**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 September 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 November 11, 2008Common
                Stock, no par value
            
            6,057,594





**WGNB
      CORP.**





**INDEX
      TO FORM 10-Q**





**Item
                Number**
              **in
                Form 10-Q**
            
            **Description**
            
            **Page****Part
                One**
            
            **Financial
                Information**Item
                1.
            
            Financial
                Statements
            
            1Consolidated
                Balance Sheets at September 30, 2008 and December 31, 2007
            
            2Consolidated
                Statements of Operations for the Three Months Ended September 30,
                2008 and
                September 30, 2007
            
            3Consolidated
                Statements of Comprehensive Income for the Three Months Ended September
                30, 2008 and September 30, 2007
            
            4Consolidated
                Statements of Operations for the Nine Months EndedSeptember
                30, 2008 and September 30, 2007
            
            5Consolidated
                Statements of Comprehensive Income for the Nine Months Ended September
                30,
                2008 and September 30, 2007
            
            6Consolidated
                Statements of Cash Flows for the Nine Months EndedSeptember
                30, 2008 and September 30, 2007
            
            7Notes
                to Consolidated Financial Statements
            
            9Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition andResults
                of Operations
            
            16Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            27Item
                4T.
            
            Controls
                and Procedures
            
            28**Part
                Two**
            
            **Other
                Information**Item
                1.
            
            Legal
                Proceedings
            
            28Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            28Item
                3.
            
            Defaults
                Upon Senior Securities
            
            28Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            28Item
                5.
            
            Other
                Information
            
            28Item
                6.
            
            Exhibits
            
            28Signatures
            
            30





**Part
      I – Financial Information**





**Item
      1.**   **Financial
      Statements**





The
      unaudited financial statements of WGNB Corp. (the “Company”) are set forth on
      the following pages. All adjustments have been made which, in the opinion of
      management, are necessary in order to make the financial statements not
      misleading.


1


**WGNB
      CORP.**


**Consolidated
      Balance Sheets**


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




September 30, 2008
            
            December 31, 2007(unaudited)
            
            (audited)AssetsCash
                and due from banks
            
            $
            22,896,133
            
            
            6,004,621Interest-bearing
                deposits in other banks
            
            
            491,745
            
            
            1,463,719Federal
                funds sold
            
            
            27,705,000
            
            
            18,377,000Cash
                and cash equivalents
            
            
            51,092,878
            
            
            25,845,340Securities
                available for sale
            
            
            96,307,337
            
            
            122,693,244Securities
                held to maturity, estimated fair values of $7,463,108 and
                $7,901,839
            
            
            7,463,108
            
            
            7,901,839Loans,
                net
            
            
            628,975,240
            
            
            645,738,663Premises
                and equipment, net
            
            
            17,610,380
            
            
            18,356,970Accrued
                interest receivable
            
            
            4,166,102
            
            
            5,927,168Cash
                surrender value of life insurance
            
            
            3,762,789
            
            
            3,639,550Goodwill
                and other intangibles, net
            
            
            29,148,475
            
            
            29,433,841Foreclosed
                property
            
            
            35,908,279
            
            
            10,313,331Deferred
                taxes
            
            
            6,410,035
            
            
            6,389,057Income
                tax receivable
            
            
            3,043,968
            
            
            -Other
                assets
            
            
            8,528,901
            
            
            7,425,520$
            892,417,492
            
            
            883,664,523Liabilities
                and Stockholders’ EquityDeposits:Demand
            
            $
            70,521,311
            
            
            67,614,983Interest
                bearing demand
            
            
            205,716,609
            
            
            220,137,199Savings
            
            
            19,379,320
            
            
            19,122,668Time
            
            
            201,721,431
            
            
            170,112,285Time,
                over $100,000
            
            
            239,001,153
            
            
            229,390,354Total
                deposits
            
            
            736,339,824
            
            
            706,377,489Federal
                Home Loan Bank advances
            
            
            52,000,000
            
            
            54,500,000Securities
                sold under repurchase agreements
            
            
            -
            
            
            20,000,000Junior
                subordinated debentures
            
            
            10,825,000
            
            
            10,825,000Accrued
                interest payable
            
            
            2,750,606
            
            
            3,990,807Other
                liabilities
            
            
            7,298,468
            
            
            7,820,335Total
                liabilities
            
            
            809,213,898
            
            
            803,513,631Commitments
              Stockholders’
                equity:Preferred
                stock, no par value, 10,000,000 shares authorized; 1,262,533 shares
                issued
                and outstanding in 2008 and no shares issued or outstanding in
                2007
            
            
            9,967,413
            
            
            -Common
                stock, no par value in 2008 and $1.25 par value in 2007, 20,000,000
                shares
                authorized; 6,057,594 issued and outstanding
            
            
            37,907,724
            
            
            7,571,993Additional
                paid-in capital
            
            
            -
            
            
            30,199,481Retained
                earnings
            
            
            36,532,187
            
            
            41,786,537Accumulated
                other comprehensive (loss) income
            
            
            (1,203,730
            )
            
            592,881Total
                stockholders’ equity
            
            
            83,203,594
            
            
            80,150,892$
            892,417,492
            
            
            883,664,523





*See
      accompanying notes to unaudited consolidated financial
      statements.*


2


**WGNB
      CORP.**


**Consolidated
      Statements of Operations**


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


**(unaudited)**


For the Three Months EndedSeptember 30, 2008
            
            September 30, 2007Interest income:Interest
                and fees on loans
            
            $
            10,087,039
            
            
            14,613,982Interest
                on federal funds sold
            
            
            124,160
            
            
            207,931Interest
                on investment securities:U.S.
                Government agencies
            
            
            575,074
            
            
            613,815State,
                county and municipal
            
            
            713,114
            
            
            608,895Other
            
            
            302,706
            
            
            343,135Total
                interest income
            
            
            11,802,093
            
            
            16,387,758Interest
                expense:Interest
                on deposits:Demand
            
            
            846,986
            
            
            1,681,675Savings
            
            
            16,487
            
            
            76,252Time
            
            
            4,758,019
            
            
            5,219,570Interest
                on FHLB and other borrowings
            
            
            704,453
            
            
            864,461Total
                interest expense
            
            
            6,325,945
            
            
            7,841,958Net
                interest income
            
            
            5,476,148
            
            
            8,545,800Provision
                for loan losses
            
            
            1,400,000
            
            
            750,000Net
                interest income after provision for loan losses
            
            
            4,076,148
            
            
            7,795,800Other
                income:Service
                charges on deposit accounts
            
            
            1,646,143
            
            
            1,665,722Mortgage
                origination fees
            
            
            74,600
            
            
            79,234Brokerage
                fees
            
            
            107,457
            
            
            168,022ATM
                network fees
            
            
            364,252
            
            
            290,920Loss
                on settlement of securities sold under repurchase
                agreements
            
            
            (683,361
            )
            
            -Gain
                on sales of securities available for sale
            
            
            329,398
            
            
            -(Loss
                ) gain on sale or write-down of foreclosed property
            
            
            (1,136,167
            )
            
            72,244Miscellaneous
            
            
            239,119
            
            
            366,788Total
                other income
            
            
            941,441
            
            
            2,642,930Other
                expenses:Salaries
                and employee benefits
            
            
            3,583,713
            
            
            4,135,422Occupancy
            
            
            950,323
            
            
            988,382Expense
                on loans and foreclosed property
            
            
            296,927
            
            
            115,467Other
                operating
            
            
            1,984,064
            
            
            1,754,818Total
                other expenses
            
            
            6,815,027
            
            
            6,994,089(Loss)
                earnings before income taxes
            
            
            (1,797,438
            )
            
            3,444,641Income
                tax benefit (expense)
            
            
            942,286
            
            
            (1,114,246
            )Net
                (loss) earnings
            
            $
            (855,152
            )
            
            2,330,395Basic
                (loss) earnings per share
            
            $
            (0.14
            )
            
            0.38Diluted
                (loss) earnings per share
            
            $
            (0.14
            )
            
            0.38Dividends
                declared per share
            
            $
            -
            
            
            0.21


*See
      accompanying notes to unaudited consolidated financial
      statements.*


3


**WGNB
      CORP.**


**Consolidated
      Statements of Comprehensive Income**


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


**(unaudited)**




For the Three Months EndedSeptember 30, 2008
            
            September 30, 2007Net
                (loss) earnings
            
            $
            (855,152
            )
            
            2,330,395Other
                comprehensive (loss) income, net of tax:Unrealized
                (losses) gains on investment securities available for
                sale:Unrealized
                (losses) gains arising during the period
            
            
            (462,917
            )
            
            850,995Associated
                benefit (taxes)
            
            
            157,392
            
            
            (289,338
            )Reclassification
                adjustment for gain realized
            
            
            (329,398
            )
            
            -Associated
                taxes
            
            
            111,995
            
            
            -Change
                in fair value of derivatives for cash flow hedges:Decrease
                in fair value of derivatives for cash flow hedges arising during
                the
                period
            
            
            (104,580
            )
            
            -Associated
                tax benefit
            
            
            35,557
            
            
            -Other
                comprehensive (loss) income
            
            
            (591,951
            )
            
            561,657Comprehensive
                (loss) income
            
            $
            (1,447,103
            )
            
            2,897,052





*See
      accompanying notes to unaudited consolidated financial statements.*


4


**WGNB
      CORP.**


**Consolidated
      Statements of Operations**


**For
      the Nine Months Ended September 30, 2008 and 2007**


**(unaudited)**




For the Nine Months EndedSeptember 30, 2008
            
            September 30, 2007Interest
                income:Interest
                and fees on loans
            
            $
            32,208,994
            
            
            36,740,641Interest
                on federal funds sold
            
            
            248,851
            
            
            374,215Interest
                on investment securities:U.S.
                Government agencies
            
            
            1,857,595
            
            
            1,156,095State,
                county and municipal
            
            
            2,246,190
            
            
            1,327,564Other
            
            
            1,004,128
            
            
            1,005,067Total
                interest income
            
            
            37,565,758
            
            
            40,603,582Interest
                expense:Interest
                on deposits:Demand
            
            
            2,998,646
            
            
            4,490,782Savings
            
            
            80,033
            
            
            174,848Time
            
            
            14,065,813
            
            
            12,177,935Interest
                on FHLB and other borrowings
            
            
            2,281,026
            
            
            2,343,466Total
                interest expense
            
            
            19,425,518
            
            
            19,187,031Net
                interest income
            
            
            18,140,240
            
            
            21,416,551Provision
                for loan losses
            
            
            10,250,000
            
            
            1,500,000Net
                interest income after provision for loan losses
            
            
            7,890,240
            
            
            19,916,551Other
                income:Service
                charges on deposit accounts
            
            
            4,719,800
            
            
            3,631,170Mortgage
                origination fees
            
            
            245,511
            
            
            278,278Brokerage
                fees
            
            
            342,008
            
            
            468,628ATM
                network fees
            
            
            1,107,187
            
            
            710,036Loss
                on settlement of securities sold under repurchase
                agreements
            
            
            (683,361
            )
            
            -Gain
                on sales of securities available for sale
            
            
            435,067
            
            
            -(Loss)
                gain on sale or write-down of foreclosed property
            
            
            (1,014,909
            )
            
            72,244Miscellaneous
            
            
            734,608
            
            
            1,015,422Total
                other income
            
            
            5,885,911
            
            
            6,175,778Other
                expenses:Salaries
                and employee benefits
            
            
            10,788,336
            
            
            9,944,918Occupancy
            
            
            2,998,381
            
            
            2,294,475Expense
                on loans and foreclosed property
            
            
            1,144,543
            
            
            209,924Other
                operating
            
            
            5,386,634
            
            
            3,960,142Total
                other expenses
            
            
            20,317,894
            
            
            16,409,459(Loss)
                earnings before income taxes
            
            
            (6,541,743
            )
            
            9,682,870Income
                tax benefit (expense)
            
            
            3,223,430
            
            
            (3,118,436
            )Net
                (loss) earnings
            
            $
            (3,318,313
            )
            
            6,564,434Basic
                (loss) earnings per share
            
            $
            (0.55
            )
            
            1.23Diluted
                (loss) earnings per share
            
            $
            (0.55
            )
            
            1.22Dividends
                declared per share
            
            $
            0.315
            
            
            0.61





*See
      accompanying notes to unaudited consolidated financial
      statements.*


5


**WGNB
      CORP.**


**Consolidated
      Statements of Comprehensive Income**


**For
      the Nine Months Ended September 30, 2008 and 2007**


**(unaudited)**




For the Nine Months EndedSeptember 30, 2008
            
            September 30, 2007Net
                (loss) earnings
            
            $
            (3,318,313
            )
            
            6,564,434Other
                comprehensive (loss) income, net of tax:Unrealized
                (losses) gains on investment securities available for
                sale:Unrealized
                (losses) gains arising during the period
            
            
            (2,134,914
            )
            
            266,230Associated
                benefit (taxes)
            
            
            725,871
            
            
            (90,518
            )Reclassification
                adjustment for gain realized
            
            
            (435,067
            )
            
            -Associated
                taxes
            
            
            147,923
            
            
            -Change
                in fair value of derivatives for cash flow hedges:Decrease
                in fair value of derivatives for cash flow hedges arising during
                the
                period
            
            
            (152,158
            )
            
            -Associated
                tax benefit
            
            
            51,734
            
            
            -Other
                comprehensive (loss) income
            
            
            (1,796,611
            )
            
            175,712Comprehensive
                (loss) income
            
            $
            (5,114,924
            )
            
            6,740,146





*See
      accompanying notes to unaudited consolidated financial
      statements.*


6


**WGNB
      CORP.**


**Consolidated
      Statements of Cash Flows**


**For
      the Nine Months Ended September 30, 2008 and 2007**


**(unaudited)**





For the Nine Months EndedSeptember 30, 2008
            
            September 30, 2007Cash flows from
                operating activities:Net
                (loss) earnings
            
            $
            (3,318,313
            )
            
            6,564,434Adjustments
                to reconcile net earnings to net cash provided by operating
                activities:Depreciation,
                amortization and accretion
            
            
            1,404,489
            
            
            971,605Provision
                for loan losses
            
            
            10,250,000
            
            
            1,500,000Stock-based
                employee compensation expense
            
            
            136,250
            
            
            131,000Income
                from bank owned life insurance
            
            
            (123,239
            )
            
            (40,215
            )(Gain)
                on sale of available for sale securities
            
            
            (435,067
            )
            
            -(Gain)
                loss on sale or write-down of foreclosed property
            
            
            1,014,909
            
            
            (72,244
            )(Gain)
                loss on sale of premises and equipment
            
            
            (2,556
            )
            
            (21,404
            )Change
                in:Income
                tax receivable
            
            
            (3,043,968
            )
            
            -Other
                assets
            
            
            1,265,223
            
            
            (2,161,502
            )Other
                liabilities
            
            
            (1,786,739
            )
            
            461,972Net
                cash provided by operating activities
            
            
            5,360,989
            
            
            7,333,646Cash
                flows from investing activities, net of effects of purchase accounting
                adjustments:Proceeds
                from maturities of securities available for sale
            
            
            9,100,307
            
            
            49,894,157Proceeds
                from maturities of securities held to maturity
            
            
            439,896
            
            
            1,327,679Proceeds
                for sale of securities available for sale
            
            
            28,531,192
            
            
            5,993,155Purchases
                of securities available for sale
            
            
            (13,318,622
            )
            
            (43,950,507
            )Purchases
                of securities held to maturity
            
            
            -
            
            
            (1,000,000
            )Net
                change in loans
            
            
            (23,614,417
            )
            
            (53,343,028
            )Cash
                paid to First Haralson, net of cash received of$17,437,208
            
            
            -
            
            
            (517,028
            )Proceeds
                from sale of premises and equipment
            
            
            3,778
            
            
            21,404Purchases
                of premises and equipment
            
            
            (492,665
            )
            
            (1,571,770
            )Redeem
                cash surrender value asset
            
            
            -
            
            
            293,101Capital
                expenditures for foreclosed property
            
            
            (566,156
            )
            
            (14,747
            )Proceeds
                from sales of foreclosed property
            
            
            4,284,855
            
            
            447,480Net
                cash provided (used) by investing activities
            
            
            4,368,168
            
            
            (42,420,104
            )Cash
                flows from financing activities, net of effects of purchase accounting
                adjustments:Net
                change in deposits
            
            
            29,962,335
            
            
            51,729,961Proceeds
                from Federal Home Loan Bank advances
            
            
            -
            
            
            10,000,000Repayment
                of Federal Home Loan Bank advances
            
            
            (2,500,000
            )
            
            (15,000,000
            )Repayment
                of securities sold under repurchase agreement
            
            
            (20,000,000
            )
            
            -Proceeds
                from junior subordinated debentures
            
            
            -
            
            
            10,825,000Net
                proceeds from federal funds purchased
            
            
            -
            
            
            801,000Dividends
                paid
            
            
            (1,911,366
            )
            
            (3,075,149
            )Proceeds
                from issuance of preferred stock
            
            
            10,100,264
            
            
            -Proceeds
                from exercise of stock options
            
            
            -
            
            
            61,319Stock
                issuance cost
            
            
            (132,851
            )
            
            (103,156
            )Net
                cash provided by financing activities
            
            
            15,518,381
            
            
            55,238,975Change
                in cash and cash equivalents
            
            
            25,247,538
            
            
            20,152,517Cash
                and cash equivalents at beginning of period
            
            
            25,845,340
            
            
            13,233,448Cash
                and cash equivalents at end of period
            
            $
            51,092,878
            
            $
            33,385,965





*See
      accompanying notes to unaudited consolidated financial
      statements.*


7


**WGNB
      CORP.**


**Consolidated
      Statements of Cash Flows, continued**


**For
      the Nine Months Ended September 30, 2008 and 2007**


**(unaudited)**





For the Nine Months EndedSeptember 30, 2008
            
            September 30, 2007Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            20,665,719
            
            
            17,029,000Income
                tax (refund) paid
            
            
            (1,091,632
            )
            
            3,358,000Non-cash
                investing and financing activities:Transfer
                of loans to foreclosed property
            
            
            42,017,884
            
            
            5,040,620Loans
                to facilitate the sale of foreclosed property
            
            
            11,689,328
            
            
            -Change
                in unrealized gains on securities available for sale, net of
                tax
            
            
            (1,696,187
            )
            
            175,712Change
                in fair value of derivative for cash flowHedges,
                net of tax
            
            
            (100,424
            )
            
            -Change
                in dividends payable
            
            
            (1,252,322
            )
            
            413,863





*See
      accompanying notes to unaudited consolidated financial
      statements.*


8


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**


**(unaudited)**


**(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 September 30, 2008, and the results of
      its operations and its cash flows for the three and nine month periods ended
      September 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 September 30, 2007 is presented. No presentation for the
      periods ended September 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 September 30, 2007 is as follows:





For the quarter ended September 30, 2007EarningsNet Earnings
            
            Common Shares
            
            per ShareBasic
                earnings per share
            
            $
            2,330,395
            
            
            6,058,939
            
            $
            0.38Effect
                of dilutive securities – Stock Options
            
            
            -
            
            
            18,329
            
            
            (0.00
            )Diluted
                earnings per share
            
            $
            2,330,395
            
            
            6,077,268
            
            $
            0.38




For the nine months ended September 30, 2007EarningsNet Earnings
            
            Common Shares
            
            per ShareBasic
                earnings per share
            
            $
            6,564,434
            
            
            5,358,546
            
            $
            1.23Effect
                of dilutive securities – Stock Options
            
            
            -
            
            
            24,392
            
            
            (0.01
            )Diluted
                earnings per share
            
            $
            6,564,434
            
            
            5,382,938
            
            $
            1.22


9


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**


**(unaudited)**





**(3)
      Stock Compensation Plans**





SFAS
      No.
      123 (revised 2004) (SFAS No. 123 (R)) *“Share-Based
      Payment”* was
      adopted by the Company on the required date, January 1, 2006, using the modified
      prospective transition method provided for under the standard. 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 earnings using the fair-value-based method.




The
      Company recognized $38,250 and $46,500 of stock-based employee compensation
      expense during the three-months ended September 30, 2008 and 2007, respectively,
      and $136,250 and $131,000 of stock-based compensation during the nine-months
      ended September 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
      September 30, 2008, there was $506,787 of unrecognized compensation cost related
      to stock option grants. The cost is expected to be recognized over the vesting
      period of approximately 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
      or
      third 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 non-recurring basis,
      such as impaired loans and foreclosed property. These non-recurring 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.


10


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**




**(unaudited)**




**(4)
      Fair Value Continued**




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.




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
      September 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 non-recurring 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 non-recurring
      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 non-recurring 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 non-recurring Level 3.


11


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**




**(unaudited)**





**(4)
      Fair Value Continued**




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).




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 September 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 September 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
              September 30, 2008AssetsSecurities
                available for sale
            
            $
            -
            
            
            96,307,337
            
            
            -
            
            
            96,307,337Total
            
            $
            -
            
            
            96,307,337
            
            
            -
            
            
            96,307,337LiabilitiesDerivative
                financial instruments–cash flow hedge
            
            $
            -
            
            
            181,792
            
            
            -
            
            
            181,792Total
            
            $
            -
            
            
            181,792
            
            
            -
            
            
            181,792


12


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**




**(unaudited)**




( **4)
      Fair Value Continued**




Assets
      Recorded at Fair Value on a Non-recurring Basis




The
      Company may be required, from time to time, to measure certain assets at fair
      value on a non-recurring 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 non-recurring basis as of September 30, 2008 by the level in the fair value
      hierarchy within which those measurements fall:




Description
            
            Level 1
            
            Level 2
            
            Level 3
            
            Balance at
              September 30, 2008AssetsLoans
            
            $
            -
            
            
            55,212,968
            
            
            -
            
            
            55,212,968Foreclosed
                property
            
            
            -
            
            
            35,908,279
            
            
            -
            
            
            35,908,279Total
            
            $
            -
            
            
            91,121,247
            
            
            -
            
            
            91,121,247





**(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 non-performing
      assets:




September 30, 2008
            
            December 31, 2007Foreclosed property
            
            $
            35,908,279
            
            
            10,313,331Non-accrual
                loans
            
            
            63,927,552
            
            
            46,351,870Loans
                90 days past due still accruing
            
            
            528,691
            
            
            1,204,130Total
            
            $
            100,364,522
            
            
            57,869,331





Non-performing
      assets consist primarily of 25 residential real estate construction and
      development properties ranging in balance from $1 million to $7 million. All
      properties are being actively marketed for sale and management is continuously
      monitoring the properties for proper valuation.





**(6)
      Stockholders’ Equity**





On
      June
      20, 2008, the Company filed a Form S-1 with the Securities and Exchange
      Commission to register 3,750,000 shares of its Series A Convertible Preferred
      Stock (“Series A Preferred”) for sale to the Company’s shareholders under a
      rights offering that was completed September 22, 2008. A total of 1,153,508
      shares of the Series A Preferred were sold to shareholders in the rights
      offering. The remaining registered shares are subject to an ongoing public
      offering which is expected to be completed in January 2009. As of September
      30,
      2008, a total of 1,262,533 shares of Series A Preferred have been sold
      (including those sold in the rights offering).





Holders
      of the Series A Preferred will be entitled to receive, if, as and when declared
      by the Board of Directors out of legally available assets, non-cumulative cash
      dividends on the Liquidation Preference, which is $8.00 per share of Series
      A
      Preferred. These dividends will be payable at a rate *per
      annum* equal to
      9%, quarterly in arrears on each March 15, June 15, September 15 and December
      15, commencing December 15, 2008. The Company is prohibited from paying any
      dividends on its common stock unless and until all dividends for a particular
      quarterly dividend period have been declared and paid on the Series A Preferred.


13


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**




**(unaudited)**




**(6)
      Stockholders’ Equity Continued**




The
      Series A Preferred is perpetual and will not mature on a specified date. The
      Series A Preferred is not subject to any mandatory redemption provisions. The
      shares become convertible into shares of common stock at the option of a holder
      from and after September 22, 2011. On or after September 15, 2013, the Company
      may, at its option, at any time or from time to time cause some or all of the
      Series A Preferred to be converted into shares of our common stock.





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. The plan was amended by the Company’s board of
      directors in October 2008 in order to permit holders of the Series A Preferred
      to reinvest dividends paid on the Series A Preferred into shares of the
      Company’s common stock.





**(7)
      Recent Accounting Pronouncements and Industry Events**





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; how derivative instruments and related
      hedged items are accounted for under SFAS No. 133 and its related
      interpretations; 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 to have a material effect on its financial position or
      results of operation.





In
      May
      2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles* .
       SFAS No. 162 identifies the sources of accounting principles and the
      framework for selecting the principles to be used in the preparation of
      financial statements of nongovernmental entities that are presented in
      conformity with generally accepted accounting principles (GAAP) in the United
      States (the GAAP hierarchy).  The current GAAP hierarchy, as set forth in
      the American Institute of Certified Public Accountants (AICPA) Statement on
      Auditing Standards No. 69, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles* ,
      has
      been criticized because (1) it is directed to the auditor rather than the
      entity, (2) it is complex, and (3) it ranks FASB Statements of Financial
      Accounting Concepts, which are subject to the same level of due process as
      FASB
      Statements of Financial Accounting Standards, below industry practices that
      are
      widely recognized as generally accepted but that are not subject to due process.
       The FASB believes that the GAAP hierarchy should be directed to entities
      because it is the entity (not its auditor) that is responsible for selecting
      accounting principles for financial statements that are presented in conformity
      with GAAP.  Accordingly, the FASB concluded that the GAAP hierarchy should
      reside in the accounting literature established by the FASB and is issuing
      this
      Statement to achieve that result.  The Company does not anticipate the new
      accounting principle to have a material effect on its financial position or
      results of operation.





In
      October 2008, the FASB issued FSP FAS 157-3, *Determining
      the Fair Value of a Financial Asset When the Market for That Asset is Not
      Active* .
       This FASB Staff Position clarifies the application of SFAS No. 157, *Fair
      Value Measurements* ,
      in a
      market that is not active and provides an example to illustrate key
      considerations in determining the fair value of a financial asset when the
      market for that financial asset is not active.  FSP FAS 157-3 provides
      guidance on (1) how an entity's own assumption should be considered when
      measuring fair value when relevant observable inputs do not exist, (2) how
      available observable inputs in a market that is not active should be considered
      when measuring fair value and (3) how the use of market quotes should be
      considered when assessing the relevance of observable and unobservable inputs
      available to measure fair value.  This FASB Staff Position is effective
      immediately.  The Company does not anticipate the new accounting principle
      to have a material effect on its financial position or results of
      operation. ****


14


**WGNB
      Corp.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008**




**(unaudited)**







**(7)
      Recent Accounting Pronouncements and Industry Events
      Continued**




On
      October 3, 2008, Congress passed the Emergency Economic Stabilization Act
      of 2008 ("EESA"), which creates the Troubled Asset Relief Program ("TARP")
      and
      provides the U.S. Secretary of the Treasury with broad authority to implement
      certain actions to help restore stability and liquidity to U.S. markets. The
      Capital Purchase Program (the "CPP") was announced by the U.S. Treasury on
      October 14, 2008 as part of TARP.  Pursuant to the CPP, the U.S.
      Treasury will purchase up to $250 billion of senior preferred shares on
      standardized terms from qualifying financial institutions. The purpose of the
      CPP is to encourage U.S. financial institutions to build capital to increase
      the
      flow of financing to U.S. businesses and consumers and to support the U.S.
      economy.  The CPP is voluntary and requires a participating institution to
      comply with a number of restrictions and provisions, including standards for
      executive compensation and corporate governance and limitations on share
      repurchases and the declaration and payment of dividends on common shares. 
The CPP allows qualifying financial institutions to issue senior preferred
      shares to the U.S. Treasury in aggregate amounts between 1 percent and 3 percent
      of the institution's risk weighted assets ("Senior Preferred Shares").  
The Senior Preferred Shares will qualify as Tier 1 capital and rank senior
      to
      our common stock.  The Senior Preferred Shares will pay a cumulative
      dividend rate of 5 percent per annum for the first five years and will reset
      to
      a rate of 9 percent per annum after year five.  The Senior Preferred Shares
      will be non-voting, other than class voting rights on matters that could
      adversely affect the shares.  The Senior Preferred Shares will be callable
      at par after three years.  Prior to the end of three years, the Senior
      Preferred Shares may be redeemed with the proceeds from a qualifying equity
      offering of any Tier 1 perpetual preferred or common stock.  U.S. Treasury
      may also transfer the Senior Preferred Shares to a third party at any time.
       In conjunction with the purchase of Senior Preferred Shares, Treasury will
      receive warrants to purchase common stock with an aggregate market price equal
      to 15 percent of the Senior Preferred Shares.  The exercise price on the
      warrants will be the market price of the participating institution's common
      stock at the time of issuance, calculated on a 20-trading day trailing average.
       Companies participating in the CPP must adopt the U.S. Treasury's
      standards for executive compensation and corporate governance.  The Company
      is currently evaluating its participation in the CPP





**(8)**  **Subsequent
      Event**





On
      November 12, 2008, the Bank, entered into a formal written agreement (the
“Agreement”) with the Office of the Comptroller of the Currency (the “OCC”). The
      Agreement requires the Bank to undertake certain actions within designated
      time
      frames, and to operate in compliance with the provisions thereof during its
      term. The Board of Directors and management of the Bank have implemented many
      of
      these provisions and continue to support compliance with the Agreement. The
      actions that are to be undertaken are as follows: implement an asset recovery
      staff, continue to enhance loan portfolio management procedures and processes,
      continue to diversify the loan portfolio, maintain valuation process on
      foreclosed property maximizing net realizable value for shareholders, continue
      to raise capital, provide written plans of action to reduce non-performing
      assets and provide a three year budget and capital plan. Compliance with the
      Agreement is to be monitored by a committee made up of seven Directors of the
      Bank.


15


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





The
      following analysis compares WGNB Corp.’s results of operations for the three-
      and nine-month periods ended September 30, 2008 and 2007 and reviews the
      important factors affecting WGNB Corp.’s financial condition at September 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
                effect of compliance, or failure to comply within stated deadlines,
                of the
                provisions of our formal agreement with our primary regulators;




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




·
            the
                effect of the continuing deterioration of the local economies in
                which we
                conduct operations which results in, among other things, a deterioration
                in credit quality or a reduced demand for credit, including a resultant
                adverse effect on our loan portfolio and allowance for loan and lease
                losses;




·
            the
                possibility that our allowance for loan and lease losses proves to
                be
                inadequate or that federal and state regulators who periodically
                review
                our loan portfolio require us to increase the provision for loan
                losses or
                recognize loan charge-offs;




·
            the
                effect of the current and anticipated deterioration in the housing
                market
                and the residential construction industry which may lead to increased
                loss
                severities and further worsening of delinquencies and non-performing
                assets in our loan portfolios;




·
            the
                effect of the significant number of construction loans we have in
                our loan
                portfolios, which may pose more credit risk than other types of mortgage
                loans typically made by banking institutions due to the disruptions
                in
                credit and housing markets.




·
            the
                effect of institutions in our market area continuing to dispose of
                problem
                assets which, given the already excess inventory of residential homes
                and
                lots will continue to negatively impact home values and increase
                the time
                it takes us or our borrowers to sell existing
                inventory;




16




·
            the
                effect of public perception that banking institutions are risky
                institutions for purposes of regulatory compliance or safeguarding
                deposits which may cause depositors nonetheless to move their funds
                to
                larger institutions;




·
            the
                possibility that we could be held responsible for environmental
                liabilities of properties acquired through foreclosure;
                and




·
            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.




Except
      as
      required by law, we undertake no obligation to update or revise publicly any
      forward-looking statements, whether as a result of new information, future
      events or otherwise. In light of these risks, uncertainties and assumptions,
      the
      events described by our forward-looking statements might not occur. We qualify
      any and all of our forward-looking statements by these cautionary factors.
      Please keep this cautionary note in mind as you read this Report and the
      documents incorporated and deemed to be incorporated by reference
      herein.




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





The
      Company believes the allowance for loan losses is a critical accounting policy
      that requires the most significant judgments and estimates used in the
      preparation of the Company’s consolidated financial statements. The allowance
      for loan losses represents management’s estimate of probable loan losses
      inherent in the loan portfolio. Calculation of the allowance for loan losses
      is
      a critical accounting estimate due to the significant judgment, assumptions
      and
      estimates related to the amount and timing of estimated losses, consideration
      of
      current and historical trends and the amount and timing of cash flows related
      to
      impaired loans. Please refer to the section of the Company’s Annual Report on
      10-K for the year ended December 31, 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 nine months ended September 30, 2008 was $3.3 million, or $0.55
      per
      diluted share, compared to net earnings for the nine months ended September
      30,
      2007 of $6.6 million, or $1.22 per diluted share. The net loss for the three
      months ended September 30, 2008 was $855 thousand, or $0.14 per diluted share,
      compared to a net loss of $4.3 million, or $0.71 per diluted share, for the
      three months ended June 30, 2008. The third quarter 2008 results also compare
      to
      net earnings of $2.3 million, or $0.38 per diluted share, for the three months
      ended September 30, 2007. The net loss, both year-to- date and quarter-to-date
      2008, is primarily attributable to asset quality deterioration particularly
      in
      the Company’s construction acquisition and development loan portfolio.





Revenue
      and expense attributable to First Haralson Corp.’s operations, which we acquired
      in July 2007, are included in our year to date 2008 results, but not in the
      first or second quarter 2007 results. When analyzing the combination of the
      two
      companies, we expected that non-interest income and non-interest expense would
      increase on an annual basis 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 has 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 and net interest margin. 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
      on the operations of the combined companies.


17


There
      are
      five significant factors that have impacted the operations and earnings of
      the
      Company during 2008: (i) the increase in the loan loss provision; (ii) the
      charge-off of accrued interest on impaired loans; (iii) the impact on the net
      interest margin of the carry of non-performing assets; (iv) the charge-down
      of
      foreclosed property to reflect declining real estate values; and (v) expenses
      related to maintaining foreclosed property and collecting on impaired loans.
      The
      Company recorded a loan loss provision in the amount of $1.4 million in the
      third quarter of 2008 compared to $8.1 million in the second quarter of 2008.
      The year-to-date loan loss provision is $10.3 million in 2008, compared to
      $1.5
      million in 2007. The Company has charged-off interest on impaired loans in
      the
      amount of $2.4 million for the nine months ended 2008 of which $621 thousand
      was
      charged-off in the third quarter of 2008, $1.4 million was charged-off in the
      second quarter of 2008 and $306 thousand was charged-off in the first quarter
      of
      2008. This compared to $12 thousand of charged-off interest in the third quarter
      and year-to-date 2007. This charged-off interest is recorded as a reduction
      of
      interest income and is reflected in net interest income for the nine month
      periods ended September 30, 2008 and 2007.





During
      the third quarter of 2008, we charged down foreclosed property by $985 thousand
      due to declining real estate values. Also during the third quarter of 2008,
      we
      recorded a loss in the amount of $151 thousand on the sale of $2.9 million
      of
      foreclosed property. This compared to gains on sales of foreclosed property
      of
      $12 thousand and $108 thousand in the first and second quarters of 2008,
      respectively. Through the nine months ended September 30, 2008, we have sold
      $16.3 million of foreclosed property for a net loss of $30 thousand. The impact
      on the net interest margin of the carry of non-performing assets and the
      expenses related to carrying foreclosed property and the expense of collecting
      on impaired loans are discussed below.





The
      detrimental impact of non-performing assets will likely reduce earnings through
      the remainder of 2008 and into 2009 as the residential real estate downturn
      continues in the Company’s market area. The downturn may even be exacerbated as
      energy and food prices increase, equity markets decrease, credit tightens,
      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 third quarter of 2008 and are likely
      to
      experience further write-downs if our borrowers’ financial condition continues
      to be weakened by the carrying costs of residential real estate developments
      without sufficient sales. Much of the deterioration in credit was recognized
      in
      the second quarter 2008 loan classification and impairment process through
      the
      loan loss provision. Therefore, not as much provision was required in the third
      quarter as was required in the second quarter of 2008.





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 $100.4 million, or 14.7 percent of total loans including
      foreclosed property as of September 30, 2008, an increase of $12.1 million
      from
      June 30, 2008. This compares to the increase in non-performing assets from
      $54.5
      million as of March 31, 2008 to $88.3 million, as of June 30, 2008 an increase
      of $33.8 million. The increase in non-performing assets has decreased because
      management began recognizing weakness earlier in this credit cycle and attempted
      to identify potentially impaired loans in its loan classification and impairment
      analysis.





The
      $100.4 million in non-performing assets was comprised primarily of 25 loan
      relationships ranging in outstanding balances from $1 million to $7 million.
      The
      residential real estate construction and development portfolio, not including
      impaired and non-accrual loans, was $145.6 million as of September 30, 2008.
      The
      performing residential real estate construction and development portfolio is
      comprised primarily of 31 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 reviewed by the Board and Audit Committee, totaled
      $16.2 million, or 2.51 percent of total loans. While we believe that we have
      properly valued our foreclosed property as evidenced by our ability to sell
      $16.3 million of foreclosed property for approximately 99% of its carrying
      value
      and 95% of its original loan balance through the first nine months of 2008,
      we
      must continually evaluate the carrying values of property and impaired loans
      in
      order to recognize potential impairments as they become known.





The
      continuing deterioration in the residential real estate market is impacting
      many
      Southeastern financial institutions particularly in the Metro-Atlanta area.
      As
      management gathers current appraisals on the properties securing the Company’s
      troubled loans, we are finding that values have decreased from original
      appraisals. The Company has experienced net charge-offs of $6.5 million in
      the
      allowance for loan loss, or 1.03 percent of average loans, through September
      30,
      2008. By policy, we do not carry foreclosed real property at greater than 85
      percent of current appraisal. We believe that policy has been effective in
      the
      past and appears to be sufficient to permit us to account for selling costs
      and
      potential devaluation in the current residential real estate market. However,
      should there be continued deterioration in the real estate market, management
      could determine that further write-downs may be necessary.


18


*Regulatory
      Issues*





The
      Emergency Economic Stabilization Act of 2008 was enacted in October 2008 in
      response to the current financial crisis.  Two key components of this Act
      are the Troubled Assets Relief Program ("TARP") and the Capital Purchase Program
      ("CPP").  The TARP allows financial institutions to sell troubled assets to
      the U.S. Treasury.  The CPP allows qualifying financial institutions to
      issue senior preferred shares to the Treasury.   The senior preferred
      shares will qualify as Tier 1 capital and will pay a cumulative dividend rate
      of
      5 percent per annum for the first five years and will reset to a rate of 9
      percent per annum after year five.  The senior preferred shares will be
      non-voting, other than class voting rights on matters that could adversely
      affect the shares.  The senior preferred shares will be callable at par
      after three years.  Prior to the end of three years, the senior preferred
      may be redeemed with the proceeds from a qualifying equity offering of any
      Tier
      1 perpetual preferred or common stock.  Treasury may also transfer the
      senior preferred shares to a third party at any time.  In conjunction with
      the purchase of senior preferred shares, Treasury will receive warrants to
      purchase common stock with an aggregate market price equal to 15 percent of
      the
      senior preferred investment.  The exercise price on the warrants will be
      the market price of the participating institution's common stock at the time
      of
      issuance, calculated on a 20-trading day trailing average.  Companies
      participating in the CPP must adopt the Treasury's standards for executive
      compensation and corporate governance.  The Company is currently evaluating
      its participation in the TARP and CPP.





In
      January 2008, with the support of the Bank’s Board of Directors, the Bank began
      initiating a series of corrective actions to mitigate the impact of increasing
      non-performing assets while maintaining communications with the OCC
      examiners.  Among the actions taken are the following:





·
            hiring
                of additional asset recovery staff including management whose sole
                responsibility is to manage and reduce non-performing assets as quickly
                as
                possible;





·
            continuing
                review and revision, as appropriate, of loan portfolio management
                procedures and processes including loan diversification, increased
                underwriting standards, intensified loan review and aggressive problem
                asset identification;





·
            maintaining
                a valuation process which we believe balances rapid collection of
                non-performing loans and reduction of foreclosed property with maximizing
                the net realizable value of these assets for the shareholders;
                and





·
            taking
                necessary steps, including raising capital through a public offering
                of
                our Series A Preferred stock, in order to be considered well capitalized
                as determined by regulatory standards applicable to the Bank and
                us.





These
      steps are designed to improve risk management, enhance internal controls over
      credit administration, focus on our market, and return the Bank to profitable
      community banking. All of the steps have been reported in prior SEC filings
      and other communications with our shareholders including through investor
      presentations and our shareholders meeting. During these presentations,
      management shared that we may formalize these actions with our
      regulators.




On
      November 12, 2008, the Bank, entered into a formal written agreement (the
“Agreement”) with the Office of the Comptroller of the Currency (the
“OCC”).  The Bank has agreed to undertake certain actions within designated
      timeframes and operate in compliance with the provisions of the Agreement during
      its term. The Agreement is based on the results of an examination of the Bank
      by
      the OCC commenced on April 28, 2008.





The
      provisions of the Agreement include the following: (i) within 45 days,
      the Board of Directors of the Bank (the “Board”) is required to adopt and
      implement a written action plan detailing the Board’s assessment of what needs
      to be done to improve the Bank, specifying how the Board will implement the
      plan
      and setting forth a timetable for the implementation of the plan, which must
      be
      submitted to the OCC for review and prior determination of no supervisory
      objection; (ii) within 45 days, the Board is required to update, review and
      implement its written asset diversification program which must be submitted
      to
      the OCC for review and prior determination of no supervisory objection;
      (iii) within 90 days, the Board is required to adopt and implement a
      written program to eliminate the basis for criticism of assets identified as
      problem assets; (iv) within 60 days, the Board is required to establish a Loan
      Workout Department for the purpose of restoring and reclaiming classified
      assets, including commercial real estate loans, and submit for supervisory
      review a capable loan workout specialist; (v) within 90 days, the Board is
      required to update and implement its three-year budget and capital plan, which
      must be submitted to the OCC for review and prior determination of no
      supervisory objection.  Compliance
      with the Agreement is to be monitored by a committee (the “Committee”) of at
      least seven directors, two of whom can be employees or controlling shareholders
      of the Bank or any of its affiliates or a family member of such person. 
The Committee is required to submit written progress reports on a quarterly
      basis and the Agreement requires the Bank to make periodic reports and filings
      with the OCC.


19


*Net
      Interest Income*





Net
      interest income for the nine months ended September 30, 2008 decreased by $3.3
      million, or 15.3 percent, when compared to the same period in 2007. The
      year-to-date average yield on earning assets decreased by 212 basis points,
      from
      8.54 percent as of September 30, 2007 to 6.42 percent as of September 30, 2008.
      The year-to-date average cost of funds decreased 96 basis points during the
      same
      time period, from 4.12 percent as of September 30, 2007 to 3.16 percent as
      of
      September 30, 2008. The comparative net interest margins were 3.19 percent
      and
      4.56 percent (a 137 basis point decrease) for the year-to-date periods ending
      September 30, 2008 and 2007, respectively. Comparing the quarterly periods
      ended
      September 30, 2008 and 2007, net interest income decreased by $3.1 million,
      or
      35.9 percent.





The
      Company has experienced a dramatic decrease in its net interest income and
      net
      interest margin over the past nine months. As described in previous filings,
      the
      Company’s sensitivity to interest rate risk remains relatively low. That is, the
      impact of changing market rates, either up or down, does not materially impact
      our net interest margin. Despite the decline in 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 largely due to the increase
      in
      non-performing assets and the increase of required liquidity on the Bank’s
      balance sheet. 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
      interest-bearing assets carried on the balance sheet. The increase in liquidity
      impacts net interest income by the increasing certificates of deposit at rates
      of approximately 4.00 to 4.50 percent or selling investment securities that
      carry a yield of 5.00 to 6.00 percent and investing those funds at the federal
      funds rate of below 1.00 to 1.75 percent through the first nine months of 2008.





The
      Bank
      has maintained more liquidity on its balance sheet to meet our customers’ needs
      in this time of economic uncertainty. Because we have a significant amount
      of
      non-performing residential construction acquisition and development loans in
      the
      portfolio, we have been described in the media as having an increased ratio
      of
      non-performing assets to total capital plus reserves and are subject to
“headline risk”. Because of factors such as the Company’s ability to raise
      capital, improve its operating results in the third quarter and the Federal
      Deposit Insurance Corporation modifying its deposit insurance limits,
      uncertainty has been reduced. However, management is aware that it must actively
      manage and maintain sufficient liquidity while uncertainty
      persists.





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 and borrowings. 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 in which we
      operate, that amount can be large based on the volume of loans that have become
      impaired. Year-to-date in 2008, the Company has charged-off $2.4 million on
      approximately $100.5 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 $2.4 million higher. Similarly, instead of experiencing a decrease in
      net
      interest income in the amount of $3.3 million, the Company would have
      experienced a decrease in net interest income in the amount of $926 thousand
      which is closer to normalized earnings of the Company excluding the carry of
      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 nine months ended September 30, 2008 was 6.23
      percent. If charged-off interest is added back, the yield on loans is a more
      normalized 6.71 percent, a 48 basis point increase. Likewise, the yield on
      earning assets would have been 6.81 **** percent **** compared
      to the actual yield of 6.42 percent. Isolating the impact of charged-off
      interest, the net interest margin would have been 3.58 percent instead of 3.19
      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 3.00 percent spread when the loan
      is
      accruing and collecting interest (performing). However, once the loan becomes
      impaired or non-performing, 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 $45.1 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
      year-to-date yield on the construction A&D portfolio would have been 3.84
      percent adding back the charged-off interest but including the average balance
      of non-performing loans. 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, add back the charged-off interest and
      recalculate the yield. The yield on that portfolio would have been 6.87 percent
      (an increase of 303 basis points) without the non-performing loans included
      in
      the calculation and after adding back the charged-off interest.


20


Net
      interest income for the quarterly period ended September 30, 2008 decreased
      by
      $3.1 million, or 35.9 percent, when compared to the third quarter of 2007.
      Again, the decrease is primarily attributable to the third quarter charge-off
      of
      accrued interest in the amount of $621 thousand, the interest carry on
      non-performing assets and the cost of maintaining extra liquidity on the balance
      sheet. 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 and third quarters 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 require 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.





The
      average cost of funds for the nine-month period ended September 30, 2008
      decreased 96 basis points from the same period in 2007. The weighted average
      cost of demand deposit accounts decreased by 67 basis points, from 2.40 percent
      in the first nine months of 2007 to 1.73 percent for the same period in 2008.
      Likewise, the weighted average cost of time deposits decreased 61 basis points
      from 5.17 percent for the nine months ended September 30, 2007 to 4.56 percent
      in the same period of 2008. The weighted average cost of time deposits will
      continue to decrease as market rates remain low because, as time deposits
      mature, they will re-price 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 agreements decreased by 141 basis
      points, from 5.13 percent through September 30, 2007 to 3.72 percent through
      September 30, 2008.





Our
      mix
      of funding liabilities has changed only slightly since September 2007 as
      management maintains more liquidity on the Bank’s balance sheet during the
      current credit downturn. The average balance of demand deposits as a percentage
      of total funding liabilities declined from 39.0 percent for the nine-month
      period ended September 30, 2007 to 38.6 percent for the same period in 2008.
      The
      average balance of time deposits as a percentage of total funding liabilities
      remained relatively unchanged from 51.1 percent through September 30, 2007
      to
      51.3 percent through the same period in 2008. Management continually seeks
      to
      maximize demand deposits as a percentage of funding liabilities.





The
      Bank
      has increase the amount of liquidity on its balance sheet. As of September
      30,
      2008, the Bank had $51.1 million of cash and cash equivalents including $27.7
      million of federal funds sold compared to $25.8 million including federal funds
      sold of $18.4 million as of December 31, 2007. The Contingency Fund Team of
      the
      Bank has determined that, given the potential liquidity needs of customers,
      we
      need to maintain between $25 million and $35 million in federal funds sold
      at
      all times. The average current rate earned on federal fund sold is below 1.00
      percent.





*Non-Interest
      Income*





Total
      non-interest income for the nine months ended September 30, 2008 decreased
      $290
      thousand, or 4.7 percent, when compared to the nine months ended September
      30,
      2007. In the third quarter of 2008 the Company wrote-down the value of certain
      foreclosed properties in the amount of $919 thousand due to deteriorating real
      estate values based on current appraisals, consultation with real estate experts
      and brokers and management’s evaluation of market conditions based on sales
      experience. In addition, we sold $2.9 million of foreclosed property for a
      loss
      of $151 thousand. The total loss on the sale of $16.3 million of foreclosed
      property through September 30, 2008 was $96 thousand and the total write-down
      of
      foreclosed property for 2008 occurred in the third quarter of 2008. The total
      loss on the sale or write-down of foreclosed property for the year-to-date
      2008
      was $1.0 million.





In
      August
      of 2008, the Company repaid its $20.0 million securities sold under a repurchase
      agreement and paid a fee of $683 thousand. The Company also sold securities
      available-for-sale during the third quarter in the amount of $21.5 million
      for a
      net gain of $329 thousand. In addition, the Company sold $7.3 million of
      securities in the first and second quarters of 2008 for a net gain of $106
      thousand. The total net gain on the sale of securities for the year-to-date
      2008
      was $435 thousand compared to no gain or loss on the sale of securities through
      the first nine months of 2007. The sale of securities and the reduction of
      debt
      resulted in deleveraging of approximately $20 million of the Bank’s balance
      sheet giving the Company greater capital coverage and more available
      liquidity.


21


Ignoring
      the year-to-date loss on sale or write-down of foreclosed property ($1.0
      million), the loss on the pay-off of the securities sold under a repurchase
      agreement ($683 thousand) and the gain on sale of securities ($435 thousand),
      non-interest income increased by $973 thousand, or 15.8 percent, when compared
      to the year-to-date 2007. This increase is attributable to three quarters of
      the
      non-interest income attributable to First Haralson compared to one quarter
      of
      non-interest income attributable to First Haralson in 2007.




Service
      charges on deposit accounts increased $1.1 million, or 30.0 percent, during
      the
      first nine months of 2008 compared to the first nine 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 $1.1 million for the first nine months of 2008
      compared to three months in 2007. Service charges on deposit accounts for the
      third quarter ended September 30, 2008 were approximately equal to the third
      quarter ended September 30, 2007.





Mortgage
      loan origination fees for the nine months ended September 30, 2008 decreased
      by
      $33 thousand, or 11.8 percent, from the same period in 2007. Mortgage loan
      origination fees for the third quarter ended September 30, 2008 decreased by
      $5
      thousand, or 5.8 percent, compared to the third quarter of 2007. The decrease
      in
      mortgage loan origination fees is attributable to the slowdown in residential
      real estate sales. In addition, we are experiencing more stringent underwriting
      standards from secondary market lenders. Brokerage fees decreased by $127
      thousand, or 27.0 percent, comparing the nine months ended September 30, 2008
      to
      the same period in 2007. Brokerage fees decreased by $61 thousand, or 36.0
      percent, comparing the three months ended September 30, 2008 to the same period
      in 2007. The decrease in brokerage fees is similarly reflective of the changing
      economic environment. Because the equity markets are highly volatile, investors
      tend to avoid 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 business strategy for the
      Company.





ATM
      and
      debit card network fees, like service charges on deposit accounts, have
      increased because of the merger. ATM and debit card network fees increased
      by
      $397 thousand, or 55.9 percent, for the nine months ended September 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 and debit card network fees. In addition to the merger, we
      have
      experienced an increase in volume of ATM and debit card usage comparing 2008
      to
      2007. The increase in ATM and debit card network fees comparing the third
      quarters 2008 and 2007 was $73 thousand, or 25.2 percent. This reflects an
      increase in ATM and debit card network fees for the quarter that reflects the
      increase in volume in 2008.





Miscellaneous
      income decreased by $281 thousand, or 27.7 percent, when comparing the nine
      months ended September 30, 2008 with the same period in 2007. The Company
      recorded a positive market value adjustment on its interest rate swap through
      September of 2007 in the amount of $127 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 and is non-recurring in nature for 2008. Miscellaneous income for the
      third quarter ended September 30, 2008 decreased $128 thousand, or 34.8 percent,
      when compared to the third quarter ended September 30, 2007.





*Non-Interest
      Expense*





Non-interest
      expense increased $3.9 million, or 23.8 percent, in the nine months of 2008
      when
      compared to the same period in 2007. Comparing the quarters ended September
      30,
      2008 and 2007, non-interest expense decreased $179 thousand, or 2.6 percent.
      The
      increase in non-interest expense for the nine month period includes an $843
      thousand, or 8.5 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,
      the
      carry of non-performing assets, charged-down foreclosed property and expense
      on
      collection of loans and maintenance of foreclosed property the Company is
      currently experiencing, our executive and lender bonus, profit sharing and
      401k
      matching accruals were $1.4 million, or 78.5 percent, less for the nine months
      of 2008 than they were in the same period of 2007. As
      of
      September 30, 2008, we had 266 full time equivalent employees compared to 262
      full time equivalent employees at September 30, 2007. We added 81 full time
      equivalent employees (for an increase of 43.1 percent) as a result of the First
      Haralson merger. 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. Comparing the third quarter
      of 2008 to the third quarter of 2007, salaries and benefits decreased by $552
      thousand, or 13.3 percent. This decrease is primarily attributable to no bonus
      or profit sharing accruals.


22


Occupancy
      expenses for year-to-date 2008 increased $703 thousand, or 30.7 percent, from
      the same period in 2007. Again, 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 $230 thousand of the increase. Maintenance of our
      branch system and banking equipment increased by $195 thousand, or 41.3 percent,
      and utilities expense including telephone increased by $196 thousand, or 40.1
      percent, from the nine months ended 2007 to 2008. The remainder of the increase
      is attributable to property insurance and property taxes. Comparing the third
      quarter of 2008 with the third quarter of 2007, occupancy expense actually
      decreased by $38 thousand, or 3.9 percent.





Expense
      on loans and foreclosed property has increased dramatically since the Company
      began experiencing collection problems and foreclosure on its construction
      A&D loan portfolio. Expense on loans and foreclosed property has increased
      by $935 thousand, or 445.2 percent, comparing the nine months ended September
      30, 2008 with the same period in 2007. The increase was $181 thousand, or 157.2
      percent, comparing the third quarter ended September 30, 2008 with the same
      period in 2007. 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 and third
      quarters of 2008 since more collection and foreclosure activity took place
      in
      these periods. 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
      or
      implementing other alternatives in order to maximize our return on the
      foreclosed properties or impaired loans.





For
      the
      nine months ended 2008, other operating expenses increased $1.4 million, or
      36.0
      percent, from the same period in 2007. Comparing the three months ended
      September 30, 2008 and 2007, the increase was $229 thousand, or 13.1 percent.
      We
      are amortizing a core deposit premium which amounted to $430 thousand for the
      year-to-date 2008 compared to $143 thousand for the same period in 2007. ATM
      and
      debit card network expense also increased by $184 thousand from 2007 to 2008
      which is commensurate with the increase in ATM and debit card revenue. Supplies
      and postage and software and processing costs related to maintaining a larger
      customer base have increased by $138 thousand, or 15.9 percent, for the two
      nine-month periods. The remaining $589 thousand increase is attributable to:
      (i)
      deposit insurance and regulatory fees resulting from our larger deposit base
      ($327 thousand); (ii) professional fees related to audit and accounting ($129
      thousand) and (iii) approximately twenty other line items ($133 thousand) that
      are included in other operating expenses.





*Income
      Taxes*





Income
      tax benefit for the nine months ended 2008 was $3.2 million compared to expense
      of $3.1 million for the same period in 2007. The effective tax rate for the
      period ended September 30, 2008 was 49.3 percent compared to 32.2 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 September
      30,
      2008 was $16.2 million, or 2.51 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.





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. We use migration analysis to assign
      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.


23


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





**Allowance
      for Loan Loss**





**For the Nine Months Ended****September 30, 2008**
            
            **September 30, 2007**Balance at beginning
                of period
            
            $
            12,422,428
            
            
            5,748,355Addition
                to allowance for loan loss attributable to acquired loan
                portfolio
            
            
            -
            
            
            1,527,225Charge-offs:Commercial,
                financial and agricultural
            
            
            53,162
            
            
            75,058Real
                estate – construction
            
            
            5,890,836
            
            
            751,784Real
                estate – mortgage
            
            
            442,936
            
            
            157,508Consumer
                loans
            
            
            411,760
            
            
            162,537Total
                charge-offs
            
            
            6,798,694
            
            
            1,146,887Recoveries:Commercial,
                financial and agricultural
            
            
            3,198
            
            
            6,286Real
                estate – construction
            
            
            203,038
            
            
            429Real
                estate – mortgage
            
            
            11,531
            
            
            7,784Consumer
                loans
            
            
            100,451
            
            
            56,104Total
                recoveries
            
            
            318,218
            
            
            70,603Net
                charge-offs
            
            
            (6,480,476
            )
            
            (1,076,284
            )Provision
                for loan losses
            
            
            10,250,000
            
            
            1,500,000Balance
                at end of period
            
            $
            16,191,952
            
            
            7,699,296Ratio
                of net charge-offs during the period to average loans
                outstanding.99
            %
            
            .19
            %Ratio
                of allowance to total loans
            
            
            2.51
            %
            
            1.17
            %




The
      Company recognized net charge-offs on a portion of several impaired loans in
      the
      amount of $2.6 million in the third quarter of 2008 compared to $4.0 million
      in
      the second quarter of 2008. In analyzing the impaired and potentially impaired
      loans in past months, management recognized the need to assign specific reserves
      to the loans since the ultimate collectability would likely be dependent on
      the
      collateral securing the loans rather than the ability of the borrower to repay
      or the income on the property. Management obtained updated appraisals on the
      properties which collateralize the loans and determined the amount of charge-off
      that it believed was necessary. Management also identified additional
      potentially impaired loans as of September 30, 2008 and determined the
      additional specific reserves and increased loan loss provision needed as a
      result. Management intends to adequately provide for potential loan loss in
      the
      portfolio.





The
      suddenness with which the loan impairments arose was not fully anticipated
      in
      early 2008. While the affected loans had previously been recognized as weak,
      the
      rapidness with which the overall residential real estate market deteriorated
      affected borrowers who were not typically past due. We continue to receive
      updated appraisals on properties and assess whether the appraised values will
      be
      sustained or whether additional charge-offs will be necessary. Management’s
      policy is to charge-off loans to the extent that they exceed 85 percent of
      the
      updated appraisal. This allows for an estimate of 15 percent to cover selling
      costs. The 85 percent valuation allowance has been effective in the past as
      the
      Company has not had significant gain or loss on its disposition of
      property.





The
      loans
      that may ultimately result in foreclosed property owned by the Company are
      primarily made up of residential housing, residential housing developments and
      related commercial frontage lots. Economists estimate that there is a twenty
      four month supply of homes and a sixty month supply of home building lots in
      some areas available in the market. The Company’s holding period for real estate
      is not typically that long. Consequently, management may elect to discount
      the
      property to reduce its holding period. Should this become necessary, the Company
      could experience further write-downs of properties. However, management has
      been
      in continued negotiations with borrowers and others as to certain of the
      properties as it attempts to collect on the loans.


24


The
      Company recorded $1.5 million in allowance for loan loss on its acquired loan
      portfolio in the First Haralson merger in the third quarter of 2007. This
      represented 1.1 percent of the acquired portfolio as of the date of closing
      of
      the merger. Management evaluated the potential risk in the portfolio and First
      Haralson’s assessment of the credit risk and historical loss to determine the
      proper allowance required on the acquired loan portfolio.





*Non-Performing
      Assets and Past Due Loans* ******





Non-performing
      assets, comprised of foreclosed property, non-accrual loans and loans for which
      payments are more than 90 days past due, totaled $100.4 million at September
      30,
      2008, or 14.7 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. As we have said, the suddenness and the severity
      with which the downturn came in the last quarter of 2007 continuing into 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 and, subsequently, the foreclosure rate 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. In fact, the third quarter of 2008 was the highest quarterly
      foreclosure rate in metro-Atlanta’s history. Atlanta is in the top twenty cities
      in the country in terms of foreclosure rates. The declining demand for housing
      is now being further exacerbated by a downturn in the national economy, rising
      energy prices, mounting job losses and a volatile stock market.





The
      excess of supply of residential property and floundering national and local
      economy are continuing to have 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 an increasing number of borrowers.
      In
      addition, some borrowers may file for protection under bankruptcy laws which
      can
      further lengthen the collection period of the loan. Approximately 81% of the
      total amount of non-performing assets as of September 30, 2008 was made up
      of 25
      loan relationships with balances of $1 million to $7 million per
      relationship.





Federal
      banking regulations require us to review and assess the quality of our assets
      on
      a regular basis.  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
      September 30, 2008, approximately $139.0 million of the Bank's loans, which
      includes $100.4 million in impaired loans, foreclosed property and loans 90
      days
      past due and accruing, were classified “substandard” compared to $33.9 million
      at September 30, 2007, and $29.2 million of assets were classified as “special
      mention” at September 30, 2008 compared to $6.6 million at September 30, 2007.
      We also had $4.4 million of assets classified as “doubtful” as of September 30,
      2008 compared to $162 thousand for the previous year. None of our assets were
      classified as “loss” for either year.





Management
      has performed impairment analyses on each classified 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.


25


Management’s
      most critical priority is disposing and maximizing the net realizable value
      of
      the non-performing assets. Management is 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 $892 million at September 30, 2008, an increase of $8.8 million,
      or
      1.0 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 September 30, 2008 grew by $25.2 million, or 97.7 percent, from
      December 31, 2007. During the same period, total deposits grew by $30.0 million,
      or 4.2 percent. As of September 30, 2008, the Bank had $27.7 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.
      The increase in Federal Deposit insurance levels to $250,000 per account has
      helped our liquidity position. 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
      September 30, 2008, earning assets totaled $722.9 million, or 81.0 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 nine month period in 2008. We are attempting to
      continue to lend in our local market area to meet the credit needs of our
      community. However, we are reducing our exposure to construction A&D
      lending.





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





**Loans**
            
            **September 30, 2008**
            
            **December 31, 2007**Commercial,
                financial and agricultural
            
            $
            65,476,656
            
            
            63,038,467Real
                Estate – mortgage
            
            
            342,007,623
            
            
            313,836,443Real
                Estate – construction
            
            
            202,483,485
            
            
            242,216,730Consumer
            
            
            36,725,117
            
            
            40,872,282**Total**
            
            **$**
            **646,692,881**
            
            
            **659,963,922**Unearned
                interest
            
            
            (1,525,690
            )
            
            (1,802,831
            )Allowance
                for loan losses
            
            
            (16,191,951
            )
            
            (12,422,428
            )**Net
                Loans**
            
            **$**
            **628,975,240**
            
            
            **645,738,663**





At
      September 30, 2008, interest-bearing liabilities increased $4.6 million, or
      0.6
      percent, compared to December 31, 2007. Interest-bearing demand deposits have
      decreased by $14.4 million, or 6.5 percent, and time deposits have increased
      by
      $41.2 million, or 10.3 percent, since the beginning of 2008.
      Non-interest-bearing deposits increased $2.9 million, or 4.3 percent, in the
      first nine months of 2008. Time deposits under $100 thousand have grown by
      $31.6
      million, or 18.6 percent, while time deposits over $100 thousand have grown
      $9.6
      million, or 4.2 percent, since December 31, 2007. The growth in brokered
      deposits from December 31, 2007 to September 30, 2008 was $26.4 million, or
      29.0
      percent, and these brokered deposits now constitute 16 percent of total deposits
      compared to 13 percent as of December 31, 2007.





*Liquidity
      and Capital Resources*





Net
      cash
      provided by operating activities totaled $5.4 million for the nine months ended
      September 30, 2008. Net cash used by investing activities totaled $4.4 million
      and consisted primarily of a $23.6 million increase in net loans to customers
      along with a $24.3 million decrease in securities available for sale. Net cash
      generated by financing activities was $15.5 million, a result of an increase
      in
      total deposits of $30.0 million, proceeds from the sale of Series A preferred
      stock (net of offering costs) in the amount of $10.0 million and the reduction
      of securities sold under repurchase agreement of $20.0 million. The net increase
      in cash and cash equivalents as of September 30, 2008 was $25.2
      million.


26


On
      September 22, 2008, the Company closed the rights offering portion of its
      preferred stock offering, selling more than $9.2 million of its 9% Series A
      Convertible Preferred Stock to existing shareholders. The total received in
      the
      offering as of September 30, 2008 was $10.0 million. The ongoing preferred
      offering, which is scheduled to expire January 15, 2009, has increased the
      Company’s total shareholders’ equity, total tangible equity and total regulatory
      capital to $83.2 million, $54.1 million and $74.1 million, respectively. As
      of
      September 30, 2008, the Company’s tier one leverage ratio, tier one risk based
      capital ratio and total risk based capital ratio were 7.43%, 9.76% and 11.01%,
      respectively. These levels compare to the regulatory well-capitalized standards
      of 5%, 6% and 10%, respectively. Total stockholders’ equity at September 30,
      2008 was 9.3 percent of total assets, compared to 9.1 percent at December 31,
      2007. The Company’s tangible equity to tangible assets was 6.3 percent and 5.9
      percent as of September 30, 2008 and December 31, 2007.





At
      September 30, 2008, WGNB Corp. was in compliance with various regulatory capital
      requirements administered by federal and state banking agencies. The following
      is a table representing WGNB Corp.’s consolidated Tier-1, tangible capital, and
      risk-based capital.





**September
                30, 2008****Actual**
            
            
            
            **Required**
            
            
            
            **Excess****Amount**
            
            **%**
            
            **Amount**
            
            **%**
            
            **Amount**
            
            **%**Total
                capital (to risk-weighted assets)
            
            $
            74,177
            
            
            11.01
            %
            $
            53,877
            
            
            8.00
            %
            $
            20,300
            
            
            3.01
            %Tier
                1 capital (to risk- weighted assets)
            
            
            65,758
            
            
            9.76
            %
            
            26,930
            
            
            4.00
            %
            
            38,828
            
            
            5.76
            %Tier
                1 capital (to average assets)
            
            
            65,758
            
            
            7.43
            %
            
            35,407
            
            
            4.00
            %
            
            30,351
            
            
            3.43
            %





*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. At September
      30,
      2008, the Bank had issued commitments to extend credit of $84.7 million through
      various types of commercial lending arrangements and additional commitments
      through standby letters of credit of $7.6 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, 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 and 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 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 control interest rate risk. However, a sudden and substantial
      increase in interest rates may not have proportional impact on interest
      sensitive assets and liabilities. Management believes that it has improved
      the
      Company’s position with regard to interest rate risk resulting from significant
      changes in market interest rates since December 31, 2007.


27


**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 September 30, 2008 that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting.





**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.





No
      dividends were paid on our common stock during the third quarter of 2008. The
      declaration of future dividends is within the discretion of the Board of
      Directors and will depend, among other things, upon business conditions,
      earnings, the financial condition of the Bank and the Company, and regulatory
      requirements. The terms of our Series A Preferred stock also prohibit us from
      paying dividends on our common stock unless dividends on our Series A Preferred
      stock are paid for the applicable quarterly period.





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





Not
      applicable.





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





Not
      applicable.





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




Not
      applicable.




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





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”))


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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
            Third
                Articles of Amendment to Amended and Restated Articles of Incorporation
                (Regarding restatement of 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 July 22, 2008)





3.5
            Amended
                and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
                the Form
                10-SB)





4.1
            See
                exhibits 3.1 through 3.5 for provisions of Company’s Articles of
                Incorporation and Bylaws Defining the Rights of
                Shareholders




4.2
            Specimen
                certificate representing shares of Common Stock (Incorporated by
                reference
                to Exhibit 4.2 to the Form 10-SB)





4.3
            Specimen
                certificate representing shares of Series A Convertible Preferred
                Stock





4.4
            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”)





4.5
            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)


4.6
            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)





4.7
            WGNB
                Corp. Direct Stock Purchase and Dividend Reinvestment Plan (Incorporated
                by reference to Form S-3 filed May 20, 2008 as amended November 6,
                2008)





10.1
            Agreement
                between First National Bank of Georgia and The Comptroller of the
                Currency
                dated November 12, 2008





31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002





31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes
                Oxley
                Act of 2002





32.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002





32.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes
                Oxley
                Act of 2002


29


**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:
      November 14, 2008




**WGNB
                CORP.**By:
            /s/
                H. B. Lipham, IIIH.
                B. Lipham, IIIChief
                Executive Officer(Principal
                Executive Officer)By:
            /s/
                Steven J. HaackSteven
                J. HaackTreasurer(Principal
                Financial Officer)


30