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, 2006

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

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

Commission File No. 000-30805

WGNB CORP.

(Exact name of registrant as specified in its charter)

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

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

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

Title of Class	Name of Exchange on Which Listed
Common Stock, $1.25 par value	The NASDAQ Stock Market, LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨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 a large accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one)

Large Accelerated Filer ¨  Accelerated Filer ¨Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 2b-2 of the Exchange Act).

Yes ¨ No x

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of June 30, 2006 which is the last business day of its most recently completed second fiscal quarter, was approximately $71,024,902 based on a per share price of $25.00 (which is the average of the ask and bid price reported by the NASDAQ Stock Market) as of such date. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the Registrant’s Common Stock have been excluded in that such persons may be deemed affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 15, 2007, there were 5,000,613 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2007 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

WGNB CORP.

2006 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	16
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
PART II
Item 5.	Market for the Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38
Item 9B.	Other Information	39
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	40
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	40
Item 13.	Certain Relationships and Related Transactions, and Director Independence	40
Item 14.	Principal Accountant Fees and Services	40
PART IV
Item 15.	Exhibits and Financial Statement Schedules	41
	Signatures	43

PART I

Item 1.Business

General

WGNB Corp. (the “Company”) is a $575 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 February 15, 2007, the Company had 5,000,613 issued and outstanding shares of common stock, $1.25 par value per share (the “Common Stock”), held by approximately 1,000 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 nine branches and seven additional 24-hour ATM sites located in Carroll and Douglas Counties in Georgia. The Bank operates, in addition to its main office, three additional branches in the city of Carrollton one of which serves the Spanish speaking customers in Carroll County, two branches in Villa Rica, one branch in Bowdon and two branches in Douglasville, Georgia.

As a convenience to its customers, the Bank offers at all of its branch locations (except one Banco de Progreso location) 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, 2006, the Bank had deposits of approximately $463 million, and approximately 31 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, 2006.

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Deposit Mix
	At December 31, 2006
Non-interest bearing demand		11	%
NOW accounts and money market		32	%
Savings		2	%
Time Deposits
Under $100,000		26	%
$100,000 and over		29	%
		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, 2006, the Bank had approximately $474 million in total loans outstanding, representing 82% of its total assets of approximately $575 million. The loan portfolio is made up of both fixed and adjustable rate loans. Approximately 49% of the Company’s total loan portfolio is fixed rate and 51% is adjustable rate as of December 31, 2006. 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 $395 million, or 83%, of the Bank’s total loans as of December 31, 2006. Approximately 46% of the real estate loans are fixed rate and 54% are adjustable rate. Approximately 50% of the fixed rate real estate loans mature in one year or less and approximately 94% 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, 2006, commercial loans constituted approximately $52 million, or 11% of the Bank’s total loans. Approximately 43% of commercial loans are fixed rate while 57% 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, 2006, the Bank held approximately $27 million of consumer loans, representing 6% 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 that fund the loans. The investor correspondent banks underwrite and price the loans and the Bank receives a fee for originating and packaging the loans. Periodically, the Bank receives discount points depending on the pricing of the loan. No mortgage loans are held by the Bank for resale nor does 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 2006, 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:

· the amounts exceeding the limit are sold on a non-recourse basis;

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· 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 $150,000, 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 (the “ELC”), which is made up of the CEO and President of the Bank and six outside directors.

Loan Review. During 2006, the Bank’s loan review process was reestablished and strengthened significantly. The Chief Credit Officer reviewed and improved critical policies and procedures to adequately support the current portfolio as well as to set the stage for planned growth. A comprehensive credit administration process is imperative as portfolio size and complexity increases.

The Bank has a comprehensive loan review process involving independent internal loan review and as necessary, independent consulting firms. The loan review process is designed to promote early identification of credit quality problems at both the relationship level and portfolio level. The scope of loan review activity for the commercial and business portfolio includes a minimum of 100% of all loan relationships greater than $1 million and 75% of all loan relationships between $800 thousand and $1 million. All loan officers are charged with the responsibility of grading their loans. Loan review may modify grades as part of the loan review process, with the Chief Credit Officers approval, to ensure proper risk identification. Loan reviews are presented to ELC for oversight and concurrence. The Bank’s risk identification process is reviewed by its regulators and its independent auditors giving further oversight and feedback.

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The Bank’s loan reviewer, added in December 2005, has developed an annual loan review schedule to meet annual review penetration goals. This added experience has also improved the loan review work product, making reviews an important part of our individual loan and portfolio management process. The loan review schedule is reviewed regularly for adherence to performance and production goals. As necessary, outside loan review consultants may be retained to increase review coverage.

Market Area

The following statistical data relating to our market area is based on information contained in a report published by the University of West Georgia Department of Economics dated November 9, 2006 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 18^th in population. Its major industries include manufacturing, wholesale and retail trade, food processing, accommodation and food services, 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 10,000 students, Southwire Inc. and Tanner Medical Center are also located in Carrollton.

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 $1.81 billion as of June 30, 2006, compared to total deposits of approximately $1.57 billion as of June 30, 2005. Total deposits in Carroll County grew by 15.3% from June 30, 2005 to June 30, 2006 which exceeds the average annual growth rate over the last ten years of just over 5%. The Bank holds 22% of this market’s deposits and ranks number one in terms of market share for Carroll County. The number two, three and four banks have 17%, 13% and 10% of the market area’s deposits, respectively. The top four banks (including West Georgia National Bank) held a total of 62% of the market share of deposits in Carroll County.

Douglas County (which has the largest population of the five county West Georgia region and ranks 15^th among all 159 Georgia counties) had the second largest deposit base in our market area with $1.40 billion in total deposits and a 21.7% deposit growth rate in 2006. The Bank held a market share of 2.9% of total deposits in Douglas County, or $40 million, as of June 30, 2006, 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 13.9%. The bank holding the next highest market share for the combined counties holds 10.4% and the top four institutions (including West Georgia National Bank) hold 42.8% of the deposits in this combined market area. Our third largest market in terms of deposit base was Paulding County, with the Bank having $972 million in total deposits and a 13.3% deposit growth rate in 2006 for this market.

The Bank established three branches in the Douglas County market over the past five years. One branch is located on Highway 5 just south of I-20, one branch is located on Chapel Hill Road near Arbor Place Mall just south of I-20 and the third is located in a rapidly developing area known as Mirror Lake located on Mirror Lake Boulevard just north of I-20. The Bank opened its branch on Chapel Hill Road in April 2006 and intends to serve its Douglas County market with these three locations. Total deposits in those three branches as of December 31, 2006 were $47.9 million, representing a 37.1% growth rate from December 31, 2005. Total loans in those three branches were $135.8 million as of December 31, 2006, a growth rate of 13.3% when compared with December 31, 2005.

In addition to the Chapel Hill Branch, in July 2006 the Bank opened a new division of West Georgia National Bank called Banco De Progreso, “the Bank of Progress”, designed to serve the Spanish-speaking population in the Bank’s market area. The Bank had been serving the Latino population in its main office location for the previous 20 months with great success. The service that the Bank provided to that population was so popular that management opened a separate location in Carrollton located on Bankhead Highway next to a Big Lots Store in Lake Carroll Mall. Banco de Progreso is located near a Spanish-speaking real estate agency, a location that benefits both businesses. In just under six months, Banco de Progreso has grown its loan portfolio to $9.0 million with low delinquency and its deposits to $522,000.

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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 recently celebrating its 60^th year of service. 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. We believe these de novo banks are limited in their funding strategies because they typically have access to wholesale funding which is limited to a certain percentage of total deposits. Given the limited growth in total deposits in Carroll County, this has the effect of driving an increase in deposit rates as the new banks compete for funds in the market area.

The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and office hours. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized services. Competition for loans comes primarily from other commercial banks, savings associations, mortgage banking firms, credit unions and other financial intermediaries. Many of the financial institutions operating in the Bank’s market area offer services such as trust and international banking, which the Bank does not offer, and have greater financial resources or have substantially higher lending limits than the Bank.

To compete with other financial services providers, the Bank principally relies upon local promotional activities, personal relationships established by officers, directors and employees with its customers, and specialized services tailored to meet its customers’ needs. Management believes that the Bank has an opportunity to establish business ties with customers who have been displaced by the consolidations of other banks and desire to forge banking relationships with locally owned and managed institutions. In addition, as commercial customers’ needs outgrow a de novo bank’s ability to fund their business, the Bank can serve those customers because it has a higher loan-to-one borrower limit.

The Bank offers many personalized services and attracts customers by being responsive and sensitive to the needs of the community. A recent example of this strategy is the Bank’s entrée into its Spanish-speaking division. The Bank relies not only on the goodwill and referrals of satisfied customers as well as traditional media advertising to attract new customers, but also on individuals who develop new relationships to build its customer base. To enhance the Bank’s image in the community, the Bank supports and participates in many events. Employees, officers and directors represent the Bank on many boards and local civic and charitable organizations.

Employees

As of December 31, 2006, the Bank had 182 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.

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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.

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;

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· acting as a fiduciary or investment or financial advisor;

· providing discount brokerage services;

· underwriting bank eligible securities; and

· making investments designed to promote community welfare.

Subsidiary banks of a bank holding company are subject to certain restrictions on extensions of credit to the bank holding company or its subsidiaries, on investments in their securities and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for the payment of dividends, interest and operating expenses. Further, federal law prohibits a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or the furnishing of services. For example, the Bank may not generally require a customer to obtain other services from it or the Company, and may not require that a customer promise not to obtain other services from a competitor as a condition to an extension of credit to the customer.

Financial Services Modernization Act. Although the activities of bank holding companies have traditionally been limited to the business of banking and activities closely related or incidental to banking (as discussed above), the Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999) relaxed the previous limitations and permitted bank holding companies to engage in a broader range of financial activities. Specifically, bank holding companies may elect to become financial holding companies which may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Among the activities that are deemed “financial in nature” include:

· lending, exchanging, transferring, investing for others or safeguarding money or securities;

· insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker with respect thereto;

· providing financial, investment, or economic advisory services, including advising an investment company;

· issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and

· underwriting, dealing in or making a market in securities.

A bank holding company may become a financial holding company under this statute only if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. A bank holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities. Any bank holding company that does not elect to become a financial holding company remains subject to the bank holding company restrictions of the Act.

Under this legislation, the Federal Reserve Board serves as the primary “umbrella” regulator of financial holding companies with supervisory authority over each parent company and limited authority over its subsidiaries. The primary regulator of each subsidiary of a financial holding company will depend on the type of activity conducted by the subsidiary. For example, broker-dealer subsidiaries will be regulated largely by securities regulators and insurance subsidiaries will be regulated largely by insurance authorities.

The Bank has no current plans to register as a financial holding company.

Source of Strength; Cross-Guarantee. Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its bank subsidiaries and to commit resources to support these subsidiaries. This support may be required at times when, absent such policy, the bank holding company might not otherwise provide such support. Under these provisions, a bank holding company may be required to loan money to its subsidiary banks in the form of capital notes or other instruments which qualify for capital under regulatory rules. Under the BHCA, the Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC against losses it incurs with respect to any other bank controlled by the Company, which in effect makes the Company’s equity investments in healthy bank subsidiaries available to the FDIC to assist any failing or failed bank subsidiary of the Company.

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State Regulation. Activities of the Company are subject to certain provisions of The Financial Institutions Code of Georgia and regulations issued pursuant to such code. These provisions are administered by The Georgia Department of Banking & Finance, which has concurrent jurisdiction with the Federal Reserve over the activities of the Company. The laws and regulations administered by The Georgia Department of Banking & Finance are generally consistent with, or supplemental to, those federal laws and regulations discussed herein.

The Bank

As a national bank, the Bank is subject to the supervision and examination by the Office of the Comptroller of the Currency (the “OCC”). Deposits in the Bank are insured by the FDIC up to a maximum amount of $100,000 per depositor, subject to aggregation rules. The OCC and the FDIC regulate or monitor all areas of the Bank’s commercial banking operations, including security devices and procedures, adequacy of capitalization and loan loss reserves, loans, investments, borrowings, deposits, mergers, consolidations, reorganizations, issuance of securities, payment of dividends, interest rates, establishment of branches, and other aspects of its operations. The OCC requires the Bank to maintain certain capital ratios and imposes limitations on the Bank’s aggregate investment in real estate, bank premises and furniture and fixtures. The Bank is currently required by the OCC to prepare quarterly reports on the Bank’s financial condition and to conduct an annual audit of its financial affairs in compliance with minimum standards and procedures prescribed by the OCC.

Under FDICIA, all insured institutions must undergo periodic on-site examination by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC and the appropriate agency (and state supervisor when applicable). FDICIA also directs the FDIC to develop with other appropriate agencies a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition or other report of any insured depository institution. FDICIA also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to: (i) internal controls, information systems and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset quality.

Community Reinvestment Act. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC or any other appropriate federal agency, shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could pose additional requirements and limitations on the bank. The Bank was examined for CRA compliance in 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.

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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.

Federal Deposit Insurance Reform

On February 8, 2006, President Bush signed the Federal Deposit Insurance Reform Act of 2005 (FDIRA). The FDIC was required to adopt rules implementing the various provisions of FDIRA by November 5, 2006. Among other things, FDIRA changes the Federal deposit insurance system by:

· raising the coverage level for retirement accounts to $250,000;

· indexing deposit insurance coverage levels for inflation beginning in 2012;

· prohibiting undercapitalized financial institutions from accepting employee benefit plan deposits;

· merging the Bank Insurance Fund and Savings Association Insurance Fund into a new Deposit Insurance Fund (the DIF); and

· providing credits to financial institutions that capitalized the FDIC prior to 1996 to offset future assessment premiums.

FDIRA also authorizes the FDIC to revise the current risk-based assessment system, subject to notice and comment and caps the amount of the DIF at 1.50% of domestic deposits. The FDIC must issue cash dividends, awarded on a historical basis, for the amount of the DIF over the 1.50% ratio. Additionally, if the DIF exceeds 1.35% of domestic deposits at year-end, the FDIC must issue cash dividends, awarded on a historical basis, for half of the amount of the excess.

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Dividends

The Company is a legal entity separate and distinct from the Bank. The principal source of cash flow for the Company is dividends from the Bank. The amount of dividends that may be paid by the Bank to the Company depends on the Bank’s earnings and capital position and is limited by various statutory and regulatory limitations. In addition, the Federal Reserve has stated that bank holding companies should refrain from or limit dividend increases or reduce or eliminate dividends under circumstances in which the bank holding company fails to meet minimum capital requirements or in which its earnings are impaired.

As a national bank, the Bank may not pay dividends from its paid-in-capital. All dividends must be paid out of retained earnings, after deducting expenses, including reserves for losses and bad debts. In addition, a national bank is prohibited from declaring a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been transferred to surplus no less than one-tenth of the bank’s net profits of the preceding two consecutive half-year periods (in the case of an annual dividend). The approval of the OCC is required if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus. Under FDICIA, the Bank may not pay a dividend if, after paying the dividend, the Bank would be undercapitalized. 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 $3,601,765 to the Company during 2006. Under the OCC guidelines, as of December 31, 2006 the Bank was permitted to pay the Company dividends of up to $11,626,000 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.

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Under the guidelines, banks’ and bank holding companies’ assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property and, under certain circumstances, residential construction loans, both of which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% rating, and direct obligations of or obligations guaranteed by the United States Treasury or United States Government agencies, which have a 0% rating.

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

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

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

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

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.

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

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

Interstate Banking and Branching Restrictions

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), an adequately capitalized and adequately managed bank holding company may acquire a bank across state lines, without regard to whether such acquisition is permissible under state law. A bank holding company is considered to be “adequately capitalized” if it meets all applicable federal regulatory capital standards.

While the Riegle-Neal Act precludes a state from entirely insulating its banks from acquisition by an out-of-state holding company, a state may still provide that a bank may not be acquired by an out-of-state company unless the bank has been in existence for a specified number of years, not to exceed five years. Additionally, the Federal Reserve may not approve an interstate acquisition which would result in the acquirer’s controlling more than 10% of the total amount of deposits of insured depository institutions in the United States with 30% or more of the deposits in the home state of the target bank. A state may waive the 30% limit based on criteria that does not discriminate against out-of-state institutions. The limitations do not apply to the initial entry into a state by a bank holding company unless the state has a deposit concentration cap that applies on a nondiscriminatory basis to in-state or out-of-state bank holding companies making an initial acquisition.

The Riegle-Neal Act permits banks with different home states to merge unless a particular state opts out of the statute. Georgia adopted legislation which has permitted interstate bank mergers since June 1, 1997.

The Riegle-Neal Act also permits national and state banks to establish de novo branches in another state if there is a law in that state which applies equally to all banks and expressly permits all out-of-state banks to establish de novo branches. However, in 1996, Georgia adopted legislation which opts out of this provision. The Georgia legislation provides that, with the prior approval of the Georgia Department of Banking and Finance, after July 1, 1996, a bank may establish three new or additional de novo branch banks anywhere in Georgia and, beginning July 1, 1998, a bank may establish new or additional branch banks anywhere in the state with prior regulatory approval.

Privacy

Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.It is the Bank’s policy not to disclose any personal information unless required by law.

Anti-Terrorism Legislation

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

· to conduct enhanced scrutiny of account relationships to guard against money laundering and report any suspicious transaction;

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· 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;

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· 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.

In addition, under Regulation W:

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

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

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

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

Consumer Credit Reporting

On December 4, 2003, the President signed the Fair and Accurate Credit Transactions Act (the FAIR Act), amending the federal Fair Credit Reporting Act (the FCRA). Amendments to the FCRA include, among other things:

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

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

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

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

The amendments also prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes, subject to certain exceptions. The Company and the Bank have implemented procedures to comply with those new rules.

Proposed Legislation and Regulatory Action

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

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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 January 22, 2007, WGNB Corp entered into an agreement and plan of reorganization by and among WGNB Corp., West Georgia National Bank, First Haralson Corporation, and First National Bank of Georgia whereby First Haralson Corporation will be merged with and into WGNB Corp. and, concurrently, First National Bank of Georgia will be merged into West Georgia National Bank. The consummation of the transaction is subject to approval by shareholders and is anticipated to close in the second quarter of 2007. First Haralson Corporation is headquartered in Buchanan, Georgia and operates five branches in Haralson County and two branches in Carroll County. As of December 31, 2006, First Haralson Corporation held $215.4 million in total assets, $139.9 million in total loans, $176.9 million in total deposits and $25.7 million of shareholders’ equity. For the fiscal year ended December 31, 2006, First Haralson Corporation recorded net income of $2.4 million.

Under the terms of the merger agreement, First Haralson Corporation’s shareholders may elect to receive cash, WGNB Corp. common stock, or a combination of the two for $46,250,000 in the aggregate. The shareholder election is subject to limits of a minimum of $11,562,500 and a maximum of $18,500,000 of cash consideration being issued in the merger. In addition, the terms of the merger agreement allow First Haralson Corporation to pay a one-time, special dividend not to exceed $7,250,000 in the aggregate, or approximately $35.67 per share, for each First Haralson Corporation share to First Haralson Corporation shareholders prior to the closing of the proposed transaction. The transaction has been unanimously approved by the boards of directors of both companies and is subject to shareholder and regulatory approvals, as well as other customary conditions of closing.

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.

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.

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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.

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.

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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 three other locations within the city limits of Carrollton including Banco de Progreso. The First Tuesday Mall office is located at 1004 Bankhead Highway and the Motor office is located at 314 Newnan Street. The Banco De Progreso office is located at 1111 Bankhead Highway. 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.

As to its Douglas County locations, 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 April of 2006, the Bank opened its third location in Douglas County, which is located at 9360 The Landing Drive on Chapel Hill Road adjacent to Arbor Place Mall in Douglasville.

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.

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 and Chapel Hill branches provide a new look for the Bank and contain customer-centric features such as concierge customer service areas with workstations and Internet connectivity. The Mirror Lake branch utilizes a remote teller system and is designed to be high-touch customer service and low-touch transactional service. The new Chapel Hill branch (formerly a Wachovia location) was built in 2001 and is a 3,400 square foot building on approximately one acre with brick and veneer exterior. 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 seven 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.

18

PART II

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

Market Information

The Company’s Common Stock is traded on the NASDAQ Capital Market System under trading symbol “WGNB”. Approximately 1,000 shareholders of record held the Common Stock as of February 15, 2007. Set forth below are the high and low sales prices for each full quarterly period during 2005 and 2006 and the dividends declared and paid per share of Common Stock for those periods.

On September 12, 2006, the Company’s board of directors declared a three-for-two stock split, in the form of a stock dividend, for all shareholders of record as of October 16, 2006. The stock dividends were paid on November 15, 2006. All share and per share amounts have been restated to reflect the effects of the stock split at the beginning of the period.

	Price Range Per Share				Dividends Paid Per
	Low		High		Share
2005:
First Quarter	$	19.23	$	20.33	$	0.143
Second Quarter		19.50		20.33		0.150
Third Quarter		20.00		21.67		0.157
Fourth Quarter		22.91		25.33		0.163
2006:
First Quarter	$	24.00	$	25.81	$	0.170
Second Quarter		24.73		26.00		0.177
Third Quarter		24.27		28.17		0.183
Fourth Quarter		25.51		31.47		0.190

19

Dividends

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

Recent Sales of Unregistered Securities

The Company did not issue any securities during the year ended December 31, 2006 that were not registered under the Securities Act.

Issuer Purchases of Equity Securities

The Company did not repurchase any of its securities during the fourth quarter of 2006.

20

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, 2006 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,
	2006			2005			2004			2003			2002
	(In thousands, except share and per share data)
For the Year:
Total Interest Income	$	42,093		$	32,546		$	25,268		$	23,542		$	24,296
Total Interest Expense		18,727			12,583			7,570			7,527			8,724
Net Interest Income		23,366			19,963			17,698			16,015			15,572
Provision for Loan Losses		1,465			1,550			925			350			483
Net Interest Income After Provision for Loan Losses		21,901			18,413			16,773			15,665			15,089
Total Other Income		6,404			6,008			5,637			5,554			5,251
Total Other Expense		16,519			14,464			13,664			12,752			12,127
Earnings Before Income Taxes		11,786			9,957			8,746			8,467			8,213
Income Taxes		3,458			2,889			2,682			2,680			2,668
Net earnings		8,327			7,067			6,064			5,787			5,545
Per Share Data:
Net earnings		1.67			1.42			1.22			1.17			1.14
Diluted net earnings		1.66			1.41			1.21			1.15			1.13
Cash dividends declared		.72			.61			.52			.45			.40
Book value		10.50			9.61			9.01			8.49			7.77
Tangible book value		10.50			9.61			9.01			8.49			7.77
At Year End:
Total loans		474,319			423,720			356,909			296,498			273,471
Earning assets		550,466			503,275			425,062			367,694			360,226
Assets		575,329			523,643			441,929			393,216			385,121
Total deposits		462,813			429,049			338,398			303,316			298,726
Stockholders’ equity		52,496			47,952			44,962			42,089			38,520
Common shares outstanding		5,000,613			4,987,794			4,988,661			4,959,678			4,960,100
Average Balances:
Total loans		441,883			395,943			330,159			287,861			262,781
Earning assets		522,703			473,480			404,121			357,468			337,583
Assets		549,691			501,191			428,637			384,395			357,418
Deposits		440,560			393,851			325,991			296,723			279,483
Stockholders’ equity		50,358			46,857			43,742			40,708			35,640
Weighted average shares outstanding		4,998,103			4,986,930			4,958,604			4,962,131			4,865,774
Key Performance Ratios:
Return on average assets		1.51	%		1.41	%		1.41	%		1.51	%		1.55	%
Return on average equity		16.54	%		15.08	%		13.86	%		14.22	%		15.56	%
Net interest margin, taxable equivalent		4.60	%		4.37	%		4.55	%		4.65	%		4.76	%
Dividend payout ratio		43.11	%		43.19	%		42.62	%		38.29	%		34.94	%
Average equity to average assets		9.16	%		9.35	%		10.20	%		10.59	%		9.97	%
Average loans to average deposits		100.30	%		100.53	%		101.28	%		97.01	%		94.02	%
Overhead ratio		55.49	%		55.69	%		58.56	%		59.12	%		58.24	%

21

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.

22

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, 2006, 2005 and 2004

The net earnings of the Company were $8.3 million in 2006, $7.1 million in 2005 and $6.1 million in 2004, representing an increase of 17.8% between fiscal years 2005 and 2006 and an increase of 16.5% between fiscal years 2004 and 2005. Net earnings per share on a fully diluted basis were $1.66 for 2006, $1.41 for 2005 and $1.20 for 2004, representing an increase of 17.7% between fiscal years 2005 and 2006 and 17.5% between fiscal years 2004 and 2005. Return on average assets and return on average shareholders’ equity for 2006 were 1.51% and 16.54%, respectively, compared with 1.41% and 15.08%, respectively, for 2005, and 1.41% and 13.86%, respectively, for 2004. Over the past ten years, the Company’s return on average assets has averaged 1.52% and its return on average equity has been 16.0%.

In 2006, the Company experienced loan growth of $50.6 million, or 11.9%, compared to $66.8 million, or 18.7%, in 2005 and $60.4 million, or 20.4%, in 2004. The average loan growth rate over the past ten years has been 14.0%. 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. Much of the loan growth that the Company experienced in 2006 took place in the fourth quarter. Total loans grew by $25.9 million or 5.8% (23.2% annualized) in the fourth quarter of 2006.

Our net interest margin increased substantially in 2006. Since the Company recorded less then average loan growth, the increase in the net interest margin was crucial to earnings growth in 2006. Market interest rates as measured by the discount rate increased 100 basis points since December 31, 2005. Because the Company is slightly asset sensitive, increased market interest rates has the impact of increasing the net interest margin. The net interest margin for 2006 was 4.60% compared to 4.37% in 2005 and 4.55% in 2004. As rates stabilize, the expected impact to the Company’s net interest margin is to stabilize as well.

There were two significant financial occurrences in the fourth quarter of 2006 that impacted net earnings in a positive manner. The Company realized a gain on other real estate owned in the amount of $232 thousand in the fourth quarter of 2006. The Company had negotiated for almost six years the release of the property for foreclosure. During 2005, the Company successfully foreclosed on the property and, during 2006, completed a sale of the property. This gain is non-recurring in nature. Secondly, in the fourth quarter of 2006, the Company earned federal tax credits in the approximate amount of $144,000 to be recognized on a low to moderate income housing project in which it is a partner. The tax credits are recurring in nature and will be of benefit to the Company over the next ten years.

Finally, management continually seeks to increase revenues while controlling costs. In 2006, the overhead ratio (non-interest expense/net interest income plus non-interest income) was 55.5% compared to 55.7% in 2005 and 58.6% in 2004. The Company managed to decrease its overhead ratio despite opening three new branches in the last 24 months. 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.

23

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 78.5%, 76.9% and 75.8% of net interest income plus other income in 2006, 2005 and 2004, 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.

Net interest income for the Company increased by $3.4 million, or 17.0%, in 2006 from 2005, and by $2.3 million, or 12.8%, in 2005 from 2004. Net interest income at December 31, 2006 was $23.4 million compared to $20.0 million at December 31, 2005 and $17.7 million at December 31, 2004. The net interest margin on interest earning assets was 4.60% in 2006, 4.37% in 2005 and 4.55% in 2004 on a tax equivalent basis. Beginning in early 2001 through the end of 2003, short term interest rates dropped 550 basis points. Through 2006, however, short term interest rates have rebounded 575 basis points. This broad fluctuation can have a significant impact on the Company without robust interest rate risk management. The Company seeks to manage its interest rate risk such that fluctuations in market rates do not have a significant negative impact on earnings.

The Bank’s net interest margin increased by 23 basis points when comparing 2006 to 2005. Measuring the last three years, the Bank’s interest margin increased 5 basis points from what it was in 2004. 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 2006 on a tax equivalent basis was 8.18%, an increase of 115 basis points over 2005. Its average cost of funds was 4.27% in 2006, an increase of 109 basis points from 2005. Net interest income increased steadily over the last three years particularly in 2006 as interest rates continued to rise and then stabilized in the last half of 2006. This is a result of two things: 1) the increase in the Bank’s volume of earning assets and 2) the Bank’s slight asset sensitivity. The average balance of interest earning assets increased by $49.2 million, or 10.4%, in 2006 compared to $69.4 million, or 17.2%, for 2005 and $46.7 million, or 13.1%, for 2004.

The Bank’s balance sheet has traditionally been slightly liability sensitive, but as 2004, 2005 and 2006 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 2002 and 2003, and subsequently increase rapidly, as they did in 2005 and 2006, the interest margin needs time to respond to the rate changes. Now that rates have stabilized, we believe the Bank’s interest margin may compress slightly as slower repricing deposits cause the Bank’s cost of funds to increase. 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.

Since the Bank is slightly asset sensitive, the impact of a falling rate environment could have a negative impact on net interest margin. However, management has chosen to hedge its fixed rate borrowings with the $30 million notional amount swap contract. In addition, because this swap matures in five months, management hedged a portion of its fixed rate brokered certificates of deposit with a series of fifteen interest rate swaps in September of 2006. Each swap hedges a specific CD maturity, but in total there is a $41 million notional amount of the hedge. Each swap is described in Note 1 and Note 7 to the consolidated financial statements contained elsewhere in this Report. The $30 million swap contract decreased interest expense in 2005 by $31 thousand. However, during 2006, the combined swap contracts increased interest expense $489 thousand since short term rates had risen above the 3.40% and 4.51% (weighted average) fixed rates on the $30 million and $41 million swap contracts, respectively. Of course, if short term rates continue to increase, the cost of the swaps will increase, but not as much as the expected yield on interest bearing assets. Conversely, if rates decrease the Bank has immediate protection with the swaps that are in place.

24

The following table shows, for the past three years, the relationship between interest income and interest expense and the average daily balances of interest-earning assets and interest-bearing liabilities on a tax equivalent basis assuming a rate of 34%:

Table 1

Average Consolidated Balance Sheets and Net Interest Analysis

(in thousands)

	For the Years Ended December 31,
	2006									2005									2004
	Average Balance			Interest			Yield/ Rate			Average Balance			Interest			Yield/ Rate			Average Balance			Interest			Yield/ Rate
Assets:
Interest earnings assets:
Federal funds sold	$	12,133			641			5.28	%	$	11,331			394			3.48	%	$	12,155			151			1.24	%
Investments:
Taxable		40,528			2,491			6.15	%		35,687			2,109			5.91	%		35,342			1,903			5.38	%
Tax exempt		28,159			1,825			6.48	%		30,520			1,997			6.54	%		26,465			1,821			6.88	%
Total Investments		80,820			4,957			6.13	%		66,207			4,106			6.20	%		61,807			3,724			6.03	%
Loans (including loan fees):
Taxable		440,939			37,695			8.55	%		394,209			28,631			7.26	%		328,279			21,894			6.67	%
Tax Exempt		944			94			9.96	%		1,734			143			8.25	%		1,880			178			9.46	%
Total Loans		441,883			37,789			8.55	%		395,943			28,774			7.27	%		330,159			22,072			6.69	%
Total interest earning assets		522,703			42,746			8.18	%		473,481			33,274			7.03	%		404,121			25,947			6.42	%
Other non-interest earnings assets		26,988									27,710									24,516
Total assets	$	549,691								$	501,191								$	428,637
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Deposits:
Demand	$	137,747			4,995			3.63	%	$	136,248			3,183			2.34	%	$	127,754			1,181			.92	%
Savings		16,908			185			1.09	%		18,011			100			.56	%		17,368			43			.25	%
Time		232,143			10,776			4.64	%		189,368			6,974			3.68	%		133,997			3,916			2.92	%
FHLB advances
& other borrowings		51,985			2,771			5.33	%		52,407			2,326			4.44	%		54,081			2,430			4.49	%
Total interest-bearing liabilities		438,783			18,727			4.27	%		396,034			12,583			3.18	%		333,200			7,570			2.27	%
Non-interest bearing deposits		53,762									50,224									46,872
Other liabilities		6,787									8,076									4,823
Shareholders’ equity		50,359									46,857									43,742
Total liabilities and
Shareholders’ equity	$	549,691								$	501,191								$	428,637
Excess of interest-earning assets
over interest-bearing liabilities	$	83,920								$	77,447								$	70,921
Ratio of interest-earning assets to
interest-bearing liabilities		119.13	%								119.56	%								121.28	%
Net interest income tax equivalent					24,019									20,691									18,377
Net interest spread								3.91	%								3.85	%								4.15	%
Net interest margin on interest earning assets								4.60	%								4.37	%								4.55	%
Tax Equivalent Adjustments:
Investments					(621	)								(679	)								(619	)
Loans					(32	)								(49	)								(60	)
Net interest income				$	23,366								$	19,963								$	17,698

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.

25

Table 2

Changes in Interest Income and Expense on a Tax Equivalent Basis

(in thousands)

	Increase (decrease) due to changes in:
	2006 over 2005									2005 over 2004
	Volume			Rate			Total			Volume			Rate			Total
Interest income on:
Federal funds sold	$	42			205			247		$	(29	)		272			243
Taxable investments		297			84			381			20			187			207
Non-taxable investments		(153	)		(19	)		(172	)		266			(91	)		175
Taxable loans		3,995			5,070			9,065			4,788			1,949			6,737
Non-taxable loans		(78	)		29			(49	)		(12	)		(23	)		(35	)
Total Interest Income		4,103			5,369			9,472			5,033			2,294			7,327
Interest expense on:
Deposits:
Demand		54			1,757			1,811			198			1,805			2,003
Savings		(12	)		98			86			4			53			57
Time		1,985			1,817			3,802			2,039			1,019			3,058
FHLB advances & other borrowings		(22	)		467			445			(74	)		(30	)		(104	)
Total Interest Expense		2,005			4,139			6,144			2,167			2,847			5,014
Increase (decrease) in net interest income	$	2,098			1,230			3,328		$	2,866			(553	)		2,313

Other Income and Expense

Other income in 2006 was $6.4 million, an increase of $396 thousand, or 6.6%, from 2005. The increase in other income from 2004 to 2005 was $371 thousand, or 6.6%. During both 2006 and 2005, the Company realized non-recurring gains. In the fourth quarter of 2006 as mentioned previously in this report, the Company recognized a gain on the sale of other real estate owned in the amount of $232 thousand. The Company does not expect that it will realize such gains frequently. However, the sale of foreclosed real estate is in the normal coarse of collecting on impaired loans. In 2005, the company recognized a gain on investment securities available for sale in the amount of $228 thousand. Management rarely elects to sell investment securities. However, this particular sale strategy allowed 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 and actually declined from 2005 to 2006 after having increased over the previous three years. The Bank instituted a free checking program which reduced service charges on deposit accounts, but increased the balance in non-interest bearing checking accounts as customers changed from interest bearing now accounts to service charge free accounts.

Mortgage origination fees declined by $9 thousand, or 2.3%, comparing 2006 to 2005. Mortgage origination fees declined $112 thousand, or 21.7% comparing 2005 to 2004 and $419 thousand, or 44.9%, comparing 2004 to 2003. Throughout 2002, part of 2003 and again in 2004, the Bank experienced 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. As such, 2006 and 2005 represent normal mortgage origination volume for the Company.

ATM network fees increased by $275 thousand, or 54.8%. This increase is attributable to increased foreign (not our customers) usage of the Bank’s expanding ATM network.

Miscellaneous income between 2005 and 2006 increased $129 thousand, or 16.2%. The increase in miscellaneous income from 2005 to 2006 is attributable to fee income generated from two sources. On August 23, 2006, the Company entered into tri-party agreement with a registered principal and Raymond James Financial Services, Inc. to provide investment advisory and brokerage services to its customer base. In the past, the Company had a relationship with a brokerage firm whereby it provided rental space on premises to an investment advisor who was an employee of the brokerage firm. After recognizing that brokerage services would be beneficial to the Company’s overall customer base, management implemented a business plan with a well known registered principal in the west Georgia area that ultimately culminated in the Company purchasing this individual’s book of business and hiring him to serve as the Company’s registered principal broker. The Company has also hired an additional financial advisor and two sales assistants. The gross fees earned in brokerage services in 2006 were $130 thousand. The Company did not have significant fee income for brokerage services in 2005.

26

Over the past year, management has developed an emphasis on producing Small Business Administration (“SBA”) loans in the west Georgia market. The loans are made primarily to small or start-up business owners. The Company has a core competency of serving small business owners. However, it is difficult for the Company to bear the credit risk associated with start up businesses. The SBA provides the Company with credit stability by providing its guarantee on a portion of the loan. The loans then meet the credit standards of the Company, which allows it to hold the SBA loan in its portfolio with reduced risk. The guaranteed portion of the SBA loan also has a market value which can be packaged with other loans and sold in the secondary market. The Company intends to originate, underwrite and sell or hold SBA loans in an attempt to spread its credit risk from primarily real estate lending to other lending lines and to enhance its non-interest income. A gain on sale of SBA loans is generated when the guaranteed portion of the loan is sold. The Company sold the guaranteed portion of two SBA loans in 2006, resulting in gains totaling $84 thousand.

Miscellaneous income increased $106 thousand, or 15.4% between 2004 and 2005. The increase in miscellaneous income from 2004 to 2005 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 $2.1 million, or 14.2%, in 2006 over 2005 and by $800 thousand, or 5.9%, in 2005 over 2004. Increased salaries and employee benefits made up for more than half of the increase in other expenses in 2006, 2005 and 2004. Salaries and employee benefits increased $1.2 million, or 14.0%, from 2005 to 2006 and $577 thousand, or 7.1%, from 2004 to 2005.

The increase of salaries and benefits from 2005 to 2006 can be broken down as follows: Salaries and related payroll taxes increased $805 thousand, or 13.1%; profit sharing, 401k and officer bonuses increased $146 thousand, or 7.9%; employee benefits which primarily include employee health and life insurance expense increased $144 thousand, or 20.0% and stock-based compensation expense recognized in 2006 was $128 thousand. The Company recognized no stock-based compensation expense in 2005. Stock-based compensation expense methodology is described in detail in Note 1 to the consolidated financial statements “Stock Compensation Plans”.

During 2006, the Bank opened two new branches as described elsewhere in this document. The impact of adding staff to the new branches and additions to the lending and credit administration departments caused the Bank to significantly increase its fulltime equivalent employee count and its salary and benefits expense. Anytime that our employee count increases in a significant manner, salaries and benefits increase at a greater percentage than that caused by normal increases for officer and staff annual raises. The fulltime equivalent employee count as of December 31, 2006 was 182 compared to 154 as of December 31, 2005, an increase of 18.2%. Salaries and related payroll taxes increased by 13.1% in 2006 compared to 2005, not by the 18.2% full time equivalent employee count. Additionally, not all the new employees participate in the 401k plan or all bonus plans. Thus, the increase in 401k and bonus plans was also less than 18.2%. During 2006, the Company experienced an increase in medical insurance premiums of approximately 13% per employee as well an increase in the number of employees covered by the plan. Therefore, the increase in benefits expense related to employee health and life insurance increased by 20.0%

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 that were 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.

27

Occupancy expense increased by $268 thousand, or 12.6%, in 2006 when compared to 2005. This too, is primarily related to the branch expansion which included the addition of the Chapel Hill branch in Douglasville and the Banco de Progreso branch in Carrollton in 2006. In addition, the Company seeks to maintain its operating technology at a high level which includes capital purchases of personal computers, operating equipment and software. Many of those capital items have shorter depreciable lives and, therefore, impact depreciation expense more dramatically than longer-lived assets. Occupancy expense of the branches and administrative and operations offices include six major components: depreciation, utilities, property tax, operating leases, repairs and maintenance expense. Depreciation expense in 2006 increased by $ 86 thousand, or 8.2% compared to 2005. Likewise, utilities expense including telephone increased $87 thousand, or 22.2% comparing 2006 to 2005. All other occupancy expense including property taxes, repairs and maintenance increased by $95 thousand, or 13.2%.

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%. 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.

Other operating expenses increased by $565 thousand, or 15.6%, from 2005 to 2006. Other operating expense includes professional, accounting and regulatory fees, ATM network fees, advertising, chartable contributions and a number of other expenses. In analyzing other operating expense no single expense stands out as increasing a significant amount. However, all of them, because they are mostly volume related, have increased enough to amount to the $565 thousand increase indicated above. Because the volume of deposit and loan statements have increased, costs such as such as supplies and postage where up in 2006. Total postage cost increased by $20 thousand in 2006 (from $250 thousand in 2005 to $270 thousand in 2006) and supplies expense increased $62 thousand (from $303 thousand in 2005 to $365 thousand in 2006). Another example of a volume related expense is ATM network fees. ATM network fees were $295 thousand in 2006, an increased of $34 thousand, or 13.2%, from 2005. Software maintenance and consulting, which are also volume related, was $238 thousand in 2006, an increase of $34 thousand, or 14.2%, compared to 2005. Charitable contributions increased by $38 thousand, or 34.3%, comparing 2005 to 2006.

The single largest expense in this classification is legal and accounting fees. Total legal and accounting fees for 2006 were $663 thousand, up 2.9% or $18 thousand when compared to 2005. The compliance costs of being a public company have been increasing each year and are expected to increase at a more rapid pace in 2007 as the Company is anticipated to become an accelerated filer with the Securities and Exchange Commission after the measurement date on June 30, 2007. Finally, miscellaneous expense which includes annual report and proxy printing, annual meeting costs, employee functions and employment fees increase by $51 thousand, or 25.6% from 2005 due to increased volume of annual reports and increased employee count.

Total other operating expense increased by $33 thousand, or 0.9%, from 2004 to 2005. Again, no single line item stood out in 2005.

Income taxes, expressed as a percentage of earnings before income taxes (the effective tax rate), was 29.3% in 2006, 29.0% in 2005 and 30.7% in 2004. The effective tax rate over the past three years remained steady. However, the purchase of tax credits and other tax advantaged instruments such as municipal securities by the Bank will have less of an impact on the effective tax rate in the future as the earnings of the Company grow at a more rapid pace than the continued investment in such instruments.

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BALANCE SHEET OVERVIEW

For the Years Ended December 31, 2006 and 2005

General

During 2006, average total assets increased $48.5 million, or 9.7%, average deposits increased $46.7 million, or 11.9%, and average loans increased $45.9 million, or 11.6%, from average balances recorded in 2005. 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 amounts recorded in 2004. The 2006 and 2005 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 12.7%, 14.0% and 11.7%, 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 in its recent history which has provided it with the ability to expand into new markets.

Total assets at December 31, 2006 were $575 million, representing a $51.7 million, or 9.9%, increase from December 31, 2005. Total loans increased $50.6 million, or 11.9%, during 2006 which was less than 2005, but more in line with average growth rates. Total deposits increased $33.8 million, or 7.9%, from 2005 to 2006. By growing loans at a more rapid pace than deposits, management used some excess liquidity on the balance sheet in 2006. Loan demand rebounded in the last half of 2006 as loan pay-offs hampered loan growth in the early part of the year. In fact, total loans grew by $26.8 million in the fourth quarter alone.

The increase in deposits in 2006 was attributable to an increase in non-interest bearing demand accounts of $4.5 million, or 9.3%, a decrease in interest bearing demand of $7.0 million, or 4.5%, and an increase in time deposit accounts of $37.5 million, or 17.7%. Much of the deposit growth ($19.5 million) came from growth in time deposit accounts in excess of $100,000 and some of that growth ($7.1 million) was attributable to brokered time deposits, which were priced lower than local market time deposits. In 2006, the Bank funded its loan growth with deposit growth and the use of liquidity on the balance sheet. The Bank was able to gather time deposits in 2005 and 2006 with two, three and four year maturities (to match the maturities of the loans) for lower than the cost of more traditional one year time deposits.

During 2003 and 2004, five de novo banks began their operations in, or contiguous to, our primary service area. Since that time, competition for funding increased significantly 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. 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, 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 while maintaining “in market” deposits from customers with relationship loyalty.

Investments

The Company’s available-for-sale investment portfolio of $64.3 million as of December 31, 2006 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 amount in the available-for-sale securities portfolio remained flat when compared to December 31, 2005. 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 $7.8 million at December 31, 2006, an increase of $1.1 million, or 16.3%, when compared to the year ended 2005. 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.

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The following table shows the carrying value of the Company’s securities, by security type, as of December 31, 2006, 2005 and 2004:

Table 3

Securities

(in thousands)

Available for Sale	2006		2005		2004
United States agencies	$	9,937	$	8,942	$	5,505
State, county and municipal		33,459		33,264		36,989
Mortgage-backed securities		15,818		18,124		16,667
Corporate bonds		5,037		4,028		1,707
Total available for sale	$	64,251	$	64,360	$	60,868
Held to Maturity
Trust Preferred Securities	$	7,837	$	6,737	$	4,835

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, 2006. 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, 2006	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		8,971		5.21	%		2,203		6.90	%		887		7.21	%		-		0.00	%		-		-
After 1 through 5 years		999		4.02	%		3,751		6.03	%		11,859		4.78	%		5,035		5.70	%		-		-
After 5 through 10 years		-		-	%		8,994		6.69	%		1,629		6.21	%		-		-	%		-		-
After 10 years		-		-	%		18,068		6.52	%		1,749		6.55	%		-		-	%		7,837		9.34	%
Total		9,970		5.09	%		33,016		6.53	%		16,124		5.25	%		5,035		5.70	%		7,837		9.34	%
Fair Value		9,937					33,459					15,818					5,037					7,837

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.

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The primary types of loans in the Bank’s portfolio are residential mortgages and home equity, construction, commercial real estate, commercial 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.

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, 2006, loans outstanding to directors and executive officers of the Company and the Bank, their associates and members of their immediate families totaled $3.4 million, which represented approximately 0.7% of total loans as of that date. As of December 31, 2006, 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,
	2006			2005			2004			2003			2002
Commercial, financial & agricultural	$	52,334		$	51,555		$	50,528		$	31,219		$	34,821
Real estate - construction		175,024			153,511			114,657			68,207			68,818
Real estate - mortgage		219,563			196,383			173,110			180,992			153,572
Consumer loans		27,398			22,271			18,614			16,080			16,260
		474,319			423,720			356,909			296,498			273,471
Less:   Unearned interest and fees		(818	)		(841	)		(581	)		(454	)		(487	)
Allowance for loan losses		(5,748	)		(5,327	)		(4,080	)		(3,479	)		(3,771	)
Loans, net	$	467,753		$	417,552		$	352,248		$	292,565		$	269,213

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, 2006:

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	$	37,837		8.44	%	$	10,789		8.10	%	$	3,708		7.81	%	$	52,334		8.32	%
Real estate - construction		150,457		8.75	%		23,480		9.13	%		1,087		6.32	%		175,024		8.79	%
Real estate - mortgage		72,216		8.27	%		112,191		7.96	%		35,156		8.25	%		219,563		8.11	%
Consumer		12,434		9.22	%		14,741		8.87	%		223		8.80	%		27,398		9.02	%
Total	$	272,944		8.60	%	$	161,201		8.22	%	$	40,174		8.16	%	$	474,319		8.43	%

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Variable/Fixed Rate Mix

	Variable Interest Rates		Wtd Avg Yld			Fixed Interest Rates		Wtd Avg Yld
Commercial, financial and agricultural	$	29,569		8.37	%	$	22,765		8.26	%
Real estate - construction		122,177		8.80	%		52,847		8.75	%
Real estate - mortgage		91,187		8.59	%		128,376		7.76	%
Consumer		993		9.89	%		26,405		8.99	%
Total	$	243,926		8.67	%	$	230,393		8.18	%

Provision and Allowance for Possible Loan and Lease Losses

The provision for loan losses for the Company in 2006 was $1.47 million, compared to $1.55 million in 2005 and $925 thousand in 2004. The decrease in the provision for loan losses reflects a lower level of loan growth in 2006. The allowance for loan losses represented 1.21%, 1.26% and 1.14% of total loans outstanding at December 31, 2006, 2005 and 2004, respectively. The percentage of the allowance for loan losses expressed as a percentage of total loans decreased from 2005 and 2006, taking into account a the recognition of the charge-off of one credit relationship and the amount of measurable loss in the portfolio in 2006. Net charge-offs were $1.0 million, $303 thousand and $324 thousand during 2006, 2005 and 2004, 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 seeks to assure the timely recognition of credit risks. In general, as credit risk increases, the level of the allowance for loan loss will also increase.

A formal allowance for loan loss adequacy test is performed at each quarter 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.

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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,
		2006			2005			2004			2003			2002
Balance at beginning of year	$	5,327		$	4,080		$	3,479		$	3,772		$	3,720
Charge-offs:
Commercial, financial and agricultural		47			24			59			55			288
Real estate - construction		-			-			-			2			-
Real estate - mortgage		910			235			215			581			165
Consumer loans		155			129			123			152			242
Total charge-offs		1,112			388			397			790			695
Recoveries:
Commercial, financial and agricultural		11			16			16			31			59
Real estate - construction		-			-			-			-			-
Real estate - mortgage		-			18			13			67			158
Consumer loans		57			51			44			49			47
Total recoveries		68			85			73			147			264
Net (charge-offs) recoveries		(1,044	)		(303	)		(324	)		(643	)		(431	)
Provision for loan losses		1,465			1,550			925			350			483
Balance at end of year	$	5,748		$	5,327		$	4,080		$	3,479		$	3,772
Ratio of net charge-offs during the
Period to average loans outstanding		.24	%		.08	%		.10	%		.22	%		.16	%
Ratio of allowance to total loans		1.21	%		1.26	%		1.14	%		1.17	%		1.38	%

Non-Performing Assets and Past Due Loans

Non-performing assets at December 31, 2006 were $4.3 million, or .91%, of total loans and other real estate owned compared to $3.6 million, or .85%, of total loans and other real estate owned at December 31, 2005 and $1.8 million, or .50%, of total loans and other real estate owned at December 31, 2004. 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 2005 to 2006 was attributable to a few credit relationships 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.

Table 8

Non-Performing Assets

(in thousands)

		December 31,
		2006			2005			2004			2003			2002
Other real estate and repossessions	$	1,318		$	567		$	686		$	977		$	488
Non-accrual loans		1,212			2,382			536			499			943
Loans 90 days past due still accruing		1,781			673			567			745			1,335
Total	$	4,311		$	3,622		$	1,789		$	2,221		$	2,766
Non-performing assets as % of total loans		.91	%		.85	%		.50	%		.75	%		1.03	%

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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 $145.4 million at December 31, 2006, compared with $120.8 million at year-end 2005. The following table sets forth the scheduled maturities of time deposits of $100 thousand and greater at December 31, 2006.

Table 9

Maturity of Time Deposits of $100,000 and Greater

(in thousands)

Within 3 months	$	26,334
After 3 through 6 months		17,940
After 6 through 12 months		25,703
After 12 months		75,423
Total	$	145,400

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, 2006, the Bank had drawn on the available facilities in the amount of $2.5 million. In addition, subject to collateral availability, the Bank has a line of credit with the FHLB from which the Bank had drawn $52 million as of December 31, 2006. For additional details on the line of credit with the FHLB see Note 6 of the consolidated financial statements.

The Company’s cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash and cash equivalents amounted to $13.2 million at December 31, 2006, which represented a decrease of $3.0 million from December 31, 2005. Net cash provided by operating activities was 10.1 million. Net cash provided by operating activities was attributable primarily to net earnings of 8.3 million with add-backs attributable to non-cash items such as depreciation, amortization, accretion and provision for loan losses totaling $2.6 million. Net cash used by investing activities of $55.6 million consisted primarily of a net increase in loans of $52.8 million and net increase in securities available for sale, securities available for sale and other securities of $2.6 million. Net cash provided by financing activities totaled $42.5 million which was primarily attributable to a net increase in deposits of $33.8 million, an increase in Federal Home Loan Bank advances in the amount of $10.0 million and an advance on the Company’s federal funds line of credit in the amount of $2.5 million.

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In 2006, management concentrated on investing the liquidity that was on the Bank’s balance sheet. Cash and cash equivalents (liquidity) on the balance sheet was high for most of 2006. The average balance of federal funds sold during the year was $12.1 million which exceeds managements target balance by approximately $7.0 million. However, most of that liquidity was used in the fourth quarter to fund loans. As previously mentioned, total loans grew by $26.8 million in the fourth quarter This caused the Bank to be in federal funds purchased at year end until more permanent funding is obtained.

Capital Resources

Total shareholders’ equity as of December 31, 2006 was $52.5 million, an increase of $4.5 million over 2005. The change in equity was due to $8.3 million in net income, less $3.6 million in dividends and a decrease in unrealized holding gain on securities available for sale of $56 thousand, net of tax. The exercise of stock options increased equity by $711 thousand, but the retirement of shares under the repurchase plan and the swapping of stock to exercise options decreased equity by $965 thousand.

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, 2006, 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, 2006:

Table 10

Capital Ratio

	Actual as of December 31, 2006
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, 2006
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 9.16% in 2006 and 9.35% in 2005. The ratio of dividends declared to net earnings was 43.3 % during 2006, compared with 43.3% in 2005.

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, 2006 (dollars in thousands). With regard to the Federal Home Loan Bank advances, the obligations contain call dates at the option of the issuer. Therefore, the advances may be called prior to their maturity date see Note 6 to the financial statements “Lines of Credit”.

35

Obligation	Total		Less than  1 year		1-3 years		3-5 years		More than  5 years
Deposits without stated maturity	$	213,414	$	213,414	$	-	$	-	$	-
Certificates of deposit		249,400		141,847		64,525		43,028		-
Federal Home Loan Bank advances		52,000		-		5,000		17,000		30,000
Federal Funds Purchased		2,475		2,475		-		-		-
Total	$	517,289	$	357,736	$	69,525	$	60,028	$	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, 2006, the Bank had issued commitments to extend credit of $97.2 million through various types of commercial lending arrangements and additional commitments through standby letters of credit of $5.9 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 until more permanent funding can be obtained.

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 2006, 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 0.05%, with a comparable decrease in interest rates resulting in a increase in net interest income of 0.36%. 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.

36

The following table summarizes the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2006 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 more subject to management’s control.

Table 11

Interest Rate Gap Sensitivity

(in thousands)

	At December 31, 2006 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	$	1,078		$	-		$	-		$	-		$	1,078
Securities (at cost)		12,061			3,682			17,962			38,277			71,982
Loans		359,313			38,644			62,052			14,711			474,720
Total interest-earning assets		372,452			42,326			80,014			52,988			547,780
Interest-bearing liabilities:
Deposits:
Demand		149,765			-			-			-			149,765
Savings		10,967			-			-			-			10,967
Time deposits		141,847			43,793			63,760			-			249,400
FHLB advances		-			5,000			17,000			30,000			52,000
Federal funds purchased		2,475			-			-			-			2,475
Total interest-bearing liabilities		305,054			48,793			80,760			30,000			464,607
per period		67,398			(6,467	)		(746	)		22,988			83,173
Cumulative interest sensitivity
Difference	$	67,398		$	60,931		$	60,185		$	83,173
Cumulative difference to total
Assets		11.71	%		10.59	%		10.46	%		14.46	%

At December 31, 2006, the difference between the Company's assets and liabilities repricing or maturing within one year was $67.4 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.

37

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, 2006 and 2005.

Quarterly Financial Information

(Unaudited - in thousands, except per share data)

	2006 Quarters								2005 Quarters
	First		Second		Third		Fourth		First		Second		Third		Fourth
Interest income	$	9,464		10,227		10,913		11,489		7,075		7,874		8,521		9,076
Net interest income		5,432		5,783		6,024		6,127		4,703		4,931		5,061		5,268
Provision for loan losses		300		415		375		375		300		500		450		300
Income before income taxes		2,663		2,828		2,949		3,346		2,234		2,316		2,620		2,787
Net income		1,815		1,991		2,096		2,425		1,614		1,647		1,857		1,949
Earnings per share - basic		0.37		0.40		0.42		0.48		0.33		0.33		0.37		0.39
Earnings per share - diluted	$	0.36		0.40		0.42		0.48		0.32		0.33		0.37		0.39
Weighted average common shares outstanding - basic		4,990,613		4,998,105		5,000,219		5,003,475		4,986,641		4,986,485		4,987,508		4,987,650
Weighted average common shares outstanding -diluted		5,013,821		5,025,743		5,020,427		5,038,681		5,014,623		5,014,467		5,015,490		5,025,149

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.

38

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended December 31, 2006 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.

39

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information appearing under the headings “Nomination and Election of Directors,” “Compliance With Section 16(a) of the Securities Exchange Act of 1934” and “Corporate Governance” in the Proxy Statement (the “2007 Proxy Statement”) relating to the 2007 Annual Meeting of Shareholders of the Company, which is currently scheduled to be held on July 10, 2007, is incorporated herein by reference.

Item 11. Executive Compensation

The information appearing under the headings “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Discussion and Analysis” and “Compensation Committee Report” in the 2007 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 2007 Proxy Statement is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table gives information as of December 31, 2006, about WGNB Corp. Common Stock that may be issued upon the exercise of options, warrants and rights under the Company’s 2003 Incentive Stock Plan, which is the Company’s only outstanding equity compensation plan. The Company’s previous 1994 Incentive Stock Plan has since expired in accordance with its terms. The Company does not have any equity compensation plans that were not approved by its shareholders. The 2003 Incentive Stock Plan was approved by the Company’s Board of Directors and its shareholders in 2003.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	130,236	$19.44	920,997*
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	130,236	$19.44	920,997*

* 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, and Director Independence

The information appearing under the caption “Nomination and Election of Directors - Transactions with Related Persons” and “Corporate Governance” in the 2007 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 2007 Proxy Statement is incorporated herein by reference.

40

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, 2006 and 2005

Consolidated Statements of Earnings for the Years Ended December 31, 2006, 2005 and 2004

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2006,

2005 and 2004

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

December 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004

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 July 11, 2006 between H.B. Lipham, III, WGNB Corp. and West Georgia National Bank (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 11, 2006)

10.2* Bonus and Stock Option Agreement dated as of September 23, 1998 between the Company and H.B. Lipham, III (Incorporated by reference to Exhibit 10.6 to the Form 10-SB)

10.3* Bonus and Stock Option Agreement dated as of September 23, 1998 between the Company and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.7 to the Form 10-SB)

10.4* Bonus and Stock Option Agreement dated as of September 23, 1998 between the Company and Steven J. Haack (Incorporated by reference to Exhibit 10.8 to the Form 10-SB)

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

41

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

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

10.8* Second Amendment to Bonus and Stock Option Agreement dated June 17, 2002 between the Company and H.B. Lipham, III (Incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2002 (the “6/30/02 Form 10-Q)

10.9* Incentive Stock Option Agreement dated March 12, 2002 between the Company and H.B. Lipham, III
(Incorporated by reference to Exhibit 10.8 to the 6/30/02 Form 10-Q)

10.10* Amendment to Bonus and Stock Option Agreement dated May 30, 2002 between the Company and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.10 to the 6/30/02 Form 10-Q)

10.11* Incentive Stock Option Agreement dated March 12, 2002 between the Company and W. Galen Hobbs, Jr. (Incorporated by reference to Exhibit 10.11 to the 6/30/02 Form 10-Q)

10.12* Amendment to Bonus and Stock Option Agreement dated April 26, 2002 between the Company and Steven J. Haack (Incorporated by reference to Exhibit 10.13 to the 6/30/02 Form 10-Q)

10.13* Incentive Stock Option Agreement dated March 12, 2002 between the Company and Steven J. Haack (Incorporated by reference to Exhibit 10.14 to the 6/30/02 Form 10-Q)

10.14* 2003 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for its 2004 Annual Meeting)

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

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

10.17* Separations Agreement and Release dated February 14, 2006 between the Company, the Bank and L. Leighton Alston (Incorporated by reference to Exhibit 10.23 to the Company’s Form 10-K for the year ended December 31, 2005)

21 Subsidiary of WGNB Corp.

23 Consent of Porter, Keadle, Moore LLP

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.

42

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: February 14, 2007	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: February 14, 2007
H.B. Lipham, III, President, Chief Executive Officer and Director [Principal Executive Officer]
/s/ Steven J. Haack	Date: February 14, 2007
Steven J. Haack, Secretary and Treasurer [Principal Financial and Accounting Officer]
/s/ W. T. Green	Date: February 15, 2007
W. T. Green, Chairman of the Board
Wanda W. Calhoun, Director	Date: February __, 2007
/s/ Grady W. Cole	Date: February 15, 2007
Grady W. Cole, Director
/s/ Richard A. Duncan	Date: February 15, 2007
Richard A. Duncan, Directer
/s/ R. David Perry	Date: February 15, 2007
R. David Perry, Director
/s/ L. Richard Plunkett	Date: February 15, 2007
L. Richard Plunkett, Director
Thomas E. Reeve, III, M.D., Director	Date: February ___, 2007

43

/s/ Thomas T. Richards	Date: February 14, 2007
Thomas T. Richards, Director
Oscar W. Roberts, III, Director	Date: February ___, 2007
/s/ Frank T. Thomasson, III	Date: February 15, 2007
Frank T. Thomasson, III, Director
/s/ J. Thomas Vance	Date: February 15, 2007
J. Thomas Vance, Director
Charles M. Willis, Sr., Director	Date: February ___, 2007

44

WGNB CORP.

Consolidated Financial Statements

December 31, 2006 and 2005

(with Report of Independent Registered Public Accounting Firm)

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

WGNB Corp. and Subsidiary

We have audited the accompanying consolidated balance sheets of WGNB Corp. and subsidiary as of December 31, 2006 and 2005, 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, 2006. 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, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Atlanta, Georgia

February 5, 2007

Certified Public Accountants 

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

F-2

WGNB CORP.

Consolidated Balance Sheets

December 31, 2006 and 2005

	2006		2005
Assets
Cash and due from banks, including reserve requirements
of $346,000 and $594,000, respectively	$	12,579,309		10,673,541
Interest-bearing funds in other banks		654,139		815,348
Federal funds sold		-		4,733,000
Cash and cash equivalents		13,233,448		16,221,889
Securities available-for-sale		64,251,234		64,359,833
Securities held-to-maturity, estimated fair values
of $7,837,389 and $6,839,552		7,837,389		6,736,552
Loans, net		467,752,885		417,551,614
Premises and equipment, net		8,989,589		9,134,245
Accrued interest receivable		3,772,818		2,881,206
Other assets		9,491,228		6,758,048
	$	575,328,591		523,643,387
Liabilities and Stockholders’ Equity
Deposits:
Demand	$	52,681,900		48,178,654
Interest bearing demand		149,765,104		156,804,968
Savings		10,966,576		12,160,203
Time		103,999,579		91,397,475
Time, over $100,000		145,400,277		120,508,145
Total deposits		462,813,436		429,049,445
Federal Home Loan Bank advances		52,000,000		42,000,000
Federal funds purchased		2,475,000		-
Accrued interest payable		2,881,943		2,133,858
Other liabilities		2,661,718		2,508,051
Total liabilities		522,832,097		475,691,354
Commitments and contingencies
Stockholders’ equity:
Common stock, $1.25 par value, 10,000,000 shares authorized;
5,000,613 and 4,987,794 shares issued and outstanding		6,250,766		6,234,743
Additional paid-in capital		2,662,306		2,803,480
Retained earnings		43,513,370		38,787,699
Accumulated other comprehensive income		70,052		126,111
Total stockholders’ equity		52,496,494		47,952,033
	$	575,328,591		523,643,387

See accompanying notes to consolidated financial statements.

F-3

WGNB CORP.

Consolidated Statements of Earnings

For the Years Ended December 31, 2006, 2005 and 2004

	2006		2005			2004
Interest income:
Interest and fees on loans	$	37,757,482		28,725,171			22,011,568
Interest on federal funds sold		640,956		393,955			151,063
Interest on investment securities:
U.S. Government agencies		1,032,728		1,009,760			975,354
State, county and municipal		1,455,708		1,597,744			1,489,111
Other		1,205,881		819,549			640,644
Total interest income		42,092,755		32,546,179			25,267,740
Interest expense:
Interest on deposits:
Demand		4,994,332		3,183,385			1,180,420
Savings		185,168		99,612			43,309
Time		10,776,290		6,973,958			3,915,778
Interest on FHLB and other borrowings		2,771,190		2,326,566			2,430,288
Total interest expense		18,726,980		12,583,521			7,569,795
Net interest income		23,365,775		19,962,658			17,697,945
Provision for loan losses		1,465,000		1,550,000			925,000
Net interest income after provision for loan losses		21,900,775		18,412,658			16,772,945
Other income:
Service charges on deposit accounts		4,061,892		4,080,734			4,000,420
Mortgage origination fees		393,375		402,468			514,011
ATM network fees		777,299		502,092			434,203
Gain on sale of securities available-for-sale		-		227,863			-
Gain (loss) on sale of other real estate owned		243,153		(4,125	)		(52,312	)
Miscellaneous		928,585		798,858			740,907
Total other income		6,404,304		6,007,890			5,637,229
Other expenses:
Salaries and employee benefits		9,924,742		8,702,150			8,125,097
Occupancy		2,402,303		2,134,379			1,944,875
Other operating		4,192,074		3,627,107			3,593,949
Total other expenses		16,519,119		14,463,636			13,663,921
Earnings before income taxes		11,785,960		9,956,912			8,746,253
Income taxes		3,458,524		2,889,425			2,682,088
Net earnings	$	8,327,436		7,067,487			6,064,165
Basic earnings per share	$	1.67		1.42			1.22
Diluted earnings per share	$	1.66		1.41			1.20
Dividends per share	$	0.72		0.61			0.52

See accompanying notes to consolidated financial statements.

F-4

WGNB CORP.

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Net earnings	$	8,327,436			7,067,487			6,064,165
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment
securities available-for-sale:
Unrealized gains (losses) arising during the period		(84,938	)		(1,283,774	)		(401,838	)
Associated (taxes) benefit		28,879			436,483			136,625
Reclassification adjustment for gain realized		-			(227,863	)		-
Associated taxes		-			77,473			-
Other comprehensive income (loss)		(56,059	)		(997,681	)		(265,213	)
Comprehensive income	$	8,271,377			6,069,806			5,798,952

See accompanying notes to consolidated financial statements.

F-5

WGNB CORP.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2006, 2005 and 2004

													Accumulated
							Additional						Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Earnings			Income			Total
Balance, December 31, 2003		4,959,678		$	6,199,598			3,221,414			31,279,245			1,389,005			42,089,262
Cash dividends ($.52 per share)		-			-			-			(2,564,479	)		-			(2,564,479	)
Retirement of common stock		(48,129	)		(60,161	)		(904,081	)		-			-			(964,242	)
Exercise of stock options		76,470			95,588			494,389			-			-			589,977
Issuance of common stock in lieu of directors’ fees		642			802			12,038			-			-			12,840
Change in unrealized holding gain on
securities available-for-sale, net of tax		-			-			-			-			(265,213	)		(265,213	)
Net earnings		-			-			-			6,064,165			-			6,064,165
Balance, December 31, 2004		4,988,661			6,235,827			2,823,760			34,778,931			1,123,792			44,962,310
Cash dividends ($.61 per share)		-			-			-			(3,058,719	)		-			(3,058,719	)
Retirement of common stock		(2,655	)		(3,319	)		(49,027	)		-						(52,346	)
Exercise of stock options		1,070			1,338			15,398			-			-			16,736
Issuance of common stock in lieu of directors’ fees		718			897			13,349			-			-			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		4,987,794			6,234,743			2,803,480			38,787,699			126,111			47,952,033
Cash dividends ($.72 per share)		-			-			-			(3,601,765	)		-			(3,601,765	)
Retirement of common stock		(38,202	)		(47,753	)		(916,895	)		-						(964,648	)
Exercise of stock options		51,021			63,776			647,471			-			-			711,247
Stock option expense								128,250									128,250
Change in unrealized holding gain on
securities available-for-sale, net of tax		-			-			-			-			(56,059	)		(56,059	)
Net earnings		-			-			-			8,327,436			-			8,327,436
Balance, December 31, 2006		5,000,613		$	6,250,766			2,662,306			43,513,370			70,052			52,496,494

See accompanying notes to consolidated financial statements.

F-6

WGNB CORP.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Cash flows from operating activities:
Net earnings	$	8,327,436			7,067,487			6,064,165
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion		1,099,739			1,086,505			1,105,857
Provision for loan losses		1,465,000			1,550,000			925,000
Stock option expense		128,250			-			-
Provision for deferred income taxes (benefit)		(188,645	)		(663,238	)		28,896
Gain on sale of securities available-for-sale		-			(227,863	)		-
Loss (gain) on sale of premises and equipment		4,327			75,393			(5,430	)
(Gain) loss on sale of other real estate		(243,153	)		4,125			52,312
Change in:
Other assets		(1,283,102	)		(303,232	)		(535,421	)
Other liabilities		795,470			950,423			397,864
Net cash provided by operating activities		10,105,322			9,539,600			8,033,243
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		21,321,435			12,686,014			11,192,131
Proceeds from maturities, calls and paydowns of securities
held-to-maturity		1,403,882			204,941			1,019,121
Purchases of securities available-for-sale		(21,263,737	)		(21,289,748	)		(17,371,254	)
Purchase of securities held-to-maturity		(2,503,750	)		(2,105,990	)		(1,604,000	)
Purchase of other securities		(1,534,019	)		-			(500,000	)
Net change in loans		(52,893,590	)		(67,394,063	)		(61,402,267	)
Proceeds from sales of premises and equipment		-			88,497			5,430
Purchases of premises and equipment		(994,417	)		(2,702,122	)		(1,801,137	)
Capital expenditures for other real estate		-			(99,293	)		-
Proceeds from sales of other real estate		851,446			754,440			1,002,312
Net cash used by investing activities		(55,612,750	)		(76,068,139	)		(69,459,664	)
Cash flows from financing activities:
Net change in deposits		33,763,991			90,651,406			35,081,859
Proceeds from Federal Home Loan Bank advances		10,000,000			-			15,000,000
Repayment of Federal Home Loan Bank advances		-			(13,000,000	)		(5,000,000	)
Net change in federal funds purchased		2,475,000			-			-
Dividends paid		(3,466,603	)		(2,921,611	)		(2,460,728	)
Exercise of stock options		711,247			16,736			589,977
Retirement of common stock		(964,648	)		(52,346	)		(964,242	)
Net cash provided by financing activities		42,518,987			74,694,185			42,246,866
Change in cash and cash equivalents		(2,988,441	)		8,165,646			(19,179,555	)
Cash and cash equivalents at beginning of year		16,221,889			8,056,243			27,235,798
Cash and cash equivalents at end of year	$	13,233,448			16,221,889			8,056,243

F-7

WGNB CORP.

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2003
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	17,978,895			11,875,795			7,171,932
Income taxes	$	3,688,500			3,501,000			2,184,700
Non-cash investing and financing activities:
Transfer of loans to other real estate	$	1,227,319			579,105			794,398
Loans to facilitate sales of other real estate	$	-			39,028			-
Change in unrealized gains on
securities available-for-sale, net of tax	$	(56,059	)		(997,681	)		(265,213	)
Change in dividends payable	$	135,162			137,108			103,751
Issuance of common stock to directors in lieu of directors’ fees	$	-			14,246			12,840

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 is compared monthly to the recorded allowance for loan losses and material differences are adjusted by increasing or decreasing the provision for loan losses.

Management believes that the allowance for loan losses is adequate. While management uses available information to 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 Investments

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

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

Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS No.123 (R)) “Share-Based Payment” was adopted by the Company on the required effective date, January 1, 2006, using the modified prospective transition method provided for under the standard. SFAS No. 123 (R) addresses the accounting for share-based payment transactions in which the Company receives employee services in exchange for equity instruments of the Company. SFAS No. 123 (R) requires the Company to recognize as compensation expense the “grant date fair value” of stock options granted to employees in the statement of earnings using the fair-value-based method. Prior to the adoption of SFAS 123 (R), the Company utilized the recognition and measurement principles that were previously permissible under Accounting Principles Board Opinion No. 25 (APB 25) “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, no compensation expense was recognized in the statement of earnings, since the exercise price on the grant date was equal to the market value of the underlying stock.

The following table presents the effect on net earnings and earnings per common share for the years ended December 31, 2005 and 2004 had the fair-value-based method as required under SFAS 123(R) been applied for those periods:

		2005		2004
Net earnings	As reported	$	7,067,487		6,064,165
	Proforma	$	6,911,381		5,930,258
Basic earnings per share	As reported	$	1.42		1.22
	Proforma	$	1.39		1.20
Diluted earnings per share	As reported	$	1.41		1.21
	Proforma	$	1.38		1.18

The Company recognized $128,250 of stock-based employee compensation expense during the year ended December 31, 2006, associated with its stock option grants. The Company is recognizing the compensation expense for stock option grants with graded vesting schedules on a straight-line basis over the requisite service period of the award as required by SFAS No. 123 (R). As of December 31, 2006, there was $279,901 of unrecognized compensation cost related to stock option grants. The cost is expected to be recognized over the vesting period of approximately five years.

F-11

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(1) Summary of Significant Accounting Policies, continued

Stock Compensation Plans, continued

The grant-date fair value of each option granted during 2006, 2005 and 2004 was $4.47, $2.96 and $6.12, respectively. The fair value of each option is estimated on the date of grant using the Black-Scholes Model. The following weighted average assumptions were used for grants in 2006, 2005 and 2004:

	2006			2005			2004
Dividend yield		2.85	%		2.86	%		2.40	%
Expected volatility		13	%		11	%		29	%
Risk-free interest rate		4.54	%		4.09	%		4.27	%
Expected term		10 years			10 years			10 years

Earnings Per Share

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

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

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

			Common		Per Share
For the Year Ended December 31, 2004	Net Earnings		Shares		Amount
Basic earnings per share	$	6,064,165		4,958,604	$	1.22
Effect of dilutive stock options		-		75,891		(.02	)
Diluted earnings per share	$	6,064,165		5,034,495	$	1.20

Recent Accounting Pronouncements

Accounting for Conditional Asset Retirement Obligations

In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). This Interpretation clarifies the term “conditional asset retirement obligation” as used in SFAS 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. According to FIN 47, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The provisions of FIN47 are effective for the fiscal years ending after December 15, 2005. The implementation of FIN 47 did not affect the Company’s consolidated financial position, results of operations or cash flows.

F-12

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(1) Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies that management is expected to evaluate an income tax position taken or expected to be taken for likelihood of realization before recording any amounts for such position in the financial statements. FIN 48 also requires expanded disclosure with respect to income tax positions taken that are not certain to be realized. This interpretation is effective for fiscal years beginning after December 15, 2006, and will require management to evaluate every open tax position that exists in every jurisdiction on the date of initial adoption. The Company has completed an assessment of the impact and has determined that no adjustment to the Company’s tax reserve is necessary.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements. SFAS No. 157 does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. However, the application of this Statement may change how fair value is determined. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The financial statement impact is not expected to be material to the Company’s financial position, results of operations or disclosures.

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

Reclassifications

Certain reclassifications have been made in the prior years consolidated statements to conform to the presentation used in 2006.

(2) Securities

Securities available-for-sale and held-to-maturity at December 31, 2006 and 2005 are summarized as follows:

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

	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

F-13

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(2) Securities, continued

	December 31, 2006
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Held-to-Maturity	Cost		Gains		Losses		Value
Trust preferred securities	$	7,837,389		-		-		7,837,389

	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

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at December 31, 2006, 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.

	Amortized		Estimated
	Cost		Fair Value
Available-for-Sale
U.S. Government agencies, state, county
and municipals and corporate bonds:
Within 1 year	$	11,173,870		11,170,181
1 to 5 years		9,785,887		9,797,433
5 to 10 years		8,993,938		9,195,276
After 10 years		18,067,307		18,270,720
Mortgage-backed securities		16,124,094		15,817,624
	$	64,145,096		64,251,234
Held-to-Maturity
Trust preferred securities:
After 10 years	$	7,837,389		7,837,389

The following is a summary of the fair values of securities that have unrealized losses as of December 31, 2006 and 2005.

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

F-14

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(2) Securities, continued

	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

At December 31, 2006, 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, 2006 tables above, 19 securities out of 59 securities issued by U.S. Government agencies, and Government sponsored corporations including mortgage backed securities contained unrealized losses, 22 out of 93 securities issued by state and political subdivisions contained unrealized losses and one 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, 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 out of 60 securities issued by U.S. Government agencies, Government sponsored corporations, including mortgage-backed securities, contained unrealized losses and 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.

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 2006 or 2004.

Investment securities with a fair value of approximately $60,360,000 and $61,904,000 as of December 31, 2006 and 2005, respectively, were pledged to secure public deposits, as required by law, and for other purposes.

(3) Loans

Major classifications of loans at December 31, 2006 and 2005 are summarized as follows:

	2006		2005
Commercial, financial and agricultural	$	52,333,704		51,555,201
Real estate - mortgage		219,563,340		196,382,365
Real estate - construction		175,024,051		153,511,262
Consumer		27,397,551		22,271,301
		474,318,646		423,720,129
Less: Unearned interest		817,406		841,109
Allowance for loan losses		5,748,355		5,327,406
	$	467,752,885		417,551,614

F-15

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(3) Loans, continued

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. As of December 31, 2006 and 2005, loans totaling $79,604,000 and $89,632,000, respectively, were pledged to secure Federal Home Loan Bank advances.

Changes in the allowance for loan losses for the years ended December 31, 2006, 2005 and 2004 are as follows:

	2006			2005			2004
Balance, beginning of year	$	5,327,406			4,080,148			3,479,366
Provision for loan losses		1,465,000			1,550,000			925,000
Loans charged off		(1,112,201	)		(387,811	)		(397,095	)
Recoveries		68,150			85,069			72,877
Balance, end of year	$	5,748,355			5,327,406			4,080,148

(4) Premises and Equipment

Major classifications of premises and equipment at December 31, 2006 and 2005 are summarized as follows:

	2006		2005
Land	$	1,460,255		1,444,265
Buildings and improvements		9,313,796		9,046,004
Furniture and equipment		7,229,272		6,528,209
		18,003,323		17,018,478
Less: Accumulated depreciation		9,013,734		7,884,233
	$	8,989,589		9,134,245

Depreciation expense amounted to $1,134,746, $1,048,866 and $919,153 in 2006, 2005 and 2004, respectively.

(5) Deposits

At December 31, 2006 the scheduled maturities of time deposits are as follows:

2007	$	141,847,182
2008		43,792,517
2009		20,732,840
2010		24,116,489
2011		18,910,828
	$	249,399,856

The Bank held $62,713,161 and $55,577,610 in certificates of deposit obtained through the efforts of third party brokers at December 31, 2006 and 2005, respectively. The weighted average interest rate on the deposits at December 31, 2006 and 2005 was 5.05% and 3.93%, respectively. The deposits outstanding at December 31, 2006 mature as follows:

2007	$	20,498,000
2008		18,165,000
2009		10,844,437
2010		13,205,724
	$	62,713,161

(6) Lines of Credit

The Bank has lines of credit for overnight borrowings of $20,800,000 at December 31, 2006 and 2005 of which, $2,475,000 was outstanding as of December 31, 2006. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta (FHLB) with credit availability totaling $139,230,000 at December 31, 2006. The FHLB advances are secured by the Bank’s stock in the FHLB, it’s qualifying 1-4 family first mortgage loans and qualified commercial loans.In addition, the FHLB accepts certain investment securities as collateral. Advances on the FHLB line of credit are subject to available collateral of the Bank. At December 31, 2006 and 2005, the Bank had advances outstanding from the FHLB amounting to $52,000,000 and $42,000,000, respectively. The Bank had adequate collateral available at December 31, 2006 for 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:

F-16

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(6) Lines of Credit, continued

 December 31, 2006

Advance		Interest Basis		Current Rate			Maturity		Call Date		Early Conversion Option
$	10,000,000		Fixed Hybrid		5.49	%		May 2011		-		-
$	7,000,000		Fixed Hybrid		4.24	%		June 2010		-		-
$	5,000,000		Fixed		5.44	%		February 2008		-		-
$	10,000,000		Fixed		3.37	%		September 2012		September 2007		September 2007, 3 month LIBOR
$	10,000,000		Fixed		3.225	%		February 2014		February 2009		February 2009, 3 month LIBOR
$	10,000,000		Fixed		4.39	%		January 2016		January 2011		January 2011 3 month LIBOR

December 31, 2005 

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

	Approximate
	Contractual Amount
	2006		2005
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit	$	97,196,000		98,678,000
Standby letters of credit	$	5,903,000		13,222,000

F-17

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(7) Commitments and Contingencies, continued

Off Balance Sheet Commitments, continued

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

Derivative Instruments and Hedging Activities

As of December 31, 2006, the Company held sixteen interest rate swap positions. The Company entered into a swap on May 24, 2004 which matures May 24, 2007. 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 5.36% at December 31, 2006 and 4.39% at December 31, 2005.

The Company entered into a series fifteen of interest rate swap agreements with a total notional amount of $41,156,509 on September 19, 2006 related to its issuance of brokered certificates of deposit. The interest rate swap contracts have various notional amounts, maturity dates, receive fixed rates and pay floating rates stated in terms of basis points plus or minus 1 month LIBOR rate as follows:

Notional Amount		Maturity Date		Receive Fixed Rate			Pay Floating 1 Month LIBOR +/(-) bp
$	4,056,033		1/31/08		3.75	%		(137.65	)
	3,000,000		4/27/08		4.15	%		(94.65	)
	1,710,000		6/30/08		4.00	%		(105.65	)
	2,945,000		6/30/08		4.10	%		(96.65	)
	5,761,000		6/30/08		5.44	%		35.35
	1,500,000		2/2/09		3.90	%		(110.65	)
	1,602,992		6/17/09		4.10	%		(89.65	)
	2,942,847		6/30/09		4.20	%		(79.65	)
	2,000,000		6/30/09		4.25	%		(74.65	)
	2,357,702		8/5/09		4.36	%		(64.65	)
	3,550,000		2/1/10		4.00	%		(98.65	)
	2,986,006		4/27/10		4.50	%		(49.65	)
	2,002,985		6/17/10		4.25	%		(73.65	)
	1,984,944		6/30/10		4.45	%		(59.65	)
$	41,156,509

The 1 month LIBOR rate at the initiation of the contracts was 5.33%, but the pay floating rate changes each month on the monthly reset date of each contract at the spread indicated above which remains constant. The 1 month LIBOR rate of the contract was 5.35% and the total notional amount of the contracts remained $41,156,509 on December 31, 2006.

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

F-18

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(7) Commitments and Contingencies, continued

Derivative Instruments and Hedging Activities, continued

The Company uses the long haul method afforded under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” to assess the effectiveness of its current hedging activity and accounted for the hedge instruments as fair value hedges. The Company assesses the effectiveness of the hedge contracts by regressing the market price, including any premium paid, of the brokered certificates of deposit and borrowings (the dependent variables) with the market price of the interest rate swap (the independent variable) on a quarterly basis until all the contracts have matured. Each regression analysis will include in its data set values from a retrospective (realized historical prices) and prospective (shocked scenario analysis) basis. The hedge is considered effective if the correlation coefficient is within the “80-120” rule, where the R square is highly correlative to the value of 1 and the F-stat is large signifying high explanatory power.

The Company has designated these swap contracts as fair value hedges and, accordingly, is recording the fair value of the derivative as well as the fair value of the item being hedged on the balance sheet. Changes in the fair value of the swap contracts and the items being hedged are recorded in current period earnings.

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

Beginning in 1996, the Board of Directors approved a Stock Repurchase Plan of up to $2,000,000 of the Company’s common stock currently outstanding. During 2001, the Board of Directors approved an additional $1,000,000, to be used for the Stock Repurchase Plan. The Company retired 12,000, 2,655 and 48,129 shares of common stock during 2006, 2005 and 2004, respectively. At December 31, 2006, the Company had $588,482 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, 2006 and 2005, that the Company and the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2006 and 2005, 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.

F-19

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(9) Regulatory Matters, continued

											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, 2006:
Total Capital (to Risk
Weighted Assets)
Consolidated	$	58,175		12	%		>$ 39,786		>8	%		N/A		N/A
Bank	$	53,303		11	%		>$ 39,589		>8	%		>$ 49,487		>10	%
Tier I Capital
(to Risk Weighted Assets)
Consolidated	$	52,426		11	%		>$ 19,893		>4	%		N/A		N/A
Bank	$	47,555		10	%		>$ 19,795		>4	%		>$ 29,692		>6	%
Tier I Capital
(to Average Assets)
Consolidated	$	52,426		9	%		>$ 22,771		>4	%		N/A		N/A
Bank	$	47,555		8	%		>$ 22,738		>4	%		>$ 28,423		>5	%
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	%

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, 2006, the Bank could pay approximately $11,626,000 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 240,000 shares of common stock were reserved for possible issuance under the 1994 plan. At December 31, 2003, the Company had distributed all the options available for awards under the 1994 Plan. The options may not be exercised prior to five years from the date of grant and are exercisable no later than ten years from that date. Compensation cost in the amount of $86,000 has been recognized for the stock options as of and through December 31, 2006 for this plan. The 1994 Plan has expired according to its terms. However, 61,233 options were unexercised as of December 31, 2006.

On April 8, 2003, the shareholders approved the WGNB Corp. 2003 Stock Incentive Plan (the “2003 Plan”). Under the 2003 Plan, the Company may grant options to certain key officers to acquire shares of common stock of the Company at the then fair value for incentive stock options and no less than 85% of the fair value for nonqualified stock options, with the number of shares to be determined annually by agreed upon formulas. A total of 990,000 shares of common stock were reserved for possible issuance under the 2003 Plan with a maximum of 525,000 shares to be issued under nonqualified stock option grants. During 2006, the Company distributed 33,470 of the options available for awards under the 2003 Plan. The options under the 2003 Plan were to be distributed commencing in the 2004 fiscal year and will terminate February 14, 2015 unless previously terminated by the Board of Directors or when the options approved under the plan have been distributed. The options may be exercised by the participants under a vesting period of five years ratably at 20% per year. The options are exercisable no later than ten years after the date of grant. Compensation cost in the amount of $42,250 has been recognized for the stock options as of and through December 31, 2006. Under the 2003 plan, 69,003 options were unexercised as of December 31, 2006.

F-20

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(10) Incentive Stock Option Plan, continued

A summary status of the Company’s stock option plans as of December 31, 2006, 2005 and 2004, and changes during the years ending on those dates, is presented below:

	2006					2005					2004
				Wtd. Avg.					Wtd. Avg.					Wtd. Avg.
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		184,676		$	16.53		150,150		$	15.79		203,162		$	12.35
Awarded during the year		33,470		$	24.99		35,596		$	19.62		23,458		$	19.25
Exercised during the year		(51,022	)	$	13.94		(1,070	)	$	15.65		(76,470	)	$	7.71
Forfeited during year		(36,888	)	$	17.50		-			-		-			-
Outstanding, end of year		130,236		$	19.44		184,676		$	16.53		150,150		$	15.79
Options exercisable at year end		13,374		$	17.48		35,783		$	13.01		23,352		$	11.41

The following information applies to all options outstanding at December 31, 2006:

Options Outstanding							Options Excersiable
Shares	Range		Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Life (Years)		Shares		Wtd. Avg. Exercise Price		Intrinsic Value
61,233	$	13.33 - 16.66	$	16.37		5.48		5,341	$	14.52	$	69,380
69,003	$	19.25 - 24.99	$	22.17		7.43		8,033	$	19.45	$	64,746
130,236	$	13.33 - 24.99	$	19.44		6.08		13,374	$	17.48	$	134,126

The total intrinsic value of options of optionsexercised in 2006, 2005 and 2004 was $578,435, $6,013 and $959,350, respectively. The intrinsic value of exercisable options is based on a market price of $27.51 as of December 31, 2006.

(11) Stock Split

On September 12, 2006, The Company’s board of directors declared a three-for-two stock split for shareholders of record as of October 16, 2006, payable on November 15, 2006. All share and per share amounts have been restated to reflect the stock split as if it had occurred on January 1, 2004.

(12) 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 2006, 2005 and 2004, 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 2006, 2005 and 2004 of 5% of participants’ salaries. Contributions to the plan charged to expense during 2006, 2005 and 2004 were $547,255, $491,265 and $455,172, respectively.

F-21

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(13) Income Taxes

The components of the provision for income taxes in the consolidated statements of earnings for the years ended December 31, 2006, 2005 and 2004 are as follows:

	2006			2005			2004
Current:
Federal	$	3,353,207			3,266,346			2,387,873
State		293,962			286,317			265,319
Deferred:
Federal		(169,031	)		(594,280	)		26,006
State		(19,614	)		(68,958	)		2,890
Total	$	3,458,524			2,889,425			2,682,088

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:

	2006			2005			2004
Pretax income at statutory rates	$	4,007,226			3,385,350			2,973,726
Add (deduct):
Tax-exempt interest income		(430,180	)		(479,991	)		(448,781	)
State taxes, net of federal effect		174,612			68,924			54,870
Non-deductible interest expense		70,448			17,885			12,757
Other		(363,582	)		(102,743	)		89,516
	$	3,458,524			2,889,425			2,682,088

The following summarizes the net deferred tax asset, which is included as a component of other assets, at December 31, 2006 and 2005.

	2006			2005
Deferred income tax assets:
Allowance for loan losses	$	2,085,434			1,971,467
Other real estate owned		32,358			183,706
Other		130,034			9,407
Total gross deferred income tax assets		2,247,826			2,164,580
Deferred income tax liabilities:
Low income housing credits		(220,663	)		(186,030	)
Premises and equipment		(173,449	)		(299,490	)
Net unrealized gain on securities available-for-sale		(36,086	)		(64,966	)
Other		(1,747	)		(15,738	)
Total gross deferred income tax liabilities		(431,945	)		(566,224	)
Net deferred income tax asset	$	1,815,881			1,598,356

F-22

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(14) 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 2006:

Beginning balance	$	3,461,593
New loans		3,857,408
Repayments		(3,546,595	)
Change in related parties		(398,668	)
Ending balance	$	3,373,738

At December 31, 2006 and 2005, deposits from directors, executive officers, and their related interests totaled approximately $7,114,000 and $7,559,000, respectively.

(15) Other Operating Expenses

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

	2006		2005		2004
Professional fees	$	662,967		644,479		622,993
Printing and supplies	$	365,189		303,452		319,709

(16) Fair Value of Financial Instruments

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

Cash and Cash Equivalents

For cash, due from banks 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 Funds Purchased

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

Federal Home Loan Bank Advances

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

F-23

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(16) 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, 2006 and 2005 are as follows:

	2006				2005
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets:
Cash and cash equivalents	$	13,233,448		13,233,448		16,221,889		16,221,889
Securities available-for-sale	$	64,251,234		64,251,234		64,359,833		64,359,833
Securities held-to-maturity	$	7,837,389		7,837,389		6,736,552		6,839,552
Derivative instruments	$	262,184		262,184		-		-
Loans, net	$	467,752,885		466,014,287		417,551,614		414,936,820
Liabilities:
Deposits	$	462,813,436		461,776,410		429,049,445		427,101,659
Federal funds purchased	$	2,475,000		2,475,000		-		-
Federal Home Loan Bank advances	$	52,000,000		51,266,931		42,000,000		41,494,694
Derivative instruments	$	-		-		571,000		571,000

F-24

WGNB CORP.

Notes to Consolidated Financial Statements, continued

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

Balance Sheets

December 31, 2006 and 2005

	2006		2005
Assets
Cash	$	3,375,871		2,573,339
Investment in Bank		47,625,140		43,025,166
Securities available-for-sale		-		606,240
Securities held-to-maturity		2,275,243		2,466,240
Other assets		180,185		105,831
	$	53,456,439		48,776,816
Liabilities and Stockholders’ Equity
Dividends payable	$	959,945		824,783
Total liabilities		959,945		824,783
Stockholders’ equity		52,496,494		47,952,033
	$	53,456,439		48,776,816

Statements of Earnings

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Dividends from Bank	$	3,601,555			3,058,719			2,564,479
Other income		234,458			310,101			157,496
Other expense		(36,085	)		(21,251	)		(36,083	)
Earnings before equity in undistributed
earnings of Bank		3,799,928			3,347,569			2,685,892
Equity in undistributed earnings of Bank		4,527,508			3,719,918			3,378,273
Net earnings	$	8,327,436			7,067,487			6,064,165

F-25

WGNB CORP.

Notes to Consolidated Financial Statements, continued

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

Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Cash flows from operating activities:
Net earnings	$	8,327,436			7,067,487			6,064,165
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization and accretion		5,019			11,722			11,846
Loss on sale of other real estate		-			-			9,675
Stock option expense		128,250			-			-
Equity in undistributed earnings of Bank		(4,527,508	)		(3,719,918	)		(3,378,273	)
Change in other assets		(74,354	)		(48,691	)		(6,538	)
Change in other liabilities		(128,525	)		(56,305	)		2,348
Net cash provided by operating activities		3,730,318			3,254,295			2,703,223
Cash flows from investing activities:
Purchase of securities held-to-maturity		-			(232,500	)		(1,604,000	)
Proceeds from paydowns of securities available-for-sale		599,887			-			-
Proceeds from paydowns of securities held-to-maturity		192,331			101,414			-
Proceeds from sale of other real estate		-			-			39,540
Net cash provided (used) by investing activities		792,218			(131,086	)		(1,564,460	)
Cash flows from financing activities:
Dividends paid		(3,466,603	)		(2,921,611	)		(2,460,728	)
Exercise of stock options		711,247			16,736			589,977
Retirement of common stock		(964,648	)		(52,346	)		(964,242	)
Net cash used by financing activities		(3,720,004	)		(2,957,221	)		(2,834,993	)
Increase (decrease) in cash		802,532			165,988			(1,696,230	)
Cash at beginning of year		2,573,339			2,407,351			4,103,581
Cash at end of year	$	3,375,871			2,573,339			2,407,351
Supplemental disclosure of non-cash financing activities:
Change in dividends payable	$	135,162			137,108			103,751
Changes in unrealized gains on securities
available-for-sale, net of tax	$	(56,059	)		(997,681	)		(265,213	)
Issuance of common stock to directors in lieu of
directors’ fees	$	-			14,246			12,840

F-26

WGNB CORP.

Notes to Consolidated Financial Statements, continued

(18) Subsequent Events (unaudited)

On January 22, 2007, WGNB Corp. entered into an agreement and plan of reorganization by and among WGNB Corp., West Georgia National Bank, First Haralson Corporation, and First National Bank of Georgia whereby First Haralson Corporation will be merged with and into WGNB Corp. and, concurrently, First National Bank of Georgia will be merged into West Georgia National Bank. The consummation of the transaction is subject to approval by both companies’ shareholders and is anticipated to close in the second quarter of 2007. First Haralson Corporation is headquartered in Buchanan, Georgia and operates four branches in Haralson County and two branches in Carroll County. As of December 31, 2006, First Haralson Corporation held $215.4 million in total assets, $139.9 million in total loans, $176.9 million in total deposits and $25.7 million of shareholders’ equity. For the fiscal year ended December 31, 2006, First Haralson Corporation recorded net income of $2,400,000.

Under the terms of the merger agreement, First Haralson Corporation’s shareholders may elect to receive cash, WGNB Corp. common stock, or a combination of the two for $46,250,000 in the aggregate. The shareholder election is subject to limits of a minimum of $11,562,500 and a maximum of $18,500,000 of cash consideration being issued in the merger. In addition, the terms of the merger agreement allow First Haralson Corporation to pay a one-time, special dividend not to exceed $7,250,000 in the aggregate, or approximately $35.67 per share, for each First Haralson Corporation share to First Haralson Corporation shareholders prior to the closing of the proposed transaction. The transaction has been unanimously approved by the boards of directors of both companies and is subject to shareholder and regulatory approvals, as well as other customary conditions of closing.

F-27

EX-21

Exhibit 21

Subsidiaries of WGNB Corp.

West Georgia National Bank

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-116447) of WGNB Corp. of our report dated February 5, 2007, relating to the financial statements as of and for the year ended December 31, 2006, which appears in this Form 10-K.

	/s/ PORTER KEADLE MOORE LLP
Atlanta, Georgia
February 15, 2007

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: February 14, 2007

/s/ H.B. Lipham, III

H.B. Lipham, III

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: February 14, 2007

/s/ Steven J. Haack

Steven J. Haack

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, 2006, 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: February 14, 2007

/s/ H.B. Lipham, III

H.B. Lipham, III

President and Chief Executive Officer

(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: February 14, 2007

/s/ Steven J. Haack

Steven J. Haack

Treasurer

(Principal Financial Officer)