28 0 15 30 5 15 1 5 0 0 0 0 256,300,000 0 0 34 0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 53,000,000 0 90 30 0 1 2 20.5 Eliminated in consolidation. 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. Amount is net of a valuation allowance of $1,136,000 at December 31, 2019 and $1,164,000 at December 31, 2018 as required by ASC 310, "Receivables." Estimated fair values are consistent with an exit-price concept. 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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, 2019, and also include, without limitation, (i) deterioration in the financial condition of borrowers of Wilson Bank resulting in significant increases in loan losses and provisions for those losses, (ii) renewed deterioration in the real estate market conditions in the Company’s market areas, (iii) the impact of increased competition with other financial institutions, including pricing pressures, and the resulting impact on the Company's results, including as a result of compression to net yield on earning assets, (iv) the deterioration of the economy in the Company’s market areas, (v) fluctuations or differences in interest rates on loans or deposits from those that the Company is modeling or anticipating, including as a result of Wilson Bank's inability to better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve, (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 Wilson Bank to maintain the historical growth rate of its loan portfolio, (ix) risks of expansion into new geographic or product markets, (x) the possibility of increased compliance and operational costs as a result of increased regulatory oversight,

(xi) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels, (xii) 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, including implementation of the Dodd Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), (xiii) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xiv) inadequate allowance for loan losses, (xv) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xvi) results of regulatory examinations, (xvii) the vulnerability of our network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches, (xviii) the possibility of additional increases to compliance costs as a result of increased regulatory oversight, (xix) loss of key personnel, and (xx) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future obligatory 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”), a Tennessee state-chartered bank headquartered in Lebanon, Tennessee. The Company was formed in 1992.

 

Wilson Bank is a community bank headquartered in Lebanon, Tennessee, serving Wilson County, DeKalb County, Smith County, Trousdale County, Rutherford County, Davidson County, Putnam County, Sumner County, and Williamson County, Tennessee as its primary market areas. Generally, this market is the Nashville-Davidson-Murfreesboro-Franklin, Tennessee metropolitan statistical area. At December 31, 2019, Wilson Bank had twenty-eight locations in Wilson, Davidson, DeKalb, Smith, Sumner, Rutherford, Putnam, Trousdale and Williamson Counties. 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, 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.

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Critical Accounting Estimates

 

The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses have been critical to the determination of our financial position and results of operations. Additional information regarding significant accounting policies is described in Note 1 to the Company's consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

 

Allowance for Loan Losses (“allowance”)-Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indicators and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. 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. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible.

 

A loan is impaired when, based on current information and events, it is probable that we will 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 will be collected as scheduled in the loan agreement.

 

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan is less than the recorded investment in the loan, the Company recognizes 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 follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.

 

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

 

In assessing the adequacy of the allowance, we also consider the results of our ongoing loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. We incorporate loan review results in the determination of whether or not it is probable that we will be able to collect all amounts due according to the contractual terms of a loan.

 

As part of management’s quarterly assessment of the allowance, management divides the loan portfolio into twelve segments based on bank call reporting requirements. Each segment is then analyzed such that an allocation of the allowance is estimated for each loan segment.

 

The allowance allocation begins with a process of estimating the loan losses in each of the twelve loan segments. The estimates for these loans are based on our historical loss data for that category over the last twenty quarters.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

The estimated loan loss allocation for all twelve loan portfolio segments is then adjusted for several “environmental” factors. The allocation for environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are 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 or procedures, changes in interest rate, and other influencing factors. These environmental factors are considered for each of the twelve loan segments, and the allowance allocation, as determined by the processes noted above for each component, is increased or decreased based on the incremental assessment of these various environmental factors.

 

We then test the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluates the result of the procedures performed, including the result of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety. The board of directors reviews and approves the assessment prior to the filing of quarterly and annual financial information.

 

Impairment of Goodwill - Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. Goodwill is assigned to reporting units and tested for impairment at least annually on December 31, or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. See Note 6 (Acquired Intangible Assets and Goodwill) to the Company's consolidated financial statements for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K.  Should the Company determine in a future period that the goodwill has become impaired, then a charge to earnings will be recorded in the period such determination is made.

 

Other-than-temporary Impairment-Impaired securities are assessed quarterly for the presence of other-than-temporary impairment (“OTTI”). A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for an anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized in that period as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not more-likely-than-not that the Company will be required to sell the security before the recovery of the security’s cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity.

 

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 21 to the Company's consolidated financial statements for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Results of Operations

 

Net earnings for the year ended December 31, 2019 were $36,044,000, an increase of $3,450,000, or 10.58%, compared to net earnings of $32,594,000 for the year ended December 31, 2018. Our 2018 net earnings were 38.54%, or $9,068,000, above our net earnings of $23,526,000 for 2017. Basic earnings per share were $3.36 in 2019, compared with $3.09 in 2018 and $2.26 in 2017. Diluted earnings per share were $3.35 in 2019, compared to $3.08 in 2018 and $2.26 in 2017. The increase in net earnings and diluted and basic earnings per share during the year ended December 31, 2019 as compared to the year ended December 31, 2018 was primarily due to an increase in net interest income, reflecting an increase in average interest earning asset balances and yields between the relevant periods, as well as an increase in non-interest income, partially offset by an increase in interest expense and non-interest expense. The increase in interest expense resulted from an increase in deposit rates along with an increase in balances, and the increase in non-interest expense resulted from the Company's continued growth. Income tax expense was also higher in 2019 when compared to 2018. Net income and diluted and basic earnings per share in 2017 were significantly and negatively impacted by the revaluation of the Company’s deferred tax assets triggered by the passage of the Tax Cuts and Jobs Act in late December 2017. Net yield on earning assets for the year ended December 31, 2019 was 3.81%, compared to 4.01% and 3.84% for the years ended December 31, 2018 and December 31, 2017, respectively. Net interest spread for the year ended December 31, 2019 was 3.60%, compared to 3.87% and 3.75% for the years ended December 31, 2018 and December 31, 2017, respectively. See below for further discussion regarding variances related to net interest income, provision for loan losses, non-interest income, non-interest expense and income taxes.

 

Net Interest Income

 

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 2019 was $118,077,000, up 14.06% when compared with $103,525,000 in 2018 and the year ended December 31, 2018 was up 13.74% when compared to $91,020,000 in 2017, in each case excluding tax exempt adjustments relating to tax exempt securities and loans. The increase in total interest income in 2019 when compared to 2018 was primarily attributable to an overall increase in average loan balances and the resulting increase in the aggregate amount of interest and fees earned on loans as well as an increase in average loan yields from 5.11% to 5.32% and an increase in yield on securities from 2.31% to 2.47%. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, decreased 75 basis points during 2019. During 2018, the prime rate increased 100 basis points. During 2017, the prime rate increased 75 basis points. Although prime rates decreased during 2019 and we faced competitive pressures in our markets, we were able to increase our yield on loans due to the delayed affects of the rising rate environment in 2017 and 2018, strategic loan pricing on certain loan segments, and an increase in loans qualified to received state income tax credit.  Fees earned on loans totaled $7,751,000, $7,400,000 and $6,773,000 for the years ended 2019, 2018 and 2017, respectively.  Late in 2019, the Company added several loans qualifying for state income tax credit, which is included in our loan yield calculation.  The total amount of credits included in our loan yields were $2,154,000, $1,997,000 and $503,000 for the years ended 2019, 2018 and 2017, respectively. The increase in yield on securities was due to management's ability to invest in higher yielding securities as the overall rates in the market increased in 2018.

 

The ratio of average earning assets to total average assets was 95.8%, 95.0% and 95.4% for each of the years ended December 31, 2019, 2018 and 2017, respectively. Average earning assets increased $277,823,000 from December 31, 2018 to December 31, 2019. The average rate earned on earning assets for 2019 was 4.69%, compared with 4.62% in 2018 and 4.25% in 2017.

 

Total interest expense for 2019 was $22,647,000, an increase of $8,629,000, or 61.56%, compared to total interest expense of $14,018,000 in 2018. Average interest-bearing deposits increased to $2,054,817,000 for 2019 compared to $1,867,037,000 for 2018. The average rate paid on interest-bearing deposits was 1.07% for 2019 compared to 0.75% for 2018. Total interest expense increased from $8,889,000 in 2017 to $14,018,000 in 2018, an increase of $5,129,000 or 57.70%. The increases in total interest expense in 2019 and 2018 resulted primarily from the higher rates on deposits from the rising rate environment of 2018 and the first half of 2019, and competitive pressures in our markets, as well as an overall increase in the volume of average interest-bearing deposits. We also incurred additional funding costs related to the utilization of Federal Home Loan Bank borrowings and brokered deposits beginning late in the first quarter of 2019 to increase our balance sheet liquidity. These borrowings are at a higher rate than our core deposits. Interest expense was also impacted by our inability to quickly reprice deposits with the start of the downward rate environment when it began in 2019.

 

 

Net interest income for 2019 totaled $95,430,000 as compared to $89,507,000 and $82,131,000 in 2018 and 2017, 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 3.60% in 2019 from 3.87% in 2018. The net interest spread was 3.75% in 2017. Net yield on earning assets decreased to 3.81% in 2019 from 4.01% in 2018. The net yield on earning assets was 3.84% in 2017. The change in net yield on earning assets resulted from an increase in the interest paid on our interest-bearing liabilities that was only partially offset by the increase in yields on loans and securities. Our net yield on earning assets and our net interest spread declined during 2019 as the impact of the declining rate environment more quickly impacted our earning assets than our interest-bearing liabilities, and competitive pressures in our markets limited our ability to reduce the rates we pay on our interest bearing liabilities. Declining loan balances also negatively impacted our net interest spread. Management is anticipating a steady growth in the loan portfolio in 2020 that should have a positive effect on our yield on earning assets and our net interest spread. 

 

The Company’s liabilities are positioned to re-price faster than its assets such that a short-term declining rate environment could have a positive impact on the Company’s earnings as its interest expense decreases faster than interest income. Conversely, a rising rate environment could have a short-term negative impact on margins, as deposits would likely re-price faster than assets. Management regularly monitors the deposit rates of the Company’s competitors and these rates continue to put pressure on the Company’s deposit pricing, just as loan pricing pressure from competition within our markets continues to negatively impact loan yields. This pressure could continue to negatively impact the Company’s net interest margin and earnings if short-term rates continue to rise or these competitive pressures limit the Company's ability to lower deposit rates in a declining rate environment. 

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Provision for Loan Losses

 

The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. The 2019 provision for loan losses was $2,040,000, a decrease of $2,258,000 from the provision of $4,298,000 in 2018, which was $2,617,000 higher than the provision in 2017. The decrease in the provision for the year ended December 31, 2019 is primarily attributable to a decrease in the volume of loans originated during the period and a decrease in the amount of net loans charged off. Loan growth totaled $43,568,000, $293,655,000 and $61,826,000 for the years ended 2019, 2018, and 2017, respectively. Management continues to fund the allowance for loan losses through provisions based on management’s calculation of the allowance for loan losses. The provision for loan losses is based on past loan experience and other factors which, in management’s judgment, deserve current recognition in estimating loan losses. Such factors include growth and composition of the loan portfolio, review of specific problem loans, past due and nonperforming loans, change in lending staff, the recommendations of the Company’s regulators, and current economic conditions that may affect the borrowers’ ability to repay.

 

Wilson Bank’s charge-off policy for impaired loans is similar to its 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 decreased to $488,000 in 2019 from $1,033,000 in 2018. Net charge-offs in 2017 totaled $503,000. The ratio of net charge-offs to average total outstanding loans was 0.02% in 2019, 0.05% in 2018 and 0.03% in 2017. The decrease in net charge-offs in 2019 is due to two large recoveries received during the year. 

 

The decrease in charge-offs in 2019 resulted in an increase of the allowance for loan losses (net of charge-offs and recoveries) to $28,726,000 at December 31, 2019 from $27,174,000 at December 31, 2018 and $23,909,000 at December 31, 2017. The allowance for loan losses increased 5.71% between December 31, 2018 and December 31, 2019 as compared to the 2.09% increase in total loans over the same period. The allowance for loan losses was 1.38% of total loans outstanding at December 31, 2019 compared to 1.33% at December 31, 2018 and 1.37% at December 31, 2017. As a percentage of nonperforming loans at December 31, 2019, 2018 and 2017, the allowance for loan losses represented 359%, 473% and 337%, respectively. The internally classified loans as a percentage of the allowance for loan losses were 37.1% and 44.3%, respectively, at December 31, 2019 and 2018.

 

The level of the allowance and the amount of the provision involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly by the Chief Financial Officer and Chief Credit Officer and is provided to the Board of Directors to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analysis of historical performance, the level of non-performing and adversely rated loans, specific analysis of certain problem loans, loan activity since the previous assessment, reports prepared by the Company's independent Loan Review Department, consideration of current economic conditions and other pertinent information. The level of the allowance to net loans outstanding will vary depending on the overall results of this quarterly assessment. See the discussion above under “Critical Accounting Estimates” for more information. Management believes the allowance for loan losses at December 31, 2019 to be adequate, but if economic conditions deteriorate beyond management’s current expectations and additional charge-offs are incurred, the allowance for loan losses may require an increase through additional provision for loan losses expense which would negatively impact earnings.

 

 

Non-Interest Income

 

The components of the Company’s non-interest income include service charges on deposit accounts, other fees and commissions, fees and gains on sales of loans, gains(losses) on sales of securities, income on bank-owned life insurance(BOLI) and annuity contracts, gain on the sale of other real estate and other income. Total non-interest income for 2019 was $28,349,000, compared with $25,248,000 in 2018 and $22,821,000 in 2017. The 12.28% increase from 2018 to 2019 was primarily due to an increase in other fees and commissions, an increase in service charges on deposits, a decrease in the loss on the sale of securities, and an increase on the gain on sale of loans offset in part by an increase in the loss on the sale of fixed assets and a decrease in income on BOLI and annuity contracts. Other fees and commissions increased $529,000, or 3.86%, to $14,233,000 in 2019 when compared to 2018. Other fees and commissions include income on brokerage accounts, debit and credit card interchange fee income, and various other fees. The increase in other fees and commissions is primarily due to an increase in brokerage income, debit card interchange fee income, and credit card interchange fee income of 2019 when compared to the comparable periods in 2018. Debit card and credit card interchange fee income increased due to an increase in the number and volume of debit card  and credit card holders and transactions. The service charges on deposit accounts increased $153,000, or 2.25%, to $6,952,000 for the year ended December 31, 2019 compared to the year ended December 31, 2018 due to an increase in the number of consumer checking accounts and the number of transactions, and an increase in the per item service charge fee on insufficient funds. The fees and gains on sales of mortgage loans increased $2,163,000, or 46.63%, to $6,802,000 for the year ended December 31, 2019 compared to the year ended December 31, 2018. Overall, volume from the sale of loans increased $25,707,000 from December 31, 2018 to December 31, 2019 primarily resulting from a new capital markets execution process which consisted of transitioning to the mandatory delivery process from the best efforts delivery process and an increase in the volume of loan originations. The mandatory delivery process was implemented by the mortgage department in November 2018. The gain on sale of mortgage loans also benefited from expanding our loan sale investor count and a new pricing strategy we implemented in 2019. Loss on sale of securities decreased $382,000, or 58.77%, to $268,000 in 2019 when compared to  $650,000 in 2018 due to management actively monitoring the liquidity needs of the Company and trading securities to manage liquidity needs and to optimize yield on earning assets

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Non-Interest Expenses

 

Non-interest expenses consist primarily of employee costs, FDIC premiums, occupancy expenses, furniture and equipment expenses, data processing expenses, directors’ fees, and other operating expenses. Total non-interest expenses for 2019 increased 8.03% to $74,628,000 from $69,080,000 in 2018. Non-interest expenses for 2018 were up 14.39% over non-interest expenses in 2017 which totaled $60,391,000. The increase in non-interest expenses in 2019 is primarily attributable to a year-over-year increase in salaries and employee benefits of $2,951,000, other operating expenses of $452,000, occupancy expenses of $386,000, furniture and equipment expenses of $343,000, accounting, legal and consulting fees of $405,000, data processing expenses of $1,595,000 and ATM and interchange fees of $348,000, partially offset by a decrease in equity-based compensation expense of $451,000 and a decrease in FDIC insurance of $470,000. Salaries and employee benefits were up in 2019 when compared to 2018 because the number of employees continued to increase in order to support the Company's growth in operations and new branch expansions. The decrease in equity-based compensation expense is due to the increased expense associated with stock appreciation rights in 2018 as three members of the Board of Directors retired and became fully vested and the Company recognized the expense accordingly.

 

The increase in other operating expenses is due to increased account servicing costs associated with an increase in consumer checking accounts, brokerage accounts and loans made to customers. The increase in salaries and employee benefits is primarily attributable to an increase in the number of employees necessary to support the Company’s growth in operations and branch expansion. The increase in furniture and equipment expenses is primarily attributable to an increase in depreciation related to the opening of the operations building in Lebanon, Tennessee, Cool Springs office in Williamson County and West End office in Davidson County and an increase in the cost of maintenance and repairs. The increase in occupancy expense is similarly attributable to the opening of the operations center in the second quarter of 2018, and the lease expense associated with the opening of the new branch in Davidson County in the third quarter of 2018 and the new branch in Williamson County in the fourth quarter of 2018. The increase in data processing expenses is primarily attributable to an increase in computer maintenance and computer licenses due to the upgrade of our current systems as well as additional investments in computer software due to branch expansion, an increase in I.T. consulting expense, and an increase in computer home banking expense that resulted from the evolution of our new mobile application. This expense is now incurred on a per user basis as opposed to an overall fee. The increase in ATM and interchange fees is primarily attributable to the addition of ATMs as branch expansion has occurred and increasing interchange fees associated with a higher volume of debit card transactions. The Company's efficiency ratios, which measure a bank's overhead as a percentage of its revenue, were 60.29%, 60.20% and 57.54% for the years ended 2019,2018, and 2017, respectively. The Company anticipates that salaries and employee benefits expense and occupancy expense will continue to increase as the Company's operations grow.

 

Income Taxes

 

The Company’s income tax expense was $11,067,000 for 2019, an increase of $2,284,000 from $8,783,000 for 2018, which was down by $10,571,000 from the 2017 total of $19,354,000. The percentage of income tax expense to earnings before taxes was 23.5% in 2019, 21.2% in 2018 and 45.1% in 2017. The increase in income tax expense in 2019 from 2018 was due to the increase in earnings before income taxes and the decrease in 2018 from 2017 was due to the reduction in statutory corporate tax rates as a result of the Tax Cuts and Jobs Act (the "Act"), a tax reform bill passed in December 2017 which, among other items, reduced the then current corporate federal tax rate to 21% from 35%. Our effective tax rate represents our blended federal and state rate of 26.135% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as bank-owned life insurance, income earned on tax-exempt securities and certain federal and state tax credits. The rate reduction under the Act was effective January 1, 2018. The Company concluded that the Act caused the Company's deferred tax assets to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. During the fourth quarter of 2017, we reduced the value of our deferred tax assets by $3.6 million and recorded an additional income tax expense, thus causing the decrease in income tax expense from 2017 to 2018.

 

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 Act.

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

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.

 

The following is a summary of components comprising basic and diluted earnings per share (“EPS”) for the years ended December 31, 2019, 2018 and 2017: 

 

   

Years Ended December 31,

  
   

2019

    

2018

    

2017

  
   

(Dollars in Thousands except per share amounts)

  

Basic EPS Computation:

                        

Numerator – Earnings available to common stockholders

   $ 36,044       32,594       23,526  

Denominator – Weighted average number of common shares outstanding

     10,743,269       10,564,172       10,407,211  

Basic earnings per common share

   $ 3.36       3.09       2.26  

Diluted EPS Computation:

                        

Numerator – Earnings available to common stockholders

   $ 36,044       32,594       23,526  

Denominator – Weighted average number of common shares outstanding

     10,743,269       10,564,172       10,407,211  

Dilutive effect of stock options

     18,198       8,049       5,325  
      10,761,467       10,572,221       10,412,536  

Diluted earnings per common share

   $ 3.35       3.08       2.26  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Financial Condition

 

Balance Sheet Summary

 

The Company’s total assets increased in 2019 by $250,527,000 or 9.85%, to $2,794,209,000 at December 31, 2019, after increasing 9.78% in 2018 to $2,543,682,000 at December 31, 2018. Loans, net of allowance for loan losses, totaled $2,057,175,000 at December 31, 2019, a 2.04% increase compared to December 31, 2018. In the first half of 2019 management made a strategic decision to begin focusing loan growth in the commercial and industrial and residential 1-4 family segments of our loan portfolio, which have historically grown at slower rates than the other segments of the portfolio. As a result, loan growth slowed in 2019. Loan growth was also affected by the payoff of several large loan relationships in 2019. We operate in a market area that is experiencing economic growth, which caused our commercial real estate, residential 1-4 family, and commercial and industrial portfolio to increase as of December 31, 2019, when compared to December 31, 2018. At year end 2019, securities totaled $421,145,000, an increase of 47.64% from $285,252,000 at December 31, 2018, primarily as a result of slowing loan growth and management's decision to invest liquid funds in higher yielding assets through the purchase of securities.

 

Total liabilities increased by $209,210,000, or 9.31%, to $2,457,225,000 at December 31, 2019 compared to $2,248,015,000 at December 31, 2018. This increase was composed primarily of the $181,950,000 increase in total deposits to $2,417,605,000, an 8.14% increase from December 31, 2018. Federal home loan bank advances increased to $23,613,000 during 2019 due to management's decision in the first quarter of 2019 to borrow funds from the FHLB to purchase pledgeable securities as part of our strategy to improve our balance sheet liquidity and as a result of slowing loan growth.

 

Stockholders’ equity increased $41,317,000, or 13.97%, in 2019, due to net earnings, the issuance of stock pursuant to the Company’s Dividend Reinvestment Plan, an increase in the fair value of available-for-sale securities, and the exercise of stock options, partially offset by the repurchase of common stock and dividends paid on the Company’s common stock. The change in stockholders’ equity includes a $8,398,000 increase in net unrealized gains on available-for-sale securities, net of taxes during the period. A more detailed discussion of assets, liabilities and capital follows.

 

Loans

 

Loan category amounts and the percentage of loans in each category to total loans are as follows: 

 

   

December 31, 2019

    

December 31, 2018

  
   

(Dollar Amounts in Thousands)

    

(Dollar Amounts in Thousands)

  
   

AMOUNT

    

PERCENTAGE

    

AMOUNT

    

PERCENTAGE

  

Commercial, financial and agricultural

   $ 108,883       5.2 %   $ 89,554       4.3 %

Installment and other

     54,834       2.6       48,759       2.4  

Real estate – mortgage

     1,504,140       71.9       1,393,641       68.0  

Real estate – construction

    

425,185

       20.3       518,245       25.3  

Total

   $ 2,093,042       100.0 %   $ 2,050,199       100.0 %

 

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 loan losses, increased 2.04% at year end 2019 when compared to year end 2018. The loan portfolio is composed of four primary loan categories: commercial, financial and agricultural; installment and other; real estate-mortgage; and real estate-construction. The table above sets forth the loan categories and the percentage of such loans in the portfolio as of December 31, 2019 and 2018.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

As represented in the table, Wilson Bank experienced loan growth for the year ended December 31, 2019 in three loan categories. Real estate mortgage loans increased 7.93% in 2019 and comprised 71.9% of the total loan portfolio at December 31, 2019, compared to 68.0% at December 31, 2018. Management believes the increase in real estate mortgage loans was primarily due to the continued favorable population growth in the Company's market areas and the Company's ability to increase its market share of such loans while maintaining its loan underwriting standards. Installment loans increased 12.46% in 2019 and comprised 2.6% of the total loan portfolio at December 31, 2019, compared to 2.4% at December 31, 2018. Commercial, financial, and agricultural loans increased 21.58% in 2019 and comprised 5.2% of the total loan portfolio at December 31, 2019, compared to 4.3% at December 31, 2018. The increase in commercial and industrial loans is a result of an increase in demand for such loans in the overall economy and the Company's markets. Real estate construction loans decreased 17.96% in 2019 and comprised 20.3% of the portfolio at December 31, 2019, compared to 25.3% at December 31, 2018. The decrease in real estate construction loans and the increase in installment loans, commercial and industrial and 1-4 family residential mortgage loans during 2019 reflected a strategic decision made by management to begin focusing on these specific types of loans to increase diversification of the overall loan portfolio.  Because the construction portfolio remains a meaningful portion of our portfolio, Wilson 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 are now monitored and administered by a credit administration department independent of the lending function. Wilson 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, 2019, the Company had no highly leveraged transactions, and there were no foreign loans outstanding during any of the reporting periods. As of December 31, 2019, the Company had not underwritten any loans in connection with capital leases.

 

The following tables present the Company’s nonaccrual loans and past due loans as of December 31, 2019 and December 31, 2018.

 

Loans on Nonaccrual Status

  

In Thousands

  
   

2019

    

2018

  

Residential 1-4 family

   $ 949     $ 948  

Multifamily

     —       —  

Commercial real estate

     1,661       1,102  

Construction

     —       —  

Farmland

     —       —  

Second mortgages

     —       —  

Equity lines of credit

     —       —  

Commercial

     —       —  

Agricultural, installment and other

     —       —  

Total

   $ 2,610     $ 2,050  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

       
   

30-59 Days Past Due

    

60-89 Days Past Due

    

Non-accrual and Greater Than 90 Days Past Due

    

Past Due

    

Current

    

Loans

    

Loans Greater Than 90

Days Past Due and

Accruing Interest

  

December 31, 2019

                                                        

Residential 1-4 family

   $ 4,760       799       2,336       7,895       503,355       511,250     $ 1,387  

Multifamily

     —       —       —       —       97,104       97,104       —  

Commercial real estate

     500       —       1,661       2,161       791,218       793,379       —  

Construction

     1,535       147       594       2,276       422,909       425,185       594  

Farmland

     57       —       8       65       19,203       19,268       8  

Second mortgages

     —       —       100       100       10,660       10,760       100  

Equity lines of credit

     143       —       372       515       71,864       72,379       372  

Commercial

     71       30       —       101       98,164       98,265       —  

Agricultural, installment and other

     517       116       46       679       64,773       65,452       46  

Total

   $ 7,583       1,092       5,117       13,792       2,079,250       2,093,042     $ 2,507  

December 31, 2018

                                                        

Residential 1-4 family

   $ 3,258       1,092       1,868       6,218       454,474       460,692     $ 920  

Multifamily

     —       —       —       —       134,613       134,613       —  

Commercial real estate

     312       109       1,174       1,595       699,460       701,055       72  

Construction

     1,567       26       32       1,625       516,620       518,245       32  

Farmland

     43       9       21       73       23,998       24,071       21  

Second mortgages

     333       —       —       333       10,864       11,197       —  

Equity lines of credit

     297       —       45       342       61,671       62,013       45  

Commercial

     93       —       24       117       78,128       78,245       24  

Agricultural, installment and other

     407       85       95       587       59,481       60,068       95  

Total

   $ 6,310       1,321       3,259       10,890       2,039,309       2,050,199     $ 1,209  

 

Non-performing loans, which include nonaccrual loans and loans 90 days past due, totaled $5,117,000 at December 31, 2019, an increase from $3,259,000 at December 31, 2018, resulting from a $560,000, or 27.32%, increase in nonaccrual loans and a $1,298,000, or 107.36%, increase in 90 day past due and accruing loans. The increase in non-performing loans during the year ended December 31, 2019 of $1,858,000 was due primarily to an increase in non-performing residential 1-4 family real estate loans of $468,000, an increase in non-performing construction loans of $562,00, an increase in non-performing equity lines of credit of $327,000 and an increase in  non-performing commercial real estate loans of  $487,000. The increase in non-performing loans resulted primarily from the addition of two large commercial real estate secured loans on nonaccrual status and three large real estate secured loans that were greater than 90 days past due. Nonaccrual loans are loans on which interest is no longer accrued because management believes collection of such interest is doubtful due to management’s evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors affecting the borrower’s ability to pay. Management believes that it is probable that it will incur losses on nonperforming loans but believes that these losses should not exceed the amount in the allowance for loan losses already allocated to these loans, unless there is a deterioration of local real estate values.

 

At December 31, 2019, the Company had three impaired loans totaling $2,610,000 which were on non-accruing interest status. At December 31, 2018, the Company had two impaired loans totaling $2,050,000 which were on non-accruing interest status. In each case, at the date such loans were placed on nonaccrual status, the Company reversed all previously accrued interest income against current year earnings.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

The following table presents the Company’s impaired loans (including loans on nonaccrual status and loans past due 90 days or more) at December 31, 2019 and December 31, 2018.

 

   

In Thousands

  
                           

 

          
   

Recorded

    

Unpaid Principal

    

Related

    

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Allowance

    

Investment

    

Recognized

  

December 31, 2019

                                        

With no related allowance recorded:

                                        

Residential 1-4 family

   $ 1,090       1,464       —       1,090       99  

Multifamily

     —       —       —       —       —  
Commercial real estate     951       1,124       —       910       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 2,041       2,588       —       2,000       116  

With allowance recorded:

                                        

Residential 1-4 family

   $ 1,489       1,480       795       1,590       83  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,522       1,520       341       2,015       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 3,011       3,000       1,136       3,605       100  

Total

                                        

Residential 1-4 family

   $ 2,579       2,944       795       2,680       182  

Multifamily

     —       —       —       —       —  

Commercial real estate

     2,473       2,644       341       2,925       34  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 5,052       5,588       1,136       5,605       216  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

   

In Thousands

  
                           

 

          
   

Recorded

    

Unpaid Principal

    

Related

    

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Allowance

    

Investment

    

Recognized

  

December 31, 2018

                                        

With no related allowance recorded:

                                        

Residential 1-4 family

   $ 1,196       1,795       —       1,862       42  

Multifamily

     —       —       —       —       —  

Commercial real estate

     317       316       —       320       16  

Construction

     690       686       —       822       42  

Farmland

     —       —       —       233       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 2,203       2,797       —       3,237       100  

With allowance recorded:

                                        

Residential 1-4 family

   $ 1,641       1,635       852       1,782       77  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,515       1,515       312       2,001       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 3,156       3,150       1,164       3,783       94  

Total

                                        

Residential 1-4 family

   $ 2,837       3,430       852       3,644       119  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,832       1,831       312       2,321       33  

Construction

     690       686       —       822       42  

Farmland

     —       —       —       233       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 5,359       5,947       1,164       7,020       194  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

A loan is considered impaired, in accordance with the impairment accounting guidance of FASB ASC 310, 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. In those cases, such loans 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. Impaired loans are measured at the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the fair value of the impaired loan 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 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. The decrease in impaired loans during the year ended December 31, 2019 as compared to the year ended December 31, 2018 was the result of the pay-off or pay-down of three loan relationships, partially offset by three additional loan relationships becoming impaired in 2019. Overall, the Company’s market areas have seen continued strengthening in the residential real estate market in recent years while the commercial real estate market has remained steady. The allowance for loan losses related to collateral dependent impaired loans was measured based upon the estimated fair value of related collateral.

 

The Company considers all loans subject to the provisions of FASB ASC 310 that are on nonaccrual status to be impaired. Loans are placed on nonaccrual status when doubt as to timely collection of principal or interest exists, or when principal or interest is past due 90 days or more unless such loans are well-secured and in the process of collection. Delays or shortfalls in loan payments are evaluated with various other factors to determine if a loan is impaired. Generally, delinquencies under 90 days are considered insignificant unless certain other factors are present which indicate impairment is probable. The decision to place a loan on nonaccrual status is also based on an evaluation of the borrower’s financial condition, collateral liquidation value, and other factors that affect the borrower’s ability to pay.

 

The Company also internally classifies loans which, although current, management questions the borrower’s ability to comply with the present repayment terms of the loan agreement. These internally classified loans totaled $10,651,000, inclusive of the Company’s non-performing loans, at December 31, 2019, as compared to $12,039,000 at December 31, 2018. Of the internally classified loans at December 31, 2019, $10,432,000 are real estate secured loans (including loans to home builders and developers of land, commercial real estate loans, as well as multifamily mortgage loans) and $219,000 are various other types of loans. These loans have been graded accordingly considering bankruptcies, inadequate cash flows and delinquencies. Overall, in 2019 Wilson Bank experienced a stabilization in internally graded loans as the cash flows from home builders, land developers and commercial real estate borrowers continue to improve. Management does not anticipate losses on these loans to exceed the amount already allocated to loan losses for these loans, unless there is a deterioration of local real estate values.

 

The internally classified loans as a percentage of the allowance for loan losses were 37.1% and 44.3%, respectively, at December 31, 2019 and 2018.

 

The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic, or other, concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. The concessions typically result from the Company’s loss mitigation activities and could include reduction in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs as of December 31, 2019 increased $651,000 to $1,467,000 at December 31, 2019 when compared to December 31, 2018 due to the addition of one large TDR loan relationships that was non-performing at December 31, 2019. Total TDRs increased $2,055,000 to $4,547,000 from December 31, 2018 to December 31, 2019 due the addition of three large loan relationships that were classified as TDRs in 2019.

 

The allowance for loan losses is discussed under “Critical Accounting Estimates” and “Provision for Loan Losses.” The Company maintains its allowance for loan losses at an amount believed by management to be adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2019.

 

Substantially all of the Company’s loans are from Wilson, DeKalb, Smith, Putnam, Trousdale, Davidson, Rutherford, 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 1-4 family residential real estate, commercial real estate, multifamily, construction, second mortgages, farmland, and equity lines of credit. At December 31, 2019, no single industry segment accounted for more than 10% of the Company’s portfolio other than construction, commercial real estate, and residential 1-4 family real estate loans.

 

The Company’s management believes there is an opportunity to increase the loan portfolio in 2020 as economic conditions in the Company's primary market areas continue to outperform other markets. The Company will target owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of emphasis in 2020. At December 31, 2019, the Company’s total loans equaled 86.3% of its total deposits. As a practice, the Company generates its own loans and does not buy participations from other institutions. 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

 

 

Securities

 

Securities increased 47.64% to $421,145,000 at December 31, 2019 from $285,252,000 at December 31, 2018, and comprised the second largest and other primary component of the Company’s earning assets. Securities increased as the result of slowing loan growth and management’s decision to invest liquid funds into higher yielding assets through the purchase of securities. During the year ended December 31, 2018, the Company sold securities classified as held-to-maturity with a book value of $4,843,000 for a loss of $79,000. Due to the sale, management determined the Company no longer had the intent to hold the remaining securities classified as held-to-maturity to their respective maturity dates and transferred the remaining book value of $22,800,000 to the available-for-sale classification. The average yield, excluding tax equivalent adjustment, of the securities portfolio at December 31, 2019 was 2.42% with a weighted average life of 7.08 years, as compared to an average yield of 2.45% and a weighted average life of 6.50 years at December 31, 2018. 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 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.

 

No securities have been classified as trading securities or held-to-maturity at December 31, 2019.

 

The Company’s classification of securities as of December 31, 2019 and December 31, 2018 is as follows: 

 

   

December 31, 2019

  

(In Thousands)

  

Available-For-Sale

  
   

Amortized Cost

    

Estimated Market Value

  

U.S. Government-sponsored enterprises (GSEs)

   $ 59,735     $ 59,579  

Mortgage-backed securities

     265,648       267,313  

Asset-backed securities

     27,531       27,229  

Obligations of state and political subdivisions

     67,293       67,024  
    $ 420,207     $ 421,145  

 

 

   

December 31, 2018

  

(In Thousands)

  

Available-For-Sale

  
           

Estimated

  
   

Amortized Cost

    

Market Value

  

U.S. Government-sponsored enterprises (GSEs)

   $ 71,446     $ 68,467  

Mortgage-backed securities

     152,375       147,510  

Asset-backed securities

     22,534       21,700  

Obligations of state and political subdivisions

     49,328       47,575  
    $ 295,683     $ 285,252  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

The classification of a portion of the securities portfolio as available-for-sale was made to provide for more flexibility in asset/liability management and capital management.

 

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2019:

 

 

   

In Thousands, Except Number of Securities

                  
   

Less than 12 Months

    

12 Months or More

    

Total

  
           

 

    

 

            

 

    

 

            

 

  
   

Fair Value

    

Unrealized Losses

    

Number of Securities

    

Fair Value

    

Unrealized Losses

    

Number of Securities

    

Fair Value

    

Unrealized Losses

  

Available-for-Sale Securities:

                                                                

GSEs

   $ 16,507     $ 114       5     $ 24,658     $ 90       9     $ 41,165     $ 204  

Mortgage-backed securities

     45,862       182       21       56,917       453       52       102,779       635  

Asset-backed securities

     17,807       161       10       7,317       142       4       25,124       303  

Obligations of states and political subdivisions

     30,423       783       26       3,858       45       10       34,281       828  
    $ 110,599     $ 1,240       62     $ 92,750     $ 730       75     $ 203,349     $ 1,970  

 

The impaired securities are considered high quality investments in line with normal industry investing practices. The unrealized losses are primarily the result of changes in the interest rate and sector environments. Impaired securities are assessed quarterly for the presence of other-than-temporary impairment (“OTTI”). A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for an anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized in that period as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not more-likely-than-not that it will be required to sell the security before the recovery of the security’s cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity. Accordingly, as of December 31, 2019, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in our consolidated income statement.

 

Deposits

 

The increases in assets in 2019 and 2018 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 $2,417,605,000 at December 31, 2019 compared to $2,235,655,000 at December 31, 2018, an increase of 8.1%. 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 Wilson County, Davidson County, DeKalb County, Putnam County, Smith County, Sumner County, Rutherford County, Trousdale County and Williamson County areas 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 counties 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 market share can be maintained or expanded.

 

The $181,950,000, or 8.14%, growth in deposits in 2019 was due to a $19,925,000, or 3.71%, increase in certificates of deposits, a $74,332,000, or 10.22%, increase in money market accounts, a $30,454,000, or 11.98%, increase in demand deposit accounts, a $55,310,000, or 10.99%, increase in NOW accounts, and a $3,625,000, or 2.65%, increase in savings accounts, offset by a decrease in individual retirement accounts of $1,696,000, or 2.22%. The average rate paid on average total interest-bearing deposits was 1.07% for 2019 compared to 0.75% for 2018. The average rate paid in 2017 was 0.50%. Competitive pressure from other banks in our market area relating to deposit pricing continues to adversely affect the rates paid on deposit accounts as it limits our ability to lower deposit rates as short-term interest rates fall. It’s these same competitive pressures that may cause our deposit rates to rise more quickly than we are able to increase the rates we earn on loans in a rising rate environment. If this were to happen our net yield on earning assets would experience compression and our results of operations would be negatively impacted, as was the case in 2019, during which the impact of the declining rate environment more quickly impacted our earning assets than our interest-bearing liabilities, which consequently compressed our net yield on earning assets. The ratio of average loans to average deposits was 87.4% in 2019, 89.7% in 2018, and 86.5% in 2017. To increase our levels of on-balance sheet liquidity in 2019, we borrowed money from the Federal Home Loan Bank. These borrowings typically have interest rates that are higher than the rates we pay on deposits and, accordingly, result in increases to our funding costs.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

Contractual Obligations

 

The Company’s contractual obligations at December 31, 2019 are as follows:

 

(In Thousands)

  

Less than 1Year

    

1 –3 Years

    

3-5 Years

    

More than 5 Years

    

Total

  

Long-Term Debt

   $ 8,250     $ 10,486     $ 4,877     $ -     $ 23,613  

Operating Leases

     444       602       116       9       1,171  
Deposits with Stated Maturity Dates     326,212       232,946       72,585       250       631,993  

Purchases

     —       —       —       —       —  

Other Long-Term Liabilities

     —       —       —       —       —  

Total

   $ 334,906     $ 244,034     $ 77,578     $ 259     $ 656,777  

 

Long-term debt contractual obligations include advances from the Federal Home Loan Bank, and at December 31, 2019, the Company had $ 23,613,000 in advances. The Company leases land for certain branch facilities and automatic teller machine locations. Future minimum rental payments required under the terms of these non-cancellable leases are included in operating lease obligations.

 

Off Balance Sheet Arrangements

 

At December 31, 2019, the Company had unfunded lines of credit of $633 million and outstanding standby letters of credit of $73 million. 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 Company’s bank subsidiary has the ability to liquidate Federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase Federal funds from other financial institutions. Additionally, the Company’s bank subsidiary could sell participations in these or other loans to correspondent banks. As mentioned below, Wilson Bank has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, 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 quarterly 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.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Liquidity and Asset Management

 

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 the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers and fund attractive investment opportunities. Higher levels of liquidity bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher interest expense involved in extending liability maturities. Liquid assets include cash and cash equivalents, interest bearing deposits held at other banks, fed funds sold, and unpledged investments. At December 31, 2019, the Company’s liquid assets totaled approximately $324.5 million.

 

The Company maintains a formal asset and liability management process to quantify, monitor and control interest rate risk, and to assist management in maintaining 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.

 

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 can not 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.

 

The Company’s primary source of liquidity is a stable core deposit base. In addition, short-term borrowings, loan payments and investment security maturities provide a secondary source. At December 31, 2019, the Company had a liability sensitive position (a negative gap). Liability sensitivity means that more of the Company’s liabilities are capable of re-pricing over certain time frames than its assets. The interest rates associated with these liabilities may not actually change over this period but are capable of changing.

 

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 meets quarterly to analyze its rate sensitivity position. These meetings focus on the spread between the Company’s cost of funds and interest yields generated primarily through loans and investments.

 

The Company’s securities portfolio consists of earning assets that provide interest income. For those securities classified as held-to-maturity, the Company has the ability and intent to hold these securities to maturity or on a long-term basis. 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, the need or desire to increase capital and similar economic factors. At December 31, 2019, securities totaling approximately $35.2 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, 2019, loans totaling approximately $719.7 million either will become due or will be subject to rate adjustments within twelve months from that date. Continued emphasis will be placed on structuring adjustable rate loans.

 

As for liabilities, certificates of deposit and individual retirement accounts of $250,000 or greater totaling approximately $73.6 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 anticipates that there will be no significant withdrawals from these accounts in 2020.

 

At December 31, 2019, the scheduled maturities of these advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):

 

Scheduled Maturities

  

Amount

    

Weighted Average Rates

  

2020

   $ 1,000       2.65 %

2021

     2,500       2.67  

2022

     2,250       2.68  

2023

     2,438       2.68  

2024

     15,425       2.67  

Thereafter

     —       —  
    $ 23,613       2.67 %

 

Management believes that with present maturities, the anticipated growth in deposit base, and the efforts of management in its asset/liability management program, liquidity will not pose a problem in the near term future. At the present time there are no known trends or any known commitments, demands, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity changing in a materially adverse way.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

The following table shows the rate sensitivity gaps for different time periods as of December 31, 2019: 

 

Interest Rate Sensitivity Gaps 

 

                                       

(In Thousands)

  

1-90 Days

    

91-180 Days

    

181-365 Days

    

One Year And Longer

    

Total

  

Interest-earning assets

   $ 570,203       109,045       227,119       1,770,365       2,676,732  

Interest-bearing liabilities

     (1,630,556 )     (63,386 )     (134,271 )     (328,394 )     (2,156,607 )

Interest-rate sensitivity gap

   $ (1,060,353 )     45,659       92,848       1,441,971       520,125  

Cumulative gap

   $ (1,060,353 )     (1,014,694 )     (921,846 )     520,125          

 

The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Asset Liability Committee meets quarterly to analyze the interest rate shock simulation. The interest rate simulation model is based on a number of assumptions. The assumptions relate primarily to loan and deposit growth, asset and liability prepayments, the call features of investment securities, interest rates and balance sheet management strategies. 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 Wilson Bank’s net interest income and EVE as of December 31, 2019, assuming an immediate shift in interest rates:

 

   

% Change from Base Case for Immediate Parallel Changes in Rates

  
   

-200 BP(1)

    

-100 BP(1)

    

+100 BP

    

+200 BP

    

+300 BP

  

Net interest income

     (8.02 )%     (2.31 )%     (0.25 )%     (0.83 )%     (1.74 )%

EVE

     (17.93 )     (5.96 )     0.46       (0.26 )     (1.73 )

 

(1) Currently, some short term interest rates are below the standard down 200 and 300 rate scenarios. The asset liability model does not calculate negative interest rates and will floor any indexes at a nominal rate. 

 

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. We review each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of our responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies.

 

Management believes that with present maturities, the anticipated growth in deposit base, and the efforts of management in its asset/liability management program, liquidity will not pose a problem in the near term future. At the present time there are no other known trends or any known commitments, demands, events or uncertainties that will result in, or that are reasonably likely to result in, the Company’s liquidity changing in a materially adverse way.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Impact of Inflation

 

Although interest rates are significantly affected by inflation, for the fiscal years ended December 31, 2019, 2018, and 2017, the inflation rate is believed to have had an immaterial impact on the Company’s results of operations.

 

Capital Resources, Capital Position and Dividends

 

At December 31, 2019, total stockholders’ equity was $336,984,000, or 12.06% of total assets, which compares with $295,667,000, or 11.62% of total assets, at December 31, 2018, and $267,730,000, or 11.55% of total assets, at December 31, 2017. The dollar increase in the Company’s stockholders’ equity during 2019 reflects (i) net income of $36,044,000 less cash dividends of $1.10 per share totaling $11,725,000, (ii) the issuance of 179,199 shares of common stock for $9,134,000, as reinvestment of cash dividends, (iii) the issuance of 21,764 shares of common stock pursuant to exercise of stock options for $775,000, (iv) the net change in unrealized gain on available-for-sale securities of $8,398,000, (v) the repurchase of 31,774 shares of stock for $1,629,000, (vi) the cumulative effect of accounting change of $27,000 and (vii) a stock-based compensation expense of $347,000.

 

The Company and Wilson Bank are subject to regulatory capital requirements administered by the FDIC, the Federal Reserve and the Tennessee Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Company’s and Wilson Bank’s financial statements. Under capital adequacy guidelines and, in the case of Wilson Bank, the regulatory framework for prompt corrective action, the Company and Wilson Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and Wilson Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2019 and December 31, 2018, the Company and the Wilson Bank are considered to be “well-capitalized” under applicable regulatory definitions.

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

As of December 31, 2019, the most recent notification from the FDIC categorized Wilson Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized for prompt corrective action regulations as of December 31, 2019 and December 31, 2018, an institution was required to maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables and not be subject to a written agreement, order or directive to maintain a specific capital level. There are no conditions or events since the notification that management believes have changed Wilson Bank’s category. The Company’s and Wilson Bank’s actual capital amounts and ratios as of December 31, 2019 and 2018, are presented in the following table (dollar amounts in thousands):

 

                   

 

    

 

  
                   

 

    

 

  
   

Actual

    

Minimum Capital Adequacy Requirements

With Basel III Capital

Conservation Buffer

    

Minimum To Be Well Capitalized

Under Applicable Prompt Corrective

Action Regulatory Provisions

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
   

(dollars in thousands)

  

December 31, 2019

                                                

Total capital to risk weighted assets:

                                                

Consolidated

   $ 360,645       15.0 %   $ 253,215       10.5 %   $ 241,157       10.0 %

Wilson Bank

     359,576       14.9       252,675       10.5       240,643       10.0  

Tier 1 capital to risk weighted assets:

                                                

Consolidated

     331,485       13.7       204,984       8.5       144,694       6.0  

Wilson Bank

     330,416       13.7       204,547       8.5       192,515       8.0  

Common equity Tier 1 capital to risk weighted assets:

                                                

Consolidated

     331,485       13.7       168,810       7.0       N/A       N/A  

Wilson Bank

     330,416       13.7       168,451       7.0       156,418       6.5  

Tier 1 capital to average assets:

                                                

Consolidated

     331,485       12.4       106,565       4.0       N/A       N/A  

Wilson Bank

     330,416       11.9       110,764       4.0       138,454       5.0  
                                                 

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

                   

 

    

 

  
                   

 

    

 

  
   

Actual

    

Minimum Capital Adequacy Requirements

With Basel III Capital

Conservation Buffer

    

Minimum To Be Well Capitalized

Under Applicable Prompt Corrective

Action Regulatory Provisions

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
   

(dollars in thousands)

  

December 31, 2018

                                                

Total capital to risk weighted assets:

                                                

Consolidated

   $ 326,099       14.1 %   $ 227,974       9.875 %   $ 230,860       10.0 %

Wilson Bank

     323,852       14.0       227,915       9.875       230,800       10.0  

Tier 1 capital to risk weighted assets:

                                                

Consolidated

     298,566       12.9       181,802       7.875       138,516       6.0  

Wilson Bank

     296,319       12.8       181,756       7.875       184,641       8.0  

Common equity Tier 1 capital to risk weighted assets:

                                                

Consolidated

     298,566       12.9       147,173       6.375       N/A       N/A  

Wilson Bank

     296,319       12.8       147,136       6.375       150,021       6.5  

Tier 1 capital to average assets:

                                                

Consolidated

     298,566       12.3       97,022       4.0       N/A       N/A  

Wilson Bank

     296,319       11.9       99,373       4.0       124,217       5.0  

 

 
 

 

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

 

In July 2013, the Federal banking regulators, in response to the Statutory Requirements of The Dodd-Frank Act, adopted new regulations implementing the Basel Capital Adequacy Accord (“Basel III”) and the related higher minimum capital ratios. The new capital requirements were effective beginning January 1, 2015 and include a new “Common Equity Tier 1 Ratio”, which has stricter rules as to what qualifies as Common Equity Tier 1 Capital.

 

The guidelines under Basel III establish a 2.5% capital conservation buffer requirement that was phased in over four years beginning January 1, 2016. The buffer is related to Risk Weighted Assets. In order to avoid limitations on capital distributions such as dividends and certain discretionary bonus payments to executive officers, a banking organization must maintain capital ratios above the minimum ratios including the buffer. The Basel III minimum requirements after giving effect to the buffer as of January 1, of each year presented are as follows:

 

   

2016

    

2017

    

2018

    

2019

  

Common Equity Tier 1 Ratio

     5.125 %     5.75 %     6.375 %     7.0 %

Tier 1 Capital to Risk Weighted Assets Ratio

     6.625 %     7.25 %     7.875 %     8.5 %

Total Capital to Risk Weighted Assets Ratio

     8.625 %     9.25 %     9.875 %     10.5 %

 

The requirements of Basel III also place more restrictions on the inclusion of deferred tax assets and capitalized mortgage servicing rights as a percentage of Tier 1 Capital. In addition, the risk weights assigned to certain assets such as past due loans and certain real estate loans have been increased.

 

The requirements of Basel III allowed banks and bank holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and Wilson Bank have opted out of this requirement.

 

The application of these more stringent capital requirements to the Company and Wilson Bank could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in regulatory actions if the Company and Wilson Bank were to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of the final rules regarding Basel III could result in the Company or Wilson Bank having to lengthen the term of their funding, restructure their business models and/or increase their holdings of liquid assets. Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit the Company’s and Wilson Bank’s ability to make distributions, including paying dividends or buying back shares.

 

In 2018, the U.S. Congress passed, and the President signed into law, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Growth Act”). The Growth Act, among other things, requires the federal banking agencies to issue regulations allowing community bank organizations with total assets of less than $10.0 billion in assets and limited amounts of certain assets and off-balance sheet exposures to access a simpler capital regime focused on a bank’s Tier 1 leverage capital levels rather than risk-based capital levels that are the focus of the capital rules issued under the Dodd-Frank Act implementing Basel III.

 

In October 2019, the federal banking agencies approved final rules under the Growth Act that exempt a qualifying community bank and its holding company that have community bank leverage ratios, calculated as Tier 1 capital over average total consolidated assets, of greater than 9 percent from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community banking organization and its holding company that have chosen the proposed framework are not required to calculate the existing risk-based and leverage capital requirements. Such a bank would also be considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent.

 

The Growth Act also raised the eligibility for the small bank holding company policy statement to $3 billion of assets from $1 billion.

 

The Company is currently evaluating whether or not it will take advantage of these new capital rules under the Growth Act. 

 

 
 

 

Holding Company & Stock Information

Wilson Bank Holding Company Directors

 

 

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

 

 

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 stockholders of record at February 25, 2020 was 4,370. 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 2018 and 2019.

 

On January 2, 2018, a $.35 per share cash dividend was declared and on July 1, 2018 a $.55 per share cash dividend was declared and paid to shareholders of record on those dates. On January 2, 2019, a $.55 per share cash dividend was declared and on July 1, 2019, a $.55 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 

 

2018

  

High

      

Low

  

First Quarter

   $ 46.00       $ 44.75  

Second Quarter

   $ 125.00   *   $ 46.00  

Third Quarter

   $ 48.50       $ 47.25  

Fourth Quarter

   $ 50.00   *   $ 48.50  

2019

     High         Low  

First Quarter

   $ 51.00       $ 49.75  

Second Quarter

   $ 52.25   *   $ 51.00  

Third Quarter

   $ 53.50       $ 52.25  

Fourth Quarter

   $ 54.75   *   $ 53.50  

*Represents one transaction of 21 shares during the second quarter of 2018 and one transaction of 20 shares during the fourth quarter of 2018 of which the Company is aware where the sale prices was at least $0.25 higher than any other trade during the quarter.  The volume weighted average stock price during the second quarter of  2018 was $46.46 and the volume weighted average stock price during the fourth quarter of  2018 was $48.65.

 

Annual Meeting and Information Contacts

 

The Annual Meeting of Shareholders will be held in the Main Office of Wilson Bank Holding Company at 7:00 P.M., April 28, 2020 at 623 West Main Street, Lebanon, Tennessee.

 

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 Lisa Pominski, CFO, Wilson Bank & Trust, P.O. Box 768, Lebanon, Tennessee 37088-0768, phone (615) 443-6612.

 

 
 

 

WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)

 

 

   

In Thousands, Except Per Share Information

  
   

As Of December 31,

  
   

2019

    

2018

    

2017

    

2016

    

2015

  

CONSOLIDATED BALANCE SHEETS:

                                        

Total assets end of year

   $ 2,794,209       2,543,682       2,317,033       2,198,051       2,021,604  

Loans, net

   $ 2,057,175       2,016,005       1,727,253       1,667,088       1,443,179  

Securities

   $ 421,145       285,252       365,196       349,209       359,323  

Deposits

   $ 2,417,605       2,235,655       2,037,745       1,942,135       1,789,850  

Stockholders’ equity

   $ 336,984       295,667       267,730       244,620       223,438  

 

   

Years Ended December 31,

  
   

2019

    

2018

    

2017

    

2016

    

2015

  

CONSOLIDATED STATEMENTS OF EARNINGS:

                                        

Interest income

   $ 118,077       103,525       91,020       84,746       78,839  

Interest expense

     22,647       14,018       8,889       8,284       8,608  

Net interest income

     95,430       89,507       82,131       76,462       70,231  

Provision for loan losses

     2,040       4,298       1,681       379       388  

Net interest income after provision for loan losses

     93,390       85,209       80,450       76,083       69,843  

Non-interest income

     28,349       25,248       22,821       21,654       19,941  

Non-interest expense

     74,628       69,080       60,391       57,263       52,159  

Earnings before income taxes

     47,111       41,377       42,880       40,474       37,625  

Income taxes

     11,067       8,783       19,354       14,841       13,762  

Net earnings

   $ 36,044       32,594       23,526       25,633       23,863  

Cash dividends declared

   $ 11,725       9,447       6,729       5,756       4,935  

PER SHARE DATA: (1)

                                        

Basic earnings per common share

   $ 3.36       3.09       2.26       2.49       2.35  

Diluted earnings per common share

   $ 3.35       3.08       2.26       2.49       2.35  

Cash dividends

   $ 1.10       0.90       0.65       0.56       0.49  

Book value

   $ 31.22       27.83       25.62       23.71       21.90  

RATIOS:

                                        

Return on average stockholders’ equity

     11.31 %     11.70       9.06       10.8       11.17  

Return on average assets

     1.34 %     1.35       1.04       1.21       1.23  

Total capital to assets

     12.06 %     11.62       11.55       11.13       11.05  

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

     32.74 %     29.13       28.76       22.49       20.85  

 

(1) Per share data for the year ended December 31, 2015 was retroactively adjusted to reflect a 4 for 3 stock split which occurred effective March 30, 2016.

 

 
 

 

WILSON BANK HOLDING COMPANY

Consolidated Financial Statements

December 31, 2019 and 2018

(With Independent Auditor’s Report Thereon)

 

 
 

 

 

 

Stephen M. Maggart, CPA, ABV, CFF

J. Mark Allen, CPA

Joshua K. Cundiff, CPA

Michael T. Holland, CPA, ABV, CFF

M. Todd Maggart, CPA, ABV, CFF

Michael F. Murphy, CPA

P. Jason Ricciardi, CPA, CGMA

David B. von Dohlen, CPA

T. Keith Wilson, CPA, CITP

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To The Board of Directors and Shareholders of

Wilson Bank Holding Company:

 

 

Opinions on the Financial Statements and Internal Control Over Financial Reporting

 

We have audited the accompanying consolidated balance sheets of Wilson Bank Holding Company and Subsidiary (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of earnings, comprehensive earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

 

Basis for Opinion

 

The Company’s management is responsible for these financial statements, 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 financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the financial statements included performing procedures to assess the risks of material misstatements 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 disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

 

 

 

 

 

                                        

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

www.maggartpc.com

 

 
 

 

To The Board of Directors and Shareholders 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.

 

 

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

 

 

 

Nashville, Tennessee

February 18, 2020

 

 
 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Balance Sheets

December 31, 2019 and 2018 

 

   

Dollars in thousands

  
   

2019

    

2018

  

ASSETS

                
                 

Loans, net of allowance for loan losses of $28,726 and $27,174, respectively

   $ 2,057,175       2,016,005  

Available-for-sale securities, at market (amortized cost $420,207 and $295,683, respectively)

     421,145       285,252  

Loans held for sale

     18,179       7,484  

Interest bearing deposits

     126,827       80,215  

Federal funds sold

     20,000       9,000  

Restricted equity securities, at cost

     4,680       3,012  

Total earning assets

     2,648,006       2,400,968  

Cash and due from banks

     12,943       9,976  

Premises and equipment, net

     60,295       58,363  

Accrued interest receivable

     5,945       6,724  

Deferred income taxes

     6,136       8,901  

Other real estate

     697       1,357  

Bank owned life insurance

     31,762       30,952  

Goodwill

     4,805       4,805  

Other assets

     23,620       21,636  

Total assets

   $ 2,794,209       2,543,682  

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Deposits

   $ 2,417,605       2,235,655  
Federal home loan bank advances     23,613       —  

Accrued interest and other liabilities

     16,007       12,360  

Total liabilities

     2,457,225       2,248,015  

Stockholders’ equity:

                

Common stock, par value $2.00 per share, authorized 50,000,000 shares, 10,792,999 and 10,623,810 shares issued and outstanding, respectively

     21,586       21,248  

Additional paid-in capital

     82,249       73,960  

Retained earnings

     232,456       208,164  

Net unrealized gains (losses) on available-for-sale securities, net of taxes of $245 and $2,726, respectively

     693       (7,705 )

Total stockholders’ equity

     336,984       295,667  

COMMITMENTS AND CONTINGENCIES

            

Total liabilities and stockholders’ equity

   $ 2,794,209       2,543,682  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Earnings

Three Years Ended December 31, 2019

 

   

Dollars In Thousands (except per share data)

  
   

2019

    

2018

    

2017

  

Interest income:

                        

Interest and fees on loans

   $ 105,783       94,917       83,120  

Interest and dividends on securities:

                        

Taxable securities

     8,559       6,158       5,397  

Exempt from Federal income taxes

     773       1,020       1,208  

Interest on loans held for sale

     325       184       324  

Interest on Federal funds sold

     275       83       97  
Interest on interest bearing deposits     2,164       979       723  

Interest and dividends on restricted equity securities

     198       184       151  

Total interest income

     118,077       103,525       91,020  

Interest expense:

                        

Interest on negotiable order of withdrawal accounts

     2,311       1,823       1,308  

Interest on money market accounts and other savings accounts

     6,855       4,231       2,211  

Interest on certificates of deposit and individual retirement accounts

     12,896       7,944       5,353  

Interest on securities sold under repurchase agreements

     —       16       9  

Interest on Federal funds purchased

     4       4       8  
Interest on Federal Home Loan Bank advances     581       —       —  

Total interest expense

     22,647       14,018       8,889  

Net interest income before provision for loan losses

     95,430       89,507       82,131  

Provision for loan losses

     2,040       4,298       1,681  

Net interest income after provision for loan losses

     93,390       85,209       80,450  

Non-interest income

     28,349       25,248       22,821  

Non-interest expense

     (74,628 )     (69,080 )     (60,391 )

Earnings before income taxes

     47,111       41,377       42,880  

Income taxes

     11,067       8,783       19,354  

Net earnings

   $ 36,044       32,594       23,526  

Basic earnings per common share

   $ 3.36       3.09       2.26  

Diluted earnings per common share

   $ 3.35       3.08       2.26  

Weighted average common shares outstanding:

                        

Basic

     10,743,269       10,564,172       10,407,211  

Diluted

     10,761,467       10,572,221       10,412,536  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Comprehensive Earnings

Three Years Ended December 31, 2019

 

   

Dollars In Thousands

  
   

2019

    

2018

    

2017

  

Net earnings

   $ 36,044       32,594       23,526  

Other comprehensive earnings (losses), net of tax:

                        

Net unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $2,901, $1,398, and $271, respectively

     8,200       (3,950 )     437  

Reclassification adjustment for net losses included in net earnings, net of taxes of $70, $170, and $67, respectively

     198       480       108  

Other comprehensive earnings (losses)

     8,398       (3,470 )     545  

Comprehensive earnings

   $ 44,442       29,124       24,071  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Changes in Stockholders’ Equity

Three Years Ended December 31, 2019

 

   

Dollars In Thousands

  
                           

Net Unrealized

          
                           

Gain (Loss) On

          
           

Additional Paid In

            

Available For Sale

          
   

Common Stock

    

Capital

    

Retained Earnings

    

Securities

    

Total

  

Balance December 31, 2016

   $ 20,639       60,541       167,523       (4,083 )     244,620  

Cash dividends declared, $.65 per share

     —       —       (6,729 )     —       (6,729 )

Issuance of 125,960 shares of common stock pursuant to dividend reinvestment plan

     252       5,014       —       —       5,266  

Issuance of 5,078 shares of common stock pursuant to exercise of stock options

     10       142       —       —       152  

Reclassification of deferred tax asset revaluation

     —       —       697       (697 )     0  

Share based compensation expense

     —       350       —       —       350  

Net change in fair value of available-for-sale securities during the year, net of taxes of $338

     —       —       —       545       545  

Net earnings for the year

     —       —       23,526       —       23,526  

Balance December 31, 2017

     20,901       66,047       185,017       (4,235 )     267,730  

Cash dividends declared, $.90 per share

     —       —       (9,447 )     —       (9,447 )

Issuance of 161,514 shares of common stock pursuant to dividend reinvestment plan

     324       7,146       —       —       7,470  

Issuance of 11,585 shares of common stock pursuant to exercise of stock options

     23       371       —       —       394  

Share based compensation expense

     —       396       —       —       396  

Net change in fair value of available-for-sale securities during the year, net of taxes of $1,228

     —       —       —       (3,470 )     (3,470 )

Net earnings for the year

     —       —       32,594       —       32,594  

Balance December 31, 2018

     21,248       73,960       208,164       (7,705 )     295,667  

Cash dividends declared, $1.10 per share

     —       —       (11,725 )     —       (11,725 )

Issuance of 179,199 shares of common stock pursuant to dividend reinvestment plan

     358       8,776       —       —       9,134  

Issuance of 21,764 shares of common stock pursuant to exercise of stock options

     44       731       —       —       775  

Share based compensation expense

     —       347       —       —       347  

Net change in fair value of available-for-sale securities during the year, net of taxes of $2,971

     —       —       —       8,398       8,398  
Cumulative effect of accounting change     —       —       (27 )     —       (27 )
Repurchase of 31,774 common shares     (64 )     (1,565 )     —       —       (1,629 )

Net earnings for the year

     —       —       36,044       —       36,044  

Balance December 31, 2019

   $ 21,586       82,249       232,456       693       336,984  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows

Three Years Ended December 31, 2019

Increase (Decrease) in Cash and Cash Equivalents

 

   

Dollars In Thousands

  
   

2019

    

2018

    

2017

  

Cash flows from operating activities:

                        

Interest received

   $ 121,366       105,318       93,506  

Fees and other income received

     27,987       20,503       17,876  

Proceeds from sales of loans

     157,028       131,321       149,775  

Origination of loans held for sale

     (167,723 )     (129,060 )     (135,835 )

Interest paid

     (21,966 )     (12,565 )     (8,612 )

Cash paid to suppliers and employees

     (69,681 )     (64,186 )     (57,643 )

Income taxes paid

     (10,934 )     (10,558 )     (16,400 )

Net cash provided by operating activities

     36,077       40,773       42,667  

Cash flows from investing activities:

                        

Purchase of available-for-sale securities

     (255,432 )     (9,118 )     (96,180 )

Proceeds from calls, maturities and paydowns of available-for-sale securities

     90,805       36,955       38,839  

Proceeds from sale of available-for-sale securities

     37,325       35,093       35,555  
Purchase of restricted equity securities     (1,668 )     —       —  

Proceeds from maturities and paydowns of held-to-maturity securities

     —       4,651       3,859  

Proceeds from sale of held-to-maturity securities

     —       4,764       —  
           Loans made to customers, net of repayments     (43,568 )     (293,655 )     (61,826 )

Purchase of bank owned life insurance and annuity contracts

     —       (4,301 )     —  

Purchase of premises and equipment

     (6,044 )     (7,752 )     (12,660 )

Proceeds from sale of other assets

     14       4       43  

Proceeds from sale of other real estate

     952       796       2,876  

Net cash used in investing activities

     (177,616 )     (232,563 )     (89,494 )

Cash flows from financing activities:

                        

Net increase in non-interest bearing, savings, NOW and money market deposit accounts

     163,720       101,248       87,116  

Net increase in time deposits

     18,230       96,662       8,494  

Net increase (decrease) in securities sold under agreements to repurchase

     —       (864 )     128  
Net increase in Federal Home Loan Bank advances     23,613       —       —  

Dividends paid

     (11,725 )     (9,447 )     (6,729 )

Proceeds from sale of common stock pursuant to dividend reinvestment

     9,134       7,470       5,266  
Repurchase of common stock     (1,629 )     —       —  

Proceeds from sale of common stock pursuant to exercise of stock options

     775       394       152  

Net cash provided by financing activities

     202,118       195,463       94,427  

Net increase in cash and cash equivalents

     60,579       3,673       47,600  

Cash and cash equivalents at beginning of year

     99,191       95,518       47,918  

Cash and cash equivalents at end of year

   $ 159,770       99,191       95,518  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows, Continued

Three Years Ended December 31, 2019

Increase (Decrease) in Cash and Cash Equivalents

 

   

Dollars In Thousands

  
   

2019

    

2018

    

2017

  

Reconciliation of net earnings to net cash provided by operating activities:

                        

Net earnings

   $ 36,044       32,594       23,526  

Adjustments to reconcile net earnings to net cash provided by operating activities:

                        

Depreciation, amortization and accretion

     6,494       5,853       5,507  

Provision for loan losses

     2,040       4,298       1,681  

Share-based compensation expense

     347       1,237       692  

Provision for deferred tax benefit

     (206 )     (248 )     (607 )

Revaluation of deferred tax assets due to change in tax rates

     —       —       3,603  

Loss (gain) on sales of other real estate, net

     48       80       (6 )

Loss on sales of other assets

     4       3       15  

Loss on disposal of premises and equipment

     128       2       —  

Security loss (gain)

     268       650       175  

Decrease (increase) in loans held for sale

     (10,695 )     (2,378 )     9,682  

Increase (decrease) in taxes payable

     339       (1,526 )     (42 )

Increase in other assets, bank owned life insurance and annuity contract earnings

     (194 )     (1,684 )     (1,231 )

Decrease (increase) in accrued interest receivable

     779       (458 )     (162 )

Increase in interest payable

     682       1,453       277  

Increase (decrease) in other liabilities

     (1 )     897       (443 )

Total adjustments

     33       8,179       19,141  

Net cash provided by operating activities

   $ 36,077       40,773       42,667  

Supplemental Schedule of Non-Cash Activities:

                        

Change in fair value of securities available-for-sale, net of taxes of $2,971 in 2019, $1,228 in 2018, and $338 in 2017

   $ 8,398       (3,470 )     545  

Non-cash transfers from held-to-maturity to available-for-sale securities

   $ -       22,800       —  

Non-cash transfers from loans to other real estate

   $ 884       693       173  

Non-cash transfers from other real estate to loans

   $ 544       95       195  

Non-cash transfers from loans to other assets

   $ 18       7       2  

 

See accompanying notes to consolidated financial statements.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

December 31, 2019, 2018 and 2017

 

 

(1)

Summary of Significant Accounting Policies 

 

The accounting and reporting policies of Wilson Bank Holding Company (“the Company”) and Wilson Bank & Trust (“Wilson Bank”) are in accordance with accounting principles generally accepted in the United States of America (“U.S.”) 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 and its wholly-owned subsidiary Wilson Bank. 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 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, Davidson County and Williamson County, Tennessee and surrounding counties in Middle Tennessee. Services are provided at the main office and twenty-eight branch locations.

 

 

(c)

Estimates

 

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States (“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 loan losses, the valuation of deferred tax assets and other real estate, other-than-temporary impairments of securities, 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.

 

Residential 1-4 family, commercial real estate and construction mortgage loans, represented 24%, 38% and 20% and 22%, 34% and 25% of the loan portfolio at December 31, 2019 and 2018, respectively. 

 

 

(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 loan losses, and any unamortized deferred fees or costs on originated loans, and premiums or discounts on purchased loans.

 

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 our 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.

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

December 31, 2019, 2018 and 2017

 

 

(f)

Allowance for Loan Losses

 

Management provides for loan losses by establishing an allowance. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s quarterly review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, independent loan reviewers, and reviews that may have been conducted by third-party reviewers. We incorporate relevant loan review results in the loan impairment determination. In addition, regulatory agencies, as an integral part of their examination process, will periodically review the Company’s allowance for loan losses and may require the Company to record adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

 

In addition to the independent loan review process, the aforementioned risk ratings are subject to continual review by loan officers to determine that the appropriate risk ratings are being utilized in our allowance for loan loss process. Each risk rating is also subject to review by our independent loan review department. Currently, our independent loan review department targets reviews of 100% of existing loan relationships with aggregate debt of $1.0 million and greater and new loans with aggregate debt of $500,000 and greater. In addition, our independent loan review department targets particular portfolio segments, loans assigned to a particular lending officer, past due loans, and loans with four or more renewals.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are individually classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience, historical loan loss factors, loss experience of various loan segments, and other adjustments based on management’s assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, mortgage and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

(g)

Debt and Equity 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 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.

 

Other-than-temporary Impairment—Impaired securities are assessed quarterly for the presence of other-than-temporary impairment (“OTTI”). A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospectus of the issuer, and (3) Wilson Bank’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not “more-likely-than-not” that it will be required to sell the security before the recovery of the security’s cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity.

 

No securities have been classified as trading securities or held-to-maturity securities at December 31, 2019.

 

 

(h)

Federal Home Loan Bank Stock

 

The Company, as a member of the Federal Home Loan Bank (“FHLB”) Cincinnati system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at par value, which approximates its fair value. Management reviews the investment for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. As of December 31, 2019, this minimum required investment was valued at approximately $4.0 million. Stock redemptions are at the discretion of the FHLB. 

 

 

(i)

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.

 

 

(j)

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. 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.

 

 

(k)

Other Real Estate

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

(l)

Intangible Assets

 

The Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 350, Goodwill and Other Intangible Assets requires that management determine the allocation of intangible assets into identifiable groups at the date of acquisition and that appropriate amortization periods be established. Under the provisions of FASB ASC 350, goodwill is not to be amortized; rather, it is to be monitored for impairment and written down to the impairment value at the time impairment occurs. The Company has determined that no impairment loss needs to be recognized related to its goodwill. 

 

 

(m)

Cash and Cash Equivalents

 

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, interest-bearing deposits, 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 considers to be financially sound. 

 

 

(n)

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.

 

 

(o)

Securities Sold Under Agreements to Repurchase

 

Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by Federal deposit insurance.

 

 

(p)

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. 

 

 

(q)

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

(r)

Equity-Based Incentives

 

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 plans, performance-based 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 compensation 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.

 

 

(s)

Advertising Costs

 

Advertising costs are expensed as incurred by the Company and totaled $2,498,000, $2,552,000 and $2,326,000 for 2019, 2018 and 2017, respectively. 

 

 

(t)

Earnings Per Share

 

Basic earnings per share represents income available to common stockholders 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 and are determined using the treasury stock method.

 

 

(u)

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 21 - 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.

 

 

(v)

Reclassification

 

Certain reclassifications have been made to the 2018 and 2017 figures to conform to the presentation for 2019. 

 

 

(w)

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. 

 

 

 

 
 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

(x)

Accounting Standard Updates

 

Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Our revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09. Because of this, our adoption of this Standard in the first quarter of 2018 did not have a significant impact on our financial statements.

 

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-01 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.

 

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 was effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recorded a right-of-use asset in the amount of $2,600,000 and an offsetting lease liability in the amount of $2,627,000. Upon adoption, using a modified retrospective transition adoption approach, we recognized a cumulative effect reduction to retained earnings totaling $27,000. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

 

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. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” was issued to address certain codification improvements and to provide certain accounting policy electives related to accrued interest as well as disclosure related to credit losses, among other things. In May 2019, ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief,” was issued to provide transition relief in connection with the adoption of ASU 2016-03 whereby entities would have the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2016-13, as updated, became effective on January 1, 2020.

 

We are currently working through our implementation plan for ASU 2016-13 under the direction of our Chief Financial Officer and our Chief Credit Officer. Our implementation plan includes assessment and documentation of processes, internal controls and data sources; model development, documentation and validation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of ASU 2016-13. Based upon our preliminary parallel run as of December 31, 2019, we currently expect the adoption of ASU 2016-13 will not result in a significant change to our current allowance for loan losses and our reserves for unfunded commitments. The adoption of ASU 2016-13 is also not currently expected to have a significant impact on our regulatory capital ratios. The ultimate impact of adoption in future periods could be significantly different than our current expectation as our modeling processes will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of that date, notwithstanding any further refinements to our expected credit loss models.

 

ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. ASU 2016-15 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.

 

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 became effective for us on January 1, 2020, and is not expected to have a significant impact on our financial statements.

 

ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.

 

ASU 2017-08, “Receivables -  Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 provides guidance on the amortization period for certain purchased callable debt securities held at a premium. This update shortens the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument related to certain cash flow issues. ASU 2017-08 was effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

 

ASU 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 became effective for us on January 1, 2018 and did not have a significant impact on our financial statements.

 

ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 was effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

 

ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." Under ASU 2018-02, entities may elect to reclassify certain income tax effects related to the change in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, from accumulated other comprehensive income to retained earnings. ASU 2018-02 also requires certain accounting policy disclosures. We elected to adopt the provisions of ASU 2018-02 for the year ended December 31, 2018 in advance of the required application date of January 1, 2019. See Note 10 - Income Taxes.

 

ASU 2018-05, "Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118.” ASU 2018-05 amends the Accounting Standards Codification to incorporate various SEC paragraphs pursuant to the issuance of SAB 118. SAB 118 addresses the application of generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. See Note 10 - Income Taxes.

 

ASU 2018-13, "Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 became effective for us on January 1, 2020 and is not expected to have a significant impact on our financial statements.

 

ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. ASU 2018-16 was effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

 

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

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(2)

Loans and Allowance for Loan Losses

 

The classification of loans at December 31, 2019 and 2018 is as follows: 

 

   

In Thousands

  
   

2019

    

2018

  

Mortgage loans on real estate:

                

Residential 1-4 family

   $ 511,250       460,692  

Multifamily

     97,104       134,613  

Commercial

     793,379       701,055  

Construction

     425,185       518,245  

Farmland

     19,268       24,071  

Second mortgages

     10,760       11,197  

Equity lines of credit

     72,379       62,013  

Total mortgage loans on real estate

     1,929,325       1,911,886  

Commercial loans

     98,265       78,245  

Agricultural loans

     1,569       1,985  

Consumer installment loans:

                

Personal

     50,532       45,072  

Credit cards

     4,302       3,687  

Total consumer installment loans

     54,834       48,759  

Other loans

     9,049       9,324  
      2,093,042       2,050,199  

Net deferred loan fees

     (7,141 )     (7,020 )

Total loans

     2,085,901       2,043,179  

Less: Allowance for loan losses

     (28,726 )     (27,174 )

Loans, net

   $ 2,057,175       2,016,005  

 

At December 31, 2019, variable rate and fixed rate loans totaled $1,640,991,000 and $452,051,000, respectively. At December 31, 2018, variable rate and fixed rate loans totaled $1,495,918,000 and $554,281,000, respectively.

 

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 $12,878,000 and $13,019,000 at December 31, 2019 and 2018, 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, 2019.

 

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

 

   

In Thousands

  
   

December 31,

  
   

2019

    

2018

  

Balance, January 1

   $ 13,019       7,759  

New loans and renewals during the year

     31,548       17,278  

Repayments (including loans paid by renewal) during the year

     (31,689 )     (12,018 )

Balance, December 31

   $ 12,878       13,019  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

Risk characteristics relevant to each portfolio segment are as follows:

 

Construction and land development: 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.

 

1-4 family residential 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.

 

1-4 family HELOC: 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.

 

Multi-family and commercial real estate: Multi-family and commercial 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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

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 provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans 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 incorporates 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. 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.

    

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310), when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Substantially all of the Company’s impaired loans are collateral dependent.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The following tables, present the Company’s impaired loans at December 31, 2019 and 2018:

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2019

                                        

With no related allowance recorded:

                                        

Residential 1-4 family

   $ 1,090       1,464       —       1,090       99  

Multifamily

     —       —       —       —       —  

Commercial real estate

     951       1,124       —       910       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 2,041       2,588       —       2,000       116  

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2019

                                        

With allowance recorded:

                                        

Residential 1-4 family

   $ 1,489       1,480       795       1,590       83  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,522       1,520       341       2,015       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 3,011       3,000       1,136       3,605       100  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2019

                                        

Total:

                                        

Residential 1-4 family

   $ 2,579       2,944       795       2,680       182  

Multifamily

     —       —       —       —       —  

Commercial real estate

     2,473       2,644       341       2,925       34  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 5,052       5,588       1,136       5,605       216  

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2018

                                        

With no related allowance recorded:

                                        

Residential 1-4 family

   $ 1,196       1,795       —       1,862       42  

Multifamily

     —       —       —       —       —  

Commercial real estate

     317       316       —       320       16  

Construction

     690       686       —       822       42  

Farmland

     —       —       —       233       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 2,203       2,797       —       3,237       100  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2018

                                        

With allowance recorded:

                                        

Residential 1-4 family

   $ 1,641       1,635       852       1,782       77  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,515       1,515       312       2,001       17  

Construction

     —       —       —       —       —  

Farmland

     —       —       —       —       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 3,156       3,150       1,164       3,783       94  

 

   

In Thousands

  
   

Recorded

    

Unpaid Principal

            

Average Recorded

    

Interest Income

  
   

Investment

    

Balance

    

Related Allowance

    

Investment

    

Recognized

  

December 31, 2018

                                        

Total:

                                        

Residential 1-4 family

   $ 2,837       3,430       852       3,644       119  

Multifamily

     —       —       —       —       —  

Commercial real estate

     1,832       1,831       312       2,321       33  

Construction

     690       686       —       822       42  

Farmland

     —       —       —       233       —  

Second mortgages

     —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —  

Commercial

     —       —       —       —       —  

Agricultural, installment and other

     —       —       —       —       —  
    $ 5,359       5,947       1,164       7,020       194  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The following tables present the Company’s nonaccrual loans, credit quality indicators and past due loans as of December 31, 2019 and 2018.

 

Loans on Nonaccrual Status

 

   

In Thousands

  
   

2019

    

2018

  

Residential 1-4 family

   $ 949       948  

Multifamily

     —       —  

Commercial real estate

     1,661       1,102  

Construction

     —       —  

Farmland

     —       —  

Second mortgages

     —       —  

Equity lines of credit

     —       —  

Commercial

     —       —  

Agricultural, installment and other

     —       —  

Total

   $ 2,610       2,050  

 

The impact on net interest income for these loans was not material to the Company’s results of operations for the years ended December 31, 2019, 2018 and 2017.

 

Potential problem loans, which include nonperforming loans, amounted to approximately $10.7 million at December 31, 2019 compared to $12.0 million at December 31, 2018. 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, the Company’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 impaired and places the loans on nonaccrual status.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

Credit Quality Indicators

 

   

In Thousands

  
                                                                   

Agricultural,

          
   

Residential 1-4

            

Commercial

                    

Second

    

Equity Lines

            

Installment and

          
   

Family

    

Multifamily

    

Real Estate

    

Construction

    

Farmland

    

Mortgages

    

of Credit

    

Commercial

    

Other

    

Total

  

Credit Risk Profile by Internally Assigned Grade

                                                                                

December 31, 2019

                                                                                

Pass

   $ 503,861       97,104       791,610       424,517       19,106       10,458       72,237       98,243       65,255       2,082,391  

Special mention

     2,923       —       —       635       103       174       —       —       101       3,936  

Substandard

     4,466       —       1,769       33       59       128       142       22       96       6,715  

Doubtful

     —       —       —       —       —       —       —       —       —       —  

Total

   $ 511,250       97,104       793,379       425,185       19,268       10,760       72,379       98,265       65,452       2,093,042  

December 31, 2018

                                                                                

Pass

   $ 452,411       134,613       698,083       518,123       23,895       10,979       61,927       78,206       59,923       2,038,160  

Special mention

     3,949       —       1,690       64       112       179       —       39       78       6,111  

Substandard

     4,332       —       1,282       58       64       39       86       —       67       5,928  

Doubtful

     —       —       —       —       —       —       —       —       —       —  

Total

   $ 460,692       134,613       701,055       518,245       24,071       11,197       62,013       78,245       60,068       2,050,199  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

Age Analysis of Past Due Loans

 

   

In Thousands

  
                                                   

Recorded

  
                                                   

Investment

  
                   

Nonaccrual

    

Total

                    

Greater Than

  
   

30-59 Days

    

60-89 Days

    

and Greater

    

Nonaccrual

                    

90 Days and

  
   

Past Due

    

Past Due

    

Than 90 Days

    

Past Due

    

Current

    

Total Loans

    

Accruing

  

December 31, 2019

                                                        

Residential 1-4 family

   $ 4,760       799       2,336       7,895       503,355       511,250       1,387  

Multifamily

     —       —       —       —       97,104       97,104       —  

Commercial real estate

     500       —       1,661       2,161       791,218       793,379       —  

Construction

     1,535       147       594       2,276       422,909       425,185       594  

Farmland

     57       —       8       65       19,203       19,268       8  

Second mortgages

     —       —       100       100       10,660       10,760       100  

Equity lines of credit

     143       —       372       515       71,864       72,379       372  

Commercial

     71       30       —       101       98,164       98,265       —  

Agricultural, installment and other

     517       116       46       679       64,773       65,452       46  

Total

   $ 7,583       1,092       5,117       13,792       2,079,250       2,093,042       2,507  

December 31, 2018

                                                        

Residential 1-4 family

   $ 3,258       1,092       1,868       6,218       454,474       460,692       920  

Multifamily

     —       —       —       —       134,613       134,613       —  

Commercial real estate

     312       109       1,174       1,595       699,460       701,055       72  

Construction

     1,567       26       32       1,625       516,620       518,245       32  

Farmland

     43       9       21       73       23,998       24,071       21  

Second mortgages

     333       —       —       333       10,864       11,197       —  

Equity lines of credit

     297       —       45       342       61,671       62,013       45  

Commercial

     93       —       24       117       78,128       78,245       24  

Agricultural, installment and other

     407       85       95       587       59,481       60,068       95  

Total

   $ 6,310       1,321       3,259       10,890       2,039,309       2,050,199       1,209  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

Transactions in the allowance for loan losses for the years ended December 31, 2019 and 2018 are summarized as follows:

 

   

In Thousands

  
                                                                   

Agricultural,

          
   

Residential 1-4

            

Commercial

                    

Second

    

Equity Lines

            

Installment and

          
   

Family

    

Multifamily

    

Real Estate

    

Construction

    

Farmland

    

Mortgages

    

of Credit

    

Commercial

    

Other

    

Total

  

December 31, 2019

                                                                                

Allowance for loan losses:

                                                                                

Beginning balance

   $ 6,297       1,481       9,753       7,084       221       118       731       622       867       27,174  
Provision     838       (364 )     1,484       (1,510 )     (34 )     5       158       422       1,041       2,040  

Charge-offs

     (15 )     —       (173 )     —       —       —       —       (15 )     (1,160 )     (1,363 )

Recoveries

     24       —       50       423       —       —       —       15       363       875  

Ending balance

   $ 7,144       1,117       11,114       5,997       187       123       889       1,044       1,111       28,726  

Ending balance individually evaluated for impairment

   $ 795       —       341       —       —       —       —       —       —       1,136  

Ending balance collectively evaluated for impairment

   $ 6,349       1,117       10,773       5,997       187       123       889       1,044       1,111       27,590  

Loans:

                                                                                

Ending balance

   $ 511,250       97,104       793,379       425,185       19,268       10,760       72,379       98,265       65,452       2,093,042  

Ending balance individually evaluated for impairment

   $ 2,569       —       2,471       —       —       —       —       —       —       5,040  

Ending balance collectively evaluated for impairment

   $ 508,681       97,104       790,908       425,185       19,268       10,760       72,379       98,265       65,452       2,088,002  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

   

In Thousands

  
                                                                   

Agricultural,

          
   

Residential 1-4

            

Commercial

                    

Second

    

Equity Lines

            

Installment and

          
   

Family

    

Multifamily

    

Real Estate

    

Construction

    

Farmland

    

Mortgages

    

of Credit

    

Commercial

    

Other

    

Total

  

December 31, 2018

                                                                                

Allowance for loan losses:

                                                                                

Beginning balance

   $ 5,156       1,011       9,267       6,094       487       94       723       401       676       23,909  

Provision

     1,568       470       436       921       (266 )     24       7       218       920       4,298  

Charge-offs

     (492 )     —       —       (19 )     —       —       —       —       (1,152 )     (1,663 )

Recoveries

     65       —       50       88       —       —       1       3       423       630  

Ending balance

   $ 6,297       1,481       9,753       7,084       221       118       731       622       867       27,174  

Ending balance individually evaluated for impairment

   $ 852       —       312       —       —       —       —       —       —       1,164  

Ending balance collectively evaluated for impairment

   $ 5,445       1,481       9,441       7,084       221       118       731       622       867       26,010  

Loans:

                                                                                

Ending balance

   $ 460,692       134,613       701,055       518,245       24,071       11,197       62,013       78,245       60,068       2,050,199  

Ending balance individually evaluated for impairment

   $ 2,829       —       1,831       686       —       —       —       —       —       5,346  

Ending balance collectively evaluated for impairment

   $ 457,863       134,613       699,224       517,559       24,071       11,197       62,013       78,245       60,068       2,044,853  

 

The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic or other concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. The concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

 

The following table summarizes the carrying balances of TDRs at December 31, 2019 and December 31, 2018 (dollars in thousands):

 

   

2019

    

2018

  

Performing TDRs

   $ 3,080       1,676  

Nonperforming TDRs

     1,467       816  

Total TDRs

   $ 4,547       2,492  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The following table outlines the amount of each TDR categorized by loan classification for the years ended December 31, 2019 and 2018 (dollars in thousands):

 

   

December 31, 2019

    

December 31, 2018

  
                   

Post Modification

                    

Post Modification

  
           

Pre Modification

    

Outstanding

            

Pre Modification

    

Outstanding

  
           

Outstanding

    

Recorded

            

Outstanding

    

Recorded

  
   

Number of

    

Recorded

    

Investment, Net of

    

Number of

    

Recorded

    

Investment, Net of

  
   

Contracts

    

Investment

    

Related Allowance

    

Contracts

    

Investment

    

Related Allowance

  

Residential 1-4 family

     1     $ 1,338     $ 619       4     $ 448     $ 448  

Multifamily

     —       —       —       —       —       —  

Commercial real estate

     4       2,677       2,399       —       —       —  

Construction

     —       —       —       —       —       —  

Farmland

     —       —       —       —       —       —  

Second mortgages

     —       —       —       —       —       —  

Equity lines of credit

     —       —       —       —       —       —  

Commercial

     —       —       —       —       —       —  

Agricultural, installment and other

     —       —       —       2       5       5  

Total

     5     $ 4,015     $ 3,018       6     $ 453     $ 453  

 

As of December 31, 2019 and 2018 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, 2019 , the Bank did not have any consumer mortgage loans in the process of foreclosure.

 

As of December 31, 2018, the Company's recorded investment in consumer mortgage loans in the process of foreclosure amounted to $200,000.

 

The Company’s principal customers are primarily in the Middle Tennessee area with a concentration in Wilson County, 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 2019, 2018 and 2017, Wilson Bank originated mortgage loans for sale into the secondary market of $167,723,000, $129,060,000 and $135,835,000, respectively. The fees and gain on sale of these loans totaled $6,802,000, $4,639,000 and $4,258,000 in 2019, 2018 and 2017, respectively. All of these loan sales transfer servicing rights to the buyer.

 

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, 2019 and 2018, total mortgage loans sold with recourse in the secondary market aggregated $115,789,000 and $94,801,000, respectively. At December 31, 2019, 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 material losses to result from these recourse provisions.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(3)

Debt and Equity Securities 

 

Debt and equity securities have been classified in the consolidated balance sheet according to management’s intent. Debt and equity securities at December 31, 2019 consist of the following:

 

   

Securities Available-For-Sale

  
   

In Thousands

  
           

Gross Unrealized

    

Gross Unrealized

    

Estimated Market

  
   

Amortized Cost

    

Gains

    

Losses

    

Value

  

Government-sponsored enterprises (GSEs)

   $ 59,735       48       204       59,579  

Mortgage-backed securities

     265,648       2,300       635       267,313  

Asset-backed securities

     27,531       1       303       27,229  

Obligations of states and political subdivisions

     67,293       559       828       67,024  
    $ 420,207       2,908       1,970       421,145  

 

The Company’s classification of securities at December 31, 2018 was as follows:

 

   

Securities Available-For-Sale

  
   

In Thousands

  
           

Gross Unrealized

    

Gross Unrealized

    

Estimated Market

  
   

Amortized Cost

    

Gains

    

Losses

    

Value

  

Government-sponsored enterprises (GSEs)

   $ 71,446       —       2,979       68,467  

Mortgage-backed securities

     152,375       9       4,874       147,510  

Asset-backed securities

     22,534       10       844       21,700  

Obligations of states and political subdivisions

     49,328       22       1,775       47,575  
    $ 295,683       41       10,472       285,252  

 

 

There were no debt and equity securities classified as held-to-maturity at December 31, 2019 or  December 31, 2018. During the year ended December 31, 2018, the Company sold securities classified as held-to-maturity with a book value of $4,843,000 for a loss of $79,000. Due to the sale, management determined the Company no longer had the intent to hold the remaining securities classified as held-to-maturity to their respective maturity dates and transferred the remaining book value of $22,800,000 to the available-for-sale classification.

 

Included in mortgage-backed securities are collateralized mortgage obligations totaling $46,994,000 (fair value of $47,442,000) and $11,564,000 (fair value of $11,295,000) at December 31, 2019 and 2018, respectively.

 

The amortized cost and estimated market value of debt securities at December 31, 2019, 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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

   

In Thousands

  

Securities Available-For-Sale

  

Amortized Cost

    

Estimated Market Value

  

Due in one year or less

   $ 472       471  

Due after one year through five years

     18,332       18,319  

Due after five years through ten years

     56,626       56,622  

Due after ten years

     51,598       51,191  
      127,028       126,603  

Mortgage and asset-backed securities

     293,179       294,542  
    $ 420,207       421,145  

 

Results from sales of debt and equity securities are as follows:

 

   

In Thousands

  
   

2019

    

2018

    

2017

  

Gross proceeds

   $ 37,325       39,857       35,555  

Gross realized gains

   $ 75       102       76  

Gross realized losses

     (343 )     (752 )     (251 )

Net realized gains (losses)

   $ (268 )     (650 )     (175 )

 

Securities carried on the balance sheet of approximately $256,300,000 (approximate market value of $256,598,000) and $260,562,000 (approximate market value of $251,549,000) were pledged to secure public deposits and for other purposes as required or permitted by law at December 31, 2019 and 2018, respectively.

 

Included in the securities above are $50,193,000 (approximate market value of $49,903,000) at December 31,2019 in obligations of political subdivisions located within the sates of Tennessee, Idaho, Missouri, and Texas.

 

Securities that have rates that adjust prior to maturity totaled $48,018,000 (approximate market value of $47,784,000) and $32,864,000 (approximate market value of $32,217,000) at December 31, 2019 and 2018, respectively.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

Temporarily Impaired Securities

 

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019 and 2018.

 

Available-for-sale securities that have been in a continuous unrealized loss position at December 31, 2019 and 2018 are as follows:

 

   

In Thousands, Except Number of Securities

  
   

Less than 12 Months

    

12 Months or More

    

Total

  
                   

Number of

                    

Number of

                  
           

Unrealized

    

Securities

            

Unrealized

    

Securities

            

Unrealized

  

2019

  

Fair Value

    

Losses

    

Included

    

Fair Value

    

Losses

    

Included

    

Fair Value

    

Losses

  

Available-for-Sale Securities:

                                                                

Debt securities:

                                                                

GSEs

   $ 16,507     $ 114       5     $ 24,658     $ 90       9     $ 41,165     $ 204  

Mortgage-backed securities

     45,862       182       21       56,917       453       52       102,779       635  

Asset-backed securities

     17,807       161       10       7,317       142       4       25,124       303  

Obligations of states and political subdivisions

     30,423       783       26       3,858       45       10       34,281       828  
    $ 110,599     $ 1,240       62     $ 92,750     $ 730       75     $ 203,349     $ 1,970  

 

 

   

In Thousands, Except Number of Securities

  
   

Less than 12 Months

    

12 Months or More

    

Total

  
                   

Number of

                    

Number of

                  
           

Unrealized

    

Securities

            

Unrealized

    

Securities

            

Unrealized

  

2018

  

Fair Value

    

Losses

    

Included

    

Fair Value

    

Losses

    

Included

    

Fair Value

    

Losses

  

Available-for-Sale Securities:

                                                                

Debt securities:

                                                                

GSEs

   $ —     $ —       —     $ 68,467     $ 2,979       28     $ 68,467     $ 2,979  

Mortgage-backed securities

     8,651       64       10       137,457       4,810       94       146,108       4,874  

Asset-backed securities

     —       —       —       20,597       844       14       20,597       844  

Obligations of states and political subdivisions

     4,064       26       6       39,841       1,749       94       43,905       1,775  
    $ 12,715     $ 90       16     $ 266,362     $ 10,382       230     $ 279,077     $ 10,472  

 

 

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

 

As of  December 31, 2019, management does not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of  December 31, 2019, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in our consolidated statements of earnings.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(4)

Restricted Equity Securities

 

Restricted equity securities consists of stock of the FHLB of Cincinnati amounting to $4,680,000 and $3,012,000 at December 31, 2019 and 2018, 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, 2019 and 2018 is as follows:

 

   

In Thousands

  
   

2019

    

2018

  

Land

   $ 17,093       17,022  

Buildings

     46,389       44,921  

Leasehold improvements

     533       492  

Furniture and equipment

     13,000       12,600  

Automobiles

     243       343  
Construction-in-progress     1,339       100  
      78,597       75,478  

Less accumulated depreciation

     (18,302 )     (17,115 )
    $ 60,295       58,363  

 

During 2019, 2018 and 2017, payments of $2,207,000, $2,633,000 and $5,934,000, respectively, were made to an entity owned by a director for the construction of buildings and repair work on existing buildings.

 

Depreciation expense was $3,984,000, $3,602,000 and $2,859,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

 
 

(6)

Acquired Intangible Assets and 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

  
   

2019

    

2018

  

Goodwill:

                

Balance at January 1,

   $ 4,805       4,805  

Goodwill acquired during year

     —       —  

Impairment loss

     —       —  

Balance at December 31,

   $ 4,805       4,805  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(7)

Deposits

 

Deposits at December 31, 2019 and 2018 are summarized as follows:

 

   

In Thousands

  
   

2019

    

2018

  

Demand deposits

   $ 284,611       254,157  

Savings accounts

     140,270       136,645  

Negotiable order of withdrawal accounts

     558,745       503,435  

Money market demand accounts

     801,986       727,654  

Certificates of deposit $250,000 or greater

     131,899       134,506  

Other certificates of deposit

     425,222       402,690  

Individual retirement accounts $250,000 or greater

     10,646       8,525  

Other individual retirement accounts

     64,226       68,043  
    $ 2,417,605       2,235,655  

 

Principal maturities of certificates of deposit and individual retirement accounts at December 31, 2019 are as follows:

 

   

(In Thousands)

  

Maturity

  

Total

  
2020   $ 326,212  
2021     160,368  

2022

     72,578  

2023

     51,327  

2024

     21,258  

Thereafter

     250  
    $ 631,993  

 

The aggregate amount of overdrafts reclassified as loans receivable was $529,000 and $496,000 at December 31, 2019 and 2018, respectively.

 

As of December 31, 2019 and 2018, Wilson Bank was not required to maintain a cash balance with the Federal Reserve.

 
 

(8)

Federal Home Loan Bank Advances

 

At December 31, 2019 the Company had $23,613,000 in outstanding advances from the FHLB of Cincinnati.  Each advance is amortized and payable monthly with a prepayment penalty for fixed rate advances. The weighted average rate of the total borrowings at December 31, 2019 was 2.67%.  The advances are collateralized by a blanket security agreement which includes the Banks 1-4 family loans.  The Company’s additional borrowing capacity was $266,712,000 at December 31, 2019.

 

Required future principal payments on Federal Home Loan Bank borrowings are as follows

    (In Thousands)  
Maturity   Total  
2020   $ 8,250  
2021     5,828  
2022     4,658  
2023     3,929  
2024     948  
 Thereafter     —  
Total     23,613  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(9)

Non-Interest Income and Non-Interest Expense

 

The significant components of non-interest income and non-interest expense for the years ended December 31, 2019, 2018 and 2017 are presented below:

 

   

In Thousands

  
   

2019

    

2018

    

2017

  

Non-interest income:

                        

Service charges on deposits

   $ 6,952       6,799       6,124  

Other fees and commissions

     14,233       13,704       11,752  

BOLI and annuity earnings

     810       841       871  

Security losses, net

     (268 )     (650 )     (175 )

Fees and gains on sales of mortgage loans

     6,802       4,639       4,258  

Gain (loss) on sale of other real estate, net

     (48 )     (80 )     6  

Loss on sale of fixed assets, net

     (128 )     (2 )     —  

Loss on sale of other assets, net

     (4 )     (3 )     (15 )
    $ 28,349       25,248       22,821  

 

 

   

In Thousands

  
   

2019

    

2018

    

2017

  

Non-interest expense:

                        

Employee salaries and benefits

   $ 42,541       39,590       35,830  

Equity-based compensation

     786       1,237       692  

Occupancy expenses

     4,789       4,403       3,718  

Furniture and equipment expenses

     3,110       2,767       2,085  

Data processing expenses

     4,495       2,900       2,834  

Advertising expenses

     2,498       2,552       2,326  

ATM & interchange fees

     3,439       3,091       2,569  
Accounting, legal & consulting expenses     1,382       977       500  

FDIC insurance

     373       843       683  

Directors’ fees

     586       543       677  

Other operating expenses

     10,629       10,177       8,477  
    $ 74,628       69,080       60,391  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(10)

Income Taxes

 

In December 2017, the Tax Cuts and Jobs Act was signed into law. As a result, the statutory corporate federal tax rate was lowered from 35% to 21%, effective January 1, 2018. In accordance with accounting principles generally accepted in the United States of America, the effect of rate changes are to be recorded as an adjustment to income in the year of enactment. As a result of the Tax Cuts and Jobs Act being signed into law, the Company revalued all deferred taxes to reflect the new statutory corporate tax rate resulting in a $3,603,000 charge to deferred tax expense in the fourth quarter of 2017. This charge included $697,000 related to unrealized losses on available-for-sale securities. Unrealized losses on available-for-sale securities are recognized as a component of equity as other comprehensive income. Management has elected to reclassify the $697,000 expense related to the available-for-sale rate change from retained earnings to other comprehensive income.

 

The components of the net deferred tax asset are as follows:

 

   

In Thousands

  
   

2019

    

2018

  

Deferred tax asset:

                

Federal

   $ 7,444       9,046  

State

     2,240       2,739  
      9,684       11,785  

Deferred tax liability:

                

Federal

     (2,666 )     (2,167 )

State

     (882 )     (717 )
      (3,548 )     (2,884 )

Net deferred tax asset

   $ 6,136       8,901  

 

The tax effects of each type of significant item that gave rise to deferred tax assets (liabilities) are: 

 

   

In Thousands

  
   

2019

    

2018

  

Financial statement allowance for loan losses in excess of tax allowance

   $ 7,283       6,846  

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

     (2,976 )     (2,557 )

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

     1,193       1,128  

Writedown of other real estate not deductible for income tax purposes until sold

     157       176  

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

     (327 )     (327 )
Unrealized loss (gain) on securities available-for-sale     (245 )     2,726  

Equity based compensation

     625       469  

Other items, net

     426       440  

Net deferred tax asset

   $ 6,136       8,901  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The components of income tax expense (benefit) are summarized as follows:

 

 

   

In Thousands

  
   

Federal

    

State

    

Total

  

2019

                        
Current   $ 10,134       1,411       11,545  

Deferred

     (335 )     (143 )     (478 )
Total   $ 9,799     $ 1,268       11,067  

2018

                        

Current

   $ 8,310       721       9,031  

Deferred

     (136 )     (112 )     (248 )

Total

   $ 8,174       609       8,783  

2017

                        

Current

   $ 14,004       2,354       16,358  

Deferred

     3,205       (209 )     2,996  

Total

   $ 17,209       2,145       19,354  

 

A reconciliation of actual income tax expense of $11,067,000, $8,783,000 and $19,354,000 for the years ended December 31, 2019, 2018 and 2017, respectively, to the “expected” tax expense (computed by applying the statutory rate of 21% for 2019 and 2018 and 34% for 2017 to earnings before income taxes) is as follows:

 

   

In Thousands

  
   

2019

    

2018

    

2017

  

Computed “expected” tax expense

   $ 9,893       8,689       14,579  

State income taxes, net of Federal income tax benefit

     1,056       432       1,346  

Tax exempt interest, net of interest expense exclusion

     (186 )     (226 )     (415 )

Federal income tax rate in excess of statutory rate related to taxable income over $10 million

     —       —       399  

Earnings on cash surrender value of life insurance

     (170 )     (177 )     (292 )

Expenses not deductible for tax purposes

     37       16       43  

Equity based compensation expense

     15       (39 )     16  

Revaluation of federal deferred tax assets due to change in tax rates

     —       —       3,603  

Other

     422       88       75  
    $ 11,067       8,783       19,354  

 

Total income tax expense for 2019, 2018 and 2017, includes $70,000, $170,000 and $67,000 of benefit related to the realized gain and loss, respectively, on sale of securities.

 

As of December 31, 2019, 2018 and 2017 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.

 

There were no unrecognized tax benefits at December 31, 2019.

 

Wilson Bank does not expect that unrecognized tax benefits will significantly increase or decrease within the next 12 months. Included in the balance at December 31, 2019, were approximately $9.7 million of tax positions (deferred tax assets) for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

 

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 2015. The Company’s Federal tax returns have been audited through December 31, 2005 with no changes.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(11)

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.

 

Wilson Bank leases branch facilities and land for certain branch facilities and automatic teller machine locations. Future minimum rental payments required under the terms of the noncancellable leases are as follows:

 

Years Ending December 31,

  

In Thousands

  

2020

   $ 444  

2021

     387  

2022

     215  

2023

     112  

2024

     4  

Thereafter

     9  

 

Total rent expense amounted to $484,000, $362,000 and $215,000, respectively, during the years ended December 31, 2019, 2018 and 2017.

 

At December 31,2019 and 2018 respectively, the Company has lines of credit with other financial institutions totaling $53,000,000. At December 31, 2019 and 2018, 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. 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, 2019 or December 31, 2018.

 
 

(12)

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.

 

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  
   

2019

    

2018

  

Financial instruments whose contract amounts represent credit risk:

                

Unused commitments to extend credit

   $ 632,686       582,897  

Standby letters of credit

     72,901       80,165  

Total

   $ 705,587       663,062  

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

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 $73,000,000 at December 31, 2019.

 
 

(13)

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 Loan Losses.

 

Interest bearing deposits totaling $89,177,000 were deposited with four commercial banks.

 

Federal funds sold in the amount of $20,000,000 were deposited with one commercial bank.

 
 

(14)

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 20.5. The provisions of the 401(k) Plan provide for both employee and employer contributions. For the years ended December 31, 2019, 2018 and 2017, Wilson Bank contributed $2,540,000, $2,383,000 and $2,145,000, respectively, to the 401(k) Plan.

 
 

(15)

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. Original issue shares of 179,199 in 2019, 161,514 in 2018 and 125,960 in 2017 were sold to participants under the terms of the DRIP.

 
 

(16)

Regulatory Matters and Restrictions on Dividends

 

The Company and Wilson Bank are subject to regulatory capital requirements administered by the FDIC, the Federal Reserve and the Tennessee Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Wilson Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Wilson Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and Wilson Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1 and common equity Tier 1 capital (each as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2019 and 2018, that the Company and Wilson Bank meet all capital adequacy requirements to which they are subject.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

As of December 31, 2019, the most recent notification from the FDIC categorized Wilson Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed Wilson Bank’s category. To be categorized as well capitalized for purposes of prompt corrective action regulations as of December 31, 2019 and 2018, an institution must have maintained minimum capital ratios as set forth in the following tables and not have been subject to a written agreement, order or directive to maintain a higher capital level. The Company’s and Wilson Bank’s actual capital amounts and ratios as of December 31, 2019 and 2018, are presented in the following tables:

 

                   

Regulatory Minimum Capital Requirement

    

Regulatory Minimum To Be Well

  
   

Actual

    

with Basel III Capital Conservation Buffer

    

Capitalized

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
   

(dollars in thousands)

  

December 31, 2019

                                                

Total capital to risk weighted assets:

                                                

Consolidated

   $ 360,645       15.0 %   $ 253,215       10.5 %   $ 241,157       10.0 %

Wilson Bank

     359,576       14.9       252,675       10.5       240,643       10.0  

Tier 1 capital to risk weighted assets:

                                                

Consolidated

     331,485       13.7       204,984       8.5       144,694       6.0  

Wilson Bank

     330,416       13.7       204,547       8.5       192,515       8.0  

Common equity Tier 1 capital to risk weighted assets:

                                                

Consolidated

     331,485       13.7       168,810       7.0       N/A       N/A  

Wilson Bank

     330,416       13.7       168,451       7.0       156,418       6.5  

Tier 1 capital to average assets:

                                                

Consolidated

     331,485       12.4       106,565       4.0       N/A       N/A  

Wilson Bank

     330,416       11.9       110,764       4.0       138,454       5.0  

 

                   

Regulatory Minimum Capital Requirement

    

Regulatory Minimum To Be Well

  
   

Actual

    

with Basel III Capital Conservation Buffer

    

Capitalized

  
   

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

  
   

(dollars in thousands)

  

December 31, 2018

                                                

Total capital to risk weighted assets:

                                                

Consolidated

   $ 326,099       14.1 %   $ 227,974       9.875 %   $ 230,860       10.0 %

Wilson Bank

     323,852       14.0       227,915       9.875       230,800       10.0  

Tier 1 capital to risk weighted assets:

                                                

Consolidated

     298,566       12.9       181,802       7.875       138,516       6.0  

Wilson Bank

     296,319       12.8       181,756       7.875       184,641       8.0  

Common equity Tier 1 capital to risk weighted assets:

                                                

Consolidated

     298,566       12.9       147,173       6.375       N/A       N/A  

Wilson Bank

     296,319       12.8       147,136       6.375       150,021       6.5  

Tier 1 capital to average assets:

                                                

Consolidated

     298,566       12.3       97,022       4.0       N/A       N/A  

Wilson Bank

     296,319       11.9       99,373       4.0       124,217       5.0  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

In July 2013, the Federal banking regulators, in response to the Statutory Requirements of The Dodd-Frank Wall Street Reform and Consumer Protection Act, adopted new regulations implementing the Basel Capital Adequacy Accord (“Basel III”) and the related minimum capital ratios. The new capital requirements were effective beginning January 1, 2015. The guidelines under Basel III established a 2.5% capital conservation buffer requirement that was phased in over four years beginning January 1, 2016. The buffer is related to Risk Weighted Assets. In order to avoid limitations on capital distributions such as dividends and certain discretionary bonus payments to executive officers, a banking organization must maintain capital ratios above the minimum ratios including the buffer. The Basel III minimum requirements after giving effect to the buffer as of January 1, of each year presented are as follows:

 

   

2016

    

2017

    

2018

    

2019

  

Common Equity Tier 1 Ratio

     5.125 %     5.75 %     6.375 %     7.0 %

Tier 1 Capital to Risk Weighted Assets Ratio

     6.625 %     7.25 %     7.875 %     8.5 %

Total Capital to Risk Weighted Assets Ratio

     8.625 %     9.25 %     9.875 %     10.5 %

 

The requirements of Basel III also place additional restrictions on the inclusion of deferred tax assets and capitalized mortgage servicing rights as a percentage of Tier 1 Capital. In addition, the risk weights assigned to certain assets such as past due loans and certain real estate loans have been increased.

 

The requirements of Basel III allow banks and bank holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and Wilson Bank have opted out of this requirement.

 

In 2018, the U.S. Congress passed, and the President signed into law, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Growth Act”). The Growth Act, among other things, requires the federal banking agencies to issue regulations allowing community bank organizations with total assets of less than $10.0 billion in assets and limited amounts of certain assets and off-balance sheet exposures to access a simpler capital regime focused on a bank’s Tier 1 leverage capital levels rather than risk-based capital levels that are the focus of the capital rules issued under the Dodd-Frank Act implementing Basel III.

 

In October 2019, the federal banking agencies approved final rules under the Growth Act that exempt a qualifying community bank and its holding company that have community bank leverage ratios, calculated as Tier 1 capital over average total consolidated assets, of greater than 9 percent from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community banking organization and its holding company that have chosen the proposed framework are not required to calculate the existing risk-based and leverage capital requirements. Such a bank would also be considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent.

 

The Growth Act also raised the eligibility for the small bank holding company policy statement to $3 billion of assets from $1 billion.
 

(17)

Salary Deferral Plans

 

The Company provides its executive officers certain 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, 2019 and 2018, the liability related to the Plan totaled $1,786,000 and $1,825,000, respectively. At December 31, 2019 and 2018 the liability related to the SERP Agreements totaled $2,778,000 and $2,491,000, respectively.

 

The Company has purchased life insurance policies to provide the benefits related to the Plan, which at December 31, 2019 and 2018 had an aggregate cash surrender value of $4,657,000 and $4,540,000, respectively, and an aggregate face value of insurance policies in force of $13,526,000 and $13,523,000, 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 its executive 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 $27,105,000 and $26,412,000 and the face amount of the insurance policies in force approximated $61,067,000 and $61,202,000 at December 31, 2019 and 2018, 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, 2019 and 2018 are the Annuity Contracts with an aggregate value of $14,471,000 and $14,558,000, respectively.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(18)

Equity Incentive Plan

 

In April 1999, the stockholders of the Company approved the Wilson Bank Holding Company 1999 Stock Option Plan (the “1999 Stock Option Plan”). The Stock Option Plan provided for the granting of stock options, and authorized the issuance of common stock upon the exercise of such options, for up to 200,000 shares of common stock, to officers and other key employees of the Company and its subsidiary. Furthermore, the Company and its subsidiary could reserve additional shares for issuance under the 1999 Stock Option Plan as needed in order that the aggregate number of shares that could be issued during the term of the 1999 Stock Option Plan was equal to five percent (5%) of the shares of common stock then issued and outstanding. The 1999 Stock Option Plan terminated on April 13, 2009, and no additional rewards may be issued under the 1999 Stock Option Plan. The awards granted under the 1999 Stock Option Plan prior to the plan's termination remained outstanding until exercised or otherwise terminated. As of December 31, 2019, the Company had outstanding no outstanding options under the 1999 Stock Option 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, 2019, the Company had outstanding 20,065 options under the 2009 Stock Option Plan with a weighted average exercise price of $32.66.

 

As of December 31, 2019, the company had outstanding 140,908 stock options with a weighted average exercise price of $40.46 and $32.31. Cash settled stock appreciation rights with weighted average exercise price of $41.75.

 

In October 2019, the federal banking agencies approved final rules under the Growth Act that exempt a qualifying community bank and its holding company that have community bank leverage ratios, calculated as Tier 1 capital over average total consolidated assets, of greater than 9 percent from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community banking organization and its holding company that have chosen the proposed framework are not required to calculate the existing risk-based and leverage capital requirements. Such a bank would also be considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent.

 

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, 2019, the Company had 467,271 shares remaining available for issuance under the 2016 Equity Incentive Plan. As of  December 31, 2019, the Company had outstanding 120,843 stock options with a weighted average exercise price of $41.75 and 132,131 cash-settled stock appreciation rights each with a weighted average exercise price of $41.97.

 

As of December 31, 2019 the company had outstanding 140,908 stock options with a weighted average exercise price of $40.46 and 132,131 cash settled stock appreciation rights with a weighted average exercise price of $41.97.

 

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 2019, 2018 and 2017:

 

   

2019

    

2018

    

2017

  

Expected dividends

     1.60 %     1.22 %     1.27 %

Expected term (in years)

     7.14       9.35       7.79  

Expected stock price volatility

     25 %     24 %     26 %

Risk-free rate

     1.90 %     2.83 %     2.23 %

 

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.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

A summary of the stock option and cash-settled SAR activity for 2019, 2018 and 2017 is as follows:

 

   

2019

    

2018

    

2017

  
           

Weighted Average

            

Weighted Average

            

Weighted Average

  
   

Shares

    

Exercise Price

    

Shares

    

Exercise Price

    

Shares

    

Exercise Price

  

Outstanding at beginning of year

     277,820     $ 40.11       285,780     $ 39.31       183,747     $ 38.09  

Granted

     17,833       51.16       21,666       46.59       112,333       40.87  

Exercised

     (22,614 )     35.78       (22,460 )     37.07       (5,078 )     29.65  

Forfeited or expired

     0       0       (7,166 )     37.53       (5,222 )     39.22  

Outstanding at end of year

     273,039     $ 41.19       277,820     $ 40.11       285,780     $ 39.31  

Options and cash-settled SARs exercisable at year end

     122,932     $ 40.19       94,951     $ 39.14       42,256     $ 36.66  

 

The weighted average fair value at the grant date of options and cash-settled SARs granted during the years 2019, 2018 and 2017 was $13.43, $14.41 and $12.59, respectively. The total intrinsic value of options and cash-settled SARs exercised during the years 2019, 2018 and 2017 was $369,000, $200,000 and $62,000, respectively.

 

The following table summarizes information about outstanding and exercisable stock options and cash-settled SARs at   December 31, 2019:

 

   

Options and Cash-Settled SARs Outstanding

    

Options and Cash-Settled SARs Exercisable

  
                   

Weighted Average

                    

Weighted Average

  

Range of

  

Number

            

Remaining

    

Number

            

Remaining

  

Exercise

  

Outstanding at

    

Weighted Average

    

Contractual Term (In

    

Exercisable at

    

Weighted Average

    

Contractual Term (In

  

Prices

  

12/31/19

    

Exercise Price

    

Years)

    

12/31/19

    

Exercise Price

    

Years)

  

$28.00 - $38.00

   20,065   $ 32.66       2.98       8,487     $ 32.35       2.78  

$38.01 - $51.25

   252,974   $ 41.86       6.68       114,445     $ 40.77       5.74  
      273,039                       122,932                  

Aggregate intrinsic value (in thousands)

   $ 3,703                     $ 1,790                  

 

 

As of December 31, 2019, there was $1,622,000 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the Company’s equity incentive plans. The cost is expected to be recognized over a weighted-average period of 2.51 years.

 
 

(19)

Earnings Per Share

 

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

 

    Years Ended December 31,  
   

2019

    

2018

    

2017

  

Basic EPS Computation:

                        

Numerator – Earnings available to common stockholders

   $ 36,044       32,594       23,526  

Denominator – Weighted average number of common shares outstanding

     10,743,269       10,564,172       10,407,211  

Basic earnings per common share

   $ 3.36       3.09       2.26  

Diluted EPS Computation:

                        

Numerator – Earnings available to common stockholders

   $ 36,044       32,594       23,526  

Denominator – Weighted average number of common shares outstanding

     10,743,269       10,564,172       10,407,211  

Dilutive effect of stock options

     18,198       8,049       5,325  
      10,761,467       10,572,221       10,412,536  

Diluted earnings per common share

   $ 3.35       3.08       2.26  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(20)

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, 2019 and  December 31, 2018, the Company had approximately $10,307,000 and $9,655,000, respectively, of interest rate lock commitments and approximately $14,000,000 and $11,750,000, 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 $328,000 and $335,000 and derivative liabilities of $23,000 and $88,000, respectively, at December 31, 2019 and  December 31, 2018. 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):

 

   

In Thousands

  
   

2019

    

2018

  

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

   $ 65       (88 )

Interest rate contracts for customers

     (7 )     335  

 

The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of December 31, 2019 and  December 31, 2018 (in thousands):

 

   

In Thousands

  
   

2019

    

2018

  
   

Notional Amount

    

Fair Value

    

Notional Amount

    

Fair Value

  

Included in other assets (liabilities):

                                

Interest rate contracts for customers

   $ 10,307       328       9,655       335  

Forward contracts related to mortgage loans held-for-sale

     14,000       (23 )     11,750       (88 )

 
 

(21)

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:

 

 

•

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.  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

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. From time to time, we will validate prices supplied by our third party vendor by comparison to prices obtained from third parties.

 

Impaired loans - A loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the 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 foreclosure, 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 loan 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.

 

Bank Owned Life Insurance - The cash surrender value of bank owned life insurance policies is carried at fair value. The Company uses financial information received from insurance carriers indicating the performance of the insurance policies and cash surrender values in determining the carrying value of life insurance. The Company reflects these assets within Level 3 of the valuation hierarchy due to the unobservable inputs included in the valuation of these items. The Company does not consider the fair values of these policies to be materially sensitive to changes in these unobservable inputs.

 

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

 

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

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The following tables present the financial instruments carried at fair value as of December 31, 2019 and December 31, 2018, 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, 2019

                                

Investment securities available-for-sale:

                                

U.S. Government sponsored enterprises

   $ 59,579       —       59,579       —  

Mortgage-backed securities

     267,313       —       267,313       —  

Asset-backed securities

     27,229       —       27,229       —  

State and municipal securities

     67,024       —       67,024       —  

Total investment securities available-for-sale

     421,145       —       421,145       —  

Mortgage loans held for sale

     18,179       —       18,179       —  

Mortgage banking derivatives

     328       —       328       —  

Bank owned life insurance

     31,762       —       —       31,762  

Total assets

   $ 471,414       —       439,652       31,762  
                                 

Mortgage banking derivatives

   $ 23       —       23       —  

Total liabilities

   $ 23       —       23       —  

 

 

   

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, 2018

                                

Investment securities available-for-sale:

                                

U.S. Government sponsored enterprises

   $ 68,467       —       68,467       —  

Mortgage-backed securities

     147,510       —       147,510       —  

Asset-backed securities

     21,700       —       21,700       —  

State and municipal securities

     47,575       —       47,575       —  

Total investment securities available-for-sale

     285,252       —       285,252       —  

Mortgage loans held for sale

     7,484       —       7,484       —  
Mortgage banking derivatives     335       —       335       —  

Bank owned life insurance

     30,952       —       —       30,952  

Total assets

   $ 324,023       —       293,071       30,952  
                                 
Mortgage banking derivatives   $ 88       —       88       —  
Total liabilities   $ 88       —       88       —  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

   

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, 2019

                                

Other real estate owned

   $ 697       —       —       697  

Impaired loans, net (¹)

     3,916       —       —       3,916  

Total

   $ 4,613       —       —       4,613  

December 31, 2018

                                

Other real estate owned

   $ 1,357       —       —       1,357  

Impaired loans, net (¹)

     4,195       —       —       4,195  

Total

   $ 5,552       —       —       5,552  

 

(¹)

Amount is net of a valuation allowance of $1,136,000 at December 31, 2019 and $1,164,000 at December 31, 2018 as required by ASC 310, “Receivables.”

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2019 and 2018:

 

 

Valuation Techniques (2)

Significant Unobservable Inputs

  

Range (Weighted Average)

  

Impaired loans

Appraisal

Estimated costs to sell

     10 %

Other real estate owned

Appraisal

Estimated costs to sell

     10 %

 

(2) 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, 2019, there were no transfers between Levels 1, 2 or 3.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2019 and 2018 (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):

 

   

For the Year Ended December 31,

  
   

2019

    

2018

  
   

Other Assets

    

Other Assets

  

Fair value, January 1

   $ 30,952     $ 29,475  

Total realized gains included in income

     810       841  

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

     —       —  

Purchases, issuances and settlements, net

     —       636  

Transfers out of Level 3

     —       —  

Fair value, December 31

   $ 31,762       30,952  

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

   $ 810       841  

 

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, 2019 and December 31, 2018. 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 our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.

 

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. We believe current market rates capture a market participant's cost of funds, liquidity premium, capital charges, servicing charges and expectations of future rate movements. 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.

 

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

 

Restricted equity securities - It is not practical to determine the fair value of Federal Home Loan Bank or Federal Reserve Bank stock due to restrictions placed on its transferability.

 

Accrued interest receivable/payable - The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification based on the asset/liability with which they are associated.

 

Off-balance sheet instruments - Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

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, 2019 and December 31, 2018. 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. 

 

(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, 2019

                                        

Financial assets:

                                        

Cash and cash equivalents

   $ 159,770       159,770       159,770       —       —  

Loans, net

     2,057,175       2,053,212       —       —       2,053,212  

Restricted equity securities

     4,680    

NA

    

NA

    

NA

    

NA

  

Accrued interest receivable

     5,945       5,945       5       1,647       4,293  

Financial liabilities:

                                        
       Deposits     2,417,605       2,210,038       —       —       2,210,038  
Federal Home Loan Bank advances     23,613       23,860       —       —       23,860  
       Accrued interest payable     3,814       3,814       —       —       3,814  
                                         

December 31, 2018

                                        

Financial assets:

                                        

Cash and cash equivalents

   $ 99,191       99,191       99,191       —       —  

Loans, net

     2,016,005       2,017,272       —       —       2,017,272  

Restricted equity securities

     3,012    

NA

    

NA

    

NA

    

NA

  

Accrued interest receivable

     6,724       6,724       3       1,362       5,359  

Financial liabilities:

                                        

Deposits

     2,235,655       1,974,554       —       —       1,974,554  

Accrued interest payable

     3,132       3,132       —       —       3,132  

 

(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, 2019, 2018 and 2017

 
 

(22)

Wilson Bank Holding Company -

Parent Company Financial Information

 

 

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Balance Sheets

December 31, 2019 and 2018

 

   

Dollars In Thousands

      
   

2019

      

2018

      

ASSETS

                      

Cash

   $ 1,899   *     2,759   *  

Investment in wholly-owned commercial bank subsidiary

     335,915         293,420      

Deferred income taxes

     625         469      

Refundable income taxes

     132         177      

Total assets

   $ 338,571         296,825      

LIABILITIES AND STOCKHOLDERS’ EQUITY

                      

Stock appreciation rights payable

   $ 1,587         1,158      

Total liabilities

     1,587         1,158      
                       

Stockholders’ equity:

                      

Common stock, par value $2.00 per share, authorized 50,000,000 shares, 10,792,999 and 10,623,810 shares issued and outstanding, respectively

     21,586         21,248      

Additional paid-in capital

     82,249         73,960      

Retained earnings

     232,456         208,164      

Net unrealized gains (losses) on available-for-sale securities, net of income taxes of $245 and $2,726, respectively

     693         (7,705 )    

Total stockholders’ equity

     336,984         295,667      

Total liabilities and stockholders’ equity

   $ 338,571         296,825      

 

*

Eliminated in consolidation.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Earnings

Three Years Ended December 31, 2019

 

   

Dollars In Thousands

      
   

2019

      

2018

      

2017

      

Income:

                                

Dividends from commercial bank subsidiary

   $ 2,800         3,000         1,500      

Expenses:

                                

Directors’ fees

     283         254         334      

Other

     885         1,351         805      
      1,168         1,605         1,139      

Income before Federal income tax benefits and equity in undistributed earnings of commercial bank subsidiary

     1,632         1,395         361      

Federal income tax benefits

     287         468         359      
      1,919         1,863         720      

Equity in undistributed earnings of commercial bank subsidiary

     34,125   *     30,731   *     22,806   *  

Net earnings

   $ 36,044         32,594         23,526      

 

*

Eliminated in consolidation.

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Cash Flows

Three Years Ended December 31, 2019

Increase (Decrease) in Cash and Cash Equivalents

 

   

Dollars In Thousands

  
   

2019

    

2018

    

2017

  

Cash flows from operating activities:

                        

Cash paid to suppliers and other

   $ (383 )     (367 )     (447 )

Tax benefits received

     177       181       169  

Net cash used in operating activities

     (206 )     (186 )     (278 )

Cash flows from investing activities:

                        

Dividends received from commercial bank subsidiary

     2,800       3,000       1,500  

Net cash provided by investing activities

     2,800       3,000       1,500  

Cash flows from financing activities:

                        

Payments made to stock appreciation rights holders

     (9 )     (61 )     —  

Dividends paid

     (11,725 )     (9,447 )     (6,729 )

Proceeds from sale of stock pursuant to dividend reinvestment plan

     9,134       7,470       5,266  

Proceeds from exercise of stock options

     775       394       152  
Repurchase of common stock     (1,629 )     —       —  

Net cash used in financing activities

     (3,454 )     (1,644 )     (1,311 )

Net increase (decrease) in cash and cash equivalents

     (860 )     1,170       (89 )

Cash and cash equivalents at beginning of year

     2,759       1,589       1,678  

Cash and cash equivalents at end of year

   $ 1,899       2,759       1,589  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Cash Flows, Continued

Three Years Ended December 31, 2019

Increase (Decrease) in Cash and Cash Equivalents

 

   

Dollars in Thousands

  
   

2019

    

2018

    

2017

  

Reconciliation of net earnings to net cash used in operating activities:

                        

Net earnings

   $ 36,044       32,594       23,526  

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

                        

Equity in earnings of commercial bank subsidiary

     (36,925 )     (33,731 )     (24,306 )

Decrease (increase) in refundable income taxes

     45       5       (12 )

Increase in deferred taxes

     (156 )     (291 )     (178 )

Share based compensation expense

     786       1,237       692  

Total adjustments

     (36,250 )     (32,780 )     (23,804 )

Net cash used in operating activities

   $ (206 )     (186 )     (278 )

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 
 

(23)

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)

  
   

2019

    

2018

    

2017

  
   

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

   $ 29,897       30,329       29,567       28,284     $ 27,585       26,298       25,548       24,094     $ 23,487       22,904       22,871       21,758  

Interest expense

     5,522       5,991       5,923       5,211       4,606       3,656       3,097       2,659       2,439       2,332       2,094       2,024  

Net interest income

     24,375       24,338       23,644       23,073       22,979       22,642       22,451       21,435       21,048       20,572       20,777       19,734  

Provision for loan losses

     686       167       154       1,033       1,097       1,088       1,090       1,023       436       436       420       389  

Earnings before income taxes

     10,222       13,556       12,451       10,882       10,708       10,718       9,798       10,153       10,694       10,438       11,386       10,362  

Net earnings

     7,972       10,266       9,516       8,290       9,833       7,972       7,309       7,480       3,574       6,469       6,988       6,495  

Basic earnings per common share

     0.74       0.95       0.89       0.77       0.93       0.75       0.69       0.71       0.34       0.62       0.67       0.63  

Diluted earnings per common share

     0.74       0.95       0.89       0.77       0.92       0.75       0.69       0.71       0.34       0.62       0.67       0.63  

 

 
 

 

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2019, 2018 and 2017

 

 
 

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Subsequent Events

 

ASC Topic 855, Subsequent Events, as amended by ASU No. 2010-90, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company evaluated all events or transactions that occurred after December 31, 2019, through the date of the issued financial statements. During this period there were no material recognizable subsequent events that required recognition in the disclosures to the Company's December 31, 2019 financial statements.