10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934: For the transition period from ____ to ______

Commission File No. 000-30805

WGNB CORP.

(Exact name of registrant as specified in its charter)

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

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

Securities registered pursuant to Section 12(b) of the Act: 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 Rule 12b-2 of the Act).   Yes o No x

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

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of June 30, 2005 which is the last business day of its most recently completed second fiscal quarter, was approximately $56,302,540 based on a per share price of $30.25 (which is the average of the ask and bid price reported by the NASDAQ Stock Market) as of such date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the Registrant’s Common Stock have been excluded in that such persons may be deemed affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 14, 2006, there were 3,331,247 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2006 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

WGNB CORP.

2005 Form 10-K Annual Report

TABLE OF CONTENTS

Item Number in Form 10-K	Description	Page or Location
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II
Item 5.	Market for the Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	36
PART III
Item 10.	Directors and Executive Officers of the Registrant	37
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	37
Item 13.	Certain Relationships and Related Transactions	37
Item 14.	Principal Accountant Fees and Services	37
PART IV
Item 15.	Exhibits and Financial Statement Schedules	38
	Signatures	41

PART I

Item 1.Business

General

WGNB Corp. (the “Company”) is a $524 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. As of March 14, 2006, the Company had 3,331,247 issued and outstanding shares of common stock, $1.25 par value per share (the “Common Stock”), held by approximately 950 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. Access to the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports is available at the Company’s website, www.wgnb.com under the investor relations tab.

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 from Carroll and Douglas Counties and conducts most of its lending transactions from an area encompassing Carroll, Douglas and Paulding Counties.

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, in addition to its main office, two additional 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 all of its branch locations drive-thru teller windows and 24-hour automated teller machines. All but one location has Saturday banking hours. The Bank is a member of Star, 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 website located at www.wgnb.com. Information included on the Bank’s website 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, 2005, the Bank had deposits of approximately $429 million, and approximately 29 thousand 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 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, 2005.

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Deposit Mix
	At December 31, 2005
Non-interest bearing demand	11%
NOW accounts and money market	37%
Savings	3%
Time Deposits
Under $100,000	23%
$100,000 and over	26%
	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, 2005, the Bank had approximately $424 million in total loans outstanding, representing 81% of its total assets of approximately $524 million. The loan portfolio is made up of both fixed and adjustable rate loans. Approximately 55% of the Company’s total loan portfolio is fixed rate and 45% is adjustable rate as of December 31, 2005. The Bank is not dependent to any material degree upon any single borrower or a few principal borrowers. The loss of any individual borrower or of a few principal borrowers would not have a material adverse effect on the operations or earnings of the Bank.

Real Estate Loans. Loans secured by real estate make up the primary component of the Bank’s loan portfolio, constituting approximately $350 million, or 83%, of the Bank’s total loans as of December 31, 2005. Approximately 57% of the real estate loans are fixed rate and 43% are adjustable rate. Approximately 60% of the fixed rate real estate loans mature in one year or less and approximately 92% of the fixed rate real estate loans mature in five years or less. These loans consist of commercial real estate loans, construction and development loans, residential real estate loans and home equity loans. Real estate loans are collateralized by commercial and residential real estate primarily located in the Company’s primary and secondary 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, 2005, commercial loans constituted approximately $52 million, or 12% of the Bank’s total loans. Approximately 46% of commercial loans are fixed rate while 54% are adjustable. The typical commercial loan has a maturity of three years or less. The typical commercial loan has collateral such as equipment for business use and inventory and may include unsecured working capital lines.

Consumer Loans. The Bank makes a variety of loans to individuals for personal and household purposes, including secured and unsecured installment and term loans and lines of credit. As of December 31, 2005, the Bank held approximately $22 million of consumer loans, representing 5% of its total loans. Consumer loans are primarily fixed rate in nature with 96% of this loan category carrying fixed rates. These loans are typically collateralized by personal automobiles, recreational vehicles or cash on deposit and may include unsecured loans to individuals.

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.

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Commercial loans and loans secured by commercial and multi-family real estate properties are generally larger and involve a greater degree of credit risk than one-to-four family residential mortgage loans. Because payments on these loans are often dependent on the successful operation of the business or management of the property, repayment of such loans may be subject to adverse conditions in the economy or real estate markets. It has been the Bank’s practice to underwrite such loans based on its analysis of the amount of cash flow generated by the business and the resulting ability of the borrower to meet its payment obligations. In addition, the Bank, in general, seeks to obtain a personal guarantee of the loan by the owner of the business and, under certain circumstances, seeks additional collateral.

Construction loans are generally considered to involve a higher degree of credit risk than 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. Additionally, the Bank limits draws on construction projects on a percentage of completion basis which is monitored by an independent inspection process.

Target Concentrations & Loan Portfolio Mix. The Bank has target concentration and portfolio mix limits written in its loan policy. The goal of the policy is to avoid concentrations that would result in a particular loan or collateral type, industry or geographic area comprising a large part of the whole portfolio. The portfolio should be varied enough to obtain a balance of maximum yield and acceptable risk. The loan portfolio mix is reported and reviewed quarterly by the Board of Directors. Concentration targets are evaluated periodically to determine changes in risk profiles and market need. The following represents target concentrations of loans by category as a percentage of total loans:

Unsecured loans	6%
Loans secured by:
Residential real estate	30%
Commercial real estate	35%
Convenience stores	6%
Hotels/motels	5%
Poultry facilities	7%
Acquisition & development/construction loans	30%
Commercial and industrial purpose loans	20%
Exceptions to primary and secondary trade area	15%

While the loan policy includes a provision generally limiting all types of real estate loans to 85% of the total loan portfolio, the executive loan committee can approve loans that exceed the policy limits on a case by case basis where warranted. At the end of the fourth quarter of 2005, we were within the overall real estate concentration target although we have approved concentrations above the target in the specific segments of single family construction and land development. With the benefit of our experienced lenders and specialized controls, we are able to serve this market with low historical loan loss. We will continue to capture opportunities in these segments while actively seeking to diversify our portfolio into other business lines such as commercial and industrial loans as well as Small Business Administration loans.

Legal Lending Limit. 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 and reserves, plus an additional 10% of a bank’s capital and reserves if the amount exceeding the 15% general limit is secured by readily marketable securities. The Bank, however, has adopted an internal policy requiring all exposure above 15% of capital and reserves to be approved by the entire Board of Directors unless certain conditions are met including one or more of the following:

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· 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; or

· 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% 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% 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 guarantors.

Collateral is not considered a substitute for the borrower’s ability to repay. Collateral serves as a way to control the borrower and provide additional sources of repayment in the event of default. The quality and liquidity of the collateral are of paramount importance and must be confirmed before the loan is made. The Bank has loan-to- value and margin guidelines that are varied depending on the type of collateral offered. Loans secured by liquid assets and securities carry margins of 75% to 100% depending on the liquidity and price volatility of the asset. Loan -to-value ratios on various types of real estate credits generally do not exceed 85% with most below 80%. Installment loans, in general, allow for a maximum loan to collateral value of 85%. In addition, there are limits on terms of repayment of loans for automobiles and related collateral which are dependent on the age of the asset. There are certain exceptions to the loan-to-value guidelines that are dependent on the overall creditworthiness of the borrower.

Loan Approval. 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 Bank’s President, one Executive Vice President, two Senior Vice Presidents and other lenders, has a lending limit of $500,000 for secured and $200,000 for unsecured loans. Loans between $500,000 and the Bank’s legal lending limit must be approved by the Bank’s Executive Loan Committee, which is made up of the CEO and President of the Bank and six outside directors.

Loan Review. The Bank has a comprehensive loan review process involving independent internal loan review, independent consulting firms, and lending officers. The loan review process is designed to promote early identification of credit quality problems at both the relationship level and portfolio level. According to the current bank loan policy, the scope of loan review activity is to include a minimum of 90% of all commercial and business purpose loan relationships greater than $500,000, with random sample checks on consumer loans and other loans less than $500,000. All loan officers are charged with the responsibility of rating their loans. Additionally, the loan reviewer recommends grades as part of the loan review process to ensure proper risk identification. Per current policy, the Executive Loan Committee has final approval authority on loan grades. The Bank’s risk identification process is reviewed by its regulators and its independent auditors giving further oversight and feedback.

Because of employee turnover in the loan review area during 2005, the scope of our loan review process was not achieved internally. For this reason, we engaged an external bank consulting firm that completed a review of our designated scope during the fourth quarter of 2005. The Bank also hired a new Chief Credit Officer during the fourth quarter of 2005 and a Loan Review Officer during the first quarter of 2006. The Chief Credit Officer is currently reviewing our policies, procedures, and scope for adequacy relative to portfolio size and composition. Based on this review, we will create a comprehensive loan review schedule that will meet the Bank’s loan review targets for 2006.

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Market Area

The following statistical data relating to our market area is based on information contained in a report published by the University of West Georgia Department of Economics dated November 4, 2005 and other information published by the FDIC on its website.

The Bank’s primary market area includes all of Carroll, Douglas and Paulding Counties in Georgia. Approximately 90% 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 Heard, Haralson, Coweta, Cobb and the southern portion of Fulton, 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 ranks 29^th among Georgia’s 159 counties in land area and 19^th in population. Carroll County’s major industries include manufacturing, wholesale trade, food processing, paper and lumber products, construction and health services. The Bank’s main office is located in Carrollton, which is the county seat for Carroll County. The University of West Georgia, which serves more than 9,000 students, Southwire Inc. and Tanner Medical Center are also located in Carrollton. Douglas County, which has the largest population of the five county West Georgia region, ranks 15^th among all 159 Georgia counties.

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 amount of total deposits in Carroll County was approximately $1.57 billion as of June 30, 2005, compared to total deposits of approximately $1.29 billion as of June 30, 2004. Total deposits in Carroll County grew by 21.7% from June 30, 2004 to June 30, 2005 which compares to the average annual growth rate over the last ten years of just over 5%. The Bank holds 24% of the market’s deposits and the number one position in Carroll County’s market share. The number two, three and four banks have 20%, 11% and 10% of the market area’s deposits, respectively. The top four banks (including West Georgia National Bank) held a total of 65% of the market share of deposits in Carroll County.

Douglas County had the second largest deposit base in our market area with $1.15 billion in total deposits and an 18.7% deposit growth rate in 2005, and Paulding County had the third largest base with $858 million in total deposits and a 15.2% deposit growth rate in 2005. The Bank held a market share of 3% of total deposits in Douglas County, or $29 million, as of June 30, 2005, representing the 9^th largest deposit market share for any financial institution located in Douglas County. If one combines Carroll and Douglas County’s market share, the Bank holds the highest market share of total deposits in the combined counties at 14.7%. The bank holding the next highest market share for the combined counties holds 11.4% and the top four institutions (including West Georgia National Bank) hold 46% of the deposits in this market area.

The Bank established two branches in the Douglas County market over the past four years. One branch is located on Highway 5 just south of I-20 and the other is located in a rapidly developing area known as Mirror Lake located on Mirror Lake Boulevard just north of I-20. The Bank moved into its permanent facility located in front of The Village at Mirror Lake Shopping Center in February 2005. The Bank has purchased a branch on Chapel Hill Road that was previously a Wachovia branch. The Wachovia location is contiguous to an existing First Union location. First Union and Wachovia merged in 2002 resulting in duplicative branches on one site. Management estimates that the new Bank branch on Chapel Hill will be open in April 2006. The Bank intends to serve its Douglas County market with these three locations.

Competition

The Bank operates in a competitive environment, competing for deposits and/or loans with commercial banks, thrifts and other financial entities. Principal competitors include other small community commercial banks (such as McIntosh Commercial Bank, First Georgia Community Bank, Community Bank of West Georgia, Peoples Community National Bank and 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 Wachovia Bank. Numerous mergers and consolidations involving banks in the Bank’s market area have occurred, requiring the Bank to compete with banks with greater resources. However, West Georgia National Bank enjoys the reputation of being the largest and oldest independent bank in Carroll County. McIntosh Commercial Bank commenced operations in the fourth quarter of 2002, Community Bank of West Georgia commenced operations in the second quarter of 2003, First Georgia Community Bank commenced operations in the third quarter of 2003 and Peoples Community National Bank commenced operations in the third quarter of 2004. These de novo banks are limited in their funding strategies because they typically do not have access to wholesale funding. Given the limited growth in total deposits in Carroll County, this has the effect of running up deposit rates as the new banks compete for funds in the market area.

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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 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. In addition, as commercial customers’ needs outgrow a de novo bank’s ability to fund their business, the Bank can serve those customers because it has a higher loan-to-one borrower limit.

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 its customer base. To enhance the Bank’s image in the community, the Bank supports and participates in many events. Employees, officers and directors represent the Bank on many boards and local civic and charitable organizations.

Employees

As of December 31, 2005, the Bank had 154 full time equivalent employees, none of whom is a party to a collective bargaining agreement. Certain executive officers of the Bank also serve as the officers of the Company (which does not have compensated employees). The Company believes that the Bank enjoys satisfactory relations with its employees.

Supervision and Regulation

The Company and the Bank are regulated under federal and state law. These laws and regulations generally are intended to protect depositors, not shareholders. The following is a summary description of certain provisions of certain laws which affect the regulation of bank holding companies and banks. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company and its bank subsidiary.

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The Company

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”). Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. The Company’s and the Bank’s activities are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries or engaging in any other activity that the Federal Reserve determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Investments, Control and Activities. With certain limited exceptions, the BHCA requires every bank holding company to obtain prior approval of the Federal Reserve:

· to acquire the ownership or control of more than 5% of any class of voting stock of any bank not already controlled by it;

· for it or any subsidiary (other than a bank) to acquire all or substantially all of the assets of a bank; and

· to merge or consolidate with any other bank holding company.

In addition, and subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring “control” of a bank holding company, such as the Company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person acquires 10% or more but less than 25% of any class of voting securities and either the Company has registered securities under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the transaction. The regulations provide a procedure for challenge of the rebuttable control presumption.

The BHCA further provides that the Federal Reserve may not approve any transaction that would result in a monopoly, or the effect of which may be substantially to lessen competition in any section of the country, or that in any other manner would be in restraint of trade, unless the transaction’s anticompetitive effects are clearly outweighed by the public interest. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served.

Bank holding companies generally are also prohibited under the BHCA from engaging in non-banking activities or from acquiring direct or indirect control of any company engaged in non-banking activities. However, the Federal Reserve may permit bank holding companies to engage in certain types of non-banking activities determined by the Federal Reserve to be closely related to banking or managing or controlling banks. Activities determined by the Federal Reserve to fall under this category include:

· making or servicing loans and certain leases;

· providing certain data processing services;

· acting as a fiduciary or investment or financial advisor;

· providing discount brokerage services;

· underwriting bank eligible securities; and

· making investments designed to promote community welfare.

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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.

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.

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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 May 2003 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, the Soldiers’ and Sailors’ Civil Relief Act of 1940 governing the repayment terms of, and property rights underlying, secured obligations of persons in military service, and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the Bank also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. The Bank’s commercial transactions are also subject to the provisions of the Uniform Commercial Code and other provisions of The Georgia Code Annotated.

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 that they will continue to be insured for at least six months and up to two years, at the discretion of the FDIC. After the date of termination, no new deposits accepted by the financial institution will be federally insured.

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.

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As a national bank, the Bank may not pay dividends from its paid-in-capital. All dividends must be paid out of retained earnings, after deducting expenses, including reserves for losses and bad debts. In addition, a national bank is prohibited from declaring a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been transferred to surplus no less than one-tenth of the bank’s net profits of the preceding two consecutive half-year periods (in the case of an annual dividend). The approval of the OCC is required if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus. Under FDICIA, the Bank may not pay a dividend if, after paying the dividend, the Bank would be undercapitalized. See Capital Adequacy.

As discussed below, additional capital requirements imposed by the OCC may limit the Bank’s ability to pay dividends to the Company. The Bank declared dividends in the amount of $3,058,719 to the Company during 2005. Under the OCC guidelines, as of December 31, 2005 the Bank was permitted to pay the Company dividends of up to $4,011,000 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;

· 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.

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Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business.

The Federal Reserve also has implemented a leverage ratio, which is Tier 1 capital as a percentage of average total assets less intangible assets, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve has established a minimum 3% leverage ratio of Tier 1 capital to total assets for the most highly rated bank holding companies and insured banks. All other bank holding companies and insured banks will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The tangible Tier 1 Leverage ratio is the ratio of a banking organization’s Tier 1 capital, less all intangibles, to total assets, less all intangibles.

FDICIA established a capital-based regulatory plan designed to promote early intervention for troubled banks and requires the FDIC to choose the least expensive resolution of bank failures. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. To qualify as a well capitalized institution, a bank must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total risk-based capital ratio of no less than 10%. The bank must also not be under any order or directive from the appropriate regulatory agency to meet and maintain a specific capital level.

Under FDICIA, regulators must take prompt corrective action against depository institutions that do not meet minimum capital requirements. FDICIA and the related regulations establish five capital categories as shown in the following table:

Classification	Total Risk- Based Capital	Tier I Risk- Based Capital	Tier I Leverage
Well Capitalized (1)	10%	6%	5%
Adequately Capitalized (1)	8%	4%	4% (2)
Undercapitalized (3)	<8%	<4%	<4%
Significantly Undercapitalized (3)	<6%	<3%	<3%
Critically Undercapitalized (3)	-	-	<2%
_________________
(1)  An institution must meet all three minimums. (2)  3% for composite 1-rated institutions, subject to appropriate federal banking agency guidelines. (3)  An institution is classified as undercapitalized if it is below the specified capital level for any of the three capital measures.

A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives a less than satisfactory examination rating in any one of four categories. As a depository institution moves downward through the capitalization categories, the degree of regulatory scrutiny will increase and the permitted activities of the institution will decrease. Action may be taken by a depository institution’s primary federal regulator against an institution that falls into one of the three undercapitalized categories, including the requirement of filing a capital plan with the institution’s primary federal regulator, prohibition on the payment of dividends and management fees, restrictions on executive compensation, and increased supervisory monitoring. Other restrictions may be imposed on the institution either by its primary federal regulator or by the FDIC, including requirements to raise additional capital, sell assets, or sell the institution.

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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 Note 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.

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.It is the Bank’s policy not to disclose any personal information unless required by law.

Anti-Terrorism Legislation

In the wake of the tragic events of September 11^th, on October 26, 2001, the President signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures, and controls generally require financial institutions to take reasonable steps—

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· 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 regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed above. The Bank currently has policies and procedures in place designed to comply with the USA PATRIOT Act.

Regulation W

The Company and its banking affiliates are subject to Regulation W, which provides guidance on permissible activities and transactions between affiliated companies. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

· to an amount equal to 10% of the bank's capital and surplus, in the case of covered transactions with any one affiliate; and

· to an amount equal to 20% of the bank's capital and surplus, in the case of covered transactions with all affiliates.

In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

· a loan or extension of credit to an affiliate;

· a purchase of, or an investment in, securities issued by an affiliate;

· a purchase of assets from an affiliate, with some exceptions;

· the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and

· the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

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In addition, under Regulation W:

· a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;

· covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and

· with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.

The Bank is also subject to certain restrictions imposed by the Federal Reserve on extensions of credit to executive officers, directors, principal shareholders, or any related interest of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, and following credit underwriting procedures that are at least as stringent as those prevailing at the time for comparable transactions with persons not covered above and who are not employees, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to certain lending limits and restrictions on overdrafts to such persons.

Consumer Credit Reporting

On December 4, 2003, the President signed the Fair and Accurate Credit Transactions Act (the FAIR Act), amending the federal Fair Credit Reporting Act (the FCRA). A number of amendments to the FCRA (the FCRA Amendments) became effective in 2004 while others are still subject to the public comment process and final rulemaking. The FCRA Amendments include, among other things:

· new requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, place a fraud alert in the consumer's credit file stating that the consumer may be the victim of identity theft or other fraud;

· new consumer notice requirements for lenders that use consumer report information in connection with risk-based credit pricing programs;

· for entities that furnish information to consumer reporting agencies(which would include the Bank), new requirements to implement procedures and policies regarding the accuracy and integrity of the furnished information, and regarding the correction of previously furnished information that is later determined to be inaccurate; and

· a new requirement for mortgage lenders to disclose credit scores to consumers.

The FCRA Amendments also prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes, subject to certain exceptions. The Company and the Bank have implemented procedures to comply with those new rules that have become effective and will take steps to implement appropriate procedures to comply with those rules that are to become effective at a later date.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established: (i) new requirements for audit committees, including independence, expertise and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions became effective over a period of time and are subject to rulemaking by the SEC. Because WGNB Corp.’s Common Stock is registered with the SEC, it is currently subject to this Act.

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Since the Sarbanes-Oxley Act was enacted in 2002 and continuing through 2005, the SEC and The Nasdaq Stock Market, issued new regulations affecting the Company’s corporate governance and heightening its disclosure requirements. Among the many new changes are enhanced proxy statement disclosures on corporate governance and executive compensation, stricter independence requirements for the Board of Directors and its committees, and posting of various SEC reports on the Company’s website. While the full impact of the Sarbanes-Oxley Act and the increased costs related to the Company’s compliance are still uncertain and evolving, management does not expect that compliance will have a material impact on the Company’s financial condition or results of operation.

Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation's financial institutions operating in the United States. The Company cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which its business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

The earnings of the Company are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

Other Developments

On February 6, 2006, the Board of Directors of each of the Company and the Bank accepted the resignation of L. Leighton Alston from his position as the Bank’s Chief Executive Officer and the Company’s Chief Executive Officer and President, and approved the terms of a settlement reached with respect to the early termination of Mr. Alston’s Employment Agreement dated May 27, 2005. Mr. Alston also resigned from his position as a Class III director for both the Company and the Bank. The resignations, which are effective as of February 11, 2006, will allow Mr. Alston to pursue other interests and did not involve any disagreements relating to financial or accounting matters. H.B. Lipham, III has assumed Mr. Alston’s duties.

Item 1A. Risk Factors

Like all other banking and financial services companies, our business and results of operations are subject to a number of risks, many of which are outside of our control. In addition to the other information in this Report, readers should carefully consider that the following important factors, among others, could materially impact our business and future results of operations. When we use terms such as “we,” “our”, and “us,” we are referring to WGNB Corp. which conducts business through its wholly-owned subsidiary, West Georgia National Bank.

Our success depends on our ability to compete effectively in the competitive financial services industry - We encounter strong competition for deposits, loans, and other financial services in all of our lines of business. Our principal competitors include other commercial banks, savings banks, credit unions and savings and loan associations. Many of our competitors are significantly larger than us and have greater access to capital and other resources. In recent years, there has been substantial consolidation among companies in the financial services industry. Such consolidation may increase competition because consolidation creates larger entities who may be able to offer additional services that we are unable to offer, have greater financial resources or have substantially higher lending limits with which to compete. Further, our ability to compete effectively is dependent on our ability to adapt successfully to technological and other changes within the banking and financial services industry.

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Our business may be adversely affected by the highly regulated environment in which we operate - We are highly regulated by state and federal agencies. Recently enacted and future legislation and regulations may have significant impact on the banking and financial services industries. Regulatory or legislative changes could increase our cost of doing business, restrict our access to new products or markets, or otherwise adversely affect our operations or the manner in which we conduct our business and, on the whole, adversely affect the profitability of our business.

We may be adversely affected by a general deterioration in economic conditions - The risks associated with our business are greater in periods of a slowing economy or recession. Economic declines may be accompanied by a decrease in demand for consumer or commercial credit and declining real estate and other asset values. Declining real estate and other asset values may reduce the ability of borrowers to use such equity to support borrowings. Delinquencies, foreclosures and losses generally increase during economic slow downs or recessions. Additionally, our servicing costs, collection costs and credit losses may also increase in periods of economic slow down or recessions.

We are subject to credit risk inherent in our loan portfolio - In the financial services industry, there is always a risk that certain borrowers may not repay borrowings. We maintain a reserve for loan losses to absorb the level of losses that we estimate to be probable in our portfolio. However, our reserve for loan losses may not be sufficient to cover the loan losses that we may actually incur. If we experience defaults by borrowers in any of our businesses, our earnings could be negatively affected. Changes in local economic conditions could adversely affect credit quality in our loan portfolio. In addition, federal and state regulators periodically review our loan portfolio and may require us to increase the provision for loan losses or recognize loan charge-offs. Their conclusions about the quality of the loan portfolio may be different from ours. Any increase in the allowance for loan losses or charge-offs as required by these regulatory agencies could have a negative effect on our operating results.

We may be adversely affected by interest rate changes - We realize income primarily from the difference between interest earned on loans and investments and interest paid on deposits and other borrowings. Interest rate fluctuations are caused by many factors which, for the most part, are not under our direct control. For example, national monetary policy plays a significant role in the determination of interest rates. Additionally, competitor pricing and the resulting negotiations that occur with our customers also impact the rates we collect on loans and the rates we pay on deposits. As interest rates change, we expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our earnings may be negatively affected. Although we actively manage our interest rate sensitivity, such management is not an exact science. Rapid increases or decreases in interest rates could adversely affect our net interest margin if changes in our cost of funds do not correspond to changes in income yields. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of interest accrued into income, which could have a material adverse affect on our results of operations.

We could be held responsible for environmental liabilities of properties acquired through foreclosure - Environmentally related hazards have become a source of high risk and potentially unlimited liability for financial institutions relative to their loans. Environmentally contaminated properties owned by an institution’s borrowers may result in a drastic reduction in the value of the collateral securing the institution’s loans to such borrowers, high environmental clean up costs to the borrower affecting its ability to repay the loans, the subordination of any lien in favor of the institution to a state or federal lien securing clean up costs, and liability to the institution for clean up costs if it forecloses on the contaminated property or becomes involved in the management of the borrower. To minimize this risk, we may require an environmental examination of, and report with respect to, the property of any borrower or prospective borrower if circumstances affecting the property indicate a potential for contamination, taking into consideration the potential loss to the institution in relation to the burdens to the borrower. Such examination must be performed by an engineering firm experienced in environmental risk studies and acceptable to the institution, and the costs of such examinations and reports are the responsibility of the borrower. These costs may be substantial and may deter a prospective borrower from entering into a loan transaction with us. We are not aware of any borrower who is currently subject to any environmental investigation or clean up proceeding which is likely to have a material adverse affect on our financial condition or results of operation.

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Loss of our senior executive officers or other key employees could impair our relationship with customers and adversely affect our business - We have assembled a senior management team which has substantial background and experience in banking and financial services in the western Georgia market. Loss of these key personnel could negatively impact our earnings because of their skills, customer relationships and/or the potential difficulty of promptly replacing them. As previously disclosed, our former Chief Executive Officer, L. Leighton Alston, recently terminated his employment with us. His duties are currently being performed by H.B. Lipham, III, who previously served as our Executive Vice President.

Item 1B. Unresolved Staff Comments. Not applicable.

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 permanent Mirror Lake branch opened in February of 2005. The Mirror Lake branch is located on the northeast corner of Mirror Lake Boulevard and Conner Road in front of the Village at Mirror Lake shopping center. The Bank owns a second Douglas County branch which is located at 9557 Georgia Highway 5 in Douglasville. In November of 2005, the Bank purchased a third location in Douglas County, which is located at 9360 The Landing Drive on Chapel Hill Road adjacent to Arbor Place Mall in Douglasville. This location is scheduled to open for business at the end of April 2006.

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 which is approximately 700 square feet) are typical of other banking facilities and are approximately 5,000 square feet in size. The Mirror Lake branch provides a new look for the Bank and contains customer-centric features such as concierge customer service areas with workstations and Internet connectivity. The branch utilizes a remote teller system and is designed to be high-touch customer service and low-touch transactional service. The new Chapel Hill branch (formerly a Wachovia location) was built in 2001 and is a 3,400 square foot building on approximately one acre with brick and veneer exterior. Each branch location has an ATM that is either walk-up or drive-up. The Motor office and Highway 5 Douglasville offices are leased facilities. All of the other office facilities are owned. The Bank also operates six additional ATMs on leased properties located throughout the Carrollton and Villa Rica areas.

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.

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PART II

Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s Common Stock is traded on the NASDAQ Capital Market System under trading symbol “WGNB”. Approximately 950 shareholders of record held the Common Stock as of March 14, 2006. Set forth below are the high and low closing prices for each full quarterly period during 2004 and 2005 and the dividends declared and paid per share of Common Stock for those periods.

		Price Range Per Share		Dividends
		Low	High	Paid Per Share
2004:
	First Quarter	$28.07	$31.25	$0.183
	Second Quarter	28.00	30.40	0.190
	Third Quarter	27.50	29.75	0.198
	Fourth Quarter	29.15	30.52	0.210
2005:
	First Quarter	$28.85	$30.50	$0.215
	Second Quarter	29.25	30.50	0.225
	Third Quarter	30.00	32.50	0.235
	Fourth Quarter	34.37	38.00	0.245

Dividends

The declaration of future dividends is within the discretion of the Board of Directors and will depend, among other things, upon business conditions, earnings, the financial condition of the Bank and the Company, and regulatory requirements. See “Business - Supervision and Regulation - Dividends.”

Recent Sales of Unregistered Securities

The Company issued the following securities during the year ended December 31, 2005 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 2005, one director of the Bank received 479 shares in payment of director compensation for an aggregate consideration owed to them by the Bank of $14,246 and 23,730 options to purchase the Company’s Common Stock were granted to certain executive officers under the Company’s 2003 Stock Incentive Plan. The sale of the shares and the grant of the options were exempt from registration under the Securities Act, pursuant to Section 4(2) thereof, as a transaction not involving a public offering. The Company has since registered the shares reserved for issuance (including the shares subject to the outstanding options granted to its executive officers) on Form S-8.

Issuer Purchases of Equity Securities

The Company did not make any repurchases of its equity securities during the fourth quarter of 2005.

18

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, 2005 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,
	2005			2004			2003			2002			2001
	(In thousands, except share and per share data)
For the Year:
Total Interest Income.	$	32,546		$	25,268		$	23,542		$	24,296		$	26,548
Total Interest Expense.		12,583			7,570			7,527			8,724			12,069
Net Interest Income.		19,963			17,698			16,015			15,572			14,479
Provision for Loan Losses.		1,550			925			350			483			910
Net Interest Income After Provision for Loan Losses		18,413			16,773			15,665			15,089			13,569
Total Other Income		6,008			5,637			5,554			5,251			4,550
Total Other Expense		14,464			13,664			12,752			12,127			10,859
Earnings Before Income Taxes		9,957			8,746			8,467			8,213			7,260
Income Taxes		2,889			2,682			2,680			2,668			2,471
Net earnings		7,067			6,064			5,787			5,545			4,789
Per Share Data:
Net earnings		2.13			1.83			1.75			1.71			1.55
Diluted net earnings		2.11			1.81			1.72			1.69			1.52
Cash dividends declared		.92			.78			.67			.60			.55
Book value		14.42			13.52			12.72			11.65			9.42
Tangible book value		14.42			13.52			12.72			11.65			9.42
At Year End:
Total loans		423,720			356,909			296,498			273,471			253,805
Earning assets		500,824			425,062			367,694			360,226			331,690
Assets		523,643			441,929			393,216			385,121			350,222
Total deposits		429,049			338,398			303,316			298,726			280,531
Stockholders’ equity		47,952			44,962			42,089			38,520			29,204
Common shares outstanding		3,325,196			3,325,774			3,306,452			3,306,733			3,100,355
Average Balances:
Total loans		395,943			330,159			287,861			262,781			248,863
Earning assets		473,480			404,121			357,468			337,583			310,027
Assets		501,191			428,637			384,395			357,418			326,653
Deposits		393,851			325,991			296,723			279,483			263,668
Stockholders’ equity		46,857			43,742			40,708			35,640			27,986
Weighted average shares outstanding		3,324,620			3,305,736			3,308,087			3,243,849			3,098,067
Key Performance Ratios:
Return on average assets		1.41	%		1.41	%		1.51	%		1.55	%		1.47	%
Return on average equity		15.08	%		13.86	%		14.22	%		15.56	%		17.11	%
Net interest margin, taxable equivalent		4.37	%		4.55	%		4.65	%		4.76	%		4.84	%
Dividend payout ratio		43.19	%		42.62	%		38.29	%		34.94	%		35.48	%
Average equity to average assets		9.35	%		10.20	%		10.59	%		9.97	%		8.57	%
Average loans to average deposits		100.53	%		101.28	%		97.01	%		94.02	%		94.39	%
Overhead ratio		55.69	%		58.56	%		59.12	%		58.24	%		57.07	%

19

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.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements made in this Report and in documents incorporated by reference herein, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as oral statements made by the Company or its officers, directors or employees, may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based on management’s beliefs, current expectations, estimates and projections about the financial services industry, the economy and about the Company and the Bank in general. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company cautions readers that the following important factors, among others, could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Report:

· the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which 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;

· the effect of changes in accounting policies, standards, guidelines or principles, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board;

· the effect of changes in the Company’s organization, compensation and benefit plans;

· 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;

· the effect of changes in interest rates;

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

· the matters described under Part I, Item 1A. - Risk Factors.

The Company cautions that the foregoing list of important factors is not exclusive of other factors which may impact the operations of the Company.

CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of its financial statements. These significant accounting policies are described in the Notes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers these accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates which could have a material impact on the carrying value of assets and liabilities and the results of operations of the Company. All accounting policies are important, and all policies described in Notes to the consolidated financial statements should be reviewed for a greater understanding of how the Company’s financial performance is recorded and reported.

20

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Calculation of the allowance for loan losses is a critical accounting estimate due to the significant judgment, assumptions and estimates related to the amount and timing of estimated losses, consideration of current and historical trends and the amount and timing of cash flows related to impaired loans. Please refer to the section of this Report entitled “Balance Sheet Review - Provision and Allowance for Possible Loan and Lease Losses” and Note 1 and Note 3 to the Company’s consolidated financial statements for a detailed description of the Company’s estimation processes and methodology related to the allowance for loan losses.

EARNINGS OVERVIEW

For the Years Ended December 31, 2005, 2004 and 2003

The net earnings of the Company were $7.1 million in 2005, $6.1 million in 2004 and $5.8 million in 2003, representing an increase of 16.5% between fiscal years 2004 and 2005 and an increase of 4.8% between fiscal years 2003 and 2004. Net earnings per share on a fully diluted basis were $2.11 for 2005, $1.81 for 2004 and $1.72 for 2003, representing an increase of 16.6% between fiscal years 2004 and 2005 and 5.2% between fiscal years 2003 and 2004. Return on average assets and return on average shareholders’ equity for 2005 were 1.41% and 15.08%, respectively, compared with 1.41% and 13.86%, respectively, for 2004, and 1.51% and 14.22%, respectively, for 2003. Over the past ten years, the Company’s return on average assets has averaged 1.55% and its return on average equity has been 16.1%.

In 2005, the Company again experienced its largest annual loan growth in terms of dollars in its 60 year history. Loans increased by $66.8 million, or 18.7%, in 2005 compared to $60.4 million, or 20.4%, in 2004 and $23.0 million, or 8.4%, in 2003. The average loan growth rate over the past ten years has been 15.3%. The Company’s ability to grow loans in both quality and quantity is important to its ability to grow earnings. The Company’s core business is lending and management maintains underwriting and pricing policies and procedures to grow revenues and not significantly increase its credit or interest rate risk exposure. Additionally, management seeks to increase revenues while controlling costs. In 2005, the overhead ratio (non-interest expense/net interest income plus non-interest income) was 55.7% compared to 58.6% in 2004 and 59.1% in 2003. Improved overhead ratio is, in essence, evidence of improved efficiency with the use of the Company’s resources. Described below are details of the major components of the Company’s improved earnings performance.

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 its ability to generate net interest income. Net interest income represented 76.9%, 75.8% and 74.3% of net interest income and other income in 2005, 2004 and 2003, respectively. The following discussion and analysis of net interest margin assumes and is stated on a tax equivalent basis. That is, non-taxable interest is restated at its taxable equivalent rate.

The banking industry uses two key ratios to measure the relative profitability of net interest income. The net interest rate spread measures the difference between the average yield on interest earning assets (loans, investment securities and federal funds sold) and the average rate paid on interest bearing liabilities (deposits and other borrowings). The interest rate spread eliminates the impact of non-interest bearing deposits and gives a direct perspective on the effect of market interest rate movements. The other commonly used measure is net interest margin. 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.

21

Net interest income for the Company increased by $2.3 million, or 12.8%, in 2005 from 2004, and by $1.7 million, or 10.5%, in 2004 from 2003. Net interest income at December 31, 2005 was $20.0 million compared to $17.7 million at December 31, 2004 and $16.0 million at December 31, 2003. The net interest margin on interest earning assets was 4.37% in 2005, 4.55% in 2004 and 4.65% in 2003 on a tax equivalent basis. Beginning in early 2001 through the end of 2003, short term interest rates dropped 550 basis points. Through 2005, however, short term interest rates recovered 500 of those basis points. Comparing the interest margin in 2005 to that in 2004, the Bank’s interest margin declined by 18 basis points. Measuring the last three years, the Bank’s interest margin decreased 28 basis points. We believe management’s interest rate risk strategies helped to mitigate the effects of rapidly declining and then rapidly increasing interest rates. While banks are able to more easily maintain a steady interest margin in flat rate environments, without diligent interest rate risk management banks are susceptible to declining interest margins and earnings in rapidly changing interest rate environments.

The Bank’s average yield on earning assets in 2005 on a tax equivalent basis was 7.03%, an increase of 61 basis points over 2004. Its average cost of funds was 3.18% in 2005, an increase of 91 basis points from 2004. Net interest income increased nonetheless over the last three years despite declining net interest margin. This is a result of the increase in the Bank’s volume of earning assets. The average balance of interest earning assets increased by $69.4 million, or 17.2%, in 2005 compared to $46.7 million, or 13.1%, for 2004 and $19.9 million, or 5.9%, for 2003.

The Bank’s balance sheet has traditionally been slightly liability sensitive, but as 2003, 2004 and 2005 progressed, management sought to become more evenly matched and perhaps slightly asset sensitive. That is, management sought to shift to a scenario where assets re-price faster than liabilities. Therefore, in a rising rate environment the Bank’s interest margin will tend to increase. When market interest rates fall rapidly, as they did in 2003 and 2004, and subsequently increase rapidly, as they did in 2005, the interest margin needs time to respond to the rate changes. Now that rates are increasing, we believe the Bank’s interest margin will increase as well. The ability of management to accomplish its objective of managing interest rate risk is largely dependent on its ability to manage the cost of funds in a competitive deposit gathering market.

We believe the impact of the fixed rates on borrowings in a falling rate environment would have been more significant in 2004 and 2005 had management not chosen to hedge those fixed rates with the $30 million notional amount swap contract which is described in Note 1 and Note 7 to the financial statements contained elsewhere in this Report. The swap contract reduced interest expense in 2004 by $323 thousand. During 2005, that benefit was reduced to $31 thousand since short term rates had risen above the 3.40% fixed rate in the swap contract. There are approximately 16 months remaining on the contractual term of the swap and, of course, if short term rates continue to increase, the cost of the swap will increase, but not as much as the expected yield on interest bearing assets.

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%:

22

Table 1
Average Consolidated Balance Sheets and Net Interest Analysis
(in thousands)
	For the Years Ended December 31,
	2005									2004									2003
	Average Balance			Interest			Yield/ Rate			Average Balance			Interest			Yield/ Rate			Average Balance			Interest			Yield/ Rate
Assets:
Interest earnings assets:
Federal funds sold	$	11,331			394			3.48	%	$	12,155			151			1.24	%	$	17,363			187			1.08	%
Investments:
Taxable		35,687			2,109			5.91	%		35,342			1,903			5.38	%		30,249			1,878			6.21	%
Tax exempt		30,520			1,997			6.54	%		26,465			1,821			6.88	%		21,995			1,559			7.09	%
Total Investments		66,207			4,106			6.20	%		61,807			3,724			6.03	%		52,244			3,437			6.58	%
Loans (including loan fees):
Taxable		394,209			28,631			7.26	%		328,279			21,894			6.67	%		286,055			20,329			7.11	%
Tax Exempt		1,734			143			8.25	%		1,880			178			9.46	%		1,806			181			10.03	%
Total Loans		395,943			28,774			7.27	%		330,159			22,072			6.69	%		287,861			20,510			7.12	%
Total interest earning assets		473,481			33,274			7.03	%		404,121			25,947			6.42	%		357,468			24,134			6.75	%
Other non-interest earnings assets		27,710									24,516									26,927
Total assets	$	501,191								$	428,637								$	384,395
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Deposits:
Demand	$	136,248			3,183			2.34	%	$	127,754			1,181			.92	%	$	112,438			954			.85	%
Savings		18,011			100			.56	%		17,368			43			.25	%		15,915			54			.34	%
Time		189,368			6,974			3.68	%		133,997			3,916			2.92	%		124,863			3,993			3.20	%
FHLB advances
& other borrowings		52,407			2,326			4.44	%		54,081			2,430			4.49	%		45,000			2,527			5.62	%
Total interest-bearing liabilities		396,034			12,583			3.18	%		333,200			7,570			2.27	%		298,216			7,528			2.52	%
Non-interest bearing deposits		50,224									46,872									43,507
Other liabilities		8,076									4,823									1,964
Shareholders’ equity		46,857									43,742									40,708
Total liabilities and Shareholders’ equity	$	501,191								$	428,637								$	388,395
Excess of interest-earning assets over interest-bearing liabilities	$	77,447								$	70,921								$	59,252
Ratio of interest-earning assets to interest-bearing liabilities		119.56	%								121.28	%								119.87	%
Net interest income tax equivalent					20,691									18,377									16,606
Net interest spread								3.85	%								4.15	%								4.23	%
Net interest margin on interest earning assets								4.37	%								4.55	%								4.65	%
Tax Equivalent Adjustments:
Investments					(679	)								(619	)								(530	)
Loans					(49	)								(60	)								(62	)
Net interest income				$	19,963								$	17,698								$	16,015

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.

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.

23

Table 2

Changes in Interest Income and Expense on a Tax Equivalent Basis

(in thousands)

	Increase (decrease) due to changes in:
	2005 over 2004									2004 over 2003
	Volume			Rate			Total			Volume			Rate			Total
Interest income on:
Federal funds sold	$	(29	)		272			243		$	(65	)		29			(36	)
Taxable investments		20			187			207			274			(249	)		25
Non-taxable investments		266			(91	)		175			308			(46	)		262
Taxable loans		4,788			1,949			6,737			2,816			(1,251	)		1,565
Non-taxable loans		(12	)		(23	)		(35	)		7			(10	)		(3	)
Total Interest Income		5,033			2,294			7,327			3,340			(1,527	)		1,813
Interest expense on:
Deposits:
Demand		198			1,805			2,003			141			85			226
Savings		4			53			57			4			(14	)		(10	)
Time		2,039			1,019			3,058			267			(344	)		(77	)
FHLB advances & other borrowings		(74	)		(30	)		(104	)		408			(505	)		(97	)
Total Interest Expense		2,167			2,847			5,014			820			(778	)		42
Increase (decrease) in net interest income	$	2,866			(553	)		2,313		$	2,520			(749	)		1,771

Other Income and Expense

Other income in 2005 was $6.0 million, an increase of $371 thousand, or 6.6%, from 2004. The increase in other income from 2003 to 2004 was $84 thousand, or 1.5%. The increase in other income during 2005 is primarily due to a gain on investment securities available for sale in the amount of $228 thousand. Management rarely elects to sell investment securities. However, this particular sale strategy allowed the Bank to reposition its portfolio for rising rates, recognize the gain associated with the sale of the investment securities and accomplish both by selling $3.8 million of bonds, or approximately 5% of the portfolio.

Service charges on deposit accounts have stabilized from 2004 to 2005 after having increased over 10% per year over the previous three years. ATM network fees increased by $68 thousand, or 15.6%. This increase is attributable to increased usage of the Bank’s ATM network and an increase in foreign ATM fees which took place in the later part of 2004 and was in effect during all of 2005.

Mortgage origination fees declined by $112 thousand, or 21.7%, comparing 2005 to 2004. Mortgage origination fees also declined $419 thousand, or 44.9%, comparing 2004 to 2003. Throughout 2002 and part of 2003, the Bank experienced heavy refinancing activity in its mortgage department. The refinancing activity has slowed significantly. The volume of mortgage origination fees that the Bank is presently experiencing is attributable to new and resale home financing activity in the Bank’s market area.

Miscellaneous income between 2004 and 2005 increased $106 thousand, or 15.4%, and increased by $62 thousand, or 10.0%, between 2003 and 2004. The increase in miscellaneous income from 2004 to 2005 and 2003 to 2004 is attributable to a number of income line items, none of which are particularly notable. The increases are generally attributable to volume increases in miscellaneous fees due to the loan and deposit growth of the Bank.

Other expenses increased by $800 thousand, or 5.9%, in 2005 over 2004 and by $912 thousand, or 7.2%, in 2004 over 2003. Salaries and employee benefits increased $577 thousand, or 7.1%, from 2004 to 2005 and $499 thousand, or 6.5%, from 2003 to 2004. Each year, most of the increase in other expense was attributable to salaries and employee benefits which is common for a growing financial institution.

Occupancy expense increased by $190 thousand, or 9.7%, from 2004 to 2005. Comparing 2003 to 2004, occupancy expense increased $135 thousand, or 7.5%. Other operating expenses, which include professional fees, increased by only $33 thousand, or 0.9%, from 2004 to 2005 and increased $278 thousand, or 8.4%, from 2003 to 2004. The following narrative explains in more detail the attributes of the changes in other expenses.

24

Comparing 2005 to 2004, the Bank experienced increased salary costs in the amount of $395 thousand, or 7.5% . The increase was attributable to annual raises for officers and staff which averaged about 4.5%. Additionally, the full time equivalent number of employees increased from 144 as of December 31, 2004 to 154 as of December 31, 2005. The primary reason for the increase in full time equivalent employees was personnel added when the Mirror Lake office opened, increased support staff in the lending and compliance departments necessitated by a need to manage the rapid loan growth of the Bank, and increased staffing for two new branches scheduled to open in spring of 2006. Profit sharing and bonus costs increased $182 thousand, or 10.9%. Profit sharing and officer and employee bonuses, which are largely performance based, increased as a result of the Bank’s increased profitability.

The increase in salaries and employee benefits for the year ended 2004 as compared to 2003 was attributable to a number of factors. Salary costs increased by $212 thousand, or 4.2%, primarily attributable to annual raises since the full time equivalent number of employees did not significantly change from 2003 to 2004. Profit sharing and bonus costs increased $201 thousand, or 13.7%, attributable to a bonus program that was introduced in 2004 for the lending staff in an effort to increase loan production. Profit sharing and bonuses also increased slightly because of increased profitability, increases in bonus percentages and improved asset quality. Health insurance costs increased by $55 thousand, or 8.1%. The increase was attributable to a premium increase by the Company’s health insurance carrier.

The increase in occupancy expense in 2005 as compared to 2004 was primarily attributable to an increase in depreciation expense of $130 thousand, or 14.1%. This increase in depreciation expense is due to the Mirror Lake branch facility that was placed in service in February of 2005. The remainder of the increase was attributable to the addition of utilities, telephone and other occupancy costs for the Mirror Lake branch.

The increase in occupancy expense in 2004 over 2003 was primarily attributable to an increase in depreciation expense of $56 thousand, or 6.5%. Management and the Company’s Board of Directors elected to continue to update the Bank’s technology, particularly outdated personal computers. Additionally, the Company refurbished its main office and branch locations in 2003. That capital investment had a full year of depreciation in 2004.

Management made a concerted effort to minimize operating costs in 2005. The evidence of that effort culminated in very little increase in other operating expense from 2004 to 2005. Total other operating expense increased by $33 thousand, or 0.9%. The largest line item in this expense category is legal, professional and accounting fees which remained steady from 2004 to 2005. The compliance costs of being a public company have largely been realized in the operations of the Company and are not expected to increase significantly over the foreseeable future.

Other operating expenses increased by $278 thousand, or 8.4%, in 2004 over 2003. Legal, accounting and other professional fees totaled $623 thousand, $408 thousand and $520 thousand in 2004, 2003 and 2002, respectively. The increase in legal, accounting and other professional fees from 2003 to 2004 was $215 thousand, or 52.7%. The Bank incurred consulting costs associated with an executive management change resulting from the retirement of the Bank’s President in the first quarter of 2004. The cost resulted in a successful transition of duties among the existing executive management team. Additionally, during 2004 the Company’s cost of complying with provisions of the Sarbanes-Oxley Act of 2002 increased by approximately $80 thousand.

Income taxes, expressed as a percentage of earnings before income taxes (the effective tax rate), declined to 29.0% in 2005, from 30.7% in 2004 and 31.7% in 2003. The decline in effective tax rate over the past three years is primarily attributable to the impact of the purchase of tax credits and other tax advantaged instruments such as municipal securities by the Bank. Additionally, in October 2002, the Bank formed WGNB Investments, Inc., a Nevada corporation, to manage, hold and trade securities of the Bank which had the effect of reducing its state income tax liability in 2003, 2004 and 2005.

25

BALANCE SHEET OVERVIEW

For the Years Ended December 31, 2005 and 2004

General

During 2005, average total assets increased $72.6 million, or 16.9%, average deposits increased $67.9 million, or 20.8%, and average loans increased $65.8 million, or 19.9%, from average balances recorded in 2004. During 2004, average total assets increased $44.2 million, or 11.5%, average deposits increased $29.3 million, or 9.9%, and average loans increased $42.3 million, or 14.7%, from amounts recorded in 2003. The 2005 and 2004 percentage growth are more representative of the Bank’s historical growth rate. The 10 year average growth rate for the Bank’s assets, loans and deposits is 12.8%, 15.3% and 12.0%, respectively. The earnings and asset growth over the past two years is attributable to robust commercial and residential growth in the Bank’s market area. The Company has experienced significant loan growth with low historical credit loss. The average net charge-off of loans has been less than .25 percent of average loans over the past 10 years.

Total assets at December 31, 2005 were $524 million, representing a $81.7 million, or 18.5%, increase from December 31, 2004. Total loans increased $66.8 million, or 18.7%, during 2005 as management attempted to take advantage of continued loan demand. Total deposits increased $90.7 million, or 26.8%, from 2004 to 2005 which allowed the Bank to pay off Federal Home Loan Bank borrowings in the amount of $13 million. Loan demand rebounded in the last half of 2003 after a decline in the early part of that year and has remained robust through 2005 with much of the growth concentrated in the second half of 2004 and the first half of 2005.

The increase in deposits in 2005 was attributable to an increase in non-interest bearing demand accounts of $3.4 million, or 7.7%, an increase in interest bearing demand of $23.2 million, or 17.4%, and an increase in time deposit accounts of $63.7 million, or 43.0%. Much of the deposit growth ($56.3 million) came from growth in time deposit accounts in excess of $100,000 and much of that growth ($36.0 million) was attributable to brokered time deposits, which were priced lower than local market time deposits. In 2005, the Bank funded its loan growth with deposit growth. In fact, because of the flatness of the yield curve, the Bank was able to gather time deposits early in 2005 with three, four and five year maturities for the cost of short term time deposits in the latter part of 2005.

During 2003 and 2004, five de novo banks began their operations in, or continguous to, our primary service area. The competition for funding increased significantly in 2004 and 2005 as loan growth outpaced deposit growth in Carroll and Douglas Counties. The funding landscape has changed and, along with it, the Bank’s deposit strategy since the beginning of 2004. In its almost 60 year history, the Bank has relied on “in market” deposits to fund its balance sheet growth. Because of the continued development of metropolitan Atlanta and its movement westward, however, loan demand has preceded the actual movement of deposits. Management expects that this dynamic will continue and intends to expand its deposit gathering strategy towards greater use of wholesale, or out of market, funding sources as loan demand remains high.

Investments

The Company’s available-for-sale investment portfolio of $64.4 million as of December 31, 2005 consisted primarily of debt securities, which provide the Company with a source of liquidity, a stable source of income, and a vehicle to implement asset and liability management strategies. The available-for-sale securities portfolio increased $3.5 million, or 5.7%, over December 31, 2004. The Company believes its investment portfolio provides a balance to interest rate and credit risk in other categories of the balance sheet. The portfolio also provides a vehicle for the investment of available funds and supplying securities to pledge as required collateral for certain public deposits. Securities reported as available-for-sale are stated at fair value. These securities may be sold, retained until maturity, or pledged as collateral for liquidity and borrowing in response to changing interest rates, changes in prepayment risk and other factors as part of the Company’s overall asset liability management strategy.

Investment securities held-to-maturity are stated at amortized cost and totaled $6.7 million at December 31, 2005, an increase of $1.9 million, or 39.3%, when compared to the year ended 2004. The increase is attributable to the purchase of banking industry issued trust preferred securities from various issuers across the United States and particularly the Southeast. The Company has the intent and ability to hold these securities until maturity.

26

The following table shows the carrying value of the Company’s securities, by security type, as of December 31, 2005, 2004 and 2003:

Table 3

Securities

(in thousands)
	2005		2004		2003
Available for Sale
United States agencies	$	8,942	$	5,505	$	7,080
State, county and municipal		33,264		36,989		29,575
Mortgage-backed securities		18,124		16,667		16,843
Corporate bonds		4,028		1,707		1,779
Total available for sale	$	64,360	$	60,868	$	55,277
Held to Maturity
Trust Preferred Securities	$	6,737	$	4,835	$	4,250

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, 2005. The composition and maturity/re-pricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs.

Table 4

Expected Maturity of Securities

(in thousands)

Maturities at December 31, 2005	United States Treasury & Agencies		Wtd. Avg. Yld.			State, County & Municipals		Wtd. Avg. Yld.			Mortgage Backed Securities		Wtd. Avg. Yld.			Corporate Bonds		Wtd. Avg. Yld.			Trust Preferred		Wtd. Avg. Yld.
Within 1 year		7,965		4.12	%		2,846		6.33	%		15		7.11	%		-		0.00	%		-		-
After 1 through 5 years		999		4.18	%		4,700		6.12	%		15,694		4.94	%		4,044		5.73	%		-		-
After 5 through 10 years		-		-	%		7,419		6.69	%		901		6.49	%		-		-	%		-		-
After 10 years		-		-	%		17,902		6.61	%		1,684		6.55	%		-		-	%		6,737		9.97	%
Total		8,964		4.11	%		32,867		6.53	%		18,294		5.17	%		4,044		5.73	%		6,737		9.97	%
Fair Value		8,942					33,264					18,124					4,028					6,840

Mortgage-backed securities are included in the maturities categories in which they are anticipated to be repaid based on average maturities. The actual cash flow of mortgage backed securities differs with this assumption. Yields on tax-exempt securities are calculated on a tax equivalent basis.

Loans

Loan concentrations are defined as aggregate credits extended to a number of borrowers engaged in similar activities or resident in the same geographic region, which would cause them to be similarly affected by economic or other conditions. 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 employ relatively conservative underwriting policies, primarily in the analysis of borrowers’ debt service coverage capabilities for commercial and commercial real estate loans, while emphasizing lower gross debt ratios for consumer loans and lower loan-to-value ratios for all types of real estate loans. Given the localized nature of 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.

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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, 2005, loans outstanding to directors and executive officers of the Company and the Bank, their associates and members of their immediate families totaled $3.5 million, which represented approximately 0.8% of total loans as of that date. As of December 31, 2005, none of these loans outstanding from the Bank to related parties were 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 5
Loan Portfolio
(in thousands)	December 31,
	2005			2004			2003			2002			2001
Commercial, financial & agricultural	$	51,555		$	50,528		$	31,219		$	34,821		$	26,162
Real estate - construction		153,511			114,657			68,207			68,818			60,785
Real estate - mortgage		196,383			173,110			180,992			153,572			147,705
Consumer loans		22,271			18,614			16,080			16,260			19,153
		423,720			356,909			296,498			273,471			253,805
Less:Unearned interest and fees		(841	)		(581	)		(454	)		(487	)		(525	)
Allowance for loan losses		(5,327	)		(4,080	)		(3,479	)		(3,771	)		(3,720	)
Loans, net	$	417,552		$	352,248		$	292,565		$	269,213		$	249,560

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, 2005:

Table 6

Loan Portfolio Maturity

(in thousands)
	One Year or Less		Wtd. Avg. Yld.			Over One to Five Years		Wtd. Avg. Yld.			Over Five Years		Wtd. Avg. Yld.			Total		Wtd. Avg. Yld.
Commercial, financial & agricultural	$	35,550		7.16	%	$	10,402		7.50	%	$	5,603		7.53	%	$	51,555		7.27	%
Real estate - construction		132,043		7.60	%		14,858		7.55	%		6,610		7.38	%		153,511		7.59	%
Real estate - mortgage		66,424		6.77	%		100,184		7.15	%		29,775		7.35	%		196,383		6.25	%
Consumer		10,764		8.74	%		11,338		8.05	%		169		7.43	%		22,271		8.38	%
Total	$	244,781		7.36	%	$	136,782		6.30	%	$	42,157		7.38	%	$	423,720		7.34	%

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Variable/Fixed Rate Mix

	Variable Interest Rates		Wtd Avg Yld			Fixed Interest Rates		Wtd Avg Yld
Commercial, financial and agricultural	$	27,885		7.46	%	$	23,670		7.05	%
Real estate - construction		61,781		7.24	%		91,730		7.82	%
Real estate - mortgage		87,373		7.25	%		109,010		6.88	%
Consumer		897		7.50	%		21,374		8.34	%
Total	$	177,936		7.29	%	$	245,784		7.38	%

Provision and Allowance for Possible Loan and Lease Losses

The provision for loan losses for the Company in 2005 was $1.55 million, compared to $925 thousand in 2004 and $350 thousand in 2003. The increase in the provision for loan losses reflects a higher level of loan growth in 2005 and reflects the weakness in one credit relationship. The allowance for loan losses represented 1.26%, 1.14% and 1.17% of total loans outstanding at December 31, 2005, 2004 and 2003, respectively. The percentage of the allowance for loan losses expressed as a percentage of total loans increased from 2004 and 2005, taking into account a slight increase in nonperforming and adversely rated loans in 2005. Net charge-offs were $303 thousand, $324 thousand and $643 thousand during 2005, 2004 and 2003, 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 through 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 combination of these results is compared monthly to the recorded allowance for loan losses and material differences are adjusted by increasing or decreasing the provision for loan losses. Loans deemed to be impaired are evaluated individually to measure the probable loss, if any, in the credit. Management uses an internal loan reviewer (at times, supplemented by third party service providers) who is independent of the lending function to challenge and corroborate the loan grading system and provide additional analysis in determining the adequacy of the allowance for loan losses and the future provisions for estimated loan losses.

Management believes that the allowance for loan losses is adequate. However, 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 believes it is able to recognize weaknesses in the loan portfolio in a timely manner. Early identification of deteriorating credit attributes allows management to take a proactive role in documenting an established plan to enhance the Company’s position and minimize the potential for loss.

29

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 loan 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 7

Allowance for Loan Losses

(in thousands)	December 31,
	2005			2004			2003			2002			2001
Balance at beginning of year	$	4,080		$	3,479		$	3,772		$	3,720		$	2,920
Charge-offs:
Commercial, financial and agricultural		24			59			55			288			118
Real estate - construction		-			-			2			-			-
Real estate - mortgage		235			215			581			165			3
Consumer loans		129			123			152			242			79
Total charge-offs		388			397			790			695			200
Recoveries:
Commercial, financial and agricultural		16			16			31			59			30
Real estate - construction		-			-			-			-			-
Real estate - mortgage		18			13			67			158			13
Consumer loans		51			44			49			47			46
Total recoveries		85			73			147			264			89
Net (charge-offs) recoveries		(303	)		(324	)		(643	)		(431	)		(111	)
Provision for loan losses		1,550			925			350			483			911
Balance at end of year	$	5,327		$	4,080		$	3,479		$	3,772		$	3,720
Ratio of net (charge-offs) recoveries during the period to average loans outstanding		.08	%		.10	%		.22	%		.16	%		.04	%
Ratio of allowance to total loans		1.26	%		1.14	%		1.17	%		1.38	%		1.47	%

Non-Performing Assets and Past Due Loans

Non-performing assets at December 31, 2005 were $3.6 million, or .85%, of total loans and other real estate owned compared to $1.8 million, or .50%, of total loans and other real estate owned at December 31, 2004 and $2.2 million, or .75%, of total loans and other real estate owned at December 31, 2003. The levels of non-performing loans remain relatively low compared to the Bank’s peer group. The percentage of non-performing assets to total loans has steadily decreased from its peak in 2001. The increase of non-performing loans from 2004 to 2005 was attributable to one credit relationship for which management created a proper specific reserve.

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.

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Table 8

Non-Performing Assets

(in thousands)	December 31,
	2005			2004			2003			2002			2001
Other real estate and repossessions	$	567		$	686		$	977		$	488		$	4,357
Non-accrual loans		2,382			536			499			943			1,620
Loans 90 days past due still accruing		673			567			745			1,335			1,885
Total	$	3,622		$	1,789		$	2,221		$	2,766		$	3,862
Non-performing assets as % of total loans		0.85	%		0.50	%		0.75	%		1.03	%		1.55	%

While there may be additional loans in the Bank’s 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 monitors selected accruing loans for which general economic conditions or changes within a particular industry could cause the borrowers financial difficulties. The loan review function also identifies loans with high degrees of credit or other risks. The focus of loan review and management is to maintain a low level of non-performing assets and return current non-performing assets to earning status. Management is unaware of any known trends, events or uncertainties that will have or that are reasonably likely to have a material effect on the Company’s liquidity, capital resources or operations.

Deposits

Time deposits of $100 thousand and greater totaled $111.8 million at December 31, 2005, compared with $55.5 million at year-end 2004 and $31.0 million at year-end 2003. The following table sets forth the scheduled maturities of time deposits of $100 thousand and greater at December 31, 2005.

Table 9

Maturity of Time Deposits of $100,000 and Greater

(in thousands)

Within 3 months	$ 8,696
After 3 through 6 months	9,120
After 6 through 12 months	25,307
After 12 months	68,717
Total	$ 111,840

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 investments. Asset and liability maturities are monitored in an attempt to match these variables to meet liquidity needs. It is the policy of the Bank to monitor its liquidity to meet regulatory requirements and 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 (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 $20.8 million. As of December 31, 2005, the Bank had not drawn on the available facilities. In addition, subject to collateral availability, the Bank has a line of credit with the FHLB from which the Bank had drawn $42 million as of December 31, 2005. For additional details on the line of credit with the FHLB see Note 6 of the consolidated financial statements.

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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 amounted to $16.2 million at December 31, 2005, which represented an increase of $8.2 million from December 31, 2004. The increase was primarily attributable to net cash provided by operating activities of $9.5 million since net cash provided by financing activities of $74.7 million was essentially the same as net cash used by investing activities of $76.1 million. The major cash flows from investing activities were attributable to a net change in loans of $67.4 million and a net change in investment securities (both available-for-sale and held-to-maturity investment securitise) of $6.7 million. The most notable cash flows from financing activities were attributable to a net change in deposits of $90.7 million and repayment of Federal Home Loan Bank advances of $13.0 million, $10.0 million of which was redrawn in January 2006.

In 2004, management concentrated on investing the excess liquidity that was on the Bank’s balance sheet in 2003. Cash and cash equivalents decreased by $19.2 million in 2004. The 2004 cash flows were attributable to $7.5 million cash generated by operating activities, $69.0 million of cash used by investing activities ($61.4 million for loans and $6.8 million for investment securities) and $42.2 million of cash generated from financing activities ($35.1 million from deposit growth and $15.0 million from advances from the FHLB).

Capital Resources

Total shareholders’ equity as of December 31, 2005 was $48.0 million, an increase of $3.0 million over 2004. The change in equity was due to $7.1 million in net income, less $3.1 million in dividends and a decrease in unrealized holding gain on securities available for sale of $998 thousand, net of tax.

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, 2005, 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, 2005:

Table 10

	Actual as of December 31, 2005
Capital Ratio
Tier 1 Capital (to risk weighted assets)		11	%
Tier 1 Capital minimum requirement		4	%
Excess		7	%
Total Capital (to risk weighted assets)		12	%
Total Capital minimum requirement		8	%
Excess		4	%
Leverage Ratio	Actual as of December 31, 2005
Tier 1 Capital to average assets
(“Leverage Ratio”)		9	%
Minimum leverage requirement		4	%
Excess		5	%

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 9.35% in 2005 and 10.20% in 2004. The ratio of dividends declared to net earnings was 43.3 % during 2005, compared with 42.3% in 2004.

Contractual Obligations

In the ordinary course of operations, the Company enters into certain contractual obligations. The following table summarizes the Company’s significant fixed and determinable contractual obligations, by payment date, at December 31, 2005 (dollars in thousands).

32

Obligation	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Deposits without stated maturity		217,143		217,143		-		-		-
Certificates of deposit		211,906		111,164		57,827		42,915		-
Federal Home Loan Bank advances		42,000		-		5,000		7,000		30,000
Total		471,049		328,307		62,827		49,915		30,000

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, 2005, the Bank had issued commitments to extend credit of $98.7 million through various types of commercial lending arrangements and additional commitments through standby letters of credit of $13.2 million. 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. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Company has the ability to liquidate federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase federal funds from other financial institutions.

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.

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 2005, the estimated impact of an immediate increase in interest rates of 100 basis points would have resulted in an increase in net interest income over a 12-month period of 1.3%, with a comparable decrease in interest rates resulting in a decrease in net interest income of 0.1%. 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.

33

The following table summarizes the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2005 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 11

Interest Rate Gap Sensitivity

(in thousands)

	At December 31, 2005 Maturing or Repricing in
	One Year or Less			Over 1 Year Thru 2 Years			Over 2 Years Thru 5 Years			Over 5 Years			Total
Interest-earning assets:
Interest-bearing deposits with
Other banks	$	651			-			-			-			651
Federal funds sold		5,548			-			-			-			5,548
Securities (at cost)		19,784			5,961			7,701			37,459			70,905
Loans		328,967			28,483			50,436			15,834			423,720
Total interest-earning assets		354,950			34,444			58,137			53,293			500,824
Interest-bearing liabilities:
Deposits:
Demand		156,805			-			-			-			156,805
Savings		12,160			-			-			-			12,160
Time deposits		111,458			34,859			65,589			-			211,906
FHLB advances		-			-			12,000			30,000			42,000
Total interest-bearing liabilities		280,423			34,859			77,589			30,000			422,871
per period		74,527			(415	)		(19,452	)		23,293			77,953
Cumulative interest sensitivity
Difference	$	74,527			74,112		$	54,660		$	77,953
Cumulative difference to total
Assets		14.23	%		14.15	%		10.44	%		14.89	%

At December 31, 2005, the difference between the Company's assets and liabilities repricing or maturing within one year was $74.5 million. The above chart indicates an excess of assets repricing or maturing within one year, thus a rise in interest rates would theoretically cause the Company's net interest income to increase. However, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees or at different points in time to changes in market interest rates. Such is the case in analyzing NOW demand, money market and savings accounts, which are disclosed in the one year or less category. Those liabilities do not necessarily reprice as quickly or to the same degree as rates in general. Additionally, certain assets, such as adjustable-rate mortgages, have features that restrict changes in interest rates, both on a short-term basis and over the life of the asset. Changes in interest rates, prepayment rates, early withdrawal levels and the ability of borrowers to service their debt, among other factors, may change significantly from the assumptions made in the table.

34

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.

Presented below is a summary of the unaudited consolidated quarterly financial data for the years ended December 31, 2005 and 2004.

Quarterly Financial Information

(Unaudited - in thousands, except per share data)

	2005 Quarters								2004 Quarters
	First		Second		Third		Fourth		First		Second		Third		Fourth
Interest income	$	7,075		7,874		8,521		9,076		5,900		6,147		6,411		6,810
Net interest income		4,703		4,931		5,061		5,268		4,147		4,328		4,499		4,724
Provision for loan losses		300		500		450		300		150		200		275		300
Income before income taxes		2,234		2,316		2,620		2,787		1,911		2,010		2,309		2,516
Net income		1,614		1,647		1,857		1,949		1,311		1,471		1,565		1,717
Earnings per share - basic		0.49		0.50		0.56		0.58		0.40		0.45		0.47		0.51
Earnings per share - diluted	$	0.48		0.49		0.56		0.58		0.39		0.44		0.47		0.51
Weighted average common shares outstanding - basic		3,324,427		3,324,323		3,325,005		3,325,100		3,306,793		3,306,524		3,296,793		3,312,923
Weighted average common shares outstanding - diluted		3,343,082		3,342,978		3,343,660		3,350,099		3,357,387		3,357,118		3,347,387		3,363,517

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

Not applicable.

Item 9A.Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company’s management, including its chief executive and chief financial officers, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its chief executive and chief financial officers, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Report. Based on the evaluation of these disclosure controls and procedures, the chief executive and chief financial officers of the Company concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.

35

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially effect, the Company’s internal control over financial reporting.

Item 9B. Other Information

Not applicable.

36

PART III

Item 10. Directors and Executive Officers of the Registrant

The information appearing under the headings “Nomination and Election of Directors” and “Compliance With Section 16(a) of the Securities Exchange Act of 1934” in the Proxy Statement (the “2006 Proxy Statement”) relating to the 2006 Annual Meeting of Shareholders of the Company, currently scheduled to be held on April 11, 2006, is incorporated herein by reference.

Item 11.  Executive Compensation

The information appearing under the heading “Executive Compensation” in the 2006 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information appearing under the headings “Security Ownership of Certain Beneficial Owners and Management” in the 2006 Proxy Statement is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table gives information as of December 31, 2005, about WGNB Corp. Common Stock that may be issued upon the exercise of options, warrants and rights under the Company’s 2003 Incentive Stock Plans, which is the Company’s only outstanding equity compensation plan. The Company’s previous 1994 Incentive Stock Plan has since expired in accordance with its terms. The Company does not have any equity compensation plans that were not approved by its shareholders. The 2003 Incentive Stock Plan was approved by the Company’s Board of Directors and its shareholders in 2003.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	123,117	$24.79	620,631*
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	123,117	$24.79	620,631*

* The only securities remaining available for future issuance are those under the 2003 Incentive Stock Plan. There are no additional securities available for future issuance under the 1994 Incentive Stock Plan which has expired.

Item 13.  Certain Relationships and Related Transactions

The information appearing under the caption “Nomination and Election of Directors - Certain Relationships and Related Transactions” in the 2006 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information appearing under the caption “Independent Public Accountants” in the 2006 Proxy Statement is incorporated herein by reference.

37

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)Financial Statements

The following financial statements are filed with this Report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2005 and 2004

Consolidated Statements of Earnings for the Years Ended December 31, 2005, 2004 and 2003

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2005,

2005 and 2003

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended

December 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

(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 May 27, 2005 among WGNB Corp., West Georgia National Bank and L. Leighton Alston (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated May 27, 2005)

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 September 23, 1998 between the Company and H.B. Lipham, III (Incorporated by reference to Exhibit 10.6 to the Form 10-SB)

38

10.6*   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) 

10.7*  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) 

10.8*   Form of Election for Payment of Director Meeting Fees (Incorporated by reference to Exhibit 10.10 to the Form 10-SB) 

10.9* Employment Agreement dated August 8, 2005 among WGNB Corp., West Georgia National Bank and Steven J. Haack (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated August 8, 2005)

10.10* Employment Agreement dated August 8, 2005 among WGNB Corp., West Georgia National Bank and H.B. Lipham, III (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated August 8, 2005)

10.11* Employment Agreement dated July 11, 2005 between West Georgia National Bank and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 11, 2005)

10.12* 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 Company’s Form 10-Q for quarter ended 6/30/02 (the “6/30/02 Form 10-Q”))

10.13* 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)

10.14* 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)

10.15* 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)

10.16* 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)

10.17* 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)

10.18* 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)

10.19* Incentive Stock Option Agreement dated March 12, 2002 between the Company and Steven J. Haack

(Incorporated by reference to Exhibit 10.14 to the 6/30/02 Form 10-Q)

10.20* 2003 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for its 2004 Annual Meeting)

10.21* Employment Agreement dated December 31, 2002 between the Company and William R. Whitaker (Incorporated by reference to Exhibit 10.31 to the Company Annual Report on Form 10-K for year ended 12/31/04 (the “2004 Form 10-K”))

10.22* Bonus and Stock Option Agreement dated December 27, 2004 between the Company and William R. Whitaker (Incorporated by reference to Exhibit 10.32 to the 2004 Form 10-K)

39

10.23* Separation Agreement and Release dated February 14, 2006 among WGNB Corp., West Georgia National Bank and L. Leighton Alston

21 Subsidiary of WGNB Corp.

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

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

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

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

_____________________

*Indicates management contract or compensatory plan or arrangement.

40

SIGNATURES

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

	WGNB CORP.
Date:  March 14, 2006	By:	/s/ H. B. Lipham, III
		H.B Lipham, III
		Chief Executive Officer

Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ H. B. Lipham, III	Date: March 14, 2006
H.B. Lipham, III, President, Chief
Executive Officer
[Principal Executive Officer]
/s/ Steven J. Haack	Date: March 14, 2006
Steven J. Haack, Secretary and Treasurer
[Principal Financial and Accounting Officer]
/s/ W. T. Green	Date: March 14, 2006
W. T. Green, Chairman of the Board
	Date: March 14, 2006
Wanda W. Calhoun, Director
/s/ Grady W. Cole	Date: March 14, 2006
Grady W. Cole, Director
/s/ Richard A. Duncan	Date: March 14, 2006
Richard A. Duncan, Director
/s/ L. G. Joyner	Date: March 14, 2006
L.G. (Jack) Joyner, Director
/s/ R. David Perry	Date: March 14, 2006
R. David Perry, Director
	Date: March 14, 2006
L. Richard Plunkett, Director

41

	Date: March 14, 2006
Thomas E. Reeve, III, M.D., Director
/s/ Thomas T. Richards	Date: March 14, 2006
Thomas T. Richards, Director
/s/ Oscar W. Roberts, III	Date: March 14, 2006
Oscar W. Roberts, III, Director
	Date: March 14, 2006
Frank T. Thomasson, III, Director
/s/ J. Thomas Vance	Date: March 14, 2006
J. Thomas Vance, Director
/s/ Charles M. Willis, Sr.	Date: March 14, 2006
Charles M. Willis, Sr., Director

42

WGNB CORP.

Consolidated Financial Statements

December 31, 2005 and 2004

(with Independent Accountants’ Report thereon)

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

WGNB Corp. and Subsidiary

We have audited the accompanying consolidated balance sheets of WGNB Corp. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WGNB Corp. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

Atlanta, Georgia

February 13, 2006

F-2

WGNB CORP.

Consolidated Balance Sheets

December 31, 2005 and 2004

	2005		2004
Assets
Cash and due from banks, including reserve requirements of $594,000 and $487,000, respectively	$	10,673,541		7,288,973
Federal funds sold		5,548,348		767,270
Cash and cash equivalents		16,221,889		8,056,243
Securities available-for-sale		64,359,833		60,867,553
Securities held-to-maturity, estimated fair values of $6,839,552 and $4,834,649		6,736,552		4,834,649
Loans, net		417,551,614		352,247,628
Premises and equipment, net		9,134,245		7,644,879
Accrued interest receivable		2,881,206		2,097,166
Other assets		6,758,048		6,180,855
	$	523,643,387		441,928,973
Liabilities and Stockholders’ Equity
Deposits:
Demand	$	48,178,654		44,730,335
Interest bearing demand		156,804,968		133,603,250
Savings		12,160,203		11,856,408
Time		100,065,972		92,704,938
Time, over $100,000		111,839,648		55,503,108
Total deposits		429,049,445		338,398,039
Federal Home Loan Bank advances		42,000,000		55,000,000
Accrued interest payable		2,133,858		1,426,132
Other liabilities		2,508,051		2,142,492
Total liabilities		475,691,354		396,966,663
Commitments and contingencies
Stockholders’ equity:
Common stock, $1.25 par value, 10,000,000 shares authorized; 3,325,196 and 3,325,774 shares issued and outstanding		4,156,495		4,157,218
Additional paid-in capital		4,881,728		4,902,369
Retained earnings		38,787,699		34,778,931
Accumulated other comprehensive income		126,111		1,123,792
Total stockholders’ equity		47,952,033		44,962,310
	$	523,643,387		441,928,973

See accompanying notes to consolidated financial statements.

F-3

WGNB CORP.

Consolidated Statements of Earnings

For the Years Ended December 31, 2005, 2004 and 2003

	2005		2004		2003
Interest income:
Interest and fees on loans	$	28,725,171		22,011,568		20,448,355
Interest on federal funds sold		393,955		151,063		186,752
Interest on investment securities:
U.S. Government agencies		1,009,760		975,354		1,073,225
State, county and municipal		1,597,744		1,489,111		1,319,700
Other		819,549		640,644		514,357
Total interest income		32,546,179		25,267,740		23,542,389
Interest expense:
Interest on deposits:
Demand		3,183,385		1,180,420		954,060
Savings		99,612		43,309		53,579
Time		6,973,958		3,915,778		3,993,126
Interest on FHLB and other borrowings		2,326,566		2,430,288		2,526,780
Total interest expense		12,583,521		7,569,795		7,527,545
Net interest income		19,962,658		17,697,945		16,014,844
Provision for loan losses		1,550,000		925,000		350,000
Net interest income after provision for loan losses		18,412,658		16,772,945		15,664,844
Other income:
Service charges on deposit accounts		4,080,734		4,000,420		3,659,098
Mortgage origination fees		402,468		514,011		933,053
ATM network fees		502,092		434,203		335,128
Gain on sale of securities available-for-sale		227,863		-		-
Miscellaneous		794,733		688,595		626,243
Total other income		6,007,890		5,637,229		5,553,522
Other expenses:
Salaries and employee benefits		8,702,150		8,125,097		7,625,750
Occupancy		2,134,379		1,944,875		1,809,859
Other operating		3,627,107		3,593,949		3,316,083
Total other expenses		14,463,636		13,663,921		12,751,692
Earnings before income taxes		9,956,912		8,746,253		8,466,674
Income taxes		2,889,425		2,682,088		2,679,824
Net earnings	$	7,067,487		6,064,165		5,786,850
Basic earnings per share	$	2.13		1.83		1.75
Diluted earnings per share	$	2.11		1.81		1.72
Dividends per share	$	0.92		0.78		0.67

See accompanying notes to consolidated financial statements.

F-4

WGNB CORP.

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
Net earnings	$	7,067,487			6,064,165			5,786,850
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available-for-sale:
Unrealized gains (losses) arising during the period		(1,283,774	)		(401,838	)		119,477
Associated (taxes) benefit		436,483			136,625			(40,622	)
Reclassification adjustment for gain realized		(227,863	)		-			-
Associated taxes		77,473			-			-
Other comprehensive income (loss)		(997,681	)		(265,213	)		78,855
Comprehensive income	$	6,069,806			5,798,952			5,865,705

See accompanying notes to consolidated financial statements.

F-5

WGNB CORP.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2005, 2004 and 2003

													Accumulated
							Additional						Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Earnings			Income			Total
Balance, December 31, 2002		3,306,733		$	4,133,416			5,367,172			27,709,213			1,310,150			38,519,951
Cash dividends ($.67 per share)		-			-			-			(2,216,818	)		-			(2,216,818	)
Retirement of common stock		(5,847	)		(7,309	)		(147,224	)		-			-			(154,533	)
Exercise of stock options		4,651			5,814			40,228			-			-			46,042
Issuance of common stock in lieu of directors’ fees		915			1,144			27,771			-			-			28,915
Change in unrealized holding gain on securities available-for-sale, net of tax		-			-			-			-			78,855			78,855
Net earnings		-			-			-			5,786,850			-			5,786,850
Balance, December 31, 2003		3,306,452			4,133,065			5,287,947			31,279,245			1,389,005			42,089,262
Cash dividends ($.78 per share)		-			-			-			(2,564,479	)		-			(2,564,479	)
Retirement of common stock		(32,086	)		(40,108	)		(924,134	)		-			-			(964,242	)
Exercise of stock options		50,980			63,726			526,251			-			-			589,977
Issuance of common stock in lieu of directors’ fees		428			535			12,305			-			-			12,840
Change in unrealized holding gain on securities available-  for-sale, net of tax		-			-			-			-			(265,213	)		(265,213	)
Net earnings		-			-			-			6,064,165			-			6,064,165
Balance, December 31, 2004		3,325,774			4,157,218			4,902,369			34,778,931			1,123,792			44,962,310
Cash dividends ($.92 per share)		-			-			-			(3,058,719	)		-			(3,058,719	)
Retirement of common stock		(1,770	)		(2,213	)		(50,133	)		-						(52,346	)
Exercise of stock options		713			891			15,845			-			-			16,736
Issuance of common stock in lieu of directors’ fees		479			599			13,647			-			-			14,246
Change in unrealized holding gain on securities available-for-sale, net of tax		-			-			-			-			(997,681	)		(997,681	)
Net earnings		-			-			-			7,067,487			-			7,067,487
Balance, December 31, 2005		3,325,196		$	4,156,495			4,881,728			38,787,699			126,111			47,952,033

See accompanying notes to consolidated financial statements.

F-6

WGNB CORP.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
Cash flows from operating activities:
Net earnings	$	7,067,487			6,064,165			5,786,850
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion		1,086,505			1,105,857			1,078,280
Provision for loan losses		1,550,000			925,000			350,000
Provision for deferred income taxes (benefit)		(931,240	)		28,896			86,768
Gain on sale of securities available-for-sale		(227,863	)		-			-
(Gain) loss on sale of premises and equipment		75,393			(5,430	)		(13,997	)
Loss on sale of other real estate		4,125			52,312			86,205
Change in:
Other assets		(35,230	)		(1,035,421	)		15,973
Other liabilities		950,423			397,864			(120,087	)
Net cash provided by operating activities		9,539,600			7,533,243			7,269,992
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale		3,789,185			-			-
Proceeds from maturities, calls and paydowns of securities
available-for-sale		12,686,014			11,192,131			15,424,516
Proceeds from maturities, calls and paydowns of securities
held-to-maturity		204,941			1,019,121			-
Purchases of securities available-for-sale		(21,289,748	)		(17,371,254	)		(18,664,899	)
Purchase of securities held-to-maturity		(2,105,990	)		(1,604,000	)		(750,000	)
Net change in loans		(67,394,063	)		(61,402,267	)		(24,547,649	)
Proceeds from sales of premises and equipment		88,497			5,430			46,047
Purchases of premises and equipment		(2,702,122	)		(1,801,137	)		(1,698,547	)
Capital expenditures for other real estate		(99,293	)		-			-
Proceeds from sales of other real estate		754,440			1,002,312			155,250
Net cash used by investing activities		(76,068,139	)		(68,959,664	)		(30,035,282	)
Cash flows from financing activities:
Net change in deposits		90,651,406			35,081,859			4,590,312
Proceeds from Federal Home Loan Bank advances		-			15,000,000			-
Repayment of Federal Home Loan Bank advances		(13,000,000	)		(5,000,000	)		-
Proceeds from other borrowings		9,479,000			-			-
Repayment of other borrowings		(9,479,000	)		-			-
Dividends paid		(2,921,611	)		(2,460,728	)		(2,147,943	)
Exercise of stock options		16,736			589,977			46,042
Retirement of common stock		(52,346	)		(964,242	)		(154,533	)
Net cash provided by financing activities		74,694,185			42,246,866			2,333,878
Change in cash and cash equivalents		8,165,646			(19,179,555	)		(20,431,412	)
Cash and cash equivalents at beginning of year		8,056,243			27,235,798			47,667,210
Cash and cash equivalents at end of year	$	16,221,889			8,056,243			27,235,798

F-7

WGNB CORP.

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	11,875,795			7,171,932			7,709,700
Income taxes	$	3,501,000			2,184,700			2,322,000
Non-cash investing and financing activities:
Transfer of loans to other real estate	$	579,105			794,398			845,750
Loans to facilitate sales of other real estate	$	39,028			-			-
Change in unrealized gains on
securities available-for-sale, net of tax	$	(997,681	)		(265,213	)		78,855
Change in dividends payable	$	137,108			103,751			68,875
Issuance of common stock to directors in lieu of directors’ fees	$	14,246			12,840			28,915

See accompanying notes to consolidated financial statements.

F-8

WGNB CORP.

Notes to Consolidated Financial Statements

(1)Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold.

Securities

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

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

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

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

Loans 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.

F-9

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(1)Summary of Significant Accounting Policies, continued

Loans and Allowance for Loan Losses, continued

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 allowance.

Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans. These evaluations take into consideration such factors as 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 are assigned allocations of loss based on peer group loss experience and regulatory guidelines. The 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.

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:

Buildings and improvements 15 - 39 years

Furniture 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. Fair value is defined as the amount that is expected to be received in a current sale between a willing buyer and seller other than in a forced or liquidation sale. Fair values at foreclosure are based on appraisals. Losses arising from the acquisition of foreclosed properties are charged against the allowance for loan losses. Subsequent write-downs are provided by a charge to income through the allowance for losses on other real estate in the period in which the need arises.

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.

F-10

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(1)Summary of Significant Accounting Policies, continued

Income Taxes, continued

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

Derivative Instruments and Hedging Activities

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

Stock Compensation Plans

At December 31, 2005, the Company sponsors stock-based compensation plans, which are described more fully in Note 10. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation for the years ended December 31, 2005, 2004 and 2003.

	2005		2004		2003
Net earnings
As reported	$	7,067,487	$	6,064,165	$	5,786,850
Proforma	$	6,911,381	$	5,930,258	$	5,685,867
Basic earnings per share
As reported	$	2.13	$	1.83	$	1.75
Proforma	$	2.08	$	1.79	$	1.72
Diluted earnings per share
As reported	$	2.11	$	1.81	$	1.72
Proforma	$	2.06	$	1.77	$	1.69

The fair value of each option is estimated on the date of grant using the Black-Scholes Model. The following weighted average assumptions were used for grants in 2005, 2004 and 2003, respectively: dividend yield of 2.86%, 2.40% and 2.40%, risk free interest rates of 4.09%, 4.27% and 4.27%, an expected life of 10 years and price volatilities of 11%, 29% and 29%. 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 allocated over the vesting period.

F-11

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(1)Summary of Significant Accounting Policies, continued

     Earnings Per Share

Basic earnings per share are based on the weighted average number of common shares outstanding during the period. The effects of potential common shares outstanding during the period are included in diluted earnings per share. Stock options, which are described in note 10, are granted to key management personnel.

			Common		Per Share
For the Year Ended December 31, 2005	Net Earnings		Shares		Amount
Basic earnings per share	$	7,067,487		3,324,620	$	2.13
Effect of dilutive stock options		-		24,999		(.02	)
Diluted earnings per share	$	7,067,487		3,349,619	$	2.11

			Common		Per Share
For the Year Ended December 31, 2004	Net Earnings		Shares		Amount
Basic earnings per share	$	6,064,165		3,305,736	$	1.83
Effect of dilutive stock options		-		50,594		(.02	)
Diluted earnings per share	$	6,064,165		3,356,330	$	1.81

			Common		Per Share
For the Year Ended December 31, 2003	Net Earnings		Shares		Amount
Basic earnings per share	$	5,786,850		3,308,087	$	1.75
Effect of dilutive stock options		-		48,893		(.03	)
Diluted earnings per share	$	5,786,850		3,356,980	$	1.72

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), which revises and amends SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including stock options, to be recognized in the financial statements based on their fair values. Upon adoption, pro forma disclosure is no longer an alternative to financial statement recognition. SFAS No. 123(R) will be effective for the Company for financial statements beginning after December 15, 2005. The Company will adopt the provisions of SFAS No. 123(R) in the first quarter of 2006. The financial statement impact is not expected to be materially different from that shown in the existing pro forma disclosure required under the original SFAS No. 123.

In March 2004, The Emerging Issues Task Force (“EITF”) issued EITF 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (“EITF 03-1”). EITF 03-1 provides guidance for evaluating whether an investment is other-than-temporarily impaired. The disclosure guidance was effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004,whereas the recognition and measurement guidance has been deferred. The disclosures required by EITF 03-1 are included in Note 2 to the consolidated financial statements. The Company did not recognize an impairment loss on any investment in 2005, 2004 or 2003.

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

F-12

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(2) Securities

Securities available-for-sale and held-to-maturity at December 31, 2005 and 2004 are summarized as follows:

Available-for-Sale	December 31, 2005
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Government agencies	$	8,964,018		-		21,599		8,942,419
Mortgage-backed securities		18,294,070		128,395		297,557		18,124,908
State, county and municipals		32,867,044		542,847		145,354		33,264,537
Corporate bonds		4,043,624		22,929		38,584		4,027,969
	$	64,168,756		694,171		503,094		64,359,833

	December 31, 2004
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Government agencies	$	5,496,962		8,550		632		5,504,880
Mortgage-backed securities		16,387,883		341,622		62,434		16,667,071
State, county and municipals		35,638,790		1,395,663		45,595		36,988,858
Corporate bonds		1,641,202		65,542		-		1,706,744
	$	59,164,837		1,811,377		108,661		60,867,553

Held-to-Maturity	December 31, 2005
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Trust preferred securities	$	6,736,552		103,000		-		6,839,552

	December 31, 2005
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Trust preferred securities	$	4,834,649		-		-		4,834,649

F-13

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(2)Securities, continued

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at December 31, 2005, by contractual maturity are shown below. Expected maturities will differ from average life contractual maturities because borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

Available-for-Sale	Amortized		Estimated
	Cost		Fair Value
U.S. Government agencies, state, county and municipals and corporate bonds:
Within 1 year	$	10,811,091		10,822,626
1 to 5 years		9,742,850		9,756,849
5 to 10 years		7,418,557		7,521,556
After 10 years		17,902,188		18,133,894
Mortgage-backed securities		18,294,070		18,124,908
	$	64,168,756		64,359,833
Held-to-Maturity
Trust preferred securities:
After 10 years	$	6,736,552		6,839,552

The following is a summary of the fair values of securities that have unrealized losses as of December 31, 2005 and 2004.

	December 31, 2005
	Less Than 12 Months				12 Months or More
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
U.S. Government agencies	$	999,399		21,599		-		-
Mortgage-backed securities		10,205,739		194,224		2,980,921		103,333
State, county and municipals		8,246,350		108,821		1,447,617		36,533
Corporate bonds		2,874,273		38,584		-		-
	$	22,325,761		363,228		4,428,538		139,866

	December 31, 2004
	Less Than 12 Months				12 Months or More
	Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses
U.S. Government agencies	$	999,400		632		-		-
Mortgage-backed securities		1,873,570		21,287		1,927,401		41,147
State, county and municipals		3,166,003		45,595		-		-
	$	6,038,973		67,514		1,972,401		41,147

F-14

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(2)           Securities, continued

At December 31, 2005, all unrealized losses in the investment securities portfolio related to debt securities. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2005 tables above, 22 securities out of 60 securities issued by U.S. Government agencies, and Government sponsored corporations including mortgage backed securities contained unrealized losses, 30 out of 85 securities issued by state and political subdivisions contained unrealized losses and two out of five securities issued by corporations contained unrealized losses. These unrealized losses are considered temporary because of acceptable investment grades on each security and the repayment sources of principal and interest are largely government backed.

At December 31, 2004, all unrealized losses in the investment securities portfolio related to debt securities. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2004 tables above, 9 out of 98 securities issued by state and political subdivisions contained unrealized losses and 7 out of 60 securities issued by U.S. Government agencies and Government sponsored corporations, including mortgage-backed securities, contained unrealized losses. These unrealized losses are considered temporary because of acceptable investment grades on each security and the repayment sources of principal and interest are largely government backed.

Proceeds from sales of securities available-for-sale during 2005 were $3,789,185 with gross gains of $227,863 and no gross losses recognized. There were no sales of securities available-for-sale during 2004 or 2003.

Investment securities with a fair value of approximately $61,904,000 and $56,601,000 as of December 31, 2005 and 2004, respectively, were pledged to secure public deposits, as required by law, and for other purposes.

(3) Loans

Major classifications of loans at December 31, 2005 and 2004 are summarized as follows:

	2005		2004
Commercial, financial and agricultural	$	51,555,201		50,527,769
Real estate - mortgage		196,382,365		173,110,259
Real estate - construction		153,511,262		114,657,248
Consumer		22,271,301		18,614,114
		423,720,129		356,909,390
Less: Unearned interest		841,109		581,614
Allowance for loan losses		5,327,406		4,080,148
	$	417,551,614		352,247,628

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.

Under the line of credit agreement with the Federal Home Loan Bank (see Note 6), the Bank pledges acceptable loans under a blanket lien as collateral for its borrowings.

Changes in the allowance for loan losses for the years ended December 31, 2005, 2004 and 2003 are as follows:

	2005			2004			2003
Balance, beginning of year	$	4,080,148			3,479,366			3,771,676
Provision for loan losses		1,550,000			925,000			350,000
Loans charged off		(387,811	)		(397,095	)		(789,544	)
Recoveries		85,069			72,877			147,234
Balance, end of year	$	5,327,406			4,080,148			3,479,366

F-15

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(4) Premises and Equipment

Major classifications of premises and equipment at December 31, 2005 and 2004 are summarized as follows:

	2005		2004
Land	$	1,444,265		1,188,765
Buildings and improvements		9,046,004		7,715,254
Furniture and equipment		6,528,209		6,127,392
		17,018,478		15,031,411
Less: Accumulated depreciation		7,884,233		7,386,532
	$	9,134,245		7,644,879

Depreciation expense amounted to $1,048,865, $919,153 and $863,369 in 2005, 2004 and 2003, respectively.

(5)Deposits

At December 31, 2005 the scheduled maturities of time deposits are as follows:

2006	$	111,163,630
2007		34,859,881
2008		22,967,359
2009		18,180,968
2010		24,733,782
	$	211,905,620

The Bank held $55,577,610 and $19,580,452 in certificates of deposit obtained through the efforts of third party brokers at December 31, 2005 and 2004, respectively. The weighted average interest rate on the deposits at December 31, 2005 and 2004 was 3.93% and 3.34%, respectively. The deposits outstanding at December 31, 2005 mature as follows:

2006	$	11,480,610
2007		7,498,000
2008		12,202,000
2009		11,057,000
2010		13,340,000
	$	55,577,610

(6) Lines of Credit

The Bank has lines of credit for overnight borrowings of $20,800,000 at December 31, 2005 and 2004. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta (FHLB) with credit availability totaling $128,720,000 at December 31, 2005. The FHLB advances are secured by the Bank’s stock in the FHLB, its qualifying 1-4 family first mortgage loans and qualified commercial loans.Advances on the FHLB line of credit are subject to available collateral of the Bank. At December 31, 2005 and 2004, the Bank had advances outstanding from the FHLB amounting to $42,000,000 and $55,000,000, respectively. The Bank had $13,928,000 in excess collateral available at December 31, 2005 for additional borrowing. An early conversion option allows the FHLB to convert the advances to a variable interest rate upon notification to the Bank. The following advances require quarterly interest payments:

December 31, 2005
Advance	Interest Basis	Current Rate	Maturity	Call Date	Early Conversion Option
$ 10,000,000	Fixed	5.49%	May 2011	May 2006	May 2006, 3 month LIBOR
$ 7,000,000	Fixed	4.24%	June 2010	-	-
$ 5,000,000	Fixed	5.44%	February 2008	-	-
$ 10,000,000	Fixed	3.37%	September 2012	September 2007	September 2007, 3 month LIBOR
$ 10,000,000	Fixed	3.225%	February 2014	February 2009	February 2009, 3 month LIBOR

F-16

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(6) Lines of Credit, continued

December 31, 2004
Advance	Interest Basis	Current Rate	Maturity	Call Date	Early Conversion Option
$ 10,000,000	Fixed	5.49%	May 2011	May 2006	May 2006, 3 month LIBOR
$ 5,000,000	Variable	2.44%	Daily Rate	-	-
$ 5,000,000	Fixed	7.07%	May 2005	-	-
$ 10,000,000	Fixed	6.16%	July 2005	-	-
$ 5,000,000	Fixed	5.44%	February 2008	-	-
$ 10,000,000	Fixed	3.37%	September 2012	September 2007	September 2007, 3 month LIBOR
$ 10,000,000	Fixed	3.225%	February 2014	February 2009	February 2009, 3 month LIBOR

(7) Commitments and Contingencies

Off Balance Sheet Commitments

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

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments.

In most cases, the Company requires collateral to support financial instruments with credit risk. The following table summarizes the off balance sheet financial instruments as of December 31, 2005 and 2004:

	Approximate
	Contractual Amount
	2005		2004
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	98,678,000		68,013,000
Standby letters of credit	$	13,222,000		8,367,000

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.

Derivative Instruments and Hedging Activities

As of December 31, 2005 and 2004, the Company held an interest rate swap position. The Company entered into the swap on May 24, 2004 for a 36-month period. The interest rate swap contract has a notional amount of $30,000,000 and the Company receives a fixed rate of 3.40% and pays a rate of 90 day LIBOR floating quarterly. The 90 day LIBOR was 4.39% at December 31, 2005 and 2.36% at December 31, 2004.

F-17

WGNB CORP.

Notes to Consolidated Financial Statements, continued

 

(7)Commitments and Contingencies, continued

Derivative Instruments and Hedging Activities, continued

The objective of the swap was to manage the Company’s interest rate risk exposure. The Company was susceptible to interest rate risk outside the tolerance of its asset and liability management policy if interest rates would have remained low or moved lower in early 2004. This was, in part, attributable to the fixed rate nature of certain borrowings from the Federal Home Loan Bank and the preceding rapid decline of market interest rates. The discount rate was at a historic low and economic data suggested that rates could remain low for an extended period of time. Management modeled the swap using multiple interest rate environments and determined that its interest rate risk exposure would be greatly reduced by engaging in pay-fixed receive floating interest rate swap.

The Company uses the long haul method to assess the effectiveness of its current hedging activity and accounted for the hedge instrument as a fair value hedge. The Company has determined the hedge to be effective by measuring the change in the net present value of the expected cash flows of the interest on the advances against the change in the market value of the swap. The Company has determined that the swap was effective during 2005 and 2004.

Contingencies

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

(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 retired 1,770, 32,086 and 5,847 shares of common stock during 2005, 2004 and 2003, respectively. At December 31, 2005, the Company had $891,525 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, 2005 and 2004, that the Company and the Bank met all capital adequacy requirements to which it is subject. The 1994 Plan has expired according to its terms.

F-18

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(9)Regulatory Matters, continued

As of December 31, 2005 and 2004, 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 Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in 000’s)					(in 000’s)					(in 000’s)
As of December 31, 2005:
Total Capital (to Risk
Weighted Assets)
Consolidated	$	53,153		12	%		≥$ 36,038		≥8	%		N/A		N/A
Bank	$	48,223		11	%		≥$ 35,774		≥8	%		≥$ 44,717		≥10	%
Tier I Capital
(to Risk Weighted Assets)
Consolidated	$	47,826		11	%		≥$ 18,019		≥4	%		N/A		N/A
Bank	$	42,899		10	%		≥$ 17,887		≥4	%		≥$ 26,830		≥6	%
Tier I Capital
(to Average Assets)
Consolidated	$	47,286		9	%		≥$ 20,965		≥4	%		N/A		N/A
Bank	$	42,899		8	%		≥$ 20,817		≥4	%		≥$ 26,022		≥5	%
As of December 31, 2004:
Total Capital (to Risk
Weighted Assets)
Consolidated	$	47,919		13	%		≥$ 29,475		≥8	%		N/A		N/A
Bank	$	43,259		12	%		≥$ 29,234		≥8	%		≥$ 36,542		≥10	%
Tier I Capital
(to Risk Weighted Assets)
Consolidated	$	43,839		12	%		≥$ 14,737		≥4	%		N/A		N/A
Bank	$	39,179		11	%		≥$ 14,617		≥4	%		≥$ 21,925		≥6	%
Tier I Capital
(to Average Assets)
Consolidated	$	43,839		10	%		≥$ 17,891		≥4	%		N/A		N/A
Bank	$	39,179		9	%		≥$ 17,769		≥4	%		≥$ 22,211		≥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, 2005, the Bank could pay approximately $4,011,000 in dividends without obtaining prior regulatory approval.

(10) Incentive Stock Option Plan

Under the January 11, 1994 Incentive Stock Option Plan (the “1994 Plan”) the Company may grant options to certain key officers to acquire shares of common stock of the Company at the then fair value, with the number of shares to be determined annually by agreed upon formulas. A total of 160,000 shares of common stock were reserved for possible issuance under the 1994 plan. At December 31, 2003, the Company had distributed all the options available for awards under the 1994 Plan. The options may not be exercised prior to five years from the date of grant and are exercisable no later than ten years from that date. No compensation cost has been recognized for the stock options as of and through December 31, 2005. The 1994 Plan has expired according to its terms.

F-19

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(10)         Incentive Stock Option Plan, continued

On April 8, 2003, the shareholders approved the WGNB Corp. 2003 Stock Incentive Plan (the “2003 Plan”). Under the 2003 Plan, the Company may grant options to certain key officers to acquire shares of common stock of the Company at the then fair value for incentive stock options and no less than 85% of the fair value for nonqualified stock options, with the number of shares to be determined annually by agreed upon formulas. A total of 660,000 shares of common stock were reserved for possible issuance under the 2003 Plan with a maximum of 350,000 shares to be issued under nonqualified stock option grants. At December 31, 2005, the Company had distributed 23,730 of the options available for awards under the 2003 Plan. The options under the 2003 Plan were to be distributed commencing in the 2005 fiscal year and will terminate February 3, 2014 unless previously terminated by the Board of Directors or when the options approved under the plan have been distributed. The options may be exercised by the participants under a vesting period of five years ratably at 20% per year. The options are exercisable no later than ten years after the date of grant. No compensation cost has been recognized for the stock options as of and through December 31, 2005.

A summary status of the Company’s stock option plans as of December 31, 2005, 2004 and 2003, and changes during the years ending on those dates, is presented below:

	2005					2004					2003
				Wtd. Avg.					Wtd. Avg.					Wtd. Avg.
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		100,100		$	23.68		135,441		$	18.53		100,358		$	15.57
Awarded during the year		23,730		$	29.43		15,639		$	28.87		39,734		$	24.99
Exercised during the year		(713	)	$	23.47		(50,980	)	$	11.57		(4,651	)	$	9.90
Outstanding, end of year		123,117		$	24.79		100,100		$	23.68		135,441		$	18.53
Options exercisable at year end		23,855		$	19.52		15,568		$	17.12		48,739		$	13.90

The following information applies to all options outstanding at December 31, 2005:

Options Outstanding				Options Exercisable
Shares	Range	Wtd. Avg. Exercise Price	Wtd. Avg. Remaining Life (Years)	Shares	Wtd. Avg. Exercise Price
6,400	$ 13.00	$ 13.00	2.11	6,400	$ 13.00
78,811	$ 20.00 - 24.99	$ 23.62	5.82	14,620	$ 20.56
37,906	$ 28.87 - 29.43	$ 29.22	7.73	2,835	$ 28.87
123,117	$ 13.00 - 29.43	$ 24.79	6.21	23,855	$ 19.52

(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 2005, 2004 and 2003, the Company matched 100% of the participants’ contributions up to 6% of the participants’ salaries, subject to the annual 401(k) contribution limits. The Company also made discretionary contributions to the plan in 2005, 2004 and 2003 of 5% of participants’ salaries. Contributions to the plan charged to expense during 2005, 2004 and 2003 were $491,265, $453,704 and $433,505, respectively.

F-20

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(12) Income Taxes

The components of the provision for income taxes in the consolidated statements of earnings for the years ended December 31, 2005, 2004 and 2003 are as follows:

	2005			2004		2003
Current:
Federal	$	3,418,489			2,387,873		2,251,444
State		402,176			265,319		341,612
Deferred:
Federal		(833,215	)		26,006		75,351
State		(98,025	)		2,890		11,417
Total	$	2,889,425			2,682,088		2,679,824

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:

	2005			2004			2003
Pretax income at statutory rates	$	3,385,350			2,973,726			2,878,670
Add (deduct):
Tax-exempt interest income		(479,991	)		(448,781	)		(390,578	)
State taxes, net of federal effect		68,924			54,870			85,394
Non-deductible interest expense		17,885			12,757			7,965
Other		(102,743	)		89,516			98,373
	$	2,889,425			2,682,088			2,679,824

The following summarizes the net deferred tax asset, which is included as a component of other assets, at December 31, 2005 and 2004.

	2005			2004
Deferred income tax assets:
Allowance for loan losses	$	1,971,467			1,402,314
Other real estate owned		183,706			48,160
Other		91,379			100,719
Total gross deferred income tax assets		2,246,552			1,551,193
Deferred income tax liabilities:
Premises and equipment		(299,490	)		(368,778	)
Net unrealized gain on securities available-for-sale		(64,966	)		(607,526	)
Other		(15,738	)		(182,331	)
Total gross deferred income tax liabilities		(380,194	)		(1,158,635	)
Net deferred income tax asset	$	1,866,358			392,558

F-21

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(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 2005:

Beginning balance	$	3,774,043
New loans		3,174,279
Repayments		(3,636,099	)
Change in related parties		149,370
Ending balance	$	3,461,593

At December 31, 2005 and 2004, deposits from directors, executive officers, and their related interests totaled approximately $7,559,000 and $8,300,000, respectively.

(14) Other Operating Expenses

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

     

	2005		2004		2003
Professional fees	$	644,479		622,993		408,457
Printing and supplies	$	303,452		319,709		306,552

(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.

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.

F-22

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(15)         Fair Value of Financial Instruments, continued

Derivative Instruments

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

Commitments to Extend Credit, Standby Letters of Credit

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

Limitations

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

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

The carrying amount and estimated fair values of the Company’s financial instruments at December 31, 2005 and 2004 are as follows:

	2005				2004
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets:
Cash and cash equivalents	$	16,221,889		16,221,889		8,056,243		8,056,243
Securities available-for-sale	$	64,359,833		64,359,833		60,867,553		60,867,553
Securities held-to-maturity	$	6,736,552		6,839,552		4,834,649		4,834,649
Loans, net	$	417,551,614		414,936,820		352,247,628		351,433,142
Liabilities:
Deposits	$	429,049,445		427,101,659		338,398,039		338,165,290
Federal Home Loan Bank advances	$	42,000,000		41,494,694		55,000,000		56,009,314
Derivative instruments	$	571,000		571,000		5,000		5,000

F-23

WGNB CORP.

Notes to Consolidated Financial Statements, continued

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

Balance Sheets

December 31, 2005 and 2004

	2005		2004
Assets
Cash	$	2,573,339		2,407,351
Investment in Bank		43,025,166		40,291,753
Securities available-for-sale		606,240		635,399
Securities held-to-maturity		2,466,240		2,334,649
Other assets		105,831		57,140
	$	48,776,816		45,726,292
Liabilities and Stockholders’ Equity
Dividends payable	$	824,783		687,675
Other liabilities		-		76,307
Total liabilities		824,783		763,982
Stockholders’ equity		47,952,033		44,962,310
	$	48,776,816		45,726,292

Statements of Earnings

For the Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
Dividends from Bank	$	3,058,719			2,564,479			2,216,517
Other income		310,101			157,496			20,500
Other expense		(21,251	)		(36,083	)		(26,295	)
Earnings before equity in undistributed
earnings of Bank		3,347,569			2,685,892			2,210,722
Equity in undistributed earnings of Bank		3,719,918			3,378,273			3,576,128
Net earnings	$	7,067,487			6,064,165			5,786,850

F-24

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, 2005, 2004 and 2003

	2005			2004			2003
Cash flows from operating activities:
Net earnings	$	7,067,487			6,064,165			5,786,850
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization and accretion		11,722			11,846			11,534
Loss on sale of other real estate		-			9,675			54,269
Equity in undistributed earnings of Bank		(3,719,918	)		(3,378,273	)		(3,576,128	)
Change in other assets		(48,691	)		(6,538	)		(8,540	)
Change in other liabilities		(56,305	)		2,348			18,462
Net cash provided by operating activities		3,254,295			2,703,223			2,286,447
Cash flows from investing activities:
Capital infusion to Bank		-			-			(275,253	)
Purchase of securities held-to-maturity		(232,500	)		(1,604,000	)		(750,000	)
Proceeds from paydowns of securities available-for-sale		-			-			6,684
Proceeds from paydowns of securities held-to-maturity		101,414			-			-
Proceeds from sale of other real estate		-			39,540			44,956
Net cash used by investing activities		(131,086	)		(1,564,460	)		(973,613	)
Cash flows from financing activities:
Dividends paid		(2,921,611	)		(2,460,728	)		(2,147,943	)
Exercise of stock options		16,736			589,977			46,042
Retirement of common stock		(52,346	)		(964,242	)		(154,533	)
Net cash used by financing activities		(2,957,221	)		(2,834,993	)		(2,256,434	)
Increase (decrease) in cash		165,988			(1,696,230	)		(943,600	)
Cash at beginning of year		2,407,351			4,103,581			5,047,181
Cash at end of year	$	2,573,339			2,407,351			4,103,581
Supplemental disclosure of non-cash financing activities:
Change in dividends payable	$	137,108			103,751			68,875
Changes in unrealized gains on securities available-for-sale, net of tax	$	(997,681	)		(265,213	)		78,855
Issuance of common stock to directors in lieu of directors’ fees	$	14,246			12,840			28,915

F-25

EX-10.23

Exhibit 10.23

Separation Agreement and Release

This Separation Agreement and Release (this “Agreement”) is entered into on this 14^thday of February, 2006, by and among L. Leighton Alston (“Executive”), West Georgia National Bank (the “Bank”), and the Bank’s sole shareholder, WGNB Corp. (“WGNB”; with the Bank and WGNB being collectively referred to as the “Company”).

WHEREAS, Executive, the Bank and WGNB are parties to an Employment Agreement, dated May 27, 2005 (the “Employment Agreement”), pursuant to which Executive has served as Chief Executive Officer of the Bank and as President and Chief Executive Officer of WGNB; and

WHEREAS, Executive, the Bank and WGNB wish to terminate the Employment Agreement and all other aspects of the relationship between them; and

WHEREAS, the parties wish to set forth fully in this Agreement the terms of separation, such that this Agreement will supersede those of the Employment Agreement;

NOW, THEREFORE, for and in consideration of the payments, benefits and mutual promises set forth below, the sufficiency of which is acknowledged, Executive, the Bank and WGNB hereby agree as follows:

1.Employment Termination.

The Company and Executive agree that:

(1)Executive’s last day of employment with the Company was February 11, 2006 (the “Severance Date”);

(2)Executive’s “Severance Period” will mean the 24-month period beginning on the Severance Date; and

(3)This Agreement was first delivered to the Executive on February 7, 2006 (the “Delivery Date”).

2.Payments. The Bank and WGNB shall be severally liable to Executive for the payments described in this Section 2; provided, these payments are expressly conditioned upon Executive’s compliance with Sections 4, 5, 6 and 7 below. To this effect, the Bank shall pay or transfer to Executive the following:

(a)Final Paycheck. His regular base salary for all periods through his Severance Date at the time and in the manner it shall pay other executive officers their base salary for such periods.

(b)Final Bonus Payment. The remaining balance of his executive bonus for the 2005 fiscal year; provided, this bonus payment shall be paid at the same time and in the same manner it is paid to other executive officers but in no event later than March 15, 2006.

(c)Vacation Benefit. Consistent with the Company’s general vacation policy, a lump-sum cash payment equal to the value of his total earned and unused vacation days as of his Severance Date.

(d)Severance Pay. $300,000 in 24 equal monthly installments of $12,500 commencing on March 1, 2006, with each subsequent installment being due and paid on the day of each subsequent month within the Severance Period on which other executive employees receive their first paycheck during that month; provided, the Bank shall pay all amounts of said severance pay remaining unpaid as of the last day of the Severance Period on said last day.

(e)COBRA Coverage and Premium Payments. Under the Consolidated Omnibus Reconciliation Act of 1985, as amended (“COBRA”), Executive will have the opportunity to elect continuation coverage of his medical and dental benefits for himself, his spouse and/or eligible dependents to the extent he and/or they are participating in the Company’s plans for those benefits as of his Severance Date. If elected in a timely manner, COBRA coverage generally will end on the last day of the 18th month following his Severance Date (unless an earlier end date or an extension is required under COBRA). If and to the extent Executive timely elects COBRA continuation coverage, then while his COBRA coverage is in effect for himself during the first 18 mouths of his Severance Period, the Bank shall pay 100 percent of the premium amount for Executive’s COBRA coverage. Executive, his spouse and/or his dependents shall be responsible for paying 100 percent of the premium amount for any COBRA coverage for Executive’s spouse and/or dependents; provided, if the Bank and/or WGNB can legally and without additional cost (other than the cost of an amendment to the Bank’s or WGNB’s cafeteria plan) deduct Executive’s payments for spousal and/or dependent COBRA benefits from the payments to Executive of his severance pay (as described in subsection (d) hereof), the Bank and/or WGNB shall do so.

(f)Home Computer. Ownership of the desktop computer and printer that Executive has maintained at his residence; provided, Executive agrees that the Bank will first change the hard drive in the computer to ensure that no Company information or files remain.

(g)Contact List. An electronic copy of Executive’s contact list saved from the on his computer at the Bank.

3.Stock and Options.

(a)Previously Vested Shares. WGNB shall honor Executive’s exercise of all of his WGNB stock options that vested prior to February 10, 2006, and thereby shall allow him to purchase 29,493 shares of WGNB stock pursuant to the terms of such options; provided, Executive agrees not to sell or otherwise transfer or encumber any of such shares until or after August 11, 2006, and acknowledges that WGNB may place a legend on the stock certificate(s) for such shares reflecting such restriction.

(b)Newly Vested Shares. Executive shall be permitted to exercise the options to purchase 2,629 shares of WGNB stock that vest on February 10, 2006; provided, Executive agrees that he may not exercise said options earlier than August 11, 2006. Executive shall have fifteen (15) days beginning on August 11, 2006 to exercise said options after which time said options (if not exercised) will lapse.

4.Mutual General Releases.

(a)Executive’s General Release. Executive agrees, for himself, his spouse, heirs, executor, administrator, assigns, insurers, attorneys and other persons or entities acting or purporting to act on his behalf (the “Executive’s Parties”), to irrevocably and unconditionally release, acquit and forever discharge the Bank and WGNB, their affiliates, subsidiaries, directors, officers, employees, shareholders, partners, agents, representatives, predecessors, successors, assigns, insurers, attorneys, benefit plans sponsored by the Bank and WGNB and said plans’ fiduciaries, agents and trustees (the “Bank’s Parties”), from any and all actions, causes of action, suits, claims, obligations, liabilities, debts, demands, contentions, damages, judgments, levies and executions of any kind, whether in law or in equity, known or unknown, which the Executive’s Parties have, have had, or may in the future claim to have against the Bank’s Parties, including but not limited to those claims arising out of, related to, or resulting from Executive’s employment with the Bank and WGNB or the termination thereof. It is understood that this is a general release. This release specifically includes without limitation any claims arising in tort or contract, any claim based on wrongful discharge, any claim based on breach of contract, any claim arising under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap, disability or other forms of discrimination, any claim arising under federal, state or local law concerning employment practices, and any claim relating to compensation or benefits. This specifically includes, without limitation, any claim which Executive has or has had under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended (“ADEA”), the Americans with Disabilities Act, as amended, and the Employee Retirement income Security Act of 1974, as amended (“ERISA”). Notwithstanding anything herein to the contrary, Executive shall have a right to, and is not releasing any claim for, (i) any breach of, or any amounts due or performance of the Bank’s Parties under, this Agreement, or (ii) any benefits Executive may have accrued or otherwise carved in the normal course under any employee benefit plan (within the meaning of ERISA) as of his Severance Date.

(b)Executive’s ADEA Release. Executive hereby acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under ADEA and that the consideration given for this Agreement is in addition to anything of value to which he was already entitled. He further acknowledges that he has been advised by this writing, as required by ADEA, that: (A) the waiver and release do not apply to any rights or claims that may arise on or after the date he executes this release; (B) he has the right to consult with an attorney prior to executing this release; (C) he has twenty-one (21) days from the Delivery Date to consider this release (although he may choose to voluntarily execute this release earlier); (D) he has seven (7) days following his execution of this release to revoke the release; and (E) this release shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8^th) day after he executes this release.

(c)Company’s Release. The Bank and WGNB agree, for the Bank’s Parties, to irrevocably and unconditionally release, acquit and forever discharge the Executive’s Parties from any and all actions, cause of action, suits, claims, obligations, liabilities, debts, demands, contentions, damages, judgments, levies and executions of any kind, whether in law or in equity, known or unknown, which the Bank’s Parties have, have had, or may in the future claim to have against the Executive’s Parties, including but not limited to claims arising out of, related to, or resulting from Executive’s employment with the Bank and WGNB or the termination thereof. It is understood that this is a general release. This release specifically includes without limitation any claims arising in tort or contract, any claim based on wrongful discharge, any claim based on breach of contract, any claim arising under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap, disability or other forms of discrimination, any claim arising under federal, state or local law concerning employment practices, and any claim relating to compensation or benefits. Notwithstanding anything herein to the contrary, the Company shall have a right to, and is not releasing any claim for, any breach of, or any amounts due or performance of the Executive’s Parties under, this Agreement. Further and notwithstanding the foregoing, nothing in this Agreement shall be construed as extinguishing any debts owed to the Bank under existing loans made to Executive or Executive’s Parties.

5.Inquiries and Nondisparagement. In response to inquiries concerning Executive’s employment with the Company and the termination of that employment, the statements of the Company and its representatives will always be and remain consistent with the content of the press release announcing Executive’s termination of employment, a copy of which is attached hereto as Exhibit A. Executive, on the one hand, and WGNB and the Bank, on the other hand, covenant and agree not to make or publish any disparaging, derogatory, critical, unflattering, or otherwise negative comments about the other, whether true or untrue, to any person or entity, or to make any statements from which a disparaging, derogatory, critical, unflattering, or otherwise negative meaning could reasonably be inferred; provided, if Executive or any representative of WGNB or the Bank is required by law to testify, provide information or give a statement under oath, nothing in this provision is intended to prevent or discourage them from doing so truthfully.

6.Restrictive Covenants. The obligations contained in Section 4 of the Employment Agreement are incorporated herein by reference, and the time periods in Sections 4.6, 4.7 and 4.10 shall be treated as expiring at the end of the Severance Period.

7.Cooperation in Defense of Claims. Executive agrees to cooperate in the defense of any claim to which WGNB or the Bank is a party or to which WGNB or the Bank becomes a party which reasonably requires his cooperation. Cooperation shall include, but not be limited to, meeting with counsel for WGNB or the Bank, making himself available for testimony without requiring a subpoena, and providing documents and information to WGNB or the Bank as reasonably required. The Company shall make good efforts to schedule any meetings, hearings or other events that require Executive’s lime in a manner that does not interfere with any employment or other obligations he may have. To the extent Executive incurs any out-of-pocket expenses (for example, travel or parking expenses), the Bank and/or WGNB shall reimburse him for such expenses under policies similar to those applicable to expense reimbursements of Company executive officers.

8.Unasserted Claims. Executive hereby represents he has no knowledge of any nonfrivolous claims that may be asserted against the Bank or WGNB, that arise solely out of Executive’s actions or inactions, and that he believes may result in a successful claim against the Bank or WGNB.

9.Miscellaneous.

(a)Invalidity of Any Provision. It is the intention of the parties hereto that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification to conform with such laws) of any provision hereof shall not render unenforceable or impair the remainder of this Agreement which shall be deemed amended to delete or modify, as necessary, the invalid or unenforceable provisions. The parties further agree to alter the balance of this Agreement in order to render the same valid and enforceable. The terms of the restrictive covenant provisions of this Agreement shall be deemed modified to the extent necessary to be enforceable and, specifically, without limiting the foregoing, if the term of the applicable restrictive covenant is too long to be enforceable, it shall be modified to encompass the longest term which is enforceable; and, if the scope of the geographic area of the applicable restrictive covenant is too great to be enforceable, it shall be modified to encompass the greatest area that is enforceable.

(b)Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia.

(c)Arbitration. In the event of a controversy or claim arising out of this Agreement which cannot be settled by the parties or their legal representatives, other than a claim by WGNB or the Bank against Executive under Section 6 hereof for which they seek specific performance or injunctive relief, it will be resolved exclusively by arbitration conducted in Georgia by one arbitrator in accordance with the rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; provided, the arbitrator will, upon a showing of cause, be permitted to extend the commencement of such hearing. By executing this Agreement, the parties agree to submit personal and subject matter jurisdiction to the Superior Court of Carroll County, Georgia for purposes of enforcing the arbitration provision, enforcing an arbitration award or vacating an arbitration award.

(d)Waiver of Breach. The waiver of a breach of any provision of this Agreement by a party hereto shall not operate or be construed as a wavier of any subsequent breach by the other party hereto.

(e)Successors and Assigns. This Agreement shall inure to the benefit of the Bank and WGNB and its Affiliates, and their respective successors and assigns. This Agreement shall inure to the benefit of and be enforceable by the Executive’s estate and/or legal representatives.

(f)Assignment of Agreement. This Agreement may not be assigned by any of the parties without the express written consent of the other parties to this Agreement; provided, however, that the provisions of this Agreement shall inure to the benefit of and be binding upon each successor of WGNB or the Bank, whether by merger, consolidation, transfer of all or substantially all assets, or otherwise.

(g)Notices. All notices, demands and other communications hereunder shall be in writing and shall be delivered in person or deposited in the United States mail, certified or registered, with return receipt requested, as follows:

(1)	If to the Executive:	Mr. L. Leighton Alston 244 Foggy Bottom Drive Carrollton, Georgia 30116
(2)	If to the Bank or WGNB:	WGNB CORP. West Georgia National Bank P.O. Box 280 Carrollton, Georgia 30112 Attention: Chairman
With a copy to:		Eric C. Lang The Lang Legal Group LLC 1800 Century Place Suite 570 Atlanta, GA 30345

(h)Entire Agreement. This Agreement contains the, entire agreement of the parties with respect to the subject matter hereof. All understanding and agreements heretofore made between the parties hereto with respect to the subject matter of this Agreement are merged into this document which alone fully and completely expresses their agreement. This Agreement may not be uliauged orally but only by an agreement in writing signed by both parties.

(i)Application of Code Section 409A. It is the intent of the parties to this Agreement that this Agreement shall be interpreted, construed and operated in compliance with any applicable provisions of Code Section 409A. To the extent that future regulations issued pursuant to Code Section 409A require any amendments to this Agreement, the parties agree that they will consent to, and make, such amendments.

(j)Captions. The captions appearing in this Agreement arc inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any provisions of this Agreement or in any way affect this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of this 14th day of February, 2006.

EXECUTIVE:
By:	/s/ L. Leighton Alston
	L. Leighton Alston

WGNB CORP.
By:	/s/ R. David Perry
	Title:  Chairman, Executive Compensation and Management Succession Committee

WEST GEORGIA NATIONAL BANK
By:	/s/ W.T. Green, Jr.
	Title:  Chairman, Board of Directors

EXHIBIT A

WGNB Corp. Announces Resignation of its President and Chief Executive Officer of West Georgia National Bank

CARROLLTON, Ga.-(BUSINESS WIRE)--Feb. 6, 2006--WGNB Corp. (NASDAQ: WGNB ), the holding company for West Georgia National Bank, the thirty-ninth highest performing publicly traded community bank under $1 billion in assets in the nation according to US Banker, and one of only 38 publicly traded financial institutions in the nation under $2 billion market cap admitted by Sandler O’Neill & Partners, L.P., to its 2005 Bank & Thrift Sm-All Stars, today announced the resignation of its President and Chief Executive Officer L. Leighton Alston.

Alston has been with WGNB for more than 28 years. Prior to joining WGNB , he was an Assistant National Bank Examiner for the Comptroller of the Currency, Administrator of National Banks, under the United States Treasury Department for three years. During his 28 years of involvement with the bank, total assets have grown from $25million to $524miliion and market Capitalization has grown to more than $126 million. Alston joined WGNB in January 1978. In March of 1991 he was named President and Chief Executive Officer and elected to the Boards of WGNB Corp. and West Georgia National Bank.

“WGNB is a great institution with an impressive history,” said L. Leighton Alston. “We have just finished the fifteenth consecutive year of annual earnings growth. This is the right time for me, personally, to stop down from my positions at WGNB Corp. and West Georgia National Bank.”

“Leighton Alston has served the bank and this community with extraordinary spirit and dedication and with a long and enviable list of accomplishments,” said W.T. “Tommy” Green, Jr., Chairman of the Board of WGNB Corp. “The momentum generated under his leadership will carry on into the future.”

Dealty Lipham, President and Director of West Georgia National Bank and Executive Vice President of WGNB Corp., has been appointed by the Board as Interim CEO of WGNB Corp.

Chairman Green added “I am confident in the depth of the WGNB management team developed by Leighton, our deeply embedded culture of customer service and our long history of community involvement, all of which make us an Industry leader.”

About WGNB Corp,

WGNB Corp. stock is traded on the NASDAQ Small Cap market under the symbol WGNB. West Georgia National Bank has seven full service locations in Carrollton, Bowdon, Villa Rica and Douglasville. The bank currently has assets of $516,000,000. For more information about West Georgia National Bank, visit the company’s Web site at www.wgno.com. Interested parties may contact Steven J. Haack, Chief Financial Officer, via email at shack@wgnb.com or at WGNB Corp., P.O. Box 280, Carrollton, Georgia 30112.

Except for historical information contained in this press release, the matters discussed consist of forward-looking information under the Private Securities Litigation Reform Act of 1995. The accuracy of the forward-looking information is necessarily subject to and involves risk and uncertainties, which could cause actual results to differ materially from forward-looking information. These risk and uncertainties include but are not limited to, general economic conditions, competition and other factors, included in filings with the Securities and Exchange Commission.

EX-21

Exhibit 21

Subsidiaries of WGNB Corp.

West Georgia National Bank

EX-31.1

Exhibit 31.1

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, H.B. Lipham, III, 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 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 report;
	3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
		(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financing reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 14, 2006

/s/ H. B. Lipham, III

Name:  H.B. Lipham, III

Title:    Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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 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 report;
	3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
		(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financing reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 14, 2006

/s/ Steven J. Haack

Name:  Steven J. Haack

Title:    Treasurer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of WGNB Corp. (the “Company”) on Form 10-K for the year ending December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H.B. Lipham, III, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2006

/s/ H. B. Lipham, III

Name:  President and Chief Executive Officer

Title:    (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of WGNB Corp. (the “Company”) on Form 10-K for the year ending December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven J. Haack, Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

	1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
	2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 14, 2006

/s/ Steven J. Haack

Name:  Treasurer

Title:     (Principal Financial Officer)