WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)
In Thousands, Except Per Share Information
As Of December 31,
2019
2018
2017
2016
2015
$
2,794,209
$
2,057,175
$
421,145
$
2,417,605
$
336,984
2,543,682
2,016,005
285,252
2,235,655
295,667
2,317,033
1,727,253
365,196
2,037,745
267,730
2,198,051
1,667,088
349,209
1,942,135
244,620
2,021,604
1,443,179
359,323
1,789,850
223,438
2019
2018
2017
2016
2015
Years Ended December 31,
CONSOLIDATED
BALANCE SHEETS:
Total assets end of year
Loans, net
Securities
Deposits
Stockholders' equity
CONSOLIDATED STATEMENTS
OF EARNINGS:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Earnings before income taxes
Income taxes
Net earnings
$
118,077
22,647
95,430
2,040
93,390
28,349
74,628
47,111
11,067
$
36,044
Cash dividends declared
$
11,725
PER SHARE DATA: (1)
Basic earnings per common share
Diluted earnings per common share
Cash dividends
Book value
RATIOS:
Return on average stockholders' equity
Return on average assets
Total capital to assets
Dividends declared per share as a percentage of
basic earnings per share
$
3.36
$
3.35
$
1.10
$
31.22
11.31%
1.34%
12.06%
32.74%
103,525
14,018
89,507
4,298
85,209
25,248
69,080
41,377
8,783
32,594
9,447
3.09
3.08
0.90
27.83
11.70
1.35
11.62
29.13
91,020
8,889
82,131
1,681
80,450
22,821
60,391
42,880
19,354
23,526
6,729
2.26
2.26
0.65
25.62
9.06
1.04
11.55
28.76
84,746
8,284
76,462
379
76,083
21,654
57,263
40,474
14,841
25,633
5,756
2.49
2.49
0.56
23.71
10.80
1.21
11.13
22.49
78,839
8,608
70,231
388
69,843
19,941
52,159
37,625
13,762
23,863
4,935
2.35
2.35
0.49
21.90
11.17
1.23
11.05
20.85
(1) Per share data for the year ended December 31, 2015 has been retroactively adjusted to reflect a 4 for 3 stock split which occurred effective March 30, 2016.
13
WB&T | Annual Report 2019
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.
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.
14
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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.
15
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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, an increase of $5,129,000 or 57.70%. The increase in total interest expense in 2019 and 2018. Average interest-
bearing eposits increase 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
16
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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. Overall, Wilson Bank has continued to experience a stabilization in past dues and nonaccruals and
is experiencing fewer foreclosures than it experienced in the recession.
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.
17
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-Interest Income
The components of the Company’s non-interest income includes 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,
gains 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.
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
18
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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:
2019
Years Ended December 31,
2018
(Dollars in Thousands except per share
amounts)
2017
Basic EPS Computation:
Numerator – Earnings available to common
stockholders
Denominator – Weighted average number of
common shares outstanding
Basic earnings per common share
Diluted EPS Computation:
Numerator – Earnings available to common
stockholders
Denominator – Weighted average number of
common shares outstanding
Dilutive effect of stock options
Diluted earnings per common share
$
36,044
32,594
23,526
10,743,269 10,564,172 10,407,211
2.26
$
3.09
3.36
$
36,044
32,594
23,526
18,198
10,743,269 10,564,172 10,407,211
5,325
10,761,467 10,572,221 10,412,536
2.26
$
8,049
3.08
3.35
19
WB&T | Annual Report 2019
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)
Commercial, financial and agricultural $
Installment and other
Real estate – mortgage
Real estate – construction
Total
$
(Dollar Amounts in Thousands)
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
5.2% $
2.6
71.9
20.3
100.0% $
89,554
48,759
1,393,641
518,245
2,050,199
108,883
54,834
1,504,140
425,185
2,093,042
4.3%
2.4
68.0
25.3
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.
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.
20
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
Total
In Thousands
2018
2019
$ 949 $ 948
— —
1,661 1,102
— —
— —
— —
— —
— —
— —
$2,610 $2,050
30-59
Days Past
Due
60-89
Days Past
Due
December 31, 2019
Non-
accrual
and
Greater
Than 90
Days Past
Due
Loans
Greater
Than 90
Days Past
Due and
Accruing
Interest
Past Due Current
Loans
$
Residential 1-4
family
Multifamily
Commercial real
estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural,
installment and other
$
Total
December 31, 2018
$
Residential 1-4
family
Multifamily
Commercial real
estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural,
installment and other
$
Total
4,760
—
500
1,535
57
—
143
71
799
—
—
147
—
—
—
30
2,336
—
7,895
—
503,355 511,250 $
97,104
97,104
1,387
—
1,661
594
8
100
372
—
2,161
2,276
65
100
515
101
791,218 793,379
422,909 425,185
19,268
10,760
72,379
98,265
19,203
10,660
71,864
98,164
—
594
8
100
372
—
517
7,583
116
1,092
46
5,117
679
65,452
64,773
13,792 2,079,250 2,093,042 $
46
2,507
3,258
—
1,092
—
1,868
—
6,218
—
454,474 460,692 $
134,613 134,613
920
—
312
1,567
43
333
297
93
109
26
9
—
—
—
1,174
32
21
—
45
24
1,595
1,625
73
333
342
117
699,460 701,055
516,620 518,245
24,071
11,197
62,013
78,245
23,998
10,864
61,671
78,128
72
32
21
—
45
24
407
6,310
85
1,321
95
3,259
587
60,068
59,481
10,890 2,039,309 2,050,199 $
95
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,
21
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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
Unpaid
Principal Related
Average
Recorded
Recorded
Investment Balance Allowance Investment Recognized
Interest
Income
December 31, 2019
With no related allowance recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
With allowance recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
Total
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
$
$
$
$
$
$
1,090
—
951
—
—
—
—
—
—
2,041
1,489
—
1,522
—
—
—
—
—
—
3,011
2,579
—
2,473
—
—
—
—
—
—
5,052
1,464
—
1,124
—
—
—
—
—
—
2,588
1,480
—
1,520
—
—
—
—
—
—
3,000
2,944
—
2,644
—
—
—
—
—
—
5,588
—
—
—
—
—
—
—
—
—
—
795
—
341
—
—
—
—
—
—
1,136
795
—
341
—
—
—
—
—
—
1,136
1,090
—
910
—
—
—
—
—
—
2,000
1,590
—
2,015
—
—
—
—
—
—
3,605
2,680
—
2,925
—
—
—
—
—
—
5,605
99
—
17
—
—
—
—
—
—
116
83
—
17
—
—
—
—
—
—
100
182
—
34
—
—
—
—
—
—
216
22
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In Thousands
Unpaid
Principal Related
Average
Recorded
Recorded
Investment Balance Allowance Investment Recognized
Interest
Income
With no related allowance recorded:
December 31, 2018
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
With allowance recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
Total
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
$
$
$
$
$
$
1,196
—
317
690
—
—
—
—
—
2,203
1,641
—
1,515
—
—
—
—
—
—
3,156
2,837
—
1,832
690
—
—
—
—
—
5,359
1,795
—
316
686
—
—
—
—
—
2,797
1,635
—
1,515
—
—
—
—
—
—
3,150
3,430
—
1,831
686
—
—
—
—
—
5,947
—
—
—
—
—
—
—
—
—
—
852
—
312
—
—
—
—
—
—
1,164
852
—
312
—
—
—
—
—
—
1,164
1,862
—
320
822
233
—
—
—
—
3,237
1,782
—
2,001
—
—
—
—
—
—
3,783
3,644
—
2,321
822
233
—
—
—
—
7,020
42
—
16
42
—
—
—
—
—
100
77
—
17
—
—
—
—
—
—
94
119
—
33
42
—
—
—
—
—
194
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
23
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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.
24
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company’s classification of securities as of December 31, 2019 and December 31, 2018 is as follows:
(In Thousands)
December 31, 2019
Available-For-Sale
U.S. Government-sponsored enterprises (GSEs)
Mortgage-backed securities
Asset-backed securities
Obligations of state and political subdivisions
Amortized Cost
$
59,735 $
265,648
27,531
67,293
420,207 $
Estimated Market
Value
59,579
267,313
27,229
67,024
421,145
(In Thousands)
December 31, 2018
Available-For-Sale
Estimated
U.S. Government-sponsored enterprises (GSEs)
Mortgage-backed securities
Asset-backed securities
Obligations of state and political subdivisions
Amortized Cost Market Value
$
71,446 $
152,375
22,534
49,328
295,683 $
68,467
147,510
21,700
47,575
285,252
$
$
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
$ 16,507 $
114
5 $ 24,658 $
90
9 $ 41,165 $
204
45,862
182
21 56,917
453
52 102,779
635
17,807
161
10
7,317
142
4 25,124
303
30,423
$110,599 $
783
1,240
26
3,858
62 $ 92,750 $
45
730
10 34,281
75 $ 203,349 $
828
1,970
Available-for-Sale
Securities:
GSEs
Mortgage-backed
securities
Asset-backed
securities
Obligations of states
and political
subdivisions
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.
25
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
Contractual Obligations
The Company’s contractual obligations at December 31, 2019 are as follows:
(In Thousands)
Long-Term Debt
Operating Leases
Deposits with Stated Maturity Dates
Purchases
Other Long-Term Liabilities
Total
Less than
1Year
1 –3
Years
3-5 Years
$
444
8,250 $ 10,486 $
602
326,212 232,946
—
—
4,877 $
116
72,585
—
—
$ 334,906 $ 244,034 $ 77,578 $
—
—
More
than 5
Years
Total
- $ 23,613
1,171
9
250 631,993
—
—
—
—
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.
26
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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.
27
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
2020
2021
2022
2023
2024
Thereafter
Weighted
Average
Rates
Amount
1,000
$
2,500
2,250
2,438
15,425
—
23,613
$
2.65%
2.67
2.68
2.68
2.67
—
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.
The following table shows the rate sensitivity gaps for different time periods as of December 31, 2019:
Interest Rate Sensitivity Gaps
(In Thousands)
Interest-earning assets
Interest-bearing liabilities
Interest-rate sensitivity gap
Cumulative gap
One Year
And
Longer
181-365
Days
91-180
Days
109,045 227,119 1,770,365 2,676,732
(63,386) (134,271) (328,394 ) (2,156,607 )
45,659 92,848 1,441,971 520,125
1-90 Days
570,203
$
(1,630,556)
$(1,060,353)
$(1,060,353) (1,014,694) (921,846) 520,125
Total
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
+100
-100
BP
BP
BP(1)
-200
BP(1)
+300
BP
Net interest
income
EVE
(8.02)% (2.31)% (0.25)% (0.83)% (1.74)%
0.46
(17.93)
(5.96)
(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
28
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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.
29
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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):
Minimum Capital
Adequacy Requirements
With Basel III Capital
Conservation Buffer
Ratio
(dollars in thousands)
Amount
Minimum To Be Well
Capitalized
Under Applicable Prompt
Corrective
Action Regulatory
Provisions
Amount
Ratio
Actual
Amount
Ratio
December 31, 2019
Total capital to risk weighted
assets:
Consolidated
Wilson Bank
$ 360,645
359,576
15.0% $
14.9
253,215
252,675
10.5% $ 241,157
240,643
10.5
10.0%
10.0
Tier 1 capital to risk weighted
assets:
Consolidated
Wilson Bank
Common equity Tier 1 capital to
risk weighted assets:
Consolidated
Wilson Bank
Tier 1 capital to average assets:
331,485
330,416
13.7
13.7
204,984
204,547
8.5
8.5
144,694
192,515
6.0
8.0
331,485
330,416
13.7
13.7
168,810
168,451
7.0
7.0
N/A
156,418
Consolidated
Wilson Bank
331,485
330,416
12.4
11.9
106,565
110,764
4.0
4.0
N/A
138,454
Minimum Capital
Adequacy Requirements
With Basel III Capital
Conservation Buffer
Ratio
Amount
(dollars in thousands)
Minimum To Be Well
Capitalized
Under Applicable Prompt
Corrective
Action Regulatory
Provisions
Amount
Ratio
Actual
Amount
Ratio
December 31, 2018
Total capital to risk weighted
assets:
Consolidated
Wilson Bank
$ 326,099
323,852
14.1% $
14.0
227,974
227,915
9.875% $ 230,860
230,800
9.875
10.0%
10.0
298,566
296,319
12.9
12.8
181,802
181,756
7.875
7.875
138,516
184,641
6.0
8.0
Tier 1 capital to risk weighted
assets:
Consolidated
Wilson Bank
Common equity Tier 1 capital to
risk weighted assets:
Consolidated
Wilson Bank
Tier 1 capital to average assets:
298,566
296,319
12.9
12.8
147,173
147,136
6.375
6.375
N/A
150,021
Consolidated
Wilson Bank
298,566
296,319
12.3
11.9
97,022
99,373
4.0
4.0
N/A
124,217
30
WB&T | Annual Report 2019
N/A
6.5
N/A
5.0
N/A
6.5
N/A
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:
Common Equity Tier 1 Ratio
Tier 1 Capital to Risk Weighted Assets Ratio
Total Capital to Risk Weighted Assets Ratio
2016 2017 2018 2019
5.75%
7.25%
9.25%
6.375 %
7.875 %
9.875 %
5.125%
6.625%
8.625%
7.0 %
8.5 %
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.
31
WB&T | Annual Report 2019
WILSON
BANK HOLDING CO.
YOUR FAMILY FINANCIAL CENTER
623 WEST MAIN ST. • P.O. BOX 768 • LEBANON, TN 37088-0768 • 615-444-2265
32
WB&T | Annual Report 2019
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.KeithWilson,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 (cid:402) SUITE 1220 (cid:402) NASHVILLE, TENNESSEE 37203-3140 (cid:402) (615) 252-6100 (cid:402) Fax (cid:402) (615) 252-6105
www.maggartpc.com
33
WB&T | Annual Report 2019
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.
MAGGART & ASSOCIATES, P.C.
We have served as the Company’s auditor since 1987.
Nashville, Tennessee
February 18, 2020
34
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
December 31, 2019 and 2018
ASSETS
Loans, net of allowance for loan losses of $28,726 and $27,174, respectively
Available-for-sale securities, at market (amortized cost $420,207 and $295,683,
$
2,057,175
2,016,005
Dollars In Thousands
2019
2018
respectively)
Loans held for sale
Interest bearing deposits
Federal funds sold
Restricted equity securities, at cost
Total earning assets
Cash and due from banks
Premises and equipment, net
Accrued interest receivable
Deferred income taxes
Other real estate
Bank owned life insurance
Goodwill
Other assets
421,145
18,179
126,827
20,000
4,680
2,648,006
12,943
60,295
5,945
6,136
697
31,762
4,805
23,620
285,252
7,484
80,215
9,000
3,012
2,400,968
9,976
58,363
6,724
8,901
1,357
30,952
4,805
21,636
Total assets
$
2,794,209
2,543,682
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Federal Home Loan Bank advances
Accrued interest and other liabilities
Total liabilities
$
2,417,605
23,613
16,007
2,457,225
2,235,655
-
12,360
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
Additional paid-in capital
Retained earnings
Net unrealized gains (losses) on available-for-sale securities, net of taxes of
$245 and $2,726, respectively
Total stockholders' equity
COMMITMENTS AND CONTINGENCIES
21,586
82,249
232,456
693
336,984
21,248
73,960
208,164
(7,705 )
295,667
Total liabilities and stockholders' equity
$
2,794,209
2,543,682
See accompanying notes to consolidated financial statements.
35
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
Three Years Ended December 31, 2019
Interest income:
Interest and fees on loans
Interest and dividends on securities:
Taxable securities
Exempt from Federal income taxes
Interest on loans held for sale
Interest on Federal funds sold
Interest on interest bearing deposits
Interest and dividends on restricted equity securities
Total interest income
Interest expense:
Interest on negotiable order of withdrawal accounts
Interest on money market accounts and other savings accounts
Interest on certificates of deposit and individual retirement
accounts
Interest on securities sold under repurchase agreements
Interest on Federal funds purchased
Interest on Federal Home Loan Bank advances
Total interest expense
Net interest income before provision for loan losses
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Earnings before income taxes
Income taxes
Net earnings
Basic earnings per common share
Diluted earnings per common share
Dollars In Thousands (except per share data)
2017
2018
2019
$
105,783
8,559
773
325
275
2,164
198
118,077
2,311
6,855
12,896
-
4
581
22,647
95,430
2,040
93,390
28,349
(74,628 )
47,111
11,067
36,044
3.36
3.35
$
$
$
94,917
6,158
1,020
184
83
979
184
103,525
1,823
4,231
7,944
16
4
83,120
5,397
1,208
324
97
723
151
91,020
1,308
2,211
5,353
9
8
-
-
14,018
89,507
4,298
85,209
25,248
(69,080 )
41,377
8,783
32,594
3.09
3.08
8,889
82,131
1,681
80,450
22,821
(60,391 )
42,880
19,354
23,526
2.26
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.
36
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings
Three Years Ended December 31, 2019
2019
Dollars In Thousands
2018
2017
$
36,044
32,594
23,526
437
108
545
24,071
Net earnings
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 )
Reclassification adjustment for net losses included in net
earnings, net of taxes of $70, $170 and $67, respectively
Other comprehensive earnings (losses)
198
8,398
Comprehensive earnings
$
44,442
480
(3,470 )
29,124
See accompanying notes to consolidated financial statements.
37
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 2019
Common
Stock
Additional
Paid-In
Capital
Dollars In Thousands
Net Unrealized
Gain (Loss) On
Available-For-
Sale Securities
Retained
Earnings
Balance December 31, 2016
$
20,639
60,541
167,523
(4,083 )
Cash dividends declared, $.65 per share
-
-
(6,729 )
-
Issuance of 125,960 shares of common stock
pursuant to dividend reinvestment plan
Issuance of 5,078 shares of common stock
pursuant to exercise of stock options
252
10
5,014
-
-
142
-
-
Total
244,620
(6,729 )
5,266
152
-
-
-
697
(697 )
-
350
-
-
350
Reclassification of deferred tax asset
revaluation
Share based compensation expense
Net change in fair value of available-for-
sale securities during the year, net of
taxes of $338
Net earnings for the year
Balance December 31, 2017
-
-
-
-
-
545
23,526
-
20,901
66,047
185,017
(4,235 )
Cash dividends declared, $.90 per share
-
-
(9,447 )
-
Issuance of 161,514 shares of common stock
pursuant to dividend reinvestment plan
Issuance of 11,585 shares of common stock
pursuant to exercise of stock options
324
23
Share based compensation expense
-
7,146
-
-
371
396
-
-
-
-
Net change in fair value of available-for-
sale securities during the year, net of
taxes of $1,228
Net earnings for the year
Balance December 31, 2018
-
-
-
-
-
(3,470 )
32,594
-
21,248
73,960
208,164
(7,705 )
Cash dividends declared, $1.10 per share
-
-
(11,725 )
-
Issuance of 179,199 shares of common stock
pursuant to dividend reinvestment plan
Issuance of 21,764 shares of common stock
pursuant to exercise of stock options
358
44
Share based compensation expense
-
8,776
-
-
731
347
-
-
-
-
Net change in fair value of available-for-
sale securities during the year, net of
taxes of $2,971
Cumulative effect of accounting change
-
-
-
-
-
8,398
(27 )
-
Repurchase of 31,774 common shares
(64 )
(1,565 )
-
Net earnings for the year
-
-
36,044
-
Balance December 31, 2019
$
21,586
82,249
232,456
693
See accompanying notes to consolidated financial statements.
38
WB&T | Annual Report 2019
545
23,526
267,730
(9,447 )
7,470
394
396
(3,470 )
32,594
295,667
(11,725 )
9,134
775
347
8,398
(27 )
(1,629 )
36,044
336,984
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
Three Years Ended December 31, 2019
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Interest received
Fees and other income received
Proceeds from sales of loans
Origination of loans held for sale
Interest paid
Cash paid to suppliers and employees
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of available-for-sale securities
Proceeds from calls, maturities and paydowns of available-for-sale
securities
Proceeds from sale of available-for-sale securities
Purchase of restricted equity securities
Proceeds from maturities and paydowns of held-to-maturity securities
Proceeds from sale of held-to-maturity securities
Loans made to customers, net of repayments
Purchase of bank owned life insurance and annuity contracts
Purchase of bank premises and equipment
Proceeds from sale of other assets
Proceeds from sale of other real estate
Net cash used in investing activities
Cash flows from financing activities:
Net increase in non-interest bearing, savings, NOW and money
market deposit accounts
Net increase in time deposits
Net increase (decrease) in securities sold under agreements to
repurchase
Net increase in Federal Home Loan Bank advances
Dividends paid
Proceeds from sale of common stock pursuant to dividend
reinvestment
Repurchase of common stock
Proceeds from sale of common stock pursuant to exercise of
stock options
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
2019
Dollars In Thousands
2018
2017
$
121,366
27,987
157,028
(167,723 )
(21,966 )
(69,681 )
(10,934 )
36,077
105,318
20,503
131,321
(129,060 )
(12,565 )
(64,186 )
(10,558 )
40,773
93,506
17,876
149,775
(135,835 )
(8,612 )
(57,643 )
(16,400 )
42,667
(255,432 )
(9,118 )
(96,180 )
90,805
37,325
(1,668 )
36,955
35,093
38,839
35,555
-
-
-
-
(43,568 )
-
(6,044 )
14
952
(177,616 )
4,651
4,764
(293,655 )
(4,301 )
(7,752 )
4
796
(232,563 )
3,859
-
(61,826 )
-
(12,660 )
43
2,876
(89,494 )
163,720
18,230
-
101,248
96,662
(864 )
87,116
8,494
128
23,613
(11,725 )
9,134
(1,629 )
775
202,118
60,579
99,191
-
-
(9,447 )
7,470
(6,729 )
5,266
-
-
394
195,463
3,673
95,518
99,191
152
94,427
47,600
47,918
95,518
Cash and cash equivalents at end of year
$
159,770
See accompanying notes to consolidated financial statements.
39
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 2019
Increase (Decrease) in Cash and Cash Equivalents
Reconciliation of net earnings to net cash provided by operating
activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by
operating activities:
2019
Dollars In Thousands
2018
2017
$
36,044
32,594
23,526
Depreciation, amortization and accretion
Provision for loan losses
Share-based compensation expense
Provision for deferred tax benefit
Revaluation of deferred tax assets due to change in tax rates
Loss (gain) on sales of other real estate, net
Loss on sales of other assets
Loss on disposal of premises and equipment
Security losses
Decrease (increase) in loans held for sale
Increase (decrease) in taxes payable
Increase in other assets, bank owned life insurance and
annuity contract earnings
Decrease (increase) in accrued interest receivable
Increase in interest payable
Increase (decrease) in other liabilities
Total adjustments
6,494
2,040
347
(206 )
5,853
4,298
1,237
(248 )
-
-
48
4
128
268
(10,695 )
339
(194 )
779
682
(1 )
33
80
3
2
650
(2,378 )
(1,526 )
(1,684 )
(458 )
1,453
897
8,179
Net cash provided by operating activities
$
36,077
40,773
5,507
1,681
692
(607 )
3,603
(6 )
15
-
175
9,682
(42 )
(1,231 )
(162 )
277
(443 )
19,141
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
Non-cash transfers from held-to-maturity securities to
available-for-sale securities
Non-cash transfers from loans to other real estate
Non-cash transfers from other real estate to loans
Non-cash transfers from loans to other assets
$
8,398
(3,470 )
545
$ -
22,800
-
$
$
$
884
544
18
$
693
95
7
173
195
2
See accompanying notes to consolidated financial statements.
40
WB&T | Annual Report 2019
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.
41
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(e)
Loans, Continued
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 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.
(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.
42
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(f)
Allowance for Loan Losses, Continued
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.
(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.
43
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(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.
(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.
44
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(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 value 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.
(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.
45
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(r)
Equity-Based Incentives, Continued
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)
Reclassifications
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.
(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.
46
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(x)
Accounting Standard Updates, Continued
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.
47
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(x)
Accounting Standard Updates, Continued
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 currently not 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 will become 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.
48
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(1)
Summary of Significant Accounting Policies, Continued
(x)
Accounting Standard Updates, Continued
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.
49
WB&T | Annual Report 2019
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:
Mortgage loans on real estate:
Residential 1-4 family
Multifamily
Commercial
Construction
Farmland
Second mortgages
Equity lines of credit
Total mortgage loans on real estate
Commercial loans
Agricultural loans
Consumer installment loans:
Personal
Credit cards
Total consumer installment loans
Other loans
Net deferred loan fees
Total loans
In Thousands
2019
2018
$
511,250
97,104
793,379
425,185
19,268
10,760
72,379
1,929,325
98,265
1,569
50,532
4,302
54,834
9,049
460,692
134,613
701,055
518,245
24,071
11,197
62,013
1,911,886
78,245
1,985
45,072
3,687
48,759
9,324
2,093,042
(7,141 )
2,050,199
(7,020 )
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
New loans and renewals during the year
Repayments (including loans paid by renewal)
during the year
Balance, December 31
$
$
13,019
31,548
(31,689)
12,878
7,759
17,278
(12,018)
13,019
50
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(2)
Loans and Allowance for Loan Losses, Continued
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 repayments 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.
51
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(2)
Loans and Allowance for Loan Losses, Continued
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.
The following tables, present the Company’s impaired loans at December 31, 2019 and 2018:
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
December 31, 2019
With no related allowance
recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
1,090
$
-
1,464
-
951
1,124
-
-
-
-
-
-
$
2,041
-
-
-
-
-
-
2,588
-
-
-
-
-
-
-
-
-
-
1,090
-
-
910
99
17
-
-
-
-
-
-
-
-
-
-
-
-
2,000
116
52
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(2)
Loans and Allowance for Loan Losses, Continued
December 31, 2019
With allowance recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
December 31, 2019
Total:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
December 31, 2018
With no related allowance
recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
1,489
$
-
1,522
-
-
-
-
-
1,480
795
1,590
-
-
-
-
1,520
341
2,015
83
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
3,011
-
-
-
-
3,000
1,136
3,605
100
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
2,579
$
-
2,473
2,944
795
2,680
182
-
-
-
-
2,644
341
2,925
34
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
5,052
-
-
-
-
5,588
1,136
5,605
216
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
1,196
$
-
1,795
-
317
690
316
686
-
-
-
-
-
$
2,203
-
-
-
-
-
2,797
-
-
-
-
-
-
-
-
-
-
42
16
42
1,862
-
-
320
822
233
-
-
-
-
-
-
-
-
-
3,237
100
53
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(2)
Loans and Allowance for Loan Losses, Continued
December 31, 2018
With allowance recorded:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
December 31, 2018
Total:
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment
and other
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
1,641
$
-
1,515
-
-
-
-
-
1,635
852
1,782
-
-
-
-
1,515
312
2,001
77
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
3,156
-
-
-
-
3,150
1,164
3,783
94
Recorded
Investment
Unpaid
Principal
Balance
In Thousands
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
2,837
$
-
1,832
690
-
-
-
-
-
$
5,359
3,430
852
3,644
119
-
-
-
-
1,831
686
-
-
-
-
312
-
-
-
-
-
2,321
822
233
-
-
-
33
42
-
-
-
-
-
-
-
-
5,947
1,164
7,020
194
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
Residential 1-4 family
Multifamily
Commercial real estate
Construction
Farmland
Second mortgages
Equity lines of credit
Commercial
Agricultural, installment and other
Total
In Thousands
2019
2018
$
-
949
1,661
948
-
1,102
-
-
-
-
-
-
$
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.
54
WB&T | Annual Report 2019
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59
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(2)
Loans and Allowance for Loan Losses, Continued
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.
(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:
Government-sponsored enterprises
(GSEs)
Mortgage-backed securities
Asset-backed securities
Obligations of states and political
subdivisions
Securities Available-For-Sale
In Thousands
Gross
Unrealized
Gains
Gross
Unrealized
Losses
48
2,300
1
559
2,908
204
635
303
828
1,970
Amortized
Cost
$
$
59,735
265,648
27,531
67,293
420,207
The Company’s classification of securities at December 31, 2018 is as follows:
Government-sponsored enterprises
(GSEs)
Mortgage-backed securities
Asset-backed securities
Obligations of states and political
subdivisions
Securities Available-For-Sale
In Thousands
Gross
Unrealized
Gains
Gross
Unrealized
Losses
-
9
10
22
41
2,979
4,874
844
1,775
10,472
Amortized
Cost
$
$
71,446
152,375
22,534
49,328
295,683
Estimated
Market
Value
59,579
267,313
27,229
67,024
421,145
Estimated
Market
Value
68,467
147,510
21,700
47,575
285,252
There were no debt and equity securities classified as held-to-maturity at December 31, 2019 and 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.
60
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(3)
Debt and Equity Securities, Continued
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.
Securities Available-For-Sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage and asset-backed securities
In Thousands
Estimated
Market
Value
471
18,319
56,622
51,191
126,603
294,542
421,145
Amortized
Cost
$
$
472
18,332
56,626
51,598
127,028
293,179
420,207
Results from sales of debt and equity securities are as follows:
Gross proceeds
Gross realized gains
Gross realized losses
Net realized gains (losses)
2019
In Thousands
2018
2017
37,325
39,857
35,555
75
(343 )
(268 )
102
(752 )
(650 )
76
(251 )
(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 States of Tennessee, Idaho, Missouri, and Texas. Management
purchases only obligations of such political subdivisions it considers to be financially sound.
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.
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.
61
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(3)
Debt and Equity Securities, Continued
Available-for-sale securities that have been in a continuous unrealized loss position at December 31, 2019 and 2018 are
as follows:
Less than 12 Months
12 Months or More
Total
In Thousands, Except Number of Securities
Fair
Value
Unrealized
Losses
Number
of
Securities
Included
Fair
Value
Unrealized
Losses
Number
of
Securities
Included
Fair
Value
Unrealized
Losses
2019
Available-for-Sale Securities:
Debt securities:
GSEs
Mortgage-backed securities
Asset-backed securities
Obligations of states and
political subdivisions
2018
Available-for-Sale Securities:
Debt securities:
GSEs
$ 16,507
$
45,862
17,807
30,423
114
182
161
783
$ 110,599
$
1,240
5
21
10
26
62
$ 24,658
$
56,917
7,317
3,858
90
453
142
45
$ 92,750
$
730
$ -
$ -
-
$ 68,467
$
2,979
Mortgage-backed securities
8,651
64
10
137,457
Asset-backed securities
-
-
-
20,597
4,810
844
Obligations of states and
political subdivisions
4,064
$ 12,715
$
26
90
6
16
39,841
1,749
$266,362
$ 10,382
9
52
4
10
75
28
94
14
94
230
$ 41,165
$
102,779
25,124
34,281
204
635
303
828
$ 203,349
$
1,970
$ 68,467
$
2.979
146,108
20,597
4,874
844
43,905
1,775
$ 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.
62
WB&T | Annual Report 2019
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:
Land
Buildings
Leasehold improvements
Furniture and equipment
Automobiles
Construction-in-progress
Less accumulated depreciation
In Thousands
2019
17,093
46,389
533
13,000
243
1,339
78,597
(18,302 )
60,295
$
$
2018
17,022
44,921
492
12,600
343
100
75,478
(17,115 )
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,
Goodwill acquired during year
Impairment loss
Balance at December 31,
(7)
Deposits
Deposits at December 31, 2019 and 2018 are summarized as follows:
4,805
$
-
-
$
4,805
4,805
-
-
4,805
Demand deposits
Savings accounts
Negotiable order of withdrawal accounts
Money market demand accounts
Certificates of deposit $250,000 or greater
Other certificates of deposit
Individual retirement accounts $250,000 or greater
Other individual retirement accounts
63
WB&T | Annual Report 2019
In Thousands
2019
2018
$
284,611
140,270
558,745
801,986
131,899
425,222
10,646
64,226
$ 2,417,605
254,157
136,645
503,435
727,654
134,506
402,690
8,525
68,043
2,235,655
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(7)
Deposits, Continued
Principal maturities of certificates of deposit and individual retirement accounts at December 31, 2019 are as follows:
Maturity
2020
2021
2022
2023
2024
Thereafter
(In Thousands)
Total
$
$
326,212
160,368
72,578
51,327
21,258
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 Bank’s 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:
2020
2021
2022
2023
2024
Thereafter
(In Thousands)
Total
$
8,250
5,828
4,658
3,929
948
-
$
23,613
(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:
Non-interest income:
Service charges on deposits
Other fees and commissions
BOLI and annuity earnings
Security losses, net
Fees and gains on sales of mortgage loans
Gain (loss) on sale of other real estate, net
Loss on sales of premises and equipment, net
Loss on sales of other assets, net
64
WB&T | Annual Report 2019
2019
6,952
14,233
810
(268 )
6,802
(48 )
(128 )
(4 )
28,349
$
$
In Thousands
2018
6,799
13,704
841
(650 )
4,639
(80 )
(2 )
(3 )
25,248
2017
6,124
11,752
871
(175 )
4,258
6
-
(15 )
22,821
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(9)
Non-Interest Income and Non-Interest Expense, Continued
Non-interest expense:
Employee salaries and benefits
Equity-based compensation
Occupancy expenses
Furniture and equipment expenses
Data processing expenses
Advertising expenses
ATM and interchange fees
Accounting, legal and consulting expenses
FDIC insurance
Directors' fees
Other operating expenses
2019
In Thousands
2018
2017
$
$
42,541
786
4,789
3,110
4,495
2,498
3,439
1,382
373
586
10,629
74,628
39,590
1,237
4,403
2,767
2,900
2,552
3,091
977
843
543
10,177
69,080
35,830
692
3,718
2,085
2,834
2,326
2,569
500
683
677
8,477
60,391
(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:
Deferred tax asset:
Federal
State
Deferred tax liability:
Federal
State
In Thousands
2019
2018
$
7,444
2,240
9,684
(2,666 )
(882 )
(3,548 )
9,046
2,739
11,785
(2,167 )
(717 )
(2,884 )
Net deferred tax asset
$
6,136
8,901
65
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(10)
Income Taxes, Continued
The tax effects of each type of significant item that gave rise to deferred tax assets (liabilities) are:
Financial statement allowance for loan losses in excess of
tax allowance
Excess of depreciation deducted for tax purposes over the
amounts deducted in the financial statements
Financial statement deduction for deferred compensation in
excess of deduction for tax purposes
Writedown of other real estate not deductible for income
tax purposes until sold
Financial statement income on FHLB stock dividends not
recognized for tax purposes
Unrealized loss (gain) on securities available-for-sale
Equity based compensation
Other items, net
Net deferred tax asset
The components of income tax expense (benefit) are summarized as follows:
In Thousands
2019
2018
$
7,283
6,846
(2,976 )
(2,557 )
1,193
157
(327 )
(245 )
625
426
6,136
$
1,128
176
(327 )
2,726
469
440
8,901
2019
Current
Deferred
Total
2018
Current
Deferred
Total
2017
Current
Deferred
Total
Federal
In Thousands
State
$
$
$
$
$
$
10,134
(335 )
9,799
8,310
(136 )
8,174
14,004
3,205
17,209
1,411
(143 )
1,268
721
(112 )
609
2,354
(209 )
2,145
Total
11,545
(478 )
11,067
9,031
(248 )
8,783
16,358
2,996
19,354
66
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(10)
Income Taxes, Continued
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:
Computed "expected" tax expense
State income taxes, net of Federal income tax benefit
Tax exempt interest, net of interest expense exclusion
Federal income tax rate in excess of statutory rate
related to taxable income over $10 million
Earnings on cash surrender value of life insurance
Expenses not deductible for tax purposes
Equity based compensation expense
Revaluation of Federal deferred tax assets due to
change in tax rates
Other
2019
In Thousands
2018
$
9,893
1,056
(186 )
8,689
432
(226 )
-
-
(170 )
37
15
(177 )
16
(39 )
-
422
$ 11,067
-
88
8,783
2017
14,579
1,346
(415 )
399
(292 )
43
16
3,603
75
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 millions 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.
(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.
67
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(11)
Commitments and Contingent Liabilities, Continued
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
2021
2022
2023
2024
Thereafter
$
444
387
215
112
4
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
Standby letters of credit
Total
$
$
632,686
72,901
705,587
582,897
80,165
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.
68
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(12)
Financial Instruments with Off-Balance-Sheet Risk, Continued
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 1/2. 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.
69
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(16)
Regulatory Matters and Restrictions on Dividends, Continued
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:
December 31, 2019
Total capital to risk
weighted assets:
Consolidated
Wilson Bank
Tier 1 capital to risk
weighted assets:
Consolidated
Wilson Bank
Common equity Tier 1
capital to risk weighted
assets:
Consolidated
Wilson Bank
Tier 1 capital to average
assets:
Consolidated
Wilson Bank
December 31, 2018
Total capital to risk
weighted assets:
Consolidated
Wilson Bank
Tier 1 capital to risk
weighted assets:
Consolidated
Wilson Bank
Common equity Tier 1
capital to risk weighted
assets:
Consolidated
Wilson Bank
Tier 1 capital to average
assets:
Consolidated
Wilson Bank
Actual
Amount
Ratio
Regulatory Minimum
Capital Requirement
with Basel III Capital
Conservation Buffer
Amount
Ratio
(dollars in thousands)
Regulatory Minimum
To Be Well Capitalized
Amount
Ratio
$ 360,645
359,576
15.0%
14.9
$ 253,215
252,675
10.5%
10.5
$ 241,157
240,643
10.0%
10.0
331,485
330,416
13.7
13.7
204,984
204,547
331,485
330,416
331,485
330,416
13.7
13.7
12.4
11.9
168,810
168,451
106,565
110,764
8.5
8.5
7.0
7.0
4.0
4.0
144,694
192,515
6.0
8.0
N/A
156,418
N/A
6.5
N/A
138,454
N/A
5.0
$ 326,099
323,852
14.1%
14.0
$ 227,974
227,915
9.875%
9.875
$ 230,860
230,800
10.0%
10.0
298,566
296,319
12.9
12.8
181,802
181,756
7.875
7.875
138,516
184,641
6.0
8.0
298,566
296,319
298,566
296,319
12.9
12.8
12.3
11.9
147,173
147,136
6.375
6.375
N/A
150,021
N/A
6.5
97,022
99,373
4.0
4.0
N/A
124,217
N/A
5.0
70
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(16)
Regulatory Matters and Restrictions on Dividends, Continued
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
Total Capital to Risk
Weighted Assets Ratio
6.625%
7.25%
7.875%
8.5%
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.
71
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(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.
(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 awards 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 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 may 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 may be granted under the 2009 Stock Option Plan is 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.
72
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(18)
Equity Incentive Plan, Continued
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 with a weighted average
exercise price of $41.97 under the 2016 Equity Incentive Plan.
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:
Expected dividends
Expected term (in years)
Expected stock price volatility
Risk-free rate
2019
1.60%
7.14
25%
1.90%
2018
1.22%
9.35
24%
2.83%
2017
1.27%
7.79
26%
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.
A summary of the stock option and cash-settled SAR activity for 2019, 2018 and 2017 is as follows:
2019
2018
2017
Weighted
Average
Exercise
Shares
Price
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
277,820
17,833
(22,614 )
-
$ 40.11
51.16
35.78
-
285,780
21,666
(22,460 )
(7,166 )
$ 39.31
46.59
37.07
37.53
183,747
112,333
(5,078 )
(5,222 )
$ 38.09
40.87
29.65
39.22
273,039
$ 41.19
277,820
$ 40.11
285,780
$ 39.31
122,932
$ 40.19
94,951
$ 39.14
42,256
$ 36.66
Outstanding at
beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end
of year
Options and cash-settled
SARs exercisable
at year end
73
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(18)
Equity Incentive Plan, Continued
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 tables summarize information about outstanding and exercisable stock options and cash-settled SARs at
December 31, 2019:
Options and Cash-Settled SARs Outstanding
Weighted
Average
Remaining
Contractual
Term
Weighted
Average
Exercise
Price
Number
Outstanding
at 12/31/19
Options and Cash-Settled SARs Exercisable
Weighted
Average
Remaining
Contractual
Term
Weighted
Average
Exercise
Price
Number
Exercisable
at 12/31/19
Range of
Exercise
Prices
$28.00 - $38.00
$38.01 - $51.25
20,065
252,974
$
$
32.66
41.86
2.98 years
6.68 years
Aggregate
intrinsic value
(in thousands)
273,039
$
3,703
$
$
32.35
40.77
2.78 years
5.74 years
8,487
114,445
122,932
$
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”):
Basic EPS Computation:
Numerator - Earnings available to common
stockholders
Denominator - Weighted average number of
common shares outstanding
Basic earnings per common share
Diluted EPS Computation:
Numerator - Earnings available to common
stockholders
Denominator - Weighted average number of
common shares outstanding
Dilutive effect of stock options
In Thousands (except share data)
2018
2017
2019
$
$
36,044
32,594
23,526
10,743,269
3.36
10,564,172
3.09
10,407,211
2.26
$
36,044
32,594
23,526
10,743,269
18,198
10,761,467
10,564,172
8,049
10,572,221
10,407,211
5,325
10,412,536
Diluted earnings per common share
$
3.35
3.08
2.26
74
WB&T | Annual Report 2019
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 2018, the Company had approximately
$10,307,000 and $9,655,000 of interest rate lock commitments and approximately $14,000,000 and $11,750,000 of
forward commitments for the future delivery of residential mortgage loans, respectively. The fair value of these
mortgage banking derivatives was reflected by a derivative asset and liability of $328,000 and $335,000 and $23,000
and $88,000, respectively, at December 31, 2019 and 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)
2019
2018
Forward contracts related to mortgage loans
held for sale and interest rate contracts
Interest rate contracts for customers
$
65
(7)
(88 )
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 2018:
Included in other assets (liabilities):
Interest rate contracts for customers
Forward contracts related to mortgage
loans held-for-sale
2019
2018
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$ 10,307
14,000
328
(23)
9,655
11,750
335
(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:
(cid:120)
(cid:120)
(cid:120)
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.
75
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(21)
Disclosures About Fair Value of Financial Instruments, Continued
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.
Assets
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).
76
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(21)
Disclosures About Fair Value of Financial Instruments, Continued
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):
Total Carrying
Value in the
Consolidated
Balance
Sheet
Measured on a Recurring Basis
Models with
Significant
Observable
Market
Parameters
(Level 2)
Quoted Market
Prices in an
Active Market
(Level 1)
Models with
Significant
Unobservable
Market
Parameters
(Level 3)
$
$
$
$
$
$
$
$
59,579
267,313
27,229
67,024
421,145
18,179
328
31,762
471,414
-
-
-
-
-
-
-
-
-
59,579
267,313
27,229
67,024
421,145
18,179
328
-
-
-
-
-
-
-
-
439,652
31,762
31,762
23
23
-
-
23
23
-
-
68,467
147,510
21,700
47,575
285,252
7,484
335
30,952
324,023
-
-
-
-
-
-
-
-
-
68,467
147,510
21,700
47,575
285,252
7,484
335
-
-
-
-
-
-
-
-
293,071
30,952
30,952
88
88
-
-
88
88
-
-
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)
$
$
$
$
697
3,916
4,613
1,357
4,195
5,552
-
-
-
-
-
-
-
-
-
-
-
-
697
3,916
4,613
1,357
4,195
5,552
December 31, 2019
Investment securities available-for-sale:
U.S. Government sponsored enterprises
Mortgage-backed securities
Asset-backed securities
State and municipal securities
Total investment securities available-for-sale
Mortgage loans held for sale
Mortgage banking derivatives
Bank owned life insurance
Total assets
Mortgage banking derivatives
Total liabilities
December 31, 2018
Investment securities available-for-sale:
U.S. Government sponsored enterprises
Mortgage-backed securities
Asset-backed securities
State and municipal securities
Total investment securities available-for-sale
Mortgage loans held for sale
Mortgage banking derivatives
Bank owned life insurance
Total assets
Mortgage banking derivatives
Total liabilities
December 31, 2019
Other real estate owned
Impaired loans, net (¹)
Total
December 31, 2018
Other real estate owned
Impaired loans, net (¹)
Total
(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.”
77
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(21)
Disclosures About Fair Value of Financial Instruments, Continued
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
Other real estate owned
Appraisal
Appraisal
Estimated costs to sell
Estimated costs to sell
10%
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.
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):
Fair value, January 1
Total realized gains included in income
Change in unrealized gains/losses included in other comprehensive
income for assets still held at December 31
Purchases, issuances and settlements, net
Transfers out of Level 3
Fair value, December 31
Total realized gains included in income related to financial assets
still on the consolidated balance sheet at December 31
For the Year Ended December 31,
2019
Other
Assets
2018
Other
Assets
$
30,952
810
$
29,475
841
-
-
-
$
31,762
-
636
-
$
30,952
$
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 ince
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.
78
WB&T | Annual Report 2019
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(21)
Disclosures About Fair Value of Financial Instruments, Continued
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 premiums, 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 assets/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.
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.
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)
$
159,770
2,057,175
4,680
5,945
159,770
2,053,212
N/A
5,945
159,770
-
-
-
N/A
5
N/A
1,647
-
2,053,212
N/A
4,293
2,417,605
2,210,038
-
-
2,210,038
23,613
3,814
23,860
3,814
-
-
-
-
23,860
3,814
$
99,191
2,016,005
3,012
6,724
99,191
2,017,272
N/A
6,724
99,191
-
-
-
N/A
3
N/A
1,362
-
2,017,272
N/A
5,359
2,235,655
3,132
1,974,554
3,132
-
-
-
-
1,974,554
3,132
(in Thousands)
December 31, 2019
Financial assets:
Cash and cash equivalents
Loans, net
Restricted equity securities
Accrued interest receivable
Financial liabilities:
Deposits
Federal Home Loan Bank
advances
Accrued interest payable
December 31, 2018
Financial assets:
Cash and cash equivalents
Loans, net
Restricted equity securities
Accrued interest receivable
Financial liabilities:
Deposits
Accrued interest payable
(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.
79
WB&T | Annual Report 2019
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
ASSETS
Cash
Investment in wholly-owned commercial bank subsidiary
Deferred income taxes
Refundable income taxes
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Dollars In Thousands
2019
2018
$
1,899*
335,915
625
132
2,759*
293,420
469
177
$
338,571
296,825
Stock appreciation rights payable
Total liabilities
$
1,587
1,587
1,158
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
Additional paid-in capital
Retained earnings
Net unrealized gains (losses) on available-for-sale securities, net of
income taxes of $245 and $2,726, respectively
Total stockholders’ equity
21,586
82,249
232,456
693
336,984
21,248
73,960
208,164
(7,705 )
295,667
Total liabilities and stockholders' equity
$
338,571
296,825
*Eliminated in consolidation.
80
WB&T | Annual Report 2019
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, Continued
WILSON BANK HOLDING COMPANY
(Parent Company Only)
Statements of Earnings
Three Years Ended December 31, 2019
2019
Dollars In Thousands
2018
2017
Income:
Dividends from commercial bank subsidiary
$
2,800
3,000
1,500
Expenses:
Directors’ fees
Other
Income before Federal income tax benefits and equity
in undistributed earnings of commercial bank
subsidiary
Federal income tax benefits
283
885
1,168
1,632
287
1,919
254
1,351
1,605
1,395
468
1,863
334
805
1,139
361
359
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.
81
WB&T | Annual Report 2019
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, Continued
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
2018
2019
2017
Cash flows from operating activities:
Cash paid to suppliers and other
Tax benefits received
Net cash used in operating activities
$
Cash flows from investing activities:
Dividends received from commercial bank subsidiary
Net cash provided by investing activities
Cash flows from financing activities:
Payments made to stock appreciation rights holders
Dividends paid
Proceeds from sale of stock pursuant to dividend
reinvestment plan
Proceeds from exercise of stock options
Repurchase of common stock
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
(383 )
177
(206 )
2,800
2,800
(9 )
(11,725 )
9,134
775
(1,629 )
(3,454 )
(860 )
2,759
Cash and cash equivalents at end of year
$
1,899
(367 )
181
(186 )
3,000
3,000
(61 )
(9,447 )
7,470
394
(447 )
169
(278 )
1,500
1,500
-
(6,729 )
5,266
152
-
-
(1,644 )
(1,311 )
1,170
1,589
2.759
(89 )
1,678
1,589
82
WB&T | Annual Report 2019
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, Continued
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
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings
$
36,044
32,594
23,526
Dollars In Thousands
2018
2019
2017
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in earnings of commercial bank subsidiary
Decrease (increase) in refundable income taxes
Increase in deferred taxes
Share based compensation expense
Total adjustments
(36,925 )
45
(156 )
786
(36,250 )
(33,731 )
5
(291 )
1,237
(32,780 )
(24,306 )
(12 )
(178 )
692
(23,804 )
Net cash used in operating activities
$
(206 )
(186 )
(278 )
83
WB&T | Annual Report 2019
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WB&T | Annual Report 2019
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WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2019, 2018 and 2017
(24)
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.
This fi nancial information has not been reviewed for accuracy or relevance by the FDIC
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WB&T | Annual Report 2019
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.
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Prices
High
$46.00
$125.00*
$48.50
$50.00*
High
$51.00
$52.25
$53.50
$54.75
Low
$44.75
$46.00
$47.25
$48.50
Low
$49.75
$51.00
$52.25
$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.
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WB&T | Annual Report 2019