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SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q [X]
    
    Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarterly period ended
June 30, 2004
 [  ]
    
    Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
 to
 Commission file number: 000-30805 WGNB CORP. 
  Georgia
    
    58-1640130(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 201 Maple Street
P.O. Box 280
Carrollton, Georgia 30112 
  (770) 832-3557 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: Class
    
    Outstanding at August 4, 2004Common Stock, $1.25 par value
    
    
    3,296,118




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WGNB CORP. INDEX TO FORM 10-Q  
 Item Numberin Form 10-Q
    
    Description
    
    PagePart One
    
    Financial InformationItem 1.
    
    Financial Statements
    
    
    1Consolidated Balance Sheets at June 30, 2004 and December 31, 2003
    
    
    2Consolidated Statements of Earnings for Three Months Ended June 30, 2004 and June 30, 2003
    
    
    3Consolidated Statements of Comprehensive Income for Three Months Ended June 30, 2004 and June 30, 2003
    
    
    4Consolidated Statements of Earnings for Six Months Ended June 30, 2004 and June 30, 2003
    
    
    5Consolidated Statements of Comprehensive Income for Six Months Ended June 30, 2004 and June 30, 2003
    
    
    6Consolidated Statements of Cash Flows for Six Months Ended June 30, 2004 and June 30, 2003
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    16Part Two
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    17Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    17Item 3.
    
    Defaults Upon Senior Securities
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 5.
    
    Other Information
    
    
    18Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    18Signatures
    
    
    19EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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




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WGNB CORP. 
 Consolidated Balance Sheet
 June 30, 2004 For the Period EndedJune 30, 2004
    
    December 31, 2003(unaudited)
    
    (audited)AssetsCash and due from banks, including reserve requirements
of $100,000
    
    $
    17,762,450
    
    
    
    15,564,312Federal funds sold
    
    
    1,300,167
    
    
    
    11,671,486Cash and cash equivalents
    
    
    19,062,617
    
    
    
    27,235,798Securities available for sale
    
    
    55,080,596
    
    
    
    55,276,742Securities held to maturity
    
    
    5,253,196
    
    
    
    4,250,000Loans, net
    
    
    329,975,494
    
    
    
    292,564,759Premises and equipment, net
    
    
    6,746,831
    
    
    
    6,762,895Accrued interest receivable
    
    
    2,015,232
    
    
    
    1,939,028Other assets
    
    
    6,479,633
    
    
    
    5,186,689$
    424,613,599
    
    
    
    393,215,911Liabilities and Stockholders EquityDeposits:Demand
    
    $
    44,718,866
    
    
    
    40,181,696Interest bearing demand
    
    
    128,219,914
    
    
    
    138,337,540Savings
    
    
    11,636,020
    
    
    
    11,215,937Time
    
    
    87,930,119
    
    
    
    82,537,712Time, over $100,000
    
    
    44,528,419
    
    
    
    31,043,295Total deposits
    
    
    317,033,338
    
    
    
    303,316,180Federal Home Loan Bank advances
    
    
    55,000,000
    
    
    
    45,000,000Federal funds purchased
    
    
    6,835,000
    
    
    
    Accrued interest payable
    
    
    1,108,899
    
    
    
    1,028,269Other liabilities
    
    
    1,896,963
    
    
    
    1,782,200Total liabilities
    
    
    381,874,200
    
    
    
    351,126,649Stockholders equity:Common stock, $1.25 par value, 10,000,000 shares authorized;
3,306,118 and 3,306,452 shares issued and outstanding
    
    
    4,132,648
    
    
    
    4,133,065Additional paid-in capital
    
    
    5,221,939
    
    
    
    5,287,947Retained earnings
    
    
    32,829,828
    
    
    
    31,279,245Accumulated comprehensive income
    
    
    554,984
    
    
    
    1,389,005Total stockholders equity
    
    
    42,739,399
    
    
    
    42,089,262$
    424,613,599
    
    
    
    393,215,911
 See accompanying notes to consolidated financial statements. 2




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WGNB CORP. 
 Consolidated Statements of Earnings
 For the Three Months Ended June 30, 2004 and 2003
(unaudited) For the Three Months EndedJune 30, 2004
    
    June 30, 2003Interest income:Interest and fees on loans
    
    $
    5,350,723
    
    
    
    5,147,023Interest on federal funds sold
    
    
    26,559
    
    
    
    44,329Interest on investment securities:U.S. Government agencies
    
    
    221,004
    
    
    
    261,175State, county and municipal
    
    
    368,073
    
    
    
    335,535Other
    
    
    180,164
    
    
    
    115,688Total interest income
    
    
    6,146,523
    
    
    
    5,903,750Interest expense:Interest on deposits:Demand
    
    
    259,494
    
    
    
    238,306Savings
    
    
    10,927
    
    
    
    14,876Time
    
    
    914,492
    
    
    
    1,059,605Interest on FHLB and other borrowings
    
    
    633,193
    
    
    
    608,875Total interest expense
    
    
    1,818,106
    
    
    
    1,921,662Net interest income
    
    
    4,328,417
    
    
    
    3,982,088Provision for loan losses
    
    
    200,000
    
    
    
    75,000Net interest income after provision for loan losses
    
    
    4,128,417
    
    
    
    3,907,088Other income:Service charges on deposit accounts
    
    
    998,321
    
    
    
    894,185Mortgage origination fee
    
    
    137,476
    
    
    
    267,539Miscellaneous
    
    
    255,998
    
    
    
    348,896Total other income
    
    
    1,391,795
    
    
    
    1,510,620Other expenses:Salaries and employee benefits
    
    
    2,094,635
    
    
    
    1,941,195Occupancy
    
    
    489,308
    
    
    
    439,047Other operating
    
    
    926,719
    
    
    
    833,931Total other expenses
    
    
    3,510,662
    
    
    
    3,214,173Earnings before income taxes
    
    
    2,009,550
    
    
    
    2,203,535Income taxes
    
    
    538,106
    
    
    
    689,553Net earnings
    
    $
    1,471,444
    
    
    
    1,513,982Basic earnings per share
    
    $
    0.45
    
    
    
    0.46Diluted net earnings per share
    
    $
    0.44
    
    
    
    0.45Dividends declared per share
    
    $
    0.1900
    
    
    
    0.1650
 See accompanying notes to consolidated financial statements. 3




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WGNB CORP. 
 Consolidated Statements of Comprehensive Income
 For the Three Months Ended June 30, 2004 and 2003
(unaudited) For the Three Months EndedJune 30, 2004
    
    June 30, 2003Net earnings
    
    $
    1,471,444
    
    
    
    1,513,982Other comprehensive income (loss), net of tax:Unrealized gains (losses) on investment
securities available for sale:Unrealized gains (losses) arising during the period
    
    
    (1,819,829
    )
    
    
    833,192Associated benefit (taxes)
    
    
    554,984
    
    
    
    (283,285
    )Other comprehensive income (loss)
    
    
    (1,264,845
    )
    
    
    549,907Comprehensive income
    
    $
    206,599
    
    
    
    2,063,889
 See accompanying notes to consolidated financial statements. 4




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WGNB CORP. 
 Consolidated Statements of Earnings
 For the Six Months Ended June 30, 2004 and 2003
(unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Interest income:Interest and fees on loans
    
    $
    10,469,619
    
    
    
    10,194,981Interest on federal funds sold
    
    
    51,466
    
    
    
    123,543Interest on investment securities:U.S. Government agencies
    
    
    484,693
    
    
    
    568,374State, county and municipal
    
    
    716,455
    
    
    
    661,245Other
    
    
    324,460
    
    
    
    263,571Total interest income
    
    
    12,046,693
    
    
    
    11,811,714Interest expense:Interest on deposits:Demand
    
    
    518,740
    
    
    
    506,640Savings
    
    
    21,217
    
    
    
    33,188Time
    
    
    1,743,836
    
    
    
    2,169,967Interest on FHLB and other borrowings
    
    
    1,287,927
    
    
    
    1,217,750Total interest expense
    
    
    3,571,720
    
    
    
    3,927,545Net interest income
    
    
    8,474,973
    
    
    
    7,884,169Provision for loan losses
    
    
    350,000
    
    
    
    150,000Net interest income after provision for loan losses
    
    
    8,124,973
    
    
    
    7,734,169Other income:Service charges on deposit accounts
    
    
    1,952,034
    
    
    
    1,732,632Mortgage origination fees
    
    
    264,716
    
    
    
    509,452Miscellaneous
    
    
    537,955
    
    
    
    593,147Total other income
    
    
    2,754,705
    
    
    
    2,835,231Other expenses:Salaries and employee benefits
    
    
    4,044,708
    
    
    
    3,784,200Occupancy
    
    
    995,713
    
    
    
    848,636Other operating
    
    
    1,918,223
    
    
    
    1,774,134Total other expenses
    
    
    6,958,644
    
    
    
    6,406,970Earnings before income taxes
    
    
    3,921,034
    
    
    
    4,162,430Income taxes
    
    
    1,138,739
    
    
    
    1,293,414Net earnings
    
    $
    2,782,295
    
    
    
    2,869,016Net earnings per share
    
    $
    0.84
    
    
    
    0.87Diluted net earnings per share
    
    $
    0.83
    
    
    
    0.86Dividends declared per share
    
    $
    0.3725
    
    
    
    0.3250
 See accompanying notes to consolidated financial statements. 5




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WGNB CORP. 
 Consolidated Statements of Comprehensive Income
 For the Six Months Ended June 30, 2004 and 2003
(unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Net earnings
    
    $
    2,782,295
    
    
    
    2,869,016Other comprehensive income (loss), net of tax:Unrealized gains (losses) on investment
securities available for sale:Unrealized gains (losses) arising during the period
    
    
    (1,263,668
    )
    
    
    1,044,776Associated benefit (taxes)
    
    
    429,647
    
    
    
    (355,224
    )Other comprehensive income (loss)
    
    
    (834,021
    )
    
    
    689,552Comprehensive income
    
    $
    1,948,274
    
    
    
    3,558,568
 See accompanying notes to consolidated financial statements. 6




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WGNB CORP. 
 Consolidated Statements of Cash Flows
 For the Six Months Ended June 30, 2004 and 2003
(unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Cash flows from operating activities:Net earnings
    
    $
    2,782,295
    
    
    
    2,869,016Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation, amortization and accretion
    
    
    566,921
    
    
    
    504,871Provision for loan losses
    
    
    350,000
    
    
    
    150,000Provision for deferred income taxes
    
    
    512,633
    
    
    
    366,973Loss on sale of other real estate
    
    
    48,895
    
    
    
    Gain on sale of premises and equipment
    
    
    (3,430
    )
    
    
    (1,920
    )Change in:Other assets
    
    
    (1,065,174
    )
    
    
    356,109Other liabilities
    
    
    (355,263
    )
    
    
    (251,896
    )Net cash provided by operating activities
    
    
    2,836,877
    
    
    
    3,993,153Cash flows from investing activities:Proceeds from maturities of securities available for sale
    
    
    6,653,481
    
    
    
    9,108,972Purchases of securities available for sale
    
    
    (7,819,120
    )
    
    
    (10,332,635
    )Purchase of securities held to maturity
    
    
    (1,010,000
    )
    
    
    (500,000
    )Net change in loans
    
    
    (37,910,903
    )
    
    
    (13,684,110
    )Purchases of premises and equipment
    
    
    (445,936
    )
    
    
    (1,253,240
    )Proceeds from sales of other real estate
    
    
    226,946
    
    
    
    Proceeds from sale of fixed assets
    
    
    3,430
    
    
    
    1,920Net cash used by investing activities
    
    
    (40,302,102
    )
    
    
    (16,659,093
    )Cash flows from financing activities:Net change in deposits
    
    
    13,717,158
    
    
    
    (2,079,669
    )FHLB Advances
    
    
    10,000,000
    
    
    
    Federal funds purchased
    
    
    6,835,000Dividends paid
    
    
    (1,180,849
    )
    
    
    (1,042,721
    )Exercise of stock options
    
    
    204,414
    
    
    
    46,045Retirement of common stock
    
    
    (283,679
    )
    
    
    (46,045
    )Net cash provided (used) by financing activities
    
    
    29,292,044
    
    
    
    (3,122,390
    )Change in cash and cash equivalents
    
    
    (8,173,181
    )
    
    
    (15,788,330
    )Cash and cash equivalents at beginning of period
    
    
    27,235,798
    
    
    
    47,667,210Cash and cash equivalents at end of period
    
    $
    19,062,617
    
    
    
    31,878,880
 See accompanying notes to consolidated financial statements. 7




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WGNB CORP.
Consolidated Statements of Cash Flows, continued For the Six Months Ended June 30, 2004 and 2003
(unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Supplemental disclosure of cash flow information:Cash paid during the quarter for:Interest
    
    $
    3,491,090
    
    
    
    3,927,545Income taxes
    
    
    1,194,000
    
    
    
    1,132,000Non-cash investing and financing activities:Transfer of loans to other real owned
    
    
    150,168
    
    
    
    Change in unrealized gains on
securities available for sale, net of tax
    
    
    (834,021
    )
    
    
    689,552Change in dividends payable
    
    
    50,863
    
    
    
    33,373Issuance of common stock to directors in lieu
of directors fees
    
    
    12,840
    
    
    
    28,915
 See accompanying notes to consolidated financial statements. 8




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WGNB Corp. 
 Notes to Consolidated Financial Statements
 June 30, 2004
(unaudited)  (1)
    
    Basis of PresentationThe consolidated financial statements include the accounts of WGNB Corp.
(the Company) and its wholly-owned subsidiary, West Georgia National Bank
(the Bank). All significant inter-company accounts have been eliminated in
consolidation. In some cases, certain prior period amounts have been
reclassified to conform with current year presentation.The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary to present
fairly the Companys financial position as of June 30, 2004, and the results
of its operations and its cash flows for the six-month period then ended.
All such adjustments are normal and recurring in nature. The financial
statements included herein should be read in conjunction with consolidated
financial statements and the related notes and the report of independent
accountants included in the Companys filing on Form 10-K which included the
results of operations for the years ended December 31, 2003, 2002 and 2001.Critical Accounting PoliciesThe Companys accounting policies are fundamental to understanding
managements discussion and analysis of results of operations and financial
condition. Some of the Companys accounting policies require significant
judgment regarding valuation of assets and liabilities and/or significant
interpretation of specific accounting guidance. A description of the
Companys significant accounting policies can be found in Note 1 of the Notes
to Consolidated Financial Statements in the Companys Annual Report to
Stockholders for the year ended December 31, 2003.Many of the Companys assets and liabilities are recorded using various
valuation techniques that require significant judgment as to recoverability.
The collectibility of loans is reflected through the Companys estimate of
the allowance for loan losses. The Company performs periodic detailed
reviews of its loan portfolio in order to assess adequacy of the allowance
for loan losses in light of anticipated risks and loan losses. In addition,
investment securities available for sale are reflected at their estimated
fair value in the consolidated financial statements. Such amounts are based
on either quoted market prices or estimated values derived by using dealer
quotes and market comparisons.Stock Compensation PlansSFAS No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the
Companys stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion
No. 25 and, as a result, has provided proforma disclosures of net income and
earnings per share and other disclosures, as if the fair value based method
of accounting had been applied. Had compensation cost for the plan been
determined based upon the fair value of the options at the grant dates, the
Companys net earnings per share for the year to date and quarters ended June
30, 2004 and 2003 would have been reduced to the proforma amounts indicated
below: 9




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WGNB Corp.
Notes to Consolidated Financial Statements June 30, 2004
(unaudited)  (1)
    
    Basis of Presention, continued For the three months ended June 30,2004
    
    2003Net earnings
    
    As reported
    
    $
    1,471,444
    
    
    
    1,513,982Proforma
    
    $
    1,471,444
    
    
    
    1,513,982Net earnings per share
    
    As reported
    
    $
    0.45
    
    
    
    0.46Proforma
    
    $
    0.45
    
    
    
    0.46Diluted earnings per share
    
    As reported
    
    $
    0.44
    
    
    
    0.45Proforma
    
    $
    0.44
    
    
    
    0.45
 For the six months ended June 30,2003
    
    2003Net earnings
    
    As reported
    
    $
    2,782,295
    
    
    
    2,869,016Proforma
    
    $
    2,687,541
    
    
    
    2,719,302Net earnings per share
    
    As reported
    
    $
    0.84
    
    
    
    0.87Proforma
    
    $
    0.81
    
    
    
    0.82Diluted earnings per share
    
    As reported
    
    $
    0.83
    
    
    
    0.86Proforma
    
    $
    0.80
    
    
    
    0.81
  The fair value of each option is estimated on the date of the grant using the
Black-Scholes Model. The following weighted average assumptions were used
for grants in 2004 and 2003, respectively: dividend yield of 2.43 percent and
2.41 percent, risk free interest rates of 4.12 percent and 4.90 percent,
respectively, and an expected life of 10 years. For disclosure purposes, the
Company immediately recognized the expense associated with the options
granted in the period granted assuming that all awards will vest. The
compensation expense included in the proforma results was determined based on
the fair value of the option at the time of grant multiplied by the number of
options granted net of tax effect. No options were granted in the second
quarters ended 2004 and 2003.(2)
    
    Net Earnings Per ShareBasic earnings per share is based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted earnings per
share. The average market price during the year is used to compute
equivalent shares.Reconciliation of the amounts used in the computation of both basic earnings
per share and diluted earnings per share for the periods ended June 30,
2004 and June 30, 2003 are as follows: 10




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WGNB Corp.
Notes to Consolidated Financial Statements June 30, 2004
(unaudited) (2) Net Earnings Per Share, continued For the quarter ended June 30, 2004EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,471,444
    
    
    
    3,306,524
    
    
    $
    0.45Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    50,594
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    1,471,444
    
    
    
    3,357,118
    
    
    $
    0.44
 For the quarter ended June 30, 2003EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    1,513,982
    
    
    
    3,310,496
    
    
    $
    0.46Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    44,237
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    1,513,982
    
    
    
    3,354,733
    
    
    $
    0.45
 For the six months ended June 30, 2004EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    2,782,295
    
    
    
    3,306,656
    
    
    $
    0.84Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    50,594
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    2,782,295
    
    
    
    3,357,250
    
    
    $
    0.83
 For the six months ended June 30, 2003EarningsNet Earnings
    
    Common Shares
    
    per ShareBasic earnings per share
    
    $
    2,869,016
    
    
    
    3,308,905
    
    
    $
    0.87Effect of dilutive securities  Stock Options
    
    
    
    
    
    
    44,237
    
    
    
    (0.01
    )Diluted earnings per share
    
    $
    2,869,016
    
    
    
    3,353,142
    
    
    $
    0.86
 11




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Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition The following analysis compares WGNB Corps results of operations for the
quarter and six month periods ended June 30, 2004 and 2003 and reviews the
important factors affecting WGNB Corp.s financial condition at June 30, 2004
compared to December 31, 2003. These comments should be read in conjunction
with the Companys consolidated financial statements and the accompanying notes
appearing elsewhere in this Report. Forward Looking Statements This Report may contain certain forward-looking statements including
statements concerning plans, objectives, future events or performance and
assumptions and other statements that are not statements of historical fact.
The Company cautions readers that the following important factors, among
others, could cause the Companys actual results to differ materially from the
forward-looking statements contained in this Report: (i) the effect of changes
in laws and regulations, including federal and state banking laws and
regulations, with which the Company and its subsidiaries must comply, and the
associated costs of compliance with such laws and regulations either currently
or in the future as applicable; (ii) the effect of changes in accounting
policies and practices, as may be adopted by the regulatory agencies as well as
by the Financial Accounting Standards Board, or of changes in the Companys
organization, compensation and benefit plans; (iii) the effect on the Companys
competitive position within its market area of the increasing consolidation
within the banking and financial services industries, including the increased
competition from larger regional and out-of-state banking organizations as well
as non-bank providers of various financial services; (iv) the effect of changes
in interest rates; and (v) the effect of changes in the business cycle and
downturns in local, regional or national economies. The Company cautions that
the foregoing list of important factors is not exclusive. Results of Operations Overview Net earnings for the six months ended June 30, 2004 were $2.8 million, or
$0.83 per diluted share, which represented a decrease of $87 thousand, or 3.0
percent, when compared to the six months ended June 30, 2003. Net earnings for
the second quarter ended June 30, 2004 were $1.47 million compared to $1.51
million for the second quarter of 2003, a decrease of $43 thousand, or 2.8
percent. Mortgage origination fee income was down $245 thousand, or 48 percent,
comparing the first six months of 2004 with the same period in 2003. The loan
loss provision was up $200 thousand, or 133 percent, comparing the first half
of 2004 to 2003. Net interest income in the first six months of 2004 increased
$591 thousand, or 7.5 percent, from the same period in 2003. Both the
increased loan loss provision and net interest income are the result of robust
loan growth during the first half of 2004. Total non-interest expense
increased $552 thousand, or 8.6 percent, comparing the first six months of 2004
with the same period in 2003. In analyzing the second quarters ended June 30,
2004 and 2003, similar trends have resulted. As an additional note, the second
quarter of 2003 included $100,000 of non-recurring income related to the sale
of ATM location rights. Net Interest Income The Companys year-to-date second quarter 2004 net interest margin
exceeded that of the same period in 2003 by $591 thousand. The year-to-date
average yield on earning assets declined 28 basis points, from 6.55 percent as
of June 30, 2003 to 6.27 percent as of June 30, 2004. However, the
year-to-date average cost of funds has decreased 32 basis points during the
same time period, from 2.30 percent to 1.98 percent as of June 30, 2004. The
comparative net interest margins were 4.40 percent and 4.37 percent,
respectively, for the year-to-date periods ending June 30, 2004 and 2003. The
impact of persistent low market rates has been managed in a manner in which the
Banks net interest margin has stabilized from its declining trend over the
previous two years. The Banks interest rate risk position was such that it would benefit from
a rise in interest rates. Because of the Banks positive gap position and the
prospect of continued low market interest rates, management entered into an
interest rate swap contract with an effective date of May 24, 2004 in the
notional amount of $30 million as a fair value hedge for its fixed rate Federal
Home Loan Bank borrowings. Under the interest rate swap contract, the Bank
receives a fixed rate of 3.40 percent and pays a rate equal to the 3-month
LIBOR rate. The initial interest rate of the contract was 1.28 percent which
will remain in effect until August 24, 2004 at which time the rate will adjust
quarterly for a three year period. The swap contract will mature May 24, 2007.
Through June 30, 2004, the Bank has recorded a benefit of approximately $60
thousand which has had the effect of reducing the average interest rate on
Federal Home Loan Bank borrowings from 5.01 percent to 3.86 percent. 12




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##### Table of Contents



The year-to-date average yield on loans has declined 48 basis points from
6.68 percent as of June 30, 2003 to 6.20 percent as of June 30, 2004. The
investment portfolio including federal funds sold has maintained an average
yield of 4.32 percent as of June 30, 2004, which represents an increase of 26
basis points when compared to the average yield of 4.06 percent as of June 30,
2003. Most of the increase in this yield is due to reduced federal funds
balances as a percentage of that portfolio. As rates remain low, the prospect
of lower loan yields is probable as some of the Banks higher yielding loans
re-price at lower current market rates. However, when the Federal Reserve Bank
increased the discount rate to 1.25 percent, longer term rates began to
increase, perhaps signaling rising asset yields going forward. The other primary components of the increase in the net interest margin is
the overall increase in earning assets of the Bank and the investment of
federal funds sold into higher yielding loans. Comparing the two second
quarter end periods, the average balances of earning assets has increased by
$36 million, or 10.2 percent, from 2003 to 2004. The average balance of loans
was by far the biggest factor in the increase in earning assets through the
second quarter of 2004 as loans increased by $32 million, or 11.2 percent,
compared to the average balance of loans through the second quarter of 2003.
During this same time period the average balance of federal funds sold
decreased by approximately $9 million, or 52 percent. Comparing the second quarter ended June 30, 2004 with that of 2003, net
interest income increased $346 thousand, or 10.8 percent. The six month rate
trends discussed above are similarly applicable to a comparison of the two
quarterly periods. Non-Interest Income Total non-interest income for the first six months of 2004 decreased $81
thousand, or 2.8 percent, when compared to the first six months of 2003.
Service charges on deposit accounts increased $219 thousand, or 12.7 percent,
during the first six months of 2004 compared to the first six months of 2003.
This increase was due primarily to increased income from non-sufficient funds
charges as the volume of checking accounts increased as well as the collection
efforts on overdraft accounts. Mortgage loan origination fees for the first six months of 2004 decreased
$245 thousand, or 48 percent, from the same period in 2003. Recent increases
in long-term mortgage rates has had an adverse effect on mortgage fee income
for the last half of 2003 and the first half of 2004. The refinancing activity
that took place in 2002 and 2003 is unlikely to be repeated in the near future.
Management has concentrated its efforts on purchased home financing which is
not expected to result in the volume of mortgage origination fees that the
refinance activity has had in the past. Miscellaneous income decreased by $55 thousand, or 9.3 percent, when
comparing the first six months of 2004 with that of 2003. Included in
miscellaneous income for the second quarter of 2003 was a gain of $100 thousand
on the sale of the Banks exclusive right to an ATM at the commercial
development surrounding its Mirror Lake branch. Non-interest income for the second quarter ended June 30, 2004 decreased
$119 thousand, or 7.9 percent, when compared to the second quarter ended June
30, 2003. The reasons for the decrease are discussed above in describing the
year- to-date results. Non-Interest Expense Non-interest expense increased $552 thousand, or 8.6 percent, in the first
two quarters of 2004 compared to the same period in 2003. Salaries and employee
benefits increased $261 thousand, a 6.9 percent increase over the first six
months of 2003. This increase is primarily due to increased employee count,
annual salary increases, increased group insurance costs and increased profit
sharing accruals. The Bank increased its full time equivalent employee count
from 142 in June of 2003 to 149 in June of 2004. Those positions were added in
loan production capacities both in the commercial and mortgage loan departments
as we attempt to expand our market area. Occupancy expenses increased $147 thousand, or 17.3 percent, year-to-date
from 2003 to 2004. The primary component of the increase in occupancy expense
is attributable to increased depreciation expense associated with main office
and branch renovations completed in the second half of 2003. Other operating
expenses increased $144 thousand, or 8.1 percent. The increase in other
operating expenses is primarily attributable to professional services
associated with the management change that occurred in the first quarter of
2004. Comparing non-interest expense quarter to quarter, similar increases hold
true. Total non-interest expense increased $296 thousand, or 9.2 percent,
comparing the second quarters ended 2004 and 2003. Salaries and benefits
accounted for $153 thousand of the increase, occupancy expense including
depreciation expense accounted for $50 thousand of the increase and
other operating expenses, including legal and professional expenses, accounted
for $93 thousand of the increase. 13




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##### Table of Contents



Income Taxes Income tax expense for the first six months of 2004 was $1.139 million
compared to $1.293 million for the same period in 2003. The effective tax rate
for the period ended June 30, 2004 was 29 percent compared to 31 percent for
the same period in 2003. The reduced marginal rate is due to the purchase of
federal and state tax credits and other income tax strategies such as
increasing the amount of municipal securities in the Banks investment
portfolio. Provision and Allowance for Loan Losses The adequacy of the allowance for loan losses is determined through
managements informed judgment concerning the amount of risk inherent in the
Companys loan portfolio. This judgment is based on such factors as the change
in levels of non-performing and past due loans, historical loan loss
experience, borrowers financial condition, concentration of loans to specific
borrowers and industries, estimated values of underlying collateral, and
current and prospective economic conditions. The allowance for loan losses at
June 30, 2004 was $3.8 million, or 1.13 percent, of total loans compared to
$3.5 million, or 1.17 percent, of total loans at December 31, 2003. Management
believes that the allowance for loan losses is adequate to absorb possible loss
in the loan portfolio. During the first half of 2004, the loan loss provision
increased due to loan growth. The loan loss provision has increased 133
percent from $150 thousand for the six months ended June 30, 2003 to $350
thousand for the six months ended June 30, 2004. Net charge-offs have been $28
thousand for the first six months of 2004 compared to $350 thousand for the
same period in 2003 Non-Performing Assets and Past Due Loans Non-performing assets, comprised of real estate owned, non-accrual loans
and loans for which payments are more than 90 days past due, totaled $2.8
million at June 30, 2004, compared to $2.5 million at December 31, 2003. The
increase in non-performing assets is primarily attributable to an increase in
90-day past due loans. The Company has a loan review function that continually monitors selected
loans for which general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. The loan review
function also identifies loans with high degrees of credit or other risks. The
focus of loan review, as well as management, is to maintain a low level of
non-performing assets and return current non-performing assets to earning
status. Management is unaware of any known trends, events or uncertainties
that will have, or that are reasonably likely to have, a material effect on
liquidity, capital resources or operations. Financial Condition Overview Total assets were $425 million at June 30, 2004, an increase of $31
million, or 8.0 percent, from December 31, 2003. Most of the growth in assets
was attributable to loan growth. Total loans grew by $38 million, or 12.7
percent, from December 31, 2003. On the liability and equity side of the
balance sheet, total deposits grew by $14 million, or 4.5 percent, Federal Home
loan bank borrowings grew by $10 million, or 22.2 percent, and as of June 30,
2004 the Bank was in a federal funds purchased position of $6.8 million. Assets and Funding At June 30, 2004 earning assets totaled $392 million, which represents an
increase of $24.2 million from December 31, 2003. The mix of interest earning
assets has changed from the beginning of 2004. As a percentage of interest
earning assets, loans increased to 85 percent and investment securities and
federal funds decreased to 15 percent at June 30, 2004, as compared to loans of
80 percent and investments and federal funds of 20 percent at December 31,
2003. At June 30, 2004, interest-bearing deposits decreased $9.2 million, or 3.5
percent, compared to December 31, 2003. Non-interest-bearing deposits
increased $4.5 million, or 11.3 percent, in the first six months of 2004 while
certificates of deposit increased by $18.9 million, or 16.6 percent. The
Banks loan growth was funded by using the liquidity available on the balance
sheet in the form of federal funds sold, borrowings from the Federal Home Loan
Bank and generating certificates of deposits both in and out of its market
area. 14




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##### Table of Contents



Liquidity and Capital Resources Net cash provided by operating activities totaled $3.5 million for the six
months ended June 30, 2004. Net cash used by investing activities totaled $40.9
million and consisted primarily of a $37.9 million increase in loans
outstanding. Net cash provided by financing activities was $29.3 million which
was a result of an increase in total deposits of $13.8 million, Federal Home
Loan Bank borrowings of $10 million and federal funds purchased of $6.8
million. Total stockholders equity at June 30, 2004 was 10.1 percent of total
assets compared to 10.7 percent at December 31, 2003. The decrease in the
capital percentage is primarily attributed to the Companys increase in total
assets of $31.4 million since December 31, 2003. At June 30, 2004, WGNB Corp. was in compliance with various regulatory
capital requirements administered by federal and state banking agencies. The
following is a table representing WGNB Corp.s consolidated Tier-1, tangible
capital, and risk-based capital. June 30, 2004Actual
    
    
    
    
    
    Required
    
    
    
    
    
    ExcessAmount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Total capital (to risk-
weighted assets)
    
    $
    45,184
    
    
    
    13.32
    %
    
    $
    27,610
    
    
    
    8.00
    %
    
    $
    17,574
    
    
    
    5.32
    %Tier 1 capital (to risk-
weighted assets)
    
    
    42,184
    
    
    
    12.22
    %
    
    
    13,805
    
    
    
    4.00
    %
    
    
    28,379
    
    
    
    8.22
    %Tier 1 capital (to average
assets)
    
    
    42,184
    
    
    
    9.85
    %
    
    
    17,173
    
    
    
    4.00
    %
    
    
    25,011
    
    
    
    5.85
    %
 Off Balance Sheet Risks Through the operations of the Bank, the Company has made contractual
commitments to extend credit in the ordinary course of its business activities.
These commitments are legally binding agreements to lend money to the Banks
customers at predetermined interest rates for a specified period of time. At
June 30, 2004, the Bank had issued commitments to extend credit of $57.6
million through various types of commercial lending arrangements and additional
commitments through standby letters of credit of $3.5 million. The Company
evaluates each customers credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on its credit evaluation of the borrower.
Collateral varies, but may include accounts receivable, inventory, property,
plant and equipment, commercial and residential real estate. The Company
manages the credit risk on these commitments by subjecting them to normal
underwriting and risk management processes. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Companys market risk arises primarily from interest rate
risk inherent in its lending and deposit-taking activities. The Company has
little or no risk related to trading accounts, commodities or foreign
exchanges. Interest rate risk, which encompasses price risk, is the exposure of a
banking organizations financial condition and earnings ability to adverse
movements in interest rates. The measurement of market risk associated with
financial instruments is meaningful only when all related and offsetting on-and
off-balance sheet transactions are aggregated, and the resulting net positions
are identified. Disclosures about the fair value of financial instruments as
of December 31, 2003, which reflected changes in market prices and rates, can
be found in the Companys Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2003 under the section entitled Managements
Discussion and Analysis of Financial Condition and Results of Operation 
Asset/Liability Management. Management actively monitors and manages the Companys interest rate risk
exposure. The primary objective in managing interest rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Companys net interest income and capital, while adjusting the Companys
asset-liability structure to obtain the maximum yield versus cost spread on
that structure. Management relies primarily on its asset-liability structure
to control interest rate risk. However, a sudden and substantial increase in
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent, or on the same basis. Management believes that there have
been no significant changes in the Companys market risk exposure since December 31, 2003. 15




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##### Table of Contents



Item 4. Controls and Procedures The Company maintains disclosure controls and procedures, as defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the
Exchange Act), that are designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission and
that such information is accumulated and communicated to the Companys
management, including its chief executive and chief financial officers, as
appropriate, to allow timely decisions regarding required disclosure. The
Company carried out an evaluation, under the supervision and with the
participation of its management, including its chief executive and chief
financial officers, of the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
Report. Based on the evaluation of these disclosure controls and procedures,
the chief executive and chief financial officers of the Company concluded that
the Companys disclosure controls and procedures were effective as of the end
of the period covered by this Report. There were no changes in the Companys internal control over financial
reporting during the Companys fiscal quarter ended June 30, 2004 that have
materially affected, or are reasonably likely to materially effect, the
Companys internal control over financial reporting. 16




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##### Table of Contents



Part II  Other Information 
 Item 1. Legal Proceedings There are no material, pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is the
subject. 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities (a) Not applicable. (b) Not applicable. (c) During the second quarter of 2004 in connection with his retirement, a
former executive officer exercised 7,203 options at a weighted average exercise
price of $24.38. The options, and the shares into which they were exercised,
were issued without registration under the Securities Act, pursuant to the
exemption provided in Section 4(2) thereof, as a transaction not involving a
public offering. (d) The Company has previously reported the completion of a registered
public offering pursuant to which it sold 200,000 shares of its Common Stock at
a purchase price of $24.00 per share. The net proceeds from the offering
(which was completed in April 2002) of $4,766,454 have not yet been used by the
Company but continue to remain invested in corporate bonds and federal funds. (e) Issuer Purchases of Equity Securities (c) Total Number ofShares Purchased as
    
    (d) Dollar Value of(a) Total Number
    
    
    
    
    
    Part of Publicly
    
    Shares that May Yet Beof Shares
    
    (b) Average Price
    
    Announced Plans or
    
    Purchased Under thePurchased
    
    Paid per Share
    
    Programs
    
    Plans or ProgramsApril 1, 2004
through April 30,
2004
    
    
    2,858
    (1)
    
    
    29.75
    
    
    
    2,858
    
    
    $
    831,309May 1, 2004 through
May 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    831,309June 1, 2004
through June 30,
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    831,309Total
    
    
    2,858
    
    
    
    29.75
    
    
    
    2,858
    
    
    $
    831,309
 (1) In 1996, the Board of Directors approved a Stock Repurchase Plan of up to
$2 million of the Companys Common Stock. During 2001, the Board of Directors
approved the repurchase of an additional $1 million, for a total of $3 million
available for repurchase under this Plan. The shares were authorized to be
purchased, from time to time, in open market transactions or privately
negotiated transactions. The repurchase program is being effected from time to
time, based on our evaluation of market conditions and other factors. The
Company has used and plans to continue to use existing cash to fund the
repurchases. All of the shares repurchased during the three months ended June
30, 2004 were purchased in open market transactions through this program. During the second quarter of 2004, the Company declared and paid quarterly
cash dividends amounting to $0.19 per share. The declaration of future
dividends is within the discretion of the Board of Directors and will depend,
among other things, upon business conditions, earnings, the financial condition
of the Bank and the Company, and regulatory requirements 
 Item 3. Defaults Upon Senior Securities Not applicable. 17




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders The Company held its 2004 annual meeting of shareholders on April 13,
2004. The shareholders were asked to elect four Class I directors to serve on
the Companys Board of Directors until the 2007 Annual meeting of Shareholders. The shareholders were asked to elect Wanda W. Calhoun, L. Richard
Plunkett, Thomas T. Richards and Oscar W. Roberts, III to serve as Class I
directors on the Companys Board of Directors, each for a three-year term. The
following votes were cast for and against the election of these Class I
directors: Ms. Calhoun: 2,815,197 for / 10,820 opposed; Mr. Plunkett:
2,762,433 for / 63,584 opposed; Mr. Richards: 2,825,517 for / 500 opposed; Mr.
Roberts: 2,826,017 for / none opposed. There were no Broker non-votes or
abstentions. The following persons also continue to serve as directors: L.G.
Joyner, R. David Perry, J. Thomas Vance, and Charles M. Willis, Sr. (all Class
II directors) and L. Leighton Alston, G. Woodfin Cole, Richard A. Duncan,
Thomas E. Reeve, III and Frank T. Thomasson, III (all Class III directors). 
 Item 5. Other Information None. 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    The following exhibits are filed as part of this Report: 3.1
    
    Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on
Form 10-SB filed June 14, 2000 (the Form 10-SB).3.2
    
    Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.2 to the Form 10-SB).4.1
    
    See exhibits 3.1 and 3.2 for provisions of Companys Articles
of Incorporation and Bylaws defining the rights of shareholders.4.2
    
    Specimen certificate representing shares of Common Stock
(Incorporated by reference to Exhibit 4.2 to the Form 10-SB).4.3
    
    Rights Agreement dated as of February 12, 1997 between the
Company and SunTrust Bank, Atlanta (Incorporated by reference to
Exhibit 4.3 to the Form 10-SB).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
  (b)
    
    Reports on Form 8-K On April 2, 2004, the Company furnished a current report on Form 8-K to
disclose under Item 12 the issuance of its press release announcing the
Companys results of operations for the quarterly period ended March 31, 2004. 18




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SIGNATURES In accordance with the requirements of the Securities Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized. Dated: August 12, 2004 WGNB CORP.By:
    
    /s/ L. Leighton AlstonL. Leighton AlstonPresident and CEOBy:
    
    /s/ Steven J. HaackSteven J. HaackTreasurerPrincipal Financial Officer
 19