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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|           |  |                                                                                                                                                      
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|           |  |                                                                                                                                                      
|[x]        |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 2002                          
|           |  |                                                                                                                                                      
|[  ]       |  | TRANSITION REPORT UNDER 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
(State of incorporation) |  | 58-1640130
(I.R.S. Employer Identification No.)

|                                                                                                 |  |                                                                    
|------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------
|201 Maple Street
P.O. Box 280
Carrollton, Georgia 30117
(Address of principal executive offices) |  | (770) 832-3557
(Registrants telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act: N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.25 par value
(Title of Class)

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 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  ] No [x]

The aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant as of June 28, 2002which is the last business
day of its most recently completed second fiscal quarter, was
approximately $40,433,160 based on a per share price of $24.00 (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 7, 2003, there were 3,307,767 shares of the Registrants
Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive Proxy Statement for the 2003
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Report.



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TABLE OF CONTENTS



|                                                                                         |                                                                                                                |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                  
|                                                                                         | Item 1. Business                                                                                              
|                                                                                         | Item 2. Properties                                                                                            
|                                                                                         | Item 3. Legal Proceedings                                                                                     
|                                                                                         | Item 4. Submission of Matters to a Vote of Security Holders                                                   
|PART II                                                                                 
|                                                                                         | Item 5. Market for the Common Equity and Related Shareholder Matters                                          
|                                                                                         | Item 6. Selected Financial Data                                                                               
|                                                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                 
|                                                                                         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                           
|                                                                                         | Item 8. Financial Statements and Supplementary Data                                                           
|                                                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                  
|PART III                                                                                
|                                                                                         | Item 10. Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act
|                                                                                         | Item 11. Executive Compensation                                                                               
|                                                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters       
|                                                                                         | Item 13. Certain Relationships and Related Transactions                                                       
|                                                                                         | Item 14. Controls and Procedures                                                                              
|                                                                                         | Item 15. Exhibits and Reports on Form 8-K                                                                     
|SIGNATURES AND CERTIFICATIONS                                                           
|CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|EX-21 SUBSIDIARY OF WGNB CORP.                                                          
|EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                        
|EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER                                        



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WGNB CORP.

2002 Form 10-K Annual Report

TABLE OF CONTENTS

|             |  |                                                                                                       |  |         
|------------ |  | ----------------------------------------------------------------------------------------------------- |  | --------
|Item Number  |  |                                                                                                       |  | Page or 
|in Form 10-K |  | Description                                                                                           |  | Location
|             |  |                                                                                                       |  |         
|PART I       |  |                                                                                                       |  |         
|Item 1.      |  | Business                                                                                              |  | 1       
|Item 2.      |  | Properties                                                                                            |  | 15      
|Item 3.      |  | Legal Proceedings                                                                                     |  | 15      
|Item 4.      |  | Submission of Matters to a Vote of Security Holders                                                   |  | 15      
|PART II      |  |                                                                                                       |  |         
|Item 5.      |  | Market for the Common Equity and Related Shareholder Matters                                          |  | 16      
|Item 6.      |  | Selected Financial Data                                                                               |  | 17      
|Item 7.      |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                 |  | 18      
|Item 7A      |  | Quantitative and Qualitative Disclosures About Market Risk                                            |  | 31      
|Item 8.      |  | Financial Statements and Supplementary Data                                                           |  | 31      
|Item 9.      |  | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure                  |  | 31      
|PART III     |  |                                                                                                       |  |         
|Item 10.     |  | Directors and Executive Officers of the Registrant; Compliance
with Section 16(a) of the Exchange Act |  | 32      
|Item 11.     |  | Executive Compensation                                                                                |  | 32      
|Item 12.     |  | Security Ownership of Certain Beneficial Owners
and Management and Related Shareholder Matters        |  | 32      
|Item 13.     |  | Certain Relationships and Related Transactions                                                        |  | 32      
|Item 14.     |  | Controls and Procedures                                                                               |  | 32      
|Item 15.     |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                       |  | 32      
|             |  | Signatures and Certifications                                                                         |  | 35      





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PART I

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements made in this Report and in documents
incorporated by reference herein, including matters discussed under the caption
Managements Discussion and Analysis of Financial Condition and Results of
Operations, as well as oral statements made by WGNB Corp. (the Company) or
its officers, directors or employees, may constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Such forward-looking statements are based on
Managements beliefs, current expectations, estimates and projections about the
financial services industry, the economy and about the Company and the Bank in
general. The words expect, anticipate, intend, plan, believe,
seek, estimate and similar expressions are intended to identify such
forward-looking statements. Such forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company
to differ materially from historical results or from any results expressed or
implied by such forward-looking statements. The Company cautions readers that
the following important factors, among others, could cause the Companys actual
results to differ materially from the forward-looking statements contained in
this Report: (i) the effect of changes in laws and regulations, including
federal and state banking laws and regulations, with which the Company or the
Bank must comply, and the associated costs of compliance with such laws and
regulations either currently or in the future as applicable; (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;
(iii) the effect of changes in the Companys organization, compensation and
benefit plans; (iv) 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; (v) the effect of changes in interest rates; and (vi) 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.




Item 1. Business

General

WGNB Corp. is a $385 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. The Company
conducts operations in western Georgia through its wholly-owned subsidiary,
West Georgia National Bank (the Bank). The Bank was organized in 1946 as a
national banking association under the federal banking laws of the United
States. In 1997, the Company formed a non-bank subsidiary, West Georgia Credit
Services, Inc. (the Finance Company), which conducts business as Mortgage &
Loan Solutions. The Finance Companys operations were discontinued and the
assets were transferred to the Bank and the Company as of December 31, 2002.
As of March 7, 2003, the Company had 3,307,767 issued and outstanding shares of
common stock, $1.25 par value per share (the Common Stock), held by
approximately 800 shareholders of record.

The Company conducts all of its business through the Bank. The executive
offices of the Company and the main office of the Bank are located at 201 Maple
Street, Carrollton, Georgia 30117.

The Bank

The 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. The Bank
attracts most of its deposits and conducts most of its lending transactions
from and within its primary service area encompassing Carroll County, Georgia
and the western portion of Douglas County, Georgia.

The Banks main office is located in Carrollton, Georgia. The Bank
operates a total of seven branches and six additional 24-hour ATM sites,
located in Carroll and Douglas Counties in Georgia. The Bank operates two
1Table of Contentsadditional branches in the city of Carrollton, two branches in Villa Rica, one
branch in Bowdon and one branch in Douglasville, Georgia.As a convenience to its customers, the Bank offers at most of its branch
locations Saturday banking hours, drive-thru teller windows and 24-hour
automated teller machines. The Bank is a member of Honor, Cirrus and several
other ATM networks of automated teller machines that permit Bank customers to
perform monetary transactions in most cities throughout the southeast and other
regions. The Bank also offers Internet banking services through its web site
located at www.wgnb.com. Information included on the Banks web site is not a
part of this Report.Deposit Services.The 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 the Banks 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, the 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.As of December 31, 2002, the Bank had deposits of approximately $299
million, and approximately 26,100 deposit accounts. No material portion of the
Banks 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 be likely to 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, 2002.Deposit Mix

|                               |                   |  |                      |       |  
|------------------------------ | ----------------- |  | -------------------- | ----- | -
|                               |                   |  | At December 31, 2002
|                               |                   |  |                     
|Non-interesting bearing demand |                   |  | 12.73                | %    
|NOW accounts and money market  |                   |  | 41.45                | %    
|Savings                        |                   |  | 3.03                 | %    
|Time Deposits                  |                   |  |                      |      
|                               | Under $100,000    |  |                      | 29.02 | %
|                               | $100,000 and over |  |                      | 13.77 | %
|                               |                   |  |                      |      
|                               |                   |  | 100.00               | %    
|                               |                   |  |                      |      

Lending Services.The Banks lending business consists principally of
making consumer loans to individuals and commercial loans to small and
medium-sized businesses and professional concerns. In addition, the Bank 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, 2002, the Bank had approximately
$273 million in total loans outstanding, representing 71% of its total assets
of approximately $385 million. The loan portfolio is made up of both fixed and
adjustable rate loans. Approximately 60% of the Companys total loan portfolio
is fixed rate and 40% is adjustable rate as of December 31, 2002. No material
portion of the Banks loans is concentrated within a single industry or group
of related industries. 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 be likely to have a material
adverse effect on the operations or earnings of the Bank.

Real Estate Loans.Loans secured by real estate make up the primary
component of the Banks loan portfolio, constituting approximately $222
million, or 81%, of the Banks total loans as of December 31, 2002.
Approximately 61% of the real estate loans are fixed rate and 39% are
adjustable rate. 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 in the Companys
primary and secondary

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market areas. The types of real estate that typically
constitute collateral include primary and secondary residences for individuals,
including multi-family projects, places of business, real estate for
agricultural uses and undeveloped land.

Commercial Loans, Other Than Commercial Loans Secured by Real Estate. The
Bank makes loans for commercial purposes in various industries resident to its
market area. As of December 31, 2002, commercial loans constituted
approximately $35 million, or 13% of the Banks total loans. Approximately 59%
of commercial loans are fixed rate while 41% are adjustable. The typical
commercial loan has a maturity of three years or less and 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, 2002, the Bank held
approximately $16 million of consumer loans, representing 6% of its total
loans. Consumer loans are primarily fixed rate in nature with 97% of this loan
category carrying fixed rates. These loans are typically collateralized by
personal automobiles, recreational vehicles or household items and may include
unsecured loans to individuals.

Other Lending Activities.The Bank also engages in secondary-market
mortgage activities whereby the Bank originates mortgage loans on behalf of
investor correspondent banks who 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 the Bank service third party loans.

Risks Associated with Lending Activities.Consumer and non-mortgage loans
to individuals entail greater risk than do residential mortgage loans,
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 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 residential mortgage 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, the
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.

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 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 minimum risk. The loan portfolio mix is reported and
reviewed quarterly by the Board of Directors. Concentration targets are
evaluated periodically to determine changes in risk profiles and market need.
The following represents maximum target concentrations of loans by category as
a percentage of total loans:

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|                                               |                           |  |    |    |  
|---------------------------------------------- | ------------------------- |  | -- | -- | -
|Single-payment loans                           |                           |  | 25 | % 
|Unsecured loans                                |                           |  | 6  | % 
|Loans secured by:                              |                           |  |    |   
|                                               | Residential real estate   |  |    | 30 | %
|                                               | Commercial real estate    |  |    | 35 | %
|                                               | Convenience stores assets |  |    | 6  | %
|                                               | Hotels/motels             |  |    | 5  | %
|                                               | Poultry facilities        |  |    | 7  | %
|Acquisition & development/construction loans   |                           |  | 20 | % 
|Commercial and industrial purpose loans        |                           |  | 20 | % 
|Exceptions to primary and secondary trade area |                           |  | 10 | % 

While the loan policy includes a provision generally limiting all types of
real estate loans to 75% 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. Although, in aggregate, it accounts for a large portion
of the loan portfolio, real estate lending has historically been the Companys
lowest loan loss category.

Legal Lending Limit. The 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 plus 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;                                                                                                                                                                                                                                                                                                                        
|
| |  |  | the amounts exceeding the limit are secured by a perfected first lien
security interest in one-to-four family real estate in an amount that
does not exceed 80% of the appraised value of the property and the
outstanding indebtedness to the borrower does not exceed the lesser of
20% (or 25% with the approval of a majority of the Board of Directors
subject to certain additional restrictions) of capital and reserves,
or $10 million; or
|
| |  |  | the amounts exceeding the limit are for small business purposes and
secured by non-farm nonresidential properties or are commercial or
industrial loans but in no event can the outstanding indebtedness
exceed the lesser of 20% (or 25% with the approval of a majority of
the Board of Directors subject to certain additional restrictions) of
capital and reserves, or $10 million.                                                           

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 guarantor that has not been proven.

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. In general, loans to value on various types of
real estate range from a high of 85% to a low of 60%. Installment loans, in
general, require a loan to collateral value of at least 80%. 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.

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Loan Approval. The 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 $100,000, depending on
seniority. The OLC, which consists of the president, executive vice president,
two senior vice presidents and other lenders, has a lending limit of $300,000
for secured and $100,000 for unsecured loans. Loans between $300,000 and the
Banks legal lending limit must be approved by an executive loan committee,
which is made up of the CEO of the Company, the President of the Bank and six
outside directors.

Loan Review.The Bank has a comprehensive loan review process involving
an independent loan review officer and lending officers. The loan review
process is designed to promote early identification of credit quality problems.
All loan officers are charged with the responsibility of rating their loans.
The Banks independent loan review officer is charged with the responsibility
of ensuring that all problem loans and all loan or line of credit relationships
in excess of $350,000 are reviewed annually, with random sample checks on
consumer loans and other loans less than $350,000. Additionally, the loan
review officer monitors the loan rating system to ensure proper risk
identification. The Banks risk identification process is also reviewed by its
regulators and its independent auditors. Upgrades and credit risk grades
require the approval of the loan review officer. In the event of disagreement,
the executive loan committee makes the final decision.

Market Area

The following statistical data is based on information contained in a
report published by the State University of West Georgia Department of
Economics dated October 29, 2002 and information published by the FDIC on its
web site.

The Banks primary market area includes all of Carroll County, Georgia and
the western portion of Douglas County, Georgia. Approximately 98% of the
Banks deposit customers reside in Carroll County, although it attracts some
loan business from neighboring Douglas and Paulding Counties. The Banks
secondary market area includes the Georgia counties of Paulding, Douglas,
Heard, Haralson and Coweta, and the Alabama counties of Clebourne and Randolph.
Carroll County is located approximately 45 miles southwest of Atlanta and 90
miles east of Birmingham, Alabama. Carroll Countys major industries include
manufacturing, wholesale trade, food processing, paper and lumber products,
construction and health services. The State University of West Georgia, which
serves more than 9,000 students, and Tanner Medical Center are located in
Carrollton, which is the county seat and the location of the Banks main
office.

Carroll Countys population has grown steadily but relatively slowly when
compared to some metro Atlanta counties, reflecting an average annual growth
rate of 2.0% from 1990 to 2000. Its growth rate is also lower than that for
the State of Georgia. Out of 159 Georgia counties, Carroll County ranks 29th
in land area and 23rd in population. According to 2000 census data, median
household income for Carroll County was $38,799, which ranked 40th among
Georgia counties. The unemployment rate for Carroll County in August 2002 was
7.2%, which was above the states unemployment rate of 4.7%. Per capita income
for 2000 in Carroll County was $21,678, which was 78% of the average for the
state as a whole and 74% of the national average. Carroll Countys personal
income of $1.91 billion in 2000 ranked 25th for all of Georgias counties.

Based on the most recent statistical data available for 2001, housing
activity in Carroll County remained at record levels. A total of 2,343 housing
units, comprised of 1,709 single family and 634 multi-family units, were
permitted in 2001. Because of the zero job growth in Carroll County, permit
data for the first three quarters of
2002 indicated a decline in residential construction. As of August 2002,
648 single-family permits were issued, compared to 978 for the same period in
2001, with communities near I-20 reflecting the greatest share of the
residential construction activity in 2002.

Carroll Countys industrial base remains heavily manufacturing with that
sector accounting for 27.9% of total earnings in 2000. Non-durable goods
manufacturing is concentrated in food processing, apparel and paper products.
Durable goods manufacturing is heavily concentrated in primary metals. The
share of earnings related to services rose to 20.2% in 2000. During the
1990s, employment grew at an average annual rate of 1.4%, down

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substantially
from the 2.9% annual rate in the 1980s and the 4.1% rate in the 1970s.
Industries with the fastest employment growth were wholesale trade, which grew
at an average annual rate of 4.2%, followed by local government at 3.3% and
services at 3.0%. Manufacturing employment fell at an average annual rate of
1.6% in the last ten years.

Carroll Countys manufacturing base is likely to be positively impacted by
a number of significant expansions. Janus International Corporation, an
overhead rolling door manufacturer, opened a plant near I-20. Janus currently
employs about 100 workers and company officials anticipate increasing its work
force to 400 by 2006. A Villa Rica manufacturer, PrintPack, Inc., anticipates
adding 150 to 200 workers to the 200 it currently employs by 2005.
Additionally, Carrollton has attracted an auto parts manufacturing plant owned
by Decoma International, Incorporated. Decomas new plant is expected to
employ 300 workers.

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, emerging as deposit growth areas. The compound annual growth rate
for deposits at financial institutions in Carroll County for the years
1993-2002 was 5.1%. The amount of total deposits in Carroll County was
approximately $1.10 billion as of June 30, 2002, compared to total deposits of
approximately $710 million as of June 30, 1993. Douglas County had the second
largest deposit base in our market area with $809 million in total deposits,
and Paulding County coming in third with $547 million in total deposits, as of
June 30, 2002. The Bank held a market share of 23.7% of total deposits in
Carroll County as of June 30, 2002, representing the largest deposit market
share for any financial institution located in Carroll County.

The Bank established two branches in the Douglas County market over the
past three years. Douglas County ranks 139th out of 159 counties in land area,
but 16th in population in Georgia. Over the last decade, Douglas Countys
population increased by almost 30% with migration accounting for 65% of that
growth. Douglas Countys median household income was $50,108 in 1999, ranking
12th among all Georgia counties and 30% higher than Carroll Countys median
income for that year. Douglas Countys personal income was $2.34 billion,
which ranked 19th in the state. The service sector is the largest sector of
Douglas Countys economy comprising 30.5% of its total employment, with retail
trade in second at 24.7%.

Douglas Countys population grew 3.6% in 2001, making it the 21st fastest
growing county in the state. Along with its population, new housing activity
accelerated in 2000 and has increased each year through 2002. Both single
family and multi family permits rose sharply. As of the end of August 2002, a
total of 2,502 housing permits were issued in Douglas County, more than any
county in the west Georgia region. However, Douglas Countys 4.4% unemployment
rate in August 2002 was well above its 2.7% unemployment rate in August 2001.
Employment growth continues to be led by retail trade, which provided 593 new
jobs in 2001, although the services industry, Douglas Countys second largest
employment sector, lost 456 jobs in 2001 with that trend expected to continue
in 2002.

Upscale residential development continues in Douglas County in
subdivisions like Chapel Hills and Mirror Lake. A new subdivision in Chapel
Hills, the Links, will contain 34 new homes priced from $300,000 to $500,000.
Mirror Lake, located north of I-20, sold approximately $30 million in new homes
during the first half of 2002, with an average of 24 homes selling per month.
Other key developments include Bear Creek, which is expected to contain 500
homes priced from $200,000 to $500,000, Anneewakee Trails Conservation
Communities, which will include 1,500 homes priced from $120,000 to $250,000,
and St. Andrews Golf and Country Club, which includes approximately 400 homes.
There have been numerous retail, commercial and redevelopment plans which have
taken place or are in the planning stages as well. The continued development
of communities west of
metro Atlanta along the I-20 corridor, such as Douglasville, and westward
toward the city of Villa Rica, will have an impact on the Companys primary and
secondary market areas.

All of the Companys market area has been affected by the downturn in the
national economy. Even before terrorism became a continued threat and foreign
affairs impacted the national economy, evidence suggested a rise in
unemployment in all counties in the Companys market area. Retail trade and
business expansion is likely to be effected by the downturn. Inventories of
single-family homes are increasing with the upscale home market experiencing
particularly hard times. Retail sales were down in 2001 as evidenced by a 15%
reduction in sales tax collections in Georgia.

6



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The Banks percentage loan growth, a good indicator of business expansion,
slowed in 2002 when compared to its loan growth in 2001 and 2000. Total loans
grew by only 7.7%, or $20 million, in 2002 compared to 11.1%, or $25 million,
in 2001 and 23.6%, or $43.7 million, in 2000. The Bank has recently opened
two branches in Douglas County. In September of 2000, the Bank opened a branch
in an area known as Mirror Lake, which is located two miles north of I-20
between the cities of Douglasville and Villa Rica near western Douglas County
and northern Carroll County. In its 28 months of existence, the Mirror Lake
branch has grown to $39 million in loans, including loans transferred from the
Villa Rica branch, and $5 million in deposits. The Bank has also expanded into
Douglasville in Douglas County with a branch on Georgia Highway 5 near Douglas
Boulevard, a major retail trade area. The Douglasville branch has grown to $20
million in loans and $10 million in deposits in the 18 months since it opened
in June of 2001.

The Banks main office in Carrollton, Carroll County, decreased by $2
million in loans and increased by $23 million, or 14%, in deposits in 2001. By
contrast, the main office increased by $18 million, or 14%, in loans and grew
by $17 million, or 9%, in deposits in 2002. What impact the local economy will
have on loan and deposit production and the collectability of loans is not
readily apparent. Should interest rates remain low or decline further, the
Banks interest margin would be adversely affected.

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 community commercial banks (such as
McIntosh Commercial Bank and Gainesville Bank & Trust, successor to Hometown
Bank of Villa Rica) and larger institutions with branches in the Banks market
area such as CB&T of West Georgia (a division of Synovus Bank), BB&T, Regions
Bank, United Community Bank, Bank of America, SunTrust Bank and SouthTrust
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. Three mergers that have affected the Banks market area are the
Community First Bank merger with BB&T, which closed in December 2001, the
Peoples Bank of West Georgia merger with United Community Bank, which closed in
September 2001, and the Hometown Bank of Villa Rica merger with Gainesville
Bank & Trust, which closed in November 2002. West Georgia National Bank is now
the largest independent bank in Carroll County. McIntosh Commercial Bank
commenced operations in the fourth quarter of 2002 and a second de novo bank is
in formation in Villa Rica, Georgia.

The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, 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,
investment and international banking, which the Bank does not offer, and have
greater financial resources or have substantially higher lending limits than do
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. Management believes that the Bank has an
opportunity
to establish business ties with customers who have been displaced by the
consolidations and desire to forge banking relationships with locally owned and
managed institutions.

The Bank offers many personalized services and attracts customers by being
responsive and sensitive to the needs of the community. 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 the customer base of the Bank. 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.

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Employees

As of December 31, 2002, the Bank had 143 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 extensively 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. Beginning with the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and
following with the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA), numerous additional regulatory requirements have been placed
on the banking industry in the past fifteen years, and additional changes have
been proposed. The banking industry has also changed significantly as a result
of the passage of the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the Interstate Banking Act) and the Financial Services
Modernization Act of 1999. The Companys operations may be affected by
legislative changes and the policies of various regulatory authorities and the
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control or new
federal or state legislation may have in the future.

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

8



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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.

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.On November 12, 1999, the President
signed into law the Gramm-Leach-Bliley Act of 1999, known as the Financial
Services Modernization Act of 1999, which repeals many of the restrictions on
the activities of banks and bank holding companies. The law establishes two
new structures  financial holding companies and financial subsidiaries -
that enable qualifying bank holding companies and banks to provide a wide
variety of financial services that formerly could be performed only by
insurance companies and securities firms. The law also permits bank
affiliations with insurance and securities firms. At this time, the Company
does not intend to seek qualification to enter into these additional financial
services areas.

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.

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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 of $100,000 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 March
1997 and received a CRA rating of outstanding.

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, 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 Georgia law governing such

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transactions as they appear in non-banking commercial activities. These laws
include the Uniform Commercial Code and other provisions of The Georgia Code
Annotated.

Deposit Insurance

The deposits of the Bank are currently insured to a maximum of $100,000
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 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.

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.

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. SeeCapital 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 $1,946,775 to the Company during
2002. Under the OCC guidelines, as of December 31, 2002, the Bank was permitted
to pay the Company dividends of up to $6,682,000 in addition to current
earnings 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

11



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| |  |  | 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.

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:
12Table of Contents

|                                   |  |               |    |               |  |          |    |   |  |  |    |     
|---------------------------------- |  | ------------- | -- | ------------- |  | -------- | -- | - |  |  | -- | ----
|                                   |  | Total Risk-   |    | Tier I Risk-  |  | Tier I  
|Classification                     |  | Based Capital |    | Based Capital |  | 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.

As of the date of this Report, the Company and the Bank are both
considered to be well capitalized according to their regulatory capital
requirements. See Footnote 9 of the Notes to Financial Statements for
additional details.

Interstate Banking and Branching Restrictions

Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the Riegle-Neal Act), effective September 29, 1995, 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 also provides that, beginning on June 1, 1997, banks
with different home states may merge, unless a particular state opts out of the
statute. Consistent with the Riegle-Neal Act, Georgia adopted legislation in
1996 which has permitted interstate bank mergers since June 1, 1997.

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In addition, beginning June 1, 1997, the Riegle-Neal Act has permitted
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.

Anti-Terrorism Legislation

In the wake of the tragic events of September 11th, 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;                                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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

14



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##### Table of Contents



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.

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 Polices

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.




Item 2. Properties

The Company and the Banks main office is located at 201 Maple Street in
Carrollton, Georgia near the citys downtown square at the intersection of
Georgia Highway 16 and U.S. Highway 27. The Bank has two other locations
within the city limits of Carrollton. The First Tuesday Mall office is located
at 1004 Bankhead Highway and the Motor office is located at 314 Newnan Street.
In addition, the Bank has two other locations in Carroll County, one located at
725 Bankhead Highway, Villa Rica, Georgia and another located at 205 East
College Street, Bowdon, Georgia. All locations are typical of branch banking
facilities located throughout the United States and all locations, except the
Motor office, are full service locations. The Motor office provides primarily
teller and ATM transactions and does not originate loans. As to its Douglas
County locations, the Bank opened its Mirror Lake office in September 2000.
This office is currently a modular branch which will serve as a temporary site
until a permanent structure is built. The Bank owns a 1.5 acre parcel in the
Mirror Lake area on which it plans to construct its permanent facility. A
second branch in Douglas County at 9557 Georgia Highway 5 in Douglasville
opened in June 2001.

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 (with
the exception of the Motor office and the Mirror Lake office which are
approximately 700 and 1200 square feet, respectively) are typical of other
banking facilities and are approximately 5,000 square feet in size. Each
branch location has an ATM machine that is either walk-up or drive-up. The
Motor office, Mirror Lake, and Douglasville offices are leased facilities. All
of the other office facilities are owned. The Bank also operates six
additional ATM machines on leased properties located throughout the Carrollton
and Villa Rica area.




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.

15



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##### Table of Contents






PART II




Item 5. Market for the Common Equity and Related Shareholder Matters

Market Information

The Companys Common Stock is traded on the NASDAQ SmallCap Market System
under trading symbol WGNB. Approximately 800 shareholders of record held the
Common Stock as of March 7, 2003. Set forth below are the high and low bid
prices for each full quarterly period during 2001 and 2002 and the dividends
declared and paid per share of Common Stock for those periods.

Price Range Per Share

|      |                |  |     |       |      |  |                |       |  |  |           |       | 
|----- | -------------- |  | --- | ----- | ---- |  | -------------- | ----- |  |  | --------- | ----- | 
|      |                |  |     |       |      |  |                |       |  |  | Dividends
|      |                |  | Low |       | High |  | Paid Per Share
|      |                |  |     |       |      |  |               
|2001: |                |  |     |       |      |  |                |       |  |  |           |      
|      | First Quarter  |  | $   | 17.63 |      |  | $              | 23.00 |  |  | $         | 0.132 | 
|      | Second Quarter |  |     | 16.00 |      |  |                | 28.00 |  |  |           | 0.135 | 
|      | Third Quarter  |  |     | 18.50 |      |  |                | 28.00 |  |  |           | 0.140 | 
|      | Fourth Quarter |  |     | 16.00 |      |  |                | 26.00 |  |  |           | 0.142 | 
|2002: |                |  |     |       |      |  |                |       |  |  |           |      
|      | First Quarter  |  | $   | 23.51 |      |  | $              | 28.75 |  |  | $         | 0.145 | 
|      | Second Quarter |  |     | 23.90 |      |  |                | 28.00 |  |  |           | 0.147 | 
|      | Third Quarter  |  |     | 23.25 |      |  |                | 26.00 |  |  |           | 0.150 | 
|      | Fourth Quarter |  |     | 20.00 |      |  |                | 25.61 |  |  |           | 0.155 | 

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 Supervision and Regulation  Dividends.

Recent Sales of Unregistered Securities

The Company issued the following securities during the year ended December
31, 2002 without registering the securities under the Securities Act:

Directors may elect to receive compensation for their services to the
Company and the Bank in shares of Common Stock or cash. During 2002, certain
directors of the Bank received 1,211 shares in payment of deferred director
compensation for an aggregate consideration owed to them by the Bank of
$29,366. The sale of the shares was exempt from registration under the
Securities Act, pursuant to Section 4(2) thereof, as a transaction not
involving a public offering.

Options to purchase 17,272 shares of Common Stock were granted in 2002 to
seven individuals pursuant to the Companys Incentive Stock Option Plan having
a weighted average exercise price of $24.00. These options may be exercised
anytime beginning five years from the date of grant and ending ten years from
the date of grant at which point they expire. A total of 7,512 options were
exercised in 2002 at a weighted average exercise price of $8.69. In addition,
an individual took early retirement and forfeited 5,681 shares back into the
plan. The Company believes that the grant of options and the exercise thereof
was exempt from registration under Section 4(2) of the Securities Act.

Uses of Proceeds from Registered Securities

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

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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 a corporate bond and
federal funds.




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,
2002 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,              
|                        |                                                     |  |                                      
|                        |                                                     |  | 2002                                  |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                        |                                                     |  |                                       |           |      |  |      |           |      |  |     
|                        |                                                     |  | (In thousands, except per share data)
|For the Year:           |                                                     |  |                                       |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |          
|                        | Total Interest Income                               |  | $                                     | 24,296    |      |  | $    | 26,548    |      |  | $    | 24,049    |   |  | $ | 19,883    |   |  | $ | 18,922    |  
|                        | Total Interest Expense                              |  |                                       | 8,724     |      |  |      | 12,069    |      |  |      | 10,356    |   |  |   | 7,968     |   |  |   | 7,804     |  
|                        | Net Interest Income                                 |  |                                       | 15,572    |      |  |      | 14,479    |      |  |      | 13,692    |   |  |   | 11,916    |   |  |   | 11,118    |  
|                        | Provision for Loan Losses                           |  |                                       | 483       |      |  |      | 910       |      |  |      | 509       |   |  |   | 303       |   |  |   | 495       |  
|                        | Net Interest Income After Provision for Loan
Losses |  |                                       | 15,089    |      |  |      | 13,569    |      |  |      | 13,184    |   |  |   | 11,612    |   |  |   | 10,623    |  
|                        | Total Other Income                                  |  |                                       | 5,251     |      |  |      | 4,550     |      |  |      | 2,991     |   |  |   | 1,931     |   |  |   | 1,808     |  
|                        | Total Other Expense                                 |  |                                       | 12,127    |      |  |      | 10,859    |      |  |      | 9,283     |   |  |   | 7,993     |   |  |   | 7,198     |  
|                        | Earnings Before Income Taxes                        |  |                                       | 8,213     |      |  |      | 7,260     |      |  |      | 6,892     |   |  |   | 5,551     |   |  |   | 5,233     |  
|                        | Income Taxes                                        |  |                                       | 2,668     |      |  |      | 2,471     |      |  |      | 2,487     |   |  |   | 1,995     |   |  |   | 1,835     |  
|                        | Net earnings                                        |  |                                       | 5,545     |      |  |      | 4,789     |      |  |      | 4,404     |   |  |   | 3,556     |   |  |   | 3,398     |  
|Per Share Data:         |                                                     |  |                                       |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |          
|                        | Net earnings                                        |  |                                       | 1.71      |      |  |      | 1.55      |      |  |      | 1.42      |   |  |   | 1.14      |   |  |   | 1.08      |  
|                        | Diluted net earnings                                |  |                                       | 1.69      |      |  |      | 1.52      |      |  |      | 1.41      |   |  |   | 1.13      |   |  |   | 1.07      |  
|                        | Cash dividends declared                             |  |                                       | .60       |      |  |      | .55       |      |  |      | .48       |   |  |   | .42       |   |  |   | .37       |  
|                        | Book value                                          |  |                                       | 11.65     |      |  |      | 9.42      |      |  |      | 8.30      |   |  |   | 7.08      |   |  |   | 6.98      |  
|                        | Tangible book value                                 |  |                                       | 11.65     |      |  |      | 9.42      |      |  |      | 8.30      |   |  |   | 7.08      |   |  |   | 6.98      |  
|At Year End:            |                                                     |  |                                       |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |          
|                        | Total loans                                         |  |                                       | 273,471   |      |  |      | 253,805   |      |  |      | 228,467   |   |  |   | 184,795   |   |  |   | 161,916   |  
|                        | Earning assets                                      |  |                                       | 360,226   |      |  |      | 331,690   |      |  |      | 272,512   |   |  |   | 233,950   |   |  |   | 208,044   |  
|                        | Assets                                              |  |                                       | 385,121   |      |  |      | 350,222   |      |  |      | 289,112   |   |  |   | 254,035   |   |  |   | 224,185   |  
|                        | Total deposits                                      |  |                                       | 298,726   |      |  |      | 280,531   |      |  |      | 233,811   |   |  |   | 214,805   |   |  |   | 192,922   |  
|                        | Stockholders equity                                |  |                                       | 38,520    |      |  |      | 29,204    |      |  |      | 25,687    |   |  |   | 21,923    |   |  |   | 21,911    |  
|                        | Common shares outstanding                           |  |                                       | 3,306,733 |      |  |      | 3,100,355 |      |  |      | 3,095,455 |   |  |   | 3,105,394 |   |  |   | 3,138,030 |  
|Average Balances:       |                                                     |  |                                       |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |          
|                        | Total loans                                         |  |                                       | 262,781   |      |  |      | 248,863   |      |  |      | 210,127   |   |  |   | 172,628   |   |  |   | 158,809   |  
|                        | Earning assets                                      |  |                                       | 337,583   |      |  |      | 310,027   |      |  |      | 259,736   |   |  |   | 223,091   |   |  |   | 201,851   |  
|                        | Assets                                              |  |                                       | 357,418   |      |  |      | 326,653   |      |  |      | 276,719   |   |  |   | 240,154   |   |  |   | 216,812   |  
|                        | Deposits                                            |  |                                       | 279,483   |      |  |      | 263,668   |      |  |      | 224,220   |   |  |   | 206,497   |   |  |   | 185,805   |  
|                        | Stockholders equity                                |  |                                       | 35,640    |      |  |      | 27,986    |      |  |      | 23,700    |   |  |   | 21,850    |   |  |   | 21,138    |  
|                        | Weighted average shares outstanding                 |  |                                       | 3,243,849 |      |  |      | 3,098,067 |      |  |      | 3,098,419 |   |  |   | 3,113,014 |   |  |   | 3,154,660 |  
|Key Performance Ratios: |                                                     |  |                                       |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |          
|                        | Return on average assets                            |  |                                       | 1.55      | %    |  |      | 1.47      | %    |  |      | 1.59      | % |  |   | 1.48      | % |  |   | 1.57      | %
|                        | Return on average equity                            |  |                                       | 15.56     | %    |  |      | 17.11     | %    |  |      | 18.58     | % |  |   | 16.27     | % |  |   | 16.08     | %
|                        | Net interest margin, taxable equivalent             |  |                                       | 4.76      | %    |  |      | 4.84      | %    |  |      | 5.44      | % |  |   | 5.49      | % |  |   | 5.63      | %
|                        | Dividend payout ratio                               |  |                                       | 34.94     | %    |  |      | 35.48     | %    |  |      | 33.80     | % |  |   | 36.33     | % |  |   | 34.34     | %
|                        | Average equity to average assets                    |  |                                       | 9.97      | %    |  |      | 8.57      | %    |  |      | 8.56      | % |  |   | 9.10      | % |  |   | 9.75      | %
|                        | Average loans to average deposits                   |  |                                       | 94.02     | %    |  |      | 94.39     | %    |  |      | 93.71     | % |  |   | 83.60     | % |  |   | 85.47     | %
|                        | Overhead ratio                                      |  |                                       | 58.24     | %    |  |      | 57.07     | %    |  |      | 55.64     | % |  |   | 57.72     | % |  |   | 55.69     | %

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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 the financial condition and results of operations of the Company 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 the Companys
consolidated financial statements and accompanying footnotes.

EARNINGS OVERVIEW

For the Years Ended December 31, 2002, 2001 and 2000

The Company reported net earnings of $5.5 million in 2002, $4.8 million in
2001 and $4.4 million in 2000, representing an increase of 15.8% between fiscal
years 2001 and 2002 and an increase of 8.7% between fiscal years 2000 and 2001.
The increases over the three fiscal years are primarily attributable to the
Banks continued loan growth, higher non-interest income and lower increases in
non-interest expense. Net earnings per share on a fully diluted basis was
$1.69 for 2002, $1.52 for 2001 and $1.41 for 2000, representing an increase of
11.2% between fiscal years 2001 and 2002 and 7.8% between fiscal years 2000 and
2001. The net earnings per share for 2002 was affected by the previously
described Common Stock offering completed in April 2002 which increased the
number of shares outstanding. Return on average assets and return on average
shareholders equity for 2002 was 1.55% and 15.56%, respectively, compared with
1.47% and 17.11%, respectively, for 2001, and 1.59% and 18.58%, respectively,
for 2000. The reduction of return on average equity was primarily due to a
large increase in equity in 2002. The increase was comprised of the Common
Stock offering ($4.8 million), an increase in retained earnings ($3.5 million)
and an increase in other comprehensive income ($922 thousand). These items had
the effect of increasing the average balance of shareholders equity by $7.7
million over 2001.

Net Interest Income

The Companys operational results primarily depend on the earnings of the
Bank. The Banks earnings depend, to a large degree, on net interest income.
Net interest income is defined as the difference between the interest income
received from its investments (such as loans, investment securities, federal
funds sold, etc.) and the interest expense on deposits and other borrowings.
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 and the average
rate paid on interest bearing liabilities. 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. The net interest margin 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.

Net interest income increased by $1.1 million (7.6%) in 2002 from 2001,
and by $787 thousand (or 5.7%) in 2001 from 2000. Net interest income at
December 31, 2002, was $15.6 million compared to $14.5 million in 2001 and
$13.7 million in 2000. The net interest margin on interest earning assets was
4.76% in 2002, 4.84% in 2001 and 5.44% in 2000. Beginning in early 2001
through the end of 2002, short term interest rates have dropped 525 basis
points. Comparing the interest margin in 2002 to that in 2001, the Banks
interest margin has declined by 8 basis points. Measuring from its three year
high in 2000, the Banks interest margin has decreased 68 basis points. The
Bank entered into an interest rate swap in December 2001 that benefited its
interest margin for 2002. During 2002, the Bank recorded a net benefit which
reduced interest expense by $168 thousand. In addition, managements interest
rate risk strategies helped to mitigate the effects of rapidly declining
interest rates. During 2002, the Banks cost of funds was reduced by 147 basis
points while the yield on earning assets declined 139 basis points resulting in
the net interest spread widening in 2002 by 8 basis points. The asset
repricing point has caught up with the immediate repricing of the
interest-bearing transaction account liabilities.

The decrease in the net interest margin between 2000 and 2001 is primarily
due to the rapid decline in the prime and discount rates during 2001 as assets
repriced more quickly than funding sources. Those benchmark rates declined 475
basis points in ten months. The Banks balance sheet has traditionally been
slightly liability sensitive.

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That is, its liabilities re-price faster than
its assets because of its high percentage of transaction accounts. Therefore,
in a rising rate environment the Banks interest margin tends to narrow whereas
in a falling rate environment the Banks interest margin tends to widen.
However, when rates fall rapidly and drastically, the Banks cost of funds hit
an economic floor. For instance, if the Bank was paying 2.5% on a NOW checking
account, 3.0% on a savings account and 3.5% on a money market account and
market rates decrease 475 basis points, the NOW, savings and money market rate
can only fall a fraction of that amount due to competitive issues.
Additionally, time deposits which have a fixed maturity are unable to decline
as quickly as transaction accounts.

The net result is that the Banks interest margin narrows since the yield
on earning assets has further to fall than the cost of funds. The Banks
management, through its asset liability management process, attempts to manage
its interest sensitivity position. However, no balance sheet management
technique can completely shield the Banks margin from the precipitous interest
rate movement experienced in 2001 and 2002.

The cost of interest-bearing liabilities was 3.12% for 2002, 4.59% for
2001 and 4.80% for 2000, representing a decrease of 147 basis points between
fiscal 2001 and 2002 and an decrease of 21 basis points between fiscal 2000 and
2001. If one considers the yield on interest-bearing assets of 7.35% for 2002,
8.74% for 2001 and 9.42% for 2000, the impact of decreasing rates on asset
yields was more pronounced in 2002 than in 2001, but the cost of funds decline
in the same period was greater. Yields between 2001 and 2002 decreased 139
basis points as opposed to an increase of 68 basis points between 1999 and
2000. Comparing net interest margins of 4.76% for 2002, 4.84% for 2001 and
5.44%, one can clearly identify the impact on net interest margin as rates
declined 475 basis points over the last ten months of 2001 and another 50 basis
points in 2002. Prolonged low rates will have the impact of lowering the
Companys net interest margin.

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%:

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Table 1

Average Consolidated Balance Sheets and Net Interest Analysis

(in thousands)


|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |      |       |       |  
|------------------------------------------------------------------- | ---------------------------------- | ------------------ | ------------------------------------------ | ------- | -------------------------------- | ------- | -------- | ----- | ------ | ------ | --------------- | ---- | -------- | ---- | ------- | ------- | --------------- | ------- | -------- | ------ | ------ | ------ | ------ | ---- | ----- | ---- | ------- | ------- | ------- | ------- | ------ | ------ | ------ | ------ | ---- | ---- | ----- | ----- | -
|                                                                    |                                    |                    |                                            |         | For the Years Ended December 31,
|                                                                    |                                    |                    |                                            |         |                                 
|                                                                    |                                    |                    |                                            |         | 2002                             |         | 2001     |       | 2000  
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |       
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      | Yield/   |      |         |         |                 |         |          |        |        |        | Yield/ |      |       |      |         |         |         |         |        |        | Yield/
|                                                                    |                                    |                    |                                            |         | Average Balance                  |         | Interest |       | Rate   |        | Average Balance |      | Interest |      | Rate    |         | Average Balance |         | Interest |        | Rate  
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |       
|Assets:                                                             |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Interest earnings assets:                                           |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    | Investments:                       |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |      |      
|                                                                    |                                    | Federal funds sold |                                            | $       | 15,761                           |         |          |       | 249    |        |                 |      | 1.58     | %    |         | $       | 13,349          |         |          |        | 490    |        |        |      | 3.67  | %    |         | $       | 4,669   |         |        |        | 353    |        |      |      | 7.56  | %    
|                                                                    |                                    | Taxable            |                                            |         | 40,416                           |         |          |       | 2,333  |        |                 |      | 5.77     | %    |         |         | 30,326          |         |          |        | 1,923  |        |        |      | 6.34  | %    |         |         | 31,323  |         |        |        | 2,006  |        |      |      | 6.41  | %    
|                                                                    |                                    | Tax exempt         |                                            |         | 18,625                           |         |          |       | 1,290  |        |                 |      | 6.93     | %    |         |         | 17,489          |         |          |        | 1,389  |        |        |      | 7.94  | %    |         |         | 13,617  |         |        |        | 1,057  |        |      |      | 7.77  | %    
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    | Total Investments                          |         |                                  | 74,802  |          |       |        | 3,872  |                 |      |          | 5.18 | %       |         |                 | 61,164  |          |        |        | 3,802  |        |      |       | 6.22 | %       |         |         | 49,609  |        |        |        | 3,416  |      |      |       | 6.89  | %
|                                                                    | Loans (including loan fees):       |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |      |      
|                                                                    |                                    | Taxable            |                                            |         | 260,982                          |         |          |       | 20,739 |        |                 |      | 7.95     | %    |         |         | 247,155         |         |          |        | 23,096 |        |        |      | 9.34  | %    |         |         | 208,380 |         |        |        | 20,867 |        |      |      | 10.01 | %    
|                                                                    |                                    | Tax Exempt         |                                            |         | 1,799                            |         |          |       | 188    |        |                 |      | 10.45    | %    |         |         | 1,708           |         |          |        | 185    |        |        |      | 10.83 | %    |         |         | 1,747   |         |        |        | 190    |        |      |      | 10.89 | %    
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    | Total Loans                                |         |                                  | 262,781 |          |       |        | 20,927 |                 |      |          | 7.96 | %       |         |                 | 248,863 |          |        |        | 23,281 |        |      |       | 9.35 | %       |         |         | 210,127 |        |        |        | 21,057 |      |      |       | 10.02 | %
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Total interest earning assets                                       |                                    |                    | 337,583                                    |         |                                  |         | 24,799   |       |        |        | 7.35            | %    |          |      | 310,027 |         |                 |         | 27,083   |        |        |        | 8.74   | %    |       |      | 259,736 |         |         |         | 24,473 |        |        |        | 9.42 | %   
|Other non-interest earnings assets                                  |                                    |                    | 19,835                                     |         |                                  |         |          |       |        |        |                 |      |          |      | 16,626  |         |                 |         |          |        |        |        |        |      |       |      | 16,983  |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Total assets                                                        |                                    | $                  | 357,418                                    |         |                                  |         |          |       |        |        |                 |      |          | $    | 326,653 |         |                 |         |          |        |        |        |        |      |       | $    | 276,719 |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Liabilities and shareholders equity:                               |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Interest-bearing liabilities:                                       |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    | Deposits:                          |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |      |      
|                                                                    |                                    | Demand             |                                            | $       | 106,570                          |         |          |       | 1,487  |        |                 |      | 1.40     | %    |         | $       | 94,952          |         |          |        | 2,399  |        |        |      | 2.53  | %    |         | $       | 79,323  |         |        |        | 2,513  |        |      |      | 3.17  | %    
|                                                                    |                                    | Savings            |                                            |         | 13,314                           |         |          |       | 95     |        |                 |      | .71      | %    |         |         | 11,955          |         |          |        | 228    |        |        |      | 1.90  | %    |         |         | 11,924  |         |        |        | 238    |        |      |      | 2.00  | %    
|                                                                    |                                    | Time               |                                            |         | 121,558                          |         |          |       | 5,094  |        |                 |      | 4.19     | %    |         |         | 123,513         |         |          |        | 7,489  |        |        |      | 6.06  | %    |         |         | 101,559 |         |        |        | 6,200  |        |      |      | 6.11  | %    
|                                                                    | FHLB advances
& other borrowings   |                    |                                            | 38,574  |                                  |         |          | 2,048 |        |        |                 | 5.31 | %        |      |         | 32,288  |                 |         |          | 1,953  |        |        |        | 6.05 | %     |      |         | 22,772  |         |         |        | 1,404  |        |        |      | 6.17 | %    
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    | Total interest-bearing liabilities |                    |                                            | 280,016 |                                  |         |          | 8,724 |        |        |                 | 3.12 | %        |      |         | 262,708 |                 |         |          | 12,069 |        |        |        | 4.59 | %     |      |         | 215,578 |         |         |        | 10,355 |        |        |      | 4.80 | %    
|Non-interest bearing deposits                                       |                                    |                    | 38,041                                     |         |                                  |         |          |       |        |        |                 |      |          |      | 33,248  |         |                 |         |          |        |        |        |        |      |       |      | 31,415  |         |         |         |        |        |        |        |      |     
|Other liabilities                                                   |                                    |                    | 3,721                                      |         |                                  |         |          |       |        |        |                 |      |          |      | 2,711   |         |                 |         |          |        |        |        |        |      |       |      | 6.026   |         |         |         |        |        |        |        |      |     
|Shareholders equity                                                |                                    |                    | 35,640                                     |         |                                  |         |          |       |        |        |                 |      |          |      | 27,986  |         |                 |         |          |        |        |        |        |      |       |      | 23,700  |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    | Total liabilities and
Shareholders equity |         | $                                | 357,418 |          |       |        |        |                 |      |          |      |         |         | $               | 326,653 |          |        |        |        |        |      |       |      |         |         | $       | 276,719 |        |        |        |        |      |      |       |       |  
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Excess of interest-earning assets
over interest-bearing liabilities |                                    | $                  | 57,567                                     |         |                                  |         |          |       |        |        |                 |      |          | $    | 47,319  |         |                 |         |          |        |        |        |        |      |       | $    | 44,158  |         |         |         |        |        |        |        |      |     
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Ratio of interest-earning assets to
Interest-bearing liabilities    |                                    |                    | 120.55                                     | %       |                                  |         |          |       |        |        |                 |      |          |      | 118.01  | %       |                 |         |          |        |        |        |        |      |       |      | 120.48  | %       |         |         |        |        |        |        |      |     
|Net interest income tax equivalent                                  |                                    |                    |                                            |         |                                  |         | 16,075   |       |        |        |                 |      |          |      |         |         |                 |         | 15,014   |        |        |        |        |      |       |      |         |         |         |         | 14,118 |        |        |        |      |     
|Net interest spread                                                 |                                    |                    |                                            |         |                                  |         |          |       |        |        | 4.23            | %    |          |      |         |         |                 |         |          |        |        |        | 4.15   | %    |       |      |         |         |         |         |        |        |        |        | 4.62 | %   
|Net interest margin on interest earning assets                      |                                    |                    |                                            |         |                                  |         |          |       |        |        | 4.76            | %    |          |      |         |         |                 |         |          |        |        |        | 4.84   | %    |       |      |         |         |         |         |        |        |        |        | 5.44 | %   
|Taxable Adjustments:                                                |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|                                                                    | Investments                        |                    |                                            |         |                                  |         |          | (439  | )      |        |                 |      |          |      |         |         |                 |         |          | (472   | )      |        |        |      |       |      |         |         |         |         |        | (360   | )      |        |      |      |      
|                                                                    | Loans                              |                    |                                            |         |                                  |         |          | (63   | )      |        |                 |      |          |      |         |         |                 |         |          | (63    | )      |        |        |      |       |      |         |         |         |         |        | (66    | )      |        |      |      |      
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     
|Net interest income                                                 |                                    |                    |                                            |         |                                  | $       | 15,573   |       |        |        |                 |      |          |      |         |         |                 | $       | 14,479   |        |        |        |        |      |       |      |         |         |         | $       | 13,692 |        |        |        |      |     
|                                                                    |                                    |                    |                                            |         |                                  |         |          |       |        |        |                 |      |          |      |         |         |                 |         |          |        |        |        |        |      |       |      |         |         |         |         |        |        |        |        |      |     

Non-accrual loans and the interest income that was recorded on these loans
are included in the yield calculation for loans in all periods reported.
Tax-exempt interest income is calculated on a tax equivalent basis.

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 the Bank 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.

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Table 2Changes in Interest Income and Expense on a Tax Equivalent Basis(in thousands)

|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |       |      |       |       | 
|------------------------------------------ | ----------------------- | -------------------------------- | ---------------------- | --------------------- | --- | -------------------------------------- | ----- | -------------- | ------ | ------ | ------ | ------ | ---- | ------ | ----- | ----- | --- | ----- | ----- | ------ | ---- | ---- | ------ | ----- | ---- | ----- | ----- | 
|                                           |                         |                                  |                        |                       |     | Increase (decrease) due to changes in:
|                                           |                         |                                  |                        |                       |     |                                       
|                                           |                         |                                  |                        |                       |     | 2002 over 2001                         |       | 2001 over 2000
|                                           |                         |                                  |                        |                       |     |                                        |       |               
|                                           |                         |                                  |                        |                       |     | Volume                                 |       | Rate           |        | Total  |        | Volume |      | Rate   |       | Total
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |      
|Interest income on:                        |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|                                           | Federal funds sold      |                                  | $                      | 38                    |     |                                        |       | (279           | )      |        |        | (241   | )    |        | $     | 318   |     |       |       | (181   | )    |      |        | 137   |     
|                                           | Taxable investments     |                                  |                        | 582                   |     |                                        |       | (173           | )      |        |        | 409    |      |        |       | (63   | )   |       |       | (20    | )    |      |        | (83   | )   
|                                           | Non-taxable investments |                                  |                        | 79                    |     |                                        |       | (177           | )      |        |        | (98    | )    |        |       | 308   |     |       |       | 24     |      |      |        | 332   |     
|                                           | Taxable loans           |                                  |                        | 1,099                 |     |                                        |       | (3,456         | )      |        |        | (2,357 | )    |        |       | 3,623 |     |       |       | (1,394 | )    |      |        | 2,229 |     
|                                           | Non-taxable loans       |                                  |                        | 10                    |     |                                        |       | (6             | )      |        |        | 4      |      |        |       | (4    | )   |       |       | (1     | )    |      |        | (5    | )   
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|                                           |                         |                                  |                        | Total Interest Income |     |                                        | 1,808 |                |        |        | (4,091 | )      |      |        | 2,283 |       |     |       | 4,182 |        |      |      | (1,572 | )     |      |       | 2,610 | 
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|Interest expense on:                       |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|                                           |                         | Deposits:                        |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |       |      |      
|                                           |                         | Demand                           |                        |                       | 162 |                                        |       |                | (1,074 | )      |        |        | (912 | )      |       |       | 395 |       |       |        | (509 | )    |        |       | (114 | )    
|                                           |                         |                                  | Savings                |                       |     | 10                                     |       |                |        | (143   | )      |        |      | (133   | )     |       |     | 1     |       |        |      | (11  | )      |       |      | (10   | )    
|                                           |                         |                                  | Time                   |                       |     | (82                                    | )     |                |        | (2,313 | )      |        |      | (2,395 | )     |       |     | 1,331 |       |        |      | (42  | )      |       |      | 1,289 |      
|                                           |                         | FHLB advances & other borrowings |                        |                       | 334 |                                        |       |                | (238   | )      |        |        | 96   |        |       |       | 575 |       |       |        | (26  | )    |        |       | 549  |      
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|                                           |                         |                                  | Total Interest Expense |                       |     | 424                                    |       |                |        | (3,768 | )      |        |      | (3,344 | )     |       |     | 2,302 |       |        |      | (588 | )      |       |      | 1,714 |      
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      
|Increase (decrease) in net interest income |                         | $                                | 1,384                  |                       |     |                                        | (323  | )              |        |        | 1,061  |        |      | $      | 1,880 |       |     |       | (984  | )      |      |      | 896    |      
|                                           |                         |                                  |                        |                       |     |                                        |       |                |        |        |        |        |      |        |       |       |     |       |       |        |      |      |        |      

Other Income and Expense

Other income in 2002 was $5.3 million, compared to $4.6 million in 2001
and $3.0 million in 2000. This represents an increase of $701 thousand, or
15.4%, from fiscal 2001 to fiscal 2002 and an increase of $1.6 million, or
52.2%, from fiscal 2000 to fiscal 2001. The continuing increases in all
comparative years are primarily due to an increase in the volume of service
charges on deposit accounts and more specifically attributable to insufficient
funds charges on deposit accounts. Service charges on deposit accounts have
increased an average of 24% over the last two years and most of that increase
is due to insufficient funds charges and service charges on increased new
account activity. Mortgage origination fees have increased 14% from 2001 to
2002 and 235% from 2000 to 2001. This is primarily due to continued low
mortgage rates in 2001 and 2002 and customers desiring to either refinance
their existing homes or purchase new homes. The Bank settled its interest rate
swap position accounted for as a fair value hedge in August 2002, recognizing a
gain of $252,950 which is included in miscellaneous income for 2002. This
income is non-recurring in nature as the Bank has no other hedge positions
currently in place.

Other expenses increased by $1.3 million, or 11.7%, in 2002 over 2001. The
increase was due to an increase in salaries and employee benefits of $682
thousand, or 10.5%, an increase in occupancy expense of $91 thousand, or 5.8%,
and an increase in other operating expense of $494 thousand, or 17.7%. The
increase in salary and employee benefits is attributable to the following
factors: (i) increased number of full time equivalent employees; (ii) a full
year of wages for the staff at the Douglasville branch opened in mid 2001;
(iii) increased commissions to mortgage loan originators due to the increase of
mortgage origination activity; (iv) increased costs of health insurance; and
(v) annual raises and increased profit sharing bonuses due to higher
profitability. The Company had 10 more full time equivalent employees at the
end of 2002 than it did at the end of 2001.

The increase in occupancy expense in 2002 as compared to 2001 was
primarily attributable to a full year of operations in our Douglasville branch
in addition to increased depreciation expense due to additional office space
and investment in bank technology. The increase in other operating expense is
due to increases in legal, accounting, and annual fees associated with
compliance with SEC regulations and listing requirements for NASDAQ.
Additionally, the
Bank paid increased software fees associated with its bounce protection program
which is commensurate with the increased fee income.

Other notable increases in expenses from 2000 to 2001 are related to
occupancy and other operating expenses increasing $492 thousand, or 12.7%.
This increase was due to increased occupancy and operating costs associated
with the Mirror Lake and Douglasville offices and to increased costs associated
with the bounce protection program.

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Income taxes, expressed as a percentage of earnings before income taxes,
declined to 33% in 2002, from 34% in 2001 and 36% in 2000. The decline in
marginal tax rate over the past three years is primarily attributable to tax
credits purchased by the Bank in 2001 having a full effect in 2002. In
addition, in October 2002 the Bank formed WGNB Investments, Inc., a Nevada
corporation, to manage, hold and trade cash, securities and loans of the Bank
which had the effect of reducing its state income tax liability slightly in
2002.

BALANCE SHEET OVERVIEW

For the Years Ended December 31, 2002 and 2001

General

During 2002, average total assets increased $30.8 million (9.4%), average
deposits increased $15.8 million (6.0%) and average loans increased $13.9
million (5.6%) from those recorded in 2001. During 2001, average total assets
increased $49.9 million (18.0%), average deposits increased $39.4 million
(17.6%) and average loans increased $38.7 million (18.4%) from those recorded
in 2000. The Banks growth rate in 2002 slowed significantly when compared to
2001 and 2000. This was attributable to the slowdown of the economy and
business expansion in the Banks market area. Management endeavors to let loan
growth drive balance sheet growth and, thus, a slowdown in loan growth is
reflected on the balance sheet.

Total assets at December 31, 2002, were $385 million, representing a $35
million (10.0%) increase from December 31, 2001. Total deposits increased
$18.2 million (6.5%) from 2001 to 2002 while total loans increased $19.7
million (7.7%) during 2002. The increase in deposits in 2002 is attributable
to an increase in non-interest bearing demand accounts of $5.1 million (15.4%),
an increase in interest-bearing demand accounts of $14.4 million (13.1%) and a
decrease in time deposit accounts of $2.0 million (1.6%). Demand accounts
accounted for the vast majority of deposit increases in 2002. We attribute the
demand deposit growth to three events that occurred in 2002. First, the only
three independent competing community banks that remained in Carroll County
merged with regional banks. This displacement has led to new checking account
customers for the Bank. Second, because the time deposit rates are so low,
some customers have moved their funds to money market accounts and NOW accounts
in hopes that longer term CD rates will increase in the immediate future.
Third, the Bank has deposit relationships with numerous county and municipal
authorities. These deposit relationships in the banking industry are known as
public funds. At the end of 2002, certain public entities had collected tax
revenue in the amount of $6 million, subsequently deposited with the Bank,
causing the Banks liquidity to increase. This amount was on deposit with the
Bank at year end 2002, but typically is disbursed in the first quarter of the
following year.

As the local and regional economy softened, loan demand fell off in the
last half of 2001 and that trend continued throughout 2002. The Bank had grown
its loan portfolio by $43.7 million (23.6%) in 2000, by $25.3 million (11.1%)
in 2001 and by $19.7 million (7.7%) in 2002. The loans were funded principally
with increased demand deposit accounts, a lower cost funding source and FHLB
borrowings, typically lower than comparable certificates of deposit rates and
terms. The Bank experienced approximately $7 million in loan payoffs in the
fourth quarter of 2002 which had a detrimental effect on loan growth for 2002
and is also a factor underlying the spike in the Banks liquidity at year end.

Total assets at December 31, 2001, were $350 million, representing a $61
million (21.1%) increase from December 31, 2000. Total deposits increased
$46.7 million (20.0%) from 2000 to 2001 while total loans increased $25.3
million (11.1%) during 2001. A little less than half of the increase in
deposits came as a result of an increase of $21.0 million (23.8%) in
interest-bearing demand accounts from 2000 to 2001 while time deposits
accounts increased $22.9 million (21.4%) in 2001. By June 30, 2001, the bank
had grown $28.3 million in loans however the actual growth for the year was
$25.3 million. Deposit growth, on the other hand, remained strong throughout
2001 as customers sought to move funds from the stock market back to the Bank
as a flight to safety. Approximately fifty percent of the loan growth
experienced by the Company was funded with FHLB advances. The remainder was
funded principally with increases in deposit accounts.

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Investments

The Companys available-for-sale investment portfolio of $52.1 million as
of December 31, 2002 consisted primarily of debt securities, which provide the
Company with a source of liquidity and a stable source of income. This
represented a decrease of $2.8 million (5.1%) over the $54.9 million held at
December 31, 2001. The Company believes the investment portfolio provides a
balance to interest rate and credit risk in other categories of the balance
sheet while providing a vehicle for the investment of available funds and
supplying securities to pledge as required collateral for certain public
deposits. Investment securities 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 the Companys overall asset
liability management strategy.

Investment securities held-to-maturity are stated at amortized cost and
totaled $3.5 million at December 31, 2002, an increase of $1.5 million (75%)
when compared to the prior year. The increase is attributable to the purchase
of banking industry issued trust preferred securities from various issuers
across the United States and the Southeast. The Company has the intent and
ability to hold these securities until maturity.

The following table shows the carrying value of the Companys securities,
by security type, as of December 31, 2002, 2001 and 2000:

Table 3Investment Portfolio(in thousands)

|                            |                          |   |        |        |  |   |        |        |  |   |        |        | 
|--------------------------- | ------------------------ | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|Available for Sale          |                          |   | 2002   |        |  |   | 2001   |        |  |   | 2000   |       
|                            |                          |   |        |        |  |   |        |        |  |   |        |       
|United States agencies      |                          | $ | 3,608  |        |  | $ | 3,899  |        |  | $ | 12,605 |       
|State, county and municipal |                          |   | 25,214 |        |  |   | 23,476 |        |  |   | 13,740 |       
|Mortgage-backed securities  |                          |   | 21,583 |        |  |   | 26,508 |        |  |   | 13,614 |       
|Corporate bonds             |                          |   | 1,727  |        |  |   | 1,051  |        |  |   |       |       
|                            |                          |   |        |        |  |   |        |        |  |   |        |       
|                            | Total available for sale |   | $      | 52,132 |  |   | $      | 54,934 |  |   | $      | 39,959 | 
|                            |                          |   |        |        |  |   |        |        |  |   |        |       
|Held to Maturity            |                          |   |        |        |  |   |        |        |  |   |        |       
|Trust Preferred Securities  |                          | $ | 3,500  |        |  | $ | 2,000  |        |  | $ | 1,000  |       
|                            |                          |   |        |        |  |   |        |        |  |   |        |       
|                            | Total held to maturity   |   | $      | 3,500  |  |   | $      | 2,000  |  |   | $      | 1,000  | 
|                            |                          |   |        |        |  |   |        |        |  |   |        |       

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, 2002. The composition and maturity/re-pricing distribution of the
securities portfolio is subject to change depending on rate sensitivity,
capital and liquidity needs.

Table 4Expected Maturity of Securities(in thousands)

|                    |               |          |       |            |  |           |      |        |  |            |        |           |  |       |      |       |  |      |        |      |  |  |      |      |  |   |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|------------------- | ------------- | -------- | ----- | ---------- |  | --------- | ---- | ------ |  | ---------- | ------ | --------- |  | ----- | ---- | ----- |  | ---- | ------ | ---- |  |  | ---- | ---- |  | - | ----- |  |  |  | ---- | - |  | - | ----- |  |  |  | ---- | -
|                    |               |          |       |            |  | Wtd.      |      | State, |  | Wtd.       |        | Mortgage- |  | Wtd.  |      | Corp- |  | Wtd. |        |      |  |  |      | Wtd.
|Maturities at       | United States | Avg.     |       | County and |  | Avg.      |      | Backed |  | Avg.       |        | orate     |  | Avg.  |      | Trust |  | Avg.
|December 31, 2002   |               | Agencies |       | Yld.       |  | Municipal |      | Yld.   |  | Securities |        | Yld.      |  | Bonds |      | Yld   |  | Pfd  |        | Yld.
|                    |               |          |       |            |  |           |      |        |  |            |        |           |  |       |      |       |  |      |        |     
|Within 1 year       |               | $        | 2,021 |            |  |           | 3.67 | %      |  | $          | 919    |           |  |       | 6.35 | %     |  | $    | 6,495  |      |  |  | 5.45 | %    |  | $ |      |  |  |  |     |   |  | $ |      |  |  |  |     |  
|After 1 thru 5 yrs  |               |          | 502   |            |  |           | 3.20 | %      |  |            | 2,301  |           |  |       | 6.10 | %     |  |      | 11,338 |      |  |  | 5.85 | %    |  |   | 1,168 |  |  |  | 5.02 | % |  |   |      |  |  |  |     |  
|After 5 thru 10 yrs |               |          | 1,000 |            |  |           | 5.00 | %      |  |            | 2,319  |           |  |       | 6.64 | %     |  |      | 2,281  |      |  |  | 6.47 | %    |  |   | 518   |  |  |  | 7.00 | % |  |   |      |  |  |  |     |  
|After 10 yrs        |               |          |      |            |  |           |     |        |  |            | 18,622 |           |  |       | 7.31 | %     |  |      | 697    |      |  |  | 6.53 | %    |  |   |      |  |  |  |     |   |  |   | 3,500 |  |  |  | 9.79 | %
|                    |               |          |       |            |  |           |      |        |  |            |        |           |  |       |      |       |  |      |        |      |  |  |      |      |  |   |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|Totals              |               | $        | 3,523 |            |  |           | 3.98 | %      |  | $          | 24,161 |           |  |       | 7.09 | %     |  | $    | 20,811 |      |  |  | 5.82 | %    |  | $ | 1,686 |  |  |  | 5.63 | % |  | $ | 3,500 |  |  |  | 9.79 | %
|                    |               |          |       |            |  |           |      |        |  |            |        |           |  |       |      |       |  |      |        |      |  |  |      |      |  |   |       |  |  |  |      |   |  |   |       |  |  |  |      |  

Mortgage backed securities are included in the maturities categories in
which they are anticipated to be repaid based on scheduled maturities. The
actual cash flow of mortgage backed securities differs with this assumption.
Additionally, some agency securities in the portfolio have call features. The
above analysis assumes that callable agencies will mature on their final
maturity date. The actual cash flow of agency securities may differ from this
assumption. Yields on tax-exempt securities are calculated on a tax equivalent
basis.

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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. The Bank, on a routine basis, evaluates these concentrations for
purposes of policing its concentrations and making necessary adjustments in its
lending practices to reflect current economic conditions, loan to deposit
ratios, and industry trends.

The primary types of loans in the Banks portfolio are residential
mortgages and home equity loans, commercial real estate loans, commercial
loans, and consumer installment loans. Generally, the Bank underwrites 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, the Banks general
policy is to require 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 the Banks 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 the
Company and to directors and officers of the Bank are subject to limitations of
the Federal Reserve, the principal effect of which is to require that
extensions of credit by the Bank to executive officers, directors, and ten
percent shareholders satisfy certain standards. The Bank routinely makes loans
in the ordinary course of business to certain directors and executive officers
of the Company and the 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, 2002, loans and commitments outstanding to directors and
executive officers of the Company and the Bank, their associates and members of
their immediate families totaled $5.4 million (net of participations sold to
other banks on a non-recourse basis), which represented approximately 2.0% of
total loans as of that date. As of December 31, 2002, none of these loans
outstanding from the Bank to related parties were on non-accrual, past due,
restructured or considered by management to be a potential problem loan.

The following table presents loans by type on the dates indicated:

Table 5Loan Portfolio(in
thousands)

|                                     |  |                           |         |      |         |      |         |      |         |      |         |      |         |   |         |   |         |   |         |   |         |  
|------------------------------------ |  | ------------------------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | - | ------- | - | ------- | - | ------- | - | ------- | -
|                                     |  | December 31,             
|                                     |  |                          
|                                     |  |                           |         | 2002 |         | 2001 |         | 2000 |         | 1999 |         | 1998
|                                     |  |                           |         |      |         |      |         |      |         |      |         |     
|Commercial, financial & agricultural |  | $                         | 34,821  |      |         | $    | 26,162  |      |         | $    | 26,547  |      |         | $ | 24,144  |   |         | $ | 19,527  |  
|Real estate  construction           |  |                           | 68,818  |      |         |      | 60,785  |      |         |      | 46,052  |      |         |   | 34,769  |   |         |   | 22,718  |  
|Real estate  mortgage               |  |                           | 153,572 |      |         |      | 147,705 |      |         |      | 135,750 |      |         |   | 108,137 |   |         |   | 102,702 |  
|Consumer loans                       |  |                           | 16,260  |      |         |      | 19,153  |      |         |      | 20,118  |      |         |   | 17,745  |   |         |   | 16,970  |  
|                                     |  |                           |         |      |         |      |         |      |         |      |         |      |         |   |         |   |         |   |         |  
|                                     |  |                           | 273,471 |      |         |      | 253,805 |      |         |      | 228,467 |      |         |   | 184,795 |   |         |   | 161,917 |  
|Less: Unearned interest and fees     |  |                           | (487    | )    |         |      | (525    | )    |         |      | (561    | )    |         |   | (467    | ) |         |   | (442    | )
|                                     |  | Allowance for loan losses |         |      | (3,771  | )    |         |      | (3,720  | )    |         |      | (2,920  | ) |         |   | (2,281  | ) |         |   | (2,019  | )
|                                     |  |                           |         |      |         |      |         |      |         |      |         |      |         |   |         |   |         |   |         |  
|                                     |  | Loans, net                |         | $    | 269,213 |      |         | $    | 249,560 |      |         | $    | 224,986 |   |         | $ | 182,047 |   |         | $ | 159,456 |  
|                                     |  |                           |         |      |         |      |         |      |         |      |         |      |         |   |         |   |         |   |         |  

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 and mortgage loans and consumer
loans as of December 31, 2002:

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Table 6Loan Portfolio Maturity(in thousands)

|                                     |       |   |         |         |      |  |        |      |      |   |        |        |      |  |       |      |      |   |        |        |  |  |      |      |   |   |         |         |  |  |      |      |  
|------------------------------------ | ----- | - | ------- | ------- | ---- |  | ------ | ---- | ---- | - | ------ | ------ | ---- |  | ----- | ---- | ---- | - | ------ | ------ |  |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | -
|                                     |       |   |         |         |      |  |        |      |      |   | Over   |        |      |  |       |      |      |   |        |        |  |  |      |      |   |   |         |         |  |  |     
|                                     |       |   | One     |         | Wtd. |  | One to |      | Wtd. |   | Over   |        | Wtd. |  |       |      |      |   | Wtd.  
|                                     |       |   | Year    |         | Avg. |  | Five   |      | Avg. |   | Five   |        | Avg. |  |       |      |      |   | Avg.  
|                                     |       |   | or Less |         | Yld. |  | Years  |      | Yld. |   | Years  |        | Yld. |  | Total |      | Yld.
|                                     |       |   |         |         |      |  |        |      |      |   |        |        |      |  |       |      |     
|Commercial, financial & agricultural |       | $ | 26,160  |         |      |  | 6.30   | %    |      | $ | 5,768  |        |      |  | 7.66  | %    |      | $ | 2,893  |        |  |  | 6.81 | %    |   | $ | 34,821  |         |  |  | 6.57 | %   
|Real estate  construction           |       |   | 56,934  |         |      |  | 6.36   | %    |      |   | 7,430  |        |      |  | 6.62  | %    |      |   | 4,454  |        |  |  | 7.24 | %    |   |   | 68,818  |         |  |  | 6.44 | %   
|Real estate  mortgage               |       |   | 45,368  |         |      |  | 6.67   | %    |      |   | 70,611 |        |      |  | 7.09  | %    |      |   | 37,593 |        |  |  | 6.42 | %    |   |   | 153,572 |         |  |  | 6.80 | %   
|Consumer                             |       |   | 8,984   |         |      |  | 8.76   | %    |      |   | 7,235  |        |      |  | 9.56  | %    |      |   | 41     |        |  |  | 5.73 | %    |   |   | 16,260  |         |  |  | 9.11 | %   
|                                     |       |   |         |         |      |  |        |      |      |   |        |        |      |  |       |      |      |   |        |        |  |  |      |      |   |   |         |         |  |  |      |     
|                                     | Total |   | $       | 137,446 |      |  |        | 6.61 | %    |   | $      | 91,044 |      |  |       | 7.28 | %    |   | $      | 44,981 |  |  |      | 6.53 | % |   | $       | 273,471 |  |  |      | 6.82 | %
|                                     |       |   |         |         |      |  |        |      |      |   |        |        |      |  |       |      |      |   |        |        |  |  |      |      |   |   |         |         |  |  |      |     

Variable/Fixed Rate Mix

|                                       |       |   |          |         |     |  |          |      |     |   |        |         |  |  |      |      |  
|-------------------------------------- | ----- | - | -------- | ------- | --- |  | -------- | ---- | --- | - | ------ | ------- |  |  | ---- | ---- | -
|                                       |       |   | Variable |         | Wtd |  | Fixed    |      | Wtd
|                                       |       |   | Interest |         | Avg |  | Interest |      | Avg
|                                       |       |   | Rates    |         | Yld |  | Rates    |      | Yld
|                                       |       |   |          |         |     |  |          |      |    
|Commercial, financial and agricultural |       | $ | 9,043    |         |     |  | 5.28     | %    |     | $ | 25,778 |         |  |  | 7.02 | %   
|Real estate  construction             |       |   | 23,088   |         |     |  | 5.93     | %    |     |   | 45,730 |         |  |  | 6.70 | %   
|Real estate  mortgage                 |       |   | 75,971   |         |     |  | 5.82     | %    |     |   | 77,601 |         |  |  | 7.76 | %   
|Consumer                               |       |   | 714      |         |     |  | 7.48     | %    |     |   | 15,546 |         |  |  | 9.18 | %   
|                                       |       |   |          |         |     |  |          |      |     |   |        |         |  |  |      |     
|                                       | Total |   | $        | 108,816 |     |  |          | 5.81 | %   |   | $      | 164,655 |  |  |      | 7.49 | %
|                                       |       |   |          |         |     |  |          |      |     |   |        |         |  |  |      |     

Provision and Allowance for Possible Loan and Lease Losses

The provision for loan losses for the Company in 2002 was $483 thousand
compared to $911 thousand in 2001 and $509 thousand in 2000. The decrease in
the provision for loan losses reflects the slower loan growth and lower level
of nonperforming loans in 2002 as compared to 2001. The Companys methodology
described below for measuring the adequacy of the allowance for loan loss
continues to indicate sufficient reserve for expected losses in the portfolio.

The allowance for loan losses represented 1.38%, 1.47% and 1.28% of total
loans outstanding at December 31, 2002, 2001 and 2000, respectively. Total
charge-offs were $695 thousand, $200 thousand and $77 thousand compared to
recoveries of $264 thousand, $89 thousand and $208 thousand during 2002, 2001
and 2000, respectively.

The Company has an independent loan review function. All loans are placed
in loan grade categories, which are consistent with those used by the Banks
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, the Bank assures the timely recognition of credit risks.
In general, as credit risk increases, the level of the allowance for loan loss
will also increase.

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 eight different categories. Grades
five though eight, 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 four are stratified by type and
allocated loss ranges based on historical loss experience for the strata. The

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combination of these results are 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 are evaluated
individually to measure the probable loss, if any, in the credit. Management
uses an internal loan reviewer 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. While
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 the Companys allowance for loan losses. Such regulators may require
the Company to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. Management of
the Company realizes the importance of maintaining an adequate allowance for
loan losses. Through a professional loan review function and effective loan
officer identification program, management is recognizing 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 the Companys 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. The Companys 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 loans in addition to the general allowance. The Company also
evaluates the risks associated with concentrations in credit. If it is
necessary to assign an allowance related to concentrations of credit, the
Company adds a specific reserve related to such risks.

The following table presents a summary of changes in the allowance for
loan losses for the years indicated:

Table 7Allowance for Loan Losses(in thousands)

|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |    |     | 
|------------------------------------------------------------------------------------ | -------------------------------------- | ----------------- | ----- | ------------ | --- | ---- | ----- | ---- | --- | ---- | ----- | ---- | --- | - | ----- | -- | --- | - | ----- | -- | --- | 
|                                                                                     |                                        |                   |       | December 31,
|                                                                                     |                                        |                   |       |             
|                                                                                     |                                        |                   |       | 2002         |     | 2001 |       | 2000 |     | 1999 |       | 1998
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |     
|Balance at beginning of year                                                         |                                        | $                 | 3,720 |              |     | $    | 2,920 |      |     | $    | 2,281 |      |     | $ | 2,019 |    |     | $ | 1,526 |   
|Charge-offs:                                                                         |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|                                                                                     | Commercial, financial and agricultural |                   |       | 288          |     |      |       | 118  |     |      |       | 12   |     |   |       | 32 |     |   |       | 38 |    
|                                                                                     | Real estate  construction             |                   |       |             |     |      |       |     |     |      |       |     |     |   |       |   |     |   |       |   |    
|                                                                                     | Real estate  mortgage                 |                   |       | 165          |     |      |       | 3    |     |      |       | 3    |     |   |       | 18 |     |   |       | 5  |    
|                                                                                     | Consumer loans                         |                   |       | 242          |     |      |       | 79   |     |      |       | 62   |     |   |       | 80 |     |   |       | 87 |    
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|                                                                                     |                                        | Total charge-offs |       |              | 695 |      |       |      | 200 |      |       |      | 77  |   |       |    | 130 |   |       |    | 130 | 
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|Recoveries:                                                                          |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|                                                                                     | Commercial, financial and agricultural |                   |       | 59           |     |      |       | 30   |     |      |       | 56   |     |   |       | 14 |     |   |       | 30 |    
|                                                                                     | Real estate  construction             |                   |       |             |     |      |       |     |     |      |       |     |     |   |       |   |     |   |       |   |    
|                                                                                     | Real estate  mortgage                 |                   |       | 158          |     |      |       | 13   |     |      |       | 56   |     |   |       | 6  |     |   |       | 25 |    
|                                                                                     | Consumer loans                         |                   |       | 47           |     |      |       | 46   |     |      |       | 96   |     |   |       | 69 |     |   |       | 72 |    
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|                                                                                     |                                        | Total recoveries  |       |              | 264 |      |       |      | 89  |      |       |      | 208 |   |       |    | 89  |   |       |    | 127 | 
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|Net (charge-offs) recoveries                                                         |                                        |                   | (431  | )            |     |      | (111  | )    |     |      | 131   |      |     |   | (41   | )  |     |   | (3    | ) 
|Provision for loan losses                                                            |                                        |                   | 483   |              |     |      | 911   |      |     |      | 508   |      |     |   | 303   |    |     |   | 495   |   
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|Balance at end of year                                                               |                                        | $                 | 3,772 |              |     | $    | 3,720 |      |     | $    | 2,920 |      |     | $ | 2,281 |    |     | $ | 2,019 |   
|                                                                                     |                                        |                   |       |              |     |      |       |      |     |      |       |      |     |   |       |    |     |   |       |   
|Ratio of net charge-offs (recoveries)
during the
period to average loans outstanding |                                        |                   | .16   | %            |     |      | .04   | %    |     |      | (.06  | )%   |     |   | .02   | %  |     |   | .00   | % 
|Ratio of allowance to average total loans                                            |                                        |                   | 1.44  | %            |     |      | 1.49  | %    |     |      | 1.39  | %    |     |   | 1.32  | %  |     |   | 1.27  | % 

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Non-Performing Assets and Past Due Loans

Non-performing assets at December 31, 2002, were $2.8 million, or 1.03%,
of total loans and other real estate owned compared to $3.9 million, or 1.55%,
of total loans and other real estate owned at December 31, 2001 and $1.4
million, or .63%, of total loans and other real estate owned at December 31,
2000. The levels of non-performing loans remain relatively low. The percentage
of non-performing assets to total loans has decreased from its peak in 2001.
The decrease of non-performing loans from 2001 to 2002 was attributable to
loans on non-accrual paying off or coming off non-accrual status in the amount
of $677 thousand and a reduction of loans ninety days past due in the amount
of $550 thousand.

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 8Non-Performing
Assets(in thousands)

|                                          |       |              |       |       |      |   |       |       |      |   |      |       |  |   |     |     |  |   |     |     | 
|----------------------------------------- | ----- | ------------ | ----- | ----- | ---- | - | ----- | ----- | ---- | - | ---- | ----- |  | - | --- | --- |  | - | --- | --- | 
|                                          |       | December 31,
|                                          |       |             
|                                          |       |              | 2002  |       | 2001 |   | 2000  |       | 1999 |   | 1998
|                                          |       |              |       |       |      |   |       |       |      |   |     
|Other real estate and repossessions       |       | $            | 488   |       |      | $ | 4357  |       |      | $ | 702  |       |  | $ |    |     |  | $ | 6   |    
|Non-accrual loans                         |       |              | 943   |       |      |   | 1,620 |       |      |   | 504  |       |  |   | 370 |     |  |   | 481 |    
|Loans 90 days past due still accruing     |       |              | 1,335 |       |      |   | 1,885 |       |      |   | 205  |       |  |   | 48  |     |  |   | 157 |    
|                                          |       |              |       |       |      |   |       |       |      |   |      |       |  |   |     |     |  |   |     |    
|                                          | Total |              | $     | 2,766 |      |   | $     | 3,862 |      |   | $    | 1,411 |  |   | $   | 418 |  |   | $   | 734 | 
|                                          |       |              |       |       |      |   |       |       |      |   |      |       |  |   |     |     |  |   |     |    
|Non-performing assets as % of total loans |       |              | 1.03  | %     |      |   | 1.55  | %     |      |   | .63  | %     |  |   | .23 | %   |  |   | .46 | %  

While there may be additional loans in the portfolio that may become
classified as conditions indicate, 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.

The Banks loan review function continually monitors selected accruing
loans for which general economic conditions or changes within a particular
industry that 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 the
Companys liquidity, capital resources or operations.

Deposits

Time deposits of $100 thousand and greater totaled $41.1 million at
December 31, 2002, compared with $41.5 million at year-end 2001 and $31.2
million at year-end 2000. The following table sets forth the scheduled
maturities of time deposits of $100 thousand and greater at December 31, 2002.

Table 9Deposits(in thousands)

|                          |       |   |        |        | 
|------------------------- | ----- | - | ------ | ------ | 
|Within 3 months           |       | $ | 8,160  |       
|After 3 through 6 months  |       |   | 5,812  |       
|After 6 through 12 months |       |   | 16,761 |       
|After 12 months           |       |   | 10,410 |       
|                          |       |   |        |       
|                          | Total |   | $      | 41,143 | 
|                          |       |   |        |       

Liquidity

The Bank 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, the Bank keeps cash on hand,
maintains account balances with its correspondent banks, and purchases and
sells federal funds and other short-term

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investments. Asset and liability
maturities are monitored in an attempt to match these to meet liquidity needs.
It is the policy of the Bank to monitor its liquidity to meet regulatory
requirements and their local funding requirements. Management believes that
the Banks current level of liquidity is adequate to meet its needs.

The Bank maintains relationships with correspondent banks including the
Federal Home Loan Bank (the FHLB) that can provide funds to it on short
notice, if needed. The Bank has arrangements with correspondent and commercial
banks for short term unsecured advances up to $11.0 million. As of December
31, 2002, the Bank had not drawn on the available facilities. In addition, the
Bank has a line of credit with the FHLB in the amount of $53.9 million of which
the Bank had drawn $45 million at December 31, 2002. The lines of credit have
varying terms and maturities that are disclosed in detail in the notes to the
financial statements.

The Companys 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 increased $16.7
million for a total $47.7 million at December 31, 2002, compared with $31.0
million at December 31, 2001. The increase was primarily attributable to net
cash provided by financing activities of $30.0 million made up of $18.2 million
of increased deposits, $10.0 million of borrowing proceeds and $4.8 million in
offering proceeds offset by other items totaling approximately $2.9 million.
Cash inflows from operations totaled $5.1 million in 2002, while outflows from
investing activities totaled $18.4 million, most of which was net loan
increases during 2002 of $20.5 million.

Cash inflows from operations totaled $6.4 million in 2001, while inflows
from financing activities totaled $54.4 million, most of which was net deposit
increases during 2001 of $46.7 million and FHLB advances of $10 million.
Investing activities used $41.8 million of cash and cash equivalents,
principally composed of net advances of loans to customers of $25.5 million and
net cash flows invested in securities of $14.4 million during 2001. The Bank
purchased property and equipment for operations and future expansion amounting
to $1.3 million.

Capital Resources

Total shareholders equity as of December 31, 2002 was $38.5 million, an
increase of $9.3 million over 2001. The increase in equity was due to a public
offering the Company completed in April 2002 through the sales efforts of its
directors and officers. The Company offered and sold 200,000 shares of Common
Stock for $24.00 per share. The net proceeds of the offering less offering
costs was $4.8 million. The offering, combined with $5.5 million in net
income less $1.9 million in dividends and an increase in unrealized holding
gain on securities available for sale of $922 thousand net of tax, accounted
for the large increase in shareholders equity.

The OCC has established certain minimum risk-based capital standards that
apply to national banks, and the Company is subject to certain capital
requirements imposed by the Federal Reserve. At December 31, 2002, the Bank
exceeded all applicable regulatory capital requirements for classification as a
well capitalized bank, and the Company satisfied all applicable regulatory
requirements imposed on it by the Federal Reserve. The following tables
present the Companys regulatory capital position at December 31, 2002:
28Table of ContentsTable 10

|               |                                          |                                |  |    |  
|-------------- | ---------------------------------------- | ------------------------------ |  | -- | -
|               |                                          | Actual as of December 31, 2002
|               |                                          |                               
|               | Capital
Ratio                            |                                |  |    |  
|               | Tier 1 Capital (to risk weighted assets) |                                |  | 13 | %
|               | Tier 1 Capital minimum requirement       |                                |  | 4  | %
|               |                                          |                                |  |   
|               | Excess                                   |                                |  | 9  | %
|               |                                          |                                |  |   
|               | Total Capital (to risk weighted assets)  |                                |  | 14 | %
|               | Total Capital minimum requirement        |                                |  | 8  | %
|               |                                          |                                |  |   
|               | Excess                                   |                                |  | 6  | %
|               |                                          |                                |  |   
|Leverage Ratio |                                          |                                |  |   

|                                                    |  |                         |    |  
|--------------------------------------------------- |  | ----------------------- | -- | -
|                                                    |  | As of December 31, 2002
|                                                    |  |                        
|Tier 1 Capital to average assets
(Leverage Ratio) |  |                         | 10 | %
|Minimum leverage requirement                        |  |                         | 4  | %
|                                                    |  |                         |    |  
|Excess                                              |  |                         | 6  | %
|                                                    |  |                         |    |  

For a more complete discussion of the actual and required ratios of the
Company and its subsidiaries, see Note 9 to the consolidated financial
statements. Average equity to average assets was 9.97% in 2002 and 8.57% in
2001. The ratio of dividends declared to net earnings was 35.1 % during 2002,
compared with 35.5% in 2001.

Off Balance Sheet Risk

Through the operations of the Bank, the Company has made contractual
commitments to extend credit in the ordinary course of its business activities.
These commitments are legally binding agreements to lend money to the Banks
customers at predetermined interest rates for a specified period of time. At
December 31, 2002, the Bank had issued commitments to extend credit of
$40,842,000 through various types of commercial lending arrangements and
additional commitments through standby letters of credit of $1,658,000. The
Company evaluates each customers creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on its credit evaluation of the borrower.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, commercial and residential real estate. The Company
manages the credit risk on these commitments by subjecting them to normal
underwriting and risk management processes.

Asset/Liability Management

It is the Companys 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 the Companys 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.

The Company has adopted the objective of achieving and maintaining a
one-year cumulative gap, as a percent of total assets, of between plus 20% and
minus 20%. On a consolidated basis, the Companys one-year cumulative gap

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was
a negative 3.59% of total assets at December 31, 2002. This position indicated
that the Company was exposed to the potential for decreased earnings if
interest rates were to continue to decline in the next twelve months.

Due to inherent limitations in traditional gap analysis, the Company also
employs 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 the Companys loan and investment portfolios, which can significantly impact
the Companys 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 2002, 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 .7%, with a comparable decrease in
interest rates resulting in a decrease in net interest income of .7%.
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, 2002 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. The Companys 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 subject to
managements control.

Table 11Interest Rate Gap Sensitivity(in thousands)

|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |         |         |         | 
|------------------------------------------ | ------------------------------------------ | ------------- | ------------- | ------- | ------------------------ | ------ | --------- | ------ | ---------- | ------ | ------------ | ------ | ------ | - | ------ | ------ | - | - | - | ------- | ------- | ------- | 
|                                           |                                            |               |               |         | At December 31, 2002    
|                                           |                                            |               |               |         | Maturing or Repricing in
|                                           |                                            |               |               |         |                         
|                                           |                                            |               |               |         |                          |        |           |        | Over 1     |        | Over 3       |        |        |   |        |        |   |   |  
|                                           |                                            |               |               |         | One Year                 |        | Year Thru |        | Years Thru |        |              |        |        |   |        |        |  
|                                           |                                            |               |               |         | or Less                  |        | 3 Years   |        | 5 Years    |        | Over 5 Years |        | Total 
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |       
|Interest-earning assets:                   |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|                                           | Interest-bearing
deposits with
Other banks |               | $             | 240     |                          |        | $         |       |            |        | $            |       |        |   | $      |       |   |   | $ | 240     |        
|                                           | Federal funds sold                         |               |               | 30,703  |                          |        |           |       |            |        |              |       |        |   |        |       |   |   |   | 30,703  |        
|                                           | Investment securities                      |               |               | 9,434   |                          |        |           | 8,652  |            |        |              | 6,660  |        |   |        | 28,936 |   |   |   | 53,682  |        
|                                           | Loans: Fixed rate                          |               |               | 97,654  |                          |        |           | 47,182 |            |        |              | 13,828 |        |   |        | 5,991  |   |   |   | 164,655 |        
|                                           |                                            |               | Variable rate |         |                          | 71,269 |           |        |            | 37,547 |              |        |        |  |        |        |   |  |   |         |         | 108,816 | 
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |         |        
|                                           | Total interest-earning assets              |               |               | 209,300 |                          |        |           | 93,381 |            |        |              | 20,488 |        |   |        | 34,927 |   |   |   | 358,096 |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|Interest-bearing liabilities:              |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|                                           | Deposits:                                  |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |         |        
|                                           |                                            | Demand        |               | $       | 123,831                  |        |           | $      |           |        |              | $      |       |   |        | $      |  |   |   | $       | 123,831 |        
|                                           |                                            | Savings       |               |         | 9,031                    |        |           |        |           |        |              |        |       |   |        |        |  |   |   |         | 9,031   |        
|                                           |                                            | Time deposits |               |         | 89,003                   |        |           |        | 25,844     |        |              |        | 12,976 |   |        |        |  |   |   |         | 127,823 |        
|                                           | FHLB advances                              |               |               |        |                          |        |           | 20,000 |            |        |              |       |        |   |        | 25,000 |   |   |   | 45,000  |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|                                           | Total interest-bearing liabilities         |               |               | 221,865 |                          |        |           | 45,844 |            |        |              | 12,976 |        |   |        | 25,000 |   |   |   | 305,685 |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|                                           | per period                                 |               |               | (12,565 | )                        |        |           | 47,537 |            |        |              | 7,512  |        |   |        | 9,927  |   |   |   | 52,411  |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|Cumulative
interest sensitivity
Difference |                                            | $             | (12,565       | )       |                          | $      | 34,972    |        |            | $      | 42,484       |        |        | $ | 52,411 |        |   |   |   |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        
|Cumulative
difference to total
Assets      |                                            |               | (3.59         | )%      |                          |        | 9.99      | %      |            |        | 12.13        | %      |        |   | 14.97  | %      |   |   |   |        
|                                           |                                            |               |               |         |                          |        |           |        |            |        |              |        |        |   |        |        |   |   |   |        

At December 31, 2002, the difference between the Companys liabilities and
assets repricing or maturing within one year was $12.6 million. The above chart
indicates an excess of liabilities repricing or maturing within one year, thus
a rise in interest rates would cause the Companys net interest income to
decline. However, certain

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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 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 the Companys 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 the control of the Company, 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 the Company and its
results of operations are not predictable.




Item 7A.Quantitative and Qualitative Disclosures About Market Risk

For information regarding the market risk of the Companys financial
instruments, see Managements Discussion and Analysis of Financial Condition
and Results of Operation  Asset/Liability Management. The Companys
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 independent auditors are included in this Report
beginning at page F-1 and are incorporated herein by reference.

Presented below is a summary of the unaudited consolidated quarterly
financial data for the years ended December 31, 2002 and 2001.

Quarterly Financial Information(Unaudited  in thousands, except per share data)

|                                                     |  |       |           |        |  |       |           |          |  |       |           |        |  |       |           |        |  |      |           |          |  |  |           |  |  |  |           |  |  |  |           | 
|---------------------------------------------------- |  | ----- | --------- | ------ |  | ----- | --------- | -------- |  | ----- | --------- | ------ |  | ----- | --------- | ------ |  | ---- | --------- | -------- |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                                     |  |       |           |        |  | 2002  |           | Quarters |  |       |           |        |  |       |           |        |  | 2001 |           | Quarters |  |  |           | 
|                                                     |  |       |           |       
|                                                     |  | First |           | Second |  | Third |           | Fourth   |  | First |           | Second |  | Third |           | Fourth
|                                                     |  |       |           |        |  |       |           |          |  |       |           |        |  |       |           |       
|Interest income                                      |  |       | 6,096     |        |  |       | 6,025     |          |  |       | 6,112     |        |  |       | 6,064     |        |  |      | 6,545     |          |  |  | 6,832     |  |  |  | 6,707     |  |  |  | 6,464     | 
|Net interest income                                  |  |       | 2,379     |        |  |       | 2,133     |          |  |       | 2,055     |        |  |       | 2,157     |        |  |      | 3,549     |          |  |  | 3,720     |  |  |  | 3,563     |  |  |  | 3,647     | 
|Provision for loan losses                            |  |       | 75        |        |  |       | 75        |          |  |       | 75        |        |  |       | 258       |        |  |      | 227       |          |  |  | 228       |  |  |  | 228       |  |  |  | 228       | 
|Income before income taxes                           |  |       | 1,839     |        |  |       | 1,992     |          |  |       | 2,539     |        |  |       | 1,843     |        |  |      | 1,824     |          |  |  | 1,927     |  |  |  | 1,743     |  |  |  | 1,766     | 
|Net income                                           |  |       | 1,221     |        |  |       | 1,315     |          |  |       | 1,666     |        |  |       | 1,343     |        |  |      | 1,189     |          |  |  | 1,254     |  |  |  | 1,151     |  |  |  | 1,195     | 
|Earnings per share  basic                           |  |       | 0.39      |        |  |       | 0.40      |          |  |       | 0.50      |        |  |       | 0.42      |        |  |      | 0.38      |          |  |  | 0.41      |  |  |  | 0.37      |  |  |  | 0.39      | 
|Earnings per share  diluted                         |  |       | 0.39      |        |  |       | 0.40      |          |  |       | 0.50      |        |  |       | 0.40      |        |  |      | 0.38      |          |  |  | 0.40      |  |  |  | 0.36      |  |  |  | 0.38      | 
|Weighted average common
shares outstanding  basic   |  |       | 3,103,096 |        |  |       | 3,258,381 |          |  |       | 3,306,733 |        |  |       | 3,306,733 |        |  |      | 3,095,729 |          |  |  | 3,098,114 |  |  |  | 3,098,563 |  |  |  | 3,099,646 | 
|Weighted average common
shares outstanding  diluted |  |       | 3,130,376 |        |  |       | 3,284,351 |          |  |       | 3,332,703 |        |  |       | 3,397,378 |        |  |      | 3,128,682 |          |  |  | 3,131,067 |  |  |  | 3,313,516 |  |  |  | 3,145,632 | 




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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PART III




Item 10. Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act

The information appearing under the headings Nomination and Election of
Directors and Compliance With Section 16(a) of the Securities Exchange Act of
1934 and the subheading Information as to Nominees, Other Directors and
Executive Officers in the Proxy Statement (the 2003 Proxy Statement)
relating to the 2003 Annual Meeting of Shareholders of the Company, currently
scheduled to be held on April 8, 2003, is incorporated herein by reference.




Item 11. Executive Compensation

The information appearing under the heading Executive Compensation in
the 2003 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 and Information Regarding Plans and
Other Arrangements Not Subject to Shareholder Action  in the 2003 Proxy
Statement is incorporated herein by reference.




Item 13. Certain Relationships and Related Transactions

The information appearing under the caption Certain Relationships and
Related Transactions in the 2003 Proxy Statement is incorporated herein by
reference.




Item 14. Controls and Procedures

Evaluation of disclosure controls and procedures.

The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed within 90 days of the filing date of
this report, the chief executive and chief financial officers of the Company
concluded that the Companys disclosure controls and procedures were adequate.

Changes in internal controls.

The Company made no significant changes in its internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation of those controls by the chief executive and chief
financial officers.




Item 15. Exhibits and Reports on Form 8-K

|       |  |                                                               
|------ |  | --------------------------------------------------------------
|(a)(1) |  | Financial Statements                                          
|       |  |                                                               
|       |  | The following financial statements are filed with this Report:



| | Independent Auditors Report of Porter Keadle Moore, LLP
| | --------------------------------------------------------



| | Consolidated Balance Sheets as of December 31, 2002 and 2001
| | ------------------------------------------------------------



| | Consolidated Statements of Earnings for the Years Ended December 31, 2002, 2001 and 2000
| | ----------------------------------------------------------------------------------------



| | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002,
2001 and 2000
| | ----------------------------------------------------------------------------------------------------

32



---



##### Table of Contents





| | Consolidated Statements of Changes in Stockholders Equity for the Years
Ended December 31, 2002, 2001 and 2000
| | ---------------------------------------------------------------------------------------------------------------



| | Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000
| | ------------------------------------------------------------------------------------------

(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)                                                                                                                                       
|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)                                                                     
|10.1  |  | * |  | Employment Agreement dated as of September 10, 1996 between the Company and L. Leighton Alston (Incorporated by reference to
Exhibit 10.1 to the Form 10-SB)                                                                   
|10.2  |  | * |  | Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.2 to the Form 10-SB)                                                                                                                                      
|10.3  |  | * |  | Bonus and Stock Option Agreement dated as of May 11, 1993 between the Company and L. Leighton Alston (Incorporated by reference to
Exhibit 10.3 to the Form 10-SB)                                                             
|10.4  |  | * |  | First Amendment to Bonus and Stock Option Agreement dated as of June 14, 1994 between the Company and L. Leighton Alston
(Incorporated by reference to Exhibit 10.4 to the Form 10-SB)                                         
|10.5  |  | * |  | Bonus and Stock Option Agreement dated as of June 14, 1994 between the Company and Richard A. Duncan (Incorporated by reference to
Exhibit 10.5 to the Form 10-SB)                                                             
|10.6  |  | * |  | 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)                                                         
|10.7  |  | * |  | 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)                                                      
|10.8  |  | * |  | 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)                                                          
|10.9  |  | * |  | Form of Election for Payment of Director Meeting Fees (Incorporated by reference to Exhibit 10.10 to the Form 10-SB)                                                                                                           
|10.10 |  | * |  | Employment Agreement dated August 30, 2000 between the Company and Richard A. Duncan (Incorporated by reference to Exhibit 10.11 to the
Companys Annual Report on Form 10-KSB filed February 21, 2001 (the 2000 Form 10-KSB)
|10.11 |  | * |  | Employment Agreement dated August 31, 2000 between the Company and Steven J. Haack
(Incorporated by reference to Exhibit 10.13 to the 2000 Form 10-KSB)                                                                        

33



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##### Table of Contents



|      |  |    |  |                                                                                                                                                                                                                                       
|----- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12 |  | *  |  | Employment Agreement dated August 31, 2000 between the Company and H.B. Lipham, III
(Incorporated by reference to Exhibit 10.14 to the 2000 Form 10-KSB)                                                                              
|10.13 |  | *  |  | Employment Agreement dated August 31, 2000 between the Company and W. Galen Hobbs, Jr.
(Incorporated by reference to Exhibit 10.15 to the 2000 Form 10-KSB)                                                                           
|10.14 |  | *  |  | Amendment to Employment Agreement dated May 30, 2002 between
the Company and L. Leighton Alston (Incorporated by reference
to Exhibit 10.1 to the Companys Annual report on Form 10-Q
filed August 13, 2002 (the 6/30/02 Form 10-Q)
|10.15 |  | *  |  | Amendment to Bonus and Stock Option Agreement dated June 17, 2002 between the Company and L. Leighton Alston (Incorporated by reference to Exhibit 10.2 to the
6/30/02 Form 10-Q)                                                     
|10.16 |  | *  |  | Incentive Stock Option Agreement dated March 12, 2002 between the Company and L. Leighton Alston (Incorporated by reference to Exhibit
10.3 to the 6/30/02 Form 10-Q)                                                                 
|10.17 |  | *  |  | Amendment to Employment Agreement dated April 11, 2002 between the Company and Richard A. Duncan (Incorporated by reference to Exhibit
10.4 to the 6/30/02 Form 10-Q)                                                                 
|10.18 |  | *  |  | Incentive Stock Option Agreement dated March 12, 2002 between the Company and Richard A. Duncan (Incorporated by reference to Exhibit
10.5 to the 6/30/02 Form 10-Q)                                                                  
|10.19 |  | *  |  | Amendment to Employment Agreement dated April 11, 2002 between the Company and H.B. Lipham, III (Incorporated by reference to Exhibit
10.6 to the 6/30/02 Form 10-Q)                                                                  
|10.20 |  | *  |  | 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 6/30/02 Form 10-Q)                                                
|10.21 |  | *  |  | 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)                                                                   
|10.22 |  | *  |  | Amendment to Employment Agreement dated April 11, 2002 between the Company and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit
10.9 to the 6/30/02 Form 10-Q)                                                               
|10.23 |  | *  |  | 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)                                                    
|10.24 |  | *  |  | 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)                                                               
|10.25 |  | *  |  | Amendment to Employment Agreement dated April 11, 2002 between the Company and Steven J. Haack (Incorporated by reference to Exhibit
10.12 to the 6/30/02 Form 10-Q)                                                                  
|10.26 |  | *  |  | 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)                                                      
|10.27 |  | *  |  | 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)                                                                   
|21    |  |    |  | Subsidiary of WGNB Corp.                                                                                                                                                                                                              
|99.1  |  | ** |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    
|99.2  |  | ** |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002                                                                                                                                    



---

|*  |  | Indicates management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** |  | Pursuant to Commission Release
No. 33-8212, this certification will be treated as
accompanying this Annual Report on Form 10-K and not
filed as part of such report for purposes of
Section 18 of the Exchange Act, or otherwise subject to the
liability of Section 18 of the Exchange Act and this
certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.

(b)     Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31, 2002.

34



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##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.

| |  |     |  |                                            
| |  | --- |  | -------------------------------------------
| |  |     |  | WGNB CORP.                                 
|
| |  |     |  |                                            
|
| |  | By: |  | /s/ L. Leighton Alston                     
| |  |     | 
| |  |     |  | L. Leighton Alston, Chief Executive Officer
|
| |  |     |  |                                            

Date: March 19, 2003

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints L. Leighton Alston and Steven J. Haack, or
either of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

In accordance with 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/ L. Leighton AlstonL. Leighton Alston, President, Chief
Executive Officer and Director
[Principal Executive Officer] |  | Date: March 19, 2003
|                                                                                                                       
|/s/ Steven J. HaackSteven J. Haack, Secretary and Treasurer
[Principal Financial and Accounting Officer]                |  | Date: March 19, 2003
|                                                                                                                       
|                                                                                                                        |  |                     
|                                                                                                                       
|/s/ W. T. GreenW. T. Green, Chairman of the Board                                                                       |  | Date: March 24, 2003
|                                                                                                                       
|                                                                                                                        |  |                     
|                                                                                                                       
|Wanda W. Calhoun, Director                                                                                              |  | Date: March __, 2003
|                                                                                                                       
|                                                                                                                        |  |                     
|                                                                                                                       
|/s/ Grady W. ColeGrady W. Cole, Director                                                                                |  | Date: March 27, 2003
|                                                                                                                       
|                                                                                                                        |  |                     
|                                                                                                                       
|/s/ Richard A. DuncanRichard A. Duncan, Director                                                                        |  | Date: March 24, 2003

35



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##### Table of Contents



|                                                             |  |                     
|------------------------------------------------------------ |  | --------------------
|                                                            
|/s/ L.G. JoynerL.G. (Jack) Joyner, Director                  |  | Date: March 24, 2003
|                                                            
|                                                             |  |                     
|                                                            
|R. David Perry, Director                                     |  | Date: March __, 2003
|                                                            
|                                                             |  |                     
|                                                            
|L. Richard Plunkett, Director                                |  | Date: March __, 2003
|                                                            
|                                                             |  |                     
|                                                            
|/s/ Thomas E. Reeve, IIIThomas E. Reeve, III, M.D., Director |  | Date: March 27, 2003
|                                                            
|                                                             |  |                     
|                                                            
|/s/ Thomas T. RichardsThomas T. Richards, Director           |  | Date: March 24, 2003
|                                                            
|                                                             |  |                     
|                                                            
|/s/ Oscar W. Roberts, IIIOscar W. Roberts, III, Director     |  | Date: March 26, 2003
|                                                            
|                                                             |  |                     
|                                                            
|/s/ Frank T. Thomasson, IIIFrank T. Thomasson, III, Director |  | Date: March 27, 2003
|                                                            
|                                                             |  |                     
|                                                            
|J. Thomas Vance, Director                                    |  | Date: March __, 2003
|                                                            
|                                                             |  |                     
|                                                            
|/s/ Charles M. Willis, Sr.Charles M. Willis, Sr., Director   |  | Date: March 24, 2003

36



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##### Table of Contents



CERTIFICATIONS

I, L. Leighton Alston, Chief Executive Officer of WGNB Corp., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of WGNB Corp.;                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                
|----------------------------------------------------------------
|Date: March 19, 2003                                            
|                                                                
|                                                                
|                                                                
|/s/ L. Leighton AlstonL. Leighton Alston
Chief Executive Officer





---



##### Table of Contents



I, Steven J. Haack, Principal Financial Officer of WGNB Corp., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of WGNB Corp.;                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                          
|--------------------------------------------------------------------------
|Date: March 19, 2003                                                      
|                                                                          
|                                                                          
|                                                                          
|/s/ Steven J. HaackSteven J. Haack
Treasurer
(Principal Financial Officer)





---



##### Table of Contents



WGNB CORP.

Consolidated Financial Statements

December 31, 2002 and 2001

(with Independent Accountants Report thereon)

F-1



---



##### Table of Contents



[Letterhead of Porter Keadle Moore LLP]




REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
WGNB Corp. and Subsidiaries

We have audited the accompanying consolidated balance sheets of WGNB Corp. and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of earnings, comprehensive income, changes in stockholders equity
and cash flows for each of the three years ended December 31, 2002. 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 auditing standards generally
accepted in the United States of America. 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
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years ended December 31,
2002, in conformity with auditing standards generally accepted in the United
States of America.

/s/ Porter Keadle Moore, LLP

Atlanta, Georgia
January 31, 2003

F-2



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##### Table of Contents



WGNB CORP.

Consolidated Balance Sheets

December 31, 2002 and 2001

2002
        
        2001AssetsCash and due from banks, including reserve requirements
of $100,000 each year
        
        $
        16,963,822
        
        
        
        11,314,895Federal funds sold
        
        
        30,703,388
        
        
        
        19,684,000Cash and cash equivalents
        
        
        47,667,210
        
        
        
        30,998,895Securities available for sale
        
        
        52,131,793
        
        
        
        54,934,146Securities held to maturity
        
        
        3,500,000
        
        
        
        2,000,000Loans, net
        
        
        269,212,860
        
        
        
        249,560,369Premises and equipment, net
        
        
        5,959,767
        
        
        
        6,306,346Accrued interest receivable
        
        
        2,027,228
        
        
        
        1,936,980Other assets
        
        
        4,622,304
        
        
        
        4,485,301$
        385,121,162
        
        
        
        350,222,037Liabilities and Stockholders EquityDeposits:Demand
        
        $
        38,039,880
        
        
        
        32,972,953Interest bearing demand
        
        
        123,831,459
        
        
        
        109,464,714Savings
        
        
        9,031,153
        
        
        
        8,235,588Time
        
        
        86,680,351
        
        
        
        88,363,915Time, over $100,000
        
        
        41,143,025
        
        
        
        41,493,958Total deposits
        
        
        298,725,868
        
        
        
        280,531,128Federal Home Loan Bank advances
        
        
        45,000,000
        
        
        
        35,000,000Other borrowings
        
        
        
        
        
        
        1,282,000Accrued interest payable
        
        
        1,210,424
        
        
        
        1,895,387Other liabilities
        
        
        1,664,919
        
        
        
        2,309,195Total liabilities
        
        
        346,601,211
        
        
        
        321,017,710CommitmentsStockholders equity:Common stock, $1.25 par value, 10,000,000 shares authorized;
3,306,733 and 3,100,355 shares issued and outstanding
        
        
        4,133,416
        
        
        
        3,875,444Additional paid-in capital
        
        
        5,367,172
        
        
        
        829,324Retained earnings
        
        
        27,709,213
        
        
        
        24,111,323Accumulated comprehensive income
        
        
        1,310,150
        
        
        
        388,236Total stockholders equity
        
        
        38,519,951
        
        
        
        29,204,327$
        385,121,162
        
        
        
        350,222,037


See accompanying notes to consolidated financial statements.

F-3



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##### Table of Contents



WGNB CORP.

Consolidated Statements of Earnings

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Interest income:Interest and fees on loans
        
        $
        20,863,583
        
        
        
        23,218,171
        
        
        
        20,991,521Interest on federal funds sold
        
        
        249,061
        
        
        
        490,114
        
        
        
        352,887Interest on investment securities:U.S. Government agencies
        
        
        1,560,529
        
        
        
        1,661,092
        
        
        
        1,813,713State, county and municipal
        
        
        1,159,393
        
        
        
        916,520
        
        
        
        697,902Other
        
        
        464,123
        
        
        
        262,426
        
        
        
        192,829Total interest income
        
        
        24,296,689
        
        
        
        26,548,323
        
        
        
        24,048,852Interest expense:Interest on deposits:Demand
        
        
        1,487,148
        
        
        
        2,398,878
        
        
        
        2,513,082Savings
        
        
        94,811
        
        
        
        227,721
        
        
        
        237,909Time
        
        
        5,094,063
        
        
        
        7,488,778
        
        
        
        6,200,949Interest on FHLB and other borrowings
        
        
        2,048,130
        
        
        
        1,953,643
        
        
        
        1,404,606Total interest expense
        
        
        8,724,152
        
        
        
        12,069,020
        
        
        
        10,356,546Net interest income
        
        
        15,572,537
        
        
        
        14,479,303
        
        
        
        13,692,306Provision for loan losses
        
        
        483,340
        
        
        
        910,500
        
        
        
        508,700Net interest income after provision for loan losses
        
        
        15,089,197
        
        
        
        13,568,803
        
        
        
        13,183,606Other income:Service charges on deposit accounts
        
        
        3,195,766
        
        
        
        2,921,445
        
        
        
        2,158,729Mortgage origination fees
        
        
        938,439
        
        
        
        823,363
        
        
        
        245,833Gain (loss) on sale of securities available for sale
        
        
        6,705
        
        
        
        21,381
        
        
        
        (8,833
        )Miscellaneous
        
        
        1,110,170
        
        
        
        784,185
        
        
        
        594,973Total other income
        
        
        5,251,080
        
        
        
        4,550,374
        
        
        
        2,990,702Other expenses:Salaries and employee benefits
        
        
        7,186,935
        
        
        
        6,504,486
        
        
        
        5,419,337Occupancy
        
        
        1,646,537
        
        
        
        1,555,737
        
        
        
        1,407,503Other operating
        
        
        3,293,841
        
        
        
        2,799,169
        
        
        
        2,455,885Total other expenses
        
        
        12,127,313
        
        
        
        10,859,392
        
        
        
        9,282,725Earnings before income taxes
        
        
        8,212,964
        
        
        
        7,259,785
        
        
        
        6,891,583Income taxes
        
        
        2,668,299
        
        
        
        2,470,664
        
        
        
        2,487,406Net earnings
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177Net earnings per share
        
        $
        1.71
        
        
        
        1.55
        
        
        
        1.42Diluted net earnings per share
        
        $
        1.69
        
        
        
        1.52
        
        
        
        1.41


See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



WGNB CORP.

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Net earnings
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177Other comprehensive income, net of tax:Unrealized gains on investment
securities available for sale:Unrealized gains arising during the period
        
        
        1,403,646
        
        
        
        692,076
        
        
        
        1,630,351Associated taxes
        
        
        (477,240
        )
        
        
        (262,712
        )
        
        
        (618,881
        )Reclassification adjustment for (gain) loss realized
        
        
        (6,705
        )
        
        
        (21,381
        )
        
        
        8,833Associated taxes (benefit)
        
        
        2,213
        
        
        
        8,116
        
        
        
        (3,353
        )Other comprehensive income
        
        
        921,914
        
        
        
        416,099
        
        
        
        1,016,950Comprehensive income
        
        $
        6,466,579
        
        
        
        5,205,220
        
        
        
        5,421,127


See accompanying notes to consolidated financial statements.

F-5



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##### Table of Contents



WGNB CORP.

Consolidated Statements of Changes in Stockholders Equity

For the Years Ended December 31, 2002, 2001 and 2000

Common Stock
        
        Additional
        
        
        
        AccumulatedPaid-in
        
        Retained
        
        ComprehensiveShares
        
        Amount
        
        Capital
        
        Earnings
        
        Income (Loss)
        
        TotalBalance, December 31, 1999
        
        
        3,105,394
        
        
        $
        3,881,743
        
        
        
        1,060,670
        
        
        
        18,094,975
        
        
        
        (1,044,813
        )
        
        
        21,992,575Cash dividends ($.48 per share)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (1,471,459
        )
        
        
        
        
        
        
        (1,471,459
        )Retirement of common stock
        
        
        (11,966
        )
        
        
        (14,958
        )
        
        
        (272,080
        )
        
        
        
        
        
        
        
        
        
        
        (287,038
        )Exercise of stock options
        
        
        972
        
        
        
        1,215
        
        
        
        5,800
        
        
        
        
        
        
        
        
        
        
        
        7,015Issuance of common stock in lieu of directors fees
        
        
        1,055
        
        
        
        1,319
        
        
        
        23,474
        
        
        
        
        
        
        
        
        
        
        
        24,793Change in unrealized holding gains on
securities available for sale, net of tax
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,016,950
        
        
        
        1,016,950Net earnings
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        4,404,177
        
        
        
        
        
        
        
        4,404,177Balance, December 31, 2000
        
        
        3,095,455
        
        
        
        3,869,319
        
        
        
        817,864
        
        
        
        21,027,693
        
        
        
        (27,863
        )
        
        
        25,687,013Cash dividends ($.55 per share)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (1,705,491
        )
        
        
        
        
        
        
        (1,705,491
        )Retirement of common stock
        
        
        (2,466
        )
        
        
        (3,083
        )
        
        
        (52,282
        )
        
        
        
        
        
        
        
        
        
        
        (55,365
        )Exercise of stock options
        
        
        6,260
        
        
        
        7,825
        
        
        
        39,687
        
        
        
        
        
        
        
        
        
        
        
        47,512Issuance of common stock in lieu of directors fees
        
        
        1,106
        
        
        
        1,383
        
        
        
        24,055
        
        
        
        
        
        
        
        
        
        
        
        25,438Change in unrealized holding gain on
securities available for sale, net of tax
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        416,099
        
        
        
        416,099Net earnings
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        4,789,121
        
        
        
        
        
        
        
        4,789,121Balance, December 31, 2001
        
        
        3,100,355
        
        
        
        3,875,444
        
        
        
        829,324
        
        
        
        24,111,323
        
        
        
        388,236
        
        
        
        29,204,327Cash dividends ($.60 per share)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (1,946,775
        )
        
        
        
        
        
        
        (1,946,775
        )Retirement of common stock
        
        
        (2,345
        )
        
        
        (2,932
        )
        
        
        (62,350
        )
        
        
        
        
        
        
        
        
        
        
        (65,282
        )Exercise of stock options
        
        
        7,512
        
        
        
        9,390
        
        
        
        55,892
        
        
        
        
        
        
        
        
        
        
        
        65,282Common stock offering at $24 per share, net of
offering
cost of $33,546
        
        
        200,000
        
        
        
        250,000
        
        
        
        4,516,454
        
        
        
        
        
        
        
        
        
        
        
        4,766,454Issuance of common stock in lieu of directors fees
        
        
        1,211
        
        
        
        1,514
        
        
        
        27,852
        
        
        
        
        
        
        
        
        
        
        
        29,366Change in unrealized holding gain on
securities available for sale, net of tax
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        921,914
        
        
        
        921,914Net earnings
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        5,544,665
        
        
        
        
        
        
        
        5,544,665Balance, December 31, 2002
        
        
        3,306,733
        
        
        $
        4,133,416
        
        
        
        5,367,172
        
        
        
        27,709,213
        
        
        
        1,310,150
        
        
        
        38,519,951


See accompanying notes to consolidated financial statements.

F-6



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##### Table of Contents



WGNB CORP.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Cash flows from operating activities:Net earnings
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation, amortization and accretion
        
        
        1,060,285
        
        
        
        778,023
        
        
        
        681,502Provision for loan losses
        
        
        483,340
        
        
        
        910,500
        
        
        
        508,700Change in deferred income taxes
        
        
        (163,472
        )
        
        
        (341,386
        )
        
        
        (221,275
        )Gain (loss) on sale of securities available for sale
        
        
        (6,705
        )
        
        
        (21,381
        )
        
        
        8,833Loss (gain) on sale of premises and equipment
        
        
        7,851
        
        
        
        (3,481
        )
        
        
        (11,647
        )Gain on settlement of interest rate swap
        
        
        (252,950
        )
        
        
        
        
        
        
        Loss (gain) loss on sale of other real estate
        
        
        9,710
        
        
        
        (15,286
        )
        
        
        (22,374
        )Change in:Other assets
        
        
        (254,145
        )
        
        
        (1,111,019
        )
        
        
        (724,670
        )Other liabilities
        
        
        (1,355,021
        )
        
        
        1,461,519
        
        
        
        292,712Net cash provided by operating activities
        
        
        5,073,558
        
        
        
        6,446,610
        
        
        
        4,915,958Cash flows from investing activities:Proceeds from sales of securities available for sale
        
        
        6,498,385
        
        
        
        1,080,000
        
        
        
        560,520Proceeds from maturities of securities available for sale
        
        
        11,480,591
        
        
        
        17,210,115
        
        
        
        4,624,929Purchases of securities available for sale
        
        
        (14,135,073
        )
        
        
        (32,675,694
        )
        
        
        (2,286,470
        )Purchase of securities held to maturity
        
        
        (1,500,000
        )
        
        
        (1,000,000
        )
        
        
        Net change in loans
        
        
        (20,526,228
        )
        
        
        (25,484,898
        )
        
        
        (44,159,879
        )Proceeds from sales of premises and equipment
        
        
        17,048
        
        
        
        11,342
        
        
        
        29,350Purchases of premises and equipment
        
        
        (426,370
        )
        
        
        (1,321,684
        )
        
        
        (788,315
        )Capital expenditures for other real estate
        
        
        (11,843
        )
        
        
        (136,702
        )
        
        
        Proceeds from sales of other real estate
        
        
        157,730
        
        
        
        489,283
        
        
        
        103,273Net cash used by investing activities
        
        
        (18,445,760
        )
        
        
        (41,828,238
        )
        
        
        (41,916,592
        )Cash flows from financing activities:Net change in deposits
        
        
        18,194,740
        
        
        
        46,720,265
        
        
        
        19,005,461Federal Home Loan Bank advances
        
        
        10,000,000
        
        
        
        10,000,000
        
        
        
        15,000,000Repayment of Federal Home Loan Bank advances
        
        
        
        
        
        
        
        
        
        
        (5,000,000
        )Proceeds from other borrowings
        
        
        
        
        
        
        372,000
        
        
        
        1,220,000Repayment of other borrowings
        
        
        (1,282,000
        )
        
        
        (390,000
        )
        
        
        (270,000
        )Proceeds from settlement of interest rate swap
        
        
        252,950
        
        
        
        
        
        
        
        Change in federal funds purchased
        
        
        
        
        
        
        (600,000
        )
        
        
        600,000Offering proceeds, net of offering cost
        
        
        4,766,454
        
        
        
        
        
        
        
        Dividends paid
        
        
        (1,891,627
        )
        
        
        (1,651,553
        )
        
        
        (1,402,784
        )Exercise of stock options
        
        
        65,282
        
        
        
        47,512
        
        
        
        7,015Retirement of common stock
        
        
        (65,282
        )
        
        
        (55,365
        )
        
        
        (287,038
        )Net cash provided by financing activities
        
        
        30,040,517
        
        
        
        54,442,859
        
        
        
        28,872,654Change in cash and cash equivalents
        
        
        16,668,315
        
        
        
        19,061,231
        
        
        
        (8,127,980
        )Cash and cash equivalents at beginning of year
        
        
        30,998,895
        
        
        
        11,937,664
        
        
        
        20,065,644Cash and cash equivalents at end of year
        
        $
        47,667,210
        
        
        
        30,998,895
        
        
        
        11,937,664


F-7



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##### Table of Contents



WGNB CORP.

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
        
        $
        9,409,115
        
        
        
        11,932,926
        
        
        
        9,619,586Income taxes
        
        $
        3,357,950
        
        
        
        2,154,962
        
        
        
        2,616,628Non-cash investing and financing activities:Transfer of loans to other real estate
        
        $
        390,397
        
        
        
        
        
        
        
        712,061Change in unrealized gains on
securities available for sale, net of tax
        
        $
        921,914
        
        
        
        416,099
        
        
        
        1,016,950Change in dividends payable
        
        $
        (55,148
        )
        
        
        (53,938
        )
        
        
        (68,675
        )Issuance of common stock to directors in
lieu of directors fees
        
        $
        29,366
        
        
        
        25,438
        
        
        
        24,793


See accompanying notes to consolidated financial statements.

F-8



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements



|(1) |  | Summary of Significant Accounting Policies
|--- |  | ------------------------------------------



| |  | The following is a summary of the significant policies and procedures.
| |  | ----------------------------------------------------------------------



| |  | Basis of Presentation
| |  | ---------------------



| |  | The consolidated financial statements of WGNB Corp. (the Company) include
the financial statements of its wholly owned subsidiaries West Georgia
National Bank (the Bank) and West Georgia Credit Services, Inc. (WGCS).
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 and Douglas
Counties, Georgia.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2002, the Company completed a public offering of 200,000 shares of its
common stock at a purchase price of $24.00 per share, or an aggregate
amount of $4,800,000. The offering was conducted through the Companys
officers and directors on a best-efforts basis without compensation. The
Company received net proceeds from the offering of $4,766,654, representing
total offering proceeds of $4,800,000, less offering expenses of $33,346.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During 2002, the Company merged the operation of WGCS into the Bank and the
Company. Additionally, the Company has ceased offering non-traditional
consumer financing. WGCS had operated under the name Mortgage & Loan
Solutions and commenced operations in 1997 serving Paulding, Douglas and
Carroll Counties.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The accounting and reporting policies of the Company, and the methods of
applying these principles, conform with generally accepted accounting
principles 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 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 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 investment below
cost that is deemed other than temporary is charged to earnings and
establishes a new cost basis for the security.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(1) |  | Summary of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------



| |  | Securities, continued
| |  | ---------------------



| |  | 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 and Allowance for Loan Losses
| |  | -----------------------------------



| |  | 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
that the borrowers financial condition is such that collection of interest
is doubtful.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 that may
become uncollectible. Loans deemed uncollectible are charged-off and
deducted from the allowance and recoveries on loans previously charged-off
are added back to the reserve.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Management believes that the allowance for loan losses is adequate. While
management uses available information to 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 judgments 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:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Building and improvements
        
        15  39 yearsFurniture and equipment
        
        3  10 years




| |  | Other Real Estate
| |  | -----------------



| |  | Properties acquired through foreclosure are carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs
to dispose. Accounting literature defines fair value 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 provided by a charge to income through the
allowance for losses on other real estate in the period in which the need
arises.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(1) |  | Summary of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------



| |  | 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 the 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Derivative Instruments and Hedging Activities
| |  | ---------------------------------------------



| |  | The Company recognizes the fair value of derivatives as assets or
liabilities in the financial statements. Changes in the fair value of a
derivative depend 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 settled
or terminated, the cumulative change in the fair value is amortized into
income over the original hedge period. If the underlying hedged instrument
is sold, the Company immediately recognizes the cumulative change in the
derivatives value in the component of earnings.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of December 31, 2002, the Company did not hold an interest rate swap. As
of December 31, 2001, the Company held an interest rate swap, which was
entered into as a means of managing its interest rate risk and accounted
for the hedge instrument as a fair value hedge. The interest rate swap
contract, with a notional amount of $20,000,000, was used to hedge the
Banks fixed rate interest risk related to its borrowing with the Federal
Home Loan Bank. Under the interest swap contract, the Company received a
fixed rate of 3.45% and paid at a rate of 90 day LIBOR which was 1.89% at
December 31, 2001. During 2002, the Company recognized $252,950 in gains
related to the settlement of the interest rate swap, which was reported as
a component of other income.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Stock Compensation Plans
| |  | ------------------------



| |  | SFAS No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date)
over the amount an employee must pay to acquire the stock. Stock options
issued under the Companys stock option plan have no intrinsic value at the
grant date, and under Opinion No. 25 no compensation cost is recognized for
them. The Company has elected to continue with the accounting methodology
in Opinion No. 25 and, as a result, has provided pro forma disclosures of
net income and earnings per share and other disclosures, as if the fair
value based method of accounting had been applied.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



| |  | Stock Compensation Plans, continued
| |  | -----------------------------------



| |  | Had compensation cost for the plan been determined based upon the fair
value of the options at the grant dates, the Companys net earnings and net
earnings per share would have been reduced to the proforma amounts
indicated below:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Net earnings
        
        As reported
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177Proforma
        
        $
        5,465,894
        
        
        
        4,748,635
        
        
        
        4,373,964Net earnings per share
        
        As reported
        
        $
        1.71
        
        
        
        1.55
        
        
        
        1.42Proforma
        
        $
        1.69
        
        
        
        1.53
        
        
        
        1.41Diluted earnings per share
        
        As reported
        
        $
        1.69
        
        
        
        1.52
        
        
        
        1.41Proforma
        
        $
        1.66
        
        
        
        1.51
        
        
        
        1.40




| |  | The fair value of each option is estimated on the date of grant using the
Black-Sholes Model for 2002 and the Minimum Value Model for 2001 and 2000.
The following weighted average assumptions used for grants in 2002, 2001
and 2000, respectively: dividend yield of 2.40%, 2.00% and 1.70% risk free
interest rates of 4.14%, 5.00% and 6.00%, respectively, and an expected
life of 10 years. For disclosure purposes, the Company immediately
recognized the expense associated with the option grants 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Net Comprehensive Income
| |  | ------------------------



| |  | GAAP generally requires that recognized revenues, expenses, gains and
losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of
the consolidated balance sheets, such items along with net income, are
components of comprehensive income. The Company presents comprehensive
income in a separate consolidated statement of comprehensive income.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Earnings Per Share
| |  | ------------------



| |  | Earnings per common 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 10, are
granted to key management personnel. During 2000, the Company completed a
two for one stock split. Earnings per share and the related average shares
outstanding for each reporting period have been restated to reflect the
effects of the stock split.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Common
        
        Per ShareFor the Year Ended December 31, 2002
        
        Net Earnings
        
        Shares
        
        AmountEarnings per common share
        
        $
        5,544,665
        
        
        
        3,243,849
        
        
        $
        1.71Effect of dilutive stock options
        
        
        
        
        
        
        42,353
        
        
        
        (.02
        )Diluted earnings per common share
        
        $
        5,544,665
        
        
        
        3,286,202
        
        
        $
        1.69


F-12



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(1) |  | Summary of Significant Accounting Policies, continued
|--- |  | -----------------------------------------------------



| |  | Earnings Per Share, continued
| |  | -----------------------------

Common
        
        Per ShareFor the Year Ended December 31, 2001
        
        Net Earnings
        
        Shares
        
        AmountEarnings per common share
        
        $
        4,789,121
        
        
        
        3,098,067
        
        
        $
        1.55Effect of dilutive stock options
        
        
        
        
        
        
        45,986
        
        
        
        (.03
        )Diluted earnings per common share
        
        $
        4,789,121
        
        
        
        3,144,053
        
        
        $
        1.52


Common
        
        Per ShareFor the Year Ended December 31, 2000
        
        Net Earnings
        
        Shares
        
        AmountEarnings per common share
        
        $
        4,404,177
        
        
        
        3,098,419
        
        
        $
        1.42Effect of dilutive stock options
        
        
        
        
        
        
        35,424
        
        
        
        (.01
        )Diluted earnings per common share
        
        $
        4,404,177
        
        
        
        3,133,843
        
        
        $
        1.41




| |  | New Accounting Standards
| |  | ------------------------



| |  | Effective October 1, 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No.
147, Acquisitions of Certain Financial Institutions, which amends SFAS
No. 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions. It also requires that those transactions be accounted for
in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142
Goodwill and Other Intangible Assets. Specifically, the requirement of
SFAS No. 72 to recognize (and subsequently amortize) any excess of the fair
value of liabilities assumed over the fair value of tangible and
identifiable intangible assets acquired as an unidentifiable intangible
asset no longer applies to business combinations within the scope of SFAS
No. 72. In addition, this Statement amends SFAS No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope
long-term customer-relationship intangible asset of financial institutions
such as depositor- and borrower-relationship intangible assets and credit
cardholder intangible assets. Consequently, those intangible assets are
subject to the same undiscounted cash flow recoverability test and
impairment loss recognition and measurement provisions that SFAS No. 144
requires for other long-lived assets that are held and used. This new
pronouncement will not have a significant impact on the financial position
or results of operations of the Company.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additionally, effective December 15, 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123. This statement provides alternative
methods of transition for voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on the reported results. This new pronouncement
did not have a significant impact on the financial position of the Company.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reclassifications
| |  | -----------------



| |  | Certain reclassifications have been made in the prior years consolidated
financial statements to conform to the presentation used in 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

F-13



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(2) |  | Investment Securities
|--- |  | ---------------------



| |  | Investment securities available for sale and held-to-maturity at December
31, 2002 and 2001 are summarized as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------



| |  | Available for Sale
| |  | ------------------

December 31, 2002Gross
        
        Gross
        
        EstimatedAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        Losses
        
        ValueU.S. Government agencies
        
        $
        3,522,598
        
        
        
        85,752
        
        
        
        
        
        
        
        3,608,350Mortgage-backed securities
        
        
        20,811,410
        
        
        
        771,173
        
        
        
        
        
        
        
        21,582,583State, county and municipals
        
        
        24,161,148
        
        
        
        1,075,984
        
        
        
        22,820
        
        
        
        25,214,312Corporate bonds
        
        
        1,686,405
        
        
        
        40,143
        
        
        
        
        
        
        
        1,726,548$
        50,181,561
        
        
        
        1,973,052
        
        
        
        22,820
        
        
        
        52,131,793


December 31, 2001Gross
        
        Gross
        
        EstimatedAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        Losses
        
        ValueU.S. Government agencies
        
        $
        3,854,196
        
        
        
        45,942
        
        
        
        843
        
        
        
        3,899,295Mortgage-backed securities
        
        
        26,360,027
        
        
        
        232,317
        
        
        
        84,840
        
        
        
        26,507,504State, county and municipals
        
        
        23,058,952
        
        
        
        521,350
        
        
        
        104,439
        
        
        
        23,475,8631,057,820
        
        
        
        2,517
        
        
        
        8,853
        
        
        
        1,051,484$
        54,330,995
        
        
        
        802,126
        
        
        
        198,975
        
        
        
        54,934,146Held to Maturity


December 31, 2002Gross
        
        Gross
        
        EstimatedAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        Losses
        
        ValueTrust preferred securities
        
        $
        3,500,000
        
        
        
        101,400
        
        
        
        
        
        
        
        3,601,400


December 31, 2001Gross
        
        Gross
        
        EstimatedAmortized
        
        Unrealized
        
        Unrealized
        
        FairCost
        
        Gains
        
        Losses
        
        ValueTrust preferred securities
        
        $
        2,000,000
        
        
        
        75,000
        
        
        
        40,400
        
        
        
        2,034,600


F-14



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(2) |  | Investment Securities, continued
|--- |  | --------------------------------



| |  | The amortized cost and estimated fair value of investment securities
available for sale and held to maturity at December 31, 2002, 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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortized
        
        EstimatedCost
        
        Fair ValueAvailable for SaleU.S. Government agencies, state, county
and municipals and corporate bonds:Within 1 year
        
        $
        2,939,558
        
        
        
        3,013,0771 to 5 years
        
        
        3,973,214
        
        
        
        4,187,0785 to 10 years
        
        
        3,835,098
        
        
        
        3,944,455After 10 years
        
        
        18,622,281
        
        
        
        19,404,600Mortgage-backed securities
        
        
        20,811,410
        
        
        
        21,582,583$
        50,181,561
        
        
        
        52,131,793Held to MaturityTrust preferred securities:After 10 years
        
        $
        3,500,000
        
        
        
        3,601,400




| |  | Proceeds from sales of securities available for sale during 2002, 2001 and
2000 were $6,498,385, $1,080,000 and $560,520, respectively, with the
following gains and losses recognized:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Gross gains
        
        $
        6,705
        
        
        
        21,831
        
        
        
        Gross losses
        
        $
        
        
        
        
        
        
        
        
        8,833




| |  | Investment securities with a fair value of approximately $47,217,000 and
$52,755,000 as of December 31, 2002 and 2001, respectively, were pledged to
secure public deposits, as required by law, and for other purposes.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Loans
|--- |  | -----



| |  | Major classifications of loans at December 31, 2002 and 2001 are summarized
as follows:
| |  | ---------------------------------------------------------------------------------------

2002
        
        2001Commercial, financial and agricultural
        
        $
        34,821,174
        
        
        
        26,162,290Real estate  mortgage
        
        
        153,572,374
        
        
        
        147,704,252Real estate  construction
        
        
        68,817,967
        
        
        
        60,784,686Consumer
        
        
        16,259,910
        
        
        
        19,153,301273,471,425
        
        
        
        253,804,529Less:
        Unearned interest
        
        
        486,889
        
        
        
        523,954Allowance for loan losses
        
        
        3,771,676
        
        
        
        3,720,206$
        269,212,860
        
        
        
        249,560,369




| |  | The Company 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 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(3) |  | Loans, continued
|--- |  | ----------------



| |  | Changes in the allowance for loan losses for the years ended December 31,
2002, 2001 and 2000 are as follows:
| |  | -------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Balance, beginning of year
        
        $
        3,720,206
        
        
        
        2,919,812
        
        
        
        2,281,298Provision for loan losses
        
        
        483,340
        
        
        
        910,500
        
        
        
        508,700Loans charged off
        
        
        (694,566
        )
        
        
        (199,720
        )
        
        
        (76,737
        )Recoveries
        
        
        262,696
        
        
        
        89,614
        
        
        
        206,551Balance, end of year
        
        $
        3,771,676
        
        
        
        3,720,206
        
        
        
        2,919,812




|(4) |  | Premises and Equipment
|--- |  | ----------------------



| |  | Major classifications of premises and equipment at December 31, 2002 and
2001 are summarized as follows:
| |  | --------------------------------------------------------------------------------------------------------

2002
        
        2001Land
        
        $
        1,134,599
        
        
        
        1,134,599Buildings and improvements
        
        
        5,833,246
        
        
        
        5,869,136Furniture and equipment
        
        
        5,313,252
        
        
        
        5,545,11212,281,097
        
        
        
        12,548,847Less: Accumulated depreciation
        
        
        (6,321,330
        )
        
        
        (6,242,501
        )$
        5,959,767
        
        
        
        6,306,346




| |  | Depreciation expense amounted to $748,049, $700,825 and $655,487 in 2002,
2001 and 2000, respectively.
| |  | ------------------------------------------------------------------------------------------------------



|(5) |  | Time Deposits
|--- |  | -------------



| |  | At December 31, 2002 the scheduled maturities of time deposits are
as follows:
| |  | ------------------------------------------------------------------------------

2003
        
        $
        89,003,0952004
        
        
        17,410,9692005
        
        
        8,432,9422006
        
        
        10,209,6512007 and thereafter
        
        
        2,766,719$
        127,823,376


F-16



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(6) |  | Lines of Credit
|--- |  | ---------------



| |  | The Bank has lines of credit for overnight borrowings of $11,000,000 at
December 31, 2002 and 2002. The Bank also has a line of credit with the
Federal Home Loan Bank of Atlanta (FHLB) totaling $53,940,000 and
$43,140,000 at December 31, 2002 and 2001, respectively. Advances on the
FHLB line of credit are subject to available collateral of the Bank. At
December 31, 2002, the Bank had advances outstanding from the FHLB
amounting to $45,000,000. The following advances require quarterly
interest payments:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest
        
        Current
        
        
        
        
        
        Early ConversionAdvance
        
        Basis
        
        Rate
        
        Maturity
        
        Call Date
        
        Option$
        10,000,000
        
        
        Fixed
        
        
        5.49
        %
        
        May 2011
        
        May 2006
        
        May 2006, 3 month LIBOR$
        5,000,000
        
        
        Fixed
        
        
        6.14
        %
        
        December 2004
        
        
        
        $
        5,000,000
        
        
        Fixed
        
        
        7.07
        %
        
        May 2005
        
        
        
        $
        10,000,000
        
        
        Fixed
        
        
        6.16
        %
        
        July 2005
        
        
        
        $
        5,000,000
        
        
        Fixed
        
        
        5.44
        %
        
        February 2008
        
        February 2003
        
        February 2003, 3 month LIBOR$
        10,000,000
        
        
        Fixed
        
        
        3.37
        %
        
        September 2012
        
        September 2007
        
        September 2007, 3 month LIBOR




| |  | At December 31, 2001, the Bank had advances outstanding from the FHLB
amounting to $35,000,000. The following advances require quarterly interest
payments:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Interest
        
        Current
        
        
        
        
        
        Early ConversionAdvance
        
        Basis
        
        Rate
        
        Maturity
        
        Call Date
        
        Option$
        10,000,000
        
        
        Fixed
        
        
        5.49
        %
        
        May 2011
        
        May 2006
        
        May 2006, 3 month LIBOR$
        5,000,000
        
        
        Fixed
        
        
        6.14
        %
        
        December 2004
        
        December 2001
        
        December 2001, 3 month LIBOR$
        5,000,000
        
        
        Fixed
        
        
        7.07
        %
        
        May 2005
        
        May 2002
        
        May 2002, 3 month LIBOR$
        10,000,000
        
        
        Fixed
        
        
        6.16
        %
        
        July 2005
        
        
        
        $
        5,000,000
        
        
        Fixed
        
        
        5.44
        %
        
        February 2008
        
        February 2003
        
        February 2003, 3 month LIBOR




| |  | The early conversion option allows the FHLB to convert the advances to a
variable interest rate upon notification to the Bank. The FHLB advances
are secured by the Banks stock in the FHLB, its 1-4 family first mortgage
loans and qualified commercial loans.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additionally, during 1999 the Company entered into a $1,750,000 line
of credit arrangement with a financial institution that matures March 31,
2003. At December 31, 2002 and 2001, the Company had outstanding advances
of $0 and $1,282,000, respectively. The facility requires interest payments
quarterly with annual interest calculated at the prime rate minus 1.25%.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(7) |  | 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, 2002 and 2001:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ApproximateContractual Amount2002
        
        2001Financial instruments whose contract amounts
represent credit risk:Commitments to extend credit
        
        $
        40,842,000
        
        
        
        39,167,000Standby letters of credit
        
        
        1,658,000
        
        
        
        597,000




| |  | 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.
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
credit 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 loan facilities to customers.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) |  | Stock Repurchase Plan
|--- |  | ---------------------



| |  | 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 redeemed 2,345 shares of common
stock during 2002. At December 31, 2002, the Company had $1,478,430
remaining to reacquire shares under the Stock Repurchase Plan.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) |  | 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, 2002, that the
Company and the Bank met all capital adequacy requirements to which it is
subject.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(9) |  | Regulatory Matters, continued
|--- |  | -----------------------------



| |  | As of December 31, 2002 the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
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. There are no conditions or events since that notification that
management believes have changed the institutions category. Presented
below are the Companys and the Banks actual capital amounts and ratios.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2002:Total Capital
(to Risk Weighted Assets)Consolidated
        
        $
        40,697
        
        
        
        14
        %
        
        
        >22,889
        
        
        
        >8
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        35,424
        
        
        
        12
        %
        
        
        >22,812
        
        
        
        >8
        %
        
        
        >28,515
        
        
        
        >10
        %Tier I Capital
(to Risk Weighted Assets)Consolidated
        
        $
        37,210
        
        
        
        13
        %
        
        
        >11,445
        
        
        
        >4
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        31,949
        
        
        
        11
        %
        
        
        >11,406
        
        
        
        >4
        %
        
        
        >17,109
        
        
        
        >6
        %Tier I Capital
(to Average Assets)Consolidated
        
        $
        37,210
        
        
        
        10
        %
        
        
        >15,149
        
        
        
        >4
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        31,949
        
        
        
        8
        %
        
        
        >15,115
        
        
        
        >4
        %
        
        
        >18,894
        
        
        
        >5
        %As of December 31, 2001:Total Capital (to Risk
Weighted Assets)Consolidated
        
        $
        31,493
        
        
        
        12
        %
        
        
        >20,578
        
        
        
        >8
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        31,999
        
        
        
        12
        %
        
        
        >20,706
        
        
        
        >8
        %
        
        
        >25,882
        
        
        
        >10
        %Tier I Capital
(to Risk Weighted Assets)Consolidated
        
        $
        28,338
        
        
        
        11
        %
        
        
        >10,289
        
        
        
        >4
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        28,824
        
        
        
        11
        %
        
        
        >10,353
        
        
        
        >4
        %
        
        
        >15,530
        
        
        
        >6
        %Tier I Capital
(to Average Assets)Consolidated
        
        $
        28,338
        
        
        
        8
        %
        
        
        >13,963
        
        
        
        >4
        %
        
        
        N/A
        
        
        
        N/ABank
        
        $
        28,824
        
        
        
        8
        %
        
        
        >14,026
        
        
        
        >4
        %
        
        
        >17,532
        
        
        
        >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, 2002 the Bank could pay approximately $6,682,000 in addition to current
earnings without obtaining prior regulatory approval.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) |  | Incentive Stock Option Plan
|---- |  | ---------------------------



| |  | Under the January 11, 1994 Incentive Stock Option 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 160,000 shares of
common stock were reserved for possible issuance under this plan. At
December 31, 2002, the Company had 39,735 options available for awards.
Options were to be granted commencing March 8, 1994 and are to continue
through the year 2004. 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. No compensation cost has been recognized for the stock options.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(10) |  | Incentive Stock Option Plan, continued
|---- |  | --------------------------------------



| |  | A summary status of the Companys stock option plan as of December 31,
2002, 2001 and 2000, and changes during the years ending on those dates, is
presented below:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Wtd. Avg.
        
        
        
        Wtd. Avg.
        
        
        
        Wtd. Avg.Exercise
        
        
        
        Exercise
        
        
        
        ExerciseShares
        
        Price
        
        Shares
        
        Price
        
        Shares
        
        PriceOutstanding, beginning of year
        
        
        96,279
        
        
        $
        13.75
        
        
        
        88,049
        
        
        $
        12.04
        
        
        
        81,221
        
        
        $
        10.90Awarded during the year
        
        
        17,272
        
        
        $
        24.00
        
        
        
        14,490
        
        
        $
        22.50
        
        
        
        7,800
        
        
        $
        21.50Forfeited during the year
        
        
        (5,681
        )
        
        $
        19.59
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Exercised during the year
        
        
        (7,512
        )
        
        $
        8.69
        
        
        
        (6,260
        )
        
        $
        7.59
        
        
        
        (972
        )
        
        $
        7.22Outstanding, end of year
        
        
        100,358
        
        
        $
        15.57
        
        
        
        96,279
        
        
        $
        13.75
        
        
        
        88,049
        
        
        $
        12.04Options exercisable at year end
        
        
        36,792
        
        
        
        
        
        
        
        23,220
        
        
        
        
        
        
        
        13,104Weighted average fair value of
options granted during the year
        
        
        
        
        
        $
        6.91
        
        
        
        
        
        
        $
        4.40
        
        
        
        
        
        
        $
        6.10




| |  | The following information applies to all options outstanding at December
31, 2002:
| |  | ----------------------------------------------------------------------------------

Range of exercise prices
        
        $
        7.22 to $24.00Weighted average remaining contractual life (years)
        
        
        5.68




|(11) |  | 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 2002, 2001 and 2000, the Company matched
100% of the participants contributions up to 6% of the participants
salaries which is limited to the annual 401(k) contribution limits. The
Company also made discretionary contributions to the plan in 2002, 2001 and
2000 of 5% of participants salaries. Contributions to the plan charged to
expense during 2002, 2001 and 2000 were $366,148, $365,993 and $303,996,
respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) |  | Income Taxes
|---- |  | ------------



| |  | The components of the provision for income taxes in the consolidated
statements of earnings for the years ended December 31, 2002, 2001 and 2000
are as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Current:Federal
        
        $
        2,571,959
        
        
        
        2,518,696
        
        
        
        2,356,552State
        
        
        259,812
        
        
        
        293,354
        
        
        
        352,129Deferred:Federal
        
        
        (145,490
        )
        
        
        (305,772
        )
        
        
        (208,558
        )State
        
        
        (17,982
        )
        
        
        (35,614
        )
        
        
        (12,717
        )Total
        
        $
        2,668,299
        
        
        
        2,470,664
        
        
        
        2,487,406


F-20



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(12) |  | Income Taxes, continued
|---- |  | -----------------------



| |  | 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:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001
        
        2000Pretax income at statutory rates
        
        $
        2,790,917
        
        
        
        2,468,327
        
        
        
        2,343,138Add (deduct):Tax-exempt interest income
        
        
        (331,773
        )
        
        
        (268,094
        )
        
        
        (234,594
        )State taxes, net of federal effect
        
        
        180,054
        
        
        
        223,384
        
        
        
        205,023Non-deductible interest expense
        
        
        28,636
        
        
        
        39,909
        
        
        
        33,905Other
        
        
        465
        
        
        
        7,138
        
        
        
        139,934$
        2,668,299
        
        
        
        2,470,664
        
        
        
        2,487,406




| |  | The following summarizes the net deferred tax asset, which is included as a
component of other assets, at December 31, 2002 and 2001.
| |  | -------------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001Deferred income tax assets:Allowance for loan losses
        
        $
        1,285,218
        
        
        
        1,198,007Other real estate owned
        
        
        84,688
        
        
        
        Other
        
        
        82,962
        
        
        
        41,070Total gross deferred income tax assets
        
        
        1,452,868
        
        
        
        1,239,077Deferred income tax liabilities:Premises and equipment
        
        
        (335,070
        )
        
        
        (284,757
        )Net unrealized gain on securities available for sale
        
        
        (661,626
        )
        
        
        (214,915
        )Other
        
        
        (2,050
        )
        
        
        (2,044
        )Total gross deferred income tax liabilities
        
        
        (998,746
        )
        
        
        (501,716
        )Net deferred income tax asset
        
        $
        454,122
        
        
        
        737,361




|(13) |  | 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 2002:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Beginning balance
        
        $
        5,367,300New loans
        
        
        9,612,341Repayments
        
        
        (9,132,681
        )Change in related parties
        
        
        (413,553
        )Ending balance
        
        $
        5,433,407




| |  | At December 31, 2002, deposits from directors, executive officers, and
their related interests totaled approximately $3,947,000.
| |  | --------------------------------------------------------------------------------------------------------------------------------

F-21



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##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(14) |  | Other Operating Expenses
|---- |  | ------------------------



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

2002
        
        2001
        
        2000Professional fees
        
        $
        521,305
        
        
        
        355,018
        
        
        
        313,023Software licensing fee
        
        $
        323,654
        
        
        
        256,712
        
        
        
        84,493




|(15) |  | 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 subsidiaries, 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 and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
| |  | ------------------------------------------------------------------------------------------------------------



| |  | Investment 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 Home Loan Bank Advances
| |  | -------------------------------



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



| |  | Other Borrowings
| |  | ----------------



| |  | Because other borrowings are based on variable rates, the carrying value
is a reasonable estimate of fair value.
| |  | ----------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Derivative Instruments
| |  | ----------------------



| |  | Fair value is estimated as the amount the Company would receive or pay to
terminate the contract as of the reporting date. There were no contracts
outstanding at December 31, 2002. At December 31, 2001, the fair value
of the contract outstanding was $0.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(15) |  | Fair Value of Financial Instruments, continued
|---- |  | ----------------------------------------------



| |  | 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 judgements. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement 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, 2002 and 2001 are as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------

2002
        
        2001Carrying
        
        Estimated
        
        Carrying
        
        EstimatedAmount
        
        Fair Value
        
        Amount
        
        Fair ValueAssets:Cash and cash equivalents
        
        $
        47,667,210
        
        
        
        47,667,210
        
        
        
        30,998,895
        
        
        
        30,998,895Securities available for sale
        
        $
        52,131,793
        
        
        
        52,131,793
        
        
        
        54,934,146
        
        
        
        54,934,146Securities held to maturity
        
        $
        3,500,000
        
        
        
        3,601,400
        
        
        
        2,000,000
        
        
        
        2,034,600Loans
        
        $
        269,212,860
        
        
        
        270,684,750
        
        
        
        249,560,369
        
        
        
        251,334,812Liabilities:Deposits
        
        $
        298,725,868
        
        
        
        301,439,155
        
        
        
        280,531,128
        
        
        
        283,125,277Federal Home Loan Bank advances
        
        $
        45,000,000
        
        
        
        49,035,029
        
        
        
        35,000,000
        
        
        
        36,990,382Other borrowings
        
        $
        
        
        
        
        
        
        
        
        1,282,000
        
        
        
        1,282,000


F-23



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(16) |  | WGNB Corp. (Parent Company Only) Financial Information
|---- |  | ------------------------------------------------------

Balance Sheets

December 31, 2002 and 2001

2002
        
        2001AssetsCash
        
        $
        5,047,181
        
        
        
        708,569Investment in Bank
        
        
        33,238,343
        
        
        
        28,726,314Investment in WGCS
        
        
        
        
        
        
        270,638Securities available for sale
        
        
        672,000
        
        
        
        Funds due from WGCS
        
        
        
        
        
        
        1,282,000Other assets
        
        
        297,656
        
        
        
        19,238$
        39,255,180
        
        
        
        31,006,759Liabilities and Stockholders EquityDividends payable
        
        $
        515,049
        
        
        
        459,901Line of credit
        
        
        
        
        
        
        1,282,000Other liabilities
        
        
        220,180
        
        
        
        60,531Total liabilities
        
        
        735,229
        
        
        
        1,802,432Stockholders equity
        
        
        38,519,951
        
        
        
        29,204,327$
        39,255,180
        
        
        
        31,006,759


Statements of Earnings

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Dividends from Bank
        
        $
        1,946,290
        
        
        
        1,954,115
        
        
        
        1,721,185Other income
        
        
        60,637
        
        
        
        82,338
        
        
        
        41,617Other expense
        
        
        (51,332
        )
        
        
        (157,314
        )
        
        
        (125,655
        )Earnings before equity in undistributed
earnings of subsidiaries
        
        
        1,955,595
        
        
        
        1,879,139
        
        
        
        1,637,147Equity in undistributed earnings (loss) of WGCS
        
        
        (22,803
        )
        
        
        23,739
        
        
        
        (89,272
        )Equity in undistributed earnings of Bank
        
        
        3,611,873
        
        
        
        2,886,243
        
        
        
        2,856,302Net earnings
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177


F-24



---



##### Table of Contents



WGNB CORP.

Notes to Consolidated Financial Statements, continued



|(16) |  | WGNB Corp. (Parent Company Only) Financial Information, continued
|---- |  | -----------------------------------------------------------------

Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000

2002
        
        2001
        
        2000Cash flows from operating activities:Net earnings
        
        $
        5,544,665
        
        
        
        4,789,121
        
        
        
        4,404,177Adjustments to reconcile net earnings to net
cash provided by operating activities:Accretion on securities available for sale
        
        
        6,440
        
        
        
        
        
        
        
        Equity in undistributed earnings of Bank
        
        
        (3,611,873
        )
        
        
        (2,886,243
        )
        
        
        (2,856,302
        )Equity in undistributed earnings of WGCS
        
        
        22,803
        
        
        
        (23,739
        )
        
        
        89,272Change in other assets
        
        
        (131,488
        )
        
        
        (11,904
        )
        
        
        703Change in other liabilities
        
        
        189,015
        
        
        
        37,645
        
        
        
        73,305Net cash provided by operating activities
        
        
        2,019,562
        
        
        
        1,904,880
        
        
        
        1,711,155Cash flows from investing activities:Net assets transferred from WGCS
        
        
        91,895
        
        
        
        
        
        
        
        Purchase of securities available for sale
        
        
        (647,672
        )
        
        
        
        
        
        
        Net cash used by investing activities
        
        
        (555,777
        )
        
        
        
        
        
        
        Cash flows from financing activities:Proceeds from borrowings
        
        
        
        
        
        
        372,000
        
        
        
        1,220,000Payments on borrowings
        
        
        (1,282,000
        )
        
        
        (390,000
        )
        
        
        (270,000
        )Loan to WGCS
        
        
        
        
        
        
        (372,000
        )
        
        
        (1,220,000
        )Payments received from WGCS
        
        
        1,282,000
        
        
        
        390,000
        
        
        
        270,000Offering proceeds, net of offering cost
        
        
        4,766,454
        
        
        
        
        
        
        
        Dividends paid
        
        
        (1,891,627
        )
        
        
        (1,651,553
        )
        
        
        (1,402,784
        )Exercise of stock options
        
        
        65,282
        
        
        
        47,512
        
        
        
        7,015Retirement of common stock
        
        
        (65,282
        )
        
        
        (55,365
        )
        
        
        (287,038
        )Net cash provided (used) by financing activities
        
        
        2,874,827
        
        
        
        (1,659,406
        )
        
        
        (1,682,807
        )Increase in cash
        
        
        4,338,612
        
        
        
        245,474
        
        
        
        28,348Cash at beginning of year
        
        
        708,569
        
        
        
        463,095
        
        
        
        434,747Cash at end of year
        
        $
        5,047,181
        
        
        
        708,569
        
        
        
        463,095Supplemental disclosure of non-cash financing activities:Change in dividends payable
        
        $
        (55,148
        )
        
        
        (53,938
        )
        
        
        (68,675
        )Changes in unrealized gains (losses) on securities
available for sale, net of tax, of Bank
        
        $
        921,914
        
        
        
        416,099
        
        
        
        1,016,950Issuance of common stock to directors in lieu of
directors fees
        
        $
        29,366
        
        
        
        25,438
        
        
        
        24,793Transfer of assets from WGCS to the Company
        
        $
        155,940
        
        
        
        
        
        
        
        


F-25