1http://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#OtherLiabilitieshttp://fasb.org/us-gaap/2023#OtherLiabilitieshttp://fasb.org/us-gaap/2023#OtherLiabilitieshttp://fasb.org/us-gaap/2023#OtherLiabilities2020 2021 2022 20231http://fasb.org/us-gaap/2023#OtherAssets0http://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#InterestAndFeeIncomeLoansAndLeasesHeldInPortfoliohttp://fasb.org/us-gaap/2023#OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentBeforeReclassificationAdjustmentsNetOfTaxhttp://fasb.org/us-gaap/2023#OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentBeforeReclassificationAdjustmentsNetOfTax

Exhibit 13.1

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in credit losses and provisions for these losses, (ii) deterioration in the real estate market conditions in the Company’s market areas including demand for residential real estate loans as a result of elevated rates on residential real estate mortgage loans, (iii) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (iv) adverse conditions in local or national economies, including the economy in the Company’s market areas, including as a result of the impact of escalating geopolitical tensions (including hostilities in the Middle East), inflationary pressures and the elevated rate environment, supply chain disruptions and labor shortages on our customers and on their businesses, (v) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates or defer increases to those rates in an elevated rate environment or lower rates in a falling rate environment, (vi) the ability to grow and retain low-cost core deposits, (vii) significant downturns in the business of one or more large customers, (viii) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels, or regulatory requests or directives, (ix) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, (x) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xi) inadequate allowance for credit losses, (xii) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xiii) results of regulatory examinations, (xiv) the vulnerability of the Company's network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, social engineering, fraud, spam attacks, ransomware attacks, human error, natural disasters, power loss, and other security breaches, (xv) the possibility of additional increases to compliance costs or other operational expenses as a result of increased regulatory oversight, (xvi) loss of key personnel, and (xvii) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, examinations or other legal and/or regulatory actions. These risks and uncertainties may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. The Company’s future operating results depend on a number of factors which were derived utilizing numerous assumptions that could cause actual results to differ materially from those projected in forward-looking statements

General

The Company is a registered bank holding company that owns 100% of the common stock of Wilson Bank and Trust (“Wilson Bank” or “the Bank”), a Tennessee state-chartered bank headquartered in Lebanon, Tennessee. The Company was formed in 1992. Wilson Bank commenced operations in 1987.

Wilson Bank is a community bank headquartered in Lebanon, Tennessee, principally serving Wilson County, DeKalb County, Smith County, Trousdale County, Rutherford County, Davidson County, Putnam County, Sumner County, Hamilton County, and Williamson County, Tennessee as its primary market areas. The markets served by the Bank are largely within the Nashville-Davidson-Murfreesboro-Franklin, Tennessee metropolitan statistical area. At December 31, 2023, Wilson Bank had thirty-one locations in Wilson, Davidson, DeKalb, Smith, Sumner, Rutherford, Putnam, Trousdale, Hamilton, and Williamson Counties, though Wilson Bank closed one of its locations in Wilson County in January 2024. Management believes that these counties offer an environment for continued growth, and the Company’s target market is local consumers, professionals and small businesses. Wilson Bank offers a wide range of banking services,

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

including checking, savings and money market deposit accounts, certificates of deposit and loans for consumer, commercial and real estate purposes. The Company also offers an investment center which offers a full line of investment services to its customers.

Wilson Bank also holds an ownership interest in Encompass Home Loan Lending, LLC ("Encompass"), a company offering mortgage banking services that is 51% owned by Wilson Bank and 49% owned by two home builders operating in Wilson Bank's market areas. The results of Encompass, which commenced operations on June 1, 2022, are consolidated in the Company's financial statements included elsewhere in this Annual Report.

The following discussion and analysis is designed to assist readers in their analysis of the Company’s consolidated financial statements and should be read in conjunction with such consolidated financial statements and the notes thereto.

Application of Critical Accounting Policies and Accounting Estimates

We follow accounting and reporting policies that conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information, forecasted economic conditions, and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements.

Accounting policies related to the allowance for credit losses on financial instruments including loans and off-balance-sheet credit exposures are considered to be critical as these policies involve considerable subjective judgment and estimation by management. As discussed in Note 1 - Summary of Significant Accounting Policies, our policies related to allowances for credit losses changed on January 1, 2022 in connection with the adoption of a new accounting standard update as codified in Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. For additional information regarding critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies and Note 2 - Loans and Allowance for Credit Losses in the notes to consolidated financial statements contained elsewhere in this Annual Report.

Non-GAAP Financial Measures

This Annual Report contains certain financial measures that are not measures recognized under U.S. GAAP and, therefore, are considered non-GAAP financial measures. Members of Company management use these non-GAAP financial measures in their analysis of the Company’s performance, financial condition, and efficiency of operations. Management of the Company believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods. Management of the Company also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding underlying operating performance and identifying and analyzing ongoing operating trends. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with U.S. GAAP. Moreover, the manner in which the non-GAAP financial measures discussed herein are calculated may differ from the manner in which measures with similar names are calculated by other companies. You should understand how other companies calculate their financial measures similar to, or with names similar to, the non-GAAP financial measures we have discussed herein when comparing such non-GAAP financial measures.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The non-GAAP measures in this Annual Report include “pre-tax pre-provision income,” “pre-tax pre-provision basic earnings per share,” “pre-tax pre-provision annualized return on average shareholders' equity,” and “pre-tax pre-provision annualized return on average assets.” A reconciliation of these measures to the comparable GAAP measures is included below.

Selected Financial Information

The executive management and Board of Directors of the Company evaluate key performance indicators (KPIs) on a continuing basis. These KPIs serve as benchmarks of Company performance and are used in making strategic decisions and, in some cases, are utilized for purposes of setting performance targets for our executive officers' incentive-based cash compensation. The following table represents the KPIs that management has determined to be important in making decisions for the Bank, in each case as of and for the year ended December 31, 2023, 2022 and 2021:

 

 

 

2023

 

 

2022

 

 

2021

 

PER SHARE DATA:

 

 

 

 

 

 

 

 

 

Basic earnings per common share (GAAP)

 

$

4.21

 

 

$

4.66

 

 

$

4.44

 

Pre-tax pre-provision basic earnings per share (1)

 

$

5.70

 

 

$

6.66

 

 

$

5.89

 

Diluted earnings per common share (GAAP)

 

$

4.20

 

 

$

4.65

 

 

$

4.43

 

Cash dividends per common share

 

$

1.50

 

 

$

1.85

 

 

$

1.35

 

Dividends declared per common share as a percentage of basic earnings per common share

 

 

35.63

%

 

 

39.70

%

 

 

30.41

%

 

(1)
Excludes income tax expense, and for 2023 and 2022 provision for credit losses-loans, provision for credit losses-available for sale securities, and provision for credit losses on off-balance sheet exposures. For 2021 excludes income tax expense, provision for loan losses, and provision for off-balance sheet exposures.

 

 

 

2023

 

 

2022

 

 

2021

 

PERFORMANCE RATIOS:

 

 

 

 

 

 

 

 

 

Return on average shareholders' equity (GAAP) (1)

 

 

12.47

%

 

 

14.36

%

 

 

12.45

%

Pre-tax pre-provision return on average shareholders' equity (2)

 

 

16.86

%

 

 

20.51

%

 

 

16.52

%

Return on average assets (GAAP) (3)

 

 

1.08

%

 

 

1.29

%

 

 

1.35

%

Pre-tax pre-provision return on average assets (2)

 

 

1.47

%

 

 

1.84

%

 

 

1.79

%

Efficiency ratio (GAAP) (4)

 

 

60.38

%

 

 

55.11

%

 

 

56.60

%

 

(1)
Return on average shareholders' equity is the result of net income divided by average shareholders' equity.
(2)
Excludes income tax expense, and for 2023 and 2022 provision for credit losses-loans, provision for credit losses-available for sale securities, and provision for credit losses on off-balance sheet exposures. For 2021 excludes income tax expense, provision for loan losses, and provision for off-balance sheet exposures.
(3)
Return on average assets is the result of net income divided by average assets.
(4)
Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and non-interest income.

 

 

 

December 31, 2023

 

 

December 31, 2022

 

BALANCE SHEET RATIOS:

 

 

 

 

 

 

Total capital to assets ratio

 

 

8.86

%

 

 

8.41

%

Equity to asset ratio (Average equity divided by average total assets)

 

 

8.69

%

 

 

8.99

%

Tier 1 capital to average assets

 

 

10.60

%

 

 

11.18

%

Non-performing asset ratio

 

 

0.03

%

 

 

0.02

%

Book value per common share

 

$

36.74

 

 

$

31.42

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Reconciliation of Non-GAAP Financial Measures

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

December 31, 2021

 

Pre-tax pre-provision income:

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders (GAAP)

 

$

48,938

 

 

$

53,042

 

 

$

49,426

 

Add: provision for credit losses - loans

 

 

6,300

 

 

 

8,656

 

 

 

1,143

 

Add: provision expense (benefit) for credit losses on off-balance sheet exposures

 

 

(2,989

)

 

 

(1,014

)

 

 

262

 

Add: Provision for credit losses - available-for-sale securities

 

 

—

 

 

 

—

 

 

 

—

 

Add: income tax expense

 

 

13,939

 

 

 

15,056

 

 

 

14,732

 

Pre-tax pre-provision income

 

$

66,188

 

 

$

75,740

 

 

$

65,563

 

 

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision basic earnings per share:

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision income

 

$

66,188

 

 

$

75,740

 

 

$

65,563

 

Weighted average shares

 

 

11,611,690

 

 

 

11,377,617

 

 

 

11,131,897

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share (GAAP)

 

$

4.21

 

 

$

4.66

 

 

$

4.44

 

Provision for credit losses - loans

 

$

0.54

 

 

$

0.76

 

 

$

0.10

 

Provision expense (benefit) for credit losses on off-balance sheet exposures

 

$

(0.26

)

 

$

(0.09

)

 

$

0.02

 

Provision for credit losses - available-for-sale securities

 

$

—

 

 

$

—

 

 

$

—

 

Income tax expense

 

$

1.21

 

 

$

1.33

 

 

$

1.33

 

Pre-tax pre-provision basic earnings per common share

 

$

5.70

 

 

$

6.66

 

 

$

5.89

 

 

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision return on average assets:

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision income

 

$

66,188

 

 

$

75,740

 

 

$

65,563

 

Average assets

 

 

4,517,697

 

 

 

4,107,738

 

 

 

3,653,528

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (GAAP)

 

 

1.08

%

 

 

1.29

%

 

 

1.35

%

Provision for credit losses - loans

 

 

0.14

%

 

 

0.21

%

 

 

0.03

%

Provision expense (benefit) for credit losses on off-balance sheet exposures

 

 

(0.07

)%

 

 

(0.02

)%

 

 

0.01

%

Provision for credit losses - available-for-sale securities

 

 

—

%

 

 

—

%

 

 

—

%

Income tax expense

 

 

0.32

%

 

 

0.36

%

 

 

0.40

%

Pre-tax pre-provision return on average assets

 

 

1.47

%

 

 

1.84

%

 

 

1.79

%

 

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision return on average shareholders' equity:

 

 

 

 

 

 

 

 

 

Pre-tax pre-provision income

 

$

66,188

 

 

$

75,740

 

 

$

65,563

 

Average total shareholders' equity

 

 

392,466

 

 

 

369,314

 

 

 

396,879

 

 

 

 

 

 

 

 

 

 

 

Return on average shareholders' equity (GAAP)

 

 

12.47

%

 

 

14.36

%

 

 

12.45

%

Provision for credit losses - loans

 

 

1.61

%

 

 

2.34

%

 

 

0.29

%

Provision expense (benefit) for credit losses on off-balance sheet exposures

 

 

(0.76

)%

 

 

(0.27

)%

 

 

0.07

%

Provision for credit losses - available-for-sale securities

 

 

—

%

 

 

—

%

 

 

—

%

Income tax expense

 

 

3.54

%

 

 

4.08

%

 

 

3.71

%

Pre-tax pre-provision return on average shareholders' equity

 

 

16.86

%

 

 

20.51

%

 

 

16.52

%

 

Results of Operations

Net earnings for the year ended December 31, 2023 were $48,938,000, a decrease of $4,104,000, or 7.74%, compared to net earnings of $53,042,000 for the year ended December 31, 2022. Our 2022 net earnings were 7.32%, or $3,616,000, higher than our net earnings of $49,426,000 for 2021. Basic earnings per share were $4.21 in 2023, compared with $4.66 in 2022 and $4.44 in 2021. Diluted earnings per share were $4.20 in 2023, compared to $4.65 in 2022 and $4.43 in 2021. The decrease in net earnings and diluted and basic earnings per share during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to a decrease in net

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

interest income before provision for credit losses and an increase in non-interest expense, partially offset by an increase in non-interest income and a decrease in provision for credit losses - loans. The decrease in net interest income was due to an increase in cost of funds between the relevant periods, partially offset by an increase in average interest earning asset balances and an increase in the yield earned on interest earning assets. Net interest margin for the year ended December 31, 2023 was 3.30%, compared to 3.70% and 3.44% for the years ended December 31, 2022 and December 31, 2021, respectively. Net interest spread for the year ended December 31, 2023 was 2.97%, compared to 3.62% and 3.36% for the years ended December 31, 2022 and December 31, 2021, respectively. The increase in non-interest expense largely resulted from the Company's continued growth as well as rising costs of employees' salaries and benefits as a result of competition we are experiencing for human capital in our market areas. See below for further discussion regarding variances related to net interest income, provision for credit losses, non-interest income, non-interest expense and income taxes.

The decrease in Return on Average Assets (ROA) for the year ended December 31, 2023 when compared to December 31, 2022 as set forth in the table above was primarily attributable to an increase in average assets, interest expense, salaries and employee benefits, and FDIC insurance and data processing costs; partially offset by a decrease in the loss on sale of securities, an increase in service charges on deposit accounts, an increase in interest income and a decrease in the provision for credit losses.

The decrease in ROA for the year ended December 31, 2022 when compared to December 31, 2021 as set forth in the table above was primarily attributable to an increase in average assets, an increase in provision expense, a decrease in fees and gains on sales of mortgage loans, a loss on sale of securities, and an increase in employee salaries and benefits, partially offset by an increase in net interest income.

The increase in the total capital to assets ratio for the year ended December 31, 2023 when compared to December 31, 2022 as set forth in the table above was primarily attributable to a decrease in the unrealized loss of our available-for-sale securities as a result of an improvement in underlying market conditions. The equity to asset ratio declined as a result of a higher average of unrealized losses on our available-for-sale securities.

Net Interest Income

The schedule which follows indicates the average balances for each major balance sheet item, an analysis of net interest income and net interest expense and the change in interest income and interest expense attributable to changes in volume and changes in rates.

The difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities is net interest income, which is the Company's gross margin. An analysis of net interest income is more meaningful when income from tax-exempt earning assets is adjusted to a tax equivalent basis. Accordingly, the following schedule includes a tax equivalent adjustment of tax-exempt earning assets, assuming a weighted average Federal income tax rate of 21% for 2023, 2022 and 2021.

In this schedule, "change due to volume" is the change in volume multiplied by the interest rate for the prior year. "Change due to rate" is the change in interest rate multiplied by the volume for the prior year. Changes in interest income and expense not due solely to volume or rate changes have been allocated to the “change due to volume” and “change due to rate” in proportion to the relationship of the absolute dollar amounts of the change in each category.

Non-accrual loans have been included in the loan category.

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2023/2022 Change

 

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Due to

 

 

Due to

 

 

 

 

 

Percent

 

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Volume

 

 

Rate

 

 

Total

 

 

Change

 

Loans, net of unearned interest (1) (2)

 

$

3,398,070

 

 

 

5.93

%

 

 

198,739

 

 

$

2,796,301

 

 

 

5.05

%

 

 

138,161

 

 

$

33,519

 

 

 

27,059

 

 

 

60,578

 

 

 

 

Investment securities—taxable

 

 

731,172

 

 

 

2.41

 

 

 

17,597

 

 

 

814,716

 

 

 

1.95

 

 

 

15,902

 

 

 

(1,747

)

 

 

3,442

 

 

 

1,695

 

 

 

 

Investment securities—tax exempt

 

 

66,600

 

 

 

2.36

 

 

 

1,574

 

 

 

72,724

 

 

 

1.91

 

 

 

1,392

 

 

 

(124

)

 

 

306

 

 

 

182

 

 

 

 

Taxable equivalent adjustment (3)

 

 

—

 

 

 

0.63

 

 

 

418

 

 

 

—

 

 

 

0.51

 

 

 

370

 

 

 

(33

)

 

 

81

 

 

 

48

 

 

 

 

Total tax-exempt investment securities

 

 

66,600

 

 

 

2.99

 

 

 

1,992

 

 

 

72,724

 

 

 

2.42

 

 

 

1,762

 

 

 

(157

)

 

 

387

 

 

 

230

 

 

 

 

Total investment securities

 

 

797,772

 

 

 

2.46

 

 

 

19,589

 

 

 

887,440

 

 

 

1.99

 

 

 

17,664

 

 

 

(1,904

)

 

 

3,829

 

 

 

1,925

 

 

 

 

Loans held for sale

 

 

4,637

 

 

 

5.26

 

 

 

244

 

 

 

7,131

 

 

 

3.70

 

 

 

264

 

 

 

(110

)

 

 

90

 

 

 

(20

)

 

 

 

Federal funds sold

 

 

8,157

 

 

 

5.16

 

 

 

421

 

 

 

15,486

 

 

 

0.72

 

 

 

111

 

 

 

(76

)

 

 

386

 

 

 

310

 

 

 

 

Interest bearing deposits

 

 

92,655

 

 

 

3.99

 

 

 

3,697

 

 

 

204,548

 

 

 

0.74

 

 

 

1,522

 

 

 

(1,238

)

 

 

3,413

 

 

 

2,175

 

 

 

 

Restricted equity securities

 

 

3,551

 

 

 

8.76

 

 

 

311

 

 

 

4,768

 

 

 

3.94

 

 

 

188

 

 

 

(58

)

 

 

181

 

 

 

123

 

 

 

 

Total earning assets

 

 

4,304,842

 

 

 

5.24

 

 

 

223,001

 

 

 

3,915,674

 

 

 

4.11

 

 

 

157,910

 

 

 

30,133

 

 

 

34,958

 

 

 

65,091

 

 

 

41.22

%

Cash and due from banks

 

 

25,066

 

 

 

 

 

 

 

 

 

24,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loans

 

 

(42,214

)

 

 

 

 

 

 

 

 

(36,444

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment

 

 

62,013

 

 

 

 

 

 

 

 

 

61,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

167,990

 

 

 

 

 

 

 

 

 

142,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,517,697

 

 

 

 

 

 

 

 

$

4,107,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2023/2022 Change

 

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Due to

 

 

Due to

 

 

 

 

 

Percent

 

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Volume

 

 

Rate

 

 

Total

 

 

Change

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable order of withdrawal accounts

 

$

976,154

 

 

 

0.60

%

 

 

5,847

 

 

$

1,083,028

 

 

 

0.24

%

 

 

2,546

 

 

$

(274

)

 

 

3,575

 

 

 

3,301

 

 

 

 

Money market demand accounts

 

 

1,123,482

 

 

 

2.03

 

 

 

22,769

 

 

 

1,250,916

 

 

 

0.47

 

 

 

5,905

 

 

 

(661

)

 

 

17,524

 

 

 

16,863

 

 

 

 

Time deposits

 

 

1,264,602

 

 

 

3.98

 

 

 

50,341

 

 

 

601,100

 

 

 

1.08

 

 

 

6,486

 

 

 

12,762

 

 

 

31,094

 

 

 

43,856

 

 

 

 

Other savings deposits

 

 

322,458

 

 

 

1.43

 

 

 

4,625

 

 

 

332,918

 

 

 

0.34

 

 

 

1,116

 

 

 

(36

)

 

 

3,545

 

 

 

3,509

 

 

 

 

Total interest-bearing deposits

 

 

3,686,696

 

 

 

2.27

 

 

 

83,582

 

 

 

3,267,962

 

 

 

0.49

 

 

 

16,053

 

 

 

11,791

 

 

 

55,738

 

 

 

67,529

 

 

 

 

Federal Home Loan Bank advances

 

 

63

 

 

 

3.05

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

 

Fed funds purchased

 

 

541

 

 

 

4.48

 

 

 

24

 

 

 

256

 

 

 

5.47

 

 

 

14

 

 

 

13

 

 

 

(3

)

 

 

10

 

 

 

 

Finance leases

 

 

2,266

 

 

 

3.14

 

 

 

71

 

 

 

1,928

 

 

 

3.43

 

 

 

66

 

 

 

11

 

 

 

(6

)

 

 

5

 

 

 

 

Total interest-bearing liabilities

 

 

3,689,566

 

 

 

2.27

 

 

 

83,679

 

 

 

3,270,146

 

 

 

0.49

 

 

 

16,133

 

 

 

11,817

 

 

 

55,729

 

 

 

67,546

 

 

 

418.68

%

Demand deposits

 

 

399,683

 

 

 

 

 

 

 

 

 

434,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

35,982

 

 

 

 

 

 

 

 

 

33,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

392,466

 

 

 

 

 

 

 

 

 

369,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

4,517,697

 

 

 

 

 

 

 

 

$

4,107,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

 

 

$

139,322

 

 

 

 

 

 

 

 

$

141,777

 

 

$

18,316

 

 

$

(20,771

)

 

$

(2,455

)

 

 

(1.73

%)

Net interest margin (4)

 

 

 

 

 

3.30

%

 

 

 

 

 

 

 

 

3.70

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest spread (5)

 

 

 

 

 

2.97

%

 

 

 

 

 

 

 

 

3.62

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Yields on loans and total earning assets include the impact of State income tax credits related to incentive loans at below market rates and tax exempt loans to municipalities of $2.7 million and $3.0 million for the years ended December 31, 2023 and 2022, respectively.
(2)
Loan fees of $12.0 million are included in interest income in 2023. Loan fees of $12.9 million are included in interest income in 2022, inclusive of $139,000 in SBA fees related to PPP loans.
(3)
The tax equivalent adjustments have been computed using a 21% Federal tax rate.
(4)
Net interest income on a tax equivalent basis divided by average interest-earning assets.
(5)
Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities.

 

 

 

Dollars In Thousands

 

 

 

2022

 

 

2021

 

 

2022/2021 Change

 

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Due to

 

 

Due to

 

 

 

 

 

Percent

 

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Volume

 

 

Rate

 

 

Total

 

 

Change

 

Loans, net of unearned interest (1) (2)

 

$

2,796,301

 

 

 

5.05

%

 

 

138,161

 

 

$

2,382,262

 

 

 

5.07

%

 

 

118,676

 

 

$

20,079

 

 

 

(594

)

 

 

19,485

 

 

 

 

Investment securities—taxable

 

 

814,716

 

 

 

1.95

 

 

 

15,902

 

 

 

645,513

 

 

 

1.38

 

 

 

8,922

 

 

 

2,714

 

 

 

4,266

 

 

 

6,980

 

 

 

 

Investment securities—tax exempt

 

 

72,724

 

 

 

1.91

 

 

 

1,392

 

 

 

79,096

 

 

 

1.55

 

 

 

1,229

 

 

 

(105

)

 

 

268

 

 

 

163

 

 

 

 

Taxable equivalent adjustment (3)

 

 

—

 

 

 

0.51

 

 

 

370

 

 

 

—

 

 

 

0.41

 

 

 

327

 

 

 

(27

)

 

 

70

 

 

 

43

 

 

 

 

Total tax-exempt investment securities

 

 

72,724

 

 

 

2.42

 

 

 

1,762

 

 

 

79,096

 

 

 

1.97

 

 

 

1,556

 

 

 

(132

)

 

 

338

 

 

 

206

 

 

 

 

Total investment securities

 

 

887,440

 

 

 

1.99

 

 

 

17,664

 

 

 

724,609

 

 

 

1.45

 

 

 

10,478

 

 

 

2,582

 

 

 

4,604

 

 

 

7,186

 

 

 

 

Loans held for sale

 

 

7,131

 

 

 

3.70

 

 

 

264

 

 

 

16,478

 

 

 

2.66

 

 

 

438

 

 

 

(306

)

 

 

132

 

 

 

(174

)

 

 

 

Federal funds sold

 

 

15,486

 

 

 

0.72

 

 

 

111

 

 

 

31,083

 

 

 

0.04

 

 

 

13

 

 

 

(10

)

 

 

108

 

 

 

98

 

 

 

 

Interest bearing deposits

 

 

204,548

 

 

 

0.74

 

 

 

1,522

 

 

 

349,254

 

 

 

0.13

 

 

 

445

 

 

 

(256

)

 

 

1,333

 

 

 

1,077

 

 

 

 

Restricted equity securities

 

 

4,768

 

 

 

3.94

 

 

 

188

 

 

 

5,089

 

 

 

2.32

 

 

 

118

 

 

 

(7

)

 

 

77

 

 

 

70

 

 

 

 

Total earning assets

 

 

3,915,674

 

 

 

4.11

 

 

 

157,910

 

 

 

3,508,775

 

 

 

3.77

 

 

 

130,168

 

 

 

22,082

 

 

 

5,660

 

 

 

27,742

 

 

 

21.31

%

Cash and due from banks

 

 

24,087

 

 

 

 

 

 

 

 

 

30,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loans

 

 

(36,444

)

 

 

 

 

 

 

 

 

(39,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank premises and equipment

 

 

61,807

 

 

 

 

 

 

 

 

 

59,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

142,614

 

 

 

 

 

 

 

 

 

93,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,107,738

 

 

 

 

 

 

 

 

$

3,653,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

 

Dollars In Thousands

 

 

 

2022

 

 

2021

 

 

2022/2021 Change

 

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Average

 

 

Rates/

 

 

Income/

 

 

Due to

 

 

Due to

 

 

 

 

 

Percent

 

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Balance

 

 

Yields

 

 

Expense

 

 

Volume

 

 

Rate

 

 

Total

 

 

Change

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable order of withdrawal accounts

 

$

1,083,028

 

 

 

0.24

%

 

 

2,546

 

 

$

912,577

 

 

 

0.20

%

 

 

1,866

 

 

$

378

 

 

 

302

 

 

 

680

 

 

 

 

Money market demand accounts

 

 

1,250,916

 

 

 

0.47

 

 

 

5,905

 

 

 

1,079,002

 

 

 

0.14

 

 

 

1,547

 

 

 

283

 

 

 

4,075

 

 

 

4,358

 

 

 

 

Time deposits

 

 

601,100

 

 

 

1.08

 

 

 

6,486

 

 

 

605,162

 

 

 

1.26

 

 

 

7,610

 

 

 

(51

)

 

 

(1,073

)

 

 

(1,124

)

 

 

 

Other savings deposits

 

 

332,918

 

 

 

0.34

 

 

 

1,116

 

 

 

253,265

 

 

 

0.19

 

 

 

480

 

 

 

185

 

 

 

451

 

 

 

636

 

 

 

 

Total interest-bearing deposits

 

 

3,267,962

 

 

 

0.49

 

 

 

16,053

 

 

 

2,850,006

 

 

 

0.40

 

 

 

11,503

 

 

 

795

 

 

 

3,755

 

 

 

4,550

 

 

 

 

Federal Home Loan Bank advances

 

 

—

 

 

 

—

 

 

 

—

 

 

 

858

 

 

 

15.50

 

 

 

133

 

 

 

(133

)

 

 

—

 

 

 

(133

)

 

 

 

Fed funds purchased

 

 

256

 

 

 

5.47

 

 

 

14

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

 

 

—

 

 

 

14

 

 

 

 

Finance leases

 

 

1,928

 

 

 

3.43

 

 

 

66

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

66

 

 

 

—

 

 

 

66

 

 

 

 

Total interest-bearing liabilities

 

 

3,270,146

 

 

 

0.49

 

 

 

16,133

 

 

 

2,850,864

 

 

 

0.41

 

 

 

11,636

 

 

 

742

 

 

 

3,755

 

 

 

4,497

 

 

 

38.65

%

Demand deposits

 

 

434,443

 

 

 

 

 

 

 

 

 

385,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

33,835

 

 

 

 

 

 

 

 

 

20,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

369,314

 

 

 

 

 

 

 

 

 

396,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

4,107,738

 

 

 

 

 

 

 

 

$

3,653,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

 

 

$

141,777

 

 

 

 

 

 

 

 

$

118,532

 

 

$

21,340

 

 

$

1,905

 

 

$

23,245

 

 

 

19.61

%

Net interest margin (4)

 

 

 

 

 

3.70

%

 

 

 

 

 

 

 

 

3.44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest spread (5)

 

 

 

 

 

3.62

%

 

 

 

 

 

 

 

 

3.36

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)
Yields on loans and total earning assets include the impact of State income tax credits related to incentive loans at below market rates and tax exempt loans to municipalities of $3.0 million and $2.1 million for the years ended December 31, 2022 and 2021, respectively.
(2)
Loan fees of $12.9 million are included in interest income in 2022, inclusive of $139,000 in SBA fees related to PPP loans. Loan fees of $16.1 million are included in interest income in 2021, inclusive of $3.6 million in SBA fees related to PPP loans.
(3)
The tax equivalent adjustment for 2022 and 2021 have been computed using a 21% Federal tax rate.
(4)
Net interest income on a tax equivalent basis divided by average interest-earning assets.
(5)
Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities.

The components of our loan yield, a key driver to our net interest margin for the years ended December 31, 2023, 2022, and 2021 were as follows:

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

Interest Income

 

 

Average Yield

 

 

Interest Income

 

 

Average Yield

 

 

Interest Income

 

 

Average Yield

 

Loan yield components:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest rates

 

 

186,754

 

 

 

5.50

%

 

 

125,281

 

 

 

4.48

%

 

 

102,592

 

 

 

4.31

%

Origination and other fee income

 

 

11,985

 

 

 

0.35

%

 

 

12,741

 

 

 

0.46

%

 

 

12,476

 

 

 

0.52

%

PPP loan fee income

 

 

—

 

 

 

—

%

 

 

139

 

 

 

—

%

 

 

3,608

 

 

 

0.15

%

Loan tax credits and tax-exempt loan interest

 

 

2,677

 

 

 

0.08

%

 

 

2,953

 

 

 

0.11

%

 

 

2,112

 

 

 

0.09

%

Total

 

$

201,416

 

 

 

5.93

%

 

$

141,114

 

 

 

5.05

%

 

$

120,788

 

 

 

5.07

%

 

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Total interest income in 2023 was $222,583,000, up 41.29% when compared with $157,540,000 in 2022, which was up 21.33% when compared to $129,841,000 in 2021, in each case excluding tax exempt adjustments relating to tax exempt securities and loans. The increase in total interest income in 2023 when compared to 2022 was primarily attributable to an increase in interest earned on loans, an increase in interest and dividends earned on securities, and an increase in interest earned on interest bearing deposits. The increase in interest earned on loans resulted from an overall increase in average loan balances and an increase in the average yield earned on loans, which was primarily due to the elevated short term interest rate environment in 2023, as new loans were put on at higher contractual interest rates and a portion of the Bank's variable loan portfolio repriced to current market rates. Approximately eighty two percent of the loans in our loan portfolio are variable rate loans, primarily indexed to the Federal Reserve prime rate. Fees earned on loans totaled $11,985,000, $12,880,000 and $16,084,000 for the years ended 2023, 2022, and 2021, respectively. The decrease in fees earned on loans for the year ended 2023 when compared to the year ended 2022 was attributable to a decrease in the absolute number of loan originations. The total amount of state income tax credits and tax-exempt loan interest included in our loan yields were $2,677,000, $2,953,000 and $2,112,000 for the years ended 2023, 2022 and 2021, respectively. The increase in interest and dividends earned on securities in 2023 when compared to 2022 resulted from higher yields earned on the securities purchased throughout 2022 as management invested liquid funds into the securities portfolio. The increase in interest earned on interest bearing deposits over the same period resulted from an increase in the yield earned due to the increased rate

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

environment offset in part by declining average balances. The direction and speed with which short-term interest rates move has an impact on our net interest income. The Bank anticipates that its net interest margin is likely to continue to contract during 2024 because of the competitive pressures in its markets, which put pressure on the Bank's deposit and loan pricing which may contribute to a compression of its margin.

The ratio of average earning assets to total average assets was 95.3%, 95.3% and 96.0% for each of the years ended December 31, 2023, 2022 and 2021, respectively. Average earning assets increased $389,168,000 from $3,915,674,000 at December 31, 2022 to $4,304,842,000 at December 31, 2023. For the year ended December 31, 2021, average earning assets were $3,508,775,000. The average rate earned on earning assets for 2023 was 5.24%, compared with 4.11% in 2022 and 3.77% in 2021. The increase in average earning assets was largely due to an increase in the average balance of loans due to loan growth. This was partially offset by a decrease in the average balance of interest bearing deposits and a decrease in the average balance of securities. The increase in the average rate earned on earning assets resulted from the higher interest rate environment and the repricing of a portion of the bank's variable rate loan portfolio as mentioned previously.

Total interest expense for 2023 was $83,679,000, an increase of $67,546,000, or 418.68%, compared to total interest expense of $16,133,000 in 2022. For 2021, total interest expense totaled $11,636,000. Average interest-bearing deposits increased to $3,686,696,000 for 2023 compared to $3,267,962,000 for 2022. The average rate paid on interest-bearing deposits was 2.27% for 2023 compared to 0.49% for 2022. The increase in total interest expense in 2023 resulted from an increase in the volume and rate paid on average interest bearing deposits. Competitive pressures in the rising and subsequent elevated short-term interest rate environment required the Bank to raise, and then subsequently maintain, rates paid on deposits as well as the Bank's customers shifting deposits from lower rate earning or non-interest bearing accounts to higher rate earning accounts, and the Bank utilizing increased levels of brokered deposits. The Company was able to maintain its deposit rates at or below 2021 levels during the first two quarters of 2022 despite the rising rate environment. However, during the second half of 2022 the Company raised its time deposit rates to maintain liquidity levels and offer competitive rates in our markets. This continued throughout 2023 resulting in the increase in interest expense. the increase in brokered deposits, which typically carry higher rates than core deposits, that we experienced in 2023 also contributed to the increase in interest expense. Should our liquidity decrease, including as a result of loan growth that outpaces deposit growth, the rates we pay on our deposits may increase and we may have to further increase our use of brokered deposits. In addition, if interest rates remain elevated when those time deposits that were priced during the lower interest rate environment mature in 2024, our interest expense will likely increase if such deposits are renewed and repriced at current market rates.

Net interest income for 2023 totaled $138,904,000 as compared to $141,407,000 and $118,205,000 in 2022 and 2021, respectively. The net interest spread, defined as the effective yield on earning assets less the effective cost of deposits and borrowed funds (calculated on a fully taxable equivalent basis), decreased to 2.97% in 2023 from 3.62% in 2022. The net interest spread was 3.36% in 2021. Net interest margin decreased to 3.30% in 2023 from 3.70% in 2022. The net interest margin was 3.44% in 2021. The decrease in net interest margin in 2023 was due to the increase in rates paid on our interest bearing liabilities outpacing the increase in the yield earned on all earning assets for the reasons discussed above. Changes in interest rates paid on products such as interest checking, savings, and money market accounts will generally increase or decrease in a manner that is consistent with changes in the short-term environment, but are also impacted by competitive market conditions.

Provision for Credit Losses

On January 1, 2022, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loan portfolio. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management's evaluation is adequate to provide coverage for all expected credit losses. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1, "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements for a detailed discussion regarding ACL methodology.

The provision for credit losses-loans in 2023 and 2022 was $6,300,000 and $8,656,000 calculated under the CECL methodology. The provision for loan losses in 2021 was $1,143,000 under the incurred loss methodology. The benefit for the allowance for credit losses on off-balance sheet exposures in 2023 and 2022 were $2,989,000 and $1,014,000 calculated under the CECL methodology. In 2021, there was a provision of $262,000 under the incurred loss methodology.

The decrease in the provision for credit losses-loans for the year ended December 31, 2023 was primarily attributable to a decrease in the volume of loans originated during the period, partially offset by the macroeconomic forecast in our CECL model reflecting the potential for a recession. The increase in the provision for credit losses-loans for the year ended December 31, 2022 was primarily attributable to an increase in the volume of loans originated during the period. The provision for loan losses recorded during 2021 was primarily the result of loan growth.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

As discussed below under Financial Condition-Loans, loan growth tapered for the twelve months ended December 31, 2023 compared to the same period in 2022. Gross loan growth totaled $440,839,000, $671,824,000 and $165,338,000 for the years ended 2023, 2022 and 2021, respectively.

The increase in the benefit for credit losses on off-balance sheet credit exposures was the result of a decrease in our off-balance sheet commitments and an increase in our unconditionally cancellable commitments as a percentage of our off-balance sheet commitments, which are excluded from the calculation of the allowance of credit losses on off-balance sheet credit exposures under ASC 326.

The following detail provides a breakdown of the provision for credit loss-loans expense and net (charge-offs) recoveries at and for the twelve months ended December 31, 2023, 2022 and 2021:

 

 

 

In Thousands, Except Percentages

 

 

 

Provision for Credit Loss - Loans Expense (Benefit)

 

 

Net (Charge-Offs) Recoveries

 

 

Average Loans

 

 

Ratio of Net (Charge-offs) Recoveries to Average Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

1,435

 

 

$

20

 

 

 

909,742

 

 

 

—

 

Commercial and multi-family real estate

 

 

2,123

 

 

 

—

 

 

 

1,192,260

 

 

 

—

 

Construction, land development and farmland

 

 

702

 

 

 

20

 

 

 

893,031

 

 

 

—

 

Commercial, industrial and agricultural

 

 

125

 

 

 

(29

)

 

 

126,499

 

 

 

(0.02

)

1-4 family equity lines of credit

 

 

639

 

 

 

—

 

 

 

177,398

 

 

 

—

 

Consumer and other

 

 

1,276

 

 

 

(1,276

)

 

 

99,141

 

 

 

(1.29

)

Total

 

$

6,300

 

 

$

(1,265

)

 

$

3,398,070

 

 

 

(0.04

)%

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

1,353

 

 

$

108

 

 

$

762,580

 

 

 

0.01

%

Commercial and multi-family real estate

 

 

1,886

 

 

 

—

 

 

 

974,101

 

 

 

—

 

Construction, land development and farmland

 

 

3,795

 

 

 

19

 

 

 

736,728

 

 

 

—

 

Commercial, industrial and agricultural

 

 

(117

)

 

 

6

 

 

 

119,855

 

 

 

0.01

 

1-4 family equity lines of credit

 

 

396

 

 

 

—

 

 

 

120,104

 

 

 

—

 

Consumer and other

 

 

1,343

 

 

 

(1,044

)

 

 

82,933

 

 

 

(1.26

)

Total

 

$

8,656

 

 

$

(911

)

 

$

2,796,301

 

 

 

(0.03

)%

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

971

 

 

$

68

 

 

$

609,075

 

 

 

0.01

%

Commercial and multi-family real estate

 

 

(1,497

)

 

 

—

 

 

 

917,106

 

 

 

—

 

Construction, land development and farmland

 

 

1,296

 

 

 

371

 

 

 

551,183

 

 

 

0.07

 

Commercial, industrial and agricultural

 

 

(35

)

 

 

(27

)

 

 

144,209

 

 

 

(0.02

)

1-4 family equity lines of credit

 

 

101

 

 

 

—

 

 

 

84,460

 

 

 

—

 

Consumer and other

 

 

307

 

 

 

(462

)

 

 

76,229

 

 

 

(0.61

)

Total

 

$

1,143

 

 

$

(50

)

 

$

2,382,262

 

 

 

—

%

 

Following our adoption of CECL, the provision for credit losses - loans charged to operating expense requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Other factors which, in management’s judgment, deserve current recognition in estimating expected credit losses - loans include growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for credit losses - loans to outstanding loans, adverse situations that may affect our borrowers' ability to repay, the estimated value of any underlying collateral and current economic conditions that may affect our borrowers' ability to pay.

Credit loss expense related to off-balance sheet exposures was previously reported as a component of other non-interest expense for the fiscal year ended December 31, 2021. Such amounts have been reclassified to credit loss expense to make prior periods comparable to the current presentation. See the section captioned "Allowance for Credit Losses" elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance sheet credit exposures.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

There was no provision for credit losses on available-for-sale securities for the twelve months ended December 31, 2023 or 2022, respectively.

Non-Interest Income

The Company's non-interest income is composed of several components, some of which vary significantly between periods. Service charges on deposit accounts and other non-interest income generally reflect the Company’s growth, while fees for origination of mortgage loans and brokerage fees and commissions will often reflect home mortgage market and stock market conditions and fluctuate more widely from period to period.

The following is a summary of our non-interest income for the years ended December 31, 2023, 2022 and 2021 (in thousands):

 

 

Twelve Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

2023

 

 

2022

 

 

$ Increase (Decrease)

 

 

% Increase (Decrease)

 

 

2022

 

 

2021

 

 

$ Increase (Decrease)

 

 

% Increase (Decrease)

 

Service charges on deposits

$

7,890

 

 

$

7,382

 

 

$

508

 

 

 

6.88

%

 

$

7,382

 

 

$

6,137

 

 

$

1,245

 

 

 

20.29

%

Brokerage income

 

7,184

 

 

 

6,929

 

 

 

255

 

 

 

3.68

 

 

 

6,929

 

 

 

6,368

 

 

 

561

 

 

 

8.81

 

Debit and credit card interchange income, net

 

8,490

 

 

 

8,416

 

 

 

74

 

 

 

0.88

 

 

 

8,416

 

 

 

7,783

 

 

 

633

 

 

 

8.13

 

Other fees and commissions

 

1,408

 

 

 

1,653

 

 

 

(245

)

 

 

(14.82

)

 

 

1,653

 

 

 

1,446

 

 

 

207

 

 

 

14.32

 

BOLI and annuity earnings

 

1,667

 

 

 

1,346

 

 

 

321

 

 

 

23.85

 

 

 

1,346

 

 

 

1,109

 

 

 

237

 

 

 

21.37

 

Gain (loss) on sale of securities, net

 

(1,009

)

 

 

(1,620

)

 

 

611

 

 

 

37.72

 

 

 

(1,620

)

 

 

28

 

 

 

(1,648

)

 

 

(5,885.71

)

Fees and gains on sales of mortgage loans

 

2,635

 

 

 

2,973

 

 

 

(338

)

 

 

(11.37

)

 

 

2,973

 

 

 

9,997

 

 

 

(7,024

)

 

 

(70.26

)

Mortgage servicing income (loss), net

 

9

 

 

 

(28

)

 

 

37

 

 

 

132.14

 

 

 

(28

)

 

 

—

 

 

 

(28

)

 

 

(100.00

)

Loss on sale of other real estate, net

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(15

)

 

 

15

 

 

 

100.00

 

Gain (loss) on the sale of fixed assets, net

 

(55

)

 

 

291

 

 

 

(346

)

 

 

(118.90

)

 

 

291

 

 

 

(43

)

 

 

334

 

 

 

776.74

 

Gain (loss) on sale of other assets, net

 

(10

)

 

 

8

 

 

 

(18

)

 

 

(225.00

)

 

 

8

 

 

 

6

 

 

 

2

 

 

 

33.33

 

Other income (loss)

 

80

 

 

 

(69

)

 

 

149

 

 

 

215.94

 

 

 

(69

)

 

 

34

 

 

 

(103

)

 

 

(302.94

)

Total non-interest income

$

28,289

 

 

$

27,281

 

 

$

1,008

 

 

 

3.69

%

 

$

27,281

 

 

$

32,850

 

 

$

(5,569

)

 

 

(16.95

%)

 

2023 v. 2022

 

The increase in non-interest income for the year ended December 31, 2023 when compared to the year ended December 31, 2022 is primarily attributable to increases in service charges on deposits, brokerage income, BOLI and annuity earnings, and a decrease in the realized loss on the sale of securities, partially offset by a decrease in fees and gains on sale of mortgage loans and a decrease in the gain on the sale of fixed assets.

 

The increase in service charges on deposits is primarily due to an increase in non-sufficient funds due to an increase in the number of customers and the more challenging economic environment in 2023.

 

The increase in brokerage income is primarily due to a strong fourth quarter of 2023, driven by multiple client acquisitions and an increase of overall market share in our market areas as well as the positive performance of financial markets during such quarter.

 

The increase in BOLI and annuity earnings is primarily attributable to an increase in rates in the market.

 

The loss on sale of securities for 2023 and 2022 was due to the Company selling securities in order to restructure the securities portfolio into higher yielding securities offsetting securities pricing in future periods. In 2023, the Company was able to take advantage of the improvement in underlying market conditions to limit the amount of realized losses.

 

The decrease in fees and gains on sale of mortgage loans was due to the higher interest rate environment which contributed to weakened demand for purchase money mortgage loans and refinancing transactions. The volume of mortgage loans originated for 2023 was $73,984,000 compared to $106,601,000 for 2022.

 

The loss on sale of fixed assets in 2023 is primarily due to the sale of a company vehicle. The gain on sale of fixed assets in 2022 was attributable to the sale of a lot which was originally purchased for a future branch location.

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

2022 v. 2021

The decrease in non-interest income for the year ended December 31, 2022 when compared to the year ended December 31, 2021 was primarily attributable to a decrease in security gain (losses), net and a decrease in fees and gains on sales of mortgage loans, offset in part by an increase in service charges on deposit accounts, an increase in debit and credit card interchange income, an increase in brokerage income, and an increase in the gain on sale of fixed assets.

The loss on sale of securities we recorded in 2022 was due to management's decision to sell these securities due to the rising rate environment to restructure a portion of the securities portfolio into higher yielding securities in an effort to increase net interest margin in future periods.

The decrease in the fees and gains on sales of mortgage loans was due to the rising rate environment which contributed to weakened demand for purchase money mortgage loans and refinancing transactions, offset in part by gains in our mortgage hedging activities. The volume of mortgage loans originated for 2022 was $106,601,000 compared to $215,813,000 in 2021. In anticipation of the slowing of mortgage origination volume due to the rising rate environment, the Company began to retain servicing rights on some of the loans it originated during 2022.

Service charges on deposit accounts primarily increased due to an increase in overdraft fees and fees for paper statements.

Debit and credit card interchange income primarily increased due to an increase in the number and volume of debit card and credit card holders and transactions.

Brokerage income primarily increased due to the opening of new investment accounts as well as growth in assets under management, attributable to marketing efforts and overall population growth of the middle Tennessee markets. In addition, the increase in interest rates has increased customers' interest in opportunities to capitalize on products and services provided.

Non-Interest Expenses

Non-interest expenses consist primarily of employee costs, FDIC premiums, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, directors’ fees, audit, legal and consulting fees, and other operating expenses.

The following is a summary of the Company's non-interest expense for the years ended December 31, 2023, 2022 and 2021 (in thousands):

 

 

Twelve Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

2023

 

 

2022

 

 

$ Increase (Decrease)

 

 

% Increase (Decrease)

 

 

2022

 

 

2021

 

 

$ Increase (Decrease)

 

 

% Increase (Decrease)

 

Employee salaries and benefits

$

59,501

 

 

$

56,707

 

 

$

2,794

 

 

 

4.93

%

 

$

56,707

 

 

$

52,722

 

 

$

3,985

 

 

 

7.56

%

Equity-based compensation

 

1,528

 

 

 

1,864

 

 

 

(336

)

 

 

(18.03

)

 

 

1,864

 

 

 

1,428

 

 

 

436

 

 

 

30.53

 

Occupancy expenses

 

6,532

 

 

 

5,563

 

 

 

969

 

 

 

17.42

 

 

 

5,563

 

 

 

5,473

 

 

 

90

 

 

 

1.64

 

Furniture and equipment expenses

 

3,202

 

 

 

3,389

 

 

 

(187

)

 

 

(5.52

)

 

 

3,389

 

 

 

3,323

 

 

 

66

 

 

 

1.99

 

Data processing expenses

 

8,810

 

 

 

7,337

 

 

 

1,473

 

 

 

20.08

 

 

 

7,337

 

 

 

5,780

 

 

 

1,557

 

 

 

26.94

 

Advertising expenses

 

3,714

 

 

 

3,455

 

 

 

259

 

 

 

7.50

 

 

 

3,455

 

 

 

2,736

 

 

 

719

 

 

 

26.28

 

Accounting, legal & consulting expenses

 

1,789

 

 

 

1,409

 

 

 

380

 

 

 

26.97

 

 

 

1,409

 

 

 

1,287

 

 

 

122

 

 

 

9.48

 

FDIC insurance

 

3,120

 

 

 

1,527

 

 

 

1,593

 

 

 

104.35

 

 

 

1,527

 

 

 

1,130

 

 

 

397

 

 

 

35.13

 

Directors’ fees

 

713

 

 

 

650

 

 

 

63

 

 

 

9.69

 

 

 

650

 

 

 

686

 

 

 

(36

)

 

 

(5.25

)

Other operating expenses

 

12,042

 

 

 

11,069

 

 

 

973

 

 

 

8.79

 

 

 

11,069

 

 

 

10,927

 

 

 

142

 

 

 

1.30

 

Total non-interest expense

$

100,951

 

 

$

92,970

 

 

$

7,981

 

 

 

8.58

%

 

$

92,970

 

 

$

85,492

 

 

$

7,478

 

 

 

8.75

%

 

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

2023 v. 2022

The increase in non-interest expenses for the year ended December 31, 2023 when compared to the year ended December 31, 2022 was primarily attributable to an increase in salaries and employee benefits, occupancy expenses, data processing expenses, FDIC insurance, other operating expenses, and advertising expenses.

Salaries and employee benefits increased for the year ended December 31, 2023 compared to the comparable period in 2022 primarily due to an increase in the number of employees necessary to support the Company’s growth in operations and branch count.

The increase in occupancy expense is primarily due to multiple branch renovations, repairs, ongoing branch maintenance, and costs associated with the termination of a lease associated with the branch closed in January 2024.

Data processing expenses increased due to an increase in computer maintenance, consumer and business online banking, and computer hardware/license expenses. The computer maintenance expenses increased as a result of, among other items, expenses associated with additional software applications and the number of open accounts. Enhanced business digital solutions, improved digital security for consumers, and an increase in the number of customers using digital services accounted for other increases. The Company anticipates that data processing expenses will continue to increase as the Company’s operations grow, the demand for digital products and services from customers increases, and the cyber threat environment grows.

FDIC assessment expense increased due to the Company's growth in 2022 as well as an increase in the assessment rate administered by the FDIC.

The increase in other operating expenses is primarily due to an increase in employee engagement and development, ATM servicing costs, and write-offs on customer deposit accounts resulting from fraudulent transactions.

The increase in advertising expenses is primarily attributable to an increase in customer acquisition costs, marketing expenses associated with the opening of two new branches, the advertising of new products, as well as an overall increase in the cost of marketing resources.

The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by taking our non-interest expense divided by our net-interest income plus non-interest income. Our efficiency ratio for the years ended 2023, 2022 and 2021 was 60.38%, 55.11% and 56.60%, respectively. The increase in the efficiency ratio in 2023 when compared to 2022 was due to higher non-interest expense and lower net interest income, partially offset by an increase in non-interest income, in each case for the reasons discussed above.

The Company expects non-interest expense will continue to increase in 2024, including as a result of increased salary and benefits expense and increased occupancy costs associated with our continued growth.

2022 v. 2021

The increase in non-interest expenses for the year ended December 31, 2022 when compared to the year ended December 31, 2021 was primarily attributable to a year-over-year increase in salaries and employee benefits, equity-based compensation, data processing expenses, advertising expenses, and FDIC insurance.

The increase in salaries and employee benefits for the year ended December 31, 2022 when compared to the year ended December 31, 2021 was primarily attributable to an increase in the number of employees necessary to support the Company’s growth in operations and branch count as well as an increase in incentives and temporary salaries, offset by a decrease in commission salaries and mortgage lender compensation. The increase in equity-based compensation was due to equity awards granted to certain of our directors, senior executive officers and other officers and an increase in the weighted average grant date value of those awards.

The increase in data processing expenses was primarily attributable to an increase in computer maintenance, computer license expense, and call center expense. The computer maintenance and license expenses included movement of in-house systems to cloud servers, additional investments in digital banking solutions, and an increase in information security expenses. The increase in call center expense resulted from the call center extending their operating hours.

The increase in advertising expenses was primarily attributable to the opening of a new branch which included targeted marketing efforts to drive traffic and awareness for the new location, as well as additional targeted marketing efforts to help increase market share in our growth areas. We also saw an increase in expenses related to the return of in-person events as COVID-19 restrictions continued to loosen.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Company was also the sole sponsor for a Habitat for Humanity home build as well as a sponsor for several other community events for the markets we serve.

The increase in FDIC insurance was primarily attributable to the Company's growth.

The increase in other operating expenses was related to meals and entertainment, supplies, and debit and credit card losses.

Income Taxes

 

The Company’s income tax expense was $13,939,000 for 2023, a decrease of $1,117,000 from $15,056,000 for 2022, which was up by $324,000 from the 2021 total of $14,732,000. The percentage of income tax expense to earnings before taxes was 22.1% in 2023, 22.1% in 2022 and 23.0% in 2021. The decrease in income tax expense in 2023 from 2022 was due to a decrease in earnings before income taxes. The increase in 2022 from 2021 was due to an increase in earnings before income taxes, partially offset by additional state tax credits that lowered our effective tax rate. Our effective tax rate represents our blended statutory federal and state rate of 26.135% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as earnings on bank-owned life insurance, income earned on tax-exempt securities and loans, and certain federal and state tax credits.

Our income tax expense, deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes at both the federal and state level. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for changes in accounting policies and incorporate assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. Changes in current tax laws and rates could also affect recorded deferred tax assets and liabilities in the future as was the case with the passage of the Tax Cuts and Jobs Act in 2017.

Financial Accounting Standards Board (“FASB”) ASC Topic 740, Income Taxes (“ASC 740”) provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. ASC Topic 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We recognize tax liabilities in accordance with ASC Topic 740, and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Financial Condition

Balance Sheet Summary

The Company’s total assets increased in 2023 by $560,826,000 or 13.09%, to $4,846,476,000 at December 31, 2023, after increasing 7.42% in 2022 to $4,285,650,000 at December 31, 2022. Loans, net of allowance for credit losses, totaled $3,550,675,000 at December 31, 2023, a $436,879,000, or 14.03%, increase compared to December 31, 2022. In 2023, management targeted owner-occupied commercial real estate, residential real estate lending and small business lending as areas of focus. The increase in loans in 2023 resulted from the continued population growth and corporate relocations in the Bank's primary market areas, the opening of new branches, and increased marketing efforts. Although the Company continued to grow loans in 2023, the rate at which it grew loans slowed compared to 2022. The Company expects to experience slower loan growth in 2024 as elevated interest rates are expected to continue to dampen loan demand, particularly if a recessionary economic environment develops. In addition, we expect to continue to moderate the extent of our lending in 2024 to ensure adequate liquidity. At year-end 2023, securities totaled $811,081,000, a decrease of 1.43% from $822,812,000 at December 31, 2023, primarily due to a run-off of declining balance securities and the selling of securities, partially offset by the purchase of new securities and an improvement in the unrealized losses associated with our available-for-sale securities portfolio. As a result of deposit growth that outpaced loan growth, interest bearing deposits at other financial institutions increased by $135,007,000, to $213,701,000 at December 31, 2023. Deferred income taxes totaled $45,473,000 at December 31, 2023, a $5,850,000, or 11.40%, decrease

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

compared to December 31, 2022. The decrease in deferred income taxes was largely attributable to a decrease in the unrealized losses on our available-for-sale securities portfolio of $30,145,000.

Total liabilities increased by $491,873,000, or 12.53%, to $4,417,071,000 at December 31, 2023 compared to $3,925,198,000 at December 31, 2022. This increase was composed primarily of the $474,401,000 increase in total deposits to $4,367,106,000, a 12.19% increase from December 31, 2022. The increase in total deposits since December 31, 2022 was primarily attributable to growth in market share, branching and brokered deposit activities, and concerted marketing efforts to drive deposit growth which resulted in the opening of new deposit accounts. Accrued interest and other liabilities increased to $49,965,000 from $32,493,000 at respective year ends 2023 and 2022. The increase in accrued interest and other liabilities was due to an increase in interest payable on CDs as customers moved from lower earning and non-interest earning accounts to take advantage of the higher rates, an increase in interest payable on brokered CDs, and an increase in reserve for income taxes, partially offset by a decrease in reserve for off-balance sheet commitments, a decrease in escrow payable, and a decrease in operating lease liability in connection with the branch closure in January 2024.

Shareholders’ equity increased $68,953,000, or 19.13%, in 2023, due to an increase in the fair value of available-for-sale securities net of taxes, net earnings, the issuance of common stock pursuant to the Company’s Dividend Reinvestment Plan and the exercise of stock options. This increase in equity was partially offset by dividends paid on the Company’s common stock. A more detailed discussion of assets, liabilities and capital follows.

Loans

The following schedule details the loans and percentage of loans in each category of the Company at December 31, 2023 and 2022 (dollars in thousands):

 

 

 

December 31, 2023

 

 

December 31, 2022

 

 

 

AMOUNT

 

 

%

 

 

AMOUNT

 

 

%

 

Residential 1-4 family real estate

 

$

959,218

 

 

 

26.6

%

 

$

854,970

 

 

 

27.0

%

Commercial and multi-family real estate

 

 

1,313,284

 

 

 

36.4

 

 

 

1,064,297

 

 

 

33.6

 

Construction, land development and farmland

 

 

901,336

 

 

 

25.0

 

 

 

879,528

 

 

 

27.8

 

Commercial, industrial and agricultural

 

 

127,659

 

 

 

3.5

 

 

 

124,603

 

 

 

3.9

 

1-4 family equity lines of credit

 

 

202,731

 

 

 

5.6

 

 

 

151,032

 

 

 

4.8

 

Consumer and other

 

 

104,373

 

 

 

2.9

 

 

 

93,332

 

 

 

2.9

 

Total loans before net deferred loan fees

 

 

3,608,601

 

 

 

100.0

%

 

 

3,167,762

 

 

 

100.0

%

Net deferred loan fees

 

 

(13,078

)

 

 

 

 

 

(14,153

)

 

 

 

Total loans

 

 

3,595,523

 

 

 

 

 

 

3,153,609

 

 

 

 

Less: Allowance for credit losses

 

 

(44,848

)

 

 

 

 

 

(39,813

)

 

 

 

Net loans

 

$

3,550,675

 

 

 

 

 

$

3,113,796

 

 

 

 

 

Loans are the largest component of the Company’s assets and are its primary source of income. The Company’s loan portfolio, net of allowance for credit losses, increased 14.03% at year-end 2023 when compared to year-end 2022. Overall, the Bank's loan demand and related new loan production has continued to be steady, though loan demand slightly slowed in 2023. The net loan growth of 14.03% from December 31, 2022 reflects the continued emphasis of management on growing the loan portfolio. The table above sets forth the loan categories and the percentage of such loans in the portfolio as of December 31, 2023 and 2022.

As represented in the above table, Wilson Bank experienced loan growth for the year ended December 31, 2023 in all loan categories. Contributing to the Company's loan growth in 2023 were the continued population growth and corporate relocations in the Bank's primary market areas, the opening of new branches, and increased marketing efforts. Residential 1-4 family real estate loans increased 12.2% in 2023 and comprised 26.6% of the total loan portfolio at December 31, 2023, compared to 27.0% at December 31, 2022. The increase in residential 1-4 family real estate loans is attributable to the Bank successfully growing its residential portfolio through enhanced marketing efforts directed at homebuilders in the Company's market areas, and the increase the Company is seeing in the investor sector of 1-4 family. Commercial and multi-family real estate loans increased 23.4% in 2023 and comprised 36.4% of the total loan portfolio at December 31, 2023, compared to 33.6% at December 31, 2022. Construction, land development and farmland loans increased 2.5% in 2023 and comprised 25.0% of the total loan portfolio at December 31, 2023, compared to 27.8% at December 31, 2022. One-to-four family equity lines of credit loans increased 34.2% in 2023 and comprised 5.6% of the total loan portfolio at December 31, 2023, compared to 4.8% at December 31, 2022. The increase in commercial and multi-family real estate, construction, land development and farmland loans, and 1-4 family equity lines of credit is primarily attributable to continued economic growth and expansion in the Bank's primary market areas. Wilson Bank continues to seek to diversify its real estate portfolio over the long term as it seeks to lessen concentrations in

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

any one type of loan. As noted above, the Company expects loan growth to further slow in 2024 as a result of the elevated interest rate environment and the potential challenging economic conditions, as well as the Company's continued moderation of its lending as it seeks to preserve adequate liquidity.

Because construction loans remain a meaningful portion of our portfolio, the Bank has implemented an additional layer of monitoring as it seeks to avoid advancing funds that exceed the present value of the collateral securing the loan. The responsibility for monitoring percentage of completion and distribution of funds tied to these completion percentages is now monitored and administered by a Credit Administration Department independent of the lending function. The Bank continues to seek to diversify its real estate portfolio as it seeks to lessen concentrations in any one type of loan.

Banking regulators define highly leveraged transactions to include leveraged buy-outs, acquisition loans and recapitalization loans of an existing business. Under the regulatory definition, at December 31, 2023, the Company had no highly leveraged transactions, and there were no foreign loans outstanding during any of the reporting periods. As of December 31, 2023, the Company had not underwritten any loans in connection with capital leases.

The following table classifies the Company's fixed and variable rate loans at December 31, 2023 according to contractual maturities of: (1) one year or less, (2) after one year through five years, (3) after five years through fifteen years, and (4) after fifteen years (dollars in thousands):

 

 

 

December 31, 2023

 

 

 

One Year or Less

 

 

After One Year Through Five Years

 

 

After Five Years Through Fifteen Years

 

 

After Fifteen Years

 

 

Total

 

Residential 1-4 family real estate

 

$

55,621

 

 

$

15,689

 

 

$

118,908

 

 

$

769,000

 

 

$

959,218

 

Commercial and multi-family real estate

 

 

34,976

 

 

 

79,687

 

 

 

252,214

 

 

 

946,407

 

 

 

1,313,284

 

Construction, land development and farmland

 

 

278,891

 

 

 

217,707

 

 

 

116,411

 

 

 

288,327

 

 

 

901,336

 

Commercial, industrial and agricultural

 

 

17,940

 

 

 

40,231

 

 

 

40,506

 

 

 

28,982

 

 

 

127,659

 

1-4 family equity lines of credit

 

 

17,108

 

 

 

26,592

 

 

 

156,232

 

 

 

2,799

 

 

 

202,731

 

Consumer and other

 

 

26,783

 

 

 

47,993

 

 

 

9,492

 

 

 

20,105

 

 

 

104,373

 

Total

 

$

431,319

 

 

$

427,899

 

 

$

693,763

 

 

$

2,055,620

 

 

$

3,608,601

 

Loans with fixed interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

48,758

 

 

$

2,969

 

 

$

18,423

 

 

$

108,665

 

 

$

178,815

 

Commercial and multi-family real estate

 

 

23,016

 

 

 

16,521

 

 

 

17,546

 

 

 

5,283

 

 

 

62,366

 

Construction, land development and farmland

 

 

168,562

 

 

 

64,977

 

 

 

17,298

 

 

 

7,832

 

 

 

258,669

 

Commercial, industrial and agricultural

 

 

13,356

 

 

 

28,990

 

 

 

8,724

 

 

 

11

 

 

 

51,081

 

1-4 family equity lines of credit

 

 

6,566

 

 

 

999

 

 

 

25

 

 

 

—

 

 

 

7,590

 

Consumer and other

 

 

15,017

 

 

 

44,090

 

 

 

6,732

 

 

 

6,323

 

 

 

72,162

 

Total

 

$

275,275

 

 

$

158,546

 

 

$

68,748

 

 

$

128,114

 

 

$

630,683

 

Loans with variable interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

6,863

 

 

$

12,720

 

 

$

100,485

 

 

$

660,335

 

 

$

780,403

 

Commercial and multi-family real estate

 

 

11,960

 

 

 

63,166

 

 

 

234,668

 

 

 

941,124

 

 

 

1,250,918

 

Construction, land development and farmland

 

 

110,329

 

 

 

152,730

 

 

 

99,113

 

 

 

280,495

 

 

 

642,667

 

Commercial, industrial and agricultural

 

 

4,584

 

 

 

11,241

 

 

 

31,782

 

 

 

28,971

 

 

 

76,578

 

1-4 family equity lines of credit

 

 

10,542

 

 

 

25,593

 

 

 

156,207

 

 

 

2,799

 

 

 

195,141

 

Consumer and other

 

 

11,766

 

 

 

3,903

 

 

 

2,760

 

 

 

13,782

 

 

 

32,211

 

Total

 

$

156,044

 

 

$

269,353

 

 

$

625,015

 

 

$

1,927,506

 

 

$

2,977,918

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following table details selected information as to non-accrual loans of the Company at December 31, 2023, 2022 and 2021:

 

 

 

In Thousands, Except Percentages

 

 

December 31, 2023

 

December 31, 2022

 

December 31, 2021

 

 

 

 

Non-Accrual Loans

 

 

 

Non-Accrual Loans

 

 

 

Non-Accrual Loans

 

 

Total Loans

 

Amount

 

Percent of Loans in Category

 

Total Loans

 

Amount

 

Percent of Loans in Category

 

Total Loans

 

Amount

 

Percent of Loans in Category

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$959,218

 

$—

 

—%

 

$854,970

 

$—

 

—%

 

$689,579

 

$—

 

—%

Commercial and multi-family real estate

 

1,313,284

 

—

 

—

 

1,064,297

 

—

 

—

 

908,673

 

—

 

—

Construction, land development and farmland

 

901,336

 

—

 

—

 

879,528

 

—

 

—

 

612,659

 

—

 

—

Commercial, industrial and agricultural

 

127,659

 

—

 

—

 

124,603

 

—

 

—

 

118,155

 

—

 

—

1-4 family equity lines of credit

 

202,731

 

—

 

—

 

151,032

 

—

 

—

 

92,229

 

—

 

—

Consumer and other

 

104,373

 

—

 

—

 

93,332

 

—

 

—

 

74,643

 

—

 

—

Total

 

$3,608,601

 

$—

 

 

 

$3,167,762

 

$—

 

 

 

$2,495,938

 

$—

 

 

Allowance for credit losses on loans

 

 

 

$44,848

 

 

 

 

 

$39,813

 

 

 

 

 

$39,632

 

 

Ratio of non-accrual loans to total loans outstanding

 

 

 

 

 

—%

 

 

 

 

 

—%

 

 

 

 

 

—%

Ratio of allowance for credit losses on loans to non-accrual loans

 

 

 

—%

 

 

 

 

 

—%

 

 

 

 

 

—%

 

 

 

The accrual of interest income is discontinued when it is determined that collection of interest is less than probable or the collection of any amount of principal is doubtful. The decision to place a loan on non-accrual status is based on an evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors that affect the borrower’s ability to pay. At the time a loan is placed on non-accrual status, the accrued but unpaid interest is also evaluated as to collectability. If collectability is doubtful, the unpaid interest is charged off. Thereafter, interest on non-accrual loans is recognized only as received. There were no non-accrual loans at December 31, 2023, 2022, or 2021.

 

At December 31, 2023, there were four outstanding loan modifications made to borrowers experiencing financial difficulty totaling $3,446,000, all of which were on accrual status.

At December 31, 2023, and December 31, 2022, there was no other real estate owned outstanding.

The following table sets forth for the reported periods loans that were at least 30 days but less than 60 days past due, 60 days but less than 90 days past due and nonaccrual loans and those loans past due greater than 89 days:

 

 

 

(In thousands)

 

 

 

30-59 Days Past Due

 

 

60-89 Days Past Due

 

 

Nonaccrual and Greater Than 89 Days Past Due

 

 

Past Due

 

 

Current

 

 

Total Loans

 

 

Loans Greater Than 89 Days Past Due and Accruing Interest

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

1,544

 

 

 

552

 

 

 

1,178

 

 

 

3,274

 

 

 

955,944

 

 

 

959,218

 

 

$

1,178

 

Commercial and multi-family real estate

 

 

5,846

 

 

 

—

 

 

 

—

 

 

 

5,846

 

 

 

1,307,438

 

 

 

1,313,284

 

 

 

—

 

Construction, land development and farmland

 

 

2,959

 

 

 

1

 

 

 

—

 

 

 

2,960

 

 

 

898,376

 

 

 

901,336

 

 

 

—

 

Commercial, industrial and agricultural

 

 

52

 

 

 

—

 

 

 

7

 

 

 

59

 

 

 

127,600

 

 

 

127,659

 

 

 

7

 

1-4 family equity lines of credit

 

 

571

 

 

 

209

 

 

 

106

 

 

 

886

 

 

 

201,845

 

 

 

202,731

 

 

 

106

 

Consumer and other

 

 

350

 

 

 

78

 

 

 

118

 

 

 

546

 

 

 

103,827

 

 

 

104,373

 

 

 

118

 

Total

 

$

11,322

 

 

 

840

 

 

 

1,409

 

 

 

13,571

 

 

 

3,595,030

 

 

 

3,608,601

 

 

$

1,409

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

2,046

 

 

 

1,080

 

 

 

426

 

 

 

3,552

 

 

 

851,418

 

 

 

854,970

 

 

$

426

 

Commercial and multi-family real estate

 

 

397

 

 

 

1,626

 

 

 

400

 

 

 

2,423

 

 

 

1,061,874

 

 

 

1,064,297

 

 

 

400

 

Construction, land development and farmland

 

 

591

 

 

 

—

 

 

 

—

 

 

 

591

 

 

 

878,937

 

 

 

879,528

 

 

 

—

 

Commercial, industrial and agricultural

 

 

49

 

 

 

62

 

 

 

—

 

 

 

111

 

 

 

124,492

 

 

 

124,603

 

 

 

—

 

1-4 family equity lines of credit

 

 

74

 

 

 

77

 

 

 

—

 

 

 

151

 

 

 

150,881

 

 

 

151,032

 

 

 

—

 

Consumer and other

 

 

403

 

 

 

184

 

 

 

43

 

 

 

630

 

 

 

92,702

 

 

 

93,332

 

 

 

43

 

Total

 

$

3,560

 

 

 

3,029

 

 

 

869

 

 

 

7,458

 

 

 

3,160,304

 

 

 

3,167,762

 

 

$

869

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Past due loans, which include nonaccrual loans and loans greater than 89 days past due, totaled $13,571,000 at December 31, 2023, an increase from $7,458,000 at December 31, 2022. The increase in 30-59 days past due loans during the year ended December 31, 2023 of $7,762,000 was primarily due to the additions of one large commercial real estate relationship, one large construction loan relationship, and several 1-4 family equity lines of credit. The increase in nonaccrual and greater than 89 days past due loans during the year ended December 31, 2023 of $540,000 was due primarily to the addition of one large residential 1-4 family real estate loan relationship that was greater than 89 days past due and the addition of one large 1-4 family equity line of credit loan relationship that was greater than 89 days past due. Management believes that it is probable that it will incur losses on nonaccrual and greater than 89 days past due loans but believes that these losses should not exceed the amount in the allowance for credit losses already allocated to these loans, unless there is a severe deterioration of local real estate values.

The net non-performing asset ratio (NPA) is used as a measure of the overall quality of the Company's assets. Our NPA ratio is calculated by dividing the total of our loans greater than 89 days past due and accruing interest, non-accrual loans, and other real estate owned by our total assets outstanding. Our NPA ratios for the periods ended December 31, 2023 and December 31, 2022 were 0.03% and 0.02%, respectively. The increase in our NPA ratio was impacted by increases in loans greater than 89 days past due and accruing interest as described above.

Other loans may be classified as collateral dependent when the current net worth and financial capacity of the borrower or of the collateral pledged, if any, is viewed as inadequate and it is probable that the Company will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement. Such loans generally have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that the Company will sustain some loss. In such cases, interest income continues to accrue as long as the loan does not meet the Company’s criteria for nonaccrual status. Collateral dependent loans are measured at the fair value of the collateral less estimated selling costs. If the fair value of the collateral dependent loan less estimated selling costs is less than the recorded investment in the loan, the Company shall recognize impairment by creating a valuation allowance with a corresponding charge to the provision for credit losses or by adjusting an existing valuation allowance for the collateral dependent loan with a corresponding charge or credit to the provision for credit losses.

At December 31, 2023, the Company had a recorded investment in collateral dependent loans totaling $4,838,000, an increase from a recorded investment in collateral dependent loans totaling $638,000 at December 31, 2022. The increase during the year ended December 31, 2023 as compared to December 31, 2022 is primarily due to the addition of two 1-4 family real estate relationships and the addition of two commercial real estate relationships. As of December 31, 2023 and December 31, 2022, no valuation allowance was recorded on collateral dependent loans. The allowance for credit losses for loans related to collateral dependent loans was measured based upon the estimated fair value of related collateral.

The internally classified loans as a percentage of the allowance for credit losses were 13.2% and 16.0%, respectively, at December 31, 2023 and 2022. At December 31, 2023, loans totaling $5,900,000 were included in the Company’s internal classified loan list compared to $6,376,000 at December 31, 2022. Of these loans, $5,493,000 are real estate secured and $407,000 are secured by various other types of collateral. Classified loan balances have remained relatively consistent due to the stable markets in which we operate; however, if short-term rates continue to remain elevated for a significant period of time and economic conditions worsen, our classified loan balances could increase. Such loans are listed as classified when information obtained about possible credit problems of the borrowers has prompted management to question the ability of the borrower to comply with the repayment terms of the loan agreement.

The allowance for credit losses is discussed under “Critical Accounting Estimates”, “Provision for Credit Losses”, and "Summary of Significant Accounting Policies." The Company maintains its allowance for credit losses at an amount believed by management to be adequate to absorb expected credit losses inherent in the loan portfolio as of December 31, 2023.

Substantially all of the Company’s loans are from Wilson, DeKalb, Smith, Putnam, Trousdale, Davidson, Rutherford, Sumner, Williamson and adjacent counties. Although the majority of the Company's loans are in the real estate market, the Company seeks to exercise prudent risk management in lending through the diversification by loan category within the real estate segment, including residential 1-4 family real estate, commercial and multi-family real estate, construction, land development and farmland, and 1-4 family equity lines of credit.

The Company will target owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of emphasis in 2024. At December 31, 2023, the Company’s total loans equaled 82.3% of its total deposits as compared to 81.0% at December 31, 2022. The Company may sell portions of the loans it generates to other financial institutions for cash in order to improve the liquidity of the Company’s loan portfolio or extend its lending capacity.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Allowance for Credit Losses

On January 1, 2022, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our financial instrument portfolios. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management’s evaluation, is adequate to provide coverage for all expected credit losses.

The allowance for credit losses for loans represents the portion of the loan's amortized cost basis that we do not expect to collect due to credit losses over the loan's life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions considering macroeconomic forecasts. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses for loans is based on the loan's amortized cost basis, excluding accrued interest receivable, as we promptly charge off accrued interest receivable determined to be uncollectible. We determine the appropriateness of the allowance through quarterly discounted cash flow modeling of the loan portfolio which considers lending-related commitments and other relevant factors, including macroeconomic forecasts and historical loss rates. In future quarters, we may update information and forecasts that may cause significant changes in the estimate in those future quarters.

Our allowance for credit losses for loans at December 31, 2023 reflects an amount deemed appropriate to adequately cover all expected future losses as of the date the allowance is determined based on our allowance for credit losses for loans assessment methodology. Provision for credit losses for loans in 2023 resulted in an increase of the allowance for credit losses for loans (net of charge-offs and recoveries) to $44,848,000 at December 31, 2023 from $39,813,000 at December 31, 2022 and $39,632,000 at December 31, 2021. The allowance for credit losses for loans increased 12.65% from December 31, 2022 to December 31, 2023 as compared to the 14.01% increase in total loans over the same period. The allowance for credit losses for loans was 1.25% of total loans outstanding at December 31, 2023 compared to 1.26% at December 31, 2022. The allowance for loan losses was 1.60% at December 31, 2021. The internally classified loans as a percentage of the allowance for credit losses for loans were 13.2% and 16.0%, respectively, at December 31, 2023 and 2022.

The following schedule provides an allocation of the year-end allowance for credit losses for loans by portfolio segment for the Company as of and for the fiscal years ended December 31, 2023 and 2022:

 

 

 

In Thousands, Except Percentages

 

 

 

Amount of Allowance Allocated

 

 

Percent of Loans in Each Category to Total Loans

 

 

Total Loans

 

 

Ratio of Allowance Allocated to Loans in Each Category

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

8,765

 

 

 

26.6

%

 

$

959,218

 

 

 

0.91

%

Commercial and multi-family real estate

 

 

17,422

 

 

 

36.4

 

 

 

1,313,284

 

 

 

1.33

 

Construction, land development and farmland

 

 

14,027

 

 

 

25.0

 

 

 

901,336

 

 

 

1.56

 

Commercial, industrial and agricultural

 

 

1,533

 

 

 

3.5

 

 

 

127,659

 

 

 

1.20

 

1-4 family equity lines of credit

 

 

1,809

 

 

 

5.6

 

 

 

202,731

 

 

 

0.89

 

Consumer and other

 

 

1,292

 

 

 

2.9

 

 

 

104,373

 

 

 

1.24

 

Total

 

$

44,848

 

 

 

100.0

%

 

 

3,608,601

 

 

 

1.24

 

Net deferred loan fees

 

 

 

 

 

 

 

 

(13,078

)

 

 

 

 

 

 

 

 

 

 

$

3,595,523

 

 

 

1.25

%

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

7,310

 

 

 

27.0

%

 

$

854,970

 

 

 

0.86

%

Commercial and multi-family real estate

 

 

15,299

 

 

 

33.6

 

 

 

1,064,297

 

 

 

1.44

 

Construction, land development and farmland

 

 

13,305

 

 

 

27.8

 

 

 

879,528

 

 

 

1.51

 

Commercial, industrial and agricultural

 

 

1,437

 

 

 

3.9

 

 

 

124,603

 

 

 

1.15

 

1-4 family equity lines of credit

 

 

1,170

 

 

 

4.8

 

 

 

151,032

 

 

 

0.77

 

Consumer and other

 

 

1,292

 

 

 

2.9

 

 

 

93,332

 

 

 

1.38

 

Total

 

$

39,813

 

 

 

100.0

%

 

 

3,167,762

 

 

 

1.26

 

Net deferred loan fees

 

 

 

 

 

 

 

 

(14,153

)

 

 

 

 

 

 

 

 

 

 

$

3,153,609

 

 

 

1.26

%

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The allowance for credit losses for loans is an amount that management believes will be adequate to absorb expected losses on existing loans that may become uncollectible. The allowance for credit losses for loans as a percentage of total loans outstanding at December 31, 2023, net of deferred fees, decreased slightly from the year ended December 31, 2022. This decrease was due to the movement of loans out of the construction and land development pools, which had higher reserve rates, and into various other loan pools within the portfolio that had lower reserve rates, and a reduced provision expense due to slowing loan growth. This was offset in part by the increase in our historical modeled loss rates during the twelve months ended December 31, 2023 due to changes in our macroeconomic forecasts, which are discussed below in more detail, capturing the potential for a recession, that was not captured in our forecast at December 31, 2022.

We measure expected credit losses over the life of each loan utilizing two models. For residential 1-4 family, commercial and multi-family real estate, construction and land development, commercial and industrial, 1-4 family equity lines of credit, municipal, and certain other loan types, we use discounted cash flow models which measure probability of default and loss given default. For farmland, agricultural, credit cards, auto, and other consumer loans we use the remaining life method to estimate credit losses. The measurement of expected credit losses for loan segments utilizing discounted cash flow is impacted by certain macroeconomic variables. Models are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period.

In estimating expected credit losses as of December 31, 2023, we utilized the Moody’s Analytics December 2023 Next-Cycle Recession Scenario (the “December N-CR Scenario”) to forecast the macroeconomic variables used in our models. The December NC-R Scenario was based on the review of a variety of surveys of forecasts of the U.S. economy. The December NC-R Scenario projections included, among other things, (i) U.S. Gross Domestic Product (“GDP”) annualized quarterly growth rates in the range of approximately (1.07)% to 1.64% during 2024 and 0.03% to 3.15% through the end of the forecast period in the fourth quarter of 2025; (ii) a U.S. unemployment rate in the range of approximately 4.78% to 6.11% during 2024 and 4.47% to 5.21% through the end of the forecast period in the fourth quarter of 2025; and (iii) a Home Price Index annualized quarterly growth rates in the range of approximately (6.50)% to 2.76% during 2024 and (4.55)% to 0.90% through the end of the forecast period in the fourth quarter of 2025.

We adjust model results using qualitative factor ("Q-factor") adjustments. Q-Factor adjustments are based upon management judgment and current assessment as to the impact of risks related to changes in lending policies and procedures; economic and business conditions; loan portfolio attributes and credit concentrations; and external factors, among other things, that are not already captured within the modeling inputs, assumptions and other processes. Management assesses the potential impact of such items within a range of major risk to improvement and adjusts the modeled expected credit loss by an aggregate adjustment percentage based upon the assessment.

Our charge-off policy for collateral dependent loans is similar to our charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. Net charge-offs increased to $1,265,000 in 2023 from net charge-offs of $911,000 in 2022 and net charge-offs of $50,000 in 2021. The ratio of net charge-offs to average total outstanding loans was 0.04% in 2023, 0.03% in 2022 and 0.00% in 2021. Overall, the Bank experienced minimal charge-offs during 2023. It is expected that charge-offs will be modest for 2024; however, a deterioration in local economic conditions more severe than currently expected may negatively impact charge-offs in the future.

We also maintain an allowance for credit losses on off-balance sheet exposures, which decreased $2,989,000 from December 31, 2022 to $3,147,000 at December 31, 2023 as a result of a decrease in our off-balance sheet commitments and an increase in our unconditionally cancellable commitments as a percentage of our off-balance sheet commitments, which are excluded from the calculation of the allowance for credit losses on off-balance credit exposure under ASC 326.

The level of the allowance and the amount of the provision for credit losses involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for credit losses - loans which management believes is adequate to absorb losses in the loan portfolio. A formal calculation is prepared quarterly by the Company's Chief Financial Officer and provided to the Board of Directors to determine the adequacy of the allowance for credit losses. The calculation includes an evaluation of historical default and loss experience, current and forecasted economic conditions, an evaluation of qualitative factors, industry and peer bank loan quality indicators and other factors. See the discussion above under “Application of Critical Accounting Policies and Accounting Estimates” for more information. Management believes the allowance for credit losses at December 31, 2023 to be adequate, but if forecasted economic conditions do not meet management’s current expectations, the allowance for credit losses may require an increase through additional provision for credit loss expense which would negatively impact earnings.

For a detailed discussion regarding our allowance for credit losses, see "Provision for Credit Losses and Allowance for Credit Losses" elsewhere in this document.

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Securities

Securities decreased 1.43% to $811,081,000 at December 31, 2023 from $822,812,000 at December 31, 2022, and comprised the second largest and other primary component of the Company’s earning assets. Securities decreased due to the sale of securities and the run-off of our declining balance securities in 2023, partially offset by an increase in the fair market value of our securities portfolio due to a decline in interest rates that caused the fair market value of our securities portfolio to increase and by the purchase of new securities with higher yields. The average yield, including tax equivalent adjustment, of the securities portfolio at December 31, 2023 was 2.33% with a weighted average life of 8.25 years, as compared to an average yield of 2.15% and a weighted average life of 8.25 years at December 31, 2022. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses on our available-for-sale securities excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Upon and subsequent to adoption of CECL, for available-for-sale debt securities in an unrealized loss position, we evaluate the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized through the allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via provision for credit loss. At December 31, 2023 and December 31, 2022, we determined that available-for-sale securities that experienced a decline in fair value below the amortized cost basis were driven by changes in interest rates and not due to credit-related factors. Therefore, there was no provision for credit loss recognized during the twelve months ended December 31, 2023 with respect to our available-for-sale securities.

No securities have been classified as trading securities or held-to-maturity at December 31, 2023, December 31, 2022, or December 31, 2021.

Investment securities at December 31, 2023 and December 31, 2022 consisted of the following:

 

 

 

December 31, 2023

 

 

 

Securities Available-For-Sale

 

 

 

(In Thousands)

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and other U.S. government agencies

 

$

4,901

 

 

 

—

 

 

 

472

 

 

 

4,429

 

U.S. Government-sponsored enterprises (GSEs)

 

 

167,738

 

 

 

—

 

 

 

23,570

 

 

 

144,168

 

Mortgage-backed securities

 

 

480,759

 

 

 

230

 

 

 

63,959

 

 

 

417,030

 

Asset-backed securities

 

 

51,183

 

 

 

193

 

 

 

1,403

 

 

 

49,973

 

Corporate bonds

 

 

2,500

 

 

 

—

 

 

 

77

 

 

 

2,423

 

Obligations of states and political subdivisions

 

 

223,358

 

 

 

397

 

 

 

30,697

 

 

 

193,058

 

 

$

930,439

 

 

 

820

 

 

 

120,178

 

 

 

811,081

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

 

December 31, 2022

 

 

 

Securities Available-For-Sale

 

 

 

(In Thousands)

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and other U.S. government agencies

 

$

7,353

 

 

 

—

 

 

 

856

 

 

 

6,497

 

U.S. Government-sponsored enterprises (GSEs)

 

 

177,261

 

 

 

—

 

 

 

32,049

 

 

 

145,212

 

Mortgage-backed securities

 

 

518,727

 

 

 

1

 

 

 

74,290

 

 

 

444,438

 

Asset-backed securities

 

 

47,538

 

 

 

—

 

 

 

2,288

 

 

 

45,250

 

Corporate bonds

 

 

2,500

 

 

 

—

 

 

 

97

 

 

 

2,403

 

Obligations of states and political subdivisions

 

 

218,936

 

 

 

—

 

 

 

39,924

 

 

 

179,012

 

 

$

972,315

 

 

 

1

 

 

 

149,504

 

 

 

822,812

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

The following table details the contractual maturities and weighted average yields of investment securities of the Company. Actual maturities may differ from contractual maturities of mortgage and asset-backed securities because the mortgages or other assets underlying

such securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories noted below as of December 31, 2023:

 

 

 

December 31, 2023

 

Available-For-Sale Securities

 

Estimated Market Value

 

 

Weighted Average Yields

 

 

 

(In Thousands, Except Yields)

 

Mortgage and asset-backed securities

 

 

 

 

 

 

One year or less

 

$

13

 

 

 

3.98

%

After one year through five years

 

 

24,584

 

 

 

1.44

 

After five years through ten years

 

 

88,445

 

 

 

3.69

 

After ten years

 

 

353,961

 

 

 

2.45

 

Total Mortgage and asset backed securities

 

 

467,003

 

 

 

2.63

 

U.S. Treasury and other U.S. government agencies:

 

 

 

 

 

 

One year or less

 

 

—

 

 

 

—

 

After one year through five years

 

 

4,429

 

 

 

1.11

 

After five years through ten years

 

 

—

 

 

 

—

 

After ten years

 

 

—

 

 

 

—

 

Total U.S. Treasury and other U.S. government agencies:

 

 

4,429

 

 

 

1.11

 

U.S. Government-sponsored enterprises (GSEs):

 

 

 

 

 

 

One year or less

 

 

—

 

 

 

—

 

After one year through five years

 

 

43,500

 

 

0.93

 

After five years through ten years

 

 

85,426

 

 

1.54

 

After ten years

 

 

15,242

 

 

 

2.14

 

Total U.S. Government-sponsored enterprises (GSEs)

 

 

144,168

 

 

1.42

 

Obligations of states and political subdivisions*:

 

 

 

 

 

 

One year or less

 

 

289

 

 

 

0.71

 

After one year through five years

 

 

15,123

 

 

 

1.86

 

After five years through ten years

 

 

70,113

 

 

 

1.93

 

After ten years

 

 

107,533

 

 

 

2.98

 

Total obligations of states and political subdivisions

 

 

193,058

 

 

2.51

 

Corporate bonds:

 

 

 

 

 

 

One year or less

 

 

—

 

 

 

—

 

After one year through five years

 

 

2,423

 

 

4.25

 

After five years through ten years

 

 

—

 

 

 

—

 

After ten years

 

 

—

 

 

 

—

 

Total corporate bonds

 

 

2,423

 

 

4.25

 

Total available-for-sale securities

 

$

811,081

 

 

 

2.33

%

 

* Weighted average yield on tax-exempt obligations is stated on a tax-equivalent basis, assuming a weighted average Federal income tax rate of 21%.

We computed weighted average yields using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. We computed the weighted average yield for each maturity range using the fair value of each security in that range.

 

 

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Premises and Equipment, net

Premises and equipment increased $367,000, or 0.59%, from December 31, 2022 to December 31, 2023. The primary reason for the increase was due to the purchase of equipment and furniture and fixtures, the remodeling of several branches, and an increase in computer software, substantially offset by current year depreciation and amortization of $4,313,000.

Bank Owned Life Insurance

Bank owned life insurance increased $1,638,000, or 2.82%, from December 31, 2022 to December 31, 2023. This increase was due to an increase in the overall cash surrender value.

Deposits

The increases in assets in 2023 and 2022 were funded primarily by increases in deposits and the Company’s earnings. Total deposits, which are the principal source of funds for the Company, totaled $4,367,106,000 at December 31, 2023 compared to $3,892,705,000 at December 31, 2022, an increase of 12.19%. Included in deposits at December 31, 2023 were $69,135,000 in brokered deposits, compared to $35,024,000 at December 31, 2022. The increase in brokered deposits from December 31, 2022 to December 31, 2023 was the result of management's decision to increase liquidity to fund anticipated loan growth during 2023. The increase in total deposits since December 31, 2022 was primarily attributable to growth in market share which resulted in the opening of new deposit accounts, a targeted effort to increase customer time deposits and the increase in brokered deposits mentioned above. The Company has targeted local consumers, professionals and small businesses as its central clientele; therefore, deposit instruments in the form of demand deposits, savings accounts, money market demand accounts, certificates of deposits and individual retirement accounts are offered to customers. Management believes the markets in which it operates are attractive economic markets offering growth opportunities for the Company; however, the Company competes with several larger banks and community banks that have bank offices in these areas which may negatively impact market growth or maintenance of current market share. Even though the Company is in a very competitive market, management currently believes that its deposit market share can be maintained or expanded, though, as discussed below, such competition may force the Company to further increase the rates it pays on deposits.

The $474,401,000, or 12.19%, growth in deposits in 2023 was due to a $788,958,000, or 112.44%, increase in certificates of deposits and a $9,860,000, or 15.12%, increase in individual retirement accounts. This was partially offset by a $144,655,000, or 11.12%, decrease in money market accounts, a $135,920,000, or 12.70%, decrease in NOW accounts, a $25,180,000, or 6.07%, decrease in demand deposit accounts, and a $18,662,000, or 5.51%, decrease in savings accounts. The increase in time deposits is due to the Bank increasing rates to remain competitive in our market areas and customers shifting to these products from lower earning and non-interest earning accounts to take advantage of higher rates. The average rate paid on average total interest-bearing deposits was 2.27% for 2023 compared to 0.49% for 2022. The average rate paid in 2021 was 0.40%. Competitive pressure from other banks in our market area relating to deposit pricing could adversely affect the rates paid on deposit accounts as it limits our ability to lower deposit rates should short-term interest rates fall. It’s these same competitive pressures that may cause our deposit rates to continue to rise in an elevated rate environment. If either of these scenarios were to happen, our net interest margin would experience compression and our results of operations would be negatively impacted. As noted above, we raised rates on deposits to maintain liquidity levels and offer competitive rates in our markets. The ratio of average loans to average deposits was 83.2% in 2023, 75.5% in 2022, and 73.6% in 2021.

The average amounts and average interest rates for deposits for 2023 and 2022 are detailed in the following schedule:

 

 

 

2023

 

 

2022

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

Balance

 

 

 

 

 

Balance

 

 

 

 

 

 

In

 

 

Average

 

 

In

 

 

Average

 

 

 

Thousands

 

 

Rate

 

 

Thousands

 

 

Rate

 

Non-interest bearing deposits

 

$

399,683

 

 

 

—

%

 

$

434,443

 

 

 

—

%

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable order of withdrawal accounts

 

 

976,154

 

 

 

0.60

 

 

 

1,083,028

 

 

 

0.24

 

Money market demand accounts

 

 

1,123,482

 

 

 

2.03

 

 

 

1,250,916

 

 

 

0.47

 

Time deposits

 

 

1,264,602

 

 

 

3.98

 

 

 

601,100

 

 

 

1.08

 

Other savings

 

 

322,458

 

 

 

1.43

 

 

 

332,918

 

 

 

0.34

 

Total interest-bearing deposits

 

 

3,686,696

 

 

 

2.27

%

 

 

3,267,962

 

 

 

0.49

%

Total deposits

 

$

4,086,379

 

 

 

2.05

%

 

$

3,702,405

 

 

 

0.43

%

 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

At December 31, 2023 and 2022, we estimate that we had approximately $1.2 billion in uninsured deposits, which are the portion of deposit amounts that exceed the FDIC insurance limit. Approximately 28% of our total deposits exceeded the FDIC deposit insurance limits at December 31, 2023 while approximately 31% exceeded the FDIC deposit insurance limits at December 31, 2022. However, we offer large depositors access to the Certificate of Deposit Account Registry Service (“CDARS”) and the Insured Cash Sweep (“ICS Product”), which allows us to divide customers' deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those excess deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. Our total deposits in CDARS and the ICS Products increased to $104,204,000, or 2.39% of total deposits, at December 31, 2023, compared to $4,730,000, or 0.12% of total deposits, at December 31, 2022.

The following schedule details the maturities of estimated uninsured time deposits greater than $250,000 at December 31, 2023:

 

 

 

In Thousands

 

Time deposits otherwise uninsured with a maturity of:

 

 

 

Three months or less

 

$

105,037

 

Over three through six months

 

 

74,366

 

Over six through twelve months

 

 

160,802

 

Over twelve months

 

 

64,246

 

Portion of U.S. time deposits in excess of insurance limit

 

$

404,451

 

 

Off Balance Sheet Arrangements

At December 31, 2023, the Company had unfunded lines of credit of $1.0 billion and outstanding standby letters of credit of $106 million, compared to unfunded lines of credit of $1.2 billion and outstanding standby letters of credit of $118 million at December 31, 2022. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to access interest-bearing deposits in other financial institutions, 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. Additionally, the Bank could sell participations in these or other loans to correspondent banks. Liquidation of securities available-for-sale could trigger recognition of losses by the Bank if those securities sold to meet these commitments were in a loss position when sold. As mentioned below, Wilson Bank has been able to fund its ongoing liquidity needs through its stable core deposit base, brokered deposits, loan repayments, its investment security maturities, and short-term borrowings.

Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the Company’s operations, the Company is not subject to foreign currency exchange or commodity price risk.

Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both short term and long term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company meets monthly to analyze the rate sensitivity position. These meetings focus on the spread between the cost of funds and interest yields generated primarily through loans and investments.

Liquidity and Asset Liability Management

Liquidity

The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends, changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We strive to maintain appropriate levels of liquidity. We calculate our liquidity ratio by taking cash and due from banks, interest bearing deposits, federal funds sold, and available-for-sale debt securities not pledged as collateral and dividing by total assets. Our total liquidity ratios were 13.09% at December 31, 2023 and 12.21% at December 31, 2022. The increase in our liquidity ratio is primarily attributable to an increase in cash

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

and due from banks, interest bearing deposits, and federal funds sold, partially offset by a decrease in the amount of available-for-sale securities not pledged as collateral.

The Company’s primary source of liquidity is a stable core deposit base. In addition, federal funds purchased, advances from the Federal Home Loan Bank of Cincinnati, and brokered deposits provide a secondary source. These sources of liquidity are generally short-term in nature and are used to fund asset growth and meet other short-term liquidity needs. Liquidity needs can also be met from loan payments and investment security sales or maturities. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. At December 31, 2023, the Company’s liquid assets totaled approximately $634.0 million, an increase from $522.7 million at December 31, 2022, though a portion of these liquid assets include available-for-sale securities that are in an unrealized loss position at December 31, 2023. If the Company was required to sell any of these securities, including to meet liquidity needs, while they are in an unrealized loss position the Company would be required to recognize the loss on those securities through the income statement when they are sold. Recognition of these losses would negatively impact the Bank's and the Company's regulatory capital levels. Additionally, as of December 31, 2023, the Company had available approximately $127.5 million in unused federal funds lines of credit with regional banks and, subject to certain restrictions and collateral requirements, approximately $539.4 million of borrowing capacity with the Federal Home Loan Bank of Cincinnati to meet short term funding needs. The Company maintains a formal asset and liability management process in an effort to quantify, monitor and control interest rate risk, and to assist management as management seeks to maintain stability in the net interest margin under varying interest rate environments. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines and competitive market conditions.

The Company’s securities portfolio consists of earning assets that provide interest income. Securities classified as available-for-sale include securities intended to be used as part of the Company’s asset/liability strategy and/or securities that may be sold in response to changes in interest rates, prepayment risk, or the need to fund loan demand or other liquidity needs. At December 31, 2023, securities totaling approximately $40.2 million mature or will be subject to rate adjustments within the next twelve months.

A secondary source of liquidity is the Company’s loan portfolio. At December 31, 2023, loans totaling approximately $1.2 billion either will become due or will be subject to rate adjustments within twelve months from that date.

As for liabilities, at December 31, 2023, certificates of deposit and individual retirement accounts of $250,000 or greater totaling approximately $510.7 million will become due or reprice during the next twelve months. Historically, there has been no significant reduction in immediately withdrawable accounts such as negotiable order of withdrawal accounts, money market demand accounts, demand deposit accounts and regular savings accounts. Management does not anticipate that there will be significant withdrawals from these accounts in the next twelve months.

Management believes that with present maturities, borrowing capacity in unused federal funds lines of credit and with the Federal Home Loan Bank of Cincinnati and the efforts of management in its asset/liability management program, the Company should be able to meet its liquidity needs in the near term future.

Asset Liability Management

Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Interest Rate Sensitivity Gaps

The following schedule details the Company's interest rate sensitivity gaps for different time periods at December 31, 2023:

 

 

 

Repricing Within

 

(In Thousands)

 

Total

 

 

0-30 Days

 

 

31-90 Days

 

 

91-180 Days

 

 

181-365 Days

 

 

Over 1 Year

 

Earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net of deferred fees

 

$

3,595,523

 

 

 

620,510

 

 

 

107,913

 

 

 

147,565

 

 

 

289,298

 

 

 

2,430,237

 

Securities

 

 

811,081

 

 

 

37,630

 

 

 

1,793

 

 

 

452

 

 

 

288

 

 

 

770,918

 

Loans held for sale

 

 

2,294

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,294

 

Interest bearing deposits

 

 

213,701

 

 

 

213,701

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Federal funds sold

 

 

10,159

 

 

 

10,159

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restricted equity securities

 

 

3,436

 

 

 

3,436

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total earning assets

 

 

4,636,194

 

 

 

885,436

 

 

 

109,706

 

 

 

148,017

 

 

 

289,586

 

 

 

3,203,449

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable order of withdrawal accounts

 

 

934,709

 

 

 

934,709

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Money market demand accounts

 

 

1,156,694

 

 

 

1,156,694

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Individual retirement accounts

 

 

75,062

 

 

 

1,883

 

 

 

6,208

 

 

 

7,621

 

 

 

14,694

 

 

 

44,656

 

Other savings

 

 

320,301

 

 

 

320,301

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Certificates of deposit

 

 

1,490,615

 

 

 

65,228

 

 

 

284,631

 

 

 

187,504

 

 

 

660,729

 

 

 

292,523

 

Finance leases

 

 

2,251

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,251

 

 

 

3,979,632

 

 

 

2,478,815

 

 

 

290,839

 

 

 

195,125

 

 

 

675,423

 

 

 

339,430

 

Interest-sensitivity gap

 

$

656,562

 

 

 

(1,593,379

)

 

 

(181,133

)

 

 

(47,108

)

 

 

(385,837

)

 

 

2,864,019

 

Cumulative gap

 

 

 

 

 

(1,593,379

)

 

 

(1,774,512

)

 

 

(1,821,620

)

 

 

(2,207,457

)

 

 

656,562

 

Interest-sensitivity gap as % of total assets

 

 

 

 

 

(32.9

)%

 

 

(3.7

)%

 

 

(1.0

)%

 

 

(8.0

)%

 

 

59.1

%

Cumulative gap as % of total assets

 

 

 

 

 

(32.9

)%

 

 

(36.6

)%

 

 

(37.6

)%

 

 

(45.5

)%

 

 

13.5

%

 

As detailed in the chart, as of December 31, 2023, the Company is forecasted to maintain a liability sensitive position over the next twelve months, meaning that its liabilities should reprice faster than its assets in a changing interest rate environment. However, management expects that liabilities of a demand nature will renew and that it will not be necessary to replace them with significantly higher cost of funds.

The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Company's Asset Liability Committee meets quarterly to analyze the interest rate shock simulation. The interest rate shock simulation model is based on a number of assumptions. The assumptions include, but are not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows and balance sheet management strategies. We model instantaneous change in interest rates using a growth in the balance sheet as well as a flat balance sheet to understand the impact to earnings and capital. Based on the Company's IRR simulation, the Company had a neutral interest-rate risk position as of December 31, 2023, though the Company’s net interest margin and earnings could be negatively impacted if short-term rates continue to rise or remain elevated and competitive pressures in the Company's market areas force the Company to increase deposit rates faster than it is able to increase yields on loans. If short term rates begin to decline, as the Company expects may begin to happen in the second half of 2024, the Company’s net interest margin and earnings could be negatively impacted if the yields on loans decrease faster than the Company is able to lower deposit rates. As discussed elsewhere herein, the Bank anticipates that its net interest margin is likely to contract during 2024 because of such competitive pressures, and the elevated rate environment we are currently experiencing that is expected to continue in the near term. The Company also uses Economic Value of Equity (“EVE”) sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. The EVE is a longer term view of interest rate risk because it measures the present value of the future cash flows. Presented below is the estimated impact on the Bank’s net interest income and EVE as of December 31, 2023, assuming an immediate shift in interest rates:

 

 

 

% Change from Base Case for Immediate Parallel Changes in Rates

 

 

 

-300 BP

 

 

-200 BP

 

 

-100 BP

 

 

+100 BP

 

 

+200 BP

 

 

+300 BP

 

Net interest income

 

 

(6.65

)%

 

 

(4.61

)%

 

 

(2.18

)%

 

 

(1.95

)%

 

 

(3.87

)%

 

 

(5.94

)%

EVE

 

 

(13.47

)%

 

 

(5.29

)%

 

 

(1.20

)%

 

 

(3.05

)%

 

 

(6.55

)%

 

 

(10.65

)%

 

While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates. Moreover, since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging strategies that we may institute, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.

Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both immediate and long-term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company analyzes the rate sensitivity position quarterly. Management focuses on the spread between the Company’s cost of funds and interest yields generated primarily through loans and investments.

In addition to the ALCO, the Audit Committee as well as the Chief Risk Officer are all responsible for the “risk management framework” of the Company. The ALCO meets monthly and the Audit Committee meets quarterly, with the authority to convene additional meetings, as circumstances require.

Impact of Inflation

Although interest rates are significantly affected by inflation, for the fiscal years ended December 31, 2023, 2022 and 2021, the inflation rate is believed to have had an immaterial impact on the Company’s results of operations. Outside of its potential impact on our customers and their ability to make loan payments, we do not expect such inflation to have a material impact on our operations in 2024 other than any effect it may have on interest rates, though continued elevated levels of inflation could also negatively impact our non-interest expense.

Capital Resources, Capital Position and Dividends

At December 31, 2023, total shareholders’ equity was $429,405,000, or 8.86% of total assets, which compares with $360,452,000, or 8.41% of total assets, at December 31, 2022, and $413,717,000, or 10.37% of total assets, at December 31, 2021. The dollar increase in the Company’s shareholders’ equity during 2023 reflects (i) net income of $48,938,000, (ii) less cash dividends of $1.50 per share totaling $17,303,000, (iii) the issuance of 189,471 shares of common stock for $12,979,000, as reinvestment of cash dividends, (iv) the issuance of 24,711 shares of common stock pursuant to exercise of stock options for $1,044,000, (v) the net positive change in unrealized loss on available-for-sale securities of $22,267,000, (vi) stock-based compensation expense of $974,000, and (vii) $54,000 of net income attributable to the other members of Encompass.

For a discussion of the Company's and Wilson Bank's capital levels and required minimum levels of capital each is required to maintain under applicable regulatory requirements see Note 17, Regulatory Matters and Restrictions on Dividends in the notes to the Company's consolidated financial statements appearing elsewhere in this report.

 

 

Holding Company & Stock Information

Wilson Bank Holding Company Directors

J. Randall Clemons, Chairman; James Anthony Patton; James F. Comer; Jack W. Bell; William P. Jordan; John C. McDearman III; Clinton M. Swain; Michael G. Maynard; H. Elmer Richerson and Deborah Varallo.

Common Stock Market Information

The common stock of Wilson Bank Holding Company is not traded on an exchange nor is there a known active trading market. The number of shareholders of record at February 23, 2024 was 4,797. Based solely on information made available to the Company from limited numbers of buyers and sellers, the Company believes that the following table sets forth the quarterly range of sale prices for the Company’s common stock during the years 2022 and 2023.

On January 1, 2022, a $.75 per share cash dividend was declared, on April 11, 2022, a $.35 per share cash dividend was declared, and on July 1, 2022, a $.75 per share cash dividend was declared and thereafter paid to shareholders of record as of those dates. On January 1, 2023, a $.75 per share cash dividend was declared and on July 1, 2023, a $.75 per share cash dividend was declared and paid to shareholders of record on those dates. Future dividends will be dependent upon the Company’s profitability, its capital needs, overall financial condition and economic and regulatory considerations.

 

Stock Prices

 

2022

 

High

 

 

 

 

 

Low

 

 

First Quarter

 

$

64.40

 

 

 

 

 

$

63.25

 

 

Second Quarter

 

$

65.55

 

 

 

 

 

$

63.25

 

1

Third Quarter

 

$

70.00

 

 

2

 

 

$

65.55

 

 

Fourth Quarter

 

$

67.85

 

 

 

 

 

$

65.55

 

1

 

2023

 

High

 

 

 

 

 

Low

 

 

First Quarter

 

$

69.00

 

 

 

 

 

$

67.85

 

 

Second Quarter

 

$

70.00

 

 

 

 

 

$

67.85

 

1

Third Quarter

 

$

75.00

 

 

3

 

 

$

70.00

 

 

Fourth Quarter

 

$

71.75

 

 

4

 

 

$

70.00

 

5

 

1. Represents one transaction of 712 shares during the second quarter of 2022, one transaction of 500 shares during the fourth quarter of 2022, and one transaction of 303 shares during the second quarter of 2023 of which the Company is aware where the sale price was at least $1.15 lower than any other trade during the quarter. The volume weighted average stock price during the second quarter of 2022 was $64.44, the volume weighted average stock price during the fourth quarter of 2022 was $67.36, and the volume weighted average stock price during the second quarter of 2023 was $69.21.

 

2. Represents one transaction of 2,429 shares during the third quarter of 2022 of which the Company is aware where the sale price was at least $3.30 higher than any other trade during the quarter. The volume weighted average stock price during the third quarter of 2022 was $66.14.

 

3. Represents one transaction of 102 shares during the third quarter of 2023 of which the Company is aware where the sale price was at least $4.25 higher than any other trade during the quarter. The volume weighted average stock price during the third quarter of 2023 was $70.07.

 

4. Represents one transaction of 50 shares during the fourth quarter of 2023 of which the Company is aware where the sale price was at least $0.25 higher than any other trade during the quarter. The volume weighted average stock price during the fourth quarter of 2023 was $70.90.

 

5. Represents one transaction of 406 shares and one transaction of 311 shares during the fourth quarter of 2023 of which the Company is aware where the sale price was at least $.75 lower than any other trade during the quarter. The volume weighted average stock price during the fourth quarter of 2023 was $70.90.

Annual Meeting and Information Contacts

The Annual Meeting of Shareholders of Wilson Bank Holding Company will be held on Thursday, April 25, 2024 at 5:00 p.m. (CDT) at the Clemons-Richerson Operations Center, located at 105 North Castle Heights Avenue, Lebanon, TN 37087.

For further information concerning Wilson Bank Holding Company or Wilson Bank & Trust, or to obtain a copy of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission, which is available without charge to shareholders, please contact Kayla Hawkins at Wilson Bank & Trust, P.O. Box 768, Lebanon, Tennessee 37088-0768, phone (615) 443-5901.

 

WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)

 

 

 

In Thousands, Except Per Share Information

 

 

 

As Of December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

CONSOLIDATED BALANCE SHEETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets end of year

 

$

4,846,476

 

 

 

4,285,650

 

 

 

3,989,596

 

 

 

3,369,604

 

 

 

2,794,209

 

Loans, net

 

$

3,550,675

 

 

 

3,113,796

 

 

 

2,444,282

 

 

 

2,282,766

 

 

 

2,057,175

 

Securities

 

$

811,081

 

 

 

822,812

 

 

 

897,585

 

 

 

580,543

 

 

 

421,145

 

Deposits

 

$

4,367,106

 

 

 

3,892,705

 

 

 

3,555,071

 

 

 

2,960,595

 

 

 

2,417,605

 

Shareholders’ equity

 

$

429,405

 

 

 

360,452

 

 

 

413,717

 

 

 

380,121

 

 

 

336,984

 

 

 

 

Years Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

CONSOLIDATED STATEMENTS OF EARNINGS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

222,583

 

 

 

157,540

 

 

 

129,841

 

 

 

122,968

 

 

 

118,077

 

Interest expense

 

 

83,679

 

 

 

16,133

 

 

 

11,636

 

 

 

18,219

 

 

 

23,379

 

Net interest income

 

 

138,904

 

 

 

141,407

 

 

 

118,205

 

 

 

104,749

 

 

 

94,698

 

Provision for credit losses - loans

 

 

6,300

 

 

 

8,656

 

 

 

1,143

 

 

 

9,696

 

 

 

2,040

 

Provision for credit losses - off-balance sheet exposures

 

 

(2,989

)

 

 

(1,014

)

 

 

262

 

 

 

259

 

 

 

75

 

Net interest income after provision for credit losses

 

 

135,593

 

 

 

133,765

 

 

 

116,800

 

 

 

94,794

 

 

 

92,583

 

Non-interest income

 

 

28,289

 

 

 

27,281

 

 

 

32,850

 

 

 

29,795

 

 

 

25,410

 

Non-interest expense

 

 

100,951

 

 

 

92,970

 

 

 

85,492

 

 

 

76,479

 

 

 

70,882

 

Earnings before income taxes

 

 

62,931

 

 

 

68,076

 

 

 

64,158

 

 

 

48,110

 

 

 

47,111

 

Income taxes

 

 

13,939

 

 

 

15,056

 

 

 

14,732

 

 

 

9,618

 

 

 

11,067

 

Net earnings

 

 

48,992

 

 

 

53,020

 

 

 

49,426

 

 

 

38,492

 

 

 

36,044

 

Net loss (gain) attributable to noncontrolling interest

 

 

(54

)

 

 

22

 

 

 

—

 

 

 

—

 

 

 

—

 

Net earnings attributable to Wilson Bank Holding Company

 

$

48,938

 

 

 

53,042

 

 

 

49,426

 

 

 

38,492

 

 

 

36,044

 

Cash dividends declared

 

$

17,303

 

 

 

20,880

 

 

 

14,909

 

 

 

13,013

 

 

 

11,725

 

PER SHARE DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

4.21

 

 

 

4.66

 

 

 

4.44

 

 

 

3.52

 

 

 

3.36

 

Diluted earnings per common share

 

$

4.20

 

 

 

4.65

 

 

 

4.43

 

 

 

3.51

 

 

 

3.35

 

Cash dividends

 

$

1.50

 

 

 

1.85

 

 

 

1.35

 

 

 

1.20

 

 

 

1.10

 

Book value

 

$

36.74

 

 

 

31.42

 

 

 

36.93

 

 

 

34.58

 

 

 

31.24

 

RATIOS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average shareholders’ equity

 

 

12.47

%

 

 

14.36

 

 

 

12.45

 

 

 

10.65

 

 

 

11.31

 

Return on average assets

 

 

1.08

%

 

 

1.29

 

 

 

1.35

 

 

 

1.24

 

 

 

1.34

 

Total capital to assets

 

 

8.86

%

 

 

8.41

 

 

 

10.37

 

 

 

11.28

 

 

 

12.06

 

Dividends declared per share as a percentage of basic earnings per share

 

 

35.63

%

 

 

39.70

 

 

 

30.41

 

 

 

34.09

 

 

 

32.74

 

 

 

 

WILSON BANK HOLDING COMPANY

 

Consolidated Financial Statements

December 31, 2023 and 2022

(With Independent Auditor’s Report Thereon)

 

 

 

img172044132_0.jpg 

 

 

Stephen M. Maggart, CPA, ABV, CFF

J. Mark Allen, CPA

Chris Conro, CPA

Michael T. Holland, CPA, ABV, CFF

M. Todd Maggart, CPA, ABV, CFF

P. Jason Ricciardi, CPA, CGMA

David B. von Dohlen, CPA

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Wilson Bank Holding Company

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Wilson Bank Holding Company (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of earnings, comprehensive earnings, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2024 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method for accounting for allowance or credit losses effective January 1, 2022, due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No. 326, Financial Instrument - Credit Losses (“ASC 326”). The Company adopted the new credit loss standard using the ;modified retrospective method provided in Accounting Standards Update No. 2016-13 such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

 

 

 

 

 

 

 

1201 DEMONBREUN STREET • SUITE 1220 • NASHVILLE, TENNESSEE 37203-3140 • (615) 252-6100 • Fax • (615) 252-6105

www.maggartpc.com

 

To the Shareholders and the Board of Directors of

Wilson Bank Holding Company

Page Two

Basis for Opinion, Continued

We conducted our audits in accordance with the standards of the PCAOB. Those standard require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosure in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Credit Losses on Loans - Reasonable and Supportable Forecasts and Qualitative Adjustments

The Company adopted ASC 326, Financial Instruments - Credit Losses, as of January 1, 2022, which, among other things, required that the Company recognize expected credit loses over the contractual life of financial assets utilizing the Current Expected Credit Losses (“CECL”) methodology. The Company’s allowance for credit losses on loans (“ACL”) was $44.8 as of December 31, 2023 and the provision for credit losses on loans was $6.3 million for the year ended December 31, 2023. Loans were $3.6 billion at December 31, 2023. The Company disclosed information regarding the adoption of the standard and the Company’s financial assets and allowance for credit losses in Note 1. Summary of Significant accounting Policies and Note 2 Loans and Allowance for Credit Losses to the consolidated financial statements.

The Company primarily used a discounted cash flow (DCF) model to calculate its ACL. DCF calculates the present value of the future expected cash flows for all loans included in the analysis at the loan’s effective interest rate. The analysis was performed using a bottom-up approach with the loan-level data. The loan-level calculations were rolled up to the pool level to get the total amortized cost of cash flow loans by each pool. The amortized cost is then discounted back to the present value. The total dollar reserve applied to the pool is the total amortized cost net present value.

Within its DCF model, the Company primarily employed a probability of default (“PD”) and loss given default (“LGD”) modeling approach. The PD assumption of the Company’s ACL model utilized historical correlations between default experience and certain macroeconomic factors as determined through a statistical regression analysis. Losses are forecasted over a period of time determined to be reasonable and supportable, and then reverted to long term historical averages. The Company adjusted it overall ACL with qualitative adjustment that are not inherently considered in the quantitative component of the methodology.

 

 

 

 

 

 

 

 

 

 

 

 

To the Shareholders and the Board of Directors of

Wilson Bank Holding Company

Page Three

While the qualitative categories and the measurements utilized to quantify the risks associated with each of the qualitative adjustments are built primarily upon objective measurements where applicable, they are subjectively developed and interpreted by management.

The audit procedures over the reasonable and supportable forecast scenarios and qualitative adjustments utilized in management's methodology involved challenging and subjective auditor judgment. Therefore, we identified auditing the reasonable and supportable forecast scenarios and qualitative adjustments applied as a critical audit matter.

The primary audit procedures we performed to address this critical audit matter included the following:

•
Tested the operating effectiveness of controls specific to:
o
Determining the reasonableness of the forecasted macroeconomic scenarios used in the model.

 

o
The identification and application of qualitative adjustments to the ACL model.

 

o
The relevance and reliability of data used by the Company’s third-party vendor to develop forecast scenarios.

 

o
The Company’s allowance committee’s oversight and review of the overall ACL.

 

•
Performed substantive testing over the qualitative adjustments including:
o
Evaluated the reasonableness and appropriateness of the policies and methodologies employed including, but not limited to, evaluating their conceptual soundness and inspecting and testing significant assumptions and judgments.

 

o
Evaluated management’s judgments in the selection and application of the forecasted macroeconomic scenarios.

 

o
Evaluated management's rationale for determining qualitative adjustments were relevant and warranted for each loan segment and assessed the measurement of qualitative factor adjustments applied by management.

 

o
Assessed changes in qualitative factors year-over-year against overall trends in credit quality within the Company and broader trends within the industry and local and national economies to evaluate reasonableness of management’s qualitative factor adjustments.

 

 

/s/ MAGGART & ASSOCIATES, P.C.

 

We have served as the Company’s auditor since 1987.

 

Nashville, Tennessee (PCAOB 763)

February 28, 2024

 

 

 

img172044132_1.jpg 

 

 

Stephen M. Maggart, CPA, ABV, CFF

J. Mark Allen, CPA

Chris Conro, CPA

Michael T. Holland, CPA, ABV, CFF

M. Todd Maggart, CPA, ABV, CFF

P. Jason Ricciardi, CPA, CGMA

David B. von Dohlen, CPA

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Wilson Bank Holding Company

 

Opinion on Internal Control over Financial Reporting

We have audited Wilson Bank Holding Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wilson Bank Holding Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of earnings, comprehensive earnings, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 28, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

 

 

 

 

 

1201 DEMONBREUN STREET • SUITE 1220 • NASHVILLE, TENNESSEE 37203-3140 • (615) 252-6100 • Fax • (615) 252-6105

www.maggartpc.com

To the Shareholders and the Board of Directors of

Wilson Bank Holding Company

Page Two

 

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ MAGGART & ASSOCIATES, P.C.

 

Nashville, Tennessee (PCAOB 763)

February 28, 2024

 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Balance Sheets

December 31, 2023 and 2022

 

 

 

Dollars in thousands

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net of allowance for credit losses of $44,848 and $39,813, respectively

 

$

3,550,675

 

 

 

3,113,796

 

Available-for-sale securities, at market (amortized cost $930,439 and $972,315, respectively)

 

 

811,081

 

 

 

822,812

 

Loans held for sale

 

 

2,294

 

 

 

3,355

 

Interest bearing deposits

 

 

213,701

 

 

 

78,694

 

Federal funds sold

 

 

10,159

 

 

 

308

 

Restricted equity securities, at cost

 

 

3,436

 

 

 

4,357

 

Total earning assets

 

 

4,591,346

 

 

 

4,023,322

 

Cash and due from banks

 

 

28,775

 

 

 

25,787

 

Premises and equipment, net

 

 

62,398

 

 

 

62,031

 

Accrued interest receivable

 

 

15,197

 

 

 

11,397

 

Deferred income taxes

 

 

45,473

 

 

 

51,323

 

Bank owned life insurance

 

 

59,645

 

 

 

58,007

 

Goodwill

 

 

4,805

 

 

 

4,805

 

Other assets

 

 

38,837

 

 

 

48,978

 

Total assets

 

$

4,846,476

 

 

 

4,285,650

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

389,725

 

 

 

414,905

 

Interest bearing

 

 

3,977,381

 

 

 

3,477,800

 

Total deposits

 

 

4,367,106

 

 

 

3,892,705

 

Accrued interest and other liabilities

 

 

49,965

 

 

 

32,493

 

Total liabilities

 

 

4,417,071

 

 

 

3,925,198

 

Shareholders’ equity:

 

 

 

 

 

 

Common stock, par value $2.00 per share, authorized 50,000,000 shares, 11,686,363 and 11,472,181 shares issued and outstanding, respectively

 

 

23,373

 

 

 

22,944

 

Additional paid-in capital

 

 

136,866

 

 

 

122,298

 

Retained earnings

 

 

357,260

 

 

 

325,625

 

Noncontrolling interest in consolidated subsidiary

 

 

69

 

 

 

15

 

Accumulated other comprehensive losses, net of taxes of $31,195 and $39,073, respectively

 

 

(88,163

)

 

 

(110,430

)

Total shareholders’ equity

 

 

429,405

 

 

 

360,452

 

Total liabilities and shareholders’ equity

 

$

4,846,476

 

 

 

4,285,650

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Earnings

Three Years Ended December 31, 2023

 

 

 

Dollars In Thousands (except per share data)

 

 

 

2023

 

 

2022

 

 

2021

 

Interest income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

198,739

 

 

 

138,161

 

 

 

118,676

 

Interest and dividends on securities:

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

17,597

 

 

 

15,902

 

 

 

8,922

 

Exempt from Federal income taxes

 

 

1,574

 

 

 

1,392

 

 

 

1,229

 

Interest on loans held for sale

 

 

244

 

 

 

264

 

 

 

438

 

Interest on Federal funds sold

 

 

421

 

 

 

111

 

 

 

13

 

Interest on interest bearing deposits

 

 

3,697

 

 

 

1,522

 

 

 

445

 

Interest and dividends on restricted equity securities

 

 

311

 

 

 

188

 

 

 

118

 

Total interest income

 

 

222,583

 

 

 

157,540

 

 

 

129,841

 

Interest expense:

 

 

 

 

 

 

 

 

 

Interest on negotiable order of withdrawal accounts

 

 

5,847

 

 

 

2,546

 

 

 

1,866

 

Interest on money market accounts and other savings accounts

 

 

27,394

 

 

 

7,021

 

 

 

2,027

 

Interest on certificates of deposit and individual retirement accounts

 

 

50,341

 

 

 

6,486

 

 

 

7,610

 

Interest on Federal funds purchased

 

 

24

 

 

 

14

 

 

 

—

 

Interest on Federal Home Loan Bank advances

 

 

2

 

 

 

—

 

 

 

133

 

Interest on finance leases

 

 

71

 

 

 

66

 

 

 

—

 

Total interest expense

 

 

83,679

 

 

 

16,133

 

 

 

11,636

 

Net interest income before provision for credit losses

 

 

138,904

 

 

 

141,407

 

 

 

118,205

 

Provision for credit losses - loans

 

 

6,300

 

 

 

8,656

 

 

 

1,143

 

Provision for credit losses - off-balance sheet exposures

 

 

(2,989

)

 

 

(1,014

)

 

 

262

 

Net interest income after provision for credit losses

 

 

135,593

 

 

 

133,765

 

 

 

116,800

 

Non-interest income

 

 

28,289

 

 

 

27,281

 

 

 

32,850

 

Non-interest expense

 

 

100,951

 

 

 

92,970

 

 

 

85,492

 

Earnings before income taxes

 

 

62,931

 

 

 

68,076

 

 

 

64,158

 

Income taxes

 

 

13,939

 

 

 

15,056

 

 

 

14,732

 

Net earnings

 

 

48,992

 

 

 

53,020

 

 

 

49,426

 

Net loss (gain) attributable to noncontrolling interest

 

 

(54

)

 

 

22

 

 

 

—

 

Net earnings attributable to Wilson Bank Holding Company

 

$

48,938

 

 

 

53,042

 

 

 

49,426

 

Basic earnings per common share

 

$

4.21

 

 

 

4.66

 

 

 

4.44

 

Diluted earnings per common share

 

$

4.20

 

 

 

4.65

 

 

 

4.43

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

11,611,690

 

 

 

11,377,617

 

 

 

11,131,897

 

Diluted

 

 

11,641,366

 

 

 

11,408,924

 

 

 

11,162,956

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Comprehensive Earnings

Three Years Ended December 31, 2023

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Net earnings

 

$

48,992

 

 

 

53,020

 

 

 

49,426

 

Other comprehensive earnings (losses):

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale securities

 

 

29,136

 

 

 

(142,573

)

 

 

(18,223

)

Reclassification adjustment for net losses (gains) included in net earnings

 

 

1,009

 

 

 

1,620

 

 

 

(28

)

Tax effect

 

 

(7,878

)

 

 

36,838

 

 

 

4,771

 

Other comprehensive earnings (losses)

 

 

22,267

 

 

 

(104,115

)

 

 

(13,480

)

Comprehensive earnings (losses)

 

 

71,259

 

 

 

(51,095

)

 

 

35,946

 

Comprehensive (earnings) losses attributable to noncontrolling interest

 

 

(54

)

 

 

22

 

 

 

—

 

Comprehensive earnings (losses) attributable to Wilson Bank Holding Company

 

$

71,205

 

 

 

(51,073

)

 

 

35,946

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Changes in Shareholders’ Equity

Three Years Ended December 31, 2023

 

 

 

Dollars In Thousands

 

 

 

Common Stock

 

 

Additional Paid In Capital

 

 

Retained Earnings

 

 

Noncontrolling Interest

 

 

Accumulated Other Comprehensive Earnings (Loss)

 

 

Total

 

Balance January 1, 2021

 

$

21,987

 

 

 

93,034

 

 

 

257,935

 

 

 

—

 

 

 

7,165

 

 

 

380,121

 

Cash dividends declared, $1.35 per share

 

 

—

 

 

 

—

 

 

 

(14,909

)

 

 

—

 

 

 

—

 

 

 

(14,909

)

Issuance of 186,583 shares of common stock pursuant to dividend reinvestment plan

 

373

 

 

 

10,815

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11,188

 

Issuance of 21,517 shares of common stock pursuant to exercise of stock options

 

43

 

 

 

819

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

862

 

Share based compensation expense

 

 

—

 

 

 

509

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

509

 

Net change in fair value of available-for-sale securities during the year, net of taxes of $4,771

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(13,480

)

 

 

(13,480

)

Net earnings for the year

 

 

—

 

 

 

—

 

 

 

49,426

 

 

 

—

 

 

 

—

 

 

 

49,426

 

Balance December 31, 2021

 

 

22,403

 

 

 

105,177

 

 

 

292,452

 

 

 

—

 

 

 

(6,315

)

 

 

413,717

 

Cash dividends declared, $1.85 per share

 

 

—

 

 

 

—

 

 

 

(20,880

)

 

 

—

 

 

 

—

 

 

 

(20,880

)

Issuance of 250,365 shares of common stock pursuant to dividend reinvestment plan

 

501

 

 

 

15,616

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16,117

 

Issuance of 19,687 shares of common stock pursuant to exercise of stock options

 

39

 

 

596

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

635

 

Vesting of 625 restricted share awards

 

1

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Share based compensation expense

 

 

—

 

 

910

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

910

 

Net change in fair value of available-for-sale securities during the year, net of taxes of $36,838

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(104,115

)

 

 

(104,115

)

Cumulative effect of change in accounting principle from the adoption of ASC 326

 

 

—

 

 

 

—

 

 

 

1,011

 

 

 

—

 

 

 

—

 

 

 

1,011

 

Noncontrolling interest contribution

 

 

—

 

 

 

—

 

 

 

—

 

 

 

37

 

 

 

—

 

 

 

37

 

Net earnings for the year

 

 

—

 

 

 

—

 

 

 

53,042

 

 

 

(22

)

 

 

—

 

 

 

53,020

 

Balance December 31, 2022

 

 

22,944

 

 

 

122,298

 

 

 

325,625

 

 

 

15

 

 

 

(110,430

)

 

 

360,452

 

Cash dividends declared, $1.50 per share

 

 

—

 

 

 

—

 

 

 

(17,303

)

 

 

—

 

 

 

—

 

 

 

(17,303

)

Issuance of 189,471 shares of common stock pursuant to dividend reinvestment plan

 

379

 

 

 

12,600

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12,979

 

Issuance of 24,711 shares of common stock pursuant to exercise of stock options

 

50

 

 

994

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,044

 

Share based compensation expense

 

 

—

 

 

974

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

974

 

Net change in fair value of available-for-sale securities during the year, net of taxes of $(7,878)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

22,267

 

 

 

22,267

 

Net earnings for the year

 

 

—

 

 

 

—

 

 

 

48,938

 

 

 

54

 

 

 

—

 

 

 

48,992

 

Balance December 31, 2023

 

$

23,373

 

 

 

136,866

 

 

 

357,260

 

 

 

69

 

 

 

(88,163

)

 

 

429,405

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows

Three Years Ended December 31, 2023

Increase (Decrease) in Cash and Cash Equivalents

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Consolidated net income

 

$

48,992

 

 

 

53,020

 

 

 

49,426

 

Adjustments to reconcile consolidated net income to net cash provided by
   operating activities

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

3,311

 

 

 

7,642

 

 

 

1,405

 

Deferred income taxes provision

 

 

(2,029

)

 

 

(2,051

)

 

 

(932

)

Depreciation and amortization of premises and equipment

 

 

4,313

 

 

 

4,462

 

 

 

4,235

 

Loss (gain) on disposal of premises and equipment

 

 

55

 

 

 

(291

)

 

 

43

 

Net amortization of securities

 

 

2,879

 

 

 

4,003

 

 

 

5,377

 

Net realized losses (gains) on sales of securities

 

 

1,009

 

 

 

1,620

 

 

 

(28

)

Gains on mortgage loans sold, net

 

 

(2,635

)

 

 

(2,973

)

 

 

(9,997

)

Stock-based compensation expense

 

 

1,948

 

 

 

1,864

 

 

 

1,428

 

Loss on other real estate

 

 

—

 

 

 

—

 

 

 

15

 

Loss (gain) on sale of other assets

 

 

10

 

 

 

(8

)

 

 

(6

)

Increase in value of life insurance and annuity contracts

 

 

(1,667

)

 

 

(1,345

)

 

 

(1,109

)

Mortgage loans originated for resale

 

 

(73,984

)

 

 

(106,601

)

 

 

(215,813

)

Proceeds from sale of mortgage loans

 

 

77,680

 

 

 

118,062

 

 

 

233,441

 

Gain on lease modification

 

 

(1,463

)

 

 

—

 

 

 

—

 

Right of use asset amortization

 

 

29

 

 

 

397

 

 

 

387

 

Change in

 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(3,800

)

 

 

(3,756

)

 

 

(125

)

Other assets

 

 

9,373

 

 

 

248

 

 

 

(4,458

)

Accrued interest payable

 

 

21,055

 

 

 

1,516

 

 

 

(1,458

)

Other liabilities

 

 

1,028

 

 

 

(2,602

)

 

 

(383

)

TOTAL ADJUSTMENTS

 

 

37,112

 

 

 

20,187

 

 

 

12,022

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

86,104

 

 

 

73,207

 

 

 

61,448

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Activities in available for sale securities

 

 

 

 

 

 

 

 

 

Purchases

 

 

(51,116

)

 

 

(200,075

)

 

 

(530,155

)

Sales

 

 

32,740

 

 

 

42,728

 

 

 

39,652

 

Maturities, prepayments and calls

 

 

56,364

 

 

 

85,544

 

 

 

149,861

 

Redemptions of restricted equity securities

 

 

921

 

 

 

732

 

 

 

—

 

Net increase in loans

 

 

(442,452

)

 

 

(673,871

)

 

 

(164,095

)

Purchase of buildings, leasehold improvements, and equipment

 

 

(4,643

)

 

 

(5,022

)

 

 

(8,922

)

Proceeds from sale of premises and equipment

 

 

—

 

 

 

1,758

 

 

 

—

 

Proceeds from sale of other assets

 

 

49

 

 

 

34

 

 

 

109

 

Proceeds from sale of other real estate

 

 

—

 

 

 

—

 

 

 

167

 

Purchase of life insurance and annuity contracts

 

 

—

 

 

 

(10,978

)

 

 

(15,079

)

Redemption of annuity contracts

 

 

419

 

 

 

248

 

 

 

—

 

Increase in other investments

 

 

—

 

 

 

—

 

 

 

(2,000

)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(407,718

)

 

 

(758,902

)

 

 

(530,462

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net change in deposits - non-maturing

 

 

(324,417

)

 

 

163,933

 

 

 

612,696

 

Net change in deposits - time

 

 

798,818

 

 

 

173,701

 

 

 

(18,220

)

Net change in Federal Home Loan Bank Advances

 

 

—

 

 

 

—

 

 

 

(3,638

)

Change in escrow balances

 

 

(1,631

)

 

 

3,549

 

 

 

(4,403

)

Repayment of finance lease obligation

 

 

(30

)

 

 

(26

)

 

 

—

 

Noncontrolling interest contributions

 

 

—

 

 

 

37

 

 

 

—

 

Issuance of common stock related to exercise of stock options

 

 

1,044

 

 

 

635

 

 

 

862

 

Issuance of common stock pursuant to dividend reinvestment plan

 

 

12,979

 

 

 

16,117

 

 

 

11,188

 

Cash dividends paid on common stock

 

 

(17,303

)

 

 

(20,880

)

 

 

(14,909

)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

469,460

 

 

 

337,066

 

 

 

583,576

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

147,846

 

 

 

(348,629

)

 

 

114,562

 

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

 

 

104,789

 

 

 

453,418

 

 

 

338,856

 

CASH AND CASH EQUIVALENTS - END OF YEAR

 

$

252,635

 

 

 

104,789

 

 

 

453,418

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows, Continued

Three Years Ended December 31, 2023

Increase (Decrease) in Cash and Cash Equivalents

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

Interest

 

$

62,624

 

 

$

14,617

 

 

$

12,106

 

Taxes

 

$

16,511

 

 

$

19,446

 

 

$

16,827

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Change in fair value of securities available-for-sale, net of taxes of $(7,878) in 2023,
   $36,838 in 2022, and $4,771 in 2021,

 

$

22,267

 

 

$

(104,115

)

 

$

(13,480

)

Non-cash transfers from loans to other real estate

 

$

—

 

 

$

—

 

 

$

182

 

Non-cash transfers from loans to other assets

 

$

—

 

 

$

—

 

 

$

129

 

 

See accompanying notes to consolidated financial statements.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

December 31, 2023, 2022 and 2021

(1)
Summary of Significant Accounting Policies

The accounting and reporting policies of Wilson Bank Holding Company (“the Company”) and its wholly owned subsidiary, Wilson Bank & Trust (“Wilson Bank” or "the Bank"), are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. The following is a brief summary of the significant policies.

(a)
Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Wilson Bank, and Wilson Bank's 51% owned subsidiary, Encompass Home Lending, LLC ("Encompass"). On June 1, 2022, the Bank began operations with a newly-formed joint venture, Encompass Home Lending, LLC. Encompass offers residential mortgage banking services to customers of certain home builders in the Company's markets. All significant intercompany accounts and transactions have been eliminated in consolidation.

(b)
Nature of Operations

Wilson Bank operates under a state bank charter and provides full banking services. As a Tennessee state-chartered bank that is not a member of the Federal Reserve, Wilson Bank is subject to regulations of the Tennessee Department of Financial Institutions and the Federal Deposit Insurance Corporation (“FDIC”). The areas served by Wilson Bank include Wilson County, DeKalb County, Rutherford County, Smith County, Trousdale County, Putnam County, Sumner County, Hamilton County, Davidson County and Williamson County, Tennessee and surrounding counties in Middle Tennessee. As of December 31, 2023, services were provided at the main office, twenty-nine branch locations and one loan production office. In January 2024, Wilson Bank closed one of its branch locations.

(c)
Use of Estimates

In preparing consolidated financial statements in conformity with U.S. GAAP, 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses - loans and off-balance sheet credit exposures, the valuation of deferred tax assets, determination of any impairment of goodwill or other intangibles, the valuation of other real estate (if any), and the fair value of financial instruments.

(d)
Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located within Middle Tennessee. The types of securities in which the Company invests are described in note 3. The types of lending in which the Company engages are described in note 2. The Company does not have any significant concentrations to any one industry or customer other than as disclosed in note 2.

(e)
Loans

The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout Middle Tennessee. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for unearned income, the allowance for credit losses, and any unamortized deferred fees or costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized on a straight line basis over the respective term of the loan.

As part of its routine credit monitoring process, the Company performs regular credit reviews of the loan portfolio and loans receive risk ratings by the assigned credit officer, which are subject to validation by the Company's independent loan review department. Risk ratings are categorized as pass, special mention, substandard or doubtful. The Company believes that its categories follow those outlined by the FDIC, Wilson Bank's primary federal regulator.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Generally the accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than when they become 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

(f)
Allowance for Credit Losses - Loans

On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaces the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as an allowance rather than as a direct write-down for available-for-sale securities management does not intend to sell or believes that it is more likely than not they will not be required to sell.

Effective January 1, 2022, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off- balance-sheet credit exposures. Upon adoption, the Company recognized an after-tax cumulative effect increase to retained earnings totaling $1.0 million. Operating results for periods after January 1, 2022 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described below.

In connection with the adoption of ASC 326, the Company revised certain accounting policies and implemented certain accounting policy elections. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 2 - Loans and Allowance for Credit Losses.

(g)
Allowance for Loan Losses (Allowance)

Prior to the Adoption of FASB ASC 326 on January 1, 2022, which introduced the CECL methodology for credit losses, the allowance for loan losses was composed of the result of two independent analyses pursuant to the provisions of ASC 450-20, Loss Contingencies and ASC 310-10-35, Receivables. The ASC 450-20 analysis was intended to quantify the inherent risks in the performing loan portfolio. The ASC 310-10-35 analysis included a loan-by-loan analysis of impaired loans, primarily consisting of loans reported as nonaccrual or troubled-debt restructurings.

The allowance allocation began with a process of estimating the probable losses in each of the twelve loan segments. The estimates for these loans were based on our historical loss data for that category over twenty quarters. Each segment was then analyzed such that an allocation of the allowance was estimated for each loan segment.

The estimated loan loss allocation for all twelve loan portfolio segments was then adjusted for several “environmental” factors. The allocation for environmental factors was particularly subjective and did not lend itself to exact mathematical calculation. This amount represented estimated probable inherent credit losses which existed, but had not yet been identified, as of the balance sheet date, and were based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies, increase in interest rates, or procedures and other influencing factors. These environmental factors were considered for each of the twelve loan segments and the allowance allocation, as determined by the processes noted above for each component, was increased or decreased through provision expense based on the incremental assessment of those various environmental factors.

We then tested the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluated the result of the procedures performed, including the result of our testing, and concluded on the appropriateness of the

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

balance of the allowance in its entirety. The board of directors reviewed and approved the assessment prior to the filing of quarterly and annual financial information.

A loan was impaired when, based on current information and events, it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan would be collected as scheduled in the loan agreement.

An impairment allowance was recognized if the fair value of the loan was less than the recorded investment in the loan (recorded investment in the loan was the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment was recognized through the allowance. Loans that were impaired were recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan was collateral dependent, impairment measurement was based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan was less than the recorded investment in the loan, the Company recognized an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses. Management believes it followed appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.

(h)
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

The allowance for credit losses on off-balance sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. The allowance is reported as a component of accrued interest and other liabilities in the Company's consolidated balance sheets. Adjustments to the allowance are reported in the Company's income statement as a component of provision for credit losses - off-balance sheet exposures.

Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in note 1 - Summary of Significant Accounting Policies, letter (f) Allowance for Credit Losses - Loans as if such commitments were funded.

(i)
Debt Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held-to-maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value based on available market prices, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss) on an after-tax basis. Securities classified as “available- for-sale” are held for indefinite periods of time and may be sold in response to movements in market interest rates, changes in the maturity or mix of Company assets and liabilities or demand for liquidity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

A debt security is placed on nonaccrual status at the time any principal and interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

No securities have been classified as trading securities or held-to-maturity securities at December 31, 2023 or 2022.

(j)
Allowance for Credit Losses - Securities Available-for-Sale

For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is written down to fair value through net income. If neither criteria is met, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. If the evaluation indicates that a credit loss exists, an allowance for credit losses is recorded for the amount by which the amortized cost basis of the security exceeds the present value of cash flows

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.

(k)
Equity Securities

Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.

(l)
Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(m)
Federal Home Loan Bank (FHLB) Stock

The Company is a member of the FHLB system. Members are required to own a certain amount of stock in the FHLB based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

(n)
Loans Held for Sale

Mortgage loans held for sale are carried at fair value. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

(o)
Premises and Equipment

Premises and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the related assets ranging from 3 to 40 years. Gains or losses realized on items retired and otherwise disposed of are credited or charged to operations and cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts.

Expenditures for major renovations and improvements of premises and equipment are capitalized and those for maintenance and repairs are charged to earnings as incurred.

(p)
Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less the estimated cost to sell at the date the Company acquires the property, establishing a new cost basis. Subsequent to their acquisition by the Company, valuations of these assets are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance [i.e. any direct write-downs] are included within non-interest expense.

(q)
Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company has selected September 30th as the date to perform the annual impairment test. No impairment was determined as a result of the test performed by the Company on September 30, 2023. Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(r)
Leases

Leases are classified as operating or finance leases at the lease commencement date. The Company leases certain locations and equipment. The Company records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal. The Company does not record leases on the consolidated balance sheets that are classified as short term (less than one year).

At lease inception, the Company determines the lease term by considering the minimum lease term and all optional renewal periods that the Company is reasonably certain to renew. The lease term is also used to calculate straight-line rent expense. The depreciable life of leasehold improvements is limited by the estimated lease term, including renewals if they are reasonably certain to be renewed. The Company’s leases do not contain residual value guarantees or material variable lease payments that will impact the Company’s ability to pay dividends or cause the Company to incur additional expenses.

Operating lease expense consists of a single lease cost allocated over the remaining lease term on a straight-line bases, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset. Rent expense and variable lease expense are included in occupancy and equipment expense on the Company’s consolidated statements of earnings. The Company’s variable lease expense include rent escalators that are based on market conditions and include items such as common area maintenance, utilities, parking, property taxes, insurance and other costs associated with the lease. The amortization of the right-of- use asset arising from finance leases is expensed through occupancy and equipment expense and the interest on the related lease liability is expenses through interest expense on borrowings on the Company’s consolidated statements of earnings.

(s)
Mortgage Servicing Rights

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported within non-interest income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement as mortgage servicing income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against servicing fee income. Servicing fees totaled $9,000 for the year ended December 31, 2023. Late fees and ancillary fees related to loan servicing are not significant.

(t)
Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, interest-bearing deposits with maturities fewer than 90 days, amounts due from banks and Federal funds sold. Generally, Federal funds sold are purchased and sold for one day periods. Management makes deposits only with financial institutions it believes to be financially sound.

(u)
Long-Term Assets

Premises and equipment, intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(v)
Bank Owned Life Insurance

The Bank has purchased life insurance policies on certain current and former key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

(w)
Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (FASB ASC 740, Income Taxes). The Company follows accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term "more-likely-than-not" means a likelihood of more than 50 percent. The terms "examined" and "upon examination" also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

(x)
Derivatives

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest rate on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on sale of mortgage loans.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to SOFR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.

(y)
Stock-Based Compensation

Stock compensation accounting guidance (FASB ASC 718, “Compensation—Stock Compensation”) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share awards, restricted share unit awards, performance-based

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

awards, cash-settled stock appreciation rights (SARs), and employee share purchase plans. Because cash-settled SARs do not give the grantee the choice of receiving stock, all cash-settled SARs are accounted for as liabilities, not equity, as expense is accrued over the requisite service period.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and cash-settled SARs.

(z)
Retirement Plans

Employee 401(k) and profit sharing plan expense is the amount of matching contributions and profit sharing contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

(aa) Advertising Costs

Advertising costs are expensed as incurred by the Company and totaled $3,714,000, $3,455,000 and $2,736,000 for 2023, 2022 and 2021, respectively.

(bb) Earnings Per Share

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options, restricted share units, and performance share units and are determined using the treasury stock method.

(cc) Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, net of taxes, which are also recognized as separate components of equity.

(dd) Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

(ee) Restrictions on Cash

Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

(ff) Segment Reporting

Management analyzes the operations of the Company assuming one operating segment, community lending services.

(gg) Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in note 22 - Disclosures About Fair Value of Financial Instruments of the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

(hh) Reclassification

Certain reclassifications have been made to the 2022 and 2021 figures to conform to the presentation for 2023.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(ii) Off-Balance-Sheet Financial Instruments

In the ordinary course of business, Wilson Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

(jj) Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through February 28, 2024, which is the date the financial statements were available to be issued.

(kk) Accounting Standard Updates

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. As noted above, effective January 1, 2022 the Company adopted ASU 2016-13, which resulted in a $7.6 million decrease to the allowance for credit losses and a $6.2 million increase to the reserve for off-balance sheet exposures, resulting in a $1.0 million increase in retained earnings (net of taxes). See Note 2 – Loans and Allowance for Credit Losses for additional information.

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In March 2020, the FASB issued this ASU and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance was effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued an update to Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting with Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which updated the effective date to be March 12, 2020 through December 31, 2024. The Company has implemented a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. The Company has moved substantially all of its LIBOR-based loans to its preferred replacement index, a Secured Overnight Financing Rate ("SOFR") based index as of December 31, 2023. For the Company’s currently outstanding LIBOR-based loan, the timing and manner in which such customer's interest rate transitions to a replacement index should occur at the next repricing date for such loan.

ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” ASU 2022-01 was issued to expand the scope of assets eligible for portfolio layer method hedging to include all financial assets. The update also expanded the then current last-of-layer method that permitted only one hedged layer to allow multiple hedged layers of a single closed portfolio. The last-of-layer method is renamed the portfolio layer method, because more than the last layer of a portfolio could be hedged. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of ASU 2022-01 did not have a significant impact on the Company's financial statements.

ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 was issued to respond to feedback received from post-implementation review of Topic 326. The amendments eliminate the troubled debt restructuring (TDR) recognition and measurement guidance and now require that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosures and include new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. To improve consistency for vintage disclosures, the ASU requires that public business entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The adoption of ASU-2022-02 did not have a significant impact on the Company's financial statements.

Other than those previously discussed, there were no other recently issued accounting pronouncements that are expected to materially impact the Company.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(2)
Loans and Allowance for Credit Losses

Loans are reported at their outstanding principal balances less unearned income, the allowance for credit losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.

For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with that utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).

The classification of loans at December 31, 2023 and 2022 is as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Residential 1-4 family real estate

 

$

959,218

 

 

$

854,970

 

Commercial and multi-family real estate

 

 

1,313,284

 

 

 

1,064,297

 

Construction, land development and farmland

 

 

901,336

 

 

 

879,528

 

Commercial, industrial and agricultural

 

 

127,659

 

 

 

124,603

 

1-4 family equity lines of credit

 

 

202,731

 

 

 

151,032

 

Consumer and other

 

 

104,373

 

 

 

93,332

 

Total loans before net deferred loan fees

 

 

3,608,601

 

 

 

3,167,762

 

Net deferred loan fees

 

 

(13,078

)

 

 

(14,153

)

Total loans

 

 

3,595,523

 

 

 

3,153,609

 

Less: Allowance for credit losses

 

 

(44,848

)

 

 

(39,813

)

Net loans

 

$

3,550,675

 

 

 

3,113,796

 

 

At December 31, 2023, variable rate and fixed rate loans totaled $2,977,918,000 and $630,683,000, respectively. At December 31, 2022, variable rate and fixed rate loans totaled $2,546,325,000 and $621,437,000, respectively.

Risk characteristics relevant to each portfolio segment are as follows:

Construction, land development and farmland: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential 1-4 family real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value (LTV), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

1-4 family equity lines of credit: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.

Commercial and multi-family real estate: Commercial and multi-family real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans (which are discussed below), in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner- occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.

Commercial and industrial: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral, if any, provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans, if any, may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income levels. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

The following tables present the Company’s nonaccrual loans, certain credit quality indicators and past due loans as of December 31, 2023 and 2022.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Loans on Nonaccrual Status

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Residential 1-4 family real estate

 

$

—

 

 

$

—

 

Commercial and multi-family real estate

 

 

—

 

 

 

—

 

Construction, land development and farmland

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.

 

At December 31, 2023 and December 31, 2022 the Company had no collateral dependent loans that were on non-accruing interest status. Accordingly, there was no impact on net interest income given the lack of these types of loans for the years ended December 31, 2023, December 31, 2022, and December 31, 2021.

Potential problem loans, which include nonperforming loans, amounted to approximately $5.9 million at December 31, 2023 compared to $6.4 million at December 31, 2022. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, Wilson Bank’s primary federal regulator, for loans classified as special mention, substandard, or doubtful, excluding the impact of nonperforming loans.

The following table presents our loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:

•
Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.
•
Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
•
Doubtful loans have all the characteristics of substandard loans with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Company considers all doubtful loans to be collateral dependent and places the loans on nonaccrual status.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Credit Quality Indicators

The following table presents loan balances classified within each risk rating category by primary loan type and based on year of origination as well as current period gross charge-offs by primary loan type and based on year of origination as of December 31, 2023.

 

 

 

In Thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving

 

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Loans

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

165,655

 

 

 

297,535

 

 

 

239,035

 

 

 

89,563

 

 

 

56,092

 

 

 

90,119

 

 

 

16,585

 

 

 

954,584

 

Special mention

 

 

76

 

 

 

859

 

 

 

225

 

 

 

876

 

 

 

137

 

 

 

1,558

 

 

 

—

 

 

 

3,731

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

128

 

 

 

775

 

 

 

—

 

 

 

903

 

Total Residential 1-4 family real estate

 

$

165,731

 

 

 

298,394

 

 

 

239,260

 

 

 

90,439

 

 

 

56,357

 

 

 

92,452

 

 

 

16,585

 

 

 

959,218

 

Residential 1-4 family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial and multi-family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

103,050

 

 

 

321,767

 

 

 

378,418

 

 

 

143,178

 

 

 

91,640

 

 

 

217,645

 

 

 

57,320

 

 

 

1,313,018

 

Special mention

 

 

—

 

 

 

—

 

 

 

155

 

 

 

—

 

 

 

—

 

 

 

31

 

 

 

—

 

 

 

186

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

80

 

 

 

—

 

 

 

80

 

Total Commercial and multi-family real estate

 

$

103,050

 

 

 

321,767

 

 

 

378,573

 

 

 

143,178

 

 

 

91,640

 

 

 

217,756

 

 

 

57,320

 

 

 

1,313,284

 

Commercial and multi-family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development and farmland:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

231,337

 

 

 

306,056

 

 

 

99,456

 

 

 

26,710

 

 

 

7,586

 

 

 

10,141

 

 

 

219,999

 

 

 

901,285

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

51

 

 

 

—

 

 

 

51

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Construction, land development and farmland

 

$

231,337

 

 

 

306,056

 

 

 

99,456

 

 

 

26,710

 

 

 

7,586

 

 

 

10,192

 

 

 

219,999

 

 

 

901,336

 

Construction, land development and farmland:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

16,811

 

 

 

34,507

 

 

 

7,460

 

 

 

12,272

 

 

 

17,066

 

 

 

7,593

 

 

 

31,832

 

 

 

127,541

 

Special mention

 

 

93

 

 

 

7

 

 

 

6

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12

 

 

 

118

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial, industrial and agricultural

 

$

16,904

 

 

 

34,514

 

 

 

7,466

 

 

 

12,272

 

 

 

17,066

 

 

 

7,593

 

 

 

31,844

 

 

 

127,659

 

Commercial, industrial and agricultural:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

30

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

30

 

1-4 family equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

202,189

 

 

 

202,189

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

404

 

 

 

404

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

138

 

 

 

138

 

Total 1-4 family equity lines of credit

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

202,731

 

 

 

202,731

 

1-4 family equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

27,998

 

 

 

15,511

 

 

 

5,331

 

 

 

14,497

 

 

 

4,728

 

 

 

6,381

 

 

 

29,638

 

 

 

104,084

 

Special mention

 

 

4

 

 

 

52

 

 

 

57

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

120

 

Substandard

 

 

51

 

 

 

106

 

 

 

—

 

 

 

11

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

169

 

Total Consumer and other

 

$

28,053

 

 

 

15,669

 

 

 

5,388

 

 

 

14,515

 

 

 

4,728

 

 

 

6,382

 

 

 

29,638

 

 

 

104,373

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

1,843

 

 

 

213

 

 

 

98

 

 

 

22

 

 

 

—

 

 

 

—

 

 

 

151

 

 

 

2,328

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following table presents loan balances classified within each risk rating category based on year of origination as of December 31, 2023.

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

544,851

 

 

 

975,376

 

 

 

729,700

 

 

 

286,220

 

 

 

177,112

 

 

 

331,879

 

 

 

557,563

 

 

 

3,602,701

 

Special mention

 

 

173

 

 

 

918

 

 

 

443

 

 

 

883

 

 

 

137

 

 

 

1,640

 

 

 

416

 

 

 

4,610

 

Substandard

 

 

51

 

 

 

106

 

 

 

—

 

 

 

11

 

 

 

128

 

 

 

856

 

 

 

138

 

 

 

1,290

 

Total

 

$

545,075

 

 

 

976,400

 

 

 

730,143

 

 

 

287,114

 

 

 

177,377

 

 

 

334,375

 

 

 

558,117

 

 

 

3,608,601

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following table presents loan balances classified within each risk rating category by primary loan type and based on year of origination as well as current period gross charge-offs by primary loan type and based on year of origination as of December 31, 2022.

 

 

 

In Thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

290,315

 

 

 

262,690

 

 

 

106,107

 

 

 

61,984

 

 

 

29,526

 

 

 

81,229

 

 

 

17,751

 

 

 

849,602

 

Special mention

 

 

245

 

 

 

300

 

 

 

885

 

 

 

62

 

 

 

115

 

 

 

1,955

 

 

 

349

 

 

 

3,911

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

131

 

 

 

—

 

 

 

1,326

 

 

 

—

 

 

 

1,457

 

Total Residential 1-4 family real
   estate

 

$

290,560

 

 

 

262,990

 

 

 

106,992

 

 

 

62,177

 

 

 

29,641

 

 

 

84,510

 

 

 

18,100

 

 

 

854,970

 

Residential 1-4 family real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8

 

 

 

—

 

 

 

8

 

Commercial and multi-family real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

271,403

 

 

 

246,265

 

 

 

161,326

 

 

 

107,908

 

 

 

74,494

 

 

 

166,267

 

 

 

36,342

 

 

 

1,064,005

 

Special mention

 

 

—

 

 

 

—

 

 

 

162

 

 

 

—

 

 

 

—

 

 

 

40

 

 

 

—

 

 

 

202

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

90

 

 

 

—

 

 

 

90

 

Total Commercial and multi-
   family real estate

 

$

271,403

 

 

 

246,265

 

 

 

161,488

 

 

 

107,908

 

 

 

74,494

 

 

 

166,397

 

 

 

36,342

 

 

 

1,064,297

 

Commercial and multi-family real
   estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development
   and farmland:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

364,681

 

 

 

237,051

 

 

 

90,341

 

 

 

9,648

 

 

 

5,212

 

 

 

9,445

 

 

 

163,076

 

 

 

879,454

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

60

 

 

 

—

 

 

 

60

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

 

 

—

 

 

 

14

 

Total Construction, land
   development and farmland

 

$

364,681

 

 

 

237,051

 

 

 

90,341

 

 

 

9,648

 

 

 

5,212

 

 

 

9,519

 

 

 

163,076

 

 

 

879,528

 

Construction, land development
   and farmland:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Commercial, industrial and
   agricultural:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

39,222

 

 

 

10,812

 

 

 

15,743

 

 

 

20,441

 

 

 

5,062

 

 

 

4,641

 

 

 

28,567

 

 

 

124,488

 

Special mention

 

 

7

 

 

 

44

 

 

 

17

 

 

 

—

 

 

 

—

 

 

 

47

 

 

 

—

 

 

 

115

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial, industrial and
   agricultural

 

$

39,229

 

 

 

10,856

 

 

 

15,760

 

 

 

20,441

 

 

 

5,062

 

 

 

4,688

 

 

 

28,567

 

 

 

124,603

 

Commercial, industrial and
   agricultural:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

21

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

21

 

1-4 family equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

150,849

 

 

 

150,849

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

67

 

 

 

67

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

116

 

 

 

116

 

Total 1-4 family equity lines of
   credit

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

151,032

 

 

 

151,032

 

1-4 family equity lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

28,487

 

 

 

11,163

 

 

 

18,075

 

 

 

5,995

 

 

 

345

 

 

 

6,757

 

 

 

22,166

 

 

 

92,988

 

Special mention

 

 

74

 

 

 

130

 

 

 

20

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

226

 

Substandard

 

 

74

 

 

 

19

 

 

 

13

 

 

 

—

 

 

 

11

 

 

 

1

 

 

 

—

 

 

 

118

 

Total Consumer and other

 

$

28,635

 

 

 

11,312

 

 

 

18,108

 

 

 

5,997

 

 

 

356

 

 

 

6,758

 

 

 

22,166

 

 

 

93,332

 

Consumer and other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current-period gross charge-offs

 

$

66

 

 

 

74

 

 

 

41

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

1,345

 

 

 

1,527

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following table presents loan balances classified within each risk rating category based on year of origination as of December 31, 2022.

 

 

 

In Thousands

 

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

2018

 

 

Prior

 

 

Revolving
Loans

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

994,108

 

 

 

767,981

 

 

 

391,592

 

 

 

205,976

 

 

 

114,639

 

 

 

268,339

 

 

 

418,751

 

 

 

3,161,386

 

Special mention

 

 

326

 

 

 

474

 

 

 

1,084

 

 

 

64

 

 

 

115

 

 

 

2,102

 

 

 

416

 

 

 

4,581

 

Substandard

 

 

74

 

 

 

19

 

 

 

13

 

 

 

131

 

 

 

11

 

 

 

1,431

 

 

 

116

 

 

 

1,795

 

Total

 

$

994,508

 

 

 

768,474

 

 

 

392,689

 

 

 

206,171

 

 

 

114,765

 

 

 

271,872

 

 

 

419,283

 

 

 

3,167,762

 

 

Age Analysis of Past Due Loans

 

 

 

In Thousands

 

 

 

30-59 Days Past Due

 

 

60-89 Days Past Due

 

 

Nonaccrual and Greater Than 89 Days

 

 

Total Nonaccrual and Past Due

 

 

Current

 

 

Total Loans

 

 

Recorded Investment Greater Than 89 Days and Accruing

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

1,544

 

 

 

552

 

 

 

1,178

 

 

 

3,274

 

 

 

955,944

 

 

 

959,218

 

 

$

1,178

 

Commercial and multi-family real estate

 

 

5,846

 

 

 

—

 

 

 

—

 

 

 

5,846

 

 

 

1,307,438

 

 

 

1,313,284

 

 

 

—

 

Construction, land development and farmland

 

 

2,959

 

 

 

1

 

 

 

—

 

 

 

2,960

 

 

 

898,376

 

 

 

901,336

 

 

 

—

 

Commercial, industrial and agricultural

 

 

52

 

 

 

—

 

 

 

7

 

 

 

59

 

 

 

127,600

 

 

 

127,659

 

 

 

7

 

1-4 family equity lines of credit

 

 

571

 

 

 

209

 

 

 

106

 

 

 

886

 

 

 

201,845

 

 

 

202,731

 

 

 

106

 

Consumer and other

 

 

350

 

 

 

78

 

 

 

118

 

 

 

546

 

 

 

103,827

 

 

 

104,373

 

 

 

118

 

Total

 

$

11,322

 

 

 

840

 

 

 

1,409

 

 

 

13,571

 

 

 

3,595,030

 

 

 

3,608,601

 

 

$

1,409

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

2,046

 

 

 

1,080

 

 

 

426

 

 

 

3,552

 

 

 

851,418

 

 

 

854,970

 

 

$

426

 

Commercial and multi-family real estate

 

 

397

 

 

 

1,626

 

 

 

400

 

 

 

2,423

 

 

 

1,061,874

 

 

 

1,064,297

 

 

 

400

 

Construction, land development and farmland

 

 

591

 

 

 

—

 

 

 

—

 

 

 

591

 

 

 

878,937

 

 

 

879,528

 

 

 

—

 

Commercial, industrial and agricultural

 

 

49

 

 

 

62

 

 

 

—

 

 

 

111

 

 

 

124,492

 

 

 

124,603

 

 

 

—

 

1-4 family equity lines of credit

 

 

74

 

 

 

77

 

 

 

—

 

 

 

151

 

 

 

150,881

 

 

 

151,032

 

 

 

—

 

Consumer and other

 

 

403

 

 

 

184

 

 

 

43

 

 

 

630

 

 

 

92,702

 

 

 

93,332

 

 

 

43

 

Total

 

$

3,560

 

 

 

3,029

 

 

 

869

 

 

 

7,458

 

 

 

3,160,304

 

 

 

3,167,762

 

 

$

869

 

 

Allowance for Credit Losses ("ACL") - Loans

The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default models with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows ultimately reflect assumptions made

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from reputable and independent third parties to inform and provide its reasonable and supportable economic forecasts. The Company’s model reverts to a straight line basis for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over an eight quarter time period before reverting to a straight line basis for a four quarter time period. The duration of the forecast horizon, the period over which forecasts revert to a straight line basis, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s probability of default and loss given default, which can drive changes in the determination of the ACL. Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to charge-off loan balances at the time they have been deemed uncollectible.

For segments where the discounted cash flow methodology is not used, a remaining life methodology is utilized. The remaining life method uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.

The estimated credit losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon the following:

1.
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
2.
Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
3.
Changes in the nature and volume of the portfolio and in the terms of loans.
4.
Changes in the experience, ability, and depth of lending management and other relevant staff.
5.
Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans.
6.
Changes in the quality of the Company's loan review system.
7.
Changes in the value of underlying collateral for collateral-dependent loans.
8.
The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
9.
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.

The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $500,000 which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, the Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected. Loans greater than $100,000 for which terms have been modified either through principal forgiveness, payment delay, term extension, or interest rate reduction are evaluated using these same individual evaluation methods.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

In assessing the adequacy of the allowance for credit losses, the Company considers the results of the Company's ongoing independent loan review process. The Company undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. The Company incorporates relevant loan review results in the allowance.

In accordance with CECL, losses are estimated over the remaining contractual terms of loans, adjusted for prepayments and curtailment. The contractual term excludes expected extensions, renewals and modifications.

Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding and deferred loan fees and costs.

While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond management's control, including the performance of the loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

Transactions in the allowance for credit losses for the years ended December 31, 2023 and 2022 are summarized as follows:

 

 

 

In Thousands

 

 

 

Residential 1-4 Family Real Estate

 

 

Commercial and Multi-family Real Estate

 

 

Construction, Land Development and Farmland

 

 

Commercial, Industrial and Agricultural

 

 

1-4 family Equity Lines of Credit

 

 

Consumer and Other

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

7,310

 

 

 

15,299

 

 

 

13,305

 

 

 

1,437

 

 

 

1,170

 

 

 

1,292

 

 

 

39,813

 

Provision

 

 

1,435

 

 

 

2,123

 

 

 

702

 

 

 

125

 

 

 

639

 

 

 

1,276

 

 

 

6,300

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(30

)

 

 

—

 

 

 

(2,328

)

 

 

(2,358

)

Recoveries

 

 

20

 

 

 

—

 

 

 

20

 

 

 

1

 

 

 

—

 

 

 

1,052

 

 

 

1,093

 

Ending balance

 

$

8,765

 

 

 

17,422

 

 

 

14,027

 

 

 

1,533

 

 

 

1,809

 

 

 

1,292

 

 

 

44,848

 

 

 

 

 

In Thousands

 

 

 

Residential 1-4 Family Real Estate

 

 

Commercial and Multi-family Real Estate

 

 

Construction, Land Development and Farmland

 

 

Commercial, Industrial and Agricultural

 

 

1-4 family Equity Lines of Credit

 

 

Consumer and Other

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

9,242

 

 

 

16,846

 

 

 

9,757

 

 

 

1,329

 

 

1098

 

 

 

1,360

 

 

 

39,632

 

Impact of adopting ASC 326

 

 

(3,393

)

 

 

(3,433

)

 

 

(266

)

 

 

219

 

 

 

(324

)

 

 

(367

)

 

 

(7,564

)

Provision

 

 

1,353

 

 

 

1,886

 

 

 

3,795

 

 

 

(117

)

 

 

396

 

 

 

1,343

 

 

 

8,656

 

Charge-offs

 

 

(8

)

 

 

—

 

 

 

(1

)

 

 

(21

)

 

 

—

 

 

 

(1,527

)

 

 

(1,557

)

Recoveries

 

116

 

 

 

—

 

 

20

 

 

27

 

 

 

—

 

 

483

 

 

 

646

 

Ending balance

 

$

7,310

 

 

 

15,299

 

 

 

13,305

 

 

 

1,437

 

 

 

1,170

 

 

 

1,292

 

 

 

39,813

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following tables detail the allowance for loan losses and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2021, as determined in accordance with ASC 310 prior to the adoption of ASC 326:

 

 

 

In Thousands

 

 

 

Residential 1-4 Family Real Estate

 

 

Commercial and Multi-family Real Estate

 

 

Construction, Land Development and Farmland

 

 

Commercial, Industrial and Agricultural

 

 

1-4 family Equity Lines of Credit

 

 

Consumer and Other

 

 

Total

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

8,203

 

 

 

18,343

 

 

 

8,090

 

 

 

1,391

 

 

 

997

 

 

 

1,515

 

 

 

38,539

 

Provision

 

 

971

 

 

 

(1,497

)

 

 

1,296

 

 

 

(35

)

 

101

 

 

307

 

 

 

1,143

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

(23

)

 

 

(33

)

 

 

—

 

 

 

(992

)

 

 

(1,048

)

Recoveries

 

 

68

 

 

 

—

 

 

 

394

 

 

 

6

 

 

 

—

 

 

530

 

 

 

998

 

Ending balance

 

$

9,242

 

 

 

16,846

 

 

 

9,757

 

 

 

1,329

 

 

 

1,098

 

 

 

1,360

 

 

 

39,632

 

Ending balance individually evaluated for impairment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Ending balance collectively evaluated for impairment

 

$

9,242

 

 

 

16,846

 

 

 

9,757

 

 

 

1,329

 

 

 

1,098

 

 

 

1,360

 

 

 

39,632

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

689,579

 

 

 

908,673

 

 

 

612,659

 

 

 

118,155

 

 

 

92,229

 

 

 

74,643

 

 

 

2,495,938

 

Ending balance individually evaluated for impairment

 

$

134

 

 

 

531

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

665

 

Ending balance collectively evaluated for impairment

 

$

689,445

 

 

 

908,142

 

 

 

612,659

 

 

 

118,155

 

 

 

92,229

 

 

 

74,643

 

 

 

2,495,273

 

 

The following tables present the amortized cost basis of collateral dependent loans at December 31, 2023 and December 31, 2022 which are individually evaluated to determine expected credit losses:

 

 

 

In Thousands

 

 

 

Real Estate

 

 

Other

 

 

Total

 

December 31, 2023

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

1,949

 

 

 

—

 

 

 

1,949

 

Commercial and multi-family real estate

 

 

2,889

 

 

 

—

 

 

 

2,889

 

Construction, land development and farmland

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

4,838

 

 

 

—

 

 

 

4,838

 

 

 

 

 

In Thousands

 

 

 

Real Estate

 

 

Other

 

 

Total

 

December 31, 2022

 

 

 

 

 

 

 

 

 

Residential 1-4 family real estate

 

$

130

 

 

 

—

 

 

 

130

 

Commercial and multi-family real estate

 

508

 

 

 

—

 

 

 

508

 

Construction, land development and farmland

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

638

 

 

 

—

 

 

638

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Loan Modifications to Borrowers Experiencing Financial Difficulty

 

Effective January 1, 2023, the Company adopted ASU 2022-02 which eliminated the accounting guidance for TDRs and requires disclosures for certain loan modifications when a borrower is experiencing financial difficulty.

 

Occasionally, the Company modifies loans to borrowers in financial distress by providing, principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

 

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

 

The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the twelve months ended December 31, 2023, by class and type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

 

 

 

 

(In Thousands)

 

 

 

Principal
Forgiveness

 

 

Payment
Delay

 

 

Term
Extension

 

 

Interest Rate
Reduction

 

 

Combination
Term
Extension and
Principal
Forgiveness

 

 

Combination Term Extension and Interest Rate Reduction

 

 

Total Class of Financing Receivable

 

Residential 1-4 family real estate

 

$

—

 

 

$

947

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

0.10

%

Commercial and multi-family real estate

 

 

—

 

 

 

2,406

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.18

%

Construction, land development and
   farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

%

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

93

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.07

%

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

%

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

%

Total

 

$

—

 

 

$

3,353

 

 

$

93

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

0.10

%

 

The Company has not committed to lend additional amounts to the borrowers included in the previous table.

 

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified within the last 12 months and that are at least 30 days past due.


 

 

 

In Thousands

 

December 31, 2023

 

30-59 Days Past Due

 

 

60-89 Days Past Due

 

 

Greater Than 89 Days Past Due

 

 

Total Past Due

 

Residential 1-4 family real estate

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial and multi-family real estate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development and
   farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

As evidenced above, no such loans that have been modified within the last 12 months were thirty days or more past due at December 31, 2023.

 

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the twelve months ended December 31, 2023 (dollars in thousands):

 

Twelve Months Ended December 31, 2023

 

Principal
Forgiveness

 

 

Weighted-Average
Interest Rate Reduction

 

 

Weighted-Average Months of Term Extension

 

Residential 1-4 family real estate

 

$

—

 

 

 

—

%

 

 

—

 

Commercial and multi-family real estate

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development and farmland

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

37

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

—

 

 

 

—

%

 

 

37

 


 

The following table presents the amortized cost basis of loans that had a payment default during the twelve months ended December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

 

 

 

 

In Thousands

 

Twelve Months Ended December 31, 2023

 

Principal Forgiveness

 

 

Payment Delay

 

 

Term Extension

 

 

Interest Rate Reduction

 

Residential 1-4 family real estate

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial and multi-family real estate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development and
   farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

There were no payment defaults during the twelve months ended December 31, 2023 on loans that had been modified in the twelve months prior to December 31, 2023.

 

Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized costs basis of the loan is reduced by the amount deemed uncollectible and the allowance for credit losses is adjusted by the same amount.

 

TDR Disclosures Prior to Adoption of ASU 2022-02


 

Prior to the adoption of ASU 2022-02 the restructuring of a loan was considered a TDR if both (i) the borrower was experiencing financial difficulties and (ii) the creditor had granted a concession. Concessions may have included interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses.

 

The Company did not modify any loan that was considered a TDR during the twelve months ended December 31, 2022.
 

The following table summarizes the carrying balances of TDRs at December 31, 2022 (dollars in thousands):

 

 

 

2022

 

Performing TDRs

 

$

778

 

Nonperforming TDRs

 

 

150

 

Total TDRs

 

$

928

 

 

 

The following table outlines the amount of each TDR categorized by loan classification for the years ended December 31, 2022 and 2021 (dollars in thousands):

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

Number of Loans

 

 

Pre Modification Outstanding Recorded Investment

 

 

Post Modification Outstanding Recorded Investment, Net of Related Allowance

 

 

Number of Loans

 

 

Pre Modification Outstanding Recorded Investment

 

 

Post Modification Outstanding Recorded Investment, Net of Related Allowance

 

Residential 1-4 family real estate

 

 

—

 

 

$

—

 

 

$

—

 

 

 

—

 

 

$

—

 

 

$

—

 

Commercial and multi-family real estate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Construction, land development and farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial, industrial and agricultural

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

1-4 family equity lines of credit

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer and other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

 

—

 

 

$

—

 

 

$

—

 

 

 

—

 

 

$

—

 

 

$

—

 

 

As of December 31, 2022 and 2021 the Company did not have any loan previously classified as a TDR default within twelve months of the restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.

As of December 31, 2023 the Bank had no consumer mortgage loans in the process of foreclosure. As of December 31, 2022 the Bank had $11,000 of consumer mortgage loans in the process of foreclosure.

The Company’s principal customers are primarily in Middle Tennessee. Credit is extended to businesses and individuals and is evidenced by promissory notes. The terms and conditions of the loans including collateral vary depending upon the purpose of the credit and the borrower’s financial condition. In the normal course of business, Wilson Bank has made loans at prevailing interest rates and terms to directors and executive officers of the Company and to their affiliates. The aggregate amount of these loans was $7,768,000 and $6,859,000 at December 31, 2023 and 2022, respectively. None of these loans were restructured, charged-off or involved more than the normal risk of collectibility or presented other unfavorable features during the three years ended December 31, 2023.

An analysis of the activity with respect to such loans to related parties is as follows:

 

 

 

In Thousands

 

 

 

December 31,

 

 

 

2023

 

 

2022

 

Balance, January 1

 

$

6,859

 

 

$

5,725

 

New loans and renewals during the year

 

 

9,860

 

 

 

13,379

 

Repayments (including loans paid by renewal) during the year

 

 

(8,951

)

 

 

(12,245

)

Balance, December 31

 

$

7,768

 

 

$

6,859

 

 

In 2023, 2022 and 2021, Wilson Bank originated mortgage loans for sale into the secondary market of $73,984,000, $106,601,000 and $215,813,000, respectively. The fees and gain on sale of these loans totaled $2,635,000, $2,973,000 and $9,997,000 in 2023, 2022 and 2021, respectively.

In some instances, Wilson Bank sells loans that contain provisions which permit the buyer to seek recourse against Wilson Bank in certain circumstances. At December 31, 2023 and 2022, total mortgage loans sold with recourse in the secondary market aggregated $69,308,000 and $84,162,000, respectively. At December 31, 2023, Wilson Bank has not been required to repurchase a significant amount of the mortgage loans originated by Wilson Bank and sold in the secondary market. Management expects no significant losses to result from these recourse provisions.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(3)
Debt Securities

Debt securities have been classified in the consolidated balance sheet according to management’s intent. Debt securities at December 31, 2023 consist of the following:

 

 

 

Securities Available-For-Sale

 

 

 

In Thousands

 

 

 

 

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and other U.S. government agencies

 

$

4,901

 

 

 

—

 

 

 

472

 

 

 

4,429

 

U.S. Government-sponsored enterprises (GSEs)

 

 

167,738

 

 

 

—

 

 

 

23,570

 

 

 

144,168

 

Mortgage-backed securities

 

 

480,759

 

 

 

230

 

 

 

63,959

 

 

 

417,030

 

Asset-backed securities

 

 

51,183

 

 

 

193

 

 

 

1,403

 

 

 

49,973

 

Corporate bonds

 

 

2,500

 

 

 

—

 

 

 

77

 

 

 

2,423

 

Obligations of states and political subdivisions

 

 

223,358

 

 

 

397

 

 

 

30,697

 

 

 

193,058

 

 

$

930,439

 

 

 

820

 

 

 

120,178

 

 

 

811,081

 

 

The Company’s classification of securities at December 31, 2022 was as follows:

 

 

 

Securities Available-For-Sale

 

 

 

In Thousands

 

 

 

 

 

 

Gross Unrealized

 

 

Gross Unrealized

 

 

Fair

 

 

 

Amortized Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. Treasury and other U.S. government agencies

 

$

7,353

 

 

 

—

 

 

 

856

 

 

 

6,497

 

U.S. Government-sponsored enterprises (GSEs)

 

 

177,261

 

 

 

—

 

 

 

32,049

 

 

 

145,212

 

Mortgage-backed securities

 

 

518,727

 

 

 

1

 

 

 

74,290

 

 

 

444,438

 

Asset-backed securities

 

 

47,538

 

 

 

—

 

 

 

2,288

 

 

 

45,250

 

Corporate bonds

 

 

2,500

 

 

 

—

 

 

 

97

 

 

 

2,403

 

Obligations of states and political subdivisions

 

 

218,936

 

 

 

—

 

 

 

39,924

 

 

 

179,012

 

 

$

972,315

 

 

 

1

 

 

 

149,504

 

 

 

822,812

 

 

As of December 31, 2023, there was no allowance for credit losses on available-for-sale securities.

Included in mortgage-backed securities are collateralized mortgage obligations totaling $145,179,000 (fair value of $124,005,000) and $148,460,000 (fair value of $126,190,000) at December 31, 2023 and 2022, respectively.

The amortized cost and estimated market value of debt securities at December 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities of mortgage and asset-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

In Thousands

 

Securities Available-For-Sale

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

308

 

 

 

302

 

Due after one year through five years

 

 

99,749

 

 

 

90,059

 

Due after five years through ten years

 

 

279,313

 

 

 

243,984

 

Due after ten years

 

 

551,069

 

 

 

476,736

 

 

$

930,439

 

 

 

811,081

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Results from sales of debt securities are as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Gross proceeds

 

$

32,740

 

 

 

42,728

 

 

 

39,652

 

Gross realized gains

 

$

17

 

 

 

—

 

 

 

137

 

Gross realized losses

 

 

(1,026

)

 

 

(1,620

)

 

 

(109

)

Net realized gains (losses)

 

$

(1,009

)

 

 

(1,620

)

 

 

28

 

 

Securities carried on the balance sheet of approximately $500,046,000 (approximate market value of $429,705,000) and $477,051,000 (approximate market value of $405,043,000) were pledged to secure public deposits and for other purposes as required or permitted by law at December 31, 2023 and 2022, respectively.

At December 31, 2023, there were no holdings of securities of any one issuer, other than U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity.

Included in the securities above are $116,000,000 (approximate market value of $99,000,000) and $111,505,000 (approximate market value of $90,008,000) at December 31, 2023 and 2022, respectively, in obligations of political subdivisions located within the states of Tennessee, Alabama, and Texas.

The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and 2022.

 

 

 

In Thousands, Except Number of Securities

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Securities

 

 

 

 

 

Unrealized

 

 

Securities

 

 

 

 

 

Unrealized

 

2023

 

Fair Value

 

 

Losses

 

 

Included

 

 

Fair Value

 

 

Losses

 

 

Included

 

 

Fair Value

 

 

Losses

 

Available-for-Sale Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government agencies

 

$

—

 

 

$

—

 

 

 

—

 

 

$

4,429

 

 

$

472

 

 

 

2

 

 

$

4,429

 

 

$

472

 

U.S. Government-sponsored enterprises (GSEs)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

144,169

 

 

 

23,569

 

 

 

55

 

 

 

144,169

 

 

 

23,569

 

Mortgage-backed securities

 

 

8,889

 

 

 

63

 

 

 

7

 

 

 

390,557

 

 

 

63,897

 

 

 

221

 

 

 

399,446

 

 

 

63,960

 

Asset-backed securities

 

 

2,500

 

 

 

44

 

 

 

1

 

 

 

30,666

 

 

 

1,359

 

 

 

26

 

 

 

33,166

 

 

 

1,403

 

Corporate bonds

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,423

 

 

 

77

 

 

 

1

 

 

 

2,423

 

 

 

77

 

Obligations of states and political subdivisions

 

 

5,375

 

 

 

14

 

 

 

2

 

 

 

171,157

 

 

 

30,683

 

 

 

193

 

 

 

176,532

 

 

 

30,697

 

 

$

16,764

 

 

$

121

 

 

 

10

 

 

$

743,401

 

 

$

120,057

 

 

 

498

 

 

$

760,165

 

 

$

120,178

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

In Thousands, Except Number of Securities

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Securities

 

 

 

 

 

Unrealized

 

 

Securities

 

 

 

 

 

Unrealized

 

2022

 

Fair Value

 

 

Losses

 

 

Included

 

 

Fair Value

 

 

Losses

 

 

Included

 

 

Fair Value

 

 

Losses

 

Available-for-Sale Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government agencies

 

$

—

 

 

$

—

 

 

 

—

 

 

$

6,497

 

 

$

856

 

 

 

—

 

 

$

6,497

 

 

$

856

 

U.S. Government-sponsored enterprises (GSEs)

 

 

9,747

 

 

 

872

 

 

 

4

 

 

 

135,465

 

 

 

31,177

 

 

 

54

 

 

 

145,212

 

 

 

32,049

 

Mortgage-backed securities

 

 

148,441

 

 

 

14,601

 

 

 

113

 

 

 

295,431

 

 

 

59,689

 

 

 

136

 

 

 

443,872

 

 

 

74,290

 

Asset-backed securities

 

 

35,276

 

 

 

1,607

 

 

 

21

 

 

 

9,974

 

 

 

681

 

 

 

11

 

 

 

45,250

 

 

 

2,288

 

Corporate bonds

 

 

2,403

 

 

 

97

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,403

 

 

 

97

 

Obligations of states and political subdivisions

 

 

58,567

 

 

 

6,056

 

 

 

76

 

 

 

120,445

 

 

 

33,868

 

 

 

128

 

 

 

179,012

 

 

 

39,924

 

 

$

254,434

 

 

$

23,233

 

 

 

215

 

 

$

567,812

 

 

$

126,271

 

 

 

332

 

 

$

822,246

 

 

$

149,504

 

 

The applicable date for determining when securities are in an unrealized loss position is December 31, 2023 and 2022. As such, it is possible that a security had a market value less than its amortized cost on other days during the twelve-month periods ended December 31, 2023 and 2022, but is not in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at December 31, 2023 and 2022, the Company had unrealized losses of $120.2 million and $149.5 million on $760.2 million and $822.2 million, respectively, of securities in an unrealized loss position at those dates. As described in Note 1. Summary of Significant Accounting Policies, for any security classified as available-for-sale that is in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or more-likely-than-not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently does not intend to sell those securities that have an unrealized loss at December 31, 2023, and it is likely that the Company will not be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. In addition, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration, which would require the recognition of an allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with securities at December 31, 2023 are driven by changes in interest rates and not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to available-for- sale securities at December 31, 2023. These securities will continue to be monitored as a part of the Company's ongoing evaluation of credit quality.

Mortgage-Backed Securities

At December 31, 2023, approximately 97% of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies. Because the decline in fair value is largely attributable to interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired (OTTI) at December 31, 2023.

The Company's mortgage-backed securities portfolio includes non-agency collateralized mortgage obligations with a fair value of $11.5 million which had unrealized losses of approximately $1.5 million at December 31, 2023. These non-agency mortgage-backed securities were rated A or higher at December 31, 2023. The Company monitors to ensure it has adequate credit support and as of December 31, 2023, the Company believes there is no OTTI and does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The issuers continue to make timely principal and interest payments on the bonds.

Obligations of States and Political Subdivisions

Unrealized losses on municipal bonds have not been recognized into income because the issuers' bonds are of high credit quality (rated A or higher), management does not intend to sell the securities and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Asset-Backed Securities

The Company's asset-backed securities portfolio includes agency and non-agency asset backed and other amortizing debt securities with a fair value of $50.0 million which had unrealized losses of approximately $1.4 million at December 31, 2023. The Company monitors these securities to ensure it has adequate credit support and as of December 31, 2023, the Company believes there is no OTTI and does not have the intent to sell these securities and it is not more likely than not that it will be required to sell the securities before their anticipated recovery. The issuers continue to make timely principal and interest payments on the bonds.

Corporate Bonds

The Company's lone corporate debt security with a fair value of $2.4 million had an unrealized loss of approximately $0.1 million at December 31, 2023. The Company monitors this security to ensure it has adequate credit support and as of December 31, 2023, the Company believes there is no OTTI and does not have the intent to sell this security and it is not more likely than not that it will be required to sell the security before its anticipated recovery. The issuer continues to make timely principal and interest payments on the bond.

(4)
Restricted Equity Securities

Restricted equity securities consists of stock of the FHLB of Cincinnati amounting to $3,436,000 and $4,357,000 at December 31, 2023 and 2022, respectively. The stock can be sold back only at par or a value as determined by the issuing institution and only to the respective financial institution or to another member institution. These securities are recorded at cost.

(5)
Premises and Equipment

The detail of premises and equipment at December 31, 2023 and 2022 is as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Land

 

$

20,822

 

 

$

20,822

 

Buildings

 

 

49,784

 

 

 

46,579

 

Leasehold improvements

 

 

1,710

 

 

 

1,621

 

Furniture and equipment

 

 

16,524

 

 

 

14,858

 

Automobiles

 

345

 

 

373

 

Construction-in-progress

 

 

2,469

 

 

 

2,711

 

 

 

91,654

 

 

 

86,964

 

Less accumulated depreciation

 

 

(29,256

)

 

 

(24,933

)

 

$

62,398

 

 

$

62,031

 

 

During 2023, 2022 and 2021, payments of $1,442,000, $379,000 and $1,227,000, respectively, were made to an entity owned by a director for the construction of buildings utilized by Wilson Bank and repair work on existing buildings utilized by Wilson Bank.

Depreciation expense was $4,221,000, $4,370,000 and $4,235,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(6)
Goodwill

The Company's intangible assets result from the excess of purchase price over the applicable book value of the net assets acquired related to outside ownership of two previously 50% owned subsidiaries that the Company acquired 100% of in 2005.

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Goodwill:

 

 

 

 

 

 

Balance at January 1,

 

$

4,805

 

 

 

4,805

 

Goodwill acquired during year

 

 

—

 

 

 

—

 

Impairment loss

 

 

—

 

 

 

—

 

Balance at December 31,

 

$

4,805

 

 

 

4,805

 

 

(7)
Leases

Lessee Accounting

The majority of leases in which the Company is the lessee are comprised of real estate property for branches and office space and are recorded as operating leases with terms extending beyond 2028. The Company has one finance lease, which it entered into in 2022, with a lease term through 2046. These leases are classified as operating or finance leases at commencement. Right-of-use assets representing the right to use the underlying asset and lease liabilities representing the obligation to make future lease payments are recognized on the balance sheet. These assets and liabilities are estimated based on the present value of future lease payments discounted using the Company's incremental secured borrowing rates as of the commencement date of the lease. Certain lease agreements contain renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. The Company has elected not to recognize leases with an original term of less than 12 months on the balance sheet.

The following table represents lease assets and lease liabilities as of December 31, 2023 and 2022 (in thousands).

 

Lease right-of-use assets

 

Classification

 

December 31, 2023

 

 

December 31, 2022

 

Operating lease right-of-use assets

 

Other Assets

 

$

3,542

 

 

 

4,519

 

Finance lease right-of-use assets

 

Other Assets

 

 

2,123

 

 

 

2,215

 

 

Lease liabilities

 

Classification

 

December 31, 2023

 

 

December 31, 2022

 

Operating lease liabilities

 

Other Liabilities

 

$

3,736

 

 

 

4,671

 

Finance lease liabilities

 

Other Liabilities

 

 

2,251

 

 

 

2,281

 

 

The total lease cost related to operating leases and short term leases is recognized on a straight-line basis over the lease term. For finance leases, right-of-use assets are amortized on a straight-line basis over the lease term and interest imputed on the lease liability is recognized using the effective interest method. The components of the Bank's total lease cost were as follows for the years ended December 31, 2023 and 2022.

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Operating lease cost

 

$

637

 

 

 

563

 

Finance lease cost

 

 

158

 

 

 

159

 

Short-term lease cost

 

 

—

 

 

 

—

 

Net lease cost

 

$

795

 

 

 

722

 

 

The weighted average remaining lease term and weighted average discount rate for operating leases at December 31, 2023 and 2022 were as follows:

 

 

 

2023

 

 

2022

 

Operating Leases

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

10.10

 

 

 

10.53

 

Weighted average discount rate

 

 

4.31

%

 

 

4.25

%

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

 

 

The weighted average remaining lease term and weighted average discount rate for finance leases at December 31, 2023 and 2022 were as follows:

 

 

 

2023

 

 

2022

 

Finance Leases

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

23.34

 

 

 

24.35

 

Weighted average discount rate

 

 

2.90

%

 

 

2.90

%

 

Cash flows related to operating and finance leases during the year ended December 31, 2023 and 2022 were as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Operating cash flows related to operating leases

 

$

595

 

 

 

547

 

Operating cash flows related to finance leases

 

 

66

 

 

 

66

 

Financing cash flows related to finance leases

 

 

30

 

 

 

26

 

 

Future undiscounted lease payments for operating leases with initial terms of more than 12 months at December 31, 2023 and 2022 were as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Operating Leases

 

 

 

 

 

 

2024

 

$

553

 

 

 

595

 

2025

 

 

560

 

 

 

635

 

2026

 

 

568

 

 

 

642

 

2027

 

 

576

 

 

 

649

 

2028

 

 

547

 

 

 

657

 

Thereafter

 

 

1,854

 

 

 

2,686

 

Total undiscounted lease payments

 

 

4,658

 

 

 

5,864

 

Less: imputed interest

 

 

(922

)

 

 

(1,193

)

Net lease liabilities

 

$

3,736

 

 

$

4,671

 

 

Future undiscounted lease payments for finance leases with initial terms of more than 12 months at December 31, 2023 and 2022 were as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Finance Leases

 

 

 

 

 

 

2024

 

$

98

 

 

$

96

 

2025

 

 

101

 

 

 

98

 

2026

 

 

105

 

 

 

101

 

2027

 

 

108

 

 

 

105

 

2028

 

 

111

 

 

 

108

 

Thereafter

 

 

2,676

 

 

 

2,787

 

Total undiscounted lease payments

 

 

3,199

 

 

 

3,295

 

Less: imputed interest

 

 

(948

)

 

 

(1,014

)

Net lease liabilities

 

$

2,251

 

 

$

2,281

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(8)
Mortgage Servicing Rights

During the first quarter of 2022, the Company began selling a portfolio of residential mortgage loans to a third party, while retaining the rights to service the loans. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans as of December 31, 2023 and December 31, 2022 are as follows:

 

 

 

In Thousands

 

 

 

December 31, 2023

 

 

December 31, 2022

 

Mortgage loan portfolios serviced for:

 

 

 

 

 

 

FHLMC

 

$

99,441

 

 

 

85,742

 

 

For the years ended December 31, 2023 and 2022, the change in carrying value of the Company's mortgage servicing rights accounted for under the amortization method was as follows:

 

 

 

In Thousands

 

 

 

December 31, 2023

 

 

December 31, 2022

 

Balance at beginning of period

 

$

1,065

 

 

 

—

 

Servicing rights retained from loans sold

 

 

245

 

 

 

1,597

 

Amortization

 

 

(227

)

 

 

(532

)

Valuation Allowance Provision

 

 

—

 

 

 

—

 

Balance at end of period

 

$

1,083

 

 

 

1,065

 

Fair value, end of period

 

$

1,398

 

 

 

1,252

 

 

The key data and assumptions used in estimating the fair value of the Company's mortgage servicing rights as of December 31, 2023 and 2022 were as follows:

 

 

 

December 31, 2023

 

 

December 31, 2022

 

Prepayment speed

 

 

7.92

%

 

 

7.18

%

Weighted-average life (in years)

 

 

8.55

 

 

 

8.98

 

Weighted-average note rate

 

 

4.73

%

 

 

4.34

%

Weighted-average discount rate

 

 

9.00

%

 

 

9.00

%

 

(9)
Deposits

Deposits at December 31, 2023 and 2022 are summarized as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Demand deposits

 

$

389,725

 

 

 

414,905

 

Savings accounts

 

 

320,301

 

 

 

338,963

 

Negotiable order of withdrawal accounts

 

 

934,709

 

 

 

1,070,629

 

Money market demand accounts

 

 

1,156,694

 

 

 

1,301,349

 

Certificates of deposit $250,000 or greater

 

 

548,269

 

 

 

230,408

 

Other certificates of deposit

 

 

942,346

 

 

 

471,249

 

Individual retirement accounts $250,000 or greater

 

 

11,018

 

 

 

7,727

 

Other individual retirement accounts

 

 

64,044

 

 

 

57,475

 

Total

 

$

4,367,106

 

 

 

3,892,705

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Principal maturities of certificates of deposit and individual retirement accounts at December 31, 2023 are as follows:

 

 

 

(In Thousands)

 

Maturity

 

Total

 

2024

 

$

1,228,675

 

2025

 

 

258,962

 

2026

 

 

38,934

 

2027

 

 

22,734

 

2028

 

 

15,579

 

Thereafter

 

 

793

 

 

$

1,565,677

 

 

The aggregate amount of overdrafts reclassified as loans receivable was $858,000 and $1,453,000 at December 31, 2023 and 2022, respectively. The aggregate balances of related party deposits at December 31, 2023 and 2022 were $15,640,000 and $11,823,000, respectively.

As of December 31, 2023 and 2022, Wilson Bank was not required to maintain a cash balance with the Federal Reserve.

(10)
Non-Interest Income and Non-Interest Expense

The significant components of non-interest income and non-interest expense for the years ended December 31, 2023, 2022 and 2021 are presented below:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

$

7,890

 

 

 

7,382

 

 

 

6,137

 

Brokerage income

 

 

7,184

 

 

 

6,929

 

 

 

6,368

 

Debit and credit card interchange income, net

 

 

8,490

 

 

 

8,416

 

 

 

7,783

 

Other fees and commissions

 

 

1,408

 

 

 

1,653

 

 

 

1,446

 

BOLI and annuity earnings

 

 

1,667

 

 

 

1,346

 

 

 

1,109

 

Gain (loss) on sale of securities, net

 

 

(1,009

)

 

 

(1,620

)

 

 

28

 

Fees and gains on sales of mortgage loans

 

 

2,635

 

 

 

2,973

 

 

 

9,997

 

Mortgage servicing income (loss), net

 

 

9

 

 

 

(28

)

 

 

—

 

Loss on sale of other real estate, net

 

 

—

 

 

 

—

 

 

 

(15

)

Gain (loss) on sale of fixed assets, net

 

 

(55

)

 

 

291

 

 

 

(43

)

Gain (loss) on sale of other assets, net

 

 

(10

)

 

 

8

 

 

 

6

 

Other income (loss)

 

 

80

 

 

 

(69

)

 

 

34

 

 

 

$

28,289

 

 

 

27,281

 

 

 

32,850

 

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Employee salaries and benefits

 

$

59,501

 

 

 

56,707

 

 

 

52,722

 

Equity-based compensation

 

 

1,528

 

 

 

1,864

 

 

 

1,428

 

Occupancy expenses

 

 

6,532

 

 

 

5,563

 

 

 

5,473

 

Furniture and equipment expenses

 

 

3,202

 

 

 

3,389

 

 

 

3,323

 

Data processing expenses

 

 

8,810

 

 

 

7,337

 

 

 

5,780

 

Advertising expenses

 

 

3,714

 

 

 

3,455

 

 

 

2,736

 

Accounting, legal & consulting expenses

 

 

1,789

 

 

 

1,409

 

 

 

1,287

 

FDIC insurance

 

 

3,120

 

 

 

1,527

 

 

 

1,130

 

Directors’ fees

 

 

713

 

 

 

650

 

 

 

686

 

Other operating expenses

 

 

12,042

 

 

 

11,069

 

 

 

10,927

 

 

 

$

100,951

 

 

 

92,970

 

 

 

85,492

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(11)
Income Taxes

The components of the net deferred tax asset at December 31, 2023 and 2022 were as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Deferred tax asset:

 

 

 

 

 

 

Federal

 

$

36,034

 

 

 

40,690

 

State

 

 

11,641

 

 

 

13,095

 

 

 

47,675

 

 

 

53,785

 

Deferred tax liability:

 

 

 

 

 

 

Federal

 

 

(1,654

)

 

 

(1,850

)

State

 

 

(548

)

 

 

(612

)

 

 

(2,202

)

 

 

(2,462

)

 Net deferred tax asset

 

$

45,473

 

 

 

51,323

 

 

The tax effects of each type of significant item that gave rise to deferred tax assets (liabilities) at December 31, 2023 and 2022 were:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Financial statement allowance for credit losses in excess of tax allowance

 

$

11,509

 

 

 

10,128

 

Excess of depreciation deducted for tax purposes over the amounts deducted in the financial statements

 

 

(1,546

)

 

 

(1,801

)

Financial statement deduction for deferred compensation in excess of deduction for tax purposes

 

 

1,487

 

 

 

1,464

 

Financial statement income on FHLB stock dividends not recognized for tax purposes

 

 

(327

)

 

 

(327

)

Financial statement off-balance sheet exposure allowance for credit losses in excess of tax allowance

 

 

822

 

 

 

1,604

 

Unrealized loss on securities available-for-sale

 

 

31,195

 

 

 

39,073

 

Equity based compensation

 

 

1,355

 

 

 

1,224

 

Other items, net

 

 

978

 

 

 

(42

)

Net deferred tax asset

 

$

45,473

 

 

 

51,323

 

 

The components of income tax expense (benefit) at December 31, 2023, 2022 and 2021 are summarized as follows:

 

 

 

In Thousands

 

 

 

Federal

 

 

State

 

 

Total

 

2023

 

 

 

 

 

 

 

 

 

Current

 

$

14,023

 

 

 

1,945

 

 

 

15,968

 

Deferred

 

 

(1,458

)

 

 

(571

)

 

 

(2,029

)

Total

 

$

12,565

 

 

 

1,374

 

 

 

13,939

 

2022

 

 

 

 

 

 

 

 

 

Current

 

$

15,096

 

 

 

2,011

 

 

 

17,107

 

Deferred

 

 

(1,565

)

 

 

(486

)

 

 

(2,051

)

Total

 

$

13,531

 

 

 

1,525

 

 

 

15,056

 

2021

 

 

 

 

 

 

 

 

 

Current

 

$

13,580

 

 

 

2,084

 

 

 

15,664

 

Deferred

 

 

(698

)

 

 

(234

)

 

 

(932

)

Total

 

$

12,882

 

 

 

1,850

 

 

 

14,732

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

A reconciliation of actual income tax expense of $13,939,000, $15,056,000 and $14,732,000 for the years ended December 31, 2023, 2022 and 2021, respectively, to the “expected” tax expense (computed by applying the statutory rate of 21% for 2023, 2022 and 2021 to earnings before income taxes) is as follows:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Computed “expected” tax expense

 

$

13,204

 

 

 

14,301

 

 

 

13,473

 

State income taxes, net of Federal income tax benefit

 

 

1,120

 

 

 

1,117

 

 

 

1,584

 

Tax exempt interest, net of interest expense exclusion

 

 

(190

)

 

 

(274

)

 

 

(237

)

Earnings on cash surrender value of life insurance

 

 

(344

)

 

 

(273

)

 

 

(205

)

Expenses not deductible for tax purposes

 

74

 

 

23

 

 

12

 

Equity based compensation

 

 

(46

)

 

 

(55

)

 

 

(28

)

Other

 

 

121

 

 

 

217

 

 

 

133

 

 

 

$

13,939

 

 

 

15,056

 

 

 

14,732

 

 

Total income tax expense (benefit) for 2023, 2022 and 2021, includes $(264,000), $(423,000) and $7,000 of expense (benefit) related to the realized gain and loss on sale of securities, respectively.

As of December 31, 2023, 2022 and 2021 the Company has not accrued or recognized interest or penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and/or penalties related to income tax matters in income tax expense.

No valuation allowance for deferred tax assets was recorded at December 31, 2023 and 2022 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. There were no unrecognized tax benefits during any of the reported periods.

The Company and Wilson Bank file income tax returns in the United States (“U.S.”), as well as in the State of Tennessee. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2020.

(12)
Commitments and Contingent Liabilities

The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such litigation and claims will not be material to the Company's consolidated financial position.

At December 31, 2023 and 2022, respectively, the Company has lines of credit with other correspondent banks totaling $102,485,000 and $101,208,000. At December 31, 2023 and 2022, respectively, there was no balance outstanding under these lines of credit.

The Company also has a Cash Management Advance ("CMA") Line of Credit agreement. The CMA is a component of the Company's Blanket Agreement for advances with the FHLB of Cincinnati. The purpose of the CMA is to assist with short-term liquidity management. Under the terms of the CMA, the Company may borrow a maximum of $25,000,000, selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. There were no borrowings outstanding under the CMA at December 31, 2023 or December 31, 2022.

(13)
Financial Instruments with Off-Balance-Sheet Risk

The Company is 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 consist primarily of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional 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 Thousands

 

 

 

Contract or Notional Amount

 

 

 

2023

 

 

2022

 

Financial instruments whose contract amounts represent credit risk:

 

 

 

 

 

 

Unused commitments to extend credit

 

$

1,010,899

 

 

 

1,217,963

 

Standby letters of credit

 

 

106,420

 

 

 

118,064

 

Total

 

$

1,117,319

 

 

 

1,336,027

 

 

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 are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral normally consists of real property.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most guarantees extend from one to two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments and the present creditworthiness of such counterparties. Such commitments have been made on terms which are competitive in the markets in which the Company operates; thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure. The maximum potential amount of future payments that the Company could be required to make under the guarantees totaled $106,420,000 at December 31, 2023.

Allowance For Credit Losses - Off-Balance-Sheet Credit Exposures. The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. Off-balance-sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance-sheet exposure. The likelihood and expected amount of funding are based on historical utilization rates. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment.

Estimating credit losses on amounts expected to be funded uses the same methodology as described for loans in Note 2 - Loans and Allowance for Credit Losses as if such commitments were funded.

The following table details activity in the allowance for credit losses on off-balance-sheet credit exposures for the years ended December 31, 2023, 2022 and 2021.

 

 

 

(In Thousands)

 

 

 

2023

 

 

2022

 

 

2021

 

Beginning balance, January 1

 

$

6,136

 

 

 

955

 

 

 

693

 

Impact of adopting ASC 326

 

 

—

 

 

 

6,195

 

 

 

—

 

Credit loss expense (benefit)

 

 

(2,989

)

 

 

(1,014

)

 

 

262

 

Ending balance, December 31,

 

$

3,147

 

 

 

6,136

 

 

 

955

 

 

The Bank originates residential mortgage loans, sells them to third-party purchasers, and may or may not retain the servicing rights. These loans are originated internally and are primarily to borrowers in the Company’s geographic market footprint. These sales are typically to investors that follow guidelines of conventional government sponsored entities ("GSE") and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs ("HUD/VA"). Generally, loans held for sale are underwritten by the

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Company, including HUD/VA loans. The Bank participates in a mandatory delivery program that requires the Bank to deliver a particular volume of mortgage loans by agreed upon dates. A majority of the Bank’s secondary mortgage volume is delivered to the secondary market via mandatory delivery with the remainder done on a best efforts basis. The Bank does not realize any exposure delivery penalties as the mortgage department only bids loans post-closing to ensure that 100% of the loans are deliverable to the investors.

Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require the Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties or the loan had an early payoff or payment default, the Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan.

To date, repurchase activity pursuant to the terms of these representations and warranties or due to early payoffs or payment defaults has been insignificant and has resulted in insignificant losses to the Company.

Based on information currently available, management believes that the Bank does not have significant exposure to contingent losses that may arise relating to the representations and warranties that it has made in connection with its mortgage loan sales or for early payoffs or payment defaults of such mortgage loans.

Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolution of these claims outstanding at December 31, 2023 will not have a material impact on the Company’s consolidated financial statements.

(14)
Concentration of Credit Risk

Practically all of the Company’s loans, commitments, and commercial and standby letters of credit have been granted to customers in the Company’s market area. Practically all such customers are depositors of Wilson Bank. The concentrations of credit by type of loan are set forth in Note 2 - Loans and Allowance for Credit Losses.

Interest bearing deposits totaling $63,870,000 were deposited with five commercial banks at December 31, 2023. In addition, the Bank has funds deposited with the FHLB of Cincinnati in the amount of $902,000. Funds deposited with the FHLB of Cincinnati are not insured by the FDIC.

Federal funds sold in the amount of $10,159,000 were deposited with one commercial bank at December 31, 2023.

(15)
Employee Benefit Plan

Wilson Bank has in effect a 401(k) plan (the “401(k) Plan”) which covers eligible employees. To be eligible an employee must have obtained the age of 18. The provisions of the 401(k) Plan provide for both employee and employer contributions. For the years ended December 31, 2023, 2022 and 2021, Wilson Bank contributed $3,662,000, $3,309,000, and $3,120,000, respectively, to the 401(k) Plan.

(16)
Dividend Reinvestment Plan

Under the terms of the Company’s dividend reinvestment plan (the “DRIP”) holders of common stock may elect to automatically reinvest cash dividends in additional shares of common stock. The Company may elect to sell original issue shares or to purchase shares in the open market for the account of participants in the DRIP. Original issue shares of 189,471 in 2023, 250,365 in 2022 and 186,583 in 2021 were sold to participants under the terms of the DRIP.

(17)
Regulatory Matters and Restrictions on Dividends

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2023, the Bank and the Company met all capital adequacy requirements to which they are subject.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is classified as adequately capitalized or lower, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is growth and expansion, and capital restoration plans are required. As of December 31, 2023 and 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Company's and Wilson Bank's actual capital amounts and ratios as of December 31, 2023 and 2022 are presented in the following tables. The capital conservation buffer of 2.5% is not included in the required minimum ratios of the tables presented below.

 

 

 

 

 

 

 

 

 

 

 

 

For Classification Under

 

 

 

 

 

 

 

 

 

Minimum

 

 

Corrective Action Plan

 

 

 

Actual

 

 

Capital Adequacy

 

 

as Well Capitalized

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

560,757

 

 

 

14.5

%

 

$

308,449

 

 

 

8.0

%

 

$

385,562

 

 

 

10.0

%

Wilson Bank

 

 

559,224

 

 

 

14.5

 

 

 

308,333

 

 

 

8.0

 

 

 

385,417

 

 

 

10.0

 

Tier 1 capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

512,762

 

 

 

13.3

 

 

 

231,337

 

 

 

6.0

 

 

 

308,449

 

 

 

8.0

 

Wilson Bank

 

 

511,229

 

 

 

13.3

 

 

 

231,250

 

 

 

6.0

 

 

 

308,334

 

 

 

8.0

 

Common equity Tier 1 capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

512,693

 

 

 

13.3

 

 

 

173,503

 

 

 

4.5

 

 

N/A

 

 

N/A

 

Wilson Bank

 

 

511,160

 

 

 

13.3

 

 

 

173,438

 

 

 

4.5

 

 

 

250,521

 

 

6.5

 

Tier 1 capital to average assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

512,762

 

 

 

10.6

 

 

 

193,564

 

 

 

4.0

 

 

N/A

 

 

N/A

 

Wilson Bank

 

 

511,229

 

 

 

10.6

 

 

 

193,492

 

 

 

4.0

 

 

 

241,865

 

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

For Classification Under

 

 

 

 

 

 

 

 

 

Minimum

 

 

Corrective Action Plan

 

 

 

Actual

 

 

Capital Adequacy

 

 

as Well Capitalized

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(dollars in thousands)

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

512,025

 

 

 

13.5

%

 

$

303,440

 

 

 

8.0

%

 

$

379,300

 

 

 

10.0

%

Wilson Bank

 

 

509,169

 

 

 

13.4

 

 

 

303,334

 

 

 

8.0

 

 

 

379,168

 

 

 

10.0

 

Tier 1 capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

466,076

 

 

 

12.3

 

 

 

227,580

 

 

 

6.0

 

 

 

303,440

 

 

 

8.0

 

Wilson Bank

 

 

463,220

 

 

 

12.2

 

 

 

227,500

 

 

 

6.0

 

 

 

303,333

 

 

 

8.0

 

Common equity Tier 1 capital to risk weighted assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

466,061

 

 

 

12.3

 

 

 

170,685

 

 

 

4.5

 

 

N/A

 

 

N/A

 

Wilson Bank

 

 

463,205

 

 

 

12.2

 

 

 

170,625

 

 

 

4.5

 

 

 

246,458

 

 

6.5

 

Tier 1 capital to average assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

466,076

 

 

 

11.2

 

 

 

166,712

 

 

 

4.0

 

 

N/A

 

 

N/A

 

Wilson Bank

 

 

463,220

 

 

 

11.1

 

 

 

166,648

 

 

 

4.0

 

 

 

208,310

 

 

 

5.0

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

Dividend Restrictions

The Company and the Bank are subject to dividend restrictions set forth by the Tennessee Department of Financial Institutions and federal banking agencies, as applicable. Additional restrictions may be imposed by the Tennessee Department of Financial Institutions and federal banking agencies under the powers granted to them by law.

(18)
Salary Deferral Plans

The Company provides some of its officers non-qualified pension benefits through an Executive Salary Continuation Plan ("the Plan") and Supplemental Executive Retirement Plan (SERP) Agreements ("SERP Agreements"). The Plan and SERP Agreements were established by the Board of Directors to reward executive management for past performance and to provide additional incentive to retain the service of executive management. The Plan and SERP Agreements generally provide executives with benefits of a portion of their salary beginning at retirement through life. As a result, the Company has accrued a liability for future obligations under the Plan and SERP Agreements. At December 31, 2023 and 2022, the liability related to the Plan totaled $1,475,000 and $1,575,000, respectively. At December 31, 2023 and 2022 the liability related to the SERP Agreements totaled $4,219,000 and $4,026,000 respectively. The expense incurred for these plans totaled $547,000, $789,000 and $705,000 for the year ended December 31, 2023, 2022 and 2021, respectively.

The Company has purchased life insurance policies to provide the benefits related to the Plan, which at December 31, 2023 and 2022 had an aggregate cash surrender value of $6,462,000 and $6,306,000, respectively, and an aggregate face value of insurance policies in force of $16,407,000 and $16,377,000, respectively. The life insurance policies remain the sole property of the Company and are payable to the Company.

The Company has also purchased bank owned life insurance policies on some of its current and former officers. The insurance policies remain the sole property of the Company and are payable to the Company. The cash surrender value of the life insurance contracts totaled $53,183,000 and $51,701,000 and the face amount of the insurance policies in force approximated $122,010,000 and $121,634,000 at December 31, 2023 and 2022, respectively.

The Company has also purchased Flexible Premium Indexed Deferred Annuity Contracts (“Annuity Contracts”) to provide benefits related to the SERP Agreements. The Annuity Contracts remain the sole property of the Company and are payable to the Company. Included in other assets at December 31, 2023 and 2022 are the Annuity Contracts with an aggregate value of $23,745,000 and $24,135,000, respectively.

(19)
Equity Incentive Plan

In April 2009, the Company’s shareholders approved the Wilson Bank Holding Company 2009 Stock Option Plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan was effective as of April 14, 2009. Under the 2009 Stock Option Plan, awards could be in the form of options to acquire common stock of the Company. Subject to adjustment as provided by the terms of the 2009 Stock Option Plan, the maximum number of shares of common stock with respect to which awards could be granted under the 2009 Stock Option Plan was 100,000 shares. The 2009 Stock Option Plan terminated on April 13, 2019, and no additional awards may be issued under the 2009 Stock Option Plan. The awards granted under the 2009 Stock Option Plan prior to the Plan's expiration will remain outstanding until exercised or otherwise terminated. As of December 31, 2023, the Company had outstanding 2,433 options under the 2009 Stock Option Plan with a weighted average exercise price of $35.96.

During the second quarter of 2016, the Company’s shareholders approved the Wilson Bank Holding Company 2016 Equity Incentive Plan, which authorizes awards of up to 750,000 shares of common stock. The 2016 Equity Incentive Plan was approved by the Board of Directors and effective as of January 25, 2016 and approved by the Company’s shareholders on April 12, 2016. On September 26, 2016, the Board of Directors approved an amendment and restatement of the 2016 Equity Incentive Plan (as amended and restated the “2016 Equity Incentive Plan”) to make clear that directors who are not also employees of the Company may be awarded stock appreciation rights. The primary purpose of the 2016 Equity Incentive Plan is to promote the interest of the Company and its shareholders by, among other things, (i) attracting and retaining key officers, employees and directors of, and consultants to, the Company and its subsidiaries and affiliates, (ii) motivating those individuals by means of performance-related incentives to achieve long-range performance goals, (iii) enabling such individuals to participate in the long-term growth and financial success of the Company, (iv) encouraging ownership of stock in the Company by such individuals, and (v) linking their compensation to the long-term interests of the Company and its shareholders. Except for certain limitations, awards can be in the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted shares and restricted share units, performance awards and other stock-based awards. As of December 31, 2023, the Company had 175,045 shares remaining available for issuance under the 2016 Equity Incentive Plan. As of December 31, 2023, the Company had outstanding under the 2016 Equity Incentive Plan 212,541 stock options with a weighted average exercise price of $57.32, 157,020 cash-settled stock appreciation rights

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

with a weighted average exercise price of $54.88, and 15,866 restricted share awards, restricted share unit awards, and performance share unit awards.

Stock Options and Stock Appreciation Rights

As of December 31, 2023, the Company had outstanding 214,974 stock options with a weighted average exercise price of $57.08 and 157,020 cash-settled stock appreciation rights with a weighted average exercise price of $54.88. Included in other liabilities at December 31, 2023 and 2022 were $3,297,000 and $3,020,000 in accrued cash-settled stock appreciation rights, respectively.

The fair value of each stock option and cash-settled SAR grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2023, 2022 and 2021:

 

 

 

2023

 

 

2022

 

 

2021

 

Expected dividends

 

 

2.38

%

 

 

1.85

%

 

 

1.53

%

Expected term (in years)

 

8.25

 

 

7.78

 

 

9.13

 

Expected stock price volatility

 

 

38

%

 

 

37

%

 

 

36

%

Risk-free rate

 

 

3.54

%

 

 

3.03

%

 

 

1.45

%

 

The expected stock price volatility is based on historical volatility adjusted for consideration of other relevant factors. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield and forfeiture rate assumptions are based on the Company’s history and expectation of dividend payouts and forfeitures.

A summary of the stock option and cash-settled SAR activity for 2023, 2022 and 2021 is as follows:

 

 

 

2023

 

 

2022

 

 

2021

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Weighted Average

 

 

 

 

 

Weighted Average

 

 

 

Shares

 

 

Exercise Price

 

 

Shares

 

 

Exercise Price

 

 

Shares

 

 

Exercise Price

 

Outstanding at beginning of year

 

 

414,778

 

 

$

55.13

 

 

 

357,254

 

 

$

50.18

 

 

 

284,591

 

 

$

43.71

 

Granted

 

 

5,000

 

 

 

69.00

 

 

 

117,665

 

 

64.13

 

 

 

121,830

 

 

61.48

 

Exercised

 

 

(42,617

)

 

47.23

 

 

 

(58,841

)

 

43.27

 

 

 

(48,867

)

 

40.76

 

Forfeited or expired

 

 

(5,167

)

 

 

60.35

 

 

 

(1,300

)

 

 

45.50

 

 

 

(300

)

 

 

37.60

 

Outstanding at end of year

 

 

371,994

 

 

$

56.15

 

 

 

414,778

 

 

$

55.13

 

 

 

357,254

 

 

$

50.18

 

Options and cash-settled SARs exercisable at year end

 

 

186,431

 

 

$

50.22

 

 

 

167,918

 

 

$

46.09

 

 

 

159,560

 

 

$

41.93

 

 

The weighted average fair value at the grant date of options and cash-settled SARs granted during the years 2023, 2022 and 2021 was $24.76, $22.64 and $22.10, respectively. The total intrinsic value of options and cash-settled SARs exercised during the years 2023, 2022 and 2021 was $959,000, $1,310,000 and $962,000, respectively.

The following table summarizes information about outstanding and exercisable stock options and cash-settled SARs at December 31, 2023:

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

Options and Cash-Settled SARs Outstanding

 

 

Options and Cash-Settled SARs Exercisable

 

Range of Exercise Prices

 

Number Outstanding at 12/31/23

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (In Years)

 

 

Number Outstanding at 12/31/23

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (In Years)

 

$34.31 - $54.75

 

 

112,500

 

 

$

42.30

 

 

 

3.27

 

 

 

108,368

 

 

$

42.14

 

 

3.24

 

$55.75 - $69.00

 

 

259,494

 

 

$

62.16

 

 

7.62

 

 

 

78,063

 

 

$

61.43

 

 

 

7.00

 

 

 

371,994

 

 

 

 

 

 

 

 

 

186,431

 

 

 

 

 

 

 

Aggregate intrinsic value (in thousands)

 

$

5,710

 

 

 

 

 

 

 

 

$

3,968

 

 

 

 

 

 

 

 

As of December 31, 2023, there was $3,497,000 of total unrecognized cost related to non-vested stock options and cash-settled SARs granted under the Company’s equity incentive plans. The cost is expected to be recognized over a weighted-average period of 2.88 years.

Time-Based Vesting Restricted Shares and Restricted Share Units

A summary of restricted share awards and restricted shares unit awards activity for the twelve months ended December 31, 2023 is as follows:

 

 

 

Restricted Share Awards

 

 

Restricted Share Units

 

 

 

Shares

 

 

Weighted Average Grant-Date Fair Value

 

 

Shares

 

 

Weighted Average Grant-Date Fair Value

 

December 31, 2022

 

 

1,075

 

 

$

64.03

 

 

 

—

 

 

$

—

 

Granted

 

 

—

 

 

 

—

 

 

 

14,833

 

 

 

69.00

 

Vested

 

 

(774

)

 

 

62.99

 

 

 

—

 

 

 

—

 

Forfeited

 

 

—

 

 

 

—

 

 

 

(375

)

 

 

69.00

 

Outstanding at December 31, 2023

 

 

301

 

 

$

66.70

 

 

 

14,458

 

 

$

69.00

 

 

The restricted shares and restricted share units vest over various time periods. As of December 31, 2023, there was $18,000 of unrecognized compensation cost related to non-vested restricted share awards. The cost is expected to be expensed over a weighted-average period of 1.88 years. As of December 31, 2023, the fair value of restricted share awards vested totaled $55,000. As of December 31, 2023, there was $805,000 of unrecognized compensation cost related to non-vested restricted share units, all of which were granted to employees of the Bank in the second quarter of 2023. The cost is expected to be expensed over a weighted-average period of 4.38 years.

 

Performance-Based Vesting Restricted Stock Units ("PSUs")

The Company awards performance-based restricted stock units to officers and other employees of the Bank. Under the terms of the awards, the number of units that will be earned and thereafter settled in shares of common stock will be based on the employee's performance against certain performance metrics over a fixed three-year performance period. Compensation expense for PSUs is estimated each period based on the fair value of the Company's common stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the performance period of the awards.

 

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following tables detail the PSUs outstanding at December 31, 2023.

 

 

 

Performance Stock Units Outstanding

 

 

Weighted Average Grant Date Fair Value

 

Outstanding at December 31, 2022

 

 

—

 

 

$

—

 

Granted

 

 

1,107

 

 

 

67.85

 

Vested

 

 

—

 

 

 

—

 

Forfeited or expired

 

 

—

 

 

 

—

 

Outstanding at December 31, 2023

 

 

1,107

 

 

$

67.85

 

 

Grant Year

 

Grant Price

 

 

Applicable Performance Period

 

Period in which units to be settled

 

PSUs Outstanding

 

2023

 

$

67.85

 

 

2023-2025

 

2024-2026

 

 

1,107

 

As of December 31, 2023, there was $50,000 of total unrecognized cost related to non-vested performance based restricted share units. The cost is expected to be expensed over a weighted-average period of 2.09 years.

(20)
Earnings Per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share for the Company begins with the basic earnings per share plus the effect of common shares contingently issuable from stock options, restricted share units and performance share units.

The following is a summary of the components comprising basic and diluted earnings per share (“EPS”):

 

 

 

Years Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Basic EPS Computation:

 

 

 

 

 

 

 

 

 

Numerator – Earnings available to common shareholders

 

$

48,938

 

 

 

53,042

 

 

 

49,426

 

Denominator – Weighted average number of common shares outstanding

 

 

11,611,690

 

 

 

11,377,617

 

 

 

11,131,897

 

Basic earnings per common share

 

$

4.21

 

 

 

4.66

 

 

4.44

 

Diluted EPS Computation:

 

 

 

 

 

 

 

 

 

Numerator – Earnings available to common shareholders

 

$

48,938

 

 

 

53,042

 

 

 

49,426

 

Denominator – Weighted average number of common shares outstanding

 

 

11,611,690

 

 

 

11,377,617

 

 

 

11,131,897

 

Dilutive effect of stock options, RSUs and PSUs

 

 

29,676

 

 

 

31,307

 

 

 

31,059

 

 

 

11,641,366

 

 

 

11,408,924

 

 

 

11,162,956

 

Diluted earnings per common share

 

$

4.20

 

 

 

4.65

 

 

4.43

 

 

(21)
Derivatives

Derivatives Designated as Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to variable interest rates tied to the applicable reference rate. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.

During the second quarter of 2020, the Company entered into one swap transaction with a notional amount of $30,000,000 pursuant to which the Company paid the counter-party a fixed interest rate and received a floating rate, which until August 31, 2023 equaled

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

1 month LIBOR. On September 1, 2023, the Company began receiving a daily compounded SOFR rate plus a spread adjustment in lieu of 1 month LIBOR as part of the LIBOR transition event. The derivative transaction was designated as a fair value hedge.

During the fourth quarter of 2023 the Company voluntarily terminated the interest rate swap as the market indicated that rates had peaked, further rate increases were unlikely, and the Company’s balance sheet could support the market’s current demand for fixed rate loans without the interest rate swap. The termination of the fair value hedge resulted in an unrealized gain totaling $3,747,000 which is being reclassified to increase interest income over the original term of the swap contract.

A summary of the Company's fair value hedge relationships as of December 31, 2023 and December 31, 2022 are as follows (in thousands):

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet
Location

 

Weighted
Average
Remaining
Maturity
(In Years)

 

 

Weighted
Average
Pay Rate

 

 

Receive
Rate

 

 

Notional
Amount

 

 

Estimated
Fair Value

 

Interest rate swap agreements - loans

 

Other assets

 

 

—

 

 

 

—

%

 

 

—

 

 

$

—

 

 

 

—

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet
Location

 

Weighted
Average
Remaining
Maturity
(In Years)

 

 

Weighted
Average
Pay Rate

 

 

Receive
Rate

 

Notional
Amount

 

 

Estimated
Fair Value

 

Interest rate swap agreements - loans

 

Other assets

 

 

7.42

 

 

 

0.65

%

 

1 month LIBOR

 

$

30,000

 

 

 

4,520

 

 

The effects of fair value hedge relationships reported in interest income on loans on the consolidated statements of income for the twelve months ended December 31, 2023 and 2022 were as follows (in thousands):

 

 

 

Twelve Months Ended December 31,

 

Gain (loss) on fair value hedging relationship

 

2023

 

 

2022

 

 

2021

 

Interest rate swap agreements - loans:

 

 

 

 

 

 

 

 

 

Hedged items

 

$

—

 

 

 

(3,265

)

 

 

(1,125

)

Derivative designated as hedging instruments

 

 

—

 

 

 

3,328

 

 

 

1,243

 

 

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2023 and December 31, 2022 (in thousands):

 

 

 

Carrying Amount of the
Hedged Assets

 

 

Cumulative Amount of
Fair Value Hedging
Adjustment Included
in the Carrying Amount
of the Hedged Assets

 

Line item on the balance sheet

 

December 31, 2023

 

 

December 31, 2022

 

 

December 31, 2023

 

 

December 31, 2022

 

Loans

 

$

—

 

 

 

25,452

 

 

 

—

 

 

 

(4,548

)

 

The following table presents the net effects of derivative hedging instruments on the Company's consolidated statements of income for twelve months ended December 31, 2023 and 2022. The effects are presented as an increase to income before taxes in the relevant caption of the Company's consolidated statements of income.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

 

 

In Thousands

 

 

 

 

 

2023

 

 

2022

 

 

2021

 

Location in the Consolidated Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 Interest income

 

Interest and fees on loans

 

$

271

 

 

 

63

 

 

 

118

 

 Net increase (decrease) to income before taxes

 

 

 

$

271

 

 

 

63

 

 

 

118

 

 

Mortgage Banking Derivatives

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. At December 31, 2023 and December 31, 2022, the Company had approximately $2,265,000 and $6,923,000, respectively, of interest rate lock commitments and approximately $2,500,000 and $6,250,000, respectively, of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by derivative assets of $65,000 and $123,000 and a derivative liability of $13,000 and derivative asset of $62,000, respectively, at December 31, 2023 and December 31, 2022. Changes in the fair values of these mortgage-banking derivatives are included in net gains on sale of loans.

The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

Interest rate contracts for customers

 

$

(58

)

 

 

(535

)

Forward contracts related to mortgage loans held for sale and interest rate contracts

 

 

(75

)

 

 

56

 

 

The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of December 31, 2023 and December 31, 2022:

 

 

 

In Thousands

 

 

 

2023

 

 

2022

 

 

 

Notional Amount

 

 

Fair Value

 

 

Notional Amount

 

 

Fair Value

 

Included in other assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts for customers

 

$

2,265

 

 

 

65

 

 

 

6,923

 

 

 

123

 

Forward contracts related to mortgage loans held-for-sale

 

 

2,500

 

 

 

(13

)

 

 

6,250

 

 

 

62

 

 

(22)
Disclosures About Fair Value of Financial Instruments

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

Valuation Hierarchy

FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

•
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
•
Level 2 - inputs to the valuation methodology include all prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•
Level 3 - inputs to the valuation methodology that are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Asset

Securities available-for-sale - Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy. Quarterly, the Company will validate prices supplied by its third party vendor by comparison to prices obtained from third parties.

Hedged loans - The fair value of the Company's hedged loan portfolio is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.

Collateral dependent loans - Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the valuation hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition.

Other real estate owned - Other real estate owned (“OREO”) represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Upon acquisition, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest income. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.

Mortgage loans held for sale - Mortgage loans held for sale are carried at fair value, and are classified within Level 2 of the valuation hierarchy. The fair value of mortgage loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.

Derivative instruments - The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Other investments - Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

The following tables present the financial instruments carried at fair value as of December 31, 2023 and December 31, 2022, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):

 

 

 

Measured on a Recurring Basis

 

 

 

Total Carrying Value in the Consolidated Balance Sheet

 

 

Quoted Market Prices in an Active Market (Level 1)

 

 

Models with Significant Observable Market Parameters (Level 2)

 

 

Models with Significant Unobservable Market Parameters (Level 3)

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government agencies

 

$

4,429

 

 

 

4,429

 

 

 

—

 

 

 

—

 

U.S. Government sponsored enterprises

 

 

144,168

 

 

 

—

 

 

 

144,168

 

 

 

—

 

Mortgage-backed securities

 

 

417,030

 

 

 

—

 

 

 

417,030

 

 

 

—

 

Asset-backed securities

 

 

49,973

 

 

 

—

 

 

 

49,973

 

 

 

—

 

Corporate bonds

 

 

2,423

 

 

 

—

 

 

 

2,423

 

 

 

—

 

State and municipal securities

 

 

193,058

 

 

 

—

 

 

 

193,058

 

 

 

—

 

Total investment securities available-for-sale

 

 

811,081

 

 

 

4,429

 

 

 

806,652

 

 

 

—

 

Mortgage loans held for sale

 

 

2,294

 

 

 

—

 

 

 

2,294

 

 

 

—

 

Derivative instruments

 

 

52

 

 

 

—

 

 

 

52

 

 

 

—

 

Other investments

 

 

2,045

 

 

 

—

 

 

 

—

 

 

 

2,045

 

Total assets

 

$

815,472

 

 

 

4,429

 

 

 

808,998

 

 

 

2,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total liabilities

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

Measured on a Recurring Basis

 

 

 

Total Carrying Value in the Consolidated Balance Sheet

 

 

Quoted Market Prices in an Active Market (Level 1)

 

 

Models with Significant Observable Market Parameters (Level 2)

 

 

Models with Significant Unobservable Market Parameters (Level 3)

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Hedged Loans

 

$

25,452

 

 

 

—

 

 

 

25,452

 

 

 

—

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and other U.S. government agencies

 

 

6,497

 

 

 

6,497

 

 

 

—

 

 

 

—

 

U.S. Government sponsored enterprises

 

 

145,212

 

 

 

—

 

 

 

145,212

 

 

 

—

 

Mortgage-backed securities

 

 

444,438

 

 

 

—

 

 

 

444,438

 

 

 

—

 

Asset-backed securities

 

 

45,250

 

 

 

—

 

 

 

45,250

 

 

 

—

 

Corporate bonds

 

 

2,403

 

 

 

—

 

 

 

2,403

 

 

 

—

 

State and municipal securities

 

 

179,012

 

 

 

—

 

 

 

179,012

 

 

 

—

 

Total investment securities available-for-sale

 

 

822,812

 

 

 

6,497

 

 

 

816,315

 

 

 

—

 

Mortgage loans held for sale

 

 

3,355

 

 

 

—

 

 

 

3,355

 

 

 

—

 

Derivative instruments

 

 

4,705

 

 

 

—

 

 

 

4,705

 

 

 

—

 

Other investments

 

 

1,965

 

 

 

—

 

 

 

—

 

 

 

1,965

 

Total assets

 

$

858,289

 

 

 

6,497

 

 

 

849,827

 

 

 

1,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total liabilities

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

 

Measured on a Non-Recurring Basis

 

 

 

Total Carrying Value in the Consolidated Balance Sheet

 

 

Quoted Market Prices in an Active Market (Level 1)

 

 

Models with Significant Observable Market Parameters (Level 2)

 

 

Models with Significant Unobservable Market Parameters (Level 3)

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Collateral dependent loans (¹)

 

 

4,838

 

 

 

—

 

 

 

—

 

 

 

4,838

 

Total

 

$

4,838

 

 

 

—

 

 

 

—

 

 

 

4,838

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Collateral dependent loans (¹)

 

 

638

 

 

 

—

 

 

 

—

 

 

 

638

 

Total

 

$

638

 

 

 

—

 

 

 

—

 

 

 

638

 

 

(1)
As of December 31, 2023 and December 31, 2022 no reserve was recorded on collateral dependent loans.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value at December 31, 2023 and 2022:

 

 

 

Valuation Techniques (2)

 

Significant Unobservable Inputs

 

Range (Weighted Average)

Collateral dependent loans

 

Appraisal

 

Estimated costs to sell

 

10%

Other real estate owned

 

Appraisal

 

Estimated costs to sell

 

10%

 

(1)
The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

In the case of its investment securities portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the twelve months ended December 31, 2023, there were no transfers between Levels 1, 2 or 3.

The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2023 and 2022 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

 

 

For the Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

 

Other Assets

 

 

Other Assets

 

Fair value, January 1

 

$

1,965

 

 

$

2,034

 

Total realized gains (losses) included in income

 

 

80

 

 

 

(69

)

Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at December 31

 

 

—

 

 

 

—

 

Purchases, issuances and settlements, net

 

 

—

 

 

 

—

 

Transfers out of Level 3

 

 

—

 

 

 

—

 

Fair value, December 31

 

$

2,045

 

 

$

1,965

 

Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at December 31

 

$

80

 

 

$

(69

)

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2023 and December 31, 2022. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Cash and cash equivalents - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Loans - The fair value of the Company's loan portfolio includes a credit risk factor in the determination of the fair value of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company's loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, collateral dependent loans and all other loans. The results are then adjusted to account for credit risk.

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for collateral dependent loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.

Mortgage servicing rights - The fair value of servicing rights is based on the present value of estimated future cash flows of mortgages sold, stratified by rate and maturity date. Assumptions that are incorporated in the valuation of servicing rights include assumptions about prepayment speeds on mortgages and the cost to service loans.

Deposits and Federal Home Loan Bank advances - Fair values for deposits and Federal Home Loan Bank advances are estimated using discounted cash flow models, using current market interest rates offered on deposits with similar remaining maturities.

Off-balance sheet instruments - The fair values of the Company’s off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.

The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2023 and December 31, 2022. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(in Thousands)

 

Carrying/Notional
Amount

 

 

Estimated Fair
Value (¹)

 

 

Quoted Market Prices in an Active Market
(Level 1)

 

 

Models with Significant Observable Market Parameters
(Level 2)

 

 

Models with Significant Unobservable Market Parameters
(Level 3)

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

252,635

 

 

 

252,635

 

 

 

252,635

 

 

 

—

 

 

 

—

 

Loans, net

 

 

3,550,675

 

 

 

3,372,666

 

 

 

—

 

 

 

—

 

 

 

3,372,666

 

Mortgage servicing rights

 

 

1,083

 

 

 

1,398

 

 

 

—

 

 

 

1,398

 

 

 

—

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

4,367,106

 

 

 

3,885,724

 

 

 

—

 

 

 

—

 

 

 

3,885,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,789

 

 

 

104,789

 

 

 

104,789

 

 

 

—

 

 

 

—

 

Loans, net

 

 

3,088,344

 

 

 

2,992,161

 

 

 

—

 

 

 

—

 

 

 

2,992,161

 

Mortgage servicing rights

 

 

1,065

 

 

 

1,252

 

 

 

—

 

 

 

1,252

 

 

 

—

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,892,705

 

 

 

3,210,581

 

 

 

—

 

 

 

—

 

 

 

3,210,581

 

 

(1)
Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market- participant would realize in a hypothetical orderly transaction.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(23)
Wilson Bank Holding Company -

Parent Company Financial Information

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Balance Sheets

December 31, 2023 and 2022

 

 

 

Dollars In Thousands

 

 

 

 

 

2023

 

 

 

 

2022

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash

 

$

3,134

 

 

*

 

 

4,241

 

 

*

Investment in wholly-owned commercial bank subsidiary

 

 

427,872

 

 

*

 

 

357,596

 

 

*

Deferred income taxes

 

 

1,356

 

 

 

 

 

1,223

 

 

 

Refundable income taxes

 

 

485

 

 

 

 

 

538

 

 

 

Total assets

 

$

432,847

 

 

 

 

 

363,598

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

$

3,442

 

 

 

 

 

3,146

 

 

 

Total liabilities

 

 

3,442

 

 

 

 

 

3,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common stock, par value $2.00 per share, authorized 50,000,000 shares, 11,686,363 and 11,472,181 shares issued and outstanding, respectively

 

 

23,373

 

 

 

 

 

22,944

 

 

 

Additional paid-in capital

 

 

136,866

 

 

 

 

 

122,298

 

 

 

Retained earnings

 

 

357,260

 

 

 

 

 

325,625

 

 

 

Noncontrolling interest in consolidated subsidiary

 

 

69

 

 

 

 

 

15

 

 

 

Accumulated other comprehensive losses, net of taxes of $31,195 and $39,073, respectively

 

 

(88,163

)

 

 

 

 

(110,430

)

 

 

Total shareholders’ equity

 

 

429,405

 

 

 

 

 

360,452

 

 

 

Total liabilities and shareholders’ equity

 

$

432,847

 

 

 

 

 

363,598

 

 

 

 

* Eliminated in consolidation.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Earnings

Three Years Ended December 31, 2023

 

 

 

Dollars In Thousands

 

 

 

 

 

2023

 

 

 

 

2022

 

 

 

 

2021

 

 

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Wilson Bank (commercial bank subsidiary)

 

$

2,500

 

 

*

 

 

4,200

 

 

*

 

 

4,300

 

 

*

Other income

 

 

—

 

 

 

 

 

—

 

 

 

 

 

—

 

 

 

 

 

2,500

 

 

 

 

 

4,200

 

 

 

 

 

4,300

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors’ fees

 

 

387

 

 

 

 

 

355

 

 

 

 

 

341

 

 

 

Other

 

 

1,747

 

 

 

 

 

2,187

 

 

 

 

 

1,575

 

 

 

 

 

2,134

 

 

 

 

 

2,542

 

 

 

 

 

1,916

 

 

 

Income before Federal income tax benefits and equity in undistributed earnings of Wilson Bank

 

 

366

 

 

 

 

 

1,658

 

 

 

 

 

2,384

 

 

 

Federal income tax benefits

 

 

617

 

 

 

 

 

733

 

 

 

 

 

475

 

 

 

 

 

983

 

 

 

 

 

2,391

 

 

 

 

 

2,859

 

 

 

Equity in undistributed earnings of Wilson Bank

 

 

47,955

 

 

*

 

 

50,651

 

 

*

 

 

46,567

 

 

*

Net earnings

 

$

48,938

 

 

 

 

 

53,042

 

 

 

 

 

49,426

 

 

 

 

* Eliminated in consolidation.

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Cash Flows

Three Years Ended December 31, 2023

Increase (Decrease) in Cash and Cash Equivalents

 

 

 

Dollars In Thousands

 

 

 

2023

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

48,938

 

 

 

53,042

 

 

 

49,426

 

Adjustments to reconcile net earnings to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

Equity in earnings of commercial bank subsidiary

 

 

(50,455

)

 

 

(54,851

)

 

 

(50,867

)

Decrease (increase) in refundable income taxes

 

 

53

 

 

 

(176

)

 

 

(120

)

Increase in deferred taxes

 

 

(133

)

 

 

(195

)

 

 

(174

)

Share based compensation expense

 

 

1,528

 

 

 

1,866

 

 

 

1,428

 

Increase in other liabilities

 

 

19

 

 

 

14

 

 

 

113

 

Total adjustments

 

 

(48,988

)

 

 

(53,342

)

 

 

(49,620

)

Net cash used in operating activities

 

 

(50

)

 

 

(300

)

 

 

(194

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Dividends received from commercial bank subsidiary

 

 

2,500

 

 

 

4,200

 

 

 

4,300

 

Net cash provided by investing activities

 

 

2,500

 

 

 

4,200

 

 

 

4,300

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments made to stock appreciation rights holders

 

 

(277

)

 

 

(644

)

 

 

(515

)

Dividends paid

 

 

(17,303

)

 

 

(20,880

)

 

 

(14,909

)

Proceeds from sale of stock pursuant to dividend reinvestment plan

 

 

12,979

 

 

 

16,117

 

 

 

11,188

 

Proceeds from exercise of stock options

 

 

1,044

 

 

 

635

 

 

 

862

 

Net cash used in financing activities

 

 

(3,557

)

 

 

(4,772

)

 

 

(3,374

)

Net increase (decrease) in cash and cash equivalents

 

 

(1,107

)

 

 

(872

)

 

 

732

 

Cash and cash equivalents at beginning of year

 

 

4,241

 

 

 

5,113

 

 

 

4,381

 

Cash and cash equivalents at end of year

 

$

3,134

 

 

 

4,241

 

 

 

5,113

 

 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2023, 2022 and 2021

(24)
Quarterly Financial Data (Unaudited)

Selected quarterly results of operations for the four quarters ended December 31 are as follows:

 

 

 

(In Thousands, except per share data)

 

 

 

2023

 

 

2022

 

 

2021

 

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

 

Quarter

 

Interest income

 

$

61,809

 

 

 

57,857

 

 

 

53,987

 

 

 

48,930

 

 

$

44,920

 

 

 

42,024

 

 

 

37,097

 

 

 

33,499

 

 

$

33,810

 

 

 

33,719

 

 

 

31,570

 

 

 

30,742

 

Interest expense

 

 

26,548

 

 

 

23,697

 

 

 

19,934

 

 

 

13,500

 

 

 

7,855

 

 

 

3,894

 

 

 

2,240

 

 

 

2,144

 

 

 

2,507

 

 

 

2,840

 

 

 

3,031

 

 

 

3,258

 

Net interest income

 

 

35,261

 

 

 

34,160

 

 

 

34,053

 

 

 

35,430

 

 

 

37,065

 

 

 

38,130

 

 

 

34,857

 

 

 

31,355

 

 

 

31,303

 

 

 

30,879

 

 

 

28,539

 

 

 

27,484

 

Provision for credit losses - loans

 

 

619

 

 

 

1,641

 

 

 

2,078

 

 

 

1,962

 

 

 

2,596

 

 

 

2,543

 

 

 

1,625

 

 

 

1,892

 

 

 

131

 

 

 

130

 

 

 

55

 

 

 

827

 

Earnings before income taxes

 

 

14,220

 

 

 

14,745

 

 

 

16,039

 

 

 

17,927

 

 

 

15,342

 

 

 

19,706

 

 

 

18,484

 

 

 

14,544

 

 

 

17,512

 

 

 

17,405

 

 

 

14,449

 

 

 

14,792

 

Net earnings attributable to Wilson Bank Holding Company

 

 

11,222

 

 

 

11,486

 

 

 

12,389

 

 

 

13,841

 

 

 

12,340

 

 

 

15,190

 

 

 

14,139

 

 

 

11,373

 

 

 

13,801

 

 

 

13,342

 

 

 

11,139

 

 

 

11,144

 

Basic earnings per common share

 

 

0.96

 

 

0.99

 

 

 

1.07

 

 

 

1.20

 

 

1.08

 

 

1.33

 

 

 

1.25

 

 

1.01

 

 

1.23

 

 

1.19

 

 

 

1.00

 

 

1.01

 

Diluted earnings per common share

 

 

0.95

 

 

0.98

 

 

 

1.07

 

 

 

1.20

 

 

1.07

 

 

1.33

 

 

 

1.24

 

 

 

1.00

 

 

 

1.23

 

 

 

1.19

 

 

 

1.00

 

 

 

1.00

 

 

(25)
Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Company’s sources of non-interest income for the periods presented. Items outside the scope of ASC Topic 606 are noted as such.

 

 

 

Years ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Fees and gains on sales of mortgage loans(1)

 

$

2,635

 

 

$

2,973

 

 

$

9,997

 

Service charges on deposits

 

 

7,890

 

 

 

7,382

 

 

 

6,137

 

Debit and credit card interchange income, net

 

 

8,490

 

 

 

8,416

 

 

 

7,783

 

Brokerage income

 

 

7,184

 

 

 

6,929

 

 

 

6,368

 

BOLI and annuity earnings(1)

 

 

1,667

 

 

 

1,346

 

 

 

1,109

 

Security gain (loss), net(1)

 

 

(1,009

)

 

 

(1,620

)

 

 

28

 

Other non-interest income

 

 

1,432

 

 

 

1,855

 

 

 

1,428

 

Total non-interest income

 

$

28,289

 

 

$

27,281

 

 

$

32,850

 

 

(1)
Not within the scope of ASC Topic 606.

A description of the Company's revenue streams accounted for under ASC Topic 606 follows:

Service charges on deposit accounts - The Company earns fees on its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees are recognized at the time the transaction is executed and the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Account maintenance fees are recognized in the same month the Company earns and satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Debit and credit card interchange income, net - The Company earns interchange fees from debit and credit cardholder transactions conducted through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Certain expenses directly associated with the debit and credit cards are recorded on a net basis with the interchange income.

Brokerage income - The Company earns fees from investment brokerage services provided to its customers by a third-party service provider. The Company receives commissions from the third-party service provider on a bi-monthly basis based upon customer activity for the month. The fees are recognized monthly when the Company satisfies the performance obligation. Because the Company (1) acts as an agent in arranging the relationship between the customer and third-party service provider and (2) does not control the services rendered to the customer, investment brokerage fees are presented net of related servicing and administration costs.