2 percent of total assets compared
      to 9.1 percent at December 31, 2007. The decrease in the percentage of
      stockholders’ equity is primarily attributable to the Company’s increase in
      total assets of $25.9 million since December 31, 2007, its year to date loss
      of
      $2.5 million and a second quarter dividend in the amount of $636 thousand which
      represented a 50 percent reduction from the first quarter of 2008.





At
      June
      30, 2008, 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.


23





**June 30, 2008****Actual**
            
            
            
            **Required**
            
            
            
            **Excess****Amount**
            
            **%**
            
            **Amount**
            
            **%**
            
            **Amount**
            
            **%**Total
                capital (to risk-weighted assets)
            
            $
            65,158
            
            
            9.53
            %
            $
            54,709
            
            
            8.00
            %
            $
            10,449
            
            
            1.53
            %Tier
                1 capital (to risk-weighted assets)
            
            $
            56,609
            
            
            8.28
            %
            $
            27,354
            
            
            4.00
            %
            $
            29,255
            
            
            4.28
            %Tier
                1 capital (to average assets)
            
            $
            56,609
            
            
            6.40
            %
            $
            35,405
            
            
            4.00
            %
            $
            21,204
            
            
            2.40
            %





*Off
      Balance Sheet Risks*





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. The commitments
      are subject to compliance with loan terms and conditions. At June 30, 2008,
      the
      Bank had issued commitments to extend credit of $43.4 million through various
      types of commercial lending arrangements, $10.8 million available on home equity
      lines, $31.6 million on other credit lines and additional commitments through
      standby letters of credit of $8.6 million. The Company evaluates each customer’s
      credit worthiness 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 and commercial and
      residential real estate. The Company manages the credit risk on these
      commitments by subjecting them to normal underwriting and risk management
      processes.





**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, 2007, 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, 2007 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. Management relies
      primarily on its asset-liability policies 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, 2007.





**Item
      4T. 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 June 30, 2008 that have materially
      affected, or are reasonably likely to materially effect, the Company’s internal
      control over financial reporting.


24





**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.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





(a)  Not
      applicable.





(b)  Not
      applicable .





(c)  Not
      applicable.





During
      the second quarter of 2008, the Company declared quarterly cash dividends
      amounting to $0.105 per share which were paid on July 1, 2008. The Board of
      Directors announced the suspension of the common stock dividend on July 11,
      2008.





**Item
      3.**  **Defaults
      Upon Senior Securities**





Not
      applicable.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





The
      Company held its 2008 Annual Meeting of Shareholders on June 10, 2008. The
      shareholders were asked to consider and approve: (1) a proposal to elect five
      Class II directors to serve on the Company’s Board of Directors until the 2011
      Annual Meeting of Shareholders and (2) a
      proposal to amend WGNB Corp.’s Amended and Restated Articles of Incorporation in
      order to increase the number of authorized shares of WGNB Corp.’s common stock
      from 10,000,000 shares having a $1.25 par value per share to 20,000,000 shares
      having no par value, and authorize the creation of 10,000,000 shares of
      preferred stock having no par value which could be designated by the Board
      in
      one or more series in the future.





As
      to
      proposal 1, the shareholders were asked to elect W. Thomas Green, Jr., Randall
      F. Eaves, Loy M. Howard, R. David Perry and J. Thomas Vance to serve as Class
      II
      directors on the Company’s Board of Directors, each for a three-year term. The
      following votes were cast for and against the election of these Class II
      directors: Mr. Green: 5,222,861 for / 41,957 withheld; Mr. Eaves: 5,224,211
      for
      / 40,607 withheld; Mr. Howard: 5,224,211 for / 40,607 withheld; Mr. Perry
      5,210,916 for / 53,902 withheld and Mr. Vance: 5,221,710 for / 43,108 withheld.
      There were 792,776 broker non-votes. The following persons also continue to
      serve as directors: Wanda W. Calhoun, L. Richard Plunkett, Donald C. Rhodes
      and
      Thomas T. Richards (all Class I directors); and Grady W. Cole, H.B. “Rocky”
Lipham, III, and Mary M. Covington (all Class III directors).





As
      to
      proposal 2, the amendment to WGNB Corp.’s Amended and Restated Articles of
      Incorporation was approved with 4,424,639 votes in favor (representing 73.
      4% of
      the total outstanding shares authorized to vote as of the record date of April
      30, 2008), 157,338 against, 46,234 withheld and 636,607 broker nonvotes.





**Item
      5.**  **Other
      Information**





Not
      applicable.




25




**Item
      6.**  **Exhibits**




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
              
              Articles
                  of Amendment to Amended and Restated Articles of Incorporation
                  (Incorporated by reference to Exhibit 3.1 to Current Report on
                  Form 8-K
                  filed June 19, 2008)3.3
              
              Second
                  Articles of Amendment to Amended and Restated Articles of Incorporation
                  (Regarding Designations, Preferences and Rights of Series A Convertible
                  Preferred Stock) (Incorporated by reference to Exhibit 3.1 to Current
                  Report on Form 8-K filed June 26, 2008)3.4
              
              Amended
                  and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
                  the Form
                  10-SB)4.1
              
              See
                  exhibits 3.1 through 3.4 for provisions of Company’s Articles of
                  Incorporation and Bylaws Defining the Rights of
                  Shareholders4.2
              
              Specimen
                  certificate representing shares of Common Stock (Incorporated by
                  reference
                  to Exhibit 4.2 to the Form 10-SB)4.3
              
              Amended
                  and Restated Trust Agreement dated July 2, 2007 (Incorporated by
                  reference
                  to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 6,
                  2007 (the “July 2007 Form 8-K”)4.4
              
              Indenture,
                  dated July 2, 2007, by and between WGNB Corp. and Wilmington Trust
                  Company
                  (Incorporated by reference to Exhibit 4.2 to the July 2007 Form
                  8-K)4.5
              
              Guarantee
                  Agreement, dated July 2, 2007, by and between WGNB Corp. and Wilmington
                  Trust Company (Incorporated by reference to Exhibit 4.3 to the
                  July 2007
                  Form 8-K)4.6
              
              WGNB
                  Corp. Direct Stock Purchase and Dividend Reinvestment Plan (Incorporated
                  by reference to Form S-3 filed May 20, 2008)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


26


**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:
      July 21, 2008





**WGNB
                CORP.**By:
            /s/
                H. B. Lipham IIIH.
                B. Lipham, IIIChief
                Executive OfficerPrincipal
                Executive OfficerBy:
            /s/
                Steven J. HaackSteven
                J. HaackSecretary
                and TreasurerPrincipal
                Financial Officer




27


**EXHIBIT
      INDEX**




**Exhibit No.**
            
            **Description**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
            
            Articles
                of Amendment to Amended and Restated Articles of Incorporation
                (Incorporated by reference to Exhibit 3.1 to Current Report on Form
                8-K
                filed June 19, 2008)3.3
            
            Second
                Articles of Amendment to Amended and Restated Articles of Incorporation
                (Regarding Designations, Preferences and Rights of Series A Convertible
                Preferred Stock) (Incorporated by reference to Exhibit 3.1 to Current
                Report on Form 8-K filed June 26, 2008)3.4
            
            Amended
                and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
                the Form
                10-SB)4.1
            
            See
                exhibits 3.1 through 3.4 for provisions of Company’s Articles of
                Incorporation and Bylaws Defining the Rights of
                Shareholders4.2
            
            Specimen
                certificate representing shares of Common Stock (Incorporated by
                reference
                to Exhibit 4.2 to the Form 10-SB)4.3
            
            Amended
                and Restated Trust Agreement dated July 2, 2007 (Incorporated by
                reference
                to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 6,
                2007 (the “July 2007 Form 8-K”)4.4
            
            Indenture,
                dated July 2, 2007, by and between WGNB Corp. and Wilmington Trust
                Company
                (Incorporated by reference to Exhibit 4.2 to the July 2007 Form
                8-K)4.5
            
            Guarantee
                Agreement, dated July 2, 2007, by and between WGNB Corp. and Wilmington
                Trust Company (Incorporated by reference to Exhibit 4.3 to the July
                2007
                Form 8-K)4.6
            
            WGNB
                Corp. Direct Stock Purchase and Dividend Reinvestment Plan (Incorporated
                by reference to Form S-3 filed May 20, 2008)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




28