**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-K**
 
 **(Mark
        One)**
  **x**
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934:**
 **For
                  the fiscal year ended December 31,
                  2007**
 
 **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 No. 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**
              
              **(770)
                  832-3557****Carrollton,
                  Georgia 30117**
              
              **(Registrant’s
                  telephone number,****(Address
                  of principal executive offices)**
              
              **Including
                  area code)**
  **Securities
        registered pursuant to Section 12(b) of the Act:**
  **Title
                    of Class**
                
                **Name
                    of Exchange on Which Listed**Common
                    Stock, $1.25 par value
                
                The
                    NASDAQ Stock Market, LLC
  **Securities
        registered pursuant to Section 12(g) of the Act: N/A**
 
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.
  Yes
o  No
x
  Indicated
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.
  Yes o  No x
  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. YesxNoo
 
 Indicateby
                  check mark if disclosure of delinquent filers pursuant to Item
                  405 of
                  Regulation S-K is not contained herein, and will not be contained,
                  to the
                  best of registrant’s knowledge, in definitive proxy or information
                  statements incorporated by reference in Part III of this Form 10-K
                  or any
                  amendment to this Form 10-K.x
 
 Indicateby
                  check mark whether the registrant is a large accelerated filer,
                  an
                  accelerated filer, or a non-accelerated filer. See definition of
                  “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                  Exchange Act). (Check one)
 Large
                    Accelerated Filer o
                
                Accelerated
                    Filero
                
                Non-Accelerated
                    Filer x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        2b-2
        of the Exchange Act).
  Yes o  No
x
  
  The
        aggregate market value of the registrant’s Common Stock held by non-affiliates
        of the registrant as of June 30, 2007 which is the last business day of its
        most
        recently completed second fiscal quarter, was approximately $74,622,299 based
        on
        a per share price of $27.25 (which is the average of the ask and bid price
        reported by the NASDAQ Stock Market) as of such date. Shares of Common Stock
        held by each executive officer and director and by each person who owns 5%
        or
        more of the registrant’s Common Stock have been excluded in that such persons
        may be deemed affiliates of the registrant. This determination of affiliate
        status is not necessarily a conclusive determination for other purposes.
  As
        of
        March 28, 2008, there were 6,057,594 shares of the registrant’s Common Stock
        outstanding.
 
 **DOCUMENTS
        INCORPORATED BY REFERENCE**
  Portions
        of the registrant’s definitive Proxy Statement for the 2008 Annual Meeting of
        Shareholders are incorporated by reference into Part III of this Report.
 
 
  **WGNB
        CORP.**
 
 **2007
        Form 10-K Annual Report**
 
 **TABLE
        OF CONTENTS**
 
 **Item
                Number**
              
              
              
              **Page
                  or****in
                  Form 10-K**
              
              **Description**
              
              **Location****PART
                  I**Item
                  1.
              
              Business
              
              1Item
                  1A.
              
              Risk
                  Factors
              
              17Item
                  1B.
              
              Unresolved
                  Staff Comments
              
              19Item
                  2.
              
              Properties
              
              19Item
                  3.
              
              Legal
                  Proceedings
              
              21Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              21**PART
                  II**Item
                  5.
              
              Market
                  for the Common Equity, Related Shareholder Matters and Issuer Purchases
                  of
                  Equity Securities
              
              21Item
                  6.
              
              Selected
                  Financial Data
              
              22Item
                  7.
              
              Management’s
                  Discussion and Analysis of FinancialCondition
                  and Results of Operations
              
              23Item
                  7A.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              42Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              
              42Item
                  9.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              42Item
                  9A(T).
              
              Controls
                  and Procedures
              
              42Item
                  9B.
              
              Other
                  Information
              
              43**PART
                  III**Item
                  10.
              
              Directors,
                  Executive Officers and Corporate Governance
              
              43Item
                  11.
              
              Executive
                  Compensation
              
              43Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Ownersand
                  Management and Related Shareholder Matters
              
              43Item
                  13.
              
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              
              44Item
                  14.
              
              Principal
                  Accountant Fees and Services
              
              44**PART
                  IV**Item
                  15.
              
              Exhibits
                  and Financial Statement Schedules
              
              44Signatures
              
              47
 
 
  **PART
        I**
 
 **Item
        1.**  **Business**
 
 **General**
 
 WGNB
        Corp. (which is sometimes referred to herein as the “Company” or “WGNB”) is an
        $884 million asset bank holding company headquartered in Carrollton, Georgia.
        The Company was organized as a business corporation under the laws of the
        State
        of Georgia in 1984 and is a registered bank holding company under the Federal
        Bank Holding Company Act of 1956, as amended, and under the bank holding
        company
        laws of the State of Georgia. WGNB completed a merger transaction with First
        Haralson Corporation (which is sometimes referred to herein as “First Haralson”)
        effective July 1, 2007 whereby First Haralson was merged with and into WGNB.
        In
        addition, First National Bank of Georgia, a wholly owned subsidiary of First
        Haralson, was merged with and into West Georgia National Bank. After the
        closing
        of the merger, both First Haralson and First National Bank of Georgia ceased
        to
        exist. At the effective date of the merger West Georgia National Bank changed
        its name to First National Bank of Georgia.
 
 WGNB
        continues to conduct operations in western Georgia through its wholly-owned
        subsidiary, First National Bank of Georgia (which is sometimes referred to
        herein as the “Bank” or “First National Bank”). The Bank was organized in 1946
        as a national banking association under the federal banking laws of the United
        States. As of March 28, 2008, WGNB had 6,057,594 issued and outstanding shares
        of common stock, $1.25 par value per share (which is sometimes referred to
        herein as the “Common Stock”), held by approximately 1,200 shareholders of
        record.
 
 WGNB
        conducts all of its business through First National Bank. The executive offices
        of both WGNB and First National Bank are located at 201 Maple Street,
        Carrollton, Georgia 30117. Access to WGNB’s annual report on Form 10-K,
        quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
        to those reports is available at its website, www.wgnb.com under
        the investor relations tab.
 
 **The
        Bank**
 
 First
        National Bank is a full service commercial bank offering a variety of services
        customary for community banks of similar size which are designed to meet
        the
        banking needs of individuals and small to medium-sized businesses. It attracts
        most of its deposits from Carroll, Haralson, Douglas and Coweta Counties
        and
        conducts most of its lending transactions from an area encompassing Carroll,
        Haralson, Douglas, Coweta and Paulding Counties.
 
 First
        National Bank’s main office is located in Carrollton, Georgia. It operates a
        total of sixteen branches, a loan production office and nine additional 24-hour
        ATM sites located in Carroll, Haralson, Douglas and Coweta Counties in Georgia.
        In Carroll County, First National Bank operates, in addition to its main
        office,
        three branches in the City of Carrollton, one of which serves our Spanish
        speaking customers, one branch in Villa Rica, one branch in Bowdon and one
        branch in Temple. In Haralson County, it operates two branches in Bremen,
        one
        branch in Buchanan and two branches in Tallapoosa. In Douglas County, it
        operates two branches in the City of Douglasville and one branch in Villa
        Rica.
        In Coweta County, it operates a loan production office located in Sharpsburg
        and
        a second branch which serves Spanish speaking customers located in
        Newnan.
 
 As
        a
        convenience to its customers, First National Bank offers at all of its branch
        locations (except the Banco de Progreso locations) drive-thru teller windows
        and
        24-hour automated teller machines. All but one location has Saturday banking
        hours. It is a member of Star, Cirrus and several other ATM networks of
        automated teller machines that permit customers to perform monetary transactions
        in most cities throughout the southeast and other regions. First National
        Bank
        also offers Internet banking services through its website located at
        www.wgnb.com. Information included on the Bank’s website is not a part of this
        Report.
 
 *Deposit
        Services.* First
        National Bank offers a full range of deposit services including checking
        accounts, NOW accounts, savings accounts and other time deposits of various
        types, ranging from money market accounts to longer-term certificates of
        deposit. The accounts are all offered to its market area at rates competitive
        to
        those offered in the area. All deposits are insured by the Federal Deposit
        Insurance Corporation (the “FDIC”) up to the maximum allowed by law. In
        addition, First National Bank has implemented service charge fee schedules
        competitive with other financial institutions in its market area covering
        such
        matters as maintenance fees on checking accounts, per item processing fees
        on
        checking accounts, returned check charges and the like.
  1
 
 As
        of
        December 31, 2007, First National Bank had deposits of approximately $706
        million, and approximately 50 thousand deposit accounts. No material portion
        of
        its deposits relates to one or a few persons or entities (including federal,
        state and local governments and agencies). The loss of any one or a few
        principal deposit customers would not have a material adverse effect on the
        operations or earnings of the Bank.
  The
        following table sets forth the mix of depository accounts at the Bank as
        a
        percentage of total deposits as of December 31, 2007:
  Deposit
                  MixAt
                  December 31,
                2007Non-interest
                  bearing demand
              
              
              10
              %NOW
                  accounts and money market
              
              
              31
              %Savings
              
              
              3
              %Time
                  DepositsUnder
                  $100,000
              
              
              24
              %$100,000
                  and over
              
              
              32
              %100.00
              %
 
 *Lending
        Services.* First
        National Bank’s lending business consists principally of making consumer loans
        to individuals and commercial loans to small and medium-sized businesses
        and
        professional concerns. This was also the focus of First Haralson’s lending
        business. Consequently, the loan portfolio that we acquired in the merger
        had
        many of the same characteristics as the Bank’s existing portfolio. First
        National Bank also makes secured real estate loans, including residential
        and
        commercial construction loans, and first and second mortgage loans for the
        acquisition or improvement of personal residences. As of December 31, 2007,
        the
        Bank had approximately $660 million in total loans outstanding, representing
        75%
        of its total assets of approximately $884 million. The loan portfolio is
        made up
        of both fixed and adjustable rate loans. As of December 31, 2007, approximately
        62% of the total loan portfolio was fixed rate and 38% was adjustable rate.
        The
        Bank is not dependent to any material degree upon any single borrower or
        a few
        principal borrowers. The loss of any individual borrower or of a few principal
        borrowers would not have a material adverse effect on the operations or earnings
        of First National Bank.
 
 *Real
        Estate Loans.* Loans
        secured by real estate make up the primary component of the Bank’s loan
        portfolio, constituting approximately $556 million, or 85%, of its total
        loans
        as of December 31, 2007. Approximately 58% of the real estate loans are fixed
        rate and 42% are adjustable rate. Approximately 66% of the fixed rate real
        estate loans mature in one year or less and approximately 95% of the fixed
        rate
        real estate loans mature in five years or less. These loans consist of
        commercial real estate loans, construction and development loans, residential
        real estate loans and home equity loans. Real estate loans are collateralized
        by
        commercial and residential real estate primarily located in our primary and
        secondary market areas. The types of real estate that typically constitute
        collateral include primary and secondary residences for individuals,
        multi-family projects, places of business, real estate for agricultural uses
        and
        developed and undeveloped land.
 
 *Commercial
        Loans, Other Than Commercial Loans Secured by Real Estate* .
        First
        National Bank makes loans for commercial purposes in various industries resident
        to its market area. As of December 31, 2007, commercial loans constituted
        approximately $63 million, or 9%, of its total loans. Approximately 71% of
        commercial loans are fixed rate while 29% are adjustable. The typical commercial
        loan has a maturity of three years or less. The typical commercial loan has
        collateral such as equipment for business use and inventory and may include
        unsecured working capital lines.
 
 *Consumer
        Loans* .
        The
        Bank makes a variety of loans to individuals for personal and household
        purposes, including secured and unsecured installment and term loans and
        lines
        of credit. As of December 31, 2007, it held approximately $41 million of
        consumer loans, representing 6% of total loans. Consumer loans are primarily
        fixed rate in nature with 96% of this loan category carrying fixed rates.
        These
        loans are typically collateralized by personal automobiles, recreational
        vehicles or cash on deposit and may include unsecured loans to
        individuals.
  2
 
 *Other
        Lending Activities.* First
        National Bank also engages in secondary-market mortgage activities whereby
        it
        originates mortgage loans on behalf of investor correspondent banks that
        fund
        the loans. The investor correspondent banks underwrite and price the loans
        and
        the Bank receives a fee for originating and packaging the loans. Periodically,
        the Bank receives discount points depending on the pricing of the loan. No
        mortgage loans are held by the Bank for resale nor does it service third
        party
        loans.
 
 *Risks
        Associated with Lending Activities.* Consumer
        and non-mortgage loans to individuals can entail greater risk, particularly
        in
        the case of loans that are unsecured or secured by rapidly depreciating assets
        such as automobiles. In such cases, any repossessed collateral for a defaulted
        consumer loan may not provide an adequate source of repayment of the outstanding
        loan balance as a result of the greater likelihood of damage, loss or
        depreciation. In addition, consumer loan collections are dependent on the
        borrower's continuing financial stability, and thus are more likely to be
        adversely affected by job loss, divorce, illness or personal bankruptcy.
        Furthermore, the application of various federal and state laws, including
        federal and state bankruptcy and insolvency laws, may limit the amount that
        can
        be recovered on such loans.
 
 Commercial
        loans and loans secured by commercial and multi-family real estate properties
        are generally larger and involve a greater degree of credit risk than
        one-to-four family residential mortgage loans. Because payments on these
        loans
        are often dependent on the successful operation of the business or management
        of
        the property, repayment of such loans may be subject to adverse conditions
        in
        the economy or real estate markets. It has been the Bank’s practice to
        underwrite such loans based on its analysis of the amount of cash flow generated
        by the business and the resulting ability of the borrower to meet its payment
        obligations. In addition, the Bank, in general, seeks to obtain a personal
        guarantee of the loan by the owner of the business and, under certain
        circumstances, seeks additional collateral.
 
 Construction
        loans are generally considered to involve a higher degree of credit risk
        than
        most other types of loans. Risk of loss on a construction loan is dependent
        largely upon the accuracy of the initial estimate of the security property's
        value upon completion of construction as compared to the estimated costs
        of
        construction, including interest and fees. In addition, First National Bank
        assumes certain risks associated with the borrower’s ability to complete
        construction in a timely and workmanlike manner. If the estimate of value
        proves
        to be inaccurate, or if construction is not performed timely or in a quality
        manner, the Bank may be confronted with a project which, when completed,
        has a
        value insufficient to assure full repayment or to advance funds beyond the
        amount originally committed to permit completion of the project. Additionally,
        the Bank limits draws on construction projects on a percentage of completion
        basis which is monitored by an independent inspection process.
 
 Construction
        lending has been
        particularly difficult in the last half of 2007 with the downturn in the
        residential real estate market in the metropolitan Atlanta area which includes
        our primary and secondary market areas. As of December 31, 2007, First National
        Bank had $244 million of construction or residential development loans which
        constituted 37% of total loans. As of December 31, 2007, included in
        construction and development loans were approximately $30.1 million of
        impaired loans for which the Bank is no longer accruing interest. Impaired
        loans
        represented 4.5% of total loans as of December 31, 2007. However, during
        the
        week of March 17, 2008 as a result of our aggressive loan review and grading
        functions and regular discussions with certain borrowers, management determined
        that certain loans recorded on its balance sheet as of December 31 had become
        impaired. The increase in impaired loans qualifies as a material subsequent
        event. As a result of this material subsequent event, the Bank’s impaired loans
        increased by $16.3 million for a revised total of $46.4 as of December 31,
        2007.
        Management is recording an additional provision for loan and lease loss in
        the
        amount of $6.4 million (the total provision for 2007 is $10.2 million), an
        additional charge down of real estate owned in the amount of $381 thousand
        and a
        charge down of accrued interest on the additional impaired loans in the amount
        of $162 thousand as of December 31, 2007. 
 Impaired
          loans are considered non-performing assets when the accrual of interest
          is
          discontinued. The level of non-performing assets including impaired non-accrual
          loans, real estate taken in foreclosure and loans which are 90 days past
          due
          including the loans impaired in March 2008 totaled $58.3 million, or 8.8%
          of
          total loans, as of December 31, 2007, which are at a historical high and
          are
          primarily attributable to the construction portfolio.
 *Target
        Concentrations & Loan Portfolio Mix* .
        The
        Bank has target concentration and portfolio mix limits written in its loan
        policy. The goal of the policy is to avoid concentrations that would result
        in a
        particular loan or collateral type, industry or geographic area comprising
        a
        large part of the whole portfolio. The portfolio should be varied enough
        to
        obtain a balance of maximum yield and acceptable risk. The loan portfolio
        mix is
        reported and reviewed quarterly by our Board of Directors. Concentration
        targets
        are evaluated periodically to determine changes in risk profiles and market
        need. The following represents target concentrations of loans by category
        as a
        percentage of total loans:
 Unsecured
                    loans
                
                
                6
                %Loans
                    secured by:Residential
                    real estate
                
                
                30
                %Commercial
                    real estate
                
                
                35
                %Convenience
                    stores
                
                
                6
                %Hotels/motels
                
                
                5
                %Poultry
                    facilities
                
                
                7
                %Acquisition
                    & development/construction loans
                
                
                30
                %Commercial
                    and industrial purpose loans
                
                
                20
                %Exceptions
                    to primary and secondary trade area
                
                
                15
                %
  3
 While
        the
        loan policy includes a provision generally limiting all types of real estate
        loans to 85% of the total loan portfolio, the executive loan committee can
        approve loans that exceed the policy limits on a case by case basis where
        warranted. At the end of the fourth quarter of 2007, we were within the overall
        real estate concentration target although we have approved concentrations
        above
        the target in the specific segments of single family construction and land
        development. With the benefit of our experienced lenders and specialized
        controls, we are able to serve this market with low historical loan loss.
        However, during the last half of 2007 and continuing in the first quarter
        of
        2008 the residential real estate market experienced a downturn that caused
        us to
        record significant charge-offs and a high level of non-performing assets. *See
        “Management’s Discussion and Analysis of Financial Condition and Results of
        Operations - Provision and Allowance for Possible Loan and Lease
        Losses”* and *“-
        Non-Performing Assets and Past Due Loans.”* We will
        continue to capture opportunities in these segments while actively seeking
        to
        diversify our portfolio into other business lines such as commercial and
        industrial loans as well as Small Business Administration loans.
 
 *Legal
        Lending Limit* .
        First
        National Bank is subject to loans to one borrower limitations prescribed
        for
        national banks by the Office of the Comptroller of the Currency. *See
        -- Supervision and Regulation* .
        The
        legal lending limit to a single borrower by regulation is 15% of a bank’s total
        capital and reserves, plus an additional 10% of a bank’s capital and reserves if
        the amount exceeding the 15% general limit is secured by readily marketable
        securities. The Bank, however, has adopted an internal policy requiring all
        exposure above 15% of capital and reserves to be approved by the entire Board
        of
        Directors unless certain conditions are met including one or more of the
        following:
 
 ·
              the
                  amounts exceeding the limit are sold on a non-recourse
                  basis;
 
 ·
                  the
                      amounts exceeding the limit are secured by readily marketable
                      securities,
                      up to a limit of 25% of capital and
                      reserves.
 
 *Loan
        Underwriting Standards* .
        Management recognizes the importance of character and past performance as
        consideration in the lending decision process. In analyzing a credit
        relationship, primary emphasis is placed on adequacy of cash flow and the
        ability of the borrower to service the debt. Secondary emphasis is placed
        on the
        past performance of the borrower, the type or value of the collateral, the
        amount of net worth present or any performance of endorsers or
        guarantors.
 
 Collateral
        is not considered a substitute for the borrower’s ability to repay. Collateral
        serves as a way to control the borrower and provide additional sources of
        repayment in the event of default. The quality and liquidity of the collateral
        are of paramount importance and must be confirmed before the loan is made.
        The
        Bank has loan-to-value and margin guidelines that are varied depending on
        the
        type of collateral offered. Loans secured by liquid assets and securities
        carry
        margins of 75% to 100% depending on the liquidity and price volatility of
        the
        asset. Loan-to-value ratios on various types of real estate credits generally
        do
        not exceed 85% with most below 80%. Installment loans, in general, allow
        for a
        maximum loan to collateral value of 85%. In addition, there are limits on
        terms
        of repayment of loans for automobiles and related collateral which are dependent
        on the age of the asset. There are certain exceptions to the loan-to-value
        guidelines that are dependent on the overall creditworthiness of the
        borrower.
 
 *Loan
        Approval* .
        First
        National Bank’s loan approval policies provide for various levels of officer
        lending authority. When the aggregate outstanding loans to a single borrower
        exceeds an individual officer’s lending authority, the loan request must be
        considered and approved by an officer with a higher lending limit or an
        officers’ loan committee (the “OLC”). Individual officer’s secured and unsecured
        lending limits range from $5,000 to $500,000, depending on seniority. The
        OLC,
        which consists of the Bank’s CEO, President and four Executive Vice Presidents,
        has a lending limit of $1,000,000 for secured and $200,000 for unsecured
        loans.
        Loans between $1,000,000 and the Bank’s legal lending limit must be approved by
        the Bank’s Executive Loan Committee (the “ELC”), which is made up of the Bank’s
        CEO, President, one Executive Vice President and nine outside
        directors.
  4
 
 *Loan
        Review.* During
        2007, the Bank’s loan review process was strengthened significantly. Our Chief
        Credit Officer reviewed and improved critical policies and procedures in
        order
        to adequately support the current portfolio. Particular focus was placed
        on the
        construction portfolio. A comprehensive credit administration process is
        imperative particularly as portfolio size, complexity and risk exposure
        increases.
 
 The
        Bank
        has a comprehensive loan review process involving independent internal loan
        review and, as necessary, independent consulting firms. The loan review process
        is designed to promote early identification of credit quality problems at
        both
        the relationship level and portfolio level. The scope of loan review activity
        for the commercial and business portfolio includes a minimum of 100% of all
        loan
        relationships greater than $1 million and 75% of all loan relationships between
        $800 thousand and $1 million. All loan officers are charged with the
        responsibility of grading their loans. Loan review may modify grades as part
        of
        the loan review process, with the Chief Credit Officer’s approval, to ensure
        proper risk identification. Loan reviews are presented to ELC for oversight
        and
        concurrence. The Bank’s risk identification process is reviewed by its
        regulators and its independent auditors giving further oversight and
        feedback.
 
 The
        Bank’s loan reviewer has developed an annual loan review schedule to meet annual
        review penetration goals. This added experience has also improved the loan
        review work product, making reviews an important part of our individual loan
        and
        portfolio management process. The loan review schedule is reviewed regularly
        for
        adherence to performance and production goals. As necessary, outside loan
        review
        consultants may be retained to increase review coverage.
 
 **Market
        Area**
 
 The
        following statistical data relating to our market area is based on information
        contained in a report published by the University of West Georgia Department
        of
        Economics dated October 30, 2007 and other information published by the FDIC
        on
        its website.
 
 The
        five
        county West Georgia area that we serve has been impacted by the slowdown
        of the
        residential real estate market, particularly in the second half of 2007.
        Institutions that are involved in various aspects of residential construction
        and development have been affected by the slowdown. The primary effect of
        this
        downturn has been in terms of an increase in First National Bank’s
        non-performing assets in the last six months of 2007. *See* ,
        for
        example, *“Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
        -
        Provision and Allowance for Possible Loan*  *and
        Lease Losses”* **** and **“-** *Non-Performing
        Assets and Past Due Loans.”*
 
 The
        Bank’s primary market area includes all of Carroll, Coweta, Douglas and Haralson
        Counties in Georgia. Approximately 70% of its deposit accounts are located
        in
        Carroll County, 26% are located in Haralson County and 4% are located in
        Douglas
        County. However, the Bank attracts loan business from neighboring Coweta
        and
        Paulding Counties as well. It opened its only deposit accepting facility
        in
        Coweta County in December of 2007. This location is First National Bank’s second
        branch in its Banco de Progresso division. Our secondary market area includes
        the Georgia counties of Heard, Cobb, Polk, Paulding, Meriwether, Fayette
        and the
        southern portion of Fulton, and the Alabama counties of Clebourne and Randolph.
 
 Carroll
        County, located approximately 45 miles southwest of Atlanta and 90 miles
        east of
        Birmingham, Alabama, ranks 19 th among
        Georgia’s 159 counties in terms of population and 23 rd in terms
        of total personal income. Its major industries include manufacturing, wholesale
        and retail trade, food processing, accommodation and food services, construction
        and health services. Our main office is located in Carrollton, which is the
        county seat for Carroll County. The University of West Georgia, which serves
        more than 11,000 students, Southwire Inc. and Tanner Health System are also
        headquartered in Carrollton.
  5
 
 Carroll
        County continues to be the largest deposit base county in the Bank’s market area
        with Douglas County, to its east, and Paulding County, to its north, also
        emerging as deposit growth areas. The amount of total deposits in Carroll
        County
        was approximately $1.99 billion as of June 30, 2007, an increase of 9.9%
        from
        total deposits of approximately $1.81 billion as of June 30, 2006. As of
        June
        30, 2007, First National Bank ranked number one in terms of market share
        for
        Carroll County, holding approximately 23% of the market’s deposits. The number
        two, three and four banks held, respectively, 15%, 14% and 10% of the market
        area’s deposits.
 
 Haralson
        County ranks 60 th among
        Georgia’s 159 counties in terms of population. The amount of total deposits in
        Haralson County was approximately $433 million as of June 30, 2007. We entered
        the Haralson County market through our acquisition of First Haralson, the
        holding company for First National Bank of Georgia which, as of June 30,
        2007,
        held a 38% market share of Haralson County deposits. A primary factor for
        the
        First Haralson acquisition was its effect on the resulting market share in
        WGNB’s and First Haralson’s respective counties. In Carroll and Haralson
        Counties alone, our combination gave us a number one market share position,
        holding 28% of the deposits in the combined county market. The second ranked
        institution held a 17% deposit market share.
  Douglas
        County (which has the largest population of our five county West Georgia
        market
        and ranks 16 th among
        all 159 Georgia counties in terms of population) had the second largest deposit
        base in our market area with $1.51 billion in total deposits and a 7.9% deposit
        growth rate in 2007. The Bank held a 3.4% market share as of June 30, 2007,
        ranking ninth in terms of deposits for financial institutions located in
        Douglas
        County. With respect to Carroll and Douglas Counties, on a combined basis,
        the
        Bank ranked number one in terms of market share of total deposits in the
        combined counties, with a 14.7% market share. The second ranked institution
        held
        a 10.3% market share in the combined counties.
 
 Population
        growth in Coweta County was strong in 2006 and 2007. The County’s population
        grew by 5% in 2006 with half of that population growth in the City of Newnan.
        Coweta County ranks 17 th out
        of
        159 Georgia counties, just behind Douglas County, in terms of population.
        The
        per capita income in Coweta County (at $28,319) is the highest in the west
        Georgia region. The unemployment rate, at 3.9%, is among the lowest in Georgia
        and should be positively impacted in the future by manufacturing employment.
        Coweta County is third in both population size and deposit base size in the
        five-county west Georgia area with a deposit base of $1.40 billion. The Company
        sees the population growth rate, high per capita income and low unemployment
        rate among the primary reasons for establishing both a commercial loan
        production office and a second Banco de Progreso branch.
  We
        have
        established three branches in the Douglas County market over the past six
        years.
        One branch is located on Highway 5 just south of I-20, one branch is located
        on
        Chapel Hill Road near Arbor Place Mall just south of I-20 and the third is
        located in a rapidly developing area known as Mirror Lake located on Mirror
        Lake
        Boulevard just north of I-20. We serve the Douglas County market with these
        three locations. As of December 31, 2007, the Bank held total deposits of
        $48.9
        million at these Douglas County locations and total loans of $180.9
        million.
 
 We
        opened
        a second Banco De Progreso branch in November 2007. This branch is located
        in
        Newnan, Coweta County. Banco De Progreso, “the Bank of Progress”, is a fairly
        new division of First National Bank designed to serve the Spanish-speaking
        population in our market. Our first Banco De Progreso office was opened in
        July
        2006 in Carrollton and serves a customer base which includes an increasing
        number of customers traveling from Newnan. Since inception, Banco de Progreso
        has grown its loan portfolio to $25.8 million with normal delinquency and
        its
        deposits to $1.3 million.
 
 **Competition**
 
 The
        Bank
        operates in a competitive environment, competing for deposits and/or loans
        with
        commercial banks, thrifts and other financial entities. Principal competitors
        include other small community commercial banks (such as McIntosh Commercial
        Bank, First Georgia Banking Company, Community Bank of West Georgia, Peoples
        Community National Bank, Douglas County Bank, First Commerce Community Bank
        and
        a newly formed bank, River City Bank which is a branch of River City Bank
        headquartered in Rome, Georgia) and larger institutions with branches in
        the
        Bank’s market area such as CB&T of West Georgia, C&M Bank (divisions of
        Synovus Bank), BB&T, Regions Bank, United Community Bank, Bank of America,
        SunTrust Bank and Wachovia Bank. Numerous mergers and consolidations involving
        banks in the Bank’s market area have occurred, requiring the Bank to compete
        with banks with greater resources. During 2007, SunTrust Bank announced the
        purchase of Gainesville Bank and Trust which owns Hometown Bank of Villa
        Rica.
  6
 
 Despite
        its competition, First National Bank of Georgia enjoys the reputation of
        being
        the largest and oldest independent bank in Carroll County recently celebrating
        its 61st year of service. At the time we acquired First National Bank in
        Haralson County, that institution enjoyed a 97 year history. With respect
        to our
        competitors, on the other hand, McIntosh Commercial Bank commenced operations
        in
        the fourth quarter of 2002, Community Bank of West Georgia commenced operations
        in the second quarter of 2003, First Georgia Banking Company commenced
        operations in the third quarter of 2003, Peoples Community National Bank
        commenced operations in the third quarter of 2004 and River City Bank commenced
        operations in the fourth quarter of 2007. We believe these de novo banks
        are
        limited in their funding strategies because they typically have access to
        wholesale funding which is limited to a certain percentage of total deposits.
        Given the limited growth in total deposits in Carroll County, this has the
        effect of driving an increase in deposit rates as the new banks compete for
        funds in the market area.
 
 The
        primary factors in competing for deposits are interest rates, personalized
        services, the quality and range of financial services, the financial strength
        of
        the institution, convenience of office locations and office hours. Competition
        for deposits comes primarily from other commercial banks, savings associations,
        credit unions, money market funds and other investment alternatives. The
        primary
        factors in competing for loans are interest rates, loan origination fees,
        the
        quality and range of lending services and personalized services. Competition
        for
        loans comes primarily from other commercial banks, savings associations,
        mortgage banking firms, credit unions and other financial intermediaries.
        Many
        of the financial institutions operating in the Bank’s market area offer services
        such as trust and international banking, which the Bank does not offer, and
        have
        greater financial resources or have substantially higher lending limits than
        the
        Bank.
 
 To
        compete with other financial services providers, the Bank principally relies
        upon local promotional activities, personal relationships established by
        officers, directors and employees with its customers, and specialized services
        tailored to meet its customers’ needs. We believe that the Bank has an
        opportunity to establish business ties with customers who have been displaced
        by
        the consolidations of other banks and desire to forge banking relationships
        with
        locally owned and managed institutions. In addition, as commercial customers’
needs outgrow a de novo bank’s ability to fund their business, the Bank can
        serve those customers because it has a higher loan-to-one borrower limit
        which
        has increased as a result of our merger with First Haralson.
 
 The
        Bank
        offers many personalized services and attracts customers by being responsive
        and
        sensitive to the needs of the community. A recent example of this strategy
        is
        the Bank’s entry into its Spanish-speaking division. The Bank relies not only on
        the goodwill and referrals of satisfied customers as well as traditional
        media
        advertising to attract new customers, but also on individuals who develop
        new
        relationships to build its customer base. To enhance the Bank’s image in the
        community, the Bank supports and participates in many events. Employees,
        officers and directors represent the Bank on many boards and local civic
        and
        charitable organizations.
 
 **Employees**
 
 As
        of
        December 31, 2007, the Bank had 268 full time equivalent employees, none
        of whom
        is a party to a collective bargaining agreement. Certain executive officers
        of
        the Bank also serve as the officers of the Company (which does not have
        compensated employees). The Company believes that the Bank enjoys satisfactory
        relations with its employees.
 
 **Supervision
        and Regulation**
 
 The
        Company and the Bank are regulated under federal and state law. These laws
        and
        regulations generally are intended to protect depositors, not shareholders.
        The
        following is a summary description of certain provisions of certain laws
        which
        affect the regulation of bank holding companies and banks. To the extent
        that
        the following summary describes statutory or regulatory provisions, it is
        qualified in its entirety by reference to the particular statutory and
        regulatory provisions. Any change in applicable laws or regulations may have
        a
        material effect on the business and prospects of the Company and its bank
        subsidiary.
  7
 
 **The
        Company**
 
 The
        Company is a bank holding company within the meaning of the Bank Holding
        Company
        Act of 1956, as amended (the “BHCA”). Under the BHCA, the Company is subject to
        periodic examination by the Federal Reserve and is required to file periodic
        reports of its operations and such additional information as the Federal
        Reserve
        may require. The Company’s and the Bank’s activities are limited to banking,
        managing or controlling banks, furnishing services to or performing services
        for
        its subsidiaries or engaging in any other activity that the Federal Reserve
        determines to be so closely related to banking or managing or controlling
        banks
        as to be a proper incident thereto.
 
 *Investments,
        Control and Activities.* With
        certain limited exceptions, the BHCA requires every bank holding company
        to
        obtain prior approval of the Federal Reserve:
 
 ·
              to
                  acquire the ownership or control of more than 5% of any class of
                  voting
                  stock of any bank not already controlled by
                  it;
 
 ·
              for
                  it or any subsidiary (other than a bank) to acquire all or substantially
                  all of the assets of a bank; and
 
 ·
              to
                  merge or consolidate with any other bank holding company.
 
 In
        addition, and subject to certain exceptions, the BHCA and the Change in Bank
        Control Act, together with regulations thereunder, require Federal Reserve
        approval (or, depending on the circumstances, no notice of disapproval) prior
        to
        any person or company acquiring “control” of a bank holding company, such as the
        Company. Control is conclusively presumed to exist if an individual or company
        acquires 25% or more of any class of voting securities of the bank holding
        company. Control is rebuttably presumed to exist if a person acquires 10%
        or
        more but less than 25% of any class of voting securities and either the Company
        has registered securities under Section 12 of the Exchange Act or no other
        person will own a greater percentage of that class of voting securities
        immediately after the transaction. The regulations provide a procedure for
        challenge of the rebuttable control presumption.
 
 The
        BHCA
        further provides that the Federal Reserve may not approve any transaction
        that
        would result in a monopoly, or the effect of which may be substantially to
        lessen competition in any section of the country, or that in any other manner
        would be in restraint of trade, unless the transaction’s anticompetitive effects
        are clearly outweighed by the public interest. The Federal Reserve is also
        required to consider the financial and managerial resources and future prospects
        of the bank holding companies and banks concerned and the convenience and
        needs
        of the community to be served.
 
 Bank
        holding companies generally are also prohibited under the BHCA from engaging
        in
        non-banking activities or from acquiring direct or indirect control of any
        company engaged in non-banking activities. However, the Federal Reserve may
        permit bank holding companies to engage in certain types of non-banking
        activities determined by the Federal Reserve to be closely related to banking
        or
        managing or controlling banks. Activities determined by the Federal Reserve
        to
        fall under this category include:
 
 ·
              making
                  or servicing loans and certain leases;
 
 ·
              providing
                  certain data processing services;
 
 ·
              acting
                  as a fiduciary or investment or financial advisor;
 
 ·
              providing
                  discount brokerage services;
 
 ·
              underwriting
                  bank eligible securities; and
 
 ·
              making
                  investments designed to promote community
                  welfare.
 
 8
 Subsidiary
        banks of a bank holding company are subject to certain restrictions on
        extensions of credit to the bank holding company or its subsidiaries, on
        investments in their securities and on the use of their securities as collateral
        for loans to any borrower. These regulations and restrictions may limit the
        Company’s ability to obtain funds from the Bank for its cash needs, including
        funds for the payment of dividends, interest and operating expenses. Further,
        federal law prohibits a bank holding company and its subsidiaries from engaging
        in certain tie-in arrangements in connection with any extension of credit,
        lease
        or sale of property, or the furnishing of services. For example, the Bank
        may
        not generally require a customer to obtain other services from it or the
        Company, and may not require that a customer promise not to obtain other
        services from a competitor as a condition to an extension of credit to the
        customer.
 
 *Financial
        Services Modernization Act.* Although
        the activities of bank holding companies have traditionally been limited
        to the
        business of banking and activities closely related or incidental to banking
        (as
        discussed above), the Gramm-Leach-Bliley Act (also known as the Financial
        Services Modernization Act of 1999) relaxed the previous limitations and
        permitted bank holding companies to engage in a broader range of financial
        activities. Specifically, bank holding companies may elect to become financial
        holding companies which may affiliate with securities firms and insurance
        companies and engage in other activities that are financial in nature. Among
        the
        activities that are deemed “financial in nature” include:
 
 ·
              lending,
                  exchanging, transferring, investing for others or safeguarding
                  money or
                  securities;
 
 ·
              insuring,
                  guaranteeing, or indemnifying against loss, harm, damage, illness,
                  disability, or death, or providing and issuing annuities, and acting
                  as
                  principal, agent, or broker with respect thereto;
 
 ·
              providing
                  financial, investment, or economic advisory services, including
                  advising
                  an investment company;
 
 ·
              issuing
                  or selling instruments representing interests in pools of assets
                  permissible for a bank to hold directly; and
 
 ·
              underwriting,
                  dealing in or making a market in securities.
 
 A
        bank
        holding company may become a financial holding company under this statute
        only
        if each of its subsidiary banks is well capitalized, is well managed and
        has at
        least a satisfactory rating under the Community Reinvestment Act. A bank
        holding
        company that falls out of compliance with such requirement may be required
        to
        cease engaging in certain activities. Any bank holding company that does
        not
        elect to become a financial holding company remains subject to the bank holding
        company restrictions of the Act.
 
 Under
        this legislation, the Federal Reserve Board serves as the primary “umbrella”
regulator of financial holding companies with supervisory authority over
        each
        parent company and limited authority over its subsidiaries. The primary
        regulator of each subsidiary of a financial holding company will depend on
        the
        type of activity conducted by the subsidiary. For example, broker-dealer
        subsidiaries will be regulated largely by securities regulators and insurance
        subsidiaries will be regulated largely by insurance authorities.
 
 We
        have
        no current plans to register as a financial holding company.
 
 *Source
        of Strength; Cross-Guarantee.* Under
        Federal Reserve policy, a bank holding company is expected to act as a source
        of
        financial strength to its bank subsidiaries and to commit resources to support
        these subsidiaries. This support may be required at times when, absent such
        policy, the bank holding company might not otherwise provide such support.
        Under
        these provisions, a bank holding company may be required to loan money to
        its
        subsidiary banks in the form of capital notes or other instruments which
        qualify
        for capital under regulatory rules. Under the BHCA, the Federal Reserve may
        require a bank holding company to terminate any activity or relinquish control
        of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon
        the
        Federal Reserve’s determination that such activity or control constitutes a
        serious risk to the financial soundness or stability of any subsidiary
        depository institution of the bank holding company. Further, federal bank
        regulatory authorities have additional discretion to require a bank holding
        company to divest itself of any bank or nonbank subsidiary if the agency
        determines that divestiture may aid the depository institution’s financial
        condition. The Bank may be required to indemnify, or cross-guarantee, the
        FDIC
        against losses it incurs with respect to any other bank controlled by the
        Company, which in effect makes the Company’s equity investments in healthy bank
        subsidiaries available to the FDIC to assist any failing or failed bank
        subsidiary of the Company.
  9
 
 *State
        Regulation.* Activities of the Company are subject to certain provisions of The Financial
        Institutions Code of Georgia and regulations issued pursuant to such code.
        These
        provisions are administered by The Georgia Department of Banking & Finance,
        which has concurrent jurisdiction with the Federal Reserve over the activities
        of the Company. The laws and regulations administered by The Georgia Department
        of Banking & Finance are generally consistent with, or supplemental to,
        those federal laws and regulations discussed herein.
 
 **The
        Bank**
 
 As
        a
        national bank, the Bank is subject to the supervision and examination by
        the
        Office of the Comptroller of the Currency (the “OCC”). Deposits in the Bank are
        insured by the FDIC up to a maximum amount allowable by law per depositor,
        subject to aggregation rules. The OCC and the FDIC regulate or monitor all
        areas
        of the Bank’s commercial banking operations, including security devices and
        procedures, adequacy of capitalization and loan loss reserves, loans,
        investments, borrowings, deposits, mergers, consolidations, reorganizations,
        issuance of securities, payment of dividends, interest rates, establishment
        of
        branches, and other aspects of its operations. The OCC requires the Bank
        to
        maintain certain capital ratios and imposes limitations on the Bank’s aggregate
        investment in real estate, bank premises and furniture and fixtures. The
        Bank is
        currently required by the OCC to prepare quarterly reports on the Bank’s
        financial condition and to conduct an annual audit of its financial affairs
        in
        compliance with minimum standards and procedures prescribed by the
        OCC.
 
 Under
        FDICIA, all insured institutions must undergo periodic on-site examination
        by
        their appropriate banking agency. The cost of examinations of insured depository
        institutions and any affiliates may be assessed by the appropriate agency
        against each institution or affiliate as it deems necessary or appropriate.
        Insured institutions are required to submit annual reports to the FDIC and
        the
        appropriate agency (and state supervisor when applicable). FDICIA also directs
        the FDIC to develop with other appropriate agencies a method for insured
        depository institutions to provide supplemental disclosure of the estimated
        fair
        market value of assets and liabilities, to the extent feasible and practicable,
        in any balance sheet, financial statement, report of condition or other report
        of any insured depository institution. FDICIA also requires the federal banking
        regulatory agencies to prescribe, by regulation, standards for all insured
        depository institutions and depository institution holding companies relating,
        among other things, to: (i) internal controls, information systems and audit
        systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest
        rate
        risk exposure; and (v) asset quality.
 
 *Community
        Reinvestment Act* .
        The
        Community Reinvestment Act requires that, in connection with examinations
        of
        financial institutions within their respective jurisdictions, the Federal
        Reserve, the FDIC or any other appropriate federal agency, shall evaluate
        the
        record of each financial institution in meeting the credit needs of its local
        community, including low and moderate income neighborhoods. These factors
        are
        also considered in evaluating mergers, acquisitions and applications to open
        a
        branch or facility. Failure to adequately meet these criteria could pose
        additional requirements and limitations on the bank. The Bank was examined
        for
        CRA compliance in December 2006 and received a CRA rating of “satisfactory.”
 
 *Other
        Regulations.* Interest
        and certain other charges collected or contracted for by the Bank are subject
        to
        Georgia usury laws and certain federal laws concerning interest rates. The
        Bank’s loan operations are also subject to certain federal laws applicable to
        credit transactions, such as the federal Truth-In-Lending Act governing
        disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure
        Act of 1975 requiring financial institutions to provide information to enable
        the public and public officials to determine whether a financial institution
        is
        fulfilling its obligation to help meet the housing needs of the community
        it
        serves, the Equal Credit Opportunity Act prohibiting discrimination on the
        basis
        of race, creed or other prohibited factors in extending credit, the Fair
        Credit
        Reporting Act of 1978 governing the use and provision of information to credit
        reporting agencies, the Fair Debt Collection Act governing the manner in
        which
        consumer debts may be collected by collection agencies, the Soldiers’ and
        Sailors’ Civil Relief Act of 1940 governing the repayment terms of, and property
        rights underlying, secured obligations of persons in military service, and
        the
        rules and regulations of the various federal agencies charged with the
        responsibility of implementing such federal laws. The deposit operations
        of the
        Bank also are subject to the Right to Financial Privacy Act, which imposes
        a
        duty to maintain confidentiality of consumer financial records and prescribes
        procedures for complying with administrative subpoenas of financial records,
        and
        the Electronic Funds Transfer Act and Regulation E issued by the Federal
        Reserve
        to implement that act, which governs automatic deposits to and withdrawals
        from
        deposit accounts and customers’ rights and liabilities arising from the use of
        automated teller machines and other electronic banking services. The Bank’s
        commercial transactions are also subject to the provisions of the Uniform
        Commercial Code and other provisions of The Georgia Code Annotated.
  10
 
 **Deposit
        Insurance**
 
 The
        deposits of the Bank are currently insured to the maximum allowable by law
        per
        depositor, subject to aggregation rules. The FDIC establishes rates for the
        payment of premiums by federally insured banks and thrifts for deposit
        insurance. Since 1993, insured depository institutions like the Bank have
        paid
        for deposit insurance under a risk-based premium system. Insurance of deposits
        may be terminated by the FDIC upon a finding that the institution has engaged
        in
        unsafe and unsound practices, is in an unsafe or unsound condition to continue
        operations, or has violated any applicable law, regulation, rule, order,
        or
        condition imposed by the FDIC. Due to its severe consequences, the FDIC
        historically uses insurance termination as an enforcement action of last
        resort
        and the termination process itself involves substantial notice, a formal
        adjudicative hearing and federal appellate review. In instances where insurance
        deposit is terminated, the financial institution is required to notify its
        depositors and insured funds on the date of termination that they will continue
        to be insured for at least six months and up to two years, at the discretion
        of
        the FDIC. After the date of termination, no new deposits accepted by the
        financial institution will be federally insured.
 
 **Federal
        Deposit Insurance Reform**
 
 On
        February 8, 2006, President Bush signed the Federal Deposit Insurance Reform
        Act
        of 2005 (FDIRA). The FDIC was required to adopt rules implementing the various
        provisions of FDIRA by November 5, 2006. Among other things, FDIRA changes
        the
        Federal deposit insurance system by:
 
 ·
              ·raising
                  the coverage level for retirement accounts to
                  $250,000;
 
 ·
              indexing
                  deposit insurance coverage levels for inflation beginning in
                  2012;
 
 ·
              prohibiting
                  undercapitalized financial institutions from accepting employee
                  benefit
                  plan deposits;
 
 ·
              merging
                  the Bank Insurance Fund and Savings Association Insurance Fund
                  into a new
                  Deposit Insurance Fund (the DIF);
                  and
 
 ·
              providing
                  credits to financial institutions that capitalized the FDIC prior
                  to 1996
                  to offset future assessment
                  premiums.
 
 FDIRA
        also authorizes the FDIC to revise the current risk-based assessment system,
        subject to notice and comment and caps the amount of the DIF at 1.50% of
        domestic deposits. The FDIC must issue cash dividends, awarded on a historical
        basis, for the amount of the DIF over the 1.50% ratio. Additionally, if the
        DIF
        exceeds 1.35% of domestic deposits at year-end, the FDIC must issue cash
        dividends, awarded on a historical basis, for half of the amount of the
        excess.
 
 **Dividends**
 
 The
        Company is a legal entity separate and distinct from the Bank. The principal
        source of cash flow for the Company is dividends from the Bank. The amount
        of
        dividends that may be paid by the Bank to the Company depends on the Bank’s
        earnings and capital position and is limited by various statutory and regulatory
        limitations. In addition, the Federal Reserve has stated that bank holding
        companies should refrain from or limit dividend increases or reduce or eliminate
        dividends under circumstances in which the bank holding company fails to
        meet
        minimum capital requirements or in which its earnings are impaired.
  11
 
 As
        a
        national bank, the Bank may not pay dividends from its paid-in-capital. All
        dividends must be paid out of retained earnings, after deducting expenses,
        including reserves for losses and bad debts. In addition, a national bank
        is
        prohibited from declaring a dividend on its shares of common stock until
        its
        surplus equals its stated capital, unless there has been transferred to surplus
        no less than one-tenth of the bank’s net profits of the preceding two
        consecutive half-year periods (in the case of an annual dividend). The approval
        of the OCC is required if the total of all dividends declared by a national
        bank
        in any calendar year exceeds the total of its net profits for that year combined
        with its retained net profits for the preceding two years, less any required
        transfers to surplus. Under FDICIA, the Bank may not pay a dividend if, after
        paying the dividend, the Bank would be undercapitalized. *See* Capital
        Adequacy.
 
 As
        discussed below, additional capital requirements imposed by the OCC may limit
        the Bank’s ability to pay dividends to the Company. The Bank declared dividends
        in the amount of $4,961,106 to the Company during 2007. Under the OCC
        guidelines, as of December 31, 2007, the Bank could pay dividends in the
        amount
        of $1,031,000 plus net income in 2008 (subject to maintaining certain capital
        requirements) to the Company without obtaining prior regulatory
        approval.
 
 In
        addition to the availability of funds from the Bank, the future dividend
        policy
        of the Company is subject to the discretion of the Board of Directors and
        will
        depend upon a number of factors, including future earnings, financial condition,
        cash needs and general business conditions. If dividends should be declared
        in
        the future, the amount of such dividends presently cannot be estimated and
        it
        cannot be known whether such dividends would continue for future
        periods.
 
 **Capital
        Adequacy**
 
 Federal
        bank regulatory authorities have adopted risk-based capital guidelines for
        banks
        and bank holding companies that are designed to:
 
 ·
              make
                  regulatory capital requirements more sensitive to differences in
                  risk
                  profiles among banks and bank holding companies;
 
 ·
              account
                  for off-balance sheet exposure; and
 
 ·
              minimize
                  disincentives for holding liquid assets.
 
 The
        resulting capital ratios represent qualifying capital as a percentage of
        total
        risk-weighted assets and off-balance sheet items. The guidelines are minimums,
        and the federal regulators have noted that banks and bank holding companies
        contemplating significant expansion programs should not allow expansion to
        diminish their capital ratios and should maintain ratios well in excess of
        the
        minimums.
 
 The
        current guidelines require all bank holding companies and federally-regulated
        banks to maintain a minimum risk-based Total Capital ratio equal to 8%, of
        which
        at least 4% must be Tier 1 capital. The degree of regulatory scrutiny of
        a
        financial institution will increase, and the permissible activities of the
        institution will decrease, as it moves downward through the capital categories.
        Bank holding companies controlling financial institutions can be called upon
        to
        boost the institution’s capital and to partially guarantee the institution’s
        performance under their capital restoration plans. Tier 1 capital includes
        shareholders’ equity, qualifying perpetual preferred stock and minority
        interests in equity accounts of consolidated subsidiaries, but excludes goodwill
        and most other intangible assets and excludes the allowance for loan and
        lease
        losses. Tier 2 capital includes the excess of any preferred stock not included
        in Tier 1 capital, mandatory convertible securities, hybrid capital instruments,
        subordinated debt and intermediate-term preferred stock and general reserves
        for
        loan and lease losses up to 1.25% of risk-weighted assets.
 
 Under
        the
        guidelines, banks’ and bank holding companies’ assets are given risk-weights of
        0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given
        credit conversion factors to convert them to asset equivalent amounts to
        which
        an appropriate risk-weight will apply. These computations result in the total
        risk-weighted assets. Most loans are assigned to the 100% risk category,
        except
        for first mortgage loans fully secured by residential property and, under
        certain circumstances, residential construction loans, both of which carry
        a 50%
        rating. Most investment securities are assigned to the 20% category, except
        for
        municipal or state revenue bonds, which have a 50% rating, and direct
        obligations of or obligations guaranteed by the United States Treasury or
        United
        States Government agencies, which have a 0% rating.
  12
 
 Failure
        to meet capital guidelines could subject a bank to a variety of enforcement
        remedies, including the termination of deposit insurance by the FDIC, and
        to
        certain restrictions on its business.
 
 The
        Federal Reserve also has implemented a leverage ratio, which is Tier 1 capital
        as a percentage of average total assets less intangible assets, to be used
        as a
        supplement to the risk-based guidelines. The principal objective of the leverage
        ratio is to place a constraint on the maximum degree to which a bank holding
        company may leverage its equity capital base. The Federal Reserve has
        established a minimum 3% leverage ratio of Tier 1 capital to total assets
        for
        the most highly rated bank holding companies and insured banks. All other
        bank
        holding companies and insured banks will be required to maintain a leverage
        ratio of 3% plus an additional cushion of at least 100 to 200 basis points.
        The
        tangible Tier 1 Leverage ratio is the ratio of a banking organization’s Tier 1
        capital, less all intangibles, to total assets, less all
        intangibles.
 
 FDICIA
        established a capital-based regulatory plan designed to promote early
        intervention for troubled banks and requires the FDIC to choose the least
        expensive resolution of bank failures. The capital-based regulatory framework
        contains five categories of compliance with regulatory capital requirements,
        including well capitalized, adequately capitalized, undercapitalized,
        significantly undercapitalized and critically undercapitalized. To qualify
        as a
        well capitalized institution, a bank must have a leverage ratio of no less
        than
        5%, a Tier 1 risk-based ratio of no less than 6%, and a total risk-based
        capital
        ratio of no less than 10%. The bank must also not be under any order or
        directive from the appropriate regulatory agency to meet and maintain a specific
        capital level.
 
 Under
        FDICIA, regulators must take prompt corrective action against depository
        institutions that do not meet minimum capital requirements. FDICIA and the
        related regulations establish five capital categories as shown in the following
        table:
 
 **Classification**
              
              **Total
                  Risk-**
                **Based
                  Capital**
              
              **Tier
                  I Risk-**
                **Based
                  Capital**
              
              **Tier
                  I**
                **Leverage**Well
                  Capitalized (1)
              
              
              10
              %
              
              6
              %
              
              5
              %Adequately
                  Capitalized (1)
              
              
              8
              %
              
              4
              %
              
              4%
                  (2
              )Undercapitalized
                  (3)
              
              
              <8
              %
              
              <4
              %
              
              <4
              %Significantly
                  Undercapitalized (3)
              
              
              <6
              %
              
              <3
              %
              
              <3
              %Critically
                  Undercapitalized (3)
              
              
              -
              
              
              -
              
              
              <2
              %
  
 (1)An
                  institution must meet all three minimums.
                
                (2)3%
                  for composite 1-rated institutions, subject to appropriate federal
                  banking
                  agency guidelines.
                
                (3)An
                  institution is classified as undercapitalized if it is below the
                  specified
                  capital level for any of the three capital
                  measures.
 
 A
        depository institution may be deemed to be in a capitalization category that
        is
        lower than is indicated by its actual capital position if it receives a less
        than satisfactory examination rating in any one of four categories. As a
        depository institution moves downward through the capitalization categories,
        the
        degree of regulatory scrutiny will increase and the permitted activities
        of the
        institution will decrease. Action may be taken by a depository institution’s
        primary federal regulator against an institution that falls into one of the
        three undercapitalized categories, including the requirement of filing a
        capital
        plan with the institution’s primary federal regulator, prohibition on the
        payment of dividends and management fees, restrictions on executive
        compensation, and increased supervisory monitoring. Other restrictions may
        be
        imposed on the institution either by its primary federal regulator or by
        the
        FDIC, including requirements to raise additional capital, sell assets, or
        sell
        the institution.
  13
 
 As
        of the
        date of this Report, the Company and the Bank are both considered to be
        adequately or well capitalized according to their regulatory capital
        requirements. See Note 12 **** of
        the
        Notes to Consolidated Financial Statements for additional details.
 
 **Interstate
        Banking and Branching Restrictions**
 
 Under
        the
        Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
        “Riegle-Neal Act”), an adequately capitalized and adequately managed bank
        holding company may acquire a bank across state lines, without regard to
        whether
        such acquisition is permissible under state law. A bank holding company is
        considered to be “adequately capitalized” if it meets all applicable federal
        regulatory capital standards.
 
 While
        the
        Riegle-Neal Act precludes a state from entirely insulating its banks from
        acquisition by an out-of-state holding company, a state may still provide
        that a
        bank may not be acquired by an out-of-state company unless the bank has been
        in
        existence for a specified number of years, not to exceed five years.
        Additionally, the Federal Reserve may not approve an interstate acquisition
        which would result in the acquirer’s controlling more than 10% of the total
        amount of deposits of insured depository institutions in the United States
        with
        30% or more of the deposits in the home state of the target bank. A state
        may
        waive the 30% limit based on criteria that does not discriminate against
        out-of-state institutions. The limitations do not apply to the initial entry
        into a state by a bank holding company unless the state has a deposit
        concentration cap that applies on a nondiscriminatory basis to in-state or
        out-of-state bank holding companies making an initial acquisition.
 
 The
        Riegle-Neal Act permits banks with different home states to merge unless
        a
        particular state opts out of the statute. Georgia adopted legislation which
        has
        permitted interstate bank mergers since June 1, 1997.
 
 The
        Riegle-Neal Act also permits national and state banks to establish de novo
        branches in another state if there is a law in that state which applies equally
        to all banks and expressly permits all out-of-state banks to establish de
        novo
        branches. However, in 1996, Georgia adopted legislation which opts out of
        this
        provision. The Georgia legislation provides that, with the prior approval
        of the
        Georgia Department of Banking and Finance, after July 1, 1996, a bank may
        establish three new or additional de novo branch banks anywhere in Georgia
        and,
        beginning July 1, 1998, a bank may establish new or additional branch banks
        anywhere in the state with prior regulatory approval.
 
 **Privacy**
 
 Financial
        institutions are required to disclose their policies for collecting and
        protecting confidential information. Customers generally may prevent financial
        institutions from sharing nonpublic personal financial information with
        nonaffiliated third parties except under narrow circumstances, such as the
        processing of transactions requested by the consumer. Additionally, financial
        institutions generally may not disclose consumer account numbers to any
        nonaffiliated third party for use in telemarketing, direct mail marketing
        or
        other marketing to consumers. **** It
        is the
        Bank’s policy not to disclose any personal information unless required by
        law.
 
 **Anti-Terrorism
        Legislation** **
 
 In
        the
        wake of the tragic events of September 11 th ,
        on
        October 26, 2001, the President signed the Uniting and Strengthening America
        by
        Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
        (USA
        PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are
        subject to prohibitions against specified financial transactions and account
        relationships as well as enhanced due diligence and “know your customer”
standards in their dealings with foreign financial institutions and foreign
        customers. For example, the enhanced due diligence policies, procedures,
        and
        controls generally require financial institutions to take reasonable steps—
 
 ·
              to
                  conduct enhanced scrutiny of account relationships to guard against
                  money
                  laundering and report any suspicious
                  transaction;
  14
 
 ·
              to
                  ascertain the identity of the nominal and beneficial owners of,
                  and the
                  source of funds deposited into, each account as needed to guard
                  against
                  money laundering and report any suspicious
                  transactions;
 
 ·
              to
                  ascertain for any foreign bank, the shares of which are not publicly
                  traded, the identity of the owners of the foreign bank, and the
                  nature and
                  extent of the ownership interest of each such owner;
                  and
 
 ·
              to
                  ascertain whether any foreign bank provides correspondent accounts
                  to
                  other foreign banks and, if so, the identity of those foreign banks
                  and
                  related due diligence information.
 
 Under
        the
        USA PATRIOT Act, financial institutions are required to establish anti-money
        laundering programs. The USA PATRIOT Act sets forth minimum standards for
        these
        programs, including:
 
 ·
              the
                  development of internal policies, procedures, and
                  controls;
 
 ·
              the
                  designation of a compliance
                  officer;
 
 ·
              an
                  ongoing employee training program;
                  and
 
 ·
              an
                  independent audit function to test the
                  programs.
 
 In
        addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to
        adopt
        rules increasing the cooperation and information sharing between financial
        institutions, regulators, and law enforcement authorities regarding individuals,
        entities and organizations engaged in, or reasonably suspected based on credible
        evidence of engaging in, terrorist acts or money laundering activities. Any
        financial institution complying with these rules will not be deemed to have
        violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed
        above. The Bank currently has policies and procedures in place designed to
        comply with the USA PATRIOT Act.
 
 **Regulation
        W**
 
 The
        Company and its banking affiliates are subject to Regulation W, which provides
        guidance on permissible activities and transactions between affiliated
        companies. In general, subject to certain specified exemptions, a bank or
        its
        subsidiaries are limited in their ability to engage in “covered transactions”
with affiliates:
 
 ·
              to
                  an amount equal to 10% of the bank's capital and surplus, in the
                  case of
                  covered transactions with any one affiliate; and
 
 ·
              to
                  an amount equal to 20% of the bank's capital and surplus, in the
                  case of
                  covered transactions with all
                  affiliates.
 
 In
        addition, a bank and its subsidiaries may engage in covered transactions
        and
        other specified transactions only on terms and under circumstances that are
        substantially the same, or at least as favorable to the bank or its subsidiary,
        as those prevailing at the time for comparable transactions with nonaffiliated
        companies. A “covered transaction” includes:
 
 ·
              a
                  loan or extension of credit to an affiliate;
 
 ·
              a
                  purchase of, or an investment in, securities issued by an affiliate;
 ·
              a
                  purchase of assets from an affiliate, with some exceptions;
 
 ·
              the
                  acceptance of securities issued by an affiliate as collateral for
                  a loan
                  or extension of credit to any party; and
 
 ·
              the
                  issuance of a guarantee, acceptance or letter of credit on behalf
                  of an
                  affiliate.
  15
 
 In
        addition, under Regulation W:
 
 ·
              a
                  bank and its subsidiaries may not purchase a low-quality asset
                  from an
                  affiliate;
 
 ·
              covered
                  transactions and other specified transactions between a bank or
                  its
                  subsidiaries and an affiliate must be on terms and conditions that
                  are
                  consistent with safe and sound banking practices; and
 
 ·
              with
                  some exceptions, each loan or extension of credit by a bank to
                  an
                  affiliate must be secured by collateral with a market value ranging
                  from
                  100% to 130%, depending on the type of collateral, of the amount
                  of the
                  loan or extension of credit.
 
 The
        Bank
        is also subject to certain restrictions imposed by the Federal Reserve on
        extensions of credit to executive officers, directors, principal shareholders,
        or any related interest of such persons. Extensions of credit (i) must be
        made
        on substantially the same terms, including interest rates and collateral,
        and
        following credit underwriting procedures that are at least as stringent as
        those
        prevailing at the time for comparable transactions with persons not covered
        above and who are not employees, and (ii) must not involve more than the
        normal
        risk of repayment or present other unfavorable features. The Bank is also
        subject to certain lending limits and restrictions on overdrafts to such
        persons.
 
 **Consumer
        Credit Reporting**
 
 On
        December 4, 2003, the President signed the Fair and Accurate Credit Transactions
        Act (the FAIR Act), amending the federal Fair Credit Reporting Act (the FCRA).
        Amendments to the FCRA include, among other things:
 
 ·
              new
                  requirements for financial institutions to develop policies and
                  procedures
                  to identify potential identity theft and, upon the request of a
                  consumer,
                  place a fraud alert in the consumer's credit file stating that
                  the
                  consumer may be the victim of identity theft or other fraud;
 
 ·
              new
                  consumer notice requirements for lenders that use consumer report
                  information in connection with risk-based credit pricing programs;
 
 ·
              for
                  entities that furnish information to consumer reporting agencies(which
                  would include the Bank), new requirements to implement procedures
                  and
                  policies regarding the accuracy and integrity of the furnished
                  information, and regarding the correction of previously furnished
                  information that is later determined to be inaccurate; and
 
 ·
              a
                  new requirement for mortgage lenders to disclose credit scores
                  to
                  consumers.
 
 The
        amendments also prohibit a business that receives consumer information from
        an
        affiliate from using that information for marketing purposes unless the consumer
        is first provided a notice and an opportunity to direct the business not
        to use
        the information for such marketing purposes, subject to certain exceptions.
        The
        Company and the Bank have implemented procedures to comply with those new
        rules.
 
 **Proposed
        Legislation and Regulatory Action**
 
 New
        regulations and statutes are regularly proposed that contain wide-ranging
        proposals for altering the structures, regulations and competitive relationships
        of the nation's financial institutions operating in the United States. The
        Company cannot predict whether or in what form any proposed regulation or
        statute will be adopted or the extent to which its business may be affected
        by
        any new regulation or statute.
 
 **Effect
        of Governmental Monetary Policies**
 
 The
        earnings of the Company are affected by domestic economic conditions and
        the
        monetary and fiscal policies of the United States government and its agencies.
        The Federal Reserve’s monetary policies have had, and are likely to continue to
        have, an important impact on the operating results of commercial banks through
        its power to implement national monetary policy in order to curb inflation
        or
        combat a recession. The monetary policies of the Federal Reserve have major
        effects upon the levels of bank loans, investments and deposits through its
        open
        market operations in United States government securities and through its
        regulation of the discount rate on borrowings of member banks and the reserve
        requirements against member bank deposits. It is not possible to predict
        the
        nature or impact of future changes in monetary and fiscal policies.
  16
 
 **First
        Haralson Merger**
 
 On
        January 22, 2007, WGNB Corp. entered into an agreement and plan of
        reorganization by and among WGNB Corp., West Georgia National Bank, First
        Haralson Corporation, and First National Bank of Georgia whereby First Haralson
        Corporation will be merged with and into WGNB Corp. by acquisition of 100
        percent of the outstanding common shares of First Haralson Corporation and,
        concurrently, First National Bank of Georgia will be merged into West Georgia
        National Bank. Upon the closing of the transaction, West Georgia National
        Bank
        changed its name to First National Bank of Georgia. The transaction was approved
        by both companies’ shareholders and it closed on June 29, 2007 with an effective
        date of July 1, 2007. First Haralson Corporation was headquartered in Buchanan,
        Georgia and operated five branches in Haralson County and two branches in
        Carroll County.
 
 Under
        the
        terms of the merger agreement, First Haralson Corporation’s shareholders elected
        to receive cash, WGNB Corp. common stock, or a combination of the two. The
        shareholders made their elections and, in the aggregate, chose: cash
        consideration in the amount of $16,315,423; shares of WGNB Corp. stock in
        the
        amount of 1,055,149 valued at $27.25 per share; which, together with total
        acquisition costs of $1,746,463, resulted in a total consideration of
        $46,814,696 at the date of the closing. In addition, the terms of the merger
        agreement allowed First Haralson Corporation to pay a one-time, special dividend
        not to exceed $7,250,000 in the aggregate, or approximately $35.67 per share,
        for each First Haralson Corporation share to First Haralson Corporation
        shareholders prior to the closing of the transaction.
 
 One
        of
        the primary business objectives for the transaction was to strengthen our
        presence along the Interstate 20 corridor. The combined entity has retained
        the
        number one market share ranking in both Carroll and Haralson counties.
        Additionally, the transaction has enhanced our core deposits and has diversified
        our loan portfolio. The combination also created a top 20 financial institution
        in Georgia in terms of total deposits.
 
 **Item
        1A. Risk Factors**
 
 Like
        all
        other banking and financial services companies, our business and results
        of
        operations are subject to a number of risks, many of which are outside of
        our
        control. In addition to the other information in this Report, readers should
        carefully consider that the following important factors, among others, could
        materially impact our business and future results of operations. When we
        use
        terms such as “we,” “our”, and “us,” we are referring to WGNB Corp. which
        conducts business through its wholly-owned subsidiary, First National Bank
        of
        Georgia.
 
 *Our
        success depends on our ability to compete effectively in the competitive
        financial services industry -* We
        encounter strong competition for deposits, loans, and other financial services
        in all of our lines of business. Our principal competitors include other
        commercial banks, savings banks, credit unions and savings and loan
        associations. Many of our competitors are significantly larger than us and
        have
        greater access to capital and other resources. In recent years, there has
        been
        substantial consolidation among companies in the financial services industry.
        Such consolidation may increase competition because consolidation creates
        larger
        entities who may be able to offer additional services that we are unable
        to
        offer, have greater financial resources or have substantially higher lending
        limits with which to compete. Further, our ability to compete effectively
        is
        dependent on our ability to adapt successfully to technological and other
        changes within the banking and financial services industry.
 
 *Our
        business may be adversely affected by the highly regulated environment in
        which
        we operate* - We are
        highly regulated by state and federal agencies. Recently enacted and future
        legislation and regulations may have significant impact on the banking and
        financial services industries. Regulatory or legislative changes could increase
        our cost of doing business, restrict our access to new products or markets,
        or
        otherwise adversely affect our operations or the manner in which we conduct
        our
        business and, on the whole, adversely affect the profitability of our
        business.
  17
 
 *We
        may be adversely affected by a general deterioration in economic
        conditions* - The
        risks associated with our business are greater in periods of a slowing economy
        or recession. Economic declines may be accompanied by a decrease in demand
        for
        consumer or commercial credit and declining real estate and other asset values.
        Declining real estate and other asset values may reduce the ability of borrowers
        to use such equity to support borrowings. Delinquencies, foreclosures and
        losses
        generally increase during economic slow downs or recessions. Additionally,
        our
        servicing costs, collection costs and credit losses may also increase in
        periods
        of economic slow down or recessions.
 
 *We
        are subject to credit risk inherent in our loan portfolio* - In the
        financial services industry, there is always a risk that certain borrowers
        may
        not repay borrowings. We maintain a reserve for loan losses to absorb the
        level
        of losses that we estimate to be probable in our portfolio. However, our
        reserve
        for loan losses may not be sufficient to cover the loan losses that we may
        actually incur. If we experience defaults by borrowers in any of our businesses,
        our earnings could be negatively affected. Changes in local economic conditions
        could adversely affect credit quality in our loan portfolio. In addition,
        federal and state regulators periodically review our loan portfolio and may
        require us to increase the provision for loan losses or recognize loan
        charge-offs. Their conclusions about the quality of the loan portfolio may
        be
        different from ours. Any increase in the allowance for loan losses or
        charge-offs as required by these regulatory agencies could have a negative
        effect on our operating results.
 
 *We
        may be adversely affected by interest rate changes* - We
        realize income primarily from the difference between interest earned on loans
        and investments and interest paid on deposits and other borrowings. Interest
        rate fluctuations are caused by many factors which, for the most part, are
        not
        under our direct control. For example, national monetary policy plays a
        significant role in the determination of interest rates. Additionally,
        competitor pricing and the resulting negotiations that occur with our customers
        also impact the rates we collect on loans and the rates we pay on deposits.
        As
        interest rates change, we expect that we will periodically experience “gaps” in
        the interest rate sensitivities of our assets and liabilities, meaning that
        either our interest-bearing liabilities will be more sensitive to changes
        in
        market interest rates than our interest-earning assets, or vice versa. In
        either
        event, if market interest rates should move contrary to our position, this
“gap”
may work against us, and our earnings may be negatively affected. Although
        we
        actively manage our interest rate sensitivity, such management is not an
        exact
        science. Rapid increases or decreases in interest rates could adversely affect
        our net interest margin if changes in our cost of funds do not correspond
        to
        changes in income yields. An increase in interest rates that adversely affects
        the ability of borrowers to pay the principal or interest on loans may lead
        to
        an increase in non-performing assets and a reduction of interest accrued
        into
        income, which could have a material adverse affect on our results of
        operations.
 
 *We
        could be held responsible for environmental liabilities of properties acquired
        through foreclosure* -
        Environmentally related hazards have become a source of high risk and
        potentially unlimited liability for financial institutions relative to their
        loans. Environmentally contaminated properties owned by an institution’s
        borrowers may result in a drastic reduction in the value of the collateral
        securing the institution’s loans to such borrowers, high environmental clean up
        costs to the borrower affecting its ability to repay the loans, the
        subordination of any lien in favor of the institution to a state or federal
        lien
        securing clean up costs, and liability to the institution for clean up costs
        if
        it forecloses on the contaminated property or becomes involved in the management
        of the borrower. To minimize this risk, we may require an environmental
        examination of, and report with respect to, the property of any borrower
        or
        prospective borrower if circumstances affecting the property indicate a
        potential for contamination, taking into consideration the potential loss
        to the
        institution in relation to the burdens to the borrower. Such examination
        must be
        performed by an engineering firm experienced in environmental risk studies
        and
        acceptable to the institution, and the costs of such examinations and reports
        are the responsibility of the borrower. These costs may be substantial and
        may
        deter a prospective borrower from entering into a loan transaction with us.
        We
        are not aware of any borrower who is currently subject to any environmental
        investigation or clean up proceeding which is likely to have a material adverse
        affect on our financial condition or results of operation.
 
 *Loss
        of our senior executive officers or other key employees could impair our
        relationship with customers and adversely affect our business* - We
        have assembled a senior management team which has substantial background
        and
        experience in banking and financial services in the western Georgia market.
        Loss
        of these key personnel could negatively impact our earnings because of their
        skills, customer relationships and/or the potential difficulty of promptly
        replacing them.
  18
 
 **Item
        1B. Unresolved Staff Comments.** Not
        applicable.
 
 **Item
        2.**  **Properties**
 
 The
        following table sets forth information regarding our current offices and
        banking
        facilities:
 
 **Facility**
              
              **Location**
              
              **Ownership**WGNB
                  and First National Bank
                Corporate
                  Offices
              
              201
                  Maple Street
                Carrollton,
                  Carroll County, Georgia
              
              OwnedFirst
                  National Bank
                Main
                  Branch Office
              
              201
                  Maple Street
                Carrollton,
                  Carroll County, Georgia
              
              OwnedFirst
                  National Bank
                First
                  Tuesday Mall Office
              
              1004
                  Bankhead Highway
                Carrollton,
                  Carroll County, Georgia
              
              OwnedFirst
                  National Bank
                Motor
                  Office
              
              314
                  Newnan Street
                Carrollton,
                  Carroll County, Georgia
              
              LeasedFirst
                  National Bank
                Banco
                  de Progresso Office
              
              1111
                  Bankhead Highway
                Carrollton,
                  Carroll County, Georgia
              
              LeasedFirst
                  National Bank
                Villa
                  Rica Office
              
              725
                  Bankhead Highway
                Villa
                  Rica, Carroll County, Georgia
              
              OwnedFirst
                  National Bank
                Bowdon
                  Office
              
              205
                  East College Street
                Bowdon,
                  Carroll County, Georgia
              
              OwnedFirst
                  National Bank
                Bremen
                  Financial Center (former First Haralson headquarters)
              
              900
                  Atlantic Avenue
                Bremen,
                  Haralson County, Georgia
              
              OwnedFirst
                  National Bank
                Bremen
                  Office
              
              501
                  Pacific Avenue
                Bremen,
                  Haralson County, Georgia
              
              OwnedFirst
                  National Bank
                Buchanan
                  Office
              
              3559
                  Business 27
                Buchanan,
                  Haralson County, Georgia
              
              OwnedFirst
                  National Bank
                Tallapoosa
                  Office
              
              3408
                  Georgia Hwy 100
                Tallapoosa,
                  Haralson County, Georgia
              
              OwnedFirst
                  National Bank
                Tallapoosa
                  Office
              
              39
                  Bowdon Street
                Tallapoosa,
                  Haralson County, Georgia
              
              Owned
  19
  First
                  National Bank
                Temple
                  Office
              
              184
                  Carrollton Street
                Temple,
                  Haralson
                County,
                  Georgia
              
              OwnedFirst
                  National Bank
                Mirror
                  Lake Office
              
              Village
                  at Mirror Lake Shopping Center
                Douglasville,
                  Douglas County, Georgia
              
              OwnedFirst
                  National Bank
                Highway
                  5 Office
              
              9557
                  Georgia Hwy 5
                Douglasville,
                  Douglas County, Georgia
              
              LeasedFirst
                  National Bank
                Chapel
                  Hill Office
              
              9360
                  The Landing Drive
                (adjacent
                  to Arbor Place Mall)
                Douglasville,
                  Douglas County, Georgia
              
              OwnedFirst
                  National Bank
                Coweta
                  Office
              
              3441
                  Hwy 34
                Sharpsburg
                  Shoppes
                Sharpsburg,
                  Coweta County, Georgia
              
              LeasedFirst
                  National Bank
                Banco
                  de Progresso Office
              
              Eastgate
                  Shopping Center
                114
                  Bullsboro Drive
                Newnan,
                  Coweta
                County,
                  Georgia
              
              Leased
  
 All
        locations are typical of branch banking facilities located throughout the
        United
        States and all locations, except the Motor offices and the Coweta loan
        production office, are full service locations. Each branch location has an
        ATM
        that is either walk-up or drive-up. The Bank also operates nine additional
        ATMs
        on leased properties located throughout the Carrollton, Bremen and Villa
        Rica
        areas. The Motor offices provide primarily teller and ATM transactions and
        do
        not originate loans.
  The
        Bank’s main office, operations center and related parking are located on
        approximately 2.5 acres. The main office is a two-story building with a total
        of
        approximately 19,100 square feet housing its lobby, retail offices,
        administrative and executive offices. The operations center is a two-story
        building with a total of approximately 12,200 square feet housing a computer
        room, administrative offices and storage facilities. The branch offices in
        Carroll County (with the exception of the Motor office which is approximately
        700 square feet) are typical of other banking facilities and are approximately
        3,000 to 5,000 square feet in size.
 
 The
        Bremen Financial Center is a two-story building located on approximately
        3 **** acres
        that contains approximately 20,000 square feet. The other Haralson County
        branches are typical of our other locations and are approximately 3,000 to
        4,000
        square feet in size (with the exception of the Tallapoosa motor branch which
        is
        approximately 700 square feet).
 
 The
        Mirror Lake and Chapel Hill branches provide a new look for the Bank and
        contain
        customer-centric features such as concierge customer service areas with
        workstations and Internet connectivity. The Mirror Lake branch utilizes a
        remote
        teller system and is designed to be high-touch customer service and low-touch
        transactional service. The new Chapel Hill branch (formerly a Wachovia location)
        was built in 2001 and is a 3,400 square foot building on approximately one
        acre
        with brick and veneer exterior.
  20
 
 **Item
        3.**  **Legal
        Proceedings**
 
 While
        the
        Company and its subsidiaries are from time to time party to various legal
        proceedings arising from the ordinary course of business, management believes
        that there are no proceedings of material risk threatened or pending.
 
 **Item
        4.**  **Submission
        of Matters to a Vote of Security Holders**
 
 No
        matters were submitted to a vote of shareholders of the Company during the
        fourth quarter of the fiscal year covered by this Report.
 
 **PART
        II**
 
 **Item
        5.**  **Market
        for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
        Securities**
 
 **Market
        Information**
 
 The
        Company’s Common Stock is traded on the NASDAQ Capital Market System under
        trading symbol “WGNB”. Approximately 1,200 shareholders of record held our
        Common Stock as of March 28, 2008. Set forth below are the high and low sales
        prices for each full quarterly period during 2006 and 2007 and the dividends
        declared and paid per share of Common Stock for those periods.
 
 **Price
        Range Per Share**
  **Low**
              
              **High**
              
              **Dividends**
                **Paid
                  Per Share**2006:First
                  Quarter
              
              $
              24.00
              
              $
              25.81
              
              $
              0.170Second
                  Quarter
              
              
              24.73
              
              
              26.00
              
              
              0.177Third
                  Quarter
              
              
              24.27
              
              
              28.17
              
              
              0.183Fourth
                  Quarter
              
              
              25.51
              
              
              31.47
              
              
              0.190
  2007:First
                  Quarter
              
              $
              27.50
              
              $
              33.00
              
              $
              0.197Second
                  Quarter
              
              
              28.32
              
              
              31.60
              
              
              0.203Third
                  Quarter
              
              
              24.79
              
              
              28.08
              
              
              0.210Fourth
                  Quarter
              
              
              19.79
              
              
              24.24
              
              
              0.210
 
 **Dividends**
 
 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. *See
        “Business - Supervision and Regulation - Dividends.”*
 
 **Recent
        Sales of Unregistered Securities**
 
 The
        Company did not issue any securities during the year ended December 31, 2007
        that were not registered under the Securities Act.
 
 **Issuer
        Purchases of Equity Securities**
 
 The
        Company did not repurchase any of its securities during the fourth quarter
        of
        2007.
  21
  **Item
        6.**  **Selected
        Financial Data**
 
 The
        selected consolidated financial data of the Company for and as of the end
        of
        each of the periods indicated in the five-year period ended December 31,
        2007
        have been derived from the audited consolidated financial statements of the
        Company. The selected consolidated financial data should be read in conjunction
        with the consolidated financial statements of the Company, including the
        notes
        to those consolidated financial statements contained elsewhere in this
        Report.
  **Year
                  Ended December 31,****2007**
              
              **2006**
              
              **2005******
              
              **2004******
              
              **2003********(In
                  thousands, except share and per share data)**For
                  the Year:Total
                  Interest Income
              
              $
              55,828
              
              $
              42,093
              
              $
              32,546
              
              $
              25,268
              
              $
              23,542Total
                  Interest Expense
              
              
              27,181
              
              
              18,727
              
              
              12,583
              
              
              7,570
              
              
              7,527Net
                  Interest Income
              
              
              28,647
              
              
              23,366
              
              
              19,963
              
              
              17,698
              
              
              16,015Provision
                  for Loan Losses
              
              
              10,206
              
              
              1,465
              
              
              1,550
              
              
              925
              
              
              350Net
                  Interest Income After Provision for Loan Losses
              
              
              18,441
              
              
              21,901
              
              
              18,413
              
              
              16,773
              
              
              15,665Total
                  Other Income
              
              
              8,068
              
              
              6,404
              
              
              6,008
              
              
              5,637
              
              
              5,554Total
                  Other Expense
              
              
              23,341
              
              
              16,519
              
              
              14,464
              
              
              13,664
              
              
              12,752Earnings
                  Before Income Taxes
              
              
              3,168
              
              
              11,786
              
              
              9,957
              
              
              8,746
              
              
              8,467Income
                  Taxes
              
              
              134
              
              
              3,458
              
              
              2,889
              
              
              2,682
              
              
              2,680Net
                  earnings
              
              
              3,034
              
              
              8,327
              
              
              7,067
              
              
              6,064
              
              
              5,787Per
                  Share Data:Net
                  earnings
              
              
              0.55
              
              
              1.67
              
              
              1.42
              
              
              1.22
              
              
              1.17Diluted
                  net earnings
              
              
              0.55
              
              
              1.66
              
              
              1.41
              
              
              1.21
              
              
              1.15Cash
                  dividends declared
              
              
              0.82
              
              
              0.72
              
              
              0.61
              
              
              0.52
              
              
              0.45Book
                  value
              
              
              13.23
              
              
              10.50
              
              
              9.61
              
              
              9.01
              
              
              8.49Tangible
                  book value
              
              
              8.37
              
              
              10.50
              
              
              9.61
              
              
              9.01
              
              
              8.49At
                  Year End:Total
                  loans
              
              
              659,964
              
              
              474,319
              
              
              423,720
              
              
              356,909
              
              
              296,498Earning
                  assets
              
              
              739,334
              
              
              550,466
              
              
              503,275
              
              
              425,062
              
              
              367,694Assets
              
              
              883,665
              
              
              575,329
              
              
              523,643
              
              
              441,929
              
              
              393,216Total
                  deposits
              
              
              706,377
              
              
              462,813
              
              
              429,049
              
              
              338,398
              
              
              303,316Stockholders’
                  equity
              
              
              80,151
              
              
              52,496
              
              
              47,952
              
              
              44,962
              
              
              42,089Tangible
                  stockholders' equity
              
              
              50,717
              
              
              52,496
              
              
              47,952
              
              
              44,962
              
              
              42,089Common
                  shares outstanding
              
              
              6,057,594
              
              
              5,000,613
              
              
              4,987,794
              
              
              4,988,661
              
              
              4,959,678Average
                  Balances:Total
                  loans
              
              
              580,387
              
              
              441,883
              
              
              395,943
              
              
              330,159
              
              
              287,861Earning
                  assets
              
              
              683,998
              
              
              522,703
              
              
              473,480
              
              
              404,121
              
              
              357,468Assets
              
              
              740,862
              
              
              549,691
              
              
              501,191
              
              
              428,637
              
              
              384,395Deposits
              
              
              594,564
              
              
              440,560
              
              
              393,851
              
              
              325,991
              
              
              296,723Stockholders’
                  equity
              
              
              69,412
              
              
              50,358
              
              
              46,857
              
              
              43,742
              
              
              40,708Tangible
                  Stockholders’ equity
              
              
              54,695
              
              
              50,358
              
              
              46,857
              
              
              43,742
              
              
              40,708Weighted
                  average shares outstanding
              
              
              5,534,851
              
              
              4,998,103
              
              
              4,986,930
              
              
              4,958,604
              
              
              4,962,131Weighted
                  average diluted shares outstanding
              
              
              5,560,038
              
              
              5,024,668
              
              
              5,024,429
              
              
              5,034,495
              
              
              5,035,470Key
                  Performance Ratios:Return
                  on average assets
              
              
              0.41
              %
              
              1.51
              %
              
              1.41
              %
              
              1.41
              %
              
              1.51
              %Return
                  on average equity
              
              
              4.37
              %
              
              16.54
              %
              
              15.08
              %
              
              13.86
              %
              
              14.22
              %Return
                  on average tangible equity
              
              
              5.55
              %
              
              16.54
              %
              
              15.08
              %
              
              13.86
              %
              
              14.22
              %Net
                  interest margin, taxable equivalent
              
              
              4.33
              %
              
              4.60
              %
              
              4.37
              %
              
              4.55
              %
              
              4.65
              %Dividend
                  payout ratio
              
              
              149.09
              %
              
              43.11
              %
              
              43.19
              %
              
              42.62
              %
              
              38.29
              %Average
                  equity to average assets
              
              
              9.37
              %
              
              9.16
              %
              
              9.35
              %
              
              10.20
              %
              
              10.59
              %Average
                  loans to average deposits
              
              
              97.62
              %
              
              100.30
              %
              
              100.53
              %
              
              101.28
              %
              
              97.01
              %Overhead
                  ratio
              
              
              63.57
              %
              
              55.49
              %
              
              55.69
              %
              
              58.56
              %
              
              59.12
              %
  22
  **Item
        7.**  **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 The
        purpose of the following discussion is to address information relating to
        our
        financial condition and results of operations that may not be readily apparent
        from a review of the consolidated financial statements and notes thereto,
        which
        begin on page F-1 of this Report. This discussion should be read in conjunction
        with information provided in WGNB’s consolidated financial statements and
        accompanying footnotes.  When
        we
        use words like “we,” “us,” “our” and the like, we are referring to WGNB together
        with its subsidiary, First National Bank.
 
 **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 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 our actual
        results, performance or achievements to differ materially from historical
        results or from any results expressed or implied by such forward-looking
        statements. We caution readers that the following important factors, among
        others, could cause our 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 changes in the business cycle and downturns in local,
                  regional
                  or national economies;
 
 ·
              the
                  matters described under Part I, Item 1A. - Risk Factors.
 
 We
        caution that the foregoing list of important factors is not exclusive of
        other
        factors which may impact our operations.
 
 **CRITICAL
        ACCOUNTING POLICIES**
 
 We
        have
        established various accounting policies which govern the application of
        accounting principles generally accepted in the United States of America
        in the
        preparation of its financial statements. These significant accounting policies
        are described in the Notes to the consolidated financial statements. 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 our
        assets
        and liabilities and results of operations. All accounting policies are
        important, and all policies described in Notes to the consolidated financial
        statements should be reviewed for a greater understanding of how our financial
        performance is recorded and reported.
  23
 
 We
        believe the allowance for loan losses is a critical accounting policy that
        requires the most significant judgments and estimates used in the preparation
        of
        our 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 this Report entitled “Balance Sheet Review - Provision and
        Allowance for Possible Loan and Lease Losses” and Note 1 and Note 4 to our
        consolidated financial statements for a detailed description of our estimation
        processes and methodology related to the allowance for loan losses.
 
 **EARNINGS
        OVERVIEW**
  *For
        the Years Ended December 31, 2007, 2006 and 2005*
 
 Our
        net
        earnings were $3.0 million in 2007, $8.3 million in 2006 and $7.1 million
        in
        2005, representing a decrease of 63.6% between fiscal years 2006 and 2007
        and an
        increase of 17.8% between fiscal years 2005 and 2006. Net earnings per share
        on
        a fully diluted basis were $0.55 for 2007, $1.66 for 2006 and $1.41 for 2005,
        representing a decrease of 66.9% between fiscal years 2006 and 2007 and an
        increase of 17.7% between fiscal years 2005 and 2006. Prior to the material
        subsequent event, based on the provision and other writedowns we knew about
        as
        of December 31, 2007, we recorded earnings of $7.3 million, or $1.32 earnings
        per diluted share, through December 31, 2007. The return on average assets
        for
        2007 was 0.41%, the return on average shareholders’ total equity for 2007 was
        4.37%, and the return on average tangible equity for 2007 was 5.55%. This
        compared with 1.51% return on average assets and 16.54% return on average
        equity
        for 2006, and 1.41% return on average assets and 15.08% return on average
        equity
        for 2005. Over the past ten years, our return on average assets has averaged
        1.37% and our return on average equity has averaged 14.06%.
 
 Historically,
        our earnings have been driven primarily by balance sheet growth, particularly
        in
        loans, and attaining greater overhead efficiency. There were two major
        developments in 2007 which impacted our earnings and growth.
 
 First,
        we
        completed our merger with First Haralson effective July 2007 which increased
        both earnings and the number of shares outstanding for the last half of 2007.
        We
        anticipated that the merger would be neither materially accretive nor dilutive
        in the first twelve months following the merger. Our analysis took into account
        non-recurring, non-operating merger costs, estimated cost savings over a
        twelve
        month period and the expected average number of shares outstanding based
        on the
        elections of First Haralson shareholders. In connection with the merger,
        we
        incurred non-recurring, non-operating merger expenses in the amount of $535
        thousand ($327 thousand net of applicable tax). The non-recurring, non-operating
        merger expenses net of applicable taxes reduced diluted earnings per share
        by
        $0.06. However, the overall effect of the merger over a twelve month period
        (the
        last six months of 2007 and the first six months of 2008) is not expected
        to
        have a material impact on diluted earnings per share.
 
 Second,
        we began to experience asset quality issues in the third quarter of 2007.
        During
        that period, non-performing assets increased from $6.6 million as of June
        30,
        2007 to $58.3 million as of December 31, 2007, including the revision
        attributable to the material subsequent event, an increase of approximately
        $51.7 million, or 783%. The majority of this non-performing asset increase
        was
        attributable to sixteen residential real estate construction and
        development loan relationships. In the last half of 2007, we experienced
        net
        charged-off loans of $4.9 million which resulted in our recording a loan
        loss
        provision in the amount of $9.4 million in the second half of 2007 including
        the
        addition attributable to the material subsequent event. Additionally, we
        charged-off accrued interest on impaired loans in the amount of $473 thousand
        and incurred $804 thousand of additional charge-down of foreclosed property
        as
        an adjustment for updated appraisals on foreclosed property. In total, the
        increased provision for loan losses, the charge-off of accrued interest and
        the
        charge-down of foreclosed property had an impact of reducing earnings by
        $6.6
        million net of applicable taxes, or $1.19 per diluted share. This does not
        take
        into account expenses incurred for collection of loans and maintenance of
        properties taken in foreclosure discussed elsewhere or the diversion of
        management’s focus toward collection of loans rather than production of
        loans.
  24
 
 But
        for
        the items specifically identified above, our diluted earnings per share would
        have been approximately $1.80, an 8.4% increase over our 2006 diluted earnings
        per share amount of $1.66. The acquired loans of First Haralson had no impact
        on
        the level of non-performing assets except to increase the total loan portfolio,
        thereby reducing the percentage of non-performing assets to total loans.
        Much
        has been said about the slowdown in the metro-Atlanta residential real estate
        market over the past six months. There is no question that the sub-prime
        mortgage production and subsequent default rate has had an impact on our
        construction and development loan customers. While we did not actually produce
        sub-prime mortgages, the excess inventory of residential homes and lots that
        has
        been produced by foreclosure on sub-prime loans and over-building to meet
        the
        demand of sub-prime lending has had a negative impact on home values and
        increased the time it takes to sell existing inventory. These economics have
        a
        significant impact on the borrower’s ability to carry the construction or
        development project and thereby reduce the quality of our construction and
        development loan portfolio.
 
 Despite
        experiencing non-performing assets, our earnings were positively impacted
        by
        earning asset growth. During 2007, we experienced total loan growth of $186
        million, or 39.1%. This loan growth includes total loans acquired in the
        merger
        in the amount of $138.2 million which constituted 74.4% of the loan growth
        we
        experienced in 2007. We grew total loans by $47.4 million, or 10.0%, organically
        in 2007. This compared to loan growth of $50.6 million, or 11.9%, in 2006
        and
        $66.8 million, or 18.7%, in 2005. Our average loan growth rate over the past
        ten
        years has been 16.3%. Consequently, our 2007 loan growth was less than average
        compared to our 10 year average. Our ability to grow loans in both quality
        and
        quantity is important to our ability to grow earnings. Our core business
        is
        lending and management maintains underwriting and pricing policies and
        procedures designed to grow revenues while not significantly increasing our
        credit or interest rate risk exposure. Much of the loan growth that we
        experienced in 2007 took place in the first half of 2007.
 
 Another
        key component of earnings is our net interest margin. We were able to maintain
        our interest margin by actively managing our interest rate risk exposure.
        Our
        net interest margin was compressed in 2007 when compared to 2006 and 2005.
        Compression of the net interest margin can take place if our balance sheet
        is
        not protected from the impact of changes in market interest rates. This was
        not
        the case with our balance sheet in 2007. While not completely immune to
        compression of the interest margin due to interest rate risk, we were neutral
        to
        changes in short term market interest rates in 2007. However, we did experience
        interest margin compression in 2007. The decrease was due to the increase
        in our
        non-performing assets and the impact of charging-off accrued but unpaid interest
        on impaired loans. The net interest margin for 2007 was 4.33%, compared to
        4.60%
        in 2006 and 4.37% in 2005.
 
 In
        comparing 2007 to 2006, there were two significant financial occurrences
        in the
        fourth quarter of 2006 that positively impacted net earnings for 2006. First,
        we
        realized a gain on foreclosed property in the amount of $232 thousand in
        the
        fourth quarter of 2006. This gain was considered non-recurring in nature.
        Second, in the fourth quarter of 2006 we earned federal tax credits of
        approximately $144 thousand to be recognized on a low to moderate income
        housing
        project in which we are a partner. The tax credits did recur in 2007 and
        will be
        of benefit to us over the next nine years.
 
 Finally,
        management continually seeks to increase revenues while controlling costs.
        In
        2007, our overhead ratio (non-interest expense/net interest income plus
        non-interest income) was 63.6% compared to 55.5% in 2006 and 55.7% in 2005.
        The
        increase in the overhead ratio is primarily due to the merger costs and the
        impact of increased carrying cost of non-performing assets. Once non-performing
        assets are reduced and the merger costs have been absorbed, the overhead
        ratio
        is expected to decrease.
 
 **Net
        Interest Income**
 
 Our
        operational results primarily depend on the earnings of the Bank which depend,
        to a large degree, on its ability to generate net interest income. Net interest
        income represented 78.0%, 78.5% and 76.9% of net interest income plus other
        income in 2007, 2006 and 2005, respectively. The following discussion and
        analysis of net interest margin assumes and is stated on a tax equivalent
        basis.
        That is, non-taxable interest is restated at its taxable equivalent
        rate.
 
 The
        banking industry uses two key ratios to measure the relative profitability
        of
        net interest income. The net interest rate spread measures the difference
        between the average yield on interest earning assets (loans, investment
        securities and federal funds sold) and the average rate paid on interest
        bearing
        liabilities (deposits and other borrowings). The interest rate spread eliminates
        the impact of non-interest bearing deposits and gives a direct perspective
        on
        the effect of market interest rate movements. The other commonly used measure
        is
        net interest margin which is defined as net interest income as a percent
        of
        average total interest earning assets and takes into account the positive
        impact
        of investing non-interest-bearing deposits.
  25
 
 Our
        net
        interest income increased by $5.3 million, or 22.6%, in 2007 from 2006, and
        by
        $3.4 million, or 17.0%, in 2006 from 2005. Net interest income for 2007 was
        $28.8 million compared to $23.4 million for 2006 and $20.0 million for 2005.
        The
        net interest margin on interest earning assets was 4.33% in 2007, 4.60% in
        2006
        and 4.37% in 2005 on a tax equivalent basis.
 
 Beginning
        in early 2001 through the end of 2003, short term interest rates dropped
        550
        basis points. Through the first half of 2007, however, short term interest
        rates
        rebounded 575 basis points. Beginning in the last half of 2007, short term
        interest rates have declined and are likely to continue to decline as economic
        policymakers attempt to avoid a recession in 2008 and provide relief for
        sub-prime homeowners. These broad fluctuations can have a significant impact
        on
        us without robust interest rate risk management. We seek to manage our interest
        rate risk such that fluctuations in market rates do not have a significant
        negative impact on earnings. Throughout the period of increasing and decreasing
        rates our margin compressed and expanded although not with the extreme
        volatility that short term market interest rates have fluctuated.
 
 Comparing
        2007 to 2006, our net interest margin decreased by 27 basis points from 4.60%
        in
        2006 to 4.33% in 2007. However, our interest margin is very similar to what
        it
        was in 2005 which was 4.37%. We believe management’s interest rate risk
        strategies mitigated the effects of rapidly changing short-term interest
        rates.
        As rates decrease again in 2008, we anticipate that, while the margin may
        compress slightly due to rate changes, it should then recover over a six
        month
        period as interest-bearing liabilities reprice.
 
 The
        primary component of our interest margin compression in 2007 was due to the
        increase in non-performing loans and the write-off of accrued interest on
        impaired loans. The longer we carry non-performing assets on the balance
        sheet,
        the more compressed the interest margin becomes. We use interest-bearing
        liabilities to fund non-interest bearing assets thereby reducing the net
        interest margin. Margin reduction is further exasperated when we charge-off
        previously accrued interest. As stated previously, non-performing assets
        increased from $6.6 million as of June 30, 2007 to $58.3 million as of December
        31, 2007. The balance of those non-performing assets remains in the calculation
        of net interest margin even though they are not on earning status. Further,
        we
        charged-off interest in the last half of 2007 on impaired loans in the amount
        of
        $473 thousand which is also subtracted from interest income. Consequently,
        not
        only did we have a non-earning asset, we also charged-off interest which
        had a
        negative impact on the interest margin in 2007.
 
 Our
        average yield on earning assets in 2007 was 8.30%, an increase of 12 basis
        points compared to 2006, while our average cost of funds was 4.57% in 2007,
        an
        increase of 30 basis points from 2006. The yield on total loans in 2007 was
        8.65%, but the yield would have been approximately 8.82% had we not had the
        $473
        thousand of charged -off interest and reduced the average balance of total
        loans
        by the average non-accrual loans for the year of $5.8 million. Consequently,
        the
        impact to the loan yield isolating the effect of non-performing assets in
        2007
        was 17 basis points. The impact of non-performing assets on the net interest
        spread was 13 basis points in 2007. The impact of non-performing assets on
        the
        net interest margin could be greater in 2008 unless the average balance of
        non-performing assets is reduced and management is able to minimize the amount
        of future charged-off interest.
 
 Our
        balance sheet has traditionally been slightly asset sensitive, but as 2005,
        2006
        and 2007 progressed, management sought to become more evenly matched in
        preparation for the possibility of declining rates. That is, management sought
        to shift to a scenario where assets re-price in a similar fashion or slower
        than
        liabilities. Therefore, in a falling rate environment, our interest margin
        will
        tend to increase. In combining with First Haralson, management studied the
        impact of combining the interest rate risk position of WGNB with that of
        First
        Haralson. We have found that the combination produced an institution that
        was
        more neutral to interest rate changes. That is, WGNB being slightly
        asset-sensitive to neutral, and First Haralson being slightly liability
        sensitive, produced a combination that is almost neutral to interest rate
        fluctuations over a one year period.
 
 One
        final
        factor in the change in our volume of both interest income and interest expense
        was the acquisition of the assets and liabilities of First Haralson as of
        July
        1, 2007. First Haralson’s net interest margin was less than ours. Therefore,
        management estimated that the combination would dilute our net interest margin.
        However, the volume of net interest income mitigated any dilutive factor
        in the
        combination of the companies. On the effective date of the combination, we
        added
        $9.2 million in federal funds sold, $42.3 million in investment securities,
        $138.0 million of total loans to earning assets, $159.5 million of
        interest-bearing deposits, $7.5 million of borrowed funds and $21.3 million
        of
        non-interest-bearing deposits.
  26
 
 The
        following table shows, for the past three years, the relationship between
        interest income and interest expense and the average daily balances of
        interest-earning assets and interest-bearing liabilities on a tax equivalent
        basis assuming a rate of 34%:
 
 **Table
                  1****Average
                  Consolidated Balance Sheets and Net Interest
                  Analysis****(in
                  thousands)**
  For
                  the Years Ended December 31,2007
              
              2006
              
              2005Average
                  Balance
              
              Interest
              
              Yield/
                Rate
              
              Average
                  Balance
              
              Interest
              
              Yield/
                Rate
              
              Average
                  Balance
              
              Interest
              
              Yield/
                RateAssets:Interest
                  earnings assets:Federal
                  funds sold
              
              $
              11,691
              
              
              614
              
              
              5.25
              %
              $
              12,133
              
              
              641
              
              
              5.28
              %
              $
              11,331
              
              
              394
              
              
              3.48
              %Investments:Taxable
              
              
              49,907
              
              
              3,295
              
              
              6.60
              %
              
              40,528
              
              
              2,491
              
              
              6.15
              %
              
              35,687
              
              
              2,109
              
              
              5.91
              %Tax
                  exempt
              
              
              42,013
              
              
              2,699
              
              
              6.42
              %
              
              28,159
              
              
              1,825
              
              
              6.48
              %
              
              30,520
              
              
              1,997
              
              
              6.54
              %Total
                  Investments
              
              
              103,611
              
              
              6,608
              
              
              6.38
              %
              
              80,820
              
              
              4,957
              
              
              6.13
              %
              
              66,207
              
              
              4,106
              
              
              6.20
              %Loans
                  (including loan fees):Taxable
              
              
              579,126
              
              
              50,057
              
              
              8.64
              %
              
              440,939
              
              
              37,695
              
              
              8.55
              %
              
              394,209
              
              
              28,631
              
              
              7.26
              %Tax
                  Exempt
              
              
              1,261
              
              
              123
              
              
              9.74
              %
              
              944
              
              
              94
              
              
              9.96
              %
              
              1,734
              
              
              143
              
              
              8.25
              %Total
                  Loans
              
              
              580,387
              
              
              50,180
              
              
              8.65
              %
              
              441,883
              
              
              37,789
              
              
              8.55
              %
              
              395,943
              
              
              28,774
              
              
              7.27
              %Total
                  interest earning assets
              
              
              683,998
              
              
              56,788
              
              
              8.30
              %
              
              522,703
              
              
              42,746
              
              
              8.18
              %
              
              473,481
              
              
              33,274
              
              
              7.03
              %Other
                  non-interest earnings assets
              
              
              56,864
              
              
              
              
              
              
              
              
              26,988
              
              
              
              
              
              
              
              
              27,710Total
                  assets
              
              $
              740,862
              
              
              
              
              
              
              
              $
              549,691
              
              
              
              
              
              
              
              $
              501,191Liabilities
                  and shareholders’ equity:Interest-bearing
                  liabilities:Deposits:Demand
              
              $
              172,706
              
              
              6,259
              
              
              3.62
              %
              $
              137,747
              
              
              4,995
              
              
              3.63
              %
              $
              136,248
              
              
              3,183
              
              
              2.34
              %Savings
              
              
              20,631
              
              
              242
              
              
              1.17
              %
              
              16,908
              
              
              185
              
              
              1.09
              %
              
              18,011
              
              
              100
              
              
              .56
              %Time
              
              
              337,058
              
              
              17,373
              
              
              5.15
              %
              
              232,143
              
              
              10,776
              
              
              4.64
              %
              
              189,368
              
              
              6,974
              
              
              3.68
              %FHLB
                  advances&
                  other borrowings
              
              
              63,966
              
              
              3,307
              
              
              5.16
              %
              
              51,985
              
              
              2,771
              
              
              5.33
              %
              
              52,407
              
              
              2,326
              
              
              4.44
              %Total
                  interest-bearing liabilities
              
              
              594,361
              
              
              27,181
              
              
              4.57
              %
              
              438,783
              
              
              18,727
              
              
              4.27
              %
              
              396,034
              
              
              12,583
              
              
              3.18
              %Non-interest
                  bearing deposits
              
              
              64,170
              
              
              
              
              
              
              
              
              53,762
              
              
              
              
              
              
              
              
              50,224Other
                  liabilities
              
              
              12,919
              
              
              
              
              
              
              
              
              6,787
              
              
              
              
              
              
              
              
              8,076Shareholders’
                  equity
              
              
              69,412
              
              
              
              
              
              
              
              
              50,359
              
              
              
              
              
              
              
              
              46,857Total
                  liabilities andShareholders’
                  equity
              
              $
              740,862
              
              
              
              
              
              
              
              $
              549,691
              
              
              
              
              
              
              
              $
              501,191Excess
                    of interest-earning assets over interest-bearing
                    liabilities
              
              $
              89,637
              
              
              
              
              
              
              
              $
              83,920
              
              
              
              
              
              
              
              $
              77,447Ratio
                    of interest-earning assets to interest-bearing
                    liabilities
              
              
              115.08
              %
              
              
              
              
              
              
              
              119.13
              %
              
              
              
              
              
              
              
              119.56
              %Net
                  interest income tax equivalent
              
              
              
              
              
              29,607
              
              
              
              
              
              
              
              
              24,019
              
              
              
              
              
              
              
              
              20,691Net
                  interest spread
              
              
              
              
              
              
              
              
              3.73
              %
              
              
              
              
              
              
              
              3.91
              %
              
              
              
              
              
              
              
              3.85
              %Net
                  interest margin on interest earning assets
              
              
              
              
              
              
              
              
              4.33
              %
              
              
              
              
              
              
              
              4.60
              %
              
              
              
              
              
              
              
              4.37
              %Tax
                  Equivalent Adjustments:Investments
              
              
              
              
              
              (919
              )
              
              
              
              
              
              
              
              (621
              )
              
              
              
              
              
              
              
              (679
              )Loans
              
              
              
              
              
              (42
              )
              
              
              
              
              
              
              
              (32
              )
              
              
              
              
              
              
              
              (49
              )Net
                  interest income
              
              
              
              
              $
              28,647
              
              
              
              
              
              
              
              $
              23,366
              
              
              
              
              
              
              
              $
              19,963
  Non-accrual
        loans and the interest income that was recorded or charged-off on these loans
        are included in the yield calculation for loans in all periods
        reported.
  27
 
 The
        following table shows the relative impact on net interest income of changes
        in
        the annual average daily outstanding balances (volume) of interest-earning
        assets and interest-bearing liabilities and the rates earned (rate) by us
        on
        such assets and liabilities. Variances resulting from a combination of changes
        in rate and volume are allocated in proportion to the absolute dollar amounts
        of
        the change in each category.
 
 **Table
        2**
 **Changes
        in Interest Income and Expense on a Tax Equivalent Basis**
 **(in
        thousands)**
  Increase
                  (decrease) due to changes in:2007
                  over 2006
              
              2006
                  over 2005Volume
              
              Rate
              
              Total
              
              Volume
              
              Rate
              
              TotalInterest
                  income on:Federal
                  funds sold
              
              $
              (23
              )
              
              (4
              )
              
              (27
              )
              $
              42
              
              
              205
              
              
              247Taxable
                  investments
              
              
              619
              
              
              186
              
              
              805
              
              
              297
              
              
              84
              
              
              381Non-taxable
                  investments
              
              
              890
              
              
              (16
              )
              
              874
              
              
              (153
              )
              
              (19
              )
              
              (172
              )Taxable
                  loans
              
              
              11,983
              
              
              379
              
              
              12,362
              
              
              3,995
              
              
              5,070
              
              
              9,065Non-taxable
                  loans
              
              
              31
              
              
              (2
              )
              
              29
              
              
              (78
              )
              
              29
              
              
              (49
              )Total
                  Interest Income
              
              
              13,500
              
              
              543
              
              
              14,043
              
              
              4,103
              
              
              5,369
              
              
              9,472Interest
                  expense on:Deposits:Demand
              
              
              1,267
              
              
              (2
              )
              
              1,265
              
              
              54
              
              
              1,757
              
              
              1,811Savings
              
              
              44
              
              
              13
              
              
              57
              
              
              (12
              )
              
              98
              
              
              86Time
              
              
              5,408
              
              
              1,189
              
              
              6,597
              
              
              1,985
              
              
              1,817
              
              
              3,802FHLB
                  advances & other borrowings
              
              
              704
              
              
              (168
              )
              
              536
              
              
              (22
              )
              
              467
              
              
              445Total
                  Interest Expense
              
              
              7,423
              
              
              1,032
              
              
              8,455
              
              
              2,005
              
              
              4,139
              
              
              6,144Increase
                  (decrease) in net interest income
              
              $
              6,077
              
              
              (489
              )
              
              5,588
              
              $
              2,098
              
              
              1,230
              
              
              3,328
  **Other
        Income**
  Other
        income in 2007 was $8.41 m illion,
        an increase of $1.7 million, or 26.0%, when compared to 2006. The increase
        in
        other income from 2005 to 2006 was $396 thousand, or 6.6%. Most of the increase
        in other non-interest income during 2007 was attributable to the combination
        of
        WGNB and First Haralson for the last half of 2007. First Haralson contributed
        to
        the volume of service charges on deposit accounts, ATM network fees and
        miscellaneous income. Another major contributor to the increase in other
        non-interest income is due to the fact that we realized a full year of brokerage
        fees in 2007 from our recently implemented brokerage and wealth management
        operation which accounted for an increase of $507 thousand, or 391%, in
        brokerage fees from 2006 to 2007. The increase in other income from 2005
        to 2006
        is attributable to certain gains that we realized in both 2006 and 2005.
        In the
        fourth quarter of 2006, we recognized a gain on the sale of foreclosed property
        in the amount of $232 thousand. In 2005, we recognized a gain on investment
        securities available for sale in the amount of $228 thousand. Management
        rarely
        elects to sell investment securities. However, this particular sale strategy
        allowed us to reposition our portfolio for rising rates, recognize the gain
        associated with the sale of the investment securities and accomplish both
        by
        selling $3.8 million of bonds, or approximately 5% of the portfolio.
 
 Service
        charges on deposit accounts, which had experienced a decline from 2005 to
        2006
        as a result of the implementation of our free checking program, accounted
        for
        the greatest increase in non-interest income from 2006 to 2007. The increase
        in
        service charges on deposit accounts from 2006 to 2007 was $1.3 million, or
        32.1%. Prior to the combination, First Haralson averaged approximately $180
        thousand per month in service charges on deposit accounts. Thus, approximately
        $1.1 million of the increase in service charges on deposit accounts from
        2006 to
        2007 was attributable to revenue derived from First Haralson’s customer base for
        the last six months of 2007. The remaining $200 thousand increase in service
        charges on deposit accounts is attributable to our combined entity’s ability to
        increase the combined customer base with much of the enhanced revenue being
        attributable to increased overdraft fee income in 2007 compared to 2006.
 
 Our
        brokerage and wealth management business was a significant contributor to
        fee
        income for us in 2007. The wealth management division is now cumulatively
        profitable and is poised to contribute more significantly to our earnings
        in the
        future. As stated above, most of the increase in brokerage fees was attributable
        to twelve months of operation in 2007 compared to four months in 2006 and
        no
        significant income from brokerage fees in 2005. First Haralson averaged
        approximately $8 thousand per month in brokerage fees prior to the merger.
  ATM
        network fees increased by $270 thousand, or 34.7%, in 2007 compared to 2006,
        and  by
        $275
        thousand, or 54.8%, in 2006 compared to 2005. This increase continues to
        be
        attributable to increased foreign (non-WGNB customers) usage of our expanding
        ATM network as well as the increased volume of ATM and debit card revenue
        attributable to the addition of First Haralson’s ATM operations to the
        operations of WGNB.
  28
 
 The
        loss
        on the sale and write-down of foreclosed property in the amount of $729 thousand
        is attributable to a cumulative recognition of net gains on disposal of
        foreclosed property in the amount of $75 thousand and a fourth quarter
        write-down of foreclosed property of $804 thousand. Management is active
        in the
        continuous valuation of the property we own. The write-down in foreclosed
        property occurred after we received updated appraisals on certain foreclosed
        properties we held which indicated the need for further write-down. The net
        loss
        on the sale and write-down of foreclosed property in the fourth quarter of
        2007
        compares to a 2006 fourth quarter gain on the sale of foreclosed property
        in the
        amount of $232 thousand included in a total gain of $243 thousand for 2006.
 
 Miscellaneous
        income between 2006 and 2007 increased $559 thousand, or 69.9%. During 2007,
        we
        recognized $237 thousand in gain in the market value of a fair value swap
        described in Note 10 to the consolidated financial statements “ *Commitments
        and Contingencies - Derivative Instruments and Hedging
        Activities”* compared
        to no gain during 2006. In addition, we received a distribution of $118 thousand
        from a business development partnership in which we are a member in the first
        quarter of 2007 which was non-recurring in nature. Also included in
        miscellaneous income in 2007 was $79 thousand of income on insurance contracts
        that were owned by First Haralson in connection with its supplemental employee
        retirement plan. *See
        Note 14 to the consolidated financial statements -* “ *Supplemental
        Employee Retirement Plan”* .
        Late
        fees on loans are included in miscellaneous income. Late fees on loans in
        2007
        exceeded late fees on loans in 2006 by $72 thousand. The remainder of the
        increase in miscellaneous income is attributable to the addition of First
        Haralson’s miscellaneous revenue and other line items which contributed to our
        growth in the volume of fees from 2006 to 2007. Miscellaneous income was
        flat
        between 2005 and 2006.
 
 **Other
        Expense**
  Other
        expenses increased by $6.8 million, or 41.3%, in 2007 over 2006 and by $2.1
        million, or 14.2%, in 2006 over 2005. As was the case in net interest income
        and
        other income, the primary reason for increased expenses is six months of
        operations which include the First Haralson business. Increased salaries
        and
        employee benefits comprised more than half of the increase in other expenses
        in
        2007, 2006 and 2005. Salaries and employee benefits increased $4.0 million,
        or
        40.1%, from 2006 to 2007 and $1.2 million, or 14.0%, from 2005 to 2006. Other
        operating expenses increased by $1.9 million, or 46.3%, and occupancy expenses
        increased $898 thousand, or 37.4%, comparing 2007 to 2006. This, too, is
        attributable to six months of operations which included First Haralson and
        non-recurring merger costs.
 
 The
        level
        of other non-interest expense that we absorbed in the combination with First
        Haralson is very much in line with what management expected based upon our
        due
        diligence and the estimation of merger costs and attainable cost savings
        in the
        first six months following the merger. We offered certain employees a voluntary
        retirement package which was accepted by some of the offerees, including
        certain
        WGNB employees. That cost was expensed in the period in which it was incurred.
        While the increase in expenses on a percentage basis was material in relation
        to
        our year to year growth, the increases were expected.
 
 In
        terms
        of asset size, First Haralson had approximately $211 million in assets as
        of the
        closing of the merger. Our asset size prior to the merger was $623 million.
        Consequently, First Haralson was one third our size and employed 85 people
        immediately preceding the closing of the merger. Management expected that
        revenue and expenses would increase by at 30% to 40% in every category. First
        Haralson operated seven branches in Haralson and Carroll counties, one of
        which
        closed after the merger (the Carrollton location). While the conversion of
        the
        two operating systems went very smoothly, it was very time consuming and
        required all available human resources from both companies.
 
 In
        addition to the First Haralson acquisition, we added a commercial loan
        production office and a second Banco De Progreso location in Coweta County
        during 2007. We also had an entire year of operations from our Chapel Hill
        location in Douglas County and our initial Banco De Progreso location in
        Carroll
        County, both of which were put in service in 2006. Management expected a
        significant increase in expense related to our expansion efforts and the
        2007
        increase in salaries and benefits, occupancy and other operating expense
        reflected that fact. We believe that the investment in expansion will ultimately
        provide an enhanced return to our shareholders.
  29
 
 The
        increase of salaries and benefits from 2006 to 2007 is further described
        as
        follows: Salaries (including overtime) and related payroll taxes increased
        $3.0
        million, or 42.6%; profit sharing, 401k, bonuses, deferred compensation expense
        and stock option expense increased $562 thousand, or 26.5%; and employee
        benefits which primarily include employee health and life insurance expense
        increased $467 thousand, or 53.6%. Our stock-based compensation expense
        methodology is described more fully in Note 1 to the consolidated financial
        statements *“Stock
        Compensation Plans”* ,
        and our
        deferred compensation expense is more fully described in Note 14 to the
        consolidated financial statements “ *Supplemental
        Employee Retirement Plan* ”.
 
 We
        had
        186 full time equivalent employees as of June 30, 2007. On July 2, 2007 we
        added
        81 full time equivalent employees (for an increase of 43.5%) as a result
        of the
        First Haralson acquisition. The additional employee count in the last half
        of
        2007 accounted for nearly all of the increase in salaries and benefits for
        the
        year. Our annual salary increases only accounted for approximately 4% of
        the
        increase for 2007. The addition of two full time equivalent employees for
        the
        loan production office in the second quarter of 2007 and five employees for
        our
        second Banco De Progreso office in the second quarter had less impact on
        2007
        salaries than did the merger and annual salary increases.
 
 Prior
        to
        the acquisition, we negotiated with certain First Haralson executive officers
        to
        buyout their employment contracts. Those expenditures were included in
        transaction costs of the merger and, thus, were not expensed in 2007. However,
        we offered a voluntary retirement package throughout the combined organization
        post merger. Certain employees exercised this offer which resulted in our
        expensing approximately $271 thousand in salary and payroll tax expense related
        to voluntary retirement. In connection with the merger and subsequent conversion
        of operating systems, we also incurred $62 thousand in overtime expense that
        was
        directly related to the conversion. Management considers both the voluntary
        retirement offer and the overtime to be non-recurring in nature. The increase
        in
        profit sharing, 401k, bonuses, deferred compensation and employee health
        and
        life insurance expense is similarly attributable to the merger and location
        expansions completed in 2006 and 2007.
 
 Occupancy
        expense increased by $898 thousand, or 37.4%, in 2007 when compared to 2006,
        which is attributable to the merger and branch expansion previously discussed.
        Occupancy expense increased by $268 thousand, or 12.6%, in 2006 when compared
        to
        2005. This too, is primarily related to the branch expansion which included
        the
        addition of the Chapel Hill branch in Douglasville and the Banco de Progreso
        branch in Carrollton in 2006. In addition, we seek to maintain our operating
        technology at a high level which includes capital purchases of personal
        computers, operating equipment and software. Many of those capital items
        have
        shorter depreciable lives and, therefore, impact depreciation expense more
        dramatically than longer-lived assets. Occupancy expense of the branches
        including the additional branches of First Haralson and administrative and
        operations offices comprise six major components: depreciation, utilities,
        property tax, operating leases, repairs and maintenance expense. Depreciation
        expense in 2007 increased by $315 thousand, or 27.7%, compared to 2006, and
        increased by $86 thousand, or 8.2%, compared to 2005. Likewise, utilities
        expense increased $239 thousand, or 49.9%, comparing 2007 to 2006, and increased
        $87 thousand, or 22.2%, comparing 2006 to 2005. All other occupancy expense
        including property taxes, repairs, operating leases and maintenance, increased
        by $344 thousand, or 43.4%, comparing 2007 to 2006, and increased by $95
        thousand, or 13.2%, comparing 2006 to 2005.
 
 Other
        operating expenses increased by $1.9 million, or 46.3%, from 2006 to 2007,
        and
        increased by $565 thousand, or 15.6%, from 2005 to 2006. Other operating
        expense
        includes expenses on loans, professional, accounting and regulatory fees,
        ATM
        network fees, advertising, charitable contributions and a number of other
        expenses. Our largest other expense category in 2007 was expense relating
        to
        loans which is unusual for us. Total expense on loans, which includes
        miscellaneous loss on loan collection costs, expense on foreclosed property,
        legal expense related to loans and appraisal fees, increased by $333 thousand,
        or 150.6%, comparing 2007 to 2006. While some of the increase in expense
        on
        loans is related to the merger, most of the increase is due to the decrease
        in
        credit quality discussed in detail elsewhere in this Report that took place
        in
        the last half of 2007. Expense related to foreclosed property increased by
        $158
        thousand which is reflective of the increase amount of foreclosed real estate
        in
        2007. This expense includes real estate taxes, maintenance and repairs on
        foreclosed property. Collection, miscellaneous loss on loans, legal and
        appraisal fees related to collection efforts on troubled loans increased
        by $175
        thousand from 2006 to 2007. The increase in this type of expense is of concern
        to management and represents another factor in limiting the holding period
        of
        real estate taken in foreclosure.
 
 Other
        operating expense includes expenses for supplies such as printing, checks,
        paper
        and envelopes related to the generation of customer statements and bank
        operations. It also includes office supplies, letterhead, regulatory
        documentation and promotional items that were redesigned to accommodate our
        new
        name and logo. In 2006, we expensed $365 thousand for supplies expense compared
        to $558 thousand in 2007, an increase of $193 thousand, or 52.8%. The merger
        related expenditures for supplies was $96 thousand in 2007. This expense
        was for
        reprinting and redesign of statements and promotional literature and is not
        expected to be repeated in the future. The number of customer accounts increased
        by approximately 30% to 35% in the merger which will cause supply expenses
        to
        increase in the future as a result of increased volume. Another expenditure
        directly related to the volume of customer accounts we carry is technology
        and
        data processing expense including software and maintenance expense. Technology,
        data ATM and debit card processing expense increased by $276 thousand, or
        38.7%,
        comparing 2006 to 2007. Included in this increase is $20 thousand related
        to the
        conversion of operating systems in connection with the merger which should
        not
        recur. Postage and freight which is also customer account volume related,
        increased by $103 thousand, or 38.0%, from 2006 to 2007.
  30
 
 Accounting
        and other professional fees increased by $128 thousand, or 27.7%, from 2006
        to
        2007, and by $18 thousand, or 2.9%, from 2005 to 2006. The increase in
        accounting and other professional fees had less to do with the merger and
        more
        to do with internal audit costs incurred in order to be in compliance with
        Sarbanes-Oxley Section 404 which has proven to be very costly over the past
        three to four years. First Haralson adopted WGNB’s control matrix. Consequently,
        we believe that these costs can be spread over a broader asset base. Advertising
        expense increased in 2007 by $91 thousand, or 36.2%, but $48 thousand of
        the
        increase was related to promoting the newly combined institution and educating
        the market with regard to the name change. Transportation, travel, education
        and
        seminar related expenses increased by $132 thousand, or 65.6%, and miscellaneous
        expense increased by $182 thousand, or 72.5%, from 2006 to 2007. Items included
        in miscellaneous expense are customer and employee appreciation gifts and
        functions, amortization of investment in tax credits, portfolio management
        fees,
        seasonal decorations for facilities, employee health programs and community
        appreciation programs. Much of the increase resulted from amortization of
        tax
        credits in the amount of $129 thousand and $32 thousand in non-recurring
        expense
        for new employee apparel reflecting the name change in the merger. Miscellaneous
        expense increased by $51 thousand, or 25.6%, from 2005 to 2006 due to increased
        annual meeting costs, employee functions and employment fees.
 
 Income
        taxes, expressed as a percentage of earnings before income taxes (the effective
        tax rate), was 4.2% in 2007, 29.3% in 2006 and 29.0% in 2005.  The purchase
        of tax credits and other tax advantaged instruments such as municipal securities
        by us in late 2006 and 2007 will have an impact on our effective tax rate
        on
        earnings. The large provision for loan loss reduced income to the extent
        of tax
        advantaged instruments was greater in 2007 than in previous years.
 
 **BALANCE
        SHEET OVERVIEW**
 
 *For
        the Years Ended December 31, 2007 and 2006*
 
 **General**
  During
        2007, average total assets increased $191.2 million, or 34.8%, average deposits
        increased $154.0 million, or 35.0%, and average loans increased $138.5 million,
        or 31.3%, from average balances recorded in 2006. During 2006, average total
        assets increased $48.5 million, or 9.7%, average deposits increased $46.7
        million, or 11.9%, and average loans increased $45.9 million, or 11.6%, from
        amounts recorded in 2005. The 10 year average growth rate for our assets,
        loans
        and deposits is 16.8%, 16.4% and 15.8%, respectively. The asset growth over
        the
        past two years is attributable to robust commercial and residential growth
        in
        our market area. We have experienced significant loan growth in our recent
        history which has provided us with the ability to expand into new markets.
 
 Total
        assets at December 31, 2007 were $883.7 million, representing a $308.3 million,
        or 53.6%, increase from December 31, 2006. The merger had a significant impact
        on asset, loan and deposit growth in 2007. Effective July 1, 2007, First
        Haralson transferred approximately $212 million in total assets, $136 million
        in
        net loans and $181 million in total deposits. The above growth rates for
        2007
        include the merger-acquired assets, but we grew organically as well. Excluding
        the impact of the merger, we grew total assets by $96.3 million, or 16.7%,
        total
        loans by $47.4 million, or 10.0%, and total deposits by $62.6 million, or
        13.5%.
        Included in total asset growth is an increase in intangible assets in the
        amount
        of $29.7 million. Excluding the impact of the merger and intangible assets,
        we
        grew total assets by $66.5 million, or 11.6%.
 
 The
        most
        notable development in the balance sheet in 2007 was the significant increase
        in
        the level of non-performing assets which include impaired loans on non-accrual
        status, loans ninety days past due and foreclosed property. As of December
        31,
        2006, non-performing assets were $4.3 million, or 0.9% of total loans. On
        June
        30, 2007, non-performing assets were $6.6 million, or 1.28% of total loans,
        and
        as of December 31, 2007, non-performing assets were $58.3 million, or 8.8%
        of
        total loans. Thus, in a six month period, non-performing assets grew by $51.7
        million, or 783% including the material subsequent event which occurred in
        March, 2008. This growth in non-performing assets was indicative of the rapid
        slowdown in the residential real estate market for the entire metro-Atlanta
        market area. The loans most affected by the slowdown include residential
        construction and development. Management views this condition as its greatest
        priority to focus on and sees the reduction of non-performing assets as
        imperative to our return to high performance. While management intends to
        do all
        it can to reduce the level of non-performing assets, we are dependent to
        a great
        extent on the improvement of the residential real estate market.
  31
 
 **Investments**
 
 Our
        available-for-sale investment portfolio of $122.7 million as of December
        31,
        2007 consisted primarily of debt securities, which provide us with a source
        of
        liquidity, a stable source of income, and a vehicle to implement asset and
        liability management strategies. The amount in the available-for-sale securities
        portfolio increased significantly when compared to December 31, 2006. The
        investment portfolio grew by $58.4 million, or 91.0%, from 2006 to 2007.
        We
        acquired $42.3 million of securities in the First Haralson merger. Additionally,
        we increased the available-for-sale investment portfolio by $16.1 million,
        or
        25.0%. This is significant growth compared to historical growth of the
        portfolio. In 2007, the spread between wholesale borrowing and debt securities
        was at a five year high. Management took advantage of this spread by purchasing
        debt securities (particularly municipal and mortgage-backed securities) under
        an
        agreement to repurchase which locked in over $500 thousand worth of net interest
        income per year over the next two years *.
        See
        Note 8 to the consolidated financial statements “Securities Sold Under
        Repurchase Agreement”.*
 
 We
        believe our investment portfolio provides a balance to interest rate and
        credit
        risk in other categories of the balance sheet. The portfolio also provides
        a
        vehicle for the investment of available funds and supplying securities to
        pledge
        as required collateral for certain public deposits. Securities reported as available-for-sale are stated at fair value. These
        securities may be sold, retained until maturity, or pledged as collateral
        for
        liquidity and borrowing in response to changing interest rates, changes in
        prepayment risk and other factors as part of our overall asset liability
        management strategy.
 
 Investment
        securities held-to-maturity are stated at amortized cost and totaled $7.9
        million at December 31, 2007, an increase of $64.5 thousand, or 0.8%, when
        compared to the year ended 2006. This portfolio consists of banking industry
        issued trust preferred securities from various issuers across the United
        States
        and, particularly, the Southeast. We have the intent and ability to hold
        these
        securities until maturity.
 
 The
        following table shows the carrying value of our securities, by security type,
        as
        of December 31, 2007, 2006 and 2005:
 
 **Table
        3**
 **Securities**
 **(in
                  thousands)**
  Available
                  for Sale
              
              2007
              
              2006
              
              2005U.S.
                  Government sponsored enterprises
              
              $
              2,030
              
              $
              9,937
              
              $
              8,942State,
                  county and municipal
              
              
              70,466
              
              
              33,459
              
              
              33,264Mortgage-backed
                  securities
              
              
              45,573
              
              
              15,818
              
              
              18,124Corporate
                  bonds
              
              
              4,624
              
              
              5,037
              
              
              4,028Total
                  available for sale
              
              $
              122,693
              
              $
              64,251
              
              $
              64,360Held
                  to MaturityTrust
                  Preferred Securities
              
              $
              7,902
              
              $
              7,837
              
              $
              6,737
 
 The
        following table presents the expected maturity of the amortized cost of
        securities by maturity date and average yields based on amortized cost (for
        all
        obligations on a fully taxable basis, assuming a 34% marginal tax rate) at
        December 31, 2007. The composition and maturity/re-pricing distribution of
        the
        securities portfolio is subject to change depending on rate sensitivity,
        capital
        and liquidity needs.
 
 **Table
        4**
 **Expected
        Maturity of Securities**
 **(in
        thousands)**
 
 Maturities
                  at December 31, 2007
              
              U.S.
                    Government sponsored enterprises
              
              Wtd.
                  Avg. Yld.
              
              State,
                  County & Municipals
              
              Wtd.
                  Avg. Yld.
              
              Mortgage
                  Backed Securities
              
              Wtd.
                  Avg. Yld.
              
              Corporate
                  Bonds
              
              Wtd.
                  Avg. Yld.
              
              Trust
                  Preferred
              
              Wtd.
                  Avg. Yld.Within
                  1 year
              
              $
              1,000
              
              
              4.02
              %
              $
              2,699
              
              
              6.97
              %
              $
              1,441
              
              
              6.32
              %
              $
              530
              
              
              7.00
              %
              $
              -
              
              
              -After
                  1 through 5 years
              
              
              990
              
              
              6.15
              %
              
              7,195
              
              
              6.12
              %
              
              18,372
              
              
              5.16
              %
              
              4,112
              
              
              5.53
              %
              
              -
              
              
              -After
                  5 through 10 years
              
              
              -
              
              
              -
              %
              
              12,574
              
              
              6.57
              %
              
              8,213
              
              
              5.95
              %
              
              -
              
              
              -
              %
              
              -
              
              
              -After
                  10 years
              
              
              -
              
              
              -
              %
              
              47,471
              
              
              6.49
              %
              
              17,169
              
              
              5.83
              %
              
              -
              
              
              -
              %
              
              7,902
              
              
              9.34
              %Total
              
              $
              1,990
              
              
              5.08
              %
              $
              69,939
              
              
              6.48
              %
              $
              45,195
              
              
              5.60
              %
              $
              4,642
              
              
              5.70
              %
              $
              7,902
              
              
              9.34
              %Fair
                  Value
              
              $
              2,030
              
              
              
              
              $
              70,466
              
              
              
              
              $
              45,573
              
              
              
              
              $
              4,624
              
              
              
              
              $
              7,902
 
 32
 
 Mortgage-backed
        securities are included in the maturities categories in which they are
        anticipated to be repaid based on average maturities. The actual cash flow
        of
        mortgage-backed securities differs with this assumption. Yields on tax-exempt
        securities are calculated on a tax equivalent basis.
 
 **Loans**
 
 Loan
        concentrations are defined as aggregate credits extended to a number of
        borrowers engaged in similar activities or resident in the same geographic
        region, which would cause them to be similarly affected by economic or other
        conditions. We, on a routine basis, evaluate these concentrations for purposes
        of policing our concentrations and making necessary adjustments in our lending
        practices to reflect current economic conditions, loan-to-deposit ratios,
        and
        industry trends.
 
 The
        primary types of loans in our portfolio are residential mortgages and home
        equity, construction, commercial real estate, commercial and consumer
        installment loans. Generally, we underwrite loans based upon the borrower’s debt
        service capacity or cash flow, a consideration of past performance on loans
        from
        other creditors as well as an evaluation of the collateral securing the loan.
        With some exceptions, our general policy is to employ relatively conservative
        underwriting policies, primarily in the analysis of borrowers’ debt service
        coverage capabilities for commercial and commercial real estate loans, while
        emphasizing lower gross debt ratios for consumer loans and lower loan-to-value
        ratios for all types of real estate loans. Given the localized nature of
        our
        lending activities, the primary risk factor affecting the portfolio as a
        whole
        is the health of the local economy in the west Georgia area and its effects
        on
        the value of local real estate and the incomes of local professionals and
        business firms.
 
 Loans
        to
        directors, executive officers and principal shareholders of WGNB and to
        directors and officers of First National Bank are subject to limitations
        of the
        Federal Reserve, the principal effect of which is to require that extensions
        of
        credit by us to executive officers, directors, and ten percent shareholders
        satisfy certain standards. We routinely make loans in the ordinary course
        of
        business to certain directors and executive officers of WGNB and First National
        Bank, their associates, and members of their immediate families. In accordance
        with Federal Reserve guidelines, these loans are made on substantially the
        same
        terms, including interest rates and collateral, as those prevailing for
        comparable transactions with others and do not involve more than normal risk
        of
        collectibility or present other unfavorable features. As of December 31,
        2007,
        loans outstanding to directors and executive officers of WGNB and First National
        Bank, their associates and members of their immediate families totaled $12.3
        million, which represented approximately 1.9% of total loans as of that date.
        As
        of December 31, 2007, none of these loans outstanding to related parties
        were
        non-accrual, past due or restructured.
 
 33
  The
        following table presents loans by type on the dates indicated:
 
 **Table
                  5****Loan
                  Portfolio**
 **(in
          thousands)**
 December
                  31,2007
              
              2006
              
              2005
              
              2004
              
              2003Commercial,
                  financial & agricultural
              
              $
              61,540
              
              $
              52,334
              
              $
              51,555
              
              $
              50,528
              
              $
              31,219Real
                  estate - construction
              
              
              242,216
              
              
              175,024
              
              
              153,511
              
              
              114,657
              
              
              68,207Real
                  estate - mortgage
              
              
              315,335
              
              
              219,563
              
              
              196,383
              
              
              173,110
              
              
              180,992Consumer
                  loans
              
              
              40,873
              
              
              27,398
              
              
              22,271
              
              
              18,614
              
              
              16,080659,964
              
              
              474,319
              
              
              423,720
              
              
              356,909
              
              
              296,498Less:Unearned
                  interest and fees
              
              
              (1,803
              )
              
              (818
              )
              
              (841
              )
              
              (581
              )
              
              (454
              )Allowance
                  for loan losses
              
              
              (12,422
              )
              
              (5,748
              )
              
              (5,327
              )
              
              (4,080
              )
              
              (3,479
              )Loans,
                  net
              
              $
              645,739
              
              $
              467,753
              
              $
              417,552
              
              $
              352,248
              
              $
              292,565
 
 The
        following table sets forth the maturity distribution (based upon contractual
        dates) and interest rate sensitivity of commercial, financial and agricultural
        loans, real estate construction (which includes non-performing loans), mortgage
        loans and consumer loans as of December 31, 2007:
 
 **Table
        6**
 **Loan
        Portfolio Maturity**
 **(in
                  thousands)**
  One
                Year
                Or
                  Less
              
              Wtd.
                Avg.
                Yld.
              
              Over
                One
                  to
                Five
                Years
              
              Wtd.
                Avg.
                Yld.
              
              Over
                Five
                Years
              
              Wtd.
                Avg.
                Yld.
              
              Total
              
              Wtd.
                Avg.
                Yld.Commercial,
                  financial & agricultural
              
              $
              44,163
              
              
              7.93
              %
              $
              12,052
              
              
              8.14
              %
              $
              5,325
              
              
              7.89
              %
              $
              61,540
              
              
              7.97
              %Real
                  estate - construction
              
              
              204,695
              
              
              6.93
              %
              
              35,938
              
              
              7.86
              %
              
              1,583
              
              
              8.01
              %
              
              242,216
              
              
              7.07
              %Real
                  estate - mortgage
              
              
              74,763
              
              
              7.79
              %
              
              192,079
              
              
              7.87
              %
              
              48,493
              
              
              7.39
              %
              
              315,335
              
              
              7.78
              %Consumer
              
              
              20,004
              
              
              9.31
              %
              
              20,622
              
              
              9.08
              %
              
              247
              
              
              8.78
              %
              
              40,873
              
              
              9.19
              %Total
              
              $
              343,625
              
              
              7.38
              %
              $
              260,691
              
              
              7.98
              %
              $
              55,648
              
              
              7.46
              %
              $
              659,964
              
              
              7.62
              %
 
 **Variable/Fixed
        Rate Mix**
  Variable
                Interest
                Rates
              
              Wtd
                Avg
                Yld
              
              Fixed
                Interest
                Rates
              
              Wtd
                Avg
                YldCommercial,
                  financial and agricultural
              
              $
              17,849
              
              
              7.47
              %
              $
              43,691
              
              
              8.17
              %Real
                  estate - construction
              
              
              114,765
              
              
              7.03
              %
              
              127,451
              
              
              7.11
              %Real
                  estate - mortgage
              
              
              116,408
              
              
              7.50
              %
              
              198,927
              
              
              7.94
              %Consumer
              
              
              1,626
              
              
              8.00
              %
              
              39,247
              
              
              9.24
              %Total
              
              $
              250,648
              
              
              7.29
              %
              $
              409,316
              
              
              7.83
              %
 
 **Provision
        and Allowance for Possible Loan and Lease Losses**
 
 Our
        provision for loan losses in 2007 was $10.2 million, compared to $1.5 million
        in
        2006 and $1.6 million in 2005. The increase in the provision for loan losses
        reflects a higher level of non-performing assets and criticized and classified
        loans recognized in the last half of 2007. The allowance for loan losses
        represented 1.88%, 1.21% and 1.26% of total loans outstanding at December
        31,
        2007, 2006 and 2005, respectively. Management has taken an aggressive approach
        to identification and recognition of potential problem loans. In addition,
        management is attempting to recognize impairment of a loan and to continue
        to
        analyze and evaluate current market values for collateral on impaired loans.
 
 We
        have an
        independent loan review function. All loans are placed in loan grade categories
        which are consistent with those used by our regulators. All loans are constantly
        monitored by the loan officer and the loan review function for credit quality,
        consistency and
        accuracy. Through this grading process, we seek to assure the timely recognition
        of credit risks. In general, as credit risk increases, the level of the
        allowance for loan loss will also increase.
  34
 
 W hile
        uncertainty is prevailing in assessing loan quality, a formal allowance for
        loan
        loss adequacy test is performed at each month end. Specific amounts of loss
        are
        estimated on problem loans and historical loss percentages are applied to
        the
        balance of the portfolio using certain portfolio stratifications. Additionally,
        the evaluation takes into consideration such factors as changes in the nature
        and volume of the loan portfolio, current economic conditions, regulatory
        examination results, and the existence of loan concentrations.
 
 Management’s
        judgment in determining the adequacy of the allowance is based on evaluations
        of
        the collectability of loans. These evaluations take into consideration such
        factors as changes in the nature and volume of the loan portfolio, current
        economic conditions that may affect the borrower’s ability to pay, overall
        portfolio quality, and review of specific problem loans. In determining the
        adequacy of the allowance for loan losses, management uses a loan grading
        system
        that rates loans in nine different categories. Grades six through nine, which
        represent criticized or classified loans, are assigned allocations of loss
        based
        on management’s estimate of potential loss that is generally based on historical
        losses and/or collateral deficiencies. Loans graded one through five are
        stratified by type and allocated loss ranges based on historical loss experience
        for the strata. The combination of these results is compared monthly to the
        recorded allowance for loan losses and material differences are adjusted by
        increasing or decreasing the provision for loan losses. Loans deemed to be
        impaired and certain types of classified loans are evaluated individually
        to
        measure the probable loss, if any, in the credit. Management uses an internal
        loan reviewer (at times, supplemented by third party service providers) who
        is
        independent of the lending function to challenge and corroborate the loan
        grading system and provide additional analysis in determining the adequacy
        of
        the allowance for loan losses and the future provisions for estimated loan
        losses.
 
 Management
        believes that the allowance for loan losses is adequate. Management uses
        available information to recognize losses on loans, future additions to the
        allowance may be necessary based on changes in economic conditions and a
        change
        in the borrowers’ ability to repay. In addition, regulators, as an integral part
        of their examination process, periodically review our allowance for loan
        losses.
        Such regulators may require us to recognize additions to the allowance based
        on
        their judgments of information available to them at the time of their
        examination. M anagement
        realizes the importance of maintaining an adequate allowance for loan losses.
        Through a professional loan review function and effective loan officer
        identification program, management believes it is able to recognize weaknesses
        in the loan portfolio in a timely manner. Early identification of deteriorating
        credit attributes allows management to take a proactive role in documenting
        an
        established plan to enhance our position and minimize the potential for
        loss.
 
 Through
        the problem loan identification program outlined above, management is able
        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 and land development
        loans in order to accurately evaluate the exposure to loan loss of this
        portfolio. Migration analysis assigns historical loss amounts to pools of
        loans
        according to classifications of risk ratings 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. We also evaluate the risks
        associated with concentrations in credit. If it is necessary to assign an
        allowance related to concentrations of credit, we add a specific reserve
        related
        to such risks.
  35
  The
        following table presents a summary of changes in the allowance for loan losses
        for the years indicated:
 
 **Table
                  7****Allowance
                  for Loan Losses****(in
                  thousands)**
  December
                  31,2007
              
              2006
              
              2005
              
              2004
              
              2003Balance
                  at beginning of year
              
              $
              5,748
              
              $
              5,327
              
              $
              4,080
              
              $
              3,479
              
              $
              3,772Charge-offs:Commercial,
                  financial and agricultural
              
              
              146
              
              
              47
              
              
              24
              
              
              59
              
              
              55Real
                  estate - construction
              
              
              3,930
              
              
              -
              
              
              -
              
              
              -
              
              
              2Real
                  estate - mortgage
              
              
              772
              
              
              910
              
              
              235
              
              
              215
              
              
              581Consumer
                  loans
              
              
              395
              
              
              155
              
              
              129
              
              
              123
              
              
              152Total
                  charge-offs
              
              
              5,243
              
              
              1,112
              
              
              388
              
              
              397
              
              
              790Recoveries:Commercial,
                  financial and agricultural
              
              
              7
              
              
              11
              
              
              16
              
              
              16
              
              
              31Real
                  estate - construction
              
              
              25
              
              
              -
              
              
              -
              
              
              -
              
              
              -Real
                  estate - mortgage
              
              
              74
              
              
              -
              
              
              18
              
              
              13
              
              
              67Consumer
                  loans
              
              
              78
              
              
              57
              
              
              51
              
              
              44
              
              
              49Total
                  recoveries
              
              
              184
              
              
              68
              
              
              85
              
              
              73
              
              
              147Net
                  (charge-offs) recoveries
              
              
              (5,059
              )
              
              (1,044
              )
              
              (303
              )
              
              (324
              )
              
              (643
              )Allowance
                  attributable to First Haralson loans
              
              
              1,527
              
              
              -
              
              
              -
              
              
              -
              
              
              -Provision
                  for loan losses
              
              
              10,206
              
              
              1,465
              
              
              1,550
              
              
              925
              
              
              350Balance
                  at end of year
              
              $
              12,422
              
              $
              5,748
              
              $
              5,327
              
              $
              4,080
              
              $
              3,479Ratio
                  of net charge-offs during theperiod
                  to average loans outstanding
              
              
              .87
              %
              
              .24
              %
              
              .08
              %
              
              .10
              %
              
              .22
              %Ratio
                  of allowance to total loans
              
              
              1.88
              %
              
              1.21
              %
              
              1.26
              %
              
              1.14
              %
              
              1.17
              %
  **Non-Performing
        Assets and Past Due Loans**
 
 Non-performing
        assets at December 31, 2007 were $58.3 million, or 8.83%, of total loans
        compared to $4.3 million, or .91%, of total loans at December 31, 2006 and
        $3.6
        million, or 0.85%, of total loans at December 31, 2005. The levels of
        non-performing loans are at a historic high for us. The primary cause of
        the
        increase in non-performing asset level is the decline in the residential
        real
        estate market in the metro-Atlanta area. Over the past 5 years, our market
        area
        has become more connected with the growth of metro-Atlanta. Residential real
        estate growth became a leading industry in our market area and, over those
        5
        years, residential construction and development loans averaged 33% of our
        loan
        portfolio.
 
 In
        recognition of the potential impact of a downturn, management began to raise
        the
        credit standards for those borrowers. Management was, however, surprised
        by both
        the suddenness and the severity with which the downturn came. Many in the
        market
        did not realize the impact that sub-prime mortgage lending had on the absorption
        rate of home sales in the market area. When sub-prime lenders began to
        experience credit quality problems related to increased rates in the adjustable
        sub-prime market, that type of lending “dried-up”. Further, as homes that were
        built to meet the sub-prime and conforming mortgage demand came to market,
        not
        only had the sub-prime demand decreased sharply, but homes which were subject
        to
        sub-prime lending began emerging back on the market in foreclosure. This
        resulted in a (by some estimates) 28 to 36 month supply of homes for sale
        in the
        market and a five to six year supply of developed lots.
 
 The
        excess of supply has had a negative impact on our residential construction
        and
        development 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, but have diminished
        their financial capacity to continue to hold the property. Thus, we have
        been
        experiencing an increased number of past due loans which can lead to impairment
        of the loan and possible foreclosure for some borrowers. In addition, some
        borrowers may file for protection under bankruptcy laws which can further
        lengthen the collection period of the loan. Approximately 80% of the total
        amount of non-performing assets as of December 31, 2007 is made up
        of sixteen loan relationships with balances of $2 million to $7 million per
        relationship.
  36
 
 Management
        has performed impairment analyses on each troubled loan relationship and
        continues to focus on the credit quality of its residential construction
        and
        development 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 collectability of the impaired asset,
        management must continue to make value judgments on the properties or loans
        through updated appraisals and its knowledge of the market. There can be
        no
        assurance that residential real estate values will not continue to decline
        or
        that more loans will become impaired, thereby causing more potential suspension
        of accrued interest or further charge-down of loans. Management further
        charged-down properties that it had taken in foreclosure by $804 thousand
        in the
        last quarter of 2007 because, based upon updated appraisals, the estimated
        net
        realizable value for those properties had decreased.
 
 Management’s
        most critical priority is disposing and maximizing the net realizable value
        of
        the non-performing assets. Management will be considering multiple avenues
        to
        reduce non-performing assets. The holding period of non-performing assets
        must
        be minimized as these assets bear a cost to carry for us in both interest
        carry
        and maintenance and real estate taxes. We believe that the ultimate outcome
        of
        this cycle of economic downturn is the largest uncertainty management faces
        over
        the next twelve months. We believe we are in a market that has high historical
        and projected population and income growth potential. While the current downturn
        will have a short term negative impact on asset quality and, therefore,
        earnings, we believe our long term growth and earnings outlook nonetheless
        remains positive.
 
 The
        following table summarizes loans 90 days or greater past due, non-accrual
        loans
        and real estate taken in settlement of foreclosure for the years
        indicated.
 
 **Table
                  8****Non-Performing
                  Assets****(in
                  thousands)**
  December
                  31,2007
              
              2006
              
              2005
              
              2004
              
              2003Foreclosed
                  property
              
              $
              10,694
              
              $
              1,318
              
              $
              567
              
              $
              686
              
              $
              977Non-accrual
                  loans
              
              
              46,352
              
              
              1,212
              
              
              2,382
              
              
              536
              
              
              499Loans
                  90 days past due still accruing
              
              
              1,204
              
              
              1,781
              
              
              673
              
              
              567
              
              
              745Total
              
              $
              58,250
              
              $
              4,311
              
              $
              3,622
              
              $
              1,789
              
              $
              2,221Non-performing
                  assets as % of total loans
              
              
              8.83
              %
              
              .91
              %
              
              .85
              %
              
              .50
              %
              
              .75
              %
 
 While
        there may be additional loans in our portfolio that may become classified
        as
        conditions dictate, management is not aware of any potential problem loans
        that
        are not disclosed in the table above. As
        a
        result of management's ongoing review of the loan portfolio, loans are
        classified as non-accrual generally when they are past due in principal or
        interest payments for more than 90 days or it is otherwise not reasonable
        to
        expect collection of principal and interest under the original terms. Exceptions
        are allowed for 90 day past due loans when such loans are well secured and
        in
        process of collection. Generally, payments received on non-accrual loans
        are
        applied directly to principal.
 
 Our
        loan
        review function monitors selected accruing loans for which general economic
        conditions or changes within a particular industry could cause the borrowers
        financial difficulties. The loan review function also identifies loans with
        high
        degrees of credit or other risks. The focus of loan review and management
        is to
        maintain a low level of non-performing assets and return current non-performing
        assets to earning status. Management is unaware of any known trends, events
        or
        uncertainties that will have or that are reasonably likely to have a material
        effect on our liquidity, capital resources or operations other than the general
        economic downturn discussed throughout this Report.
 
 **Deposits**
 
 Time
        deposits of $100 thousand and greater totaled $229.4 million at December
        31,
        2007, compared with $145.4 million at year-end 2006. The growth in time deposits
        of $100 thousand and greater was $84.0 million, or 57.8%, from December 31,
        2006
        to December 31, 2007. The growth in this category of deposits attributable
        to
        the merger was $8.2 million. The increase in brokered time deposits of $100
        thousand and greater was $28.4 million and the increase resulting from time
        deposits within our market area was $47.4 million.
  37
 The
        following table sets forth the scheduled maturities of time deposits of $100
        thousand and greater at December 31, 2007.
 
 **Table
        9**
 **Maturity
        of Time Deposits of $100,000 and Greater**
 **(in
        thousands)**
  Within
                  3 months
              
              $
              33,486After
                  3 through 6 months
              
              
              45,303After
                  6 through 12 months
              
              
              30,995After
                  12 months
              
              
              119,606Total
              
              $
              229,390
 
 **Liquidity**
  We
        must
        maintain, on a daily basis, sufficient funds to cover the withdrawals from
        depositors' accounts and to supply potential borrowers with funds. To meet
        these
        obligations, we keep cash on hand, maintain account balances with correspondent
        banks, and purchase and sell federal funds and other short-term investments.
        Asset and liability maturities are monitored in an attempt to match these
        variables to meet liquidity needs. It is our policy to monitor liquidity
        to meet
        regulatory requirements and local funding requirements. Management believes
        that
        our current level of liquidity is adequate to meet our needs.
 
 We
        maintain relationships with correspondent banks including the Federal Home
        Loan
        Bank (FHLB) that can provide funds to us on short notice, if needed. We have
        arrangements with correspondent and commercial banks for short term unsecured
        advances up to $24.8 million. As of December 31, 2007, we had not drawn on
        the
        available facilities. In addition, subject to collateral availability, we
        have a
        line of credit with the FHLB from which we had drawn $54.5 million as of
        December 31, 2007. For additional details on the line of credit with the
        FHLB
        see Note 7 of the consolidated financial statements.
 
 Our
        cash
        flows are composed of three classifications: cash flows from operating
        activities, cash flows from investing activities, and cash flows from financing
        activities. Cash and cash equivalents amounted to $25.8 million at December
        31,
        2007, which represented an increase of $12.6 million from December 31, 2006.
        Net
        cash provided by operating activities was $9.4 million. Net cash provided
        by
        operating activities was attributable primarily to net earnings of $3.0 million
        with add-backs attributable to non-cash items such as depreciation,
        amortization, accretion and provision for loan losses totaling $11.6 million.
        Net cash used by investing activities of $78.4 million consisted primarily
        of a
        net increase in loans of $60.3 million and net increase in securities available
        for sale and held-to-maturity securities of $15.2 million. Net cash provided
        by
        financing activities totaled $81.6 million which was primarily attributable
        to a
        net increase in deposits of $62.7 million, an increase in borrowings such
        as
        Federal Home Loan Bank advances, junior subordinated debt and securities
        sold
        under repurchase agreement in the net amount of $25.8 million.
 
 **Capital
        Resources**
 
 Total
        shareholders’ equity as of December 31, 2007 was $80.2 million, an increase of
        $27.7 million over 2006. The change in equity was due to $3.0 million in
        net
        earnings, less $4.8 million in dividends and an increase in unrealized holding
        gain on securities available for sale and cash flow derivatives of $523
        thousand, net of tax. The exercise of stock options increased equity by $61
        thousand, but the retirement of shares under the repurchase plan and the
        swapping of stock to exercise options decreased equity by $31 thousand. The
        largest increase in equity was attributable to the issuance of 1,055,149
        shares
        of stock at $27.15 per share at the date of the merger for a total amount
        of
        $28.7 million.
 
 The
        OCC
        has established certain minimum risk-based capital standards that apply to
        national banks, and we are subject to certain capital requirements imposed
        by
        the Federal Reserve. At December 31, 2007, First National Bank exceeded all
        of
        its applicable regulatory capital requirements and WGNB satisfied all applicable
        regulatory requirements imposed on it by the Federal Reserve. The following
        tables present our consolidated regulatory capital position at December 31,
        2007:
 
 **Table
        10**
 **Capital
        Ratio**
 Actual
                    as of December 31, 2007Tier
                    1 Capital (to risk weighted assets)
                
                
                8.97
                %Tier
                    1 Capital minimum requirement
                
                
                4.00
                %Excess
                
                
                4.97
                %Total
                    Capital (to risk weighted assets)
                
                
                10.22
                %Total
                    Capital minimum requirement
                
                
                8.00
                %Excess
                
                
                2.22
                %
  **Leverage
                    Ratio**Actual
                    as of December 31, 2007Tier
                    1 Capital to average assets(“Leverage
                    Ratio”)
                
                
                6.99
                %Minimum
                    leverage requirement
                
                
                4.00
                %Excess
                
                
                2.99
                %
 38
 For
        a
        more complete discussion of the actual and required ratios of us and our
        subsidiary, see Note 12 to the consolidated financial statements. Average
        equity to average assets was 9.47% in 2007 and 9.16% in 2006. However, the
        average tangible equity (net of goodwill and the core deposit intangible)
        to
        average assets was 7.4%. The ratio of dividends declared to net earnings
        was
        149.0% during 2007, compared with 43.3% in 2006.
 
 **Contractual
        Obligations**
 
 In
        the
        ordinary course of operations, we enter into certain contractual obligations.
        The following table summarizes our significant fixed and determinable
        contractual obligations, by payment date, at December 31, 2007 (dollars in
        thousands). With regard to the Federal Home Loan Bank advances, the obligations
        contain call dates at the option of the issuer. Therefore, the advances may
        be
        called prior to their maturity date. *See
        Note 7 to the financial statements “Lines of Credit”.*
 
 Obligation
              
              Total
              
              Less
                  than 1year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than 5yearsDeposits
                  without stated maturity
              
              $
              306,875
              
              $
              306,875
              
              $
              -
              
              $
              -
              
              $
              -Certificates
                  of deposit
              
              
              399,503
              
              
              233,261
              
              
              108,845
              
              
              57,397
              
              
              -Federal
                  Home Loan Bank advances
              
              
              54,500
              
              
              7,500
              
              
              17,000
              
              
              10,000
              
              
              20,000Securities
                  sold under repurchase agreements
              
              
              20,000
              
              
              -
              
              
              -
              
              
              20,000
              
              
              -Junior
                  subordinated debentures
              
              
              10,825
              
              
              -
              
              
              -
              
              
              -
              
              
              10,825Total
              
              $
              791,703
              
              $
              547,478
              
              $
              125,848
              
              $
              87,552
              
              $
              30,825
 
 **Off
        Balance Sheet Risk**
 
 Through
        the operations of First National Bank, we have made contractual commitments
        to
        extend credit in the ordinary course of our business activities. These
        commitments are legally binding agreements to lend money to our customers
        at
        predetermined interest rates for a specified period of time. At December
        31,
        2007, we had issued commitments to extend credit of $99.9 million through
        various types of commercial lending arrangements and additional commitments
        through standby letters of credit of $9.9 million. We evaluate each customer’s
        creditworthiness on a case-by-case basis. The amount of collateral obtained,
        if
        deemed necessary by us upon extension of credit, is based on our credit
        evaluation of the borrower. Collateral varies but may include accounts
        receivable, inventory, property, plant and equipment, commercial and residential
        real estate. We manage the credit risk on these commitments by subjecting
        them
        to normal underwriting and risk management processes. Because these commitments
        generally have fixed expiration dates and many will expire without being
        drawn
        upon, the total commitment level does not necessarily represent future cash
        requirements. If needed to fund these outstanding commitments, we have the
        ability to liquidate federal funds sold or securities available-for-sale
        or on a
        short-term basis to borrow and purchase federal funds from other financial
        institutions until more permanent funding can be obtained.
  39
 
 **Asset/Liability
        Management**
 
 It
        is our
        objective to manage assets and liabilities to provide a satisfactory, consistent
        level of profitability within the framework of established cash, loan,
        investment, borrowing and capital policies. Certain officers are charged
        with
        the responsibility for monitoring policies and procedures that are designed
        to
        ensure acceptable composition of the asset/liability mix. It is the overall
        philosophy of management to support asset growth primarily through growth
        of
        deposits and borrowing strategies, which minimize our exposure to interest
        rate
        risk. The objective of the policy is to control interest sensitive assets
        and
        liabilities so as to minimize the impact of substantial movements in interest
        rates on earnings.
 
 The
        asset/liability mix is monitored on a regular basis. A report reflecting
        the
        interest sensitive assets and interest sensitive liabilities is prepared
        and
        presented to management and the asset/liability management committee on at
        least
        a quarterly basis. One method to measure a bank's interest rate exposure
        is
        through its repricing gap. The gap is calculated by taking all assets that
        reprice or mature within a given time frame and subtracting all liabilities
        that
        reprice or mature within that time frame. The difference between these two
        amounts is called the “gap”, the amount of either liabilities or assets that
        will reprice without a corresponding asset or liability repricing. A
        negative gap (more liabilities repricing than assets) generally indicates
        that
        the bank's net interest income will decrease if interest rates rise and will
        increase if interest rates fall. A positive gap generally indicates that
        the
        bank's net interest income will decrease if rates fall and will increase
        if
        rates rise.
 
 Due
        to
        inherent limitations in traditional gap analysis, we also employ more
        sophisticated modeling techniques to monitor potential changes in net interest
        income, net income and the market value of portfolio equity under various
        interest rate scenarios. Market risk is the risk of loss from adverse changes
        in
        market prices and rates, arising primarily from interest rate risk in our
        loan
        and investment portfolios, which can significantly impact our profitability.
        Net
        interest income can be adversely impacted where assets and liabilities do
        not
        react the same to changes in interest rates. At year-end 2007, the estimated
        impact of an immediate increase in interest rates of 100 basis points would
        have
        resulted in a decrease in net interest income over a 12-month period of 0.86%,
        with a comparable decrease in interest rates resulting in a increase in net
        interest income of 1.27%. Management finds the above methodologies meaningful
        for evaluating market risk sensitivity; however, other factors can affect
        net
        interest income, such as levels of non-earning assets and changes in portfolio
        composition and volume.
 
 The
        following table summarizes the amounts of interest-earning assets and
        interest-bearing liabilities outstanding at December 31, 2007 that are expected
        to mature, prepay or reprice in each of the future time periods shown. Except
        as
        stated below, the amount of assets or liabilities that mature or reprice
        during
        a particular period was determined in accordance with the contractual terms
        of
        the asset or liability. Adjustable rate loans are included in the period
        in
        which interest rates are next scheduled to adjust rather than in the period
        in
        which they are due, and fixed rate loans and mortgage-backed securities are
        included in the periods in which they are anticipated to be repaid based
        on
        scheduled maturities, although the cash flows received often differ from
        scheduled maturities. Our savings accounts and interest-bearing demand accounts
        (NOW and money market deposit accounts), which are generally subject to
        immediate withdrawal, are included in the “One Year or Less” category, although
        historical experience has proven these deposits to be less interest rate
        sensitive over the course of a year and are more subject to management’s
        control.
 **Table
        11**
 **Interest
        Rate Gap Sensitivity**
 **(in
        thousands)**
  At
                  December 31, 2007
                Maturing
                  or Repricing inOne
                  Year
                or
                  Less
              
              Over
                  1
                Year
                  Thru
                2
                  Years
              
              Over
                  2
                Years
                  Thru
                5
                  Years
              
              Over
                  5Years
              
              TotalInterest-earning
                  assets:Interest-bearing
                  deposits withOther
                  banks
              
              $
              1,464
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              1,464Federal
                  funds sold
              
              
              18,377
              
              
              -
              
              
              -
              
              
              -
              
              
              18,377Securities
                  (at cost)
              
              
              31,170
              
              
              13,822
              
              
              29,946
              
              
              54,729
              
              
              129,667Loans
              
              
              440,522
              
              
              90,706
              
              
              90,921
              
              
              37,785
              
              
              659,964Total
                  interest-earning assets
              
              
              491,563
              
              
              104,528
              
              
              120,867
              
              
              92,514
              
              
              809,472Interest-bearing
                  liabilities:Deposits:Demand
              
              
              220,137
              
              
              -
              
              
              -
              
              
              -
              
              
              220,137Savings
              
              
              19,123
              
              
              -
              
              
              -
              
              
              -
              
              
              19,123Time
                  deposits
              
              
              233,261
              
              
              68,034
              
              
              98,208
              
              
              -
              
              
              399,503FHLB
                  advances
              
              
              7,500
              
              
              -
              
              
              27,000
              
              
              20,000
              
              
              54,500Securities
                  sold under repurchase agreements
              
              
              -
              
              
              20,000
              
              
              -
              
              
              -
              
              
              20,000Junior
                  subordinated debentures
              
              
              -
              
              
              -
              
              
              -
              
              
              10,825
              
              
              10,825Total
                  interest-bearing liabilities
              
              
              480,021
              
              
              88,034
              
              
              125,208
              
              
              30,825
              
              
              724,088Excess
                  (deficiency) of interest-earning assets over interest-bearing
                  liabilities
              
              
              11,542
              
              
              16,494
              
              
              (4,341
              )
              
              61,689
              
              
              85,384Cumulative
                  interest sensitivitydifference
              
              $
              11,542
              
              $
              28,036
              
              $
              23,695
              
              $
              85,384Cumulative
                  difference to totalassets
              
              
              1.42
              %
              
              3.46
              %
              
              2.93
              %
              
              10.55
              %
  40
  At
        December 31, 2007, the difference between our assets and liabilities repricing
        or maturing within one year was $11.5 million. The above chart indicates
        an
        excess of assets repricing or maturing within one year; thus, a rise in interest
        rates would theoretically cause our net interest income to increase. However,
        certain shortcomings are inherent in the method of analysis presented in
        the
        foregoing table. For example, although certain assets and liabilities may
        have
        similar maturities or periods to repricing, they may react in different degrees
        or at different points in time to changes in market interest rates. Such
        is the
        case in analyzing NOW demand, money market and savings accounts, which are
        disclosed in the one year or less category. Those liabilities do not necessarily
        reprice as quickly or to the same degree as rates in general. Additionally,
        certain assets, such as adjustable-rate mortgages, have features that restrict
        changes in interest rates, both on a short-term basis and over the life of
        the
        asset. Changes in interest rates, prepayment rates, early withdrawal levels
        and
        the ability of borrowers to service their debt, among other factors, may
        change
        significantly from the assumptions made in the table.
 
 **Impact
        of Inflation, Changing Prices and Monetary Policies**
 
 The
        primary effect of inflation on our operations is reflected in increased
        operating costs. Unlike industrial companies, virtually all of the assets
        and
        liabilities of a financial institution are monetary in nature. As a result,
        changes in interest rates have a more significant effect on the performance
        of a
        financial institution than do the effects of changes in the general rate
        of
        inflation and changes in prices. Interest rates do not necessarily move in
        the
        same direction or in the same magnitude as the prices of goods and services.
        Interest rates are highly sensitive to many factors which are beyond our
        control, including the influence of domestic and foreign economic conditions
        and
        the monetary and fiscal policies of the United States government and federal
        agencies, particularly the Federal Reserve. The Federal Reserve implements
        a
        national monetary policy such as seeking to curb inflation and combat recession
        by its open market operations in United States government securities, control
        of
        the discount rate applicable to borrowing by banks, and establishment of
        reserve
        requirements against bank deposits. The actions of the Federal Reserve in
        these
        areas influence the growth of bank loans, investments and deposits, and affect
        the interest rates charged on loans and paid on deposits. The nature, timing
        and
        impact of any future changes in federal monetary and fiscal policies on us
        and
        our operations are not predictable.
  41
 
 **Item
        7A. Quantitative and Qualitative Disclosures About Market Risk**
 
 For
        information regarding the market risk of our financial instruments, see
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operation - Asset/Liability Management.” Our principal market risk exposure is
        to interest rates.
 
 **Item
        8.**  **Financial
        Statements and Supplementary Data**
 
 The
        consolidated financial statements of the Company, including notes thereto,
        and
        the report of our independent auditors are included in this Report beginning
        at
        page F-1.
 
 Presented
        below is a summary of the unaudited consolidated quarterly financial data
        for
        the years ended December 31, 2007 and 2006.
  **Quarterly
        Financial Information**
 *(Unaudited
        - in thousands, except per share data)*
 
 2007Quarters
              
              2006QuartersFirst
              
              Second
              
              Third
              
              Fourth
              
              First
              
              Second
              
              Third
              
              FourthInterest
                  income
              
              $
              11,892
              
              
              12,324
              
              
              16,388
              
              
              15,224
              
              
              9,464
              
              
              10,227
              
              
              10,913
              
              
              11,489Net
                  interest income
              
              
              6,272
              
              
              6,598
              
              
              8,546
              
              
              7,231
              
              
              5,432
              
              
              5,783
              
              
              6,024
              
              
              6,127Provision
                  for loan losses
              
              
              375
              
              
              375
              
              
              750
              
              
              8,706
              
              
              300
              
              
              415
              
              
              375
              
              
              375Earnings
                  (loss) before income taxes
              
              
              2,934
              
              
              3,304
              
              
              3,445
              
              
              (6,515
              )
              
              2,663
              
              
              2,828
              
              
              2,949
              
              
              3,346Net
                  earnings (loss)
              
              
              1,980
              
              
              2,254
              
              
              2,330
              
              
              (3,530
              )
              
              1,815
              
              
              1,991
              
              
              2,096
              
              
              2,425Earnings
                  (loss) per share - basic
              
              
              0.40
              
              
              0.45
              
              
              0.38
              
              
              (0.68
              )
              
              0.37
              
              
              0.40
              
              
              0.42
              
              
              0.48Earnings
                  (loss) per share - diluted
              
              $
              0.39
              
              
              0.45
              
              
              0.38
              
              
              (0.68
              )
              
              0.36
              
              
              0.40
              
              
              0.42
              
              
              0.48Weighted
                  average common shares outstanding - basic
              
              
              5,001,286
              
              
              5,003,790
              
              
              6,058,939
              
              
              6,057,594
              
              
              4,990,613
              
              
              4,998,105
              
              
              5,000,219
              
              
              5,003,475Weighted
                  average common shares outstanding -diluted
              
              
              5,041,575
              
              
              5,045,067
              
              
              6,077,268
              
              
              6,057,594
              
              
              5,013,821
              
              
              5,025,743
              
              
              5,020,427
              
              
              5,038,681
 
 **Item
        9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure**
 
 Not
        applicable.
 
 **Item
        9A(T). Controls and Procedures**
 
 **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting for the Company. The Company’s internal control over
        financial reporting is a process designed under the supervision of the Company’s
        Chief Executive Officer and Chief Financial Officer to provide reasonable
        assurance regarding the reliability of financial reporting and the preparation
        of the Company’s financial statements for external purposes in accordance with
        U.S. generally accepted accounting principles.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
 
 Management
        has made a comprehensive review, evaluation, and assessment of the Company’s
        internal control over financial reporting as of December 31, 2007. In making
        its
        assessment of internal control over financial reporting, management used
        the
        criteria issued by the Committee of Sponsoring Organizations of the Treadway
        Commission in *Internal
        Control-Integrated Framework* .
        Based
        on that assessment, management concluded that, as of December 31, 2007, the
        Company’s internal control over financial reporting is effective.
 
 This
        Report does not include an attestation report of the Company’s registered public
        accounting firm regarding internal control over financial reporting.
        Management’s report was not subject to attestation by the Company’s registered
        public accounting firm pursuant to temporary rules of the Securities and
        Exchange Commission that permit the Company to provide only management’s report
        in this Report.
  42
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 The
        Company conducted an evaluation, with the participation of its Chief Executive
        Officer and Chief Financial Officer, of the effectiveness of the Company’s
        disclosure controls and procedures as of December 31, 2007. The Company’s
        disclosure controls and procedures are designed to ensure that information
        required to be disclosed by the Company in the reports that it files or submits
        under the Securities Exchange Act of 1934 is recorded, processed, summarized,
        and reported on a timely basis.
 
 Based
        upon that evaluation, the Chief Executive Officer and Chief Financial Officer
        concluded, as of December 31, 2007, that the Company’s disclosure control and
        procedures were effective in recording, processing, summarizing, and reporting
        information required to be disclosed by the Company, within the time periods
        specified in the SEC’s rules and forms, and such information is accumulated and
        communicated to management to allow timely decisions regarding required
        disclosures.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Management
        of the Company has evaluated, with the participation of the Company’s Chief
        Executive Officer and Chief Financial Officer, changes in the Company’s internal
        control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)
        of
        the Exchange Act) during the quarter ended December 31, 2007. Based upon
        that
        evaluation, management has determined that there have been no changes to
        the
        Company’s internal control over financial reporting that occurred since the
        beginning of the Company’s fourth quarter of 2007 that have materially affected,
        or are reasonably likely to materially affect, the Company’s internal control
        over financial reporting.
 
 **Item
        9B. Other Information**
 
 Not
        applicable.
 
 **PART
        III**
 
 **Item
        10.**  **Directors, Executive Officers and Corporate Governance**
 
 The
        information appearing under the headings “Nomination and Election of Directors,”
“Compliance With Section 16(a) of the Securities Exchange Act of 1934” and
“Corporate Governance” in the Proxy Statement (the “2008 Proxy Statement”)
        relating to the 2008 Annual Meeting of Shareholders of the Company, which
        is
        currently expected to be held on June 10, 2008, is incorporated herein by
        reference.
 
 **Item
            11.** **Executive
            Compensation**
 
 The
        information appearing under the headings “Executive Compensation,” “Compensation
        Committee Interlocks and Insider Participation,” “Compensation Discussion and
        Analysis” and “Compensation Committee Report” in the 2008 Proxy Statement is
        incorporated herein by reference.
 
 **Item
        12.**  **Security Ownership of Certain Beneficial Owners and Management and Related
        Shareholder Matters**
 
 The
        information appearing under the headings “Security Ownership of Certain
        Beneficial Owners and Management” in the 2008 Proxy Statement is incorporated
        herein by reference.
 
 *Securities
        Authorized for Issuance Under Equity Compensation Plans*
 
 The
        following table gives information as of December 31, 2007, about WGNB Corp.
        Common Stock that may be issued upon the exercise of options, warrants and
        rights under the Company’s 2003 Incentive Stock Plan, which is the Company’s
        only outstanding equity compensation plan. The Company’s previous 1994 Incentive
        Stock Plan has since expired in accordance with its terms. The Company does
        not
        have any equity compensation plans that were not approved by its shareholders.
        The 2003 Incentive Stock Plan was approved by the Company’s Board of Directors
        and its shareholders in 2003.
 
 *Plan
                  Category*
              
              *Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights*
                
                (a)
              
              *Weighted-average
                  exercise price of outstanding options, warrants and
                  rights*
                
                (b)
              
              *Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))*
                (c)*Equity
                  compensation plans approved by security holders*
              
              
              176,457
              
              $
              22.41
              
              
              874,776
              **Equity
                  compensation plans not approved by security holders*
              
              
              N/A
              
              
              N/A
              
              
              N/A*Total*
              
              
              176,457
              
              $
              22.41
              
              
              874,776
              *
  *
        The
        only securities remaining available for future issuance are those under the
        2003
        Incentive Stock Plan. There are no additional securities available for future
        issuance under the 1994 Incentive Stock Plan which has expired.
  43
 
 **Item
            13.** **Certain
            Relationships and Related Transactions, and Director
            Independence**
 
 The
        information appearing under the caption “Nomination and Election of Directors -
        Transactions with Related Persons” and “Corporate Governance” in the 2008 Proxy
        Statement is incorporated herein by reference.
 
 **Item
        14. Principal Accountant Fees and Services**
 
 The
        information appearing under the caption “Independent Public Accountants” in the
        2008 Proxy Statement is incorporated herein by reference.
 
 **PART
        IV**
 
 **Item
        15.**  **Exhibits and Financial Statement Schedules**
 
 (a)(1)
              Financial
                  Statements
 
 The
        following financial statements are filed with this Report:
 Report
                    of Independent Registered Public Accounting Firm
                
                F-2Consolidated
                    Balance Sheets as of December 31, 2007 and 2006
                
                F-3Consolidated
                    Statements of Earnings for the Years Ended December 31, 2007,
                    2006 and
                    2005
                
                F-4Consolidated
                    Statements of Comprehensive Income for the Years Ended December
                    31, 2007,
                    2006 and 2005
                
                F-5Consolidated
                    Statements of Changes in Stockholders’ Equity for the Years Ended December
                    31, 2007, 2006 and 2005
                
                F-6Consolidated
                    Statements of Cash Flows for the Years Ended December 31, 2007,
                    2006 and
                    2005
                
                F-7Notes
                    to Consolidated Financial Statements
                
                F-9
 
 (2)  Financial
        Statement Schedules
 
 Financial
        statement schedules have been omitted because they are not applicable or
        the
        required information has been incorporated in the consolidated financial
        statements and related notes.
 
 (3)  The
        following exhibits are filed with this Report **:**
  3.1
                
                Amended
                    and Restated Articles of Incorporation (Incorporated by reference
                    to
                    Exhibit 3.1 to the Company’s Registration Statement on Form 10-SB filed
                    June 14, 2000 (the “Form 10-SB”))3.2
                
                Amended
                    and Restated Bylaws (Incorporated by reference to Exhibit 3.2
                    to the Form
                    10-SB)
  44
  4.1
                
                See
                    exhibits 3.1 and 3.2 for provisions of Company’s Articles of Incorporation
                    and Bylaws Defining the Rights of Shareholders4.2
                
                Specimen
                    certificate representing shares of Common Stock (Incorporated
                    by reference
                    to Exhibit 4.2 to the Form 10-SB)4.3
                
                Rights
                    Agreement dated as of February 12, 1997 between the Company and
                    SunTrust
                    Bank, Atlanta (Incorporated by reference to Exhibit 4.3 to the
                    Form
                    10-SB)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)10.1*
                
                Employment
                    Agreement dated as of July 11, 2006 between H.B. Lipham, III,
                    WGNB Corp.
                    and West Georgia National Bank (Incorporated by reference to
                    Exhibit 10.1
                    to the Company’s Current Report on Form 8-K dated July 11,
                    2006)10.2*
                
                Bonus
                    and Stock Option Agreement dated as of September 23, 1998 between
                    the
                    Company and H.B. Lipham, III (Incorporated by reference to Exhibit
                    10.6 to
                    the Form 10-SB)10.3*
                
                Bonus
                    and Stock Option Agreement dated as of September 23, 1998 between
                    the
                    Company and  W. Galen Hobbs, Jr. (Incorporated by reference to
                    Exhibit 10.7 to the Form 10-SB)10.4*
                
                Bonus
                    and Stock Option Agreement dated as of September 23, 1998 between
                    the
                    Company and Steven J. Haack (Incorporated by reference to Exhibit
                    10.8 to
                    the Form 10-SB)10.5*
                
                Form
                    of Election for Payment of Director Meeting Fees (Incorporated
                    by
                    reference to Exhibit 10.10 to the Form 10-SB)10.6*
                
                Employment
                    Agreement dated August 8, 2005 among WGNB Corp., West Georgia
                    National
                    Bank and Steven J. Haack (Incorporated by reference to Exhibit
                    10.1 to the
                    Company’s Current Report on Form 8-K dated August 8,
                    2005)10.7*
                
                Employment
                    Agreement dated July 11, 2005 between West Georgia National Bank
                    and W.
                    Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.1 to
                    the
                    Company’s Current Report on Form 8-K dated July 11,
                    2005)10.8*
                
                Second
                    Amendment to Bonus and Stock Option Agreement dated June 17,
                    2002 between
                    the Company and H.B. Lipham, III (Incorporated by reference to
                    Exhibit
                    10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
                    June 30, 2002 (the “6/30/02 Form 10-Q))10.9*
                
                Incentive
                    Stock Option Agreement dated March 12, 2002 between the Company
                    and H.B.
                    Lipham, III (Incorporated by reference to Exhibit 10.8 to the
                    6/30/02 Form
                    10-Q)10.10*
                
                Amendment
                    to Bonus and Stock Option Agreement dated May 30, 2002 between
                    the Company
                    and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit
                    10.10 to the
                    6/30/02 Form 10-Q)10.11*
                
                Incentive
                    Stock Option Agreement dated March 12, 2002 between the Company
                    and W.
                    Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.11
                    to the
                    6/30/02 Form 10-Q)
  45
  10.12*
                
                Amendment
                    to Bonus and Stock Option Agreement dated April 26, 2002 between
                    the
                    Company and Steven J. Haack (Incorporated by reference to Exhibit
                    10.13 to
                    the 6/30/02 Form 10-Q)10.13*
                
                Incentive
                    Stock Option Agreement dated March 12, 2002 between the Company
                    and Steven
                    J. Haack (Incorporated by reference to Exhibit 10.14 to the 6/30/02
                    Form
                    10-Q)10.14*
                
                2003
                    Stock Incentive Plan (Incorporated by reference to Appendix A
                    to the
                    Company’s Definitive Proxy Statement for its 2004 Annual
                    Meeting)10.15*
                
                Employment
                    Agreement dated December 31, 2002 between the Company and William
                    R.
                    Whitaker (Incorporated by reference to Exhibit 10.31 to the Company's
                    Annual Report on Form 10-K for year ended December 31, 2004 (the
“2004
                    Form 10-K”))10.16*
                
                Bonus
                    and Stock Option Agreement dated December 27, 2004 between the
                    Company and
                    William R. Whitaker (Incorporated by reference to Exhibit 10.32
                    to the
                    2004 Form 10-K)10.17*
                
                Separations
                    Agreement and Release dated February 14, 2006 between the Company,
                    the
                    Bank and L. Leighton Alston (Incorporated by reference to Exhibit
                    10.23 to
                    the Company’s Annual Report on Form 10-K for the year ended December
                    31, 2005)10.18*
                
                Employment
                    Agreement, dated July 1, 2007 among WGNB Corp. West Georgia National
                    Bank
                    and Randall F. Eaves (Incorporated by reference to Exhibit 10.1
                    to the
                    July 2007 Form 8-K)10.19*
                
                Employment
                    Agreement, dated July 1, 2007 among WGNB Corp. West Georgia National
                    Bank
                    and Mary Covington (Incorporated by reference to Exhibit 10.2
                    to the July
                    2007 Form 8-K)10.20*
                
                Employment
                    Agreement dated January 2, 2007 between Robert M. Gordy, Jr.
                    and West
                    Georgia National Bank (Incorporated by reference to Exhibit 10.1
                    to the
                    Company's Quarterly Rerport on Form 10-Q for the quarter ended March
                    31, 2007)21
                
                Subsidiary
                    of WGNB Corp.23
                
                Consent
                    of Porter Keadle Moore, LLP31.1
                
                Certification
                    of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 200231.2
                
                Certification
                    of Chief Financial Officer pursuant to Section 302 of the Sarbanes
                    Oxley
                    Act of 200232.1
                
                Certification
                    of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                    Act of 200232.2
                
                Certification
                    of Chief Financial Officer pursuant to Section 906 of the Sarbanes
                    Oxley
                    Act of 2002
  
 *  Indicates
          management contract or compensatory plan or arrangement.
  46
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
        has duly caused this Report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 WGNB CORP.By:
              /s/
                H.B.
                Lipham, IIIH.B
                Lipham, III, Chief Executive Officer Date:  March
        28,
        2008
 
 Pursuant
        to the requirements of the Exchange Act, this Report has been signed below
        by
        the following persons on behalf of the registrant and in the capacities and
        on
        the dates indicated.
 /s/
                    H.B. Lipham, III
                
                Date:
                    March 28, 2008H.B.
                    Lipham, III, Chief Executive Officer and Director[Principal
                    Executive Officer]/s/
                    Steven J. Haack
                
                Date:
                    March 28, 2008Steven
                    J. Haack, Secretary and Treasurer[Principal
                    Financial and Accounting Officer]/s/ W. T.
                  Green
                
                Date:
                  March 28,
                  2008W.
                    T. Green, Chairman of the Board/s/Wanda
                  W.
                  Calhoun
                
                Date:
                    March 28, 2008Wanda
                    W. Calhoun, Director/s/
                    Grady W. Cole
                
                Date:
                    March 28, 2008Grady
                    W. Cole, Director/s/
                    Mary C. Covington
                
                Date:
                    March 28, 2008Mary
                    C. Covington, Executive Vice President and Director/s/
                    Randall F. Eaves
                
                Date:
                    March 28, 2008Randall
                    F. Eaves, President and DirectorDate:Loy
                      M. Howard, DirectorDate:R.
                      David Perry, Director/s/ L. Richard
                  Plunkett
                
                Date:
                    March 28, 2008L.
                    Richard Plunkett, DirectorDate:Donald
                      C. Rhodes, Director/s/
                    Thomas T. Richards
                
                Date:
                    March 28, 2008Thomas
                    T. Richards, Director/s/
                    J. Thomas Vance
                
                Date:
                    March 28, 2008J.
                    Thomas Vance, Director
 47




**WGNB
      CORP.**





**Consolidated
      Financial Statements**





**December
      31, 2007 and 2006**





**(with
      Report of Independent Registered Public Accounting Firm)**





F-1









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders


WGNB
      Corp. and Subsidiary


Carrollton,
      Georgia





We
      have
      audited the accompanying consolidated balance sheets of WGNB Corp. and
      subsidiary as of December 31, 2007 and 2006, and the related consolidated
      statements of earnings, comprehensive income, changes in stockholders’ equity
      and cash flows for each of the three years in the period ended December 31,
      2007. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of WGNB Corp. and subsidiary
      as
      of December 31, 2007 and 2006, and the results of their operations and their
      cash flows for each of the three years in the period ended December 31, 2007,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.










Atlanta,
      Georgia


March
      28,
      2008








Certified
        Public Accountants
 
 Suite
        1800 Ÿ 235
        Peachtree Street NE Ÿ Atlanta,
        Georgia 30303 Ÿ Phone
        404-588-4200 Ÿ Fax
        404-588-4222 Ÿ
 www.pkm.com




F-2




**WGNB
      CORP.**





**Consolidated
      Balance Sheets**





**December
      31, 2007 and 2006**




2007
            
            2006AssetsCash
                and due from banks, including reserve requirementsof
                $405,000 and $346,000, respectively
            
            $
            6,004,621
            
            
            12,579,309Interest-bearing
                funds in other banks
            
            
            1,463,719
            
            
            654,139Federal
                funds sold
            
            
            18,377,000
            
            
            -Cash
                and cash equivalents
            
            
            25,845,340
            
            
            13,233,448Securities
                available-for-sale
            
            
            122,693,244
            
            
            64,251,234Securities
                held-to-maturity, estimated fair valuesof
                $7,901,839 and $7,837,389
            
            
            7,901,839
            
            
            7,837,389Loans,
                net
            
            
            645,738,663
            
            
            467,752,885Premises
                and equipment, net
            
            
            18,356,970
            
            
            8,989,589Accrued
                interest receivable
            
            
            5,927,168
            
            
            3,772,818Cash
                surrender value of life insurance
            
            
            3,639,550
            
            
            -Goodwill
                and other intangibles, net
            
            
            29,433,841
            
            
            -Foreclosed
                property
            
            
            10,313,331
            
            
            1,318,009Other
                assets
            
            
            13,814,577
            
            
            8,173,219$
            883,664,523
            
            
            575,328,591Liabilities
                and Stockholders’ EquityDeposits:Demand
            
            $
            67,614,983
            
            
            52,681,900Interest-bearing
                demand
            
            
            220,137,199
            
            
            149,765,104Savings
            
            
            19,122,668
            
            
            10,966,576Time
            
            
            170,112,285
            
            
            103,999,579Time,
                over $100,000
            
            
            229,390,354
            
            
            145,400,277Total
                deposits
            
            
            706,377,489
            
            
            462,813,436Federal
                Home Loan Bank advances
            
            
            54,500,000
            
            
            52,000,000Securities
                sold under repurchase agreements
            
            
            20,000,000
            
            
            -Junior
                subordinated debentures
            
            
            10,825,000
            
            
            -Federal
                funds purchased
            
            
            -
            
            
            2,475,000Accrued
                interest payable
            
            
            3,990,807
            
            
            2,881,943Other
                liabilities
            
            
            7,820,335
            
            
            2,661,718Total
                liabilities
            
            
            803,513,631
            
            
            522,832,097Commitments
                and contingenciesStockholders’
                equity:Common
                stock, $1.25 par value, 10,000,000 shares authorized;6,057,594
                and 5,000,613 shares issued and outstanding
            
            
            7,571,993
            
            
            6,250,766Additional
                paid-in capital
            
            
            30,199,481
            
            
            2,662,306Retained
                earnings
            
            
            41,786,537
            
            
            43,513,370Accumulated
                other comprehensive income
            
            
            592,881
            
            
            70,052Total
                stockholders’ equity
            
            
            80,150,892
            
            
            52,496,494$
            883,664,523
            
            
            575,328,591


See
      accompanying notes to consolidated financial statements.


F-3


**WGNB
      CORP.**





**Consolidated
      Statements of Earnings**





**For
      the Years Ended December 31, 2007, 2006 and 2005**




2007
            
            2006
            
            2005Interest
                income:Interest
                and fees on loans
            
            $
            50,138,669
            
            
            37,757,482
            
            
            28,725,171Interest
                on federal funds sold and funds in other banks
            
            
            614,087
            
            
            640,956
            
            
            393,955Interest
                on investment securities:U.S.
                Government agencies
            
            
            1,693,538
            
            
            1,032,728
            
            
            1,009,760State,
                county and municipal
            
            
            1,998,925
            
            
            1,455,708
            
            
            1,597,744Other
            
            
            1,383,038
            
            
            1,205,881
            
            
            819,549Total
                interest income
            
            
            55,828,257
            
            
            42,092,755
            
            
            32,546,179Interest
                expense:Interest
                on deposits:Demand
            
            
            6,259,620
            
            
            4,994,332
            
            
            3,183,385Savings
            
            
            242,037
            
            
            185,168
            
            
            99,612Time
            
            
            17,372,796
            
            
            10,776,290
            
            
            6,973,958Interest
                on FHLB and other borrowings
            
            
            3,307,029
            
            
            2,771,190
            
            
            2,326,566Total
                interest expense
            
            
            27,181,482
            
            
            18,726,980
            
            
            12,583,521Net
                interest income
            
            
            28,646,775
            
            
            23,365,775
            
            
            19,962,658Provision
                for loan losses
            
            
            10,206,263
            
            
            1,465,000
            
            
            1,550,000Net
                interest income after provision for loan losses
            
            
            18,440,512
            
            
            21,900,775
            
            
            18,412,658Other
                income:Service
                charges on deposit accounts
            
            
            5,364,019
            
            
            4,061,892
            
            
            4,080,734Mortgage
                origination fees
            
            
            392,199
            
            
            393,375
            
            
            402,468Brokerage
                fees
            
            
            637,036
            
            
            129,730
            
            
            -ATM
                network fees
            
            
            1,047,054
            
            
            777,299
            
            
            502,092Gain
                on sale of securities available-for-sale
            
            
            -
            
            
            -
            
            
            227,863Gain
                (loss) on sale and write-down of foreclosed property
            
            
            (729,261
            )
            
            243,153
            
            
            (4,125
            )Miscellaneous
            
            
            1,357,438
            
            
            798,855
            
            
            798,858Total
                other income
            
            
            8,068,485
            
            
            6,404,304
            
            
            6,007,890Other
                expenses:Salaries
                and employee benefits
            
            
            13,906,002
            
            
            9,924,742
            
            
            8,702,150Occupancy
            
            
            3,300,139
            
            
            2,402,303
            
            
            2,134,379Other
                operating
            
            
            6,134,845
            
            
            4,192,074
            
            
            3,627,107Total
                other expenses
            
            
            23,340,986
            
            
            16,519,119
            
            
            14,463,636Earnings
                before income taxes
            
            
            3,168,011
            
            
            11,785,960
            
            
            9,956,912Income
                taxes
            
            
            133,738
            
            
            3,458,524
            
            
            2,889,425Net
                earnings
            
            $
            3,034,273
            
            
            8,327,436
            
            
            7,067,487Basic
                earnings per share
            
            $
            0.55
            
            
            1.67
            
            
            1.42Diluted
                earnings per share
            
            $
            0.55
            
            
            1.66
            
            
            1.41Dividends
                per share
            
            $
            0.82
            
            
            0.72
            
            
            0.61




See
      accompanying notes to consolidated financial statements.


F-4


**WGNB
      CORP.**





**Consolidated
      Statements of Comprehensive Income**





**For
      the Years Ended December 31, 2007, 2006 and 2005**




2007
            
            2006
            
            2005Net
                earnings
            
            $
            3,034,273
            
            
            8,327,436
            
            
            7,067,487Other
                comprehensive income (loss), net of tax:Unrealized
                gains (losses) on investmentsecurities
                available-for-sale:Unrealized
                gains (losses) arising during the period
            
            
            821,801
            
            
            (84,938
            )
            
            (1,283,774
            )Associated
                (taxes) benefit
            
            
            (279,412
            )
            
            28,879
            
            
            436,483Reclassification adjustment for gain realized
            
            
            -
            
            
            -
            
            
            (227,863
            )Associated
                taxes
            
            
            -
            
            
            -
            
            
            77,473Change
                in fair value of derivatives for cash flow hedges:Decrease
                in fair value of derivatives for cash flow hedgesarising
                during the period
            
            
            (29,636
            )
            
            -
            
            
            -Associated
                tax benefit
            
            
            10,076
            
            
            -
            
            
            -Other
                comprehensive income (loss)
            
            
            522,829
            
            
            (56,059
            )
            
            (997,681
            )Comprehensive
                income
            
            $
            3,557,102
            
            
            8,271,377
            
            
            6,069,806







See
      accompanying notes to consolidated financial statements.


F-5


**WGNB
      CORP.**




**Consolidated
      Statements of Changes in Stockholders’ Equity**




**For
      the Years Ended December 31, 2007, 2006 and 2005**





AccumulatedAdditional
            
            
            
            OtherCommon Stock
            
            Paid-in
            
            Retained
            
            ComprehensiveShares
            
            Amount
            
            Capital
            
            Earnings
            
            Income
            
            TotalBalance,
                December 31, 2004
            
            
            4,988,661
            
            $
            6,235,827
            
            
            2,823,760
            
            
            34,778,931
            
            
            1,123,792
            
            
            44,962,310Cash
                dividends ($.61 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,058,719
            )
            
            -
            
            
            (3,058,719
            )Retirement
                of common stock
            
            
            (2,655
            )
            
            (3,319
            )
            
            (49,027
            )
            
            -
            
            
            -
            
            
            (52,346
            )Exercise
                of stock options
            
            
            1,070
            
            
            1,338
            
            
            15,398
            
            
            -
            
            
            -
            
            
            16,736Issuance
                of common stock in lieu of directors’ fees
            
            
            718
            
            
            897
            
            
            13,349
            
            
            -
            
            
            -
            
            
            14,246Change
                in unrealized holding gain onsecurities
                available-for-sale, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (997,681
            )
            
            (997,681
            )Net
                earnings
            
            
            -
            
            
            -
            
            
            -
            
            
            7,067,487
            
            
            -
            
            
            7,067,487Balance,
                December 31, 2005
            
            
            4,987,794
            
            
            6,234,743
            
            
            2,803,480
            
            
            38,787,699
            
            
            126,111
            
            
            47,952,033Cash
                dividends ($.72 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,601,765
            )
            
            -
            
            
            (3,601,765
            )Retirement
                of common stock
            
            
            (38,202
            )
            
            (47,753
            )
            
            (916,895
            )
            
            -
            
            
            -
            
            
            (964,648
            )Exercise
                of stock options
            
            
            51,021
            
            
            63,776
            
            
            647,471
            
            
            -
            
            
            -
            
            
            711,247Stock
                option expense
            
            
            -
            
            
            -
            
            
            128,250
            
            
            -
            
            
            -
            
            
            128,250Change
                in unrealized holding gain onsecurities
                available-for-sale, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (56,059
            )
            
            (56,059
            )Net
                earnings
            
            
            -
            
            
            -
            
            
            -
            
            
            8,327,436
            
            
            -
            
            
            8,327,436Balance,
                December 31, 2006
            
            
            5,000,613
            
            
            6,250,766
            
            
            2,662,306
            
            
            43,513,370
            
            
            70,052
            
            
            52,496,494Cash
                dividends ($.82 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,761,106
            )
            
            -
            
            
            (4,761,106
            )Retirement
                of common stock
            
            
            (1,345
            )
            
            (1,681
            )
            
            (29,254
            )
            
            -
            
            
            -
            
            
            (30,935
            )Issuance
                  of shares in acquisition of First HaralsonCorporation, net of
                  issuance costs of $102,292
            
            
            1,055,149
            
            
            1,318,937
            
            
            27,331,583
            
            
            -
            
            
            -
            
            
            28,650,520Exercise
                of stock options
            
            
            3,177
            
            
            3,971
            
            
            57,346
            
            
            -
            
            
            -
            
            
            61,317Stock
                option expense
            
            
            -
            
            
            -
            
            
            177,500
            
            
            -
            
            
            -
            
            
            177,500Change
                in unrealized holding gain onsecurities
                available-for-sale, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            542,389
            
            
            542,389Change
                in fair value of derivatives for cashflow
                hedges, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (19,560
            )
            
            (19,560
            )Net
                earnings
            
            
            -
            
            
            -
            
            
            -
            
            
            3,034,273
            
            
            -
            
            
            3,034,273Balance,
                December 31, 2007
            
            
            6,057,594
            
            $
            7,571,993
            
            
            30,199,481
            
            
            41,786,537
            
            
            592,881
            
            
            80,150,892





See
      accompanying notes to consolidated financial statements .


F-6


**WGNB
      CORP.**




**Consolidated
      Statements of Cash Flows**




**For
      the Years Ended December 31, 2007, 2006 and 2005**




2007
            
            2006
            
            2005Cash
                flows from operating activities:Net
                earnings
            
            $
            3,034,273
            
            
            8,327,436
            
            
            7,067,487Adjustments
                to reconcile net earnings to net cashprovided
                by operating activities:Depreciation,
                amortization and accretion
            
            
            1,362,866
            
            
            1,099,739
            
            
            1,086,505Provision
                for loan losses
            
            
            10,206,263
            
            
            1,465,000
            
            
            1,550,000Stock-based
                employee compensation expense
            
            
            177,500
            
            
            128,250
            
            
            -Deferred
                income tax benefit
            
            
            (2,510,403
            )
            
            (188,645
            )
            
            (663,238
            )Income
                from bank owned life insurance
            
            
            (78,262
            )
            
            -
            
            
            -Gain
                on sale of securities available-for-sale
            
            
            -
            
            
            -
            
            
            (227,863
            )Loss
                on sale or disposal of premises and equipment
            
            
            774
            
            
            4,327
            
            
            75,393Net
                loss (gain) on sale and write-down of foreclosed property
            
            
            729,261
            
            
            (243,153
            )
            
            4,125Change
                in, net of effects of purchase acquisition in 2007:Other
                assets
            
            
            (2,664,963
            )
            
            (1,283,102
            )
            
            (303,232
            )Other
                liabilities
            
            
            (826,957
            )
            
            795,470
            
            
            950,423Net
                cash provided by operating activities
            
            
            9,430,352
            
            
            10,105,322
            
            
            9,539,600Cash
                flows from investing activities, net of effects of purchaseacquisition
                in 2007:Proceeds
                from sales of securities available-for-sale
            
            
            5,993,155
            
            
            -
            
            
            3,789,185Proceeds
                from maturities, calls and pay-downs ofsecurities
                available-for-sale
            
            
            52,974,394
            
            
            21,321,435
            
            
            12,686,014Proceeds
                from maturities, calls and pay-downs ofsecurities
                held-to-maturity
            
            
            1,436,551
            
            
            1,403,882
            
            
            204,941Purchases
                of securities available-for-sale
            
            
            (74,099,579
            )
            
            (21,263,737
            )
            
            (21,289,748
            )Purchases
                of securities held-to-maturity
            
            
            (1,500,000
            )
            
            (2,503,750
            )
            
            (2,105,990
            )Purchase
                of other securities
            
            
            -
            
            
            (1,534,019
            )
            
            -Net
                change in loans
            
            
            (60,280,600
            )
            
            (52,893,590
            )
            
            (67,394,063
            )Cash
                paid in purchase acquisition, net of cash receivedof
                $17,437,208
            
            
            (615,472
            )
            
            -
            
            
            -Proceeds
                from sales of premises and equipment
            
            
            -
            
            
            -
            
            
            88,497Purchases
                of premises and equipment
            
            
            (1,484,338
            )
            
            (994,417
            )
            
            (2,702,122
            )Proceeds
                from the redemption of cash surrender value of life
                insurance
            
            
            293,101
            
            
            -
            
            
            -Capital
                expenditures for other real estate
            
            
            (1,676,548
            )
            
            -
            
            
            (99,293
            )Proceeds
                from sales of other real estate
            
            
            546,968
            
            
            851,446
            
            
            754,440Net
                cash used by investing activities
            
            
            (78,412,368
            )
            
            (55,612,750
            )
            
            (76,068,139
            )Cash
                flows from financing activities, net of effects of purchaseacquisition
                in 2007:Net
                change in deposits
            
            
            62,754,411
            
            
            33,763,991
            
            
            90,651,406Proceeds
                from Federal Home Loan Bank advances
            
            
            10,000,000
            
            
            10,000,000
            
            
            -Repayment
                of Federal Home Loan Bank advances
            
            
            (15,000,000
            )
            
            -
            
            
            (13,000,000
            )Proceeds
                from junior subordinated debentures
            
            
            10,825,000
            
            
            -
            
            
            -Proceeds
                from securities sold under repurchase agreements
            
            
            20,000,000
            
            
            -
            
            
            -Net
                change in federal funds purchased
            
            
            (2,475,000
            )
            
            2,475,000
            
            
            -Dividends
                paid
            
            
            (4,438,593
            )
            
            (3,466,603
            )
            
            (2,921,611
            )Proceeds
                from exercise of stock options
            
            
            61,317
            
            
            711,247
            
            
            16,736Stock
                issuance costs
            
            
            (102,292
            )
            
            -
            
            
            -Retirement
                of common stock
            
            
            (30,935
            )
            
            (964,648
            )
            
            (52,346
            )Net
                cash provided by financing activities
            
            
            81,593,908
            
            
            42,518,987
            
            
            74,694,185Change
                in cash and cash equivalents
            
            
            12,611,892
            
            
            (2,988,441
            )
            
            8,165,646Cash
                and cash equivalents at beginning of year
            
            
            13,233,448
            
            
            16,221,889
            
            
            8,056,243Cash
                and cash equivalents at end of year
            
            $
            25,845,340
            
            
            13,233,448
            
            
            16,221,889






F-7





**WGNB
      CORP.**




**Consolidated
      Statements of Cash Flows, continued**





**For
      the Years Ended December 31, 2007, 2006 and 2005**




2007
            
            2006
            
            2005Supplemental
                disclosure of cash flow information:Cash
                paid during the year for:Interest
            
            $
            27,014,520
            
            
            17,978,895
            
            
            11,875,795Income
                taxes
            
            $
            4,263,000
            
            
            3,688,500
            
            
            3,501,000Non-cash
                investing and financing activities:Transfer
                of loans to other real estate
            
            $
            8,680,003
            
            
            1,227,319
            
            
            579,105Loans
                to facilitate sales of other real estate
            
            $
            -
            
            
            -
            
            
            39,028Change
                in unrealized gains onsecurities
                available-for-sale, net of tax
            
            $
            542,389
            
            
            (56,059
            )
            
            (997,681
            )Change
                in fair value of derivativesfor
                cash flow hedges, net of tax
            
            $
            (19,560
            )
            
            -
            
            
            -Change
                in dividends payable
            
            $
            322,513
            
            
            135,162
            
            
            137,108Issuance
                of common stock to directors in lieu of directors’ feesIssuan
            
            $
            -
            
            
            -
            
            
            14,246The
                non-cash investing activities associated with the acquisition of
                First
                Haralson Corporation are presented in Note 2 to the financial
                statements.





See
      accompanying notes to consolidated financial statements.


F-8


**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements**





**(1)**
            **Summary
                of Significant Accounting
                Policies**




***Basis
                of Presentation***


The
                consolidated financial statements of WGNB Corp. (the “Company”) include
                the financial statements of its wholly owned subsidiary, First National
                Bank of Georgia (the “Bank”). All significant intercompany accounts and
                transactions have been eliminated in
                consolidation.


The
                Bank commenced business in 1946 upon receipt of its banking charter
                from
                the Office of the Comptroller of the Currency (the “OCC”). The Bank is
                primarily regulated by the OCC and undergoes periodic examinations
                by this
                regulatory agency. The Company is regulated by the Federal Reserve
                and is
                also subject to periodic examinations. The Bank provides a full range
                of
                commercial and consumer banking services principally in Carroll,
                Haralson,
                Douglas, Coweta and Paulding Counties,
                Georgia.





The
                accounting and reporting policies of the Company, and the methods
                of
                applying these principles, conform with accounting principles generally
                accepted in the United States of America (GAAP) and with general
                practices
                within the banking industry. In preparing the financial statements,
                management is required to make estimates and assumptions that affect
                the
                reported amounts of assets and liabilities as of the date of the
                balance
                sheet and income and expenses for the year. Actual results could
                differ
                significantly from those estimates. Material estimates common to
                the
                banking industry that are particularly susceptible to significant
                change
                in an operating cycle of one year include, but are not limited to,
                the
                determination of the allowance for loan losses, the valuation of
                any real
                estate acquired in connection with foreclosures or in satisfaction
                of
                loans and valuation allowances associated with the realization of
                deferred
                tax assets which are based on future taxable
                income.





***Cash
      and Cash Equivalents***




For
                purposes of reporting cash flows, cash and cash equivalents include
                cash
                and due from banks, interest-bearing funds in other banks and federal
                funds sold.





***Securities***




The
                Company classifies its securities in one of three categories: trading,
                available-for-sale, or held-to-maturity. Trading securities are bought
                and
                held principally for the purpose of selling them in the near term.
                Held-to-maturity securities are those securities for which the Company
                has
                the ability and intent to hold the security until maturity. All other
                securities not included in trading or held-to-maturity are classified
                as
                available-for-sale.





Trading
                and available-for-sale securities are recorded at fair value.
                Held-to-maturity securities are recorded at amortized cost, adjusted
                for
                the amortization of premiums and accretion of discounts. Unrealized
                holding gains and losses, net of the related tax effect, on securities
                available-for-sale are excluded from earnings and are reported as
                a
                separate component of accumulated other comprehensive income in
                stockholders’ equity until realized. Transfers of securities between
                categories are recorded at fair value at the date of transfer.





A
                decline in the market value of any available-for-sale or held-to-maturity
                investment below cost that is deemed other than temporary is charged
                to
                earnings and establishes a new cost basis for the
                security.





Premiums
                and discounts are amortized or accreted over the life of the related
                security as an adjustment to the yield. Realized gains and losses
                for
                securities classified as available-for-sale are included in earnings
                and
                are derived using the specific identification method for determining
                the
                cost of securities sold.





***Loans***


Loans
                are stated at the principal amount outstanding, net of unearned interest
                and the allowance for loan losses. Interest income on loans is recognized
                in a manner that results in a level yield on the principal amount
                outstanding. Nonrefundable loan fees are deferred, net of certain
                direct
                origination costs, and amortized into income over the life of the
                related
                loan. Other loan fees consisting of delinquent payment charges and
                other
                common loan servicing fees are recognized as
                earned.


F-9


**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(1)**
            **Summary
                of Significant Accounting Policies****,
                continued**




***Impaired
                and Non-accrual******Loans***


The
                Company evaluates certain loans, particularly residential construction
                and
                development credits, for impairment on an individual basis. Loans
                are
                considered to be impaired when it is probable that collection of
                all
                amounts due according to the contractual terms of the loan agreement
                become doubtful. In the instance of a restructured loan, the contractual
                terms of the loan agreement refer to the original loan agreement.
                For
                collateral dependent loans, impairment is measured based on the fair
                value
                of the collateral. Impairment is measured based on the present value
                of
                the expected future cash flows discounted at the loan’s effective interest
                rate, except for collateral dependent loans.





Not
                all impaired loans are necessarily placed on non-accrual status.
                It is
                possible that an impaired loan may be collateralized by assets with
                fair
                values in excess of the recorded value of the loan. In such a case,
                the
                loan would continue to accrue interest up to the point that fair
                value is
                achieved or the collateral is sold in settlement of the loan. A loan
                will
                normally be placed on non-accrual when management believes that collection
                of principal or interest has become doubtful or when the loans become
                90
                days past due as to principal and interest, unless they are well
                secured
                and in the process of collection.





When
                a loan is placed on non-accrual status, the previously accrued and
                uncollected interest that is considered uncollectable is reversed
                against
                interest income of the current period. If a payment is received on
                a loan
                in non-accrual status, it is generally applied to reduce the carrying
                value of the loan. Non-accrual loans are returned to accrual status
                when
                they become current as to principal and interest or become both well
                secured and in the process of collection and collectibility is no
                longer
                doubtful.





***Allowance
                for Loan Losses***




The
      allowance for loan losses is established through a provision for loan losses
      charged to expense. Loans are charged against the allowance for loan losses
      when
      management believes that the collectibility of the principal is unlikely. The
      allowance represents an amount which, in management’s judgment based on
      historical losses and on current economic environment, will be adequate to
      absorb probable losses on existing loans. Amounts deemed uncollectible are
      charged-off and deducted from the allowance and recoveries on loans previously
      charged-off are added back to the allowance.




Management’s
                judgment in determining the adequacy of the allowance is based on
                evaluations of the collectibility of loans. These evaluations take
                into
                consideration such factors as the nature and changes in the composition
                of
                the loan portfolio, current economic conditions that may affect the
                borrower’s ability to pay, overall portfolio quality, and review of
                specific problem loans. In determining the adequacy of the allowance
                for
                loan losses, management uses a loan grading system that rates loans
                in
                nine different categories. Grades are assigned allocations of allowance
                based on the Company’s loss experience, peer loss experience, migration
                analysis and internal and external economic factors. The combination
                of
                these results is compared monthly to the recorded allowance for loan
                losses and material differences are adjusted by increasing or decreasing
                the provision for loan losses.




Management
                believes that the allowance for loan losses is adequate. While management
                uses available information to provide reserves and recognize losses
                on
                loans, future additions to the allowance may be necessary based on
                changes
                in economic conditions. In addition, various regulatory agencies,
                as an
                integral part of their examination process, periodically review the
                Company’s allowance for loan losses. Such agencies may require the Company
                to recognize additions to the allowance based on their judgment of
                information available to them at the time of their
                examination.




***Premises
                and Equipment***


Premises
                and equipment are carried at cost less accumulated depreciation.
                Depreciation is computed using the straight-line method over the
                estimated
                useful lives of the related assets. When assets are retired or otherwise
                disposed, the cost and related accumulated depreciation are removed
                from
                the accounts, and any resulting gain or loss is reflected in earnings
                for
                the period. The cost of maintenance and repairs that do not improve
                or
                extend the useful life of the respective asset is charged to income
                as
                incurred, whereas significant renewals and improvements are capitalized.
                The range of estimated useful lives for premises and equipment
                are:




Buildings
                  and improvements
              
              15
                  - 39 yearsFurniture
                  and equipment
              
              3
                  -
                  10 years




F-10




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(1)**
            **Summary
                of Significant Accounting Policies****,
                continued**




***Cash
                Surrender Value of Life
                Insurance***


The
                cash surrender value of life insurance is carried at its cash value
                based
                upon accrued earnings of the underlying contract added to the balance
                of
                the asset.





***Core
                Deposit Intangible***


The
                core deposit intangible is amortized on a straight-line method over
                the
                period of benefit, generally 10 years. The core deposit intangible
                is
                reviewed for impairment whenever events or changes in circumstances
                indicate that the recovery of the value in the underlying asset which
                gave
                rise to the core deposit intangible becomes permanently impaired.





***Goodwill***


Goodwill
                represents the cost of an acquired company in excess of the fair
                value of
                the net assets acquired. Goodwill is not amortized over a useful
                life.
                Instead it is subject to a two step impairment test in accordance
                with
                Statement of Financial Accounting Standard (“SFAS”) No. 142,*Goodwill
                and Other Intangible Assets.*The
                first step compares the fair value of the reporting unit, the Company,
                to
                the carrying amount of the Goodwill. If the carrying amount of the
                goodwill exceeds the fair value of the reporting unit, then a second
                step
                is conducted whereby the implied fair value of the goodwill is compared
                to
                the carrying value of the goodwill. If the implied fair value is
                less than
                the carrying amount of the goodwill, an impairment loss is
                recognized.





***Other
                Investments***


Other
                investments include Federal Home Loan Bank (“FHLB”) stock, Federal Reserve
                Bank stock, investments in federal and state income tax credit
                partnerships and other equity securities. The investments have no
                readily
                determinable fair value and are carried at
                cost.




***Foreclosed
                Property***


Properties
                acquired through foreclosure are carried at the lower of cost or
                fair
                value less estimated costs to dispose. Fair value is defined as the
                amount
                that is expected to be received in a current sale between a willing
                buyer
                and seller other than in a forced or liquidation sale. Fair values
                at
                foreclosure are based on appraisals. Losses arising from the acquisition
                of foreclosed properties are charged against the allowance for loan
                losses. Subsequent write-downs are charged to earnings in the period
                in
                which the need arises.





***Securities
                Sold Under Repurchase Agreements***


The
      Company sells securities under agreements to repurchase. These repurchase
      agreements are treated as borrowings. The obligations to repurchase securities
      sold are reflected as a liability and the securities underlying the agreements
      are reflected as assets in the consolidated balance sheets.




***Income
      Taxes***




The
      Company accounts for income taxes under the liability method. Accordingly,
      deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases and operating loss and tax credit carryforwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date.





In
      the
      event the future tax consequences of differences between the financial reporting
      bases and the tax bases of the assets and liabilities results in deferred tax
      assets, an evaluation of the probability of being able to realize the future
      benefits indicated by such asset is required. A valuation allowance is provided
      for a portion of the deferred tax asset when it is more likely than not that
      some portion or all of the deferred tax asset will not be realized. In assessing
      the realizability of the deferred tax assets, management considers the scheduled
      reversals of deferred tax liabilities, projected future taxable income, and
      tax
      planning strategies.





F-11




**WGNB
      CORP.**


**Notes
      to Consolidated Financial Statements, continued**





**(1)**
            **Summary
                of Significant Accounting Policies****,
                continued**




***Income
      Taxes*** ***,
      continued***




The
      Company adopted FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109* (“FIN
      48”) as of January 1, 2007. A tax position is recognized as a benefit only if
      it
      is “more likely than not” that the tax position would be sustained in a tax
      examination, with a tax examination being presumed to occur. The amount
      recognized is the largest amount of tax benefit that is greater than 50 percent
      likely of being realized in examination. For tax positions not meeting the
“more
      likely than not” test, no tax benefit is recorded. The adoption of FIN 48 had no
      effect on the Company’s financial statements.





***Derivative
      Instruments and Hedging Activities***




The
      Company recognizes the fair value of derivatives as assets or liabilities in
      the
      financial statements. Accounting for the changes in the fair value of a
      derivative depends on the intended use of the derivative instrument at
      inception. The change in fair value of instruments used as fair value hedges
      is
      accounted for in the earnings of the period simultaneous with accounting for
      the
      fair value change of the item being hedged. The change in fair value of the
      effective portion of cash flow hedges is accounted for in comprehensive income
      rather than earnings. The change in fair value of derivative instruments that
      are not intended as a hedge is accounted for in the earnings of the period
      of
      the change. When a swap contract is terminated, the cumulative change in the
      fair value is amortized into income
      over the original hedge period. If the underlying hedged instrument is sold
      or
      settled, the Company immediately recognizes the cumulative change in the
      derivative’s value in the component of earnings.





***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 $177,500 and $128,250 of stock based compensation during
      the
      years ended December 31, 2007 and 2006, 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
      December 31, 2007, there was $417,651 of unrecognized compensation cost related
      to stock option grants. The cost is expected to be recognized over the remaining
      vesting period of approximately five years.





The
      grant-date fair value of each option granted during 2007, 2006 and 2005 was
      $6.39, $4.47 and $2.96, respectively. 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 2007, 2006 and 2005:





2007
            
            2006
            
            2005Dividend
                yield
            
            
            2.72
            %
            
            2.85
            %
            
            2.86
            %Expected
                volatility
            
            
            20
            %
            
            13
            %
            
            11
            %Risk-free
                interest rate
            
            
            4.83
            %
            
            4.54
            %
            
            4.09
            %Expected
                term
            
            
            6.6
                years
            
            
            10
                years
            
            
            10
                years






***Earnings
              Per Share***Basic
              earnings
              per share are based on the weighted average number of common shares
              outstanding during the period. The effects of potential common shares
              outstanding during the period are included in diluted earnings per
              share.Stock
              options, which are described in note 13, are granted to key management
              personnel.Common
            
            Per
                Share**For
                the Year Ended December 31, 2007**
            
            Net
                Earnings
            
            Shares
            
            AmountBasic
                earnings per share
            
            $
            3,034,273
            
            
            5,534,851
            
            $
            .55Effect
                of dilutive stock options
            
            
            -
            
            
            25,187
            
            
            -Diluted
                earnings per share
            
            $
            3,034,273
            
            
            5,560,038
            
            $
            .55





F-12





**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(1)**
            **Summary
                of Significant Accounting Policies****,
                continued**


***Earnings
              per share*,
              continued**Common
            
            Per
                Share**For
                the Year Ended December 31, 2006**
            
            Net
                Earnings
            
            Shares
            
            AmountBasic
                earnings per share
            
            $
            8,327,436
            
            
            4,998,103
            
            $
            1.67Effect
                of dilutive stock options
            
            
            -
            
            
            26,565
            
            
            (.01
            )Diluted
                earnings per share
            
            $
            8,327,436
            
            
            5,024,668
            
            $
            1.66




Common
            
            Per
                Share**For
                the Year Ended December 31, 2005**
            
            Net
                Earnings
            
            Shares
            
            AmountBasic
                earnings per share
            
            $
            7,067,487
            
            
            4,986,930
            
            $
            1.42Effect
                of dilutive stock options
            
            
            -
            
            
            37,499
            
            
            (.01
            )Diluted
                earnings per share
            
            $
            7,067,487
            
            
            5,024,429
            
            $
            1.41




***Recent
      Accounting Pronouncements***




**Fair
      Value Measurements**




In
      September 2006, the Financial Accounting Standards Board (FASB) issued Statement
      No. 157, *Fair
      Value Measurements* (SFAS
      No.
      157). SFAS No. 157 defines fair value, establishes a framework for measuring
      fair value and expands disclosures about fair value measurements. The changes
      to
      current practice resulting from the application of this Statement relate to
      the
      definition of fair value, the methods used to measure fair value and the
      expanded disclosures about fair value measurements. SFAS No. 157 is effective
      for fiscal years beginning after November 15, 2007, with earlier application
      encouraged. The Company does not anticipate the adoption of this new accounting
      principle to have a material effect on its financial position or results of
      operation.





**Non-controlling
      Interests in Consolidated Financial Statements**




In
      December 2007, the FASB issued Statement No. 160, *Non-controlling
      Interests in Consolidated Financial Statements - an amendment of ARB No. 51
      (SFAS No. 160)* .
      This
      Statement amends ARB 51 to establish accounting and reporting standards for
      the
      non-controlling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 is effective for fiscal years beginning after December
      15, 2008. The Company does not anticipate the adoption of this new accounting
      principle to have a material effect on its financial position or results of
      operation.




**Business
      Combinations**




In
      December 2007, FASB revised Statement No. 141(revised 2007), *Business
      Combinations* (SFAS
      No. 141(R)). Under SFAS No. 141, organizations utilized the announcement date
      as
      the measurement date for the purchase price of the acquired entity. SFAS No.
      141(R) requires measurement at the date the acquirer obtains control of the
      acquiree, generally referred to as the acquisition date. SFAS No. 141(R) will
      have a significant impact on the accounting for transaction costs, restructuring
      costs as well as the initial recognition of contingent assets and liabilities
      assumed during a business combination. Under
      SFAS No. 141(R), adjustments to the acquired entity’s deferred tax assets and
      uncertain tax position balances occurring outside the measurement period will
      be
      recorded as a component of the income tax expense, rather than goodwill. SFAS
      No.
      141(R) is effective for business combinations for which the acquisition date
      is
      on or after the beginning of the first annual reporting period beginning on
      or
      after December 15, 2008. As the provisions of SFAS No. 141(R) are applied
      prospectively, the impact to the Company cannot be determined until the
      transactions occur.





Other
      accounting standards that have been issued or proposed by the FASB and other
      standard setting entities that do not require adoption until a future date
      are
      not expected to have a material impact on the Company’s consolidated financial
      statements upon adoption.





***Reclassifications***




Certain
      reclassifications have been made in the prior years’ consolidated statements to
      conform to the presentation used in 2007.





F-13




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(2)**
            **Material
                Business Combination**




On
      January 22, 2007, WGNB Corp. entered into an agreement and plan of
      reorganization by and among WGNB Corp., West Georgia National Bank, First
      Haralson Corporation, and First National Bank of Georgia whereby First Haralson
      Corporation will be merged with and into WGNB Corp. by acquisition of 100
      percent of the outstanding common shares of First Haralson Corporation and,
      concurrently, First National Bank of Georgia will be merged into West Georgia
      National Bank. Upon the closing of the transaction, West Georgia National Bank
      changed its name to First National Bank of Georgia. The transaction was approved
      by both companies’ shareholders and it closed on June 29, 2007 with an effective
      date of July 1, 2007. First
      Haralson Corporation was headquartered in Buchanan, Georgia and operated five
      branches in Haralson County and two branches in Carroll County. The results
      of
      operations from the acquisition have been included in the Company’s consolidated
      financial statements from the date of acquisition, July 1, 2007.




Under
      the
      terms of the merger agreement, First Haralson Corporation’s shareholders elected
      to receive cash, WGNB Corp. common stock, or a combination of the two. The
      shareholders made their elections and, in the aggregate, chose: cash
      consideration in the amount of $16,315,423; shares of WGNB Corp. stock in the
      amount of 1,055,149 valued at $27.25 per share; which, together with total
      acquisition costs of $1,746,463, resulted in a total consideration of
      $46,814,696 at the date of the closing. In addition, the terms of the merger
      agreement allowed First Haralson Corporation to pay a one-time, special dividend
      not to exceed $7,250,000 in the aggregate, or approximately $35.67 per share,
      for each First Haralson Corporation share to First Haralson Corporation
      shareholders prior to the closing of the transaction.





One
      of
      the primary business objectives for the transaction was to strengthen the
      Company’s presence along the Interstate 20 corridor in western Georgia. The
      combined entity has retained the number one market share ranking in both Carroll
      and Haralson counties. Additionally, the transaction has enhanced the Company’s
      core deposits and has diversified its loan portfolio. The combination also
      created a top 20 financial institution in Georgia in terms of total
      deposits.





The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed on the closing date, July 1, 2007.




First
                HaralsonCorporation(In
                thousands)Assets
                acquired:Cash
                and cash equivalents
            
            $
            8,196Federal
                Funds sold
            
            
            9,241Securities
                available for sale
            
            
            42,282Loans,
                net
            
            
            136,459Premises
                and equipment
            
            
            9,333Core
                deposit intangible
            
            
            5,738Goodwill
            
            
            23,991Other
                assets
            
            
            6,793Total
                assets acquired
            
            
            242,033Liabilities
                assumed:Deposits
            
            
            180,843Other
                borrowed funds
            
            
            7,500Other
                liabilities
            
            
            6,875Total
                liabilities assumed
            
            
            195,218Net
                assets acquired
            
            $
            46,815





F-14





**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(2)**
            **Material
                Business Combination****,
                continued**




The
      financial information below presents the proforma earnings of WGNB Corp.
      assuming the operations of First Haralson Corporation were included in
      consolidated earnings as of the beginning of the earliest reporting
      period:




Years
                Ended December 31,(In thousands)2007
            
            2006
            
            2005Total
                revenue
            
            $
            73,508
            
            
            64,289
            
            
            52,145Net
                earnings
            
            
            3,992
            
            
            10,708
            
            
            9,312Diluted
                earnings per share
            
            $
            .66
            
            
            1.76
            
            
            1.53





**(3)**
                **Securities**




Securities
                available-for-sale and held-to-maturity at December 31, 2007 and
                2006 are
                summarized as follows:**Available-for-Sale**
            
            December 31, 2007Gross
            
            Gross
            
            EstimatedAmortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueU.S.
                Government sponsored enterprises
            
            $
            1,989,757
            
            
            40,761
            
            
            1,018
            
            
            2,029,500Mortgage-backed
                securities
            
            
            45,194,946
            
            
            547,002
            
            
            168,685
            
            
            45,573,263State,
                county and municipals
            
            
            69,938,633
            
            
            812,974
            
            
            285,138
            
            
            70,466,469Corporate
                bonds
            
            
            4,641,969
            
            
            1,811
            
            
            19,768
            
            
            4,624,012$
            121,765,305
            
            
            1,402,548
            
            
            474,609
            
            
            122,693,244





December 31, 2006Gross
            
            Gross
            
            EstimatedAmortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueU.S.
                Government sponsored enterprises
            
            $
            9,970,285
            
            
            -
            
            
            33,685
            
            
            9,936,600Mortgage-backed
                securities
            
            
            16,124,094
            
            
            73,330
            
            
            379,800
            
            
            15,817,624State,
                county and municipals
            
            
            33,015,526
            
            
            528,180
            
            
            83,777
            
            
            33,459,929Corporate
                bonds
            
            
            5,035,191
            
            
            12,991
            
            
            11,101
            
            
            5,037,081$
            64,145,096
            
            
            614,501
            
            
            508,363
            
            
            64,251,234





**Held-to-Maturity**
            
            December 31, 2007Gross
            
            Gross
            
            EstimatedAmortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueTrust
                preferred securities
            
            $
            7,901,839
            
            
            -
            
            
            -
            
            
            7,901,839




December 31, 2006Gross
            
            Gross
            
            EstimatedAmortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueTrust
                preferred securities
            
            $
            7,837,389
            
            
            -
            
            
            -
            
            
            7,837,389




The
          amortized cost and estimated fair value of investment securities
          available-for-sale and held-to-maturity at December 31, 2007, by contractual
          maturity are shown below. Expected maturities will differ from contractual
          maturities because borrowers have the right to call or prepay certain
          obligations with or without call or prepayment
          penalties.





F-15




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(3)**
              **Securities****,
                  continued**





**Available-for-Sale**
            
            Amortized
            
            EstimatedCost
            
            Fair
                ValueU.S.
                Government sponsored enterprises, state, countyand
                municipals and corporate bonds:Within
                1 year
            
            $
            4,228,529
            
            
            4,256,8181
                to 5 years
            
            
            11,307,134
            
            
            11,423,6905
                to 10 years
            
            
            13,563,801
            
            
            13,844,847After
                10 years
            
            
            47,470,895
            
            
            47,594,626Mortgage-backed
                securities
            
            
            45,194,946
            
            
            45,573,263$
            121,765,305
            
            
            122,693,244**Held-to-Maturity**Trust
                preferred securities:After
                10 years
            
            $
            7,901,839
            
            
            7,901,839





The
          following is a summary of the fair values of securities that have unrealized
          losses as of December 31, 2007 and 2006.






December
                31, 2007Less Than 12 Months
            
            12
                Months or MoreFair
            
            Unrealized
            
            Fair
            
            UnrealizedValue
            
            Losses
            
            Value
            
            LossesU.S.
                Government sponsored enterprises
            
            $
            998,800
            
            
            1,018
            
            
            -
            
            
            -Mortgage-backed
                securities
            
            
            2,898,436
            
            
            3,691
            
            
            8,049,219
            
            
            164,994State,
                county and municipals
            
            
            18,168,890
            
            
            256,215
            
            
            3,458,929
            
            
            28,923Corporate
                bonds
            
            
            2,352,811
            
            
            10,997
            
            
            697,089
            
            
            8,771$
            24,418,937
            
            
            271,921
            
            
            12,205,237
            
            
            202,688




December
                31, 2006Less Than 12 Months
            
            12
                Months or MoreFair
            
            Unrealized
            
            Fair
            
            UnrealizedValue
            
            Losses
            
            Value
            
            LossesU.S.
                Government sponsored enterprises
            
            $
            8,955,000
            
            
            15,675
            
            
            981,600
            
            
            18,010Mortgage-backed
                securities
            
            
            2,078,463
            
            
            29,940
            
            
            9,847,410
            
            
            349,860State,
                county and municipals
            
            
            3,101,129
            
            
            23,281
            
            
            3,944,420
            
            
            60,496Corporate
                bonds
            
            
            -
            
            
            -
            
            
            784,829
            
            
            11,101$
            14,134,592
            
            
            68,896
            
            
            15,558,259
            
            
            439,467





At
      December 31, 2007, all unrealized losses in the investment securities portfolio
      related to debt securities. The unrealized losses on these debt securities
      arose
      due to changing interest rates and are considered to be temporary. From the
      December 31, 2007 tables above, 17 securities out of 85 securities issued by
      U.S. Government sponsored enterprises, including mortgage backed securities
      contained unrealized losses, 45 out of 206 securities issued by state and
      political subdivisions contained unrealized losses and three out of 12
      securities issued by corporations contained unrealized losses. These unrealized
      losses are considered temporary because of acceptable investment grades on
      each
      security and the repayment sources of principal and interest are largely
      government backed.




F-16




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(3)**
            **Securities****,
                continued**




Proceeds
                from sales of securities available-for-sale during 2007 and 2005
                were
                $5,993,155 and $3,789,185, respectively, with a gross gain of $227,863
                in
                2005. There were no gains or losses recognized upon sales in 2007
                due to
                investment securities acquired in the First Haralson acquisition
                being
                sold shortly after the merger date to reposition the investment portfolio.
                All investment securities acquired in the acquisition were acquired
                at
                their fair market value. There were no sales of securities
                available-for-sale during 2006.




Investment
                securities with a fair value of approximately $91,679,000 and $60,360,000
                as of December 31, 2007 and 2006, respectively, were pledged to secure
                public deposits, as required by law, and for other
                purposes.





**(4)**
            **Loans**


Major
                classifications of loans at December 31, 2007 and 2006 are summarized
                as
                follows:





2007
            
            2006Commercial,
                financial and agricultural
            
            $
            63,038,467
            
            
            52,333,704Real
                estate - mortgage
            
            
            313,836,443
            
            
            219,563,340Real
                estate - construction
            
            
            242,216,730
            
            
            175,024,051Consumer
            
            
            40,872,282
            
            
            27,397,551659,963,922
            
            
            474,318,646Less:
                Unearned interest and fees
            
            
            1,802,831
            
            
            817,406Allowance
                for loan losses
            
            
            12,422,428
            
            
            5,748,355$
            645,738,663
            
            
            467,752,885





The
                Bank grants loans and extensions of credit to individuals and a variety
                of
                businesses and corporations primarily located in its general trade
                area of
                Carroll, Paulding, Haralson, Coweta and Douglas Counties, Georgia.
                Although the Bank has a diversified loan portfolio, a substantial
                portion
                of the loan portfolio is collateralized by improved and unimproved
                real
                estate and is dependent upon the real estate
                market.





Under
                the line of credit agreement with the Federal Home Loan Bank (see
                Note 7),
                the Bank pledges acceptable loans under a blanket lien as collateral
                for
                its borrowings. As of December 31, 2007 and 2006, loans totaling
                $111,378,000 and $79,604,000, respectively, were pledged to secure
                Federal
                Home Loan Bank advances.





Changes
                in the allowance for loan losses for the years ended December 31,
                2007,
                2006 and 2005 are as follows:





2007
            
            2006
            
            2005Balance,
                beginning of year
            
            $
            5,748,355
            
            
            5,327,406
            
            
            4,080,148Provision
                for loan losses
            
            
            10,206,263
            
            
            1,465,000
            
            
            1,550,000Allowance
                attributable to First Haralson acquisition
            
            
            1,527,225
            
            
            -
            
            
            -Loans
                charged off
            
            
            (5,243,428
            )
            
            (1,112,201
            )
            
            (387,811
            )Recoveries
            
            
            184,013
            
            
            68,150
            
            
            85,069Balance,
                end of year
            
            $
            12,422,428
            
            
            5,748,355
            
            
            5,327,406




F-17




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(4)**
            **Loans****,
                continued**




The
      Company considers a loan to be impaired when it is probable that it will be
      unable to collect all amounts due according to the original terms of the loan
      agreement. The Company measures impairment of a loan on a loan-by-loan basis.
      Amounts of impaired loans that are not probable of collection are charged off
      immediately. Impaired loans and related amounts included in the allowance for
      loan losses at December 31, 2007 and 2006 are as follows:





2007
            
            2006Allowance
            
            
            
            AllowanceBalance
            
            Amount
            
            Balance
            
            AmountImpaired
                loans with related allowance
            
            $
            11,544,090
            
            
            1,504,955
            
            
            1,212,692
            
            
            153,213Impaired
                loans without related allowance
            
            
            34,807,780
            
            
            -
            
            
            -
            
            
            -





The
      average amount of impaired loans during 2007 and 2006 was $5,807,000 and
      $2,230,000, respectively. Interest income recognized on impaired loans was
      $642,057 in 2007 and none in 2006 or 2005.





**(5)**
            **Premises
                and Equipment**


Major
                classifications of premises and equipment at December 31, 2007 and
                2006
                are summarized as follows:




2007
            
            2006Land
            
            $
            2,793,363
            
            
            1,460,255Buildings
                and improvements
            
            
            15,878,764
            
            
            9,313,796Furniture
                and equipment
            
            
            10,052,282
            
            
            7,229,27228,724,409
            
            
            18,003,323Less:
                Accumulated depreciation
            
            
            10,367,439
            
            
            9,013,734$
            18,356,970
            
            
            8,989,589


Depreciation
      expense amounted to $1,449,463, $1,134,746 and $1,048,866 in 2007, 2006 and
      2005, respectively.





**(6)**
            **Deposits**




At
      December 31, 2007 the scheduled maturities of time deposits are as
      follows:


2008
              
              $
              233,260,8692009
              
              
              68,034,1412010
              
              
              40,810,6012011
              
              
              24,441,5082012
              
              
              32,955,520$
              399,502,639





The
      Bank
      held $91,127,044 and $62,713,161 in certificates of deposit obtained through
      the
      efforts of third party brokers at December 31, 2007 and 2006, respectively.
      The
      weighted average interest rate on the deposits at December 31, 2007 and 2006
      was
      4.77% and 5.05%, respectively. The deposits outstanding at December 31, 2007
      mature as follows:


2008
              
              $
              32,949,6042009
              
              
              36,422,0802010
              
              
              21,755,360$
              91,127,044




F-18




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(7)**
            **Lines
                of Credit**


The
                Bank has lines of credit for overnight borrowings of $24,800,000
                at
                December 31, 2007 and 2006 of which, none was outstanding as of December
                31, 2007. The Bank also has a line of credit with the Federal Home
                Loan
                Bank of Atlanta (FHLB) with credit availability totaling $214,150,000
                at
                December 31, 2007. The FHLB advances are secured by the Bank’s stock in
                the FHLB, it’s qualifying 1-4 family first mortgage loans and qualified
                commercial loans.****In
                addition, the FHLB accepts certain investment securities as collateral.****Advances
                on the FHLB line of credit are subject to available collateral of
                the
                Bank. At December 31, 2007 and 2006, the Bank had advances outstanding
                from the FHLB amounting to $54,500,000 and $52,000,000, respectively.
                The
                Bank had adequate collateral available at December 31, 2007 for these
                borrowings. An early conversion option allows the FHLB to convert
                certain
                advances to a variable interest rate upon notification to the Bank.
                The
                following advances require quarterly interest payments:****





December
                31, 2007Advance
            
            Interest
                Basis
            
            Current
                Rate
            
            Maturity
            
            Call
                Date
            
            Early
                Conversion Option$
            10,000,000
            
            Fixed
                Hybrid
            
            5.49%
            
            May
                2011
            
            -
            
            -$
            7,000,000
            
            Fixed
                Hybrid
            
            4.24%
            
            June
                2010
            
            -
            
            -$
            5,000,000
            
            Fixed
            
            5.44%
            
            February
                2008
            
            -
            
            -$
            10,000,000
            
            Fixed
            
            4.08%
            
            September
                2012
            
            September
                2008
            
            September
                2008,3
                month LIBOR$
            10,000,000
            
            Fixed
            
            3.23%
            
            February
                2014
            
            February
                2009
            
            February
                2009,3
                month LIBORJanuary
                2011$
            10,000,000
            
            Fixed
            
            4.39%
            
            January
                2016
            
            January
                2011
            
            3
                month LIBOR$
            2,500,000
            
            Fixed
            
            5.39%
            
            March
                2008
            
            -
            
            -




December
                  31, 2006Advance
              
              Interest
                  Basis
              
              Current
                  Rate
              
              Maturity
              
              Call
                  Date
              
              Early
                  Conversion Option$
              10,000,000
              
              Fixed
                  Hybrid
              
              5.49%
              
              May
                  2011
              
              -
              
              -$
              7,000,000
              
              Fixed
                  Hybrid
              
              4.24%
              
              June
                  2010
              
              -
              
              -$
              5,000,000
              
              Fixed
              
              5.44%
              
              February
                  2008
              
              -
              
              -$
              10,000,000
              
              Fixed
              
              3.37%
              
              September
                  2012
              
              September
                  2007
              
              September
                  2007,3
                  month LIBOR$
              10,000,000
              
              Fixed
              
              3.23%
              
              February
                  2014
              
              February
                  2009
              
              February
                  2009,3
                  month LIBORJanuary
                  2011$
              10,000,000
              
              Fixed
              
              4.39%
              
              January
                  2016
              
              January
                  2011
              
              3
                  month LIBOR




**(8)**
            **Securities
                Sold Under Repurchase
                Agreements**




The
      Company has securities sold under repurchase agreements in the amount of
      $20,000,000 at December 31, 2007. The Company entered into the transaction
      on
      November 23, 2007 and the agreement has a maturity date of November 23, 2012,
      but it becomes callable by the issuer or the Company on November 23, 2009.
      The
      interest rate until the call date or maturity date is 3.90%, which is payable
      quarterly.




**(9)**
            **Junior
                Subordinated
                Debentures**




The
      Company entered into a junior subordinated debenture in connection with the
      acquisition of First Haralson. The debenture qualifies as Tier I capital under
      risk based capital guidelines subject to certain limitations. The debentures
      were issued June 15, 2007 in the amount of $10,825,000 at a floating rate of
      90
      day LIBOR plus 1.55% payable quarterly. The debenture is redeemable on a
      mandatory basis upon maturity in June 2037, but is callable without premium
      in
      June 2012.





F-19




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(10)**
            **Commitments
                and Contingencies**


***Off
                Balance Sheet Commitments***


The
      Company is a party to financial instruments with off balance sheet risk in
      the
      normal course of business to meet the financing needs of its customers. These
      financial instruments include commitments to extend credit and standby letters
      of credit. Those instruments involve, to varying degrees, elements of credit
      risk in excess of the amount recognized in the balance sheet. The contractual
      amounts of those instruments reflect the extent of involvement the Company
      has
      in particular classes of financial instruments.





The
      Company’s exposure to credit loss in the event of non-performance by the other
      party to the financial instrument for commitments to extend credit and standby
      letters of credit is represented by the contractual amount of those instruments.
      The Company uses the same credit policies in making commitments and conditional
      obligations as it does for on balance sheet instruments. In most cases, the
      Company requires collateral to support financial instruments with credit risk.
      The following table summarizes the off balance sheet financial instruments
      as of
      December 31, 2007 and 2006:


Contractual
                  Amount2007
              
              2006Financial
                  instruments whose contract amountsrepresent
                  credit risk:Commitments
                  to extend credit
              
              $
              99,882,000
              
              
              97,196,000Standby
                  letters of credit
              
              $
              9,943,000
              
              
              5,903,000


Commitments
      to extend credit are agreements to lend to a customer as long as there is no
      violation of any condition established in the contract. Standby letters of
      credit are conditional commitments issued by the Company to guarantee the
      performance of a customer to a third party. Commitments generally have fixed
      expiration dates or other termination clauses and may require payment of a
      fee.
      Since many of the commitments may expire without being drawn upon, the total
      commitment amounts do not necessarily represent future cash requirements. The
      Company evaluates each customer’s creditworthiness on a case-by-case basis. The
      amount of collateral obtained, if deemed necessary by the Company, upon
      extension of a commitment is based on management’s credit evaluation. Collateral
      held varies, but may include unimproved and improved real estate, certificates
      of deposit or personal property.  Standby
      letters of credit are conditional commitments issued by the Company to guarantee
      the performance of a customer to a third party. The credit risk involved in
      issuing letters of credit is essentially the same as that involved in extending
      loans.




***Derivative
      Instruments and Hedging Activities***




As
                of December 31, 2007, the Company held fifteen interest rate swap
                positions. The Company entered into a swap on December 4, 2007 which
                matures June 15, 2012. The objective of the swap was to lock in a
                fixed
                rate as opposed to the contractual variable interest rate on the
                junior
                subordinated debentures while interest rates were near historical
                lows.
                The interest rate swap contract has a notional amount of $10,825,000
                and
                is hedging the variable rate on the junior subordinated debentures
                described in note 9 in the consolidated financial statements. The
                Company
                receives a variable rate of the 90 day LIBOR rate plus 1.55% and
                pays a
                fixed rate of 5.77%.





The
      Company has designated the swap from variable to fixed rate contract as a cash
      flow hedge and, accordingly is recording the fair value of the derivative on
      the
      balance sheet. Changes in the fair value of the swap contract are recorded
      as a
      current period component of other comprehensive income, net of tax. The fair
      value of the swap contract accounted for as a cash flow hedge was a loss of
      $29,636 at December 31, 2007 and is recorded in other liabilities on the balance
      sheet.





In
      2006,
      the Company entered into a series of fourteen interest rate swap agreements
      with
      a total notional amount of $41,156,509 related to its issuance of brokered
      certificates of deposit. The interest rate swap contracts have various notional
      amounts, maturity dates, receive fixed rates and pay floating rates stated
      in
      terms of basis points plus or minus 1 month LIBOR rate as follows:





F-20




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(10)**
            **Commitments
                and Contingencies****,
                continued**


***Derivative
      Instruments and Hedging Activities*** , **continued**







NotionalAmount
            
            Maturity
              Date
            
            ReceiveFixed
                Rate
            
            
            Pay
                Floating
              1
                Month LIBOR
              +/(-)
                bp$
            4,056,033
            
            
            
            1/31/08
            
            
            
            3.75%
            
            
            (137.65)3,000,000
            
            
            
            4/27/08
            
            
            
            4.15%
            
            
            (94.65)1,710,000
            
            
            
            6/30/08
            
            
            
            4.00%
            
            
            (105.65)2,945,000
            
            
            
            6/30/08
            
            
            
            4.10%
            
            
            (96.65)5,761,000
            
            
            
            6/30/08
            
            
            
            5.44%
            
            
            35.351,500,000
            
            
            
            2/2/09
            
            
            
            3.90%
            
            
            (110.65)1,602,992
            
            
            
            6/17/09
            
            
            
            4.10%
            
            
            (89.65)2,942,847
            
            
            
            6/30/09
            
            
            
            4.20%
            
            
            (79.65)2,000,000
            
            
            
            6/30/09
            
            
            
            4.25%
            
            
            (74.65)2,357,702
            
            
            
            8/5/09
            
            
            
            4.36%
            
            
            (64.65)3,550,000
            
            
            
            2/1/10
            
            
            
            4.00%
            
            
            (98.65)2,986,006
            
            
            
            4/27/10
            
            
            
            4.50%
            
            
            (49.65)2,002,985
            
            
            
            6/17/10
            
            
            
            4.25%
            
            
            (73.65)1,984,944
            
            
            
            6/30/10
            
            
            
            4.45%
            
            
            (59.65)2,757,000
            
            
            
            8/5/10
            
            
            
            4.50%
            
            
            (49.65)$
            41,156,509





The
      1
      month LIBOR rate at the initiation of the contracts was 5.33%, but the pay
      floating rate changes each month on the monthly reset date of each contract
      at
      the spread indicated above which remains constant. The 1 month LIBOR rate of
      the
      contract was 4.60% and the total notional amount of the contracts remained
      $41,156,509 on December 31, 2007.





The
      Company has designated the fourteen swap from fixed to variable rate contracts
      as fair value hedges and, accordingly, is recording the fair value of the
      derivatives as well as the fair value of the items being hedged on the balance
      sheet. Changes in the fair value of the swap contracts and the items being
      hedged are recorded in current period earnings. The fair value of the swap
      contracts accounted for as fair value hedges was $263,474 and $262,184 at
      December 31, 2007 and 2006, respectively, and is recorded in other assets on
      the
      balance sheet.





The
      objective of the fourteen swap agreements is to decrease the Company’s interest
      rate risk exposure. Being asset sensitive, the Company was (and remains)
      susceptible to interest rate risk in a downward rate environment. This was,
      in
      part, attributable to the fixed rate nature of the Company’s brokered
      certificates of deposit. The Company is using these swap agreements to convert
      the fixed rate brokered certificates of deposit and borrowings into floating
      rate instruments. Consequently, the interest rate swap contracts allow the
      Company to hedge changes in the fair value of its brokered certificates of
      deposit and borrowings that result from changes in benchmark interest rates.
      The
      benchmark interest rate is defined as the 1 month LIBOR rate. In order to
      achieve this hedge objective, the Company has agreed to pay a floating rate
      of
      interest in exchange for receiving a fixed rate of interest on hedge instruments
      that is equal to the fixed rate coupon on the certificates of deposit and
      borrowings.





The
      Company uses the long haul method afforded under SFAS No. 133 *Accounting
      for Derivative Instruments and Hedging Activities* to
      assess the effectiveness of its current hedging activity. The Company assesses
      the effectiveness of the cash flow hedge by comparing the cumulative change
      in
      anticipated cash flows from the hedged exposure over the hedging period to
      the
      cumulative change in anticipated cash flows from the hedging derivative. The
      Company utilizes the “Hypothetical Derivative Method” to compute the cumulative
      change in anticipated interest cash flows from the hedged exposure. To the
      extent that the cumulative change in anticipated cash flows from the hedging
      derivative offsets from 80% to 120% of the cumulative change in anticipated
      interest cash flows from the hedged exposure, the hedge is deemed to be
      effective. The Company assesses the effectiveness of the fair value hedge
      contracts by regressing the market price, including any premium paid, of the
      brokered certificates of deposit (the dependent variables) with the market
      price
      of the interest rate swap (the independent variable) on a




F-21





**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(10)**
            **Commitments
                and Contingencies****,
                continued**


***Derivative
      Instruments and Hedging Activities*** , **continued**




quarterly
      basis until all the contracts have matured. Each regression analysis will
      include in its data set values from a retrospective (realized historical prices)
      and prospective (shocked scenario analysis) basis. The hedge is considered
      effective if the correlation coefficient is within 80% to 120%, where the R
      square is highly correlative to the value of 1 and the F-stat is large
      signifying high explanatory power. The Company’s cash flow hedges and fair value
      hedges have remained effective since inception.





***Contingencies***


Various
      legal actions and proceedings are pending or are threatened against the Company
      and its subsidiary, some of which seek relief or damages in amounts that are
      substantial. These actions and proceedings arise in the ordinary course of
      the
      Company’s business. After consultation with legal counsel, management believes
      that the aggregate liability, if any, resulting from such pending and threatened
      actions and proceedings will not have a material adverse effect on the Company’s
      financial condition.





**(11)**
            **Stock
                Repurchase Plan**


Beginning
                in 1996, the Board of Directors approved a Stock Repurchase Plan
                of up to
                $2,000,000 of the Company’s common stock currently outstanding. During
                2001, the Board of Directors approved an additional $1,000,000, to
                be used
                for the Stock Repurchase Plan. The Company retired 1,345, 38,202
                and 2,655
                shares of common stock during 2007, 2006 and 2005, respectively.
                At
                December 31, 2007, the Company had $557,547 remaining to reacquire
                shares
                under the Stock Repurchase Plan.





**(12)**
            **Regulatory
                Matters**


The
                Company and the Bank are subject to various regulatory capital
                requirements administered by the federal banking agencies. Failure
                to meet
                minimum capital requirements can initiate certain mandatory and possibly
                additional discretionary actions by regulators that, if undertaken,
                could
                have a direct material effect on the Company’s and the Bank’s financial
                statements. Under certain adequacy guidelines and the regulatory
                framework
                for prompt corrective action, the Company and the Bank must meet
                specific
                capital guidelines that involve quantitative measures of the assets,
                liabilities, and certain off-balance-sheet items as calculated under
                regulatory accounting practices. The capital amounts and classification
                are also subject to qualitative judgments by the regulators about
                components, risk weightings, and other factors. Quantitative measures
                established by regulation to ensure capital adequacy require the
                Company
                and the Bank to maintain minimum amounts and ratios of total and
                Tier I
                capital to risk-weighted assets and of Tier I capital to average
                assets.
                Management believes, as of December 31, 2007 and 2006, that the Company
                and the Bank met all capital adequacy requirements to which they
                are
                subject.


As
                of December 31, 2007 and 2006, the most recent notification from
                the
                Federal Deposit Insurance Corporation categorized the Bank as adequately
                capitalized and well capitalized, respectively, under the regulatory
                framework for prompt corrective action. To be categorized as well
                capitalized the Bank must maintain minimum total risk-based, Tier
                I
                risk-based and Tier I leverage ratios as set forth in the table.
                 During the first quarter of 2008, the Company contributed $2,028,000
                of capital to the Bank which management believes will change the
                Bank's
                capital category to well capitalized. Presented below are the Company’s
                and the Bank’s actual capital amounts and ratios.




F-22




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(12)**
            **Regulatory
                Matters****,
                continued**





To
                Be Well CapitalizedFor
                Capital
            
            Under
                Prompt CorrectiveActual
            
            Adequacy
                Purposes
            
            Action
                ProvisionsAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio*(in
                000’s)*
            
            *(in
                000’s)*
            
            *(in
                000’s)*******As
                of December 31, 2007**:Total
                Capital (to RiskWeighted
                Assets)Consolidated
            
            $
            69,072
            
            
            10.22
            %
            
            >$
                54,072
            
            
            >8
            %
            
            N/A
            
            
            N/ABank
            
            $
            66,177
            
            
            9.83
            %
            
            >$
                53,844
            
            
            >8
            %
            
            >$
                67,305
            
            
            >10
            %Tier
                I Capital(to
                Risk Weighted Assets)Consolidated
            
            $
            60,624
            
            
            8.97
            %
            
            >$
                27,036
            
            
            >4
            %
            
            N/A
            
            
            N/ABank
            
            $
            57,764
            
            
            8.58
            %
            
            >$
                26,922
            
            
            >4
            %
            
            >$
                40,383
            
            
            >6
            %Tier
                I Capital(to
                Average Assets)Consolidated
            
            $
            60,624
            
            
            6.99
            %
            
            >$
                34,699
            
            
            >4
            %
            
            N/A
            
            
            N/ABank
            
            $
            57,764
            
            
            6.68
            %
            
            >$
                34,587
            
            
            >4
            %
            
            >$
                43,234
            
            
            >5
            %




**As
              of December 31, 2006****:**Total
                Capital (to RiskWeighted
                Assets)Consolidated
            
            $
            58,175
            
            
            11.70
            %
            
            >$
                39,786
            
            
            >8
            %
            
            N/A
            
            
            N/ABank
            
            $
            53,303
            
            
            10.77
            %
            
            >$
                39,589
            
            
            >8
            %
            
            >$
                49,487
            
            
            >10
            %Tier
                I Capital(to
                Risk Weighted Assets)Consolidated
            
            $
            52,426
            
            
            10.54
            %
            
            >$
                19,893
            
            
            >4
            %
            
            N/A
            
            
            N/ABank
            
            $
            47,555
            
            
            9.61
            %
            
            >$
                19,795
            
            
            >4
            %
            
            >$
                29,692
            
            
            >6
            %Tier
                I Capital(to
                Average Assets)Consolidated
            
            $
            52,426
            
            
            9.21
            %
            
            >$
                22,771
            
            
            >4
            %
            
            N/A
            
            
            N/ABank
            
            $
            47,555
            
            
            8.37
            %
            
            >$
                22,738
            
            
            >4
            %
            
            >$
                28,423
            
            
            >5
            %


Dividends
                paid by the Bank are the primary source of funds available to the
                Company.
                Banking regulations limit the amount of dividends that may be paid
                without
                prior approval of the regulatory authorities. These restrictions
                are based
                on the level of regulatory classified assets, the prior years’ net
                earnings, and the ratio of equity capital to total assets. At December
                31,
                2007, the Bank could pay dividendsin
                the amount of $1,031,000 plus net income in 2008 (subject to maintaining
                certain capital requirements)without
                obtaining prior regulatory approval.


**(13)**
            **Incentive
                Stock Option Plan**


Under
                the January 11, 1994 Incentive Stock Option Plan (the “1994 Plan”), the
                Company may grant options to certain key officers to acquire shares
                of
                common stock of the Company at the then fair value, with the number
                of
                shares to be determined annually by agreed upon formulas. A total
                of
                240,000 shares of common stock were reserved for possible issuance
                under
                the 1994 plan. At December 31, 2003, the Company had distributed
                all the
                options available for awards under the 1994 Plan. The options may
                not be
                exercised prior to five years from the date of grant and are exercisable
                no later than ten years from that date.





On
                April 8, 2003, the shareholders approved the WGNB Corp. 2003 Stock
                Incentive Plan (the “2003 Plan”). Under the 2003 Plan, the Company may
                grant options to certain key officers to acquire shares of common
                stock of
                the Company at the then fair value for incentive stock options and
                no less
                than 85% of the fair value for nonqualified stock options, with the
                number
                of shares to be determined annually by agreed upon formulas. A total
                of
                990,000 shares of common stock were reserved for possible issuance
                under
                the 2003 Plan with a maximum of 525,000 shares to be issued under
                nonqualified stock option grants. During 2007, the Company granted
                49,398
                of the options available for awards under the 2003 Plan. The options
                under
                the 2003 Plan were to be distributed commencing in the 2004 fiscal
                year
                and will terminate February 14, 2015 unless previously terminated
                by the
                Board of Directors or when the options approved under the plan have
                been
                distributed. The options may be exercised by the participants under
                a
                vesting period of five years ratably at 20% per year. The options
                are





F-23





**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(13)**
            **Incentive
                Stock Option Plan****,
                continued**




exercisable
      no later than ten years after the date of grant. Compensation cost in the amount
      of $177,500 and $128,250 has been recognized for the stock options for the
      years
      end December 31, 2007 and 2006, respectively. Under
      the
      1994 and 2003 plans, 59,930 and 116,527 options, respectively, were unexercised
      as of December 31, 2007. A summary status of the Company’s stock option plans as
      of December 31, 2007, 2006 and 2005, and changes during the years ending on
      those dates, is presented below:


2007
            
            2006
            
            2005Wtd.
                Avg.
            
            
            
            Wtd.
                Avg.
            
            
            
            Wtd.
                Avg.Exercise
            
            
            
            Exercise
            
            
            
            ExerciseShares
            
            Price
            
            Shares
            
            Price
            
            Shares
            
            PriceOutstanding,
                beginning of year
            
            
            130,236
            
            $
            19.44
            
            
            184,676
            
            $
            16.53
            
            
            150,150
            
            $
            15.79Awarded
                during the year
            
            
            49,398
            
            $
            30.06
            
            
            33,470
            
            $
            24.99
            
            
            35,596
            
            $
            19.62Exercised
                during the year
            
            
            (3,177
            )
            $
            19.30
            
            
            (51,022
            )
            $
            13.94
            
            
            (1,070
            )
            $
            15.65Forfeited
                during year
            
            
            -
            
            
            -
            
            
            (36,888
            )
            $
            17.50
            
            
            -
            
            
            -Outstanding,
                end of year
            
            
            176,457
            
            $
            22.41
            
            
            130,236
            
            $
            19.44
            
            
            184,676
            
            $
            16.53Options
                exercisable at year end
            
            
            33,803
            
            $
            18.77
            
            
            13,374
            
            $
            17.48
            
            
            35,783
            
            $
            13.01





The
      following information applies to all options outstanding at December 31, 2007:




Options
                Outstanding
            
            Options
                ExercisableShares
            
            Range
            
            Wtd.
                Avg.
              Exercise
              Price
            
            Wtd.
                Avg.
              Remaining
              Life
                (Years)
            
            Shares
            
            Wtd.
                Avg.
              Exercise
              Price
            
            Intrinsic
              Value59,930
            
            $
            13.33
                - 16.66
            
            $
            16.38
            
            
            4.59
            
            
            13,683
            
            $
            15.42
            
            $
            62,25867,129
            
            $
            19.25
                - 24.99
            
            $
            22.18
            
            
            6.43
            
            
            20,120
            
            $
            21.05
            
            $
            -49,398
            
            $
            29.91
                - 30.63
            
            $
            30.06
            
            
            8.13
            
            
            -
            
            $
            -
            
            $
            -176,457
            
            $
            13.33
                - 30.63
            
            $
            22.41
            
            
            5.90
            
            
            33,803
            
            $
            18.77
            
            $
            62,258





The
      total
      intrinsic value of options exercised in 2007, 2006 and 2005 was $2,128, $578,435
      and $6,013, respectively. The intrinsic value of exercisable options is based
      on
      a market price of $19.97 as of December 31, 2007.





**(14)**
            **Supplemental
                Employee Retirement
                Plan**




The
      Company assumed a post-retirement benefit plan to provide retirement benefits
      to
      First Haralson key officers. Under the plan, the Company assumed whole life
      insurance contracts on the lives of each officer. The increase in the cash
      surrender value of the contracts, less the Company’s cost of funds, constitutes
      the Bank’s contribution to the plan each year going forward. In the event the
      insurance contracts fail to produce positive returns, the Bank has no obligation
      to contribute to the plan. The Company recognized $90,725 in compensation
      expense related to this plan in 2007.




**(15)**
            **Stock
                Split**


On
                September 12, 2006, the Company’s board of directors declared a
                three-for-two stock split for shareholders of record as of October
                16,
                2006 payable on November 15, 2006. All share and per share amounts
                have
                been restated to reflect the stock split as if it had occurred on
                January
                1, 2005.





**(16)**
            **Defined
                Contribution Plan**


The
                Company began a qualified retirement plan pursuant to Internal Revenue
                Code Section 401(k) in 1996 covering substantially all employees
                subject
                to certain minimum age and service requirements. Contribution to
                the plan
                by employees is voluntary. During 2007, 2006 and 2005, the Company
                matched
                100% of the participants’ contributions up to 6% of the participants’
                salaries, subject to the annual 401(k) contribution limits. The Company
                also made discretionary contributions to the plan in 2007, 2006 and
                2005
                of 5% of participants’ salaries. Contributions to the plan charged to
                expense during 2007, 2006 and 2005 were $658,767, $547,255 and $491,265,
                respectively.






F-24




**WGNB
                CORP.**





**Notes
      to Consolidated Financial Statements, continued**




**(17)**
            **Income
                Taxes**




The
      components of the provision for income taxes in the consolidated statements
      of
      earnings for the years ended December 31, 2007, 2006 and 2005 are as follows:





2007
            
            2006
            
            2005Current:Federal
            
            $
            2,365,810
            
            
            3,353,207
            
            
            3,266,346State
            
            
            278,331
            
            
            293,962
            
            
            286,317Deferred:Federal
            
            
            (2,246,149
            )
            
            (169,031
            )
            
            (594,280
            )State
            
            
            (264,254
            )
            
            (19,614
            )
            
            (68,958
            )Total
            
            $
            133,738
            
            
            3,458,524
            
            
            2,889,425





The
      differences between the provision for income taxes and the amount computed
      by
      applying the statutory federal income tax rate to earnings before income taxes
      are as follows:




2007
            
            2006
            
            2005Pretax
                income at statutory rates
            
            $
            1,077,124
            
            
            4,007,226
            
            
            3,385,350Add
                (deduct):Tax-exempt
                interest income
            
            
            (632,777
            )
            
            (430,180
            )
            
            (479,991
            )State
                taxes, net of federal effect
            
            
            (208,930
            )
            
            174,612
            
            
            68,924Non-deductible
                interest expense
            
            
            31,378
            
            
            70,448
            
            
            17,885Other
            
            
            (133,057
            )
            
            (363,582
            )
            
            (102,743
            )$
            133,738
            
            
            3,458,524
            
            
            2,889,425





The
                following summarizes the net deferred tax asset, which is included
                as a
                component of other assets, at December 31, 2007 and
                2006.






2007
            
            2006Deferred
                income tax assets:Allowance
                for loan losses
            
            $
            4,590,089
            
            
            2,085,434Other
                real estate owned
            
            
            469,385
            
            
            32,358Deferred
                compensation
            
            
            1,307,090
            
            
            -Other
            
            
            22,493
            
            
            130,034Total
                gross deferred income tax assets
            
            
            6,389,057
            
            
            2,247,826Deferred
                income tax liabilities:Low
                income housing credits
            
            
            (251,671
            )
            
            (220,663
            )Premises
                and equipment
            
            
            (396,121
            )
            
            (173,449
            )Net
                unrealized gain on securities available-for-sale
            
            
            (102,992
            )
            
            (36,086
            )Purchase
                accounting intangibles
            
            
            (2,521,928
            )
            
            -Other
            
            
            (1,742
            )
            
            (1,747
            )Total
                gross deferred income tax liabilities
            
            
            (3,274,454
            )
            
            (431,945
            )Net
                deferred income tax asset
            
            $
            3,114,603
            
            
            1,815,881





**(18)**
            **Related
                Party Transactions**


The
                Bank conducts transactions with directors and executive officers,
                including companies in which they have beneficial interests, in the
                normal
                course of business. It is the Bank’s policy to comply with federal
                regulations that require that loan transactions with directors and
                executive officers be made on substantially the same terms as those
                prevailing at the time made for comparable loans to other persons.
                The
                following summary reflects activity for related party loans for
                2007:





F-25





**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(18)**
            **Related
                Party Transactions****,
                continued**





Beginning
                balance
            
            $
            3,373,738New
                loans
            
            
            3,435,940Repayments
            
            
            (2,591,097
            )Change
                in related parties
            
            
            8,073,957Ending
                balance
            
            $
            12,292,538





At
      December 31, 2007 and 2006, deposits from directors, executive officers, and
      their related interests totaled approximately $10,251,000 and $7,114,000,
      respectively.





**(19)**
            **Other
                Operating Expenses**




Components
                of other operating expenses which exceed 1% of total interest income
                and
                other income are as follows:


2007
            
            2006
            
            2005Professional
                fees
            
            $
            714,686
            
            
            662,967
            
            
            644,479Printing
                and supplies
            
            $
            557,964
            
            
            365,189
            
            
            303,452





**(20)**
            **Fair
                Value of Financial
                Instruments**




The
                Company is required to disclose fair value information about financial
                instruments, whether or not recognized on the face of the balance
                sheet,
                for which it is practicable to estimate that value. The assumptions
                used
                in the estimation of the fair value of the Company’s financial instruments
                are detailed below. Where quoted prices are not available, fair values
                are
                based on estimates using discounted cash flows and other valuation
                techniques. The use of discounted cash flows can be significantly
                affected
                by the assumptions used, including the discount rate and estimates
                of
                future cash flows. The following disclosures should not be considered
                a
                surrogate of the liquidation value of the Company or its subsidiary,
                but
                rather a good-faith estimate of the increase or decrease in value
                of
                financial instruments held by the Company since purchase, origination,
                or
                issuance.





Cash
      and Cash Equivalents


For
          cash,
          due from banks, interest-bearing funds in other banks and federal funds
          sold,
          the carrying amount is a reasonable estimate of fair
          value.





Securities


The
          fair
          values for investment securities are based on quoted market
          prices.





Loans


The
          fair
          value of fixed rate loans is estimated by discounting the future cash flows
          using the current rates at which similar loans would be made to borrowers
          with
          similar credit ratings. For variable rate loans, the carrying amount is
          a
          reasonable estimate of fair value.





Cash
      Surrender Value of Life Insurance


The
          fair
          value of cash surrender value of life insurance is based on the net surrender
          value of the insurance contract.





Deposits


The
          fair
          value of demand deposits, savings accounts, NOW and certain money market
          deposits is the amount payable on demand at the reporting date. The fair
          value
          of fixed maturity certificates of deposit is estimated by discounting the
          future
          cash flows using the rates currently offered for deposits of similar remaining
          maturities.





Federal
      Funds Purchased




For
      federal funds purchased, the carrying amount is a reasonable estimate of fair
      value





Federal
      Home Loan Bank Advances


The
          fair
          value of advances outstanding is based on the quoted value provided by
          the FHLB.
  F-26




**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(20)**
            **Fair
                Value of Financial Instruments****,
                continued**




Junior
      Subordinated Debentures




For
      the
      floating rate junior subordinated debentures, the carrying amount is a
      reasonable estimate of fair value.





Securities
      Sold Under Repurchase Agreements




The
      fair
      value of the securities sold under repurchase agreements is estimated as the
      amount that the Company would receive or pay to terminate the contracts at
      the
      reporting date.





Derivative
      Instruments




For
                derivative instruments, fair value is estimated as the amount that
                the
                Company would receive or pay to terminate the contracts at the reporting
                date, taking into account the current unrealized gains or losses
                on open
                contracts.





Commitments
      to Extend Credit, Standby Letters of Credit




Off
                balance sheet instruments (commitments to extend credit and standby
                letters of credit) are generally short-term and at variable interest
                rates. Therefore, both the carrying value and estimated fair value
                associated with these instruments are
                immaterial.





Limitations




Fair
                value estimates are made at a specific point in time, based on relevant
                market information and information about the financial instrument.
                These
                estimates do not reflect any premium or discount that could result
                from
                offering for sale at one time the Company’s entire holdings of a
                particular financial instrument. Because no market exists for a
                significant portion of the Company’s financial instruments, fair value
                estimates are based on many judgments. These estimates are subjective
                in
                nature and involve uncertainties and matters of significant judgment
                and
                therefore cannot be determined with precision. Changes in assumptions
                could significantly affect the
                estimates.





Fair
                value estimates are based on existing on and off balance sheet financial
                instruments without attempting to estimate the value of anticipated
                future
                business and the value of assets and liabilities that are not considered
                financial instruments. Significant assets and liabilities that are
                not
                considered financial instruments include deferred income taxes and
                premises and equipment. In addition, the tax ramifications related
                to the
                realization of the unrealized gains and losses can have a significant
                effect on fair value estimates and have not been considered in the
                estimates.





The
      carrying amount and estimated fair values of the Company’s financial instruments
      at December 31, 2007 and 2006 are as follows:




2007
            
            2006Carrying
            
            Estimated
            
            Carrying
            
            EstimatedAmount
            
            Fair
                Value
            
            Amount
            
            Fair
                ValueAssets:Cash
                and cash equivalents
            
            $
            25,845,340
            
            
            25,845,340
            
            
            13,233,448
            
            
            13,233,448Securities
                available-for-sale
            
            $
            122,693,244
            
            
            122,693,244
            
            
            64,251,234
            
            
            64,251,234Securities
                held-to-maturity
            
            $
            7,901,839
            
            
            7,901,839
            
            
            7,837,389
            
            
            7,837,389Derivative
                instruments-fair value hedge
            
            $
            263,474
            
            
            263,474
            
            
            262,184
            
            
            262,184Loans,
                net
            
            $
            645,738,663
            
            
            650,318,190
            
            
            467,752,885
            
            
            466,014,287Cash
                surrender value of life insurance
            
            $
            3,639,550
            
            
            3,639,550
            
            
            -
            
            
            -Liabilities:Deposits
            
            $
            706,377,489
            
            
            707,629,177
            
            
            462,813,436
            
            
            461,776,410Federal
                Home Loan Bank advances
            
            $
            54,500,000
            
            
            55,492,641
            
            
            52,000,000
            
            
            51,266,931Securities
                sold under repurchase agreements
            
            $
            20,000,000
            
            
            20,218,036
            
            
            -
            
            
            -Junior
                subordinated debentures
            
            $
            10,825,000
            
            
            10,825,000
            
            
            -
            
            
            -Derivative
                instruments-cash flow hedge
            
            $
            29,636
            
            
            29,636
            
            
            -
            
            
            -Federal
                funds purchased
            
            $
            -
            
            
            -
            
            
            2,475,000
            
            
            2,475,000


F-27


**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(21)**
            **WGNB
                Corp. (Parent Company Only) Financial
                Information**





Balance
      Sheets





December
      31, 2007 and 2006




2007
            
            2006AssetsCash
            
            $
            1,734,744
            
            
            3,375,871Investment
                in Bank
            
            
            87,810,281
            
            
            47,625,140Securities
                held-to-maturity
            
            
            1,996,736
            
            
            2,275,243Other
                assets
            
            
            763,684
            
            
            180,185$
            92,305,445
            
            
            53,456,439Liabilities
                and Stockholders’ EquityDividends
                payable
            
            $
            1,282,458
            
            
            959,945Junior
                subordinated debentures
            
            
            10,825,000
            
            
            -Other
                liabilities
            
            
            47,095
            
            
            -Total
                liabilities
            
            
            12,154,553
            
            
            959,945Stockholders’
                equity
            
            
            80,150,892
            
            
            52,496,494$
            92,305,445
            
            
            53,456,439




Statements
      of Earnings





For
      the
      Years Ended December 31, 2007, 2006 and 2005





2007
            
            2006
            
            2005Dividends
                from Bank
            
            $
            4,961,106
            
            
            3,601,555
            
            
            3,058,719Other
                income
            
            
            230,183
            
            
            234,458
            
            
            310,101Total
                income
            
            
            5,191,289
            
            
            3,836,013
            
            
            3,368,820Interest
                expense
            
            
            385,754
            
            
            -
            
            
            -Other
                expense
            
            
            33,013
            
            
            36,085
            
            
            21,251Total
                expense
            
            
            418,767
            
            
            36,085
            
            
            21,251Earnings
                before (dividends received in excess of earnings of Bank)/ equity
                in
              undistributed
                earnings of Bank
            
            
            4,772,522
            
            
            3,799,928
            
            
            3,347,569Dividends
              received
              in excess of earnings of Bank
            
            
            (1,738,249
            )
            
            -
            
            
            -Equity
                in undistributed earnings of Bank
            
            
            -
            
            
            4,527,508
            
            
            3,719,918Net
                earnings
            
            $
            3,034,273
            
            
            8,327,436
            
            
            7,067,487





F-28


**WGNB
      CORP.**





**Notes
      to Consolidated Financial Statements, continued**





**(21)**
            **WGNB
                Corp. (Parent Company Only) Financial Information****,
                continued**





Statements
      of Cash Flows





For
      the
      Years Ended December 31, 2007, 2006 and 2005





2007
            
            2006
            
            2005Cash
                flows from operating activities:Net
                earnings
            
            $
            3,034,273
            
            
            8,327,436
            
            
            7,067,487Adjustments
                to reconcile net earnings to netcash
                provided by operating activities:Amortization
                and accretion
            
            
            827
            
            
            5,019
            
            
            11,722Stock
                option expense
            
            
            177,500
            
            
            128,250
            
            
            -Dividends
                received in excess of earnings of Bank
            
            
            1,738,249
            
            
            -
            
            
            -Equity
                in undistributed earnings of Bank
            
            
            -
            
            
            (4,527,508
            )
            
            (3,719,918
            )Change
                in other assets
            
            
            (583,499
            )
            
            (74,354
            )
            
            (48,691
            )Change
                in other liabilities
            
            
            27,535
            
            
            (128,525
            )
            
            (56,305
            )Net
                cash provided by operating activities
            
            
            4,394,885
            
            
            3,730,318
            
            
            3,254,295Cash
                flows from investing activities:Cash
                paid to First Haralson shareholders
            
            
            (12,628,189
            )
            
            -
            
            
            -Purchase
                of securities held-to-maturity
            
            
            -
            
            
            -
            
            
            (232,500
            )Proceeds
                from pay-downs of securities available-for-sale
            
            
            -
            
            
            599,887
            
            
            -Proceeds
                from pay-downs of securities held-to-maturity
            
            
            277,680
            
            
            192,331
            
            
            101,414Net
                cash provided (used) by investing activities
            
            
            (12,350,509
            )
            
            792,218
            
            
            (131,086
            )Cash
                flows from financing activities:Dividends
                paid
            
            
            (4,438,593
            )
            
            (3,466,603
            )
            
            (2,921,611
            )Proceeds
                from junior subordinated debentures
            
            
            10,825,000
            
            
            -
            
            
            -Exercise
                of stock options
            
            
            61,317
            
            
            711,247
            
            
            16,736Stock
                issuance cost
            
            
            (102,292
            )
            
            -
            
            
            -Retirement
                of common stock
            
            
            (30,935
            )
            
            (964,648
            )
            
            (52,346
            )Net
                cash provided (used) by financing activities
            
            
            6,314,497
            
            
            (3,720,004
            )
            
            (2,957,221
            )Increase
                (decrease) in cash
            
            
            (1,641,127
            )
            
            802,532
            
            
            165,988Cash
                at beginning of year
            
            
            3,375,871
            
            
            2,573,339
            
            
            2,407,351Cash
                at end of year
            
            $
            1,734,744
            
            
            3,375,871
            
            
            2,573,339Supplemental
                disclosure of non-cash financing activities:Change
                in dividends payable
            
            $
            322,513
            
            
            135,162
            
            
            137,108Change
                in unrealized gains on securitiesavailable-for-sale,
                net of tax
            
            $
            542,389
            
            
            (56,059
            )
            
            (997,681
            )Change
                in fair value of derivativesfor
                cash flow hedges, net of tax
            
            $
            (19,560
            )
            
            -
            
            
            -Issuance
                of common stock to directors in lieu ofdirectors’
                fees
            
            $
            -
            
            
            -
            
            
            14,246





F-29