Shareholders

Dear Shareholder:

Enclosed is a notice of the Bank of Waynesboro’s Annual Meeting of Stockholders, which is scheduled to be held on Thursday, February 19, 2015. The Bank’s Statement of Condition, Income Report and Key Ratios Comparative, as of and for the year ending December 31, 2014, and a voting proxy are also provided for your review and use.

On behalf of the Board, management and employees, I am pleased to report our Bank, in its 110th year of operation, had a very good year!

Net earnings were $1,775,000, exceeding those of the prior year by 8% or $130,000. This earnings level resulted in a Return on Assets (ROA) and Return on Equity (ROE) of 1.23% and 9.10% respectively. Earnings per share were $59.17 compared to $54.80 in prior year. Dividends totaled $40 per share, representing a 68% cash payout on earnings per share. Shareholder equity also increased by $23.25 per share or $697,000 overall.

The Bank ended the year with a very strong capital position of $19,515,000, representing a total risk based capital position of 20.79% and a tier one leverage ratio of 13.52%.

Net charge-off/loan losses were favorable at $180,000, equating to only an 18 basis point loss ratio on the Bank’s average portfolio balance. The allowance for loan and lease losses remained solid at year end, totaling $2,192,000 for a coverage ratio of 2.21% for all loans.

The Bank’s performance ratios, as well as its financial position and regulatory standing, compare extremely favorable to those of local, state and national peer banks.

The Bank also experienced a number of successes on the non-financial side in 2014:

  • A celebration honoring the Bank’s long time commitment and service to it customers was held in Waynesboro on May 5th 2014, exactly 110 years from the date the Bank first opened its doors. Additional celebrations were later held at the Bank of Collinwood and Community Bank of Lawrence County branches. During the three days of celebration, over 1,000 customers and visitors enjoyed a selection of free gifts and a healthy serving of barbecue with all the trimmings!
  • The Bank’s website was completely redesigned during the year. The site was re-launched in the fall with not only a new look but a number of enhancements to provide more customer friendly features, easier on-line banking access, and iPad/ smart phone compatibilities. Additional enhancements are in process, including e-statements, mobile apps, a marketing platform for Other Owned Real Estate (OREO), as well as a shareholder informational page. The shareholder page is envisioned to provide quick and easy access to historical and current financial information and serve as a medium through which shareholders may express their interest in potentially buying or selling stock.
  • The Bank entered into a partnership with the MoneyTower Network which expanded our ATM services state wide. Customers now have access to over 300 surcharge-free ATMs scattered throughout Tennessee, including all ATMs in Walgreens stores. A MoneyTower app, providing GPS directions to the closest surcharge-free ATM is available for download from the Bank’s website.

Although 2014 was a very good year, challenges in 2015 are anticipated to be numerous and difficult. I can not promise success in facing these, but I can assure you they will be vigorously addressed by staff, management and the Board through a never ending or wavering commitment to our customers and you, our shareholders.

I am still most humbled and honored to be a part of this wonderful organization and promise my best in furthering its long tradition and heritage.

I look forward to seeing you at the annual meeting and encourage you to call me in the interim should you have any questions, concerns or comments.

If your plans preclude your attendance at the meeting, I would ask that you sign and return the enclosed proxy at your earliest convenience.

Thanks again for your continued support!

Sincerely,

William B. Bryant
President/CEO

To Be Held on February 19, 2015

NOTICE IS HEREBY GIVEN that the 2015 Annual Meeting of Stockholders (“Annual Meeting”) of The Bank of Waynesboro (the “Bank”), will be held at The Bank of Waynesboro, 201 South Main Street, Waynesboro, TN 38485 at 1:00 p.m., local time, on Thursday, February 19, 2015.

A Proxy Card is enclosed. Please complete and return

The Annual Meeting is for the purpose of considering and acting upon:

1. Set the number of Board Members;

2. The election of Directors of the Bank for a one year term. The recommended nominees are, and:

JASPER BREWER
ALTON TURNBO, JR
M. WRIGHT HICKERSON, III
HAROLD POPE
GEORGE M. BROWN
CLAUS THORMAEHLEN
WILLIAM B. BRYANT

3. Take action as necessary and appropriate on such other matters as may come before the Stockholders.

Any action may be taken on the foregoing proposals at the Annual Meeting on the date specified above or on any date or dates to which, by original or later adjournment, the Annual Meeting may be adjourned.

You are requested to fill in and sign the enclosed Proxy Card, which is solicited by the Board of Directors, and mail it promptly in the enclosed envelope. The Proxy Card will not be used if you attend and vote at the Annual Meeting in person.

BY ORDER OF THE BOARD OF DIRECTORS

William B. Bryant
President/CEO
Waynesboro, Tennessee

CALL TO ORDER
The Bank of Waynesboro stockholders met at 1:00 p.m. on February 20, 2014 in the Main Office board room.

The meeting was called to order by Chairman Howard Tignor, asking Mr. Mike Smith to lead the group in prayer.

NOMINATION OF RECORDING SECRETARY
President William B. Bryant made a motion to elect Mrs. Misty Rogers as recording secretary which was seconded by Mr. Wright Hickerson and unanimously approved.

MINUTES
Chairman Tignor called for a review of the minutes of the last meeting held on February 21, 2013. On motion by Mr. Claus Thormaehlen and second by Mr. George Brown, the minutes were unanimously approved.

DIRECTOR NOMINATION/CALL FOR VOTE/VOTE RESULT
Mr. Jasper Brewer made motion to set the number of Directors at nine (9) which will leave a vacancy on the Board to be filled by the Board should a suitable candidate become available. The motion was seconded by Mr. Hickerson and unanimously approved.

President Bryant made motion to re-elect the following eight (8) Directors: Mr. George Brown, Mr. Jasper Brewer, Mr. Wright Hickerson, Mr. Claus Thormaehlen, Mr. Howard Tignor, Mr. Alton Turbo, Mr. Harold Pope, and Mr. William Bryant. The motion was seconded by Mr. Thormaehlen. Chairman Tignor called for a vote by the shareholders present.

Mrs. Rogers reported that, out of 30,000 shares outstanding, 26,108 shares were voted in person and 1,919 shares were voted by proxy, totaling 28,027 shares or 93.4%. All votes cast were in favor of re-electing the aforementioned Directors.

Directors Ballots and Proxies have been made a part of these minutes.

REVIEW OF STATEMENT OF CONDITION
President Bryant reviewed the Annual Statement of Condition and Annual Income Statement which have been made a part of these minutes.

NEWS OR OTHER BUSINESS
Mr. Wright Hickerson disclosed to the shareholders his employment with Morgan Stanley Smith Barney and that, in this capacity, he conducts security transactions on behalf of the Bank. He offered to provide further information upon request.

RATIFICATION OF BOARD ACTIONS
President Bryant made motion for ratification of all actions of the Board which was seconded by Mr. Turnbo and unanimously approved.

ADJOURNED
There being no further business to discuss, Mr. Brewer made motion to adjourn which was seconded by Mr. Turnbo with all members voting ‘aye.’

The Bank of Waynesboro
Annual Statement of Condition
000’s

Assets
2014 % Change 2013 % Change 2012
Cash and Due From Banks $9,922 -0.04% $9,926 -39.95% $16,530
Securities
U.S. Treasuries & Government Agencies 21,145 13.43% 18,642 -6.04% 19,840
Municipals 3,066 0.43% 3,053 9.82% 2,780
Corporate Bonds 3,214 29.86% 2,475 106.59% 1,198
FHLB Stock 420 0.00% 420 0.00% 420
Other Stocks / Bonds 129 0.00% 129 0.00% 129
Total Securities 27,974 13.17% 24,719 1.44% 24,367
Loans
Real Estate 77,361 -6.31% 82,568 8.36% 76,196
Commercial 8,107 6.17% 7,636 29.34% 5,904
Other Loans 13,641 -3.42% 14,124 -4.44% 14,780
Total Gross Loans 99,109 -5.00% 104,328 7.69% 96,880
Allowance For Loan Losses
Reserve For Loan Loss (2,192) -2.49% (2,248) -6.10% (2,394)
Total Loans (Net) 96,917 -5.06% 102,080 8.04% 94,486
Fixed Assets
Bank Buildings (Net of Depreciation) 2,235 1.27% 2,207 -4.87% 2,320
Furn., Fixtures, Equip. (Net of Depreciation) 62 37.78% 45 -21.05% 57
Land 884 0.00% 884 0.00% 884
Bank Vehicles (Net of Depreciation) 9 0.00% 11 0.00%
Computer Equipment (Net of Depreciation) 93 6.90% 87 -26.89% 119
Total Fixed Assets 3,283 1.52% 3,234 -4.32% 3,380
Other Assets
Other Assets 5,105 22.01% 4,184 -1.74% 4,258
Other Real Estate Owned 1,109 24.75% 889 -12.41% 1,015
Total Other Assets 6,214 22.49% 5,073 -3.79% 5,273
Total Assets $144,310 -0.50% $145,032 0.69% $144,036

Liabilities and Capital

Liabilities

2014 % Change 2013 % Change 2012
Non-Interest Bearing Deposits
Demand Deposits $19,613 9.25% $17,953 5.41% $17,031
Interest Bearing Deposits
NOW Accounts 17,654 3.28% 17,094 9.41% 15,624
Money Market Accounts 25,634 3.65% 24,732 2.35% 24,163
Savings Accounts 12,437 6.48% 11,680 15.05% 10,152
Total Interest Bearing Deposits 55,725 4.15% 53,506 7.14% 49,939
Time Deposits
Certificates of Deposits 35,000 -12.03% 39,785 -4.93% 41,846
IRA’s 13,694 -9.43% 15,119 -9.12% 16,637
Total Time Deposits 48,694 -11.31% 54,904 -6.12% 58,483
Total Deposits 124,032 -1.84% 126,363 0.73% 125,453
Other Liabilites 763 -612.08% (149) 152.54% (59)
Total Liabilities $124,795 -1.12% $126,214 0.65% $125,394
Capital
Common Stock
Common Stock $300 0.00% $300 0.00% $300
Treasury Stock 0.00% 0.00% (6)
Total Common Stock 300 0.00% 300 2.04% 294
Surplus 1,000 0.00% 1,000 0.00% 1,000
Undivided Profits 16,406 2.78% 15,962 2.28% 15,606
Unrealized Gain/Loss – AFS 34 -138.64% (88) -147.06% 187
Current Year Earnings 1,775 7.97% 1,644 5.72% 1,555
Total Capital $19,515 3.70% $18,818 0.94% $18,642
Total Liabilities and Capital $144,310 -0.50% $145,032 0.69% $144,036
Book Value per share of Common stock $650.50 3.71% $627.25 0.94% $621.39

The Bank of Waynesboro
Annual Income Statement
000’s

Interest Income
2014 % Change 2013 % Change 2012
Fed Funds Sold $- #DIV/0! $- -100.00% $6
Investments
U.S. Agencies 228 14.00% 200 -7.83% 217
Municipals 102 7.37% 95 3.26% 92
Corporate Bonds 80 33.33% 60 -18.92% 74
FHLB Stock 17 -5.56% 18 -5.26% 19
Other Stocks / Bonds / Investments 75 11.94% 67 -1.47% 68
Total Investment Income 502 14.09% 440 -6.38% 470
Loans
Real Estate 4,186 -1.25% 4,239 -3.79% 4,406
Commercial 461 15.54% 399 10.22% 362
Other Loans 1,031 1.28% 1,018 -3.23% 1,052
Total Interest on Loans 5,678 0.39% 5,656 -2.82% 5,820
Total Interest Income $6,180 1.38% $6,096 -3.18% $6,296
Interest Expense
Interest Bearing Deposits
NOW Accounts $54 5.88% $51 -42.70% $89
Money Market Accounts 140 2.94% 136 -12.82% 156
Savings Accounts 38 5.56% 36 -20.00% 45
Total Interest Expense on Interest Bearing Deposits 232 4.04% 223 -23.10% 290
Time Deposits
Certificates of Deposits 260 -13.33% 300 -27.54% 414
IRA’s 130 -28.18% 181 -32.96% 270
Total Interest Expense on Time Deposits 390 -18.92% 481 -29.68% 684
Total Interest Expense on Deposits 622 -11.65% 704 -27.72% 974
Other Borrowed Money 0.00% #DIV/0!
Total Interest Expense $622 -11.65% $704 -27.72% $974
Net Interest Income $5,558 3.08% $5,392 1.32% $5,322
Non-Interest Income
2014 % Change 2013 % Change 2012
Loan Fees $460 14.43% $402 14.53% $351
Service Charges
Service Charges on Deposits 55 22.22% 45 -37.50% 72
NSF / Overdraft Charges 547 -8.53% 598 16.57% 513
Total Service Charges on Deposits 602 -6.38% 643 9.91% 585
Other Income
Earnings on Cash Value of Life Insurance 130 0.78% 129 6.61% 121
Other Income 159 -0.63% 160 -21.18% 203
Total Non-Interest Income $1,351 1.27% $1,334 5.87% $1,260
Non-Interest Expense
Operating Expenses
Salaries and Benefits 2,348 1.21% 2,320 0.61% 2,306
Occupancy Expense 322 -5.57% 341 9.29% 312
Furniture, Fixtures, and Equipment 355 6.29% 334 -19.71% 416
Stationary and Office Supplies 60 -4.76% 63 -17.11% 76
Telephone 106 -9.40% 117 0.86% 116
Postage and Freight 66 3.13% 64 8.47% 59
Vehicle Expense 3 50.00% 2 100.00% 1
Outside Services 241 -10.07% 268 7.63% 249
Marketing 61 32.61% 46 -9.80% 51
Loan and Collection Expense 53 3.92% 51 -27.14% 70
Director and Committee Fees 59 5.36% 56 -11.11% 63
Banking Fees 134 -5.63% 142 94.52% 73
Franchise Taxes 49 4.26% 47 0.00% 47
State Excise Taxes 173 8.81% 159 6.00% 150
(Gains) / Losses (8) 166.67% (3) -104.92% 61
Other Operating Expenses 148 -8.07% 161 10.27% 146
Total Operating Expenses $4,170 0.05% $4,168 -0.67% $4,196
Loan Loss Expense 154 -8.33% 168 29.23% 130
Federal Income Taxes 810 8.72% 745 6.28% 701
Net Income After Taxes $1,775 7.90% $1,645 5.79% $1,555
Earnings per share of Common stock $59.17 7.90% $54.83 5.79% $51.83

The Bank of Waynesboro
Management Ratios

2014 2013 2012
Return on Assets 1.23% 1.13% 1.08%
Return on Equity 9.10% 8.74% 8.34%
Total Loans / Total Assets 68.68% 71.93% 67.26%
Total Equity / Total Assets 13.52% 12.98% 12.94%
Loan / Deposit Ratio 79.91% 82.56% 77.22%
Average Efficiency Ratio 75.60% 75.60% 76.40%
Book Value per share of Common Stock $650.50 $627.25 $621.39
Earnings per share of Common Stock $59.17 $54.80 $51.83
Dividends Declared per Share $40.00 $40.00 $40.00
Reserve for Loan Losses / Total loans 2.21% 2.15% 2.47%
Past Due Percentage 2.23% 2.56% 2.52%