WILSON BANK HOLDING CO - FORM 10-K - EX-13.1

Attached files

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EX-31.1 - EX-31.1 - WILSON BANK HOLDING CO	d842011dex311.htm
EX-32.2 - EX-32.2 - WILSON BANK HOLDING CO	d842011dex322.htm
EX-21.1 - EX-21.1 - WILSON BANK HOLDING CO	d842011dex211.htm
EX-31.2 - EX-31.2 - WILSON BANK HOLDING CO	d842011dex312.htm
EX-32.1 - EX-32.1 - WILSON BANK HOLDING CO	d842011dex321.htm
EX-23.1 - EX-23.1 - WILSON BANK HOLDING CO	d842011dex231.htm
EXCEL - IDEA: XBRL DOCUMENT - WILSON BANK HOLDING CO	Financial_Report.xls
10-K - 10-K - WILSON BANK HOLDING CO	d842011d10k.htm

Exhibit 13.1

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains certain forward-looking statements 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.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, 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, 2014, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for these losses, (ii) renewed deterioration in the real estate market conditions in the Company’s market areas, (iii) increased competition with other financial institutions, (iv) the deterioration of the economy in the Company’s market areas, (v) continuation of the extremely low short-term interest rate environment or rapid fluctuations in short-term interest rates, (vi) significant downturns in the business of one or more large customers, (vii) the inability of the Company to comply with regulatory capital requirements, including those resulting from recently adopted changes to capital calculation methodologies and required capital maintenance levels; (viii) 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, (ix) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (x) inadequate allowance for loan losses, (xi) potential for additional losses, if any, related to the lawsuits described below under Part I, Item 3, “Legal Proceedings” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014., (xii) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xiii) results of regulatory examinations, (xiv) the vulnerability of our network and online banking portals to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xv) the possibility of additional increases to compliance costs as a result of increased regulatory oversight; and (xvi) loss of key personnel. 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 state 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, the eastern part of Davidson County, and Sumner County, Tennessee as its primary market areas. Generally, this market is the eastern portion of the Nashville-Davidson-Murfreesboro-Franklin, Tennessee metropolitan statistical area. At December 31, 2014, Wilson Bank had twenty-five locations in Wilson, Davidson, DeKalb, Smith, Sumner, Rutherford and Trousdale Counties. The Bank opened its twenty sixth office in Putnam County in late January 2015. 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.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Critical Accounting Estimates

The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses and the assessment of impairment of the intangibles resulting from our mergers with Dekalb Community Bank and Community Bank of Smith County in 2005 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 Financial Statements for the year ended December 31, 2014 in the Company’s Annual Report on Form 10-K.

Allowance for Loan Losses (“allowance”)—Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications 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.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The allowance allocation begins with a process of estimating the probable 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 twelve 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 probable 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 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 Intangible Assets—Long-lived assets, including purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Goodwill and intangible assets that have indefinite useful lives are evaluated for impairment annually and are evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. That annual assessment date is December 31. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The Company first has the option to perform a qualitative assessment of goodwill to determine if impairment has occurred. Based upon the qualitative assessment, if the fair value of goodwill exceeds the carrying value, the evaluation of goodwill is complete. If the qualitative assessment indicates that impairment is present, the goodwill impairment analysis continues with a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated potential impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill.

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 Bank’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 as a charge to earnings and a new cost

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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.

Results of Operations

Net earnings for the year ended December 31, 2014 were $20,777,000, an increase of $4,908,000, or 30.9%, compared to net earnings of $15,869,000 for 2013. Our 2013 net earnings were 30.6%, or $3,721,000, above our net earnings of $12,148,000 for 2012. Basic earnings per share were $2.75 in 2014, compared with $2.12 in 2013 and $1.65 in 2012. Diluted earnings per share were $2.75 in 2014, compared to $2.12 in 2013 and $1.65 in 2012. Net yield on earning assets for the year ended December 31, 2014 was 3.75%, compared to 3.74% and 3.84% for the years ended December 31, 2013 and December 31, 2012, respectively. Net interest spread for the year ended December 31, 2014 was 3.65%, compared to 3.62% and 3.71% for the years ended December 31, 2013 and December 31, 2012, 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 2014 was $74,380,000, compared with $71,814,000 in 2013 and $72,361,000 in 2012, in each case excluding tax exempt adjustments relating to tax exempt securities. The increase in total interest income in 2014 was primarily attributable to higher yields on taxable securities. The ratio of average earning assets to total average assets was 95.7%, 96.2% and 93.8% for each of the years ended December 31, 2014, 2013 and 2012, respectively. Average earning assets increased $92,631,000 from December 31, 2013 to December 31, 2014. The average rate earned on earning assets for 2014 was 4.32%, compared with 4.40% in 2013 and 4.77% in 2012. The decrease in yields is a direct reflection of the rate cuts implemented by the Federal Reserve Open Market Committee beginning in August 2007 that continued throughout 2014. However, the decreases in earning asset yields were offset by a decrease in cost of deposits, which when coupled with growth in interest earning assets led to an overall increase in net interest income.

Interest earned on earning assets does not include any interest income which would have been recognized on non-accrual loans if such loans were performing. The amount of interest not recognized on non-accrual loans totaled $39,000 in 2014, $296,000 in 2013 and $775,000 in 2012. Total interest expense for 2014 was $9,768,000, a decrease of $1,111,000, or 10.2%, compared to total interest expense of $10,879,000 in 2013. The decrease in 2014 was primarily due to a decrease in the rates paid on deposits, particularly time deposits, reflecting the low interest rate environment and a continued shift in the mix of deposits from certificates of deposits and individual retirement accounts to transaction and money market accounts. Total interest expense decreased from $14,107,000 in 2012 to $10,879,000 in 2013, a decrease of $3,228,000, or 22.9% reflecting similar shifts in deposit mix and reductions in rates paid.

Net interest income for 2014 totaled $64,612,000 as compared to $60,935,000 and $58,254,000 in 2013 and 2012, 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), increased to 3.65% in 2014 from 3.62% in 2013. The net interest spread was 3.71% in 2012. Net yield on earning assets for 2014 and 2013 was 3.75% and 3.74%, respectively, down from 3.84% in 2012. The increase in net yield on earning assets resulted from Wilson Bank’s ability to lower deposit costs. The Company believes that the Federal Reserve Board will maintain the current discount rate throughout most of 2015. Changes in interest rates paid on products such as interest checking, savings, and money market accounts will generally increase or decrease in a manner that is consistent with changes in the short-term environment. The Company’s liabilities are positioned to re-price faster than its assets such that a short-term declining rate environment should 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 many of the Company’s loans have rate floors, thus deposits would likely re-price faster than loans. Management regularly monitors the deposit rates of the Company’s competitors and these rates continue to put pressure on the Company’s deposit pricing. This pressure could negatively impact the Company’s net interest margin and earnings if future short-term rates begin to rise.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. The 2014 provision for loan losses was $498,000, a decrease of $1,679,000 from the provision of $2,177,000 in 2013. The decrease in the provision for the year ended December 31, 2014 reflects the improving asset quality trends experienced by Wilson Bank in 2014 and an overall decrease in net charge-offs. Management continues to fund the allowance for loan losses through provisions based on management’s calculation of the allowance for loan losses. Current year provisions for loan losses are primarily attributable to loan growth, which was 12.0% in 2014. 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, review of updated appraisals and borrower financial information, 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 they are considered uncollectible. Net charge-offs decreased to $861,000 in 2014 from $4,739,000 in 2013. Net charge-offs in 2012 totaled $8,556,000. The decrease in net charge-offs reflected an overall improvement of asset quality trends experienced by Wilson Bank. The ratio of net charge-offs to average total outstanding loans was 0.07% in 2014, 0.39% in 2013 and 0.75% in 2012.

The decrease in net charge-offs and provision for loan losses resulted in a decrease of the allowance for loan losses (net of charge-offs and recoveries) to $22,572,000 at December 31, 2014 from $22,935,000 at December 31, 2013 and $25,497,000 at December 31, 2012. The allowance for loan losses decreased 1.6% between December 31, 2013 and December 31, 2014 as compared to the 12.0% increase in total loans over the same period. The allowance for loan losses was 1.67% of total loans outstanding at December 31, 2014 compared to 1.90% at December 31, 2013 and 2.18% at December 31, 2012. As a percentage of nonperforming loans at December 31, 2014, 2013 and 2012, the allowance for loan losses represented 1,046%, 297% and 143%, respectively. The internally classified loans as a percentage of the allowance for loan losses were 158.6% and 165.5%, respectively, at December 31, 2014 and 2013.

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 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 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 under “Critical Accounting Estimates” for more information. Management believes the allowance for loan losses at December 31, 2014 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 which would negatively impact earnings.

Non-Interest Income

The components of the Company’s non-interest income include service charges on deposit accounts, other fees and commissions, fees and gains on sales of loans, gains on sales of securities and other income. Total non-interest income for 2014 was $16,678,000, compared with $15,204,000 in 2013 and $16,035,000 in 2012. The 9.7% increase from 2013 was primarily due to an increase in other fees and commissions offset in part by a decrease in fees and gains on sales of loans. Other fees and commissions increased $1,169,000 in 2014 when compared to 2013. Other fees and commissions include income on brokerage accounts, debit card interchange fee income, and various other fees. Fees and gains on sale of loans decreased $518,000 in 2014 when compared to 2013. The decrease in fees and gain on sale of loans during 2014 related primarily to the increase in mortgage rates during the second half of 2014, which slowed consumer demand for refinancing current mortgages during the year ended December 31, 2014. The service charges on deposit accounts increased $284,000, or 7.0%, to $4,090,000 for the year ended December 31, 2014 compared to the year ended December 31, 2013 as a result of a new overdraft privilege program implemented in the third quarter of 2014. Other fees and commissions increased $1,169,000, or 15.1%, to $8,895,000 during the year ended December 31, 2014 compared to the same period in 2013. The increase was primarily due to an increase in brokerage income between the two time periods. Other fees and commissions include income on brokerage accounts, insurance policies sold, and various other fees.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 stock and home mortgage 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, advertising and marketing expenses, data processing expenses, directors’ fees, expenses associated with the maintenance, valuation and disposition of other real estate, and other operating expenses. Total non-interest expenses for 2014 decreased 2.2% to $47,705,000 from $48,787,000 in 2013. Non-interest expenses for 2013 were up 8.2% over non-interest expenses in 2012 which totaled $45,098,000. The decrease in non-interest expenses in 2014 is primarily attributable to a decrease in legal fees, litigation losses, and other real estate losses and holding expenses. Loss on the sale of other real estate decreased $1,719,000 or 104.7% for the year ended December 31, 2014 as compared to December 31, 2013 due to a lower volume of foreclosures as well as improved economic conditions and an improved housing market. The expenses related to holding other real estate properties decreased as well due an overall reduction in other real estate properties. The decrease in litigation expense and loss on the sale of other real estate for the year ended December 31, 2014 as compared to the same period in 2013 was partially offset by a $2,096,000 increase in salaries and employee benefits associated, in part, with an increase in the number of employees necessary to support the Company’s growing operations.

Income Taxes

The Company’s income tax expense was $12,310,000 for 2014, an increase of $3,004,000 from $9,306,000 for 2013, which was up by $1,791,000 from the 2012 total of $7,515,000. The percentage of income tax expense to earnings before taxes was 37.2% in 2014, 37.0% in 2013 and 38.2% in 2012.

Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits 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. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.

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

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

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Earnings Per Share

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

The following is a summary of components comprising basic and diluted earnings per share (“EPS”) for the years ended December 31, 2014, 2013 and 2012:


	Years Ended December 31,
	2014		2013		2012
	(Dollars in Thousands except per share amounts)
Basic EPS Computation
Numerator – Earnings available to common stockholders	$	20,777		15,869		12,148

Denominator – Weighted average number of common shares outstanding		7,547,087		7,472,373		7,360,485

Basic earnings per common share	$	2.75		2.12		1.65

Diluted EPS Computation:
Numerator – Earnings available to common stockholders	$	20,777	$	15,869	$	12,148

Denominator – Weighted average number of common shares outstanding		7,547,087		7,472,373		7,360,485
Dilutive effect of stock options		4,393		4,798		5,163

		7,551,480		7,477,171		7,365,648

Diluted earnings per common share	$	2.75		2.12		1.65

Financial Condition

Balance Sheet Summary

The Company’s total assets increased $124,271,000, or 7.1%, to $1,873,242,000 at December 31, 2014, after increasing 4.1% in 2013 to $1,748,971,000 at December 31, 2013. Loans, net of allowance for loan losses, totaled $1,329,865,000 at December 31, 2014, a 12.3% increase compared to December 31, 2013. At year end 2014, securities totaled $374,543,000, an increase of 5.2% from $356,196,000 at December 31, 2013. As a result of loan growth outpacing deposit growth, fed funds sold decreased $22,185,000, or 58.1%.

Total liabilities increased by $101,050,000, or 6.4%, to $1,672,350,000 at December 31, 2014 compared to $1,571,300,000 at December 31, 2013. This increase was composed primarily of the $106,015,000 increase in total deposits to $1,660,270,000 a 6.8% increase. Securities sold under repurchase agreements decreased to $3,437,000 from $9,078,000 at the respective year ends 2014 and 2013.

Stockholders’ equity increased $23,221,000, or 13.1%, in 2014, due to net earnings and the issuance of stock pursuant to the Company’s Dividend Reinvestment Plan, offset by dividends paid on the Company’s common stock and change in unrealized losses on available-for-sale securities. The change in stockholders’ equity includes a $3,617,000 decrease in net unrealized losses on available-for-sale securities, net of taxes during the period. A more detailed discussion of assets, liabilities and capital follows.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Loans:

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


	December 31, 2014					December 31, 2013
	(Dollar Amounts in Thousands)					(Dollar Amounts in Thousands)
	AMOUNT		PERCENTAGE			AMOUNT		PERCENTAGE
Commercial, financial and agricultural	$	42,200		3.1	%	$	34,834		2.9	%
Installment and other		41,025		3.0			41,118		3.4
Real estate – mortgage		1,027,723		75.8			940,077		77.6
Real estate – construction		245,830		18.1			194,426		16.1

TOTAL	$	1,356,778		100.0	%	$	1,210,455		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 12.3% at year end 2014 when compared to year end 2013. 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, 2014 and 2013.

As represented in the table, primary loan growth for the year ended December 31, 2014 was in real estate mortgage loans, commercial, financial and agricultural loans and construction loans, offset by a slight decrease in installment loans. Real estate mortgage loans increased 9.3% in 2014 and comprised 75.8% of the total loan portfolio at December 31, 2014, compared to 77.6% at December 31, 2013. Management believes the increase in real estate mortgage loans was primarily due to the continued favorable interest rate environment, 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. Commercial, financial and agricultural loans increased 21.2% in 2014 and comprised 3.1% of the total loan portfolio at December 31, 2014, compared to 2.9% at December 31, 2013. Real estate construction loans increased 26.4% in 2014 and comprised 18.1% of the portfolio at December 31, 2014, compared to 16.1% at December 31, 2013. The increase in real estate construction loans during 2014 reflected the overall increase in such loans in the overall economy and the Company’s market.

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, 2014, the Company had no highly leveraged transactions, and there were no foreign loans outstanding during any of the reporting periods.

The following tables present the Company’s nonaccrual loans and past due loans as of December 31, 2014 and December 31, 2013.


Loans on Nonaccrual Status	In Thousands
	2014		2013
Residential 1-4 family	$	42	$	726
Multifamily		—		—
Commercial real estate		—		21
Construction		—		3,524
Farmland		574		700
Second mortgages		—		606
Equity lines of credit		—		—
Commercial		—		—
Agricultural, installment and other		—		—

Total	$	616	$	5,577

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


	(In thousands)
	30-59 Days		60-89 Days		Nonaccrual and Greater Than 90								Loans Greater Than 90 Days Past Due and Than 90 Days
	Past Due		Past Due		Days Past Due		Past Due		Current		Loans		Accruing Interest
December 31, 2014
Residential 1-4 family	$	6,166		1,275		1,352		8,793		341,965		350,758	$	1,310
Multifamily		—		—		—		—		31,242		31,242		—
Commercial real estate		2,151		242		19		2,412		562,553		564,965		19
Construction		125		91		73		289		245,541		245,830		73
Farmland		88		—		594		682		29,554		30,236		20
Second Mortgages		286		18		70		374		8,652		9,026		70
Equity Lines of Credit		346		—		5		351		41,145		41,496		5
Commercial		37		—		—		37		29,963		30,000		—
Agricultural,
Installment and other		301		126		44		471		52,754		53,225		44

Total	$	9,500		1,752		2,157		13,409		1,343,369		1,356,778	$	1,541

December 31, 2013
Residential 1-4 family	$	5,034		221		1,582		6,837		325,595		332,432	$	856
Multifamily		—		—		—		—		13,920		13,920		—
Commercial real estate		287		19		710		1,016		525,242		526,258		689
Construction		948		20		3,795		4,763		189,663		194,426		271
Farmland		8		—		700		708		22,063		22,771		—
Second Mortgages		78		—		611		689		9,822		10,511		5
Equity Lines of Credit		48		27		—		75		34,110		34,185		—
Commercial		122		—		285		407		29,037		29,444		285
Agricultural,
Installment and other		484		115		27		626		45,882		46,508		27

Total	$	7,009		402		7,710		15,121		1,195,334		1,210,455	$	2,133

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Non-performing loans, which include nonaccrual loans and loans 90 days past due, totaled $2,157,000 at December 31, 2014, a decrease from $7,710,000 at December 31, 2013, resulting from a $4,961,000, or 89.0%, decrease in nonaccrual loans and a $592,000, or 27.8%, decrease in 90 day past due and accruing loans. The decrease in non-performing loans during the year ended December 31, 2014 of $4,961,000 is due primarily to a decrease in non-performing construction real estate mortgage loans of $3,722,000, a decrease of non-performing residential 1-4 family real estate loans of $230,000, and a decrease of non-performing second mortgages of $541,000. 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. Nonaccrual loans totaled $616,000 at December 31, 2014, compared to $5,577,000 at December 31, 2013. The decrease in nonaccrual loans relates primarily to the upgrading of the credit of one large loan relationship that has continued to improve their financial status as well as the pay off of several loan relationships that were classified as nonaccrual. Management believes that it is probable that it will incur losses on these 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, 2014, the Company had impaired loans of $574,000 which were on non accruing interest status. At December 31, 2013, the Company had impaired loans of $4,718,000 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 at December 31, 2014 and December 31, 2013.


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2014
With no related allowance recorded:
Residential 1-4 family	$	1,891		1,854		—		1,081		114
Multifamily		—		—		—		—		—
Commercial real estate		1,352		2,188		—		5,984		95
Construction		—		—		—		673		—
Farmland		—		—		—		—		—
Second mortgages		281		280		—		222		3
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment, and other		—		—		—		—		—

	$	3,524		4,322		—		7,960		212

With allowance recorded:
Residential 1-4 family	$	1,219		1,207		376		1,363		61
Multifamily		—		—		—		—		—
Commercial real estate		5,131		6,811		1,135		5,755		202
Construction		—		—		—		1,815		—
Farmland		702		701		120		767		7
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment, and other		—		—		—		—		—

	$	7,052		8,719		1,631		9,700		270

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


Total
Residential 1-4 family	$	3,110	3,061	376	2,444	175
Multifamily		—	—	—	—	—
Commercial real estate		6,483	8,999	1,135	11,739	297
Construction		—	—	—	2,488	—
Farmland		702	701	120	767	7
Second mortgages		281	280	—	222	3
Equity lines of credit		—	—	—	—	—
Commercial		—	—	—	—	—
Agricultural, installment and other		—	—	—	—	—

	$	10,576	13,041	1,631	17,660	482

December 31, 2013
With no related allowance recorded:
Residential 1-4 family	$	357	404	—	2,947	16
Multifamily		—	—	—	—	—
Commercial real estate		7,234	7,199	—	3,750	260
Construction		1,393	1,393	—	2,265	11
Farmland		—	—	—	—	—
Second mortgages		606	606	—	665	—
Equity lines of credit		—	—	—	—	—
Commercial		—	—	—	52	—
Agricultural, installment, and other		—	—	—	—	—

	$	9,590	9,602	—	9,679	287

With allowance recorded:
Residential 1-4 family	$	3,972	4,186	1,150	5,107	187
Multifamily		—	—	—	—	—
Commercial real estate		10,589	12,226	2,300	11,834	264
Construction		2,413	2,413	950	5,859	—
Farmland		131	131	57	1,818	8
Second mortgages		156	155	49	157	—
Equity lines of credit		174	174	10	175	9
Commercial		—	—	—	—	—
Agricultural, installment, and other		—	—	—	—	—

	$	17,435	19,285	4,516	24,950	468

Total
Residential 1-4 family		4,329	4,590	1,150	8,054	203
Multifamily		—	—	—	—	—
Commercial real estate		17,823	19,425	2,300	15,584	524
Construction		3,806	3,806	950	8,124	11
Farmland		131	131	57	1,818	8
Second mortgages		762	761	49	822	—
Equity lines of credit		174	174	10	175	9
Commercial		—	—	—	52	—
Agricultural, installment and other		—	—	—	—	—

	$	27,025	28,887	4,516	34,629	755

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

The Company also internally classifies loans which, although current, management questions the borrower’s ability to comply with the present repayment terms of the loan agreement. These internally classified loans totaled $35,808,000, inclusive of the Company’s non-performing loans, at December 31, 2014, as compared to $37,952,000 at December 31, 2013. Of the internally classified loans at December 31, 2014, $35,524,000 are real estate related loans (including loans to home builders and developers of land, commercial real estate, as well as two family mortgage loans) and $284,000 are various other types of loans. These loans have been graded accordingly considering bankruptcies, inadequate cash flows and delinquencies. Borrowers within the real estate related loans have continued to experience some stress during the current weak economic environment; however, the Bank has recently experienced an increase in demand for real estate loans. 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 158.6% and 165.5%, respectively, at December 31, 2014 and 2013.

The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic 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 TDR’s 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. Because of the Bank’s policy to consider a TDR as nonperforming until there has been at least six months of repayment performance, the addition of several new TDRs in the last half of 2014 caused the nonperforming TDRs as of December 31, 2014 to increase $1.8 million over the same period in 2013. Total TDRs only increased $795,000 from December 31, 2013 to December 31, 2014.

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 provide for loan losses in the loan portfolio.

Essentially all of the Company’s loans are from Wilson, DeKalb, Smith, Putnam, Trousdale, Davidson, Rutherford and adjacent counties. The Company seeks to exercise prudent risk management in lending, including diversification by loan category and industry segment as well as by identification of credit risks. At December 31, 2014, no single industry segment accounted for more than 10% of the Company’s portfolio other than construction and real estate loans.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Company’s management believes there is an opportunity to increase the loan portfolio in the Company’s primary market area in 2015 as economic conditions continue to improve. The Company has targeted commercial business lending, commercial and residential real estate lending and consumer lending as areas of emphasis in 2015. Although it is the Company’s objective to achieve a loan portfolio equal to approximately 85% of deposit balances, various factors, including demand for loans which meet its underwriting standards, will likely determine the size of the loan portfolio in a given economic climate. At December 31, 2014, the Company’s total loans equaled 80.1% 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 5.2% to $374,543,000 at December 31, 2014 from $356,196,000 at December 31, 2013, and comprised the second largest and other primary component of the Company’s earning assets. Securities increased as the result of management’s decision to reinvest liquid funds in higher yielding assets. The average yield, excluding tax equivalent adjustment, of the securities portfolio at December 31, 2014 was 2.06% with a weighted average life of 5.25 years, as compared to an average yield of 1.85% and a weighted average life of 5.42 years at December 31, 2013. 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.

For equity securities, when the Company has decided to sell an impaired available-for-sale security and it does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an impairment loss through a charge to current period earnings when the impairment is deemed other than temporary even if a decision to sell has not been made.

No securities have been classified as trading securities.

The Company’s classification of securities as of December 31, 2014 and December 31, 2013 is as follows:


	December 31, 2014				December 31, 2014
(In Thousands)	Held-To-Maturity				Available-For-Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Market Value		Cost		Market Value
U.S. Government-sponsored enterprises (GSEs)*		—		—		131,767		130,567
Mortgage-backed :
GSEs residential		7,398		7,327		170,802		171,069
Asset-backed:
SBAP		—		—		30,627		30,520
Obligations of state and political
Subdivision		20,725		21,073		14,324		14,264

	$	28,123	$	28,400	$	347,520	$	346,420

*	Such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Farm Credit Banks, and Government National Mortgage Association

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


	December 31, 2013				December 31, 2013
(In Thousands)	Held-To-Maturity				Available-For-Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Market Value		Cost		Market Value
U.S. Government-sponsored enterprises (GSEs)*	$	—	$	—	$	141,968	$	136,086
Mortgage-backed:
GSE residential		8,649		8,202		175,855		175,182
Asset-backed:
SBAP		—		—		4,801		4,732
Obligations of state and political
Subdivision		18,174		18,359		13,711		13,373

	$	26,823	$	26,561	$	336,335	$	329,373

*	Such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Farm Credit Banks, and Government National Mortgage Association

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, 2014:


	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
Held to Maturity Securities:
Mortgage-backed:
GSE residential	$	—	$	—		—	$	4,674	$	147		4	$	4,674	$	147
Obligations of states and political subdivisions		—		—		—		2,577		41		6		2,577		41

	$	—	$	—		—	$	7,251	$	188		10	$	7,251	$	188

Available for Sale Securities:
GSEs	$	34,753	$	143		10	$	74,250	$	1,186		24	$	109,003	$	1,329
Mortgage-backed:
GSE residential		66,504		279		36		22,172		185		13		88,676		464
Asset-backed:
SBAP		16,114		205		9		—		—		—		16,114		205
Obligations of states and political subdivisions		2,078		8		4		4,699		150		13		6,777		158

	$	119,449	$	635		59	$	101,121	$	1,521		50	$	220,570	$	2,156

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

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 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.

Deposits

The increases in assets in 2014 and 2013 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 $1,660,270,000 at December 31, 2014 compared to $1,554,255,000 at December 31, 2013. 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 and Trousdale 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 and, therefore, no assurances of market growth or maintenance of current market share can be given. Even though the Company is in a very competitive market, management currently believes that its market share can be maintained or expanded.

The $106,015,000 or 6.8%, growth in deposits in 2014 was due to a $19,196,000, or 14.1% increase in demand deposits, a $46,395,000, or 14.1%, increase in NOW accounts, a $72,565,000, or 17.8%, increase in money market accounts, a $9,302,000, or 10.0% increase in savings accounts, offset by a decrease in certificates of deposits (including individual retirement accounts) of $41,443,000, or 7.1%. The average rate paid on average total interest-bearing deposits was .67% for 2014, compared to 0.78% for 2013 reflecting a reduction in short-term interest rates and a shift in deposits to lower paying transaction and money market accounts from certificates of deposit. The average rate paid in 2012 was 1.06%. 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 more fully reduce deposit rates in line with short-term rates. The ratio of average loans to average deposits was 78.7% in 2014, 79.8% in 2013, and 78.8% in 2012. The Company anticipates that during 2015 deposits will continue to shift to money market or savings accounts due to the current rate environment in anticipation of a possible rate increase beginning in late 2015.

Contractual Obligations

The Company’s contractual obligations at December 31, 2014 are as follows:


(In Thousands)	Less than 1 Year		1 –3 Years		3-5 Years		More than 5 Years		Total
Long-Term Debt	$	—		—		—		—		—
Operating Leases		96		72		—		—		168
Purchases		—		—		—		—		—
Other Long-Term
Liabilities		—		—		—		—		—

Total	$	96	$	72	$	—	$	—	$	168

Long-term debt contractual obligations would typically include advances from the Federal Home Loan Bank, but at December 31, 2014, the Company had no such 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.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Off Balance Sheet Arrangements

At December 31, 2014, the Company had unfunded loan commitments outstanding of $249 million, unfunded lines of credit of $58 million and outstanding standby letters of credit of $33 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Company’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.

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, investment securities and money market instruments that will mature within one year. At December 31, 2014, the Company’s liquid assets totaled approximately $232 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, 2014, 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 monthly 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, 2014, securities totaling approximately $5.5 million mature or will be subject to rate adjustments within the next twelve months.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

A secondary source of liquidity is the Company’s loan portfolio. At December 31, 2014, loans totaling approximately $513 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 $100,000 or greater totaling approximately $139.3 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 2015.

The following table shows the rate sensitivity gaps for different time periods as of December 31, 2014:

Interest Rate Sensitivity Gaps


										One Year
	1-90			91-180			181-365			And
(In Thousands)	Days			Days			Days			Longer			Total
Interest-earning assets	$	258,061			82,789			206,345			1,208,268			1,755,463
Interest-bearing liabilities		(1,069,571	)		(78,188	)		(107,545	)		(252,682	)		(1,507,986	)

Interest-rate sensitivity gap	$	(811,510	)		4,601			98,800			955,586			247,477

Cumulative gap	$	(811,510	)		(806,909	)		(708,109	)		247,477

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. Presented below is the estimated impact on Wilson Bank’s net interest income and EVE as of December 31, 2014, assuming an immediate shift in interest rates:


	% Change from Base Case for Immediate Parallel Changes in Rates
	-100 BP⁽¹⁾			+100 BP			+200 BP
Net interest income		(3.87	)		(4.21	)		(8.17	)
EVE		(7.19	)		(2.29	)		(4.46	)

⁽¹⁾

Because certain current interest rates are at or below 1.00%, the 100 basis points downward shock assumes that certain corresponding interest rates reflect a decrease of less than the full 100 basis point downward shock.

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.

Capital Resources, Capital Position and Dividends

At December 31, 2014, total stockholders’ equity was $200,892,000, or 10.7% of total assets, which compares with $177,671,000, or 10.2% of total assets, at December 31, 2013, and $169,698,000, or 10.2% of total assets, at December 31, 2012. The dollar increase in the Company’s stockholders’ equity during 2014 reflects (i) net income of $20,777,000 less cash dividends of $0.60 per share totaling $4,510,000, (ii) the issuance of 69,289 shares of common stock for $3,204,000, as reinvestment of cash dividends, (iii) the issuance of 6,144 shares of common stock pursuant to exercise of stock options for $186,000, (iv) the net unrealized gain on available-for-sale securities of $3,617,000, (v) repurchase of 2,053 shares of common stock for $94,000 and (vi) a stock based compensation expense of $41,000.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Company’s and Wilson Bank’s principal regulators have established minimum risk-based capital requirements and leverage capital requirements for the Company and Wilson Bank. These guidelines classify capital into two categories of Tier I and Total risk-based capital. Total risk-based capital consists of Tier I (or core) capital (essentially common equity less intangible assets) and Tier II capital (essentially qualifying long-term debt, of which Wilson Bank has none, and a part of the allowance for loan losses). In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending on regulatory assigned levels of credit risk associated with such assets. Under the Federal Reserve’s regulations, for a bank holding company, like the Company, to be considered “well capitalized” it must maintain a Total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 8% (up from 6% under previous rules), a common equity Tier 1 capital ratio of 6.5% and a Tier 1 leverage ratio of 5% and not be subject to a written agreement, order or directive to maintain a specific capital level. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide that a minimum ratio of Tier 1 capital to average assets, less goodwill and other specified intangible assets, of at least 4% should be maintained by most 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 and 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, 2014 and December 31, 2013, the Company and the Bank are considered to be “well-capitalized” under regulatory definitions.

As of December 31, 2014, the most recent notification from the FDIC categorized Wilson Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized as of December 31, 2014 and December 31, 2013, an institution was required to maintain minimum total risk-based, 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, 2014 and 2013, are presented in the following table (dollar amounts in thousands):


											Minimum To Be Well
											Capitalized Under
						Minimum Capital					Applicable Regulatory
	Actual					Requirements					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2014
Total capital to risk weighted assets:
Consolidated	$	214,779		15.0	%	$	114,549		8.0	%	$	143,186		10.0	%
Wilson Bank		213,447		14.9			114,602		8.0			143,253		10.0
Tier 1 capital to risk weighted assets:
Consolidated	$	196,765		13.7		$	57,450		4.0		$	86,174		6.0
Wilson Bank		195,433		13.6			57,480		4.0			86,220		6.0
Tier 1 capital To average assets
Consolidated	$	196,765		10.6			74,251		4.0			N/A		N/A
Wilson Bank		195,433		10.5			74,451		4.0			92,063		5.0

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


December 31, 2013
Total capital to risk weighted assets:
Consolidated	$	193,746	14.7	%	$	105,656	8.0	%	$	132,070	10.0	%
Wilson Bank		190,911	14.5			105,622	8.0			132,027	10.0
Tier 1 capital to risk weighted assets:
Consolidated	$	177,161	13.4		$	52,805	4.0		$	79,208	6.0
Wilson Bank		174,326	13.2			52,826	4.0			79,239	6.0
Tier 1 capital To average assets
Consolidated	$	177,161	10.3			69,001	4.0			N/A	N/A
Wilson Bank		174,326	10.1			69,040	4.0			86,300	5.0

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 are effective January 1, 2015 and include a new “Common Equity Tier I Ratio”, which has stricter rules as to what qualifies as Common Equity Tier I Capital. A summary of the changes to the Regulatory Capital Ratios are as follows:


	Guideline in Effect At December 31, 2014						Basel III Requirements
	Minimum			Well Capitalized			Minimum			Well Capitalized
Common Equity Tier I Ratio (Common Equity to Risk Weighted Assets)		No Applicable			Not Applicable			4.5	%		6.5	%
Tier I Capital to Risk Weighted Assets		4	%		6	%		6	%		8	%
Total Capital to Risk Weighted Assets		8	%		10	%		8	%		10	%
Tier I Leverage Ratio		4	%		5	%		4	%		5	%

The guidelines under Basel III establish a 2.5% capital conservation buffer requirement that is phased in over four years beginning January 1, 2016. The buffer is related to Risk Weighted Assets. The Basel III minimum requirements after giving effect to the buffer are as follows:


	2016			2017			2018			2019
Common Equity Tier I Ratio		5.125	%		5.75	%		6.375	%		7.0	%
Tier I Capital to Risk Weighted Assets Ratio		6.625	%		7.25	%		7.875	%		8.5	%
Total Capital to Risk Weighted Assets Ratio		8.625	%		9.25	%		9.875	%		10.5	%

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.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 I 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 intend to opt out of this requirement.

The application of these more stringent capital requirements to the Company and the 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 the 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 the 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 the Bank’s ability to make distributions, including paying dividends or buying back shares.

Quantitative and Qualitative Disclosures About Market Risk

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

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

The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates as of December 31, 2014.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


	(Dollars in Thousands) Expected Maturity Date—Year Ending December 31,
	2015			2016			2017			2018			2019			Thereafter			Total			Fair Value
Earning assets:
Loans, net of unearned interest:
Variable rate	$	42,476			14,373			12,939			44,268			21,952			727,466			863,474			863,474
Average interest rate		4.38	%		4.56	%		4.22	%		4.14	%		4.32	%		4.83	%		4.75	%
Fixed rate	$	197,450			89,547			35,628			33,867			37,277			95,194			488,963			505,667
Average interest rate		4.76	%		4.69	%		5.39	%		4.68	%		4.89	%		4.39	%		4.73	%
Securities	$	5,482			1,322			6,029			29,844			28,882			304,084			375,643			374,820
Average interest rate		2.01	%		2.87	%		1.68	%		1.29	%		1.73	%		2.04	%		2.06	%
Loans held for sale	$	9,466			—			—			—			—			—			9,466			9,466
Average interest rate		3.58	%		—			—			—			—			—			3.58	%
Federal funds sold	$	16,005			—			—			—			—			—			16,005			16,005
Average interest rate		0.19	%		—			—			—			—			—			0.19	%
Interest-bearing deposits	$	1,251,867			103,990			98,920			28,209			21,311			252			1,504,549			1,396,238
Average interest rate		0.20	%		1.07	%		1.24	%		1.51	%		1.52	%		1.82	%		0.63	%
Securities sold under repurchase agreements	$	3,437			—			—			—			—			—			3,437			3,437
Average interest rate		0.27	%		—			—			—			—			—			0.27	%

Impact of Inflation

Although interest rates are significantly affected by inflation, the inflation rate is believed to have an immaterial impact on the Company’s results of operations.

Disclosures About Fair Value of Financial Instruments

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, 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 and not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

Valuation Hierarchy

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

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

•

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 quoted 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 are unobservable and significant to the fair value measurement.

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

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.

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. Substantially all of these amounts relate to lots, homes and development projects that are either completed or are in various stages of construction for which the Company believes it has adequate collateral. 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 expense, as applicable. 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.

Other assets—Included in other assets are certain assets carried at fair value, including the cash surrender value of bank owned life insurance policies and annuity contracts. 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.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following tables present the financial instruments carried at fair value as of December 31, 2014 and December 31, 2013, 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		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Investment securities available-for-sale:
U.S. Government sponsored enterprises	$	130,567		—		130,567		—
Mortgage-backed securities		171,069		—		171,069		—
Asset-backed securities		30,520		—		30,520		—
State and municipal securities		14,264		—		14,264		—

Total investment securities available-for-sale		346,420		—		364,420		—
Other assets		17,331		—		—		17,331

Total assets at fair value	$	363,751		—		364,420		17,331

December 31, 2013
Investment securities available-for-sale:
U.S. Government sponsored enterprises	$	136,086		—		136,086		—
Mortgage-backed securities		175,182		—		175,182		—
Asset-backed securities		4,732		—		4,732		—
State and municipal securities		13,373		—		13,373		—

Total investment securities available-for-sale		329,373		—		329,373		—
Other assets		11,390		—		—		11,390

Total assets at fair value	$	340,763		—		329,373		11,390


	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Other real estate owned	$	7,298		—		—	$	7,298
Nonperforming loans, net (¹)		8,866		—		—		8,866

Total	$	16,164		—		—	$	16,164

December 31, 2013
Other real estate owned	$	12,869		—		—	$	12,869
Nonperforming loans, net (¹)		23,380		—		—		23,380

Total	$	35,249		—		—	$	35,249

(¹)	Amount is net of a valuation allowance of $1.6 million at December 31, 2014 and $4.5 million at December 31, 2013 as required by ASC 310-10, “Receivables.”

In the case of the bond 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, 2014, there were no transfers between Levels 1, 2 or 3.

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The table below includes a roll forward of the balance sheet amounts for the year ended December 31, 2014 and December 31, 2013 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):


	For the Twelve Months Ended December 31,
	2014				2013
	Other Assets		Other Liabilities		Other Assets		Other Liabilities
Fair value, January 1	$	11,390		—		6,315		—
Total realized gains included in income		376		—		75		—
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at December 31		—		—		—		—
Purchases, issuances and settlements, net		5,565		—		5,000		—
Transfers out of Level 3		—		—		—		—

Fair value, December 31	$	17,331		—		11,390		—

Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at December 31	$	376		—		75		—

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, 2014 and December 31, 2013. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Held-to-maturity securities—Estimated fair values for investment securities are based on quoted market prices where available. 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.

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. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.

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

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Mortgage loans held-for-sale—Mortgage loans held-for-sale are carried at the lower of cost or fair value. The estimate of fair value is equal to the carrying value of these loans as they are usually sold within a few weeks of their origination.

Deposits, Securities sold under agreements to repurchase, Federal Home Loan Bank advances, Subordinated debt and other borrowings—The carrying amounts of demand deposits, savings deposits and securities sold under agreements to repurchase, approximate their fair values. Fair values for certificates of deposit are estimated using discounted cash flow models, using current market interest rates offered on certificates with similar remaining maturities.

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

The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2014 and December 31, 2013. 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. For financial liabilities such as noninterest bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.


(in Thousands)	Carrying/ Notional Amount		Estimated Fair Value(¹)		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Financial assets:
Securities held-to-maturity	$	28,123		28,400		—		28,400		—
Loans, net		1,329,865		1,346,569		—		—		1,346,569
Mortgage loans held-for-sale		9,466		9,466		—		—		9,466
Financial liabilities:
Deposits and securities sold under agreements to repurchase		1,663,707		1,530,607		—		—		1,530,607
Off-balance sheet instruments:
Commitments to extend credit		—		—		—		—		—
Standby letters of credit		—		—		—		—		—
December 31, 2013
Financial assets:
Securities held-to-maturity	$	26,823		26,561		—		26,561		—
Loans, net		1,184,267		1,185,271		—		—		1,185,271
Mortgage loans held-for-sale		7,022		7,022		—		—		7,022
Financial liabilities:
Deposits and securities sold under agreements to repurchase		1,563,333		1,554,839		—		—		1,554,839
Off-balance sheet instruments:
Commitments to extend credit		—		—		—		—		—
Standby letters of credit		—		—		—		—		—

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

WILSON BANK HOLDING COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Impact of New Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” which provides disclosure guidance on amounts reclassified out of AOCI by component. The adoption of this ASU did not have any impact on the Company’s financial position or results of operations but has impacted our financial statement disclosure. As shown on the statement of comprehensive earnings for the three-years ended December 31, 2014, the Company reclassified approximately $336,000, $48,000 and $160,000 of net gains out of other comprehensive earnings into gain on the sale of investment securities, net of tax.

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure, to reduce the diversity in reporting when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The Company adopted this ASU in the first quarter of 2014 using the prospective method and had one loan that met the above stated criteria as of December 31, 2014 totaling $279,000. The total amount of foreclosed residential real property amounted to $456,000 at December 31, 2014.

Holding Company & Stock Information

Wilson Bank Holding Company Directors and Executive Officers

John Freeman, Chairman; Randall Clemons, President & CEO; Charles Bell; Jimmy Comer; Mackey Bentley; Jerry Franklin; William Jordan; Harold Patton; James Anthony Patton; Jack Bell; Elmer Richerson, Executive Vice President.

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 4, 2015 was 3,620. 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 stock during the years 2013 and 2014.

Stock Prices


2013
First Quarter	$	43.75	$	43.25
Second Quarter	$	44.75	$	44.25
Third Quarter	$	45.25	$	44.75
Fourth Quarter	$	45.75	$	45.25
2014		High		Low
First Quarter	$	46.25	$	45.75
Second Quarter	$	46.75	$	46.25
Third Quarter	$	47.25	$	46.75
Fourth Quarter	$	47.75	$	47.25

On January 1, 2013, a $.30 per share cash dividend was declared and on July 1, 2013 a $.30 per share cash dividend was declared and paid to shareholders of record on those dates. On January 1, 2014, a $.30 per share cash dividend was declared and on July 1, 2014, a $.30 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, economic and regulatory consideration.

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 13, 2015

at 623 West Main Street, Lebanon, Tennessee.

For further information concerning Wilson Bank Holding Company or Wilson Bank & Trust, or to obtain a copy of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission, which is available without charge to shareholders, please contact Lisa Pominski, CFO, Wilson Bank & Trust, P.O. Box 768, Lebanon, Tennessee 37088-0768, phone (615) 443-6612.

WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)


	*In Thousands, Except Per Share Information*
	*As Of December 31,*
	2014			2013			2012			2011			2010
CONSOLIDATED BALANCE SHEETS:
Total assets end of year	$	1,873,242			1,748,971			1,680,820			1,577,370			1,488,106
Loans, net	$	1,329,865			1,184,267			1,142,111			1,098,733			1,073,091
Securities	$	374,543			356,196			332,786			325,195			290,428
Deposits	$	1,660,270			1,554,255			1,493,922			1,406,042			1,331,282
Stockholders’ equity	$	200,892			177,671			169,698			157,348			144,333

	*Years Ended December 31,*
	2014			2013			2012			2011			2010
CONSOLIDATED STATEMENTS OF EARNINGS:
Interest income	$	74,380			71,814			72,361			72,350			76,180
Interest expense		9,768			10,879			14,107			17,890			24,052

Net interest income		64,612			60,935			58,254			54,460			52,128
Provision for loan losses		498			2,177			9,528			8,678			14,834

Net interest income after provision for loan losses		64,114			58,758			48,726			45,782			37,294
Non-interest income		16,678			15,204			16,035			14,476			14,266
Non-interest expense		47,705			48,787			45,098			43,663			36,705

Earnings before income taxes		33,087			25,175			19,663			16,595			14,855
Income taxes		12,310			9,306			7,515			6,545			5,828

Net earnings	$	20,777			15,869		$	12,148			10,050			9,027

Cash dividends declared	$	4,510			4,464		$	6,243			4,348			4,300

PER SHARE DATA:
Basic earnings per common share	$	2.75			2.12			1.65			1.38			1.25
Diluted earnings per common share	$	2.75			2.12			1.65			1.38			1.25
Cash dividends	$	0.60			0.60			0.85			0.60			0.60
Book value	$	26.53			23.69			22.87			21.54			19.98
RATIOS:
Return on average stockholders’ equity		10.95	%		9.20	%		7.49	%		6.77	%		6.44	%
Return on average assets		1.15	%		0.93	%		0.75	%		0.66	%		0.60	%
Capital to assets		10.72	%		10.16	%		10.10	%		9.98	%		9.70	%
Dividends declared per share as percentage of basic earnings per share		21.82	%		28.30	%		51.52	%		43.48	%		48.00	%

WILSON BANK HOLDING COMPANY

Consolidated Financial Statements

December 31, 2014 and 2013

(With Independent Auditor’s Report Thereon)

Stephen M. Maggart, CPA, ABV, CFF

J. Mark Allen, CPA

M. Todd Maggart, CPA, ABV, CFF

Michael F. Murphy, CPA

P. Jason Ricciardi, CPA, CGMA

David B. von Dohlen, CPA

T. Keith Wilson, CPA, CITP

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Wilson Bank Holding Company:

We have audited the accompanying consolidated balance sheets of Wilson Bank Holding Company and Subsidiary as of December 31, 2014 and 2013, 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, 2014. We also have audited Wilson Bank Holding Company and Subsidiary’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Wilson Bank Holding 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 Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB) United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wilson Bank Holding Company and Subsidiary as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Wilson Bank Holding Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Nashville, Tennessee

January 28, 2015

150 FOURTH AVENUE, NORTH • SUITE 2150 • NASHVILLE, TENNESSEE 37219-2431 • (615) 252-6100 • Fax • (615) 252-6105

www.maggartpc.com

WILSON BANK HOLDING COMPANY

Consolidated Balance Sheets

December 31, 2014 and 2013


	Dollars In Thousands
	2014			2013
ASSETS
Loans, net of allowance for loan losses of $22,572 and $22,935, respectively Securities:	$	1,329,865			1,184,267
Held-to-maturity, at amortized cost (market value $28,400 and $26,561, respectively)		28,123			26,823
Available-for-sale, at market (amortized cost $347,520 and $336,335, respectively)		346,420			329,373

Total securities		374,543			356,196
Loans held for sale		9,466			7,022
Federal funds sold		16,005			38,190
Restricted equity securities, at cost		3,012			3,012

Total earning assets		1,732,891			1,588,687

Cash and due from banks		52,002			73,314
Premises and equipment, net		40,123			38,176
Accrued interest receivable		5,463			5,063
Deferred income taxes		9,171			11,437
Other real estate		7,298			12,869
Bank owned life insurance and annuity contracts		17,331			11,390
Goodwill		4,805			4,805
Other assets		4,158			3,230

Total assets	$	1,873,242			1,748,971

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	1,660,270			1,554,255
Securities sold under repurchase agreements		3,437			9,078
Accrued interest and other liabilities		8,643			7,967

Total liabilities		1,672,350			1,571,300

Stockholders’ equity:
Common stock, par value $2.00 per share, authorized 15,000,000 shares, 7,571,968 and 7,498,588 shares issued and outstanding, respectively		15,144			14,997
Additional paid-in capital		57,709			54,519
Retained earnings		128,718			112,451
Net unrealized losses on available-for-sale securities, net of taxes of $421 and $2,666, respectively		(679	)		(4,296	)

Total stockholders’ equity		200,892			177,671

COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders’ equity	$	1,873,242			1,748,971

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Consolidated Statements of Earnings

Three Years Ended December 31, 2014


	Dollars In Thousands (except per share data)
	2014			2013			2012
Interest income:
Interest and fees on loans	$	66,685			66,177			66,080
Interest and dividends on securities:
Taxable securities		6,464			4,411			5,253
Exempt from Federal income taxes		679			603			464
Interest on loans held for sale		263			258			307
Interest on Federal funds sold		167			215			129
Interest and dividends on restricted equity securities		122			150			128

Total interest income		74,380			71,814			72,361

Interest expense:
Interest on negotiable order of withdrawal accounts		1,587			1,589			1,942
Interest on money market accounts and other savings accounts		2,366			2,407			2,705
Interest on certificates of deposit and individual retirement accounts		5,791			6,832			9,403
Interest on securities sold under repurchase agreements		23			50			56
Interest on Federal funds purchased		1			1			1

Total interest expense		9,768			10,879			14,107

Net interest income before provision for loan losses		64,612			60,935			58,254
Provision for loan losses		498			2,177			9,528

Net interest income after provision for loan losses		64,114			58,758			48,726
Non-interest income		16,678			15,204			16,035
Non-interest expense		(47,705	)		(48,787	)		(45,098	)

Earnings before income taxes		33,087			25,175			19,663
Income taxes		12,310			9,306			7,515

Net earnings	$	20,777			15,869			12,148

Basic earnings per common share	$	2.75			2.12			1.65

Diluted earnings per common share	$	2.75			2.12			1.65

Weighted average common shares outstanding:
Basic		7,547,087			7,472,373			7,360,485

Diluted		7,551,480			7,477,171			7,365,648

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Consolidated Statements of Comprehensive Earnings

Three Years Ended December 31, 2014


	Dollars In Thousands
	2014			2013			2012
Net earnings	$	20,777			15,869			12,148

Other comprehensive earnings (losses), net of tax:
Net unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $2,454, $4,231 and $1,158, respectively		3,953			(6,820	)		1,867
Reclassification adjustment for net gains included in net earnings, net of taxes of $209, $30 and $100, respectively		(336	)		(48	)		(160	)

Other comprehensive earnings (losses)		3,617			(6,868	)		1,707

Comprehensive earnings	$	24,394			9,001			13,855

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Consolidated Statements of Changes in Stockholders’ Equity

Three Years Ended December 31, 2014


	Dollars In Thousands
										Net Unrealized
				Additional						Gain (Loss) On
	Common			Paid-In			Retained			Available-For-
	Stock			Capital			Earnings			Sale Securities			Total
Balance December 31, 2011	$	14,608			46,734			95,141			865			157,348
Cash dividends declared, $.85 per share		—			—			(6,243	)		—			(6,243	)
Issuance of 106,230 shares of stock pursuant to dividend reinvestment plan		212			4,306			—			—			4,518
Issuance of 8,788 shares of stock pursuant to exercise of stock options		18			171			—			—			189
Share based compensation expense		—			31			—			—			31
Net change in fair value of available-for-sale securities during the year, net of taxes of $1,058		—			—			—			1,707			1,707
Net earnings for the year		—			—			12,148			—			12,148

Balance December 31, 2012		14,838			51,242			101,046			2,572			169,698
Cash dividends declared, $.60 per share		—			—			(4,464	)		—			(4,464	)
Issuance of 73,411 shares of stock pursuant to dividend reinvestment plan		147			3,101			—			—			3,248
Issuance of 5,973 shares of stock pursuant to exercise of stock options		12			144			—			—			156
Share based compensation expense		—			32			—			—			32
Net change in fair value of available-for-sale securities during the year, net of taxes of $4,261		—			—			—			(6,868	)		(6,868	)
Net earnings for the year		—			—			15,869			—			15,869

Balance December 31, 2013		14,997			54,519			112,451			(4,296	)		177,671
Cash dividends declared, $.60 per share		—			—			(4,510	)		—			(4,510	)
Issuance of 69,289 shares of stock pursuant to dividend reinvestment plan		139			3,065			—			—			3,204
Issuance of 6,144 shares of stock pursuant to exercise of stock options		12			174			—			—			186
Share based compensation expense		—			41			—			—			41
Net change in fair value of available-for-sale securities during the year, net of taxes of $2,245		—			—			—			3,617			3,617
Repurchase of 2,053 common shares		(4	)		(90	)		—			—			(94	)
Net earnings for the year		—			—			20,777			—			20,777

Balance December 31, 2014	$	15,144			57,709			128,718			(679	)		200,892

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows

Three Years Ended December 31, 2014

Increase (Decrease) in Cash and Cash Equivalents


	Dollars In Thousands
	2014			2013			2012
Cash flows from operating activities:
Interest received	$	75,937			75,201			76,329
Fees received		13,269			11,816			12,171
Other income received		—			—			3
Proceeds from sales of loans		105,414			121,055			137,836
Origination of loans held for sale		(105,078	)		(109,131	)		(135,107	)
Interest paid		(9,964	)		(11,396	)		(14,876	)
Cash paid to suppliers and employees		(45,890	)		(41,968	)		(38,789	)
Income taxes paid		(12,277	)		(8,413	)		(8,152	)

Net cash provided by operating activities		21,411			37,164			29,415

Cash flows from investing activities:
Purchase of available-for-sale securities		(171,497	)		(109,662	)		(217,500	)
Proceeds from calls, maturities and paydowns of available-for-sale securities		86,946			76,811			173,266
Proceeds from sale of available-for-sale securities		72,215			6,867			37,353
Purchase of held-to-maturity securities		(3,610	)		(14,250	)		(2,587	)
Proceeds from maturities and paydowns of held-to-maturity securities		2,049			2,749			1,437
Loans made to customers, net of repayments		(144,410	)		(48,636	)		(61,432	)
Purchase of annuity contracts and life insurance		—			—			(4,072	)
Purchase of bank owned life insurance		(5,565	)		(5,000	)		—
Purchase of bank premises and equipment		(4,145	)		(4,074	)		(1,946	)
Proceeds from sale of other assets		4			51			70
Proceeds from sale of other real estate		3,945			5,053			8,977

Net cash used in investing activities		(164,068	)		(90,091	)		(66,434	)

Cash flows from financing activities:
Net increase in non-interest bearing, savings, NOW and money market deposit accounts		147,458			95,320			123,050
Net decrease in time deposits		(41,443	)		(34,987	)		(35,170	)
Net increase (decrease) in securities sold under agreements to repurchase		(5,641	)		(1,506	)		3,165
Dividends paid		(4,510	)		(4,464	)		(6,243	)
Proceeds from sale of common stock pursuant to dividend reinvestment		3,204			3,248			4,518
Proceeds from sale of common stock pursuant to exercise of stock options		186			156			189
Repurchase of common shares		(94	)		—			—

Net cash provided by financing activities		99,160			57,767			89,509

Net increase (decrease) in cash and cash equivalents		(43,497	)		4,840			52,490
Cash and cash equivalents at beginning of year		111,504			106,664			54,174

Cash and cash equivalents at end of year	$	68,007			111,504			106,664

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows, Continued

Three Years Ended December 31, 2014

Increase (Decrease) in Cash and Cash Equivalents


	Dollars In Thousands
	2014			2013			2012
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings	$	20,777			15,869			12,148
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization and accretion		4,162			4,787			5,106
Provision for loan losses		498			2,177			9,528
Share based compensation expense		41			32			31
Provision for deferred tax expense (benefit)		634			1,068			(814	)
Write downs and loss (gains) on sales of other real estate, net		(77	)		1,642			3,286
Loss on sales of other assets		6			3			2
Gain on sale of premises and equipment		(7	)		(12	)		—
Security gains		(545	)		(78	)		(259	)
Decrease (increase) in loans held for sale		(2,444	)		8,626			(873	)
Increase (decrease) in taxes payable		(601	)		(175	)		177
Decrease (increase) in other assets		(1,297	)		1,337			700
Decrease (increase) in accrued interest receivable		(400	)		363			504
Decrease in interest payable		(196	)		(517	)		(769	)
Increase in accrued expenses		860			2,042			648

Total adjustments		634			21,295			17,267

Net cash provided by operating activities	$	21,411			37,164			29,415

Supplemental Schedule of Non-Cash Activities:
Unrealized gain (loss) in value of securities available-for-sale, net of taxes of $2,245 in 2014, $4,261 in 2013, and $1,058 in 2012	$	3,617			(6,868	)		1,707

Non-cash transfers from loans to other real estate	$	799			5,539			9,236

Non-cash transfers from other real estate to loans	$	2,502			1,282			783

Non-cash transfers from loans to other assets	$	17			46			73

See accompanying notes to consolidated financial statements.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

December 31, 2014, 2013 and 2012

(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, Sumner County, and eastern Davidson County, Tennessee and surrounding counties in Middle Tennessee. Services are provided at the main office and twenty-four 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, 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 26%, 42% and 18% and 28%, 44% and 16% of the loan portfolio at December 31, 2014 and 2013, respectively.

(e)

Loans

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

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

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

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(1)

Summary of Significant Accounting Policies, Continued

(e)

Loans, Continued

As part of our routine credit monitoring process, the Company performs regular credit reviews of the loan portfolio and loans receive risk ratings by the assigned credit officer, which are subject to validation by our independent loan review department. Risk ratings are categorized as pass, special mention, substandard or doubtful. The Company believes that our categories follow those outlined by our primary 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 monthly basis by management and is based upon management’s monthly 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 the loan officer 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, loan review targets portfolio segments, loans assigned to a particular lending officer, and loans with four or more renewals.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(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 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) the 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.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(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, 2014, the minimum required investment was approximately $2,600,000. Stock redemptions are at the discretion of the FHLB.

(i)

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value. For loans carried at lower of cost or fair value, gains and losses on loans sales (sales proceeds minus carrying value) are recorded in non-interest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in non-interest income upon sale of the 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 is 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 of foreclosure, 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 in net expenses from foreclosed assets.

(l)

Intangible Assets

The Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 350, Goodwill and Other Intangible Assets (“ASC 350”) 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, 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.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(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 or excess of deductions over revenues. 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)

Stock Options

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, share appreciation rights, and employee share purchase plans.

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.

(r)

Advertising Costs

Advertising costs are expensed as incurred by the Company and totaled $1,884,000, $2,104,000 and $1,230,000 for 2014, 2013 and 2012, respectively.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(1)

Summary of Significant Accounting Policies, Continued

(s)

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.

(t)

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 20 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.

(u)

Reclassifications

Certain reclassifications have been made to the 2013 and 2012 figures to conform to the presentation for 2014.

(v)

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.

(w)

Recently Adopted Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” which provides disclosure guidance on amounts reclassified out of Accumulated Other Comprehensive Income by component. The adoption of this ASU did not have any impact on the Company’s financial position or results of operations but has impacted our financial statement disclosure. As shown on the statement of comprehensive earnings for the three years ended December 31, 2014, the Company reclassified approximately $336,000, $48,000 and $160,000 of net gains out of other comprehensive earnings into gain on the sale of investment securities, net of tax.

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40); Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure, to reduce the diversity in reporting when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The Company adopted this ASU in the first quarter of 2014 using the prospective method and had one loan that met the above stated criteria as of December 31, 2014 totaling $279,000. The total amount of foreclosed residential real property amounted to $456,000 at December 31, 2014.

There were no other recently issued accounting pronouncements that are expected to materially impact the Company.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses

The classification of loans at December 31, 2014 and 2013 is as follows:


	In Thousands
	2014			2013
Mortgage loans on real estate:
Residential 1-4 family	$	350,758			332,432
Multifamily		31,242			13,920
Commercial		564,965			526,258
Construction		245,830			194,426
Farmland		30,236			22,771
Second mortgages		9,026			10,511
Equity lines of credit		41,496			34,185

Total mortgage loans on real estate		1,273,553			1,134,503

Commercial loans		30,000			29,444

Agriculture loans		1,670			2,099

Consumer installment loans:
Personal		37,745			37,789
Credit cards		3,280			3,329

Total consumer installment loans		41,025			41,118

Other loans		10,530			3,291

		1,356,778			1,210,455
Net deferred loan fees		(4,341	)		(3,253	)

Total loans		1,352,437			1,207,202
Less: Allowance for loan losses		(22,572	)		(22,935	)

Loans, net	$	1,329,865			1,184,267

At December 31, 2014, variable rate and fixed rate loans totaled $863,474,000 and $488,963,000, respectively. At December 31, 2013, variable rate loans were $771,739,000 and fixed rate loans totaled $435,463,000.

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 $11,744,000 and $10,821,000 at December 31, 2014 and 2013, 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, 2014.

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


	In Thousands
	December 31,
	2014			2013
Balance, January 1	$	10,821			9,309
New loans and renewals during the year		9,406			9,984
Repayments (including loans paid by renewal) during the year		(8,483	)		(8,472	)

Balance, December 31	$	11,744			10,821

During 2013 and 2012 a director of the Company performed appraisals related to certain loan customers. Fees paid to the director for these services were $237,000 and $364,000 in 2013 and 2012, respectively.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued

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 commercial and real estate 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, 2014 and 2013:


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2014
With no related allowance recorded:
Residential 1-4 family	$	1,891		1,854		—		1,081		114
Multifamily		—		—		—		—		—
Commercial real estate		1,352		2,188		—		5,984		95
Construction		—		—		—		673		—
Farmland		—		—		—		—		—
Second mortgages		281		280		—		222		3
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—

	$	3,524		4,322		—		7,960		212


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2014
With allowance recorded:
Residential 1-4 family	$	1,219		1,207		376		1,363		61
Multifamily		—		—		—		—		—
Commercial real estate		5,131		6,811		1,135		5,755		202
Construction		—		—		—		1,815		—
Farmland		702		701		120		767		7
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—

	$	7,052		8,719		1,631		9,700		270

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2014
Total:
Residential 1-4 family	$	3,110		3,061		376		2,444		175
Multifamily		—		—		—		—		—
Commercial real estate		6,483		8,999		1,135		11,739		297
Construction		—		—		—		2,488		—
Farmland		702		701		120		767		7
Second mortgages		281		280		—		222		3
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—

	$	10,576		13,041		1,631		17,660		482


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2013
With no related allowance recorded:
Residential 1-4 family	$	357		404		—		2,947		16
Multifamily		—		—		—		—		—
Commercial real estate		7,234		7,199		—		3,750		260
Construction		1,393		1,393		—		2,265		11
Farmland		—		—		—		—		—
Second mortgages		606		606		—		665		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		52		—
Agricultural, installment and other		—		—		—		—		—

	$	9,590		9,602		—		9,679		287

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued


	In Thousands
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
December 31, 2013
With allowance recorded:
Residential 1-4 family	$	3,972		4,186		1,150		5,107		187
Multifamily		—		—		—		—		—
Commercial real estate		10,589		12,226		2,300		11,834		264
Construction		2,413		2,413		950		5,859		—
Farmland		131		131		57		1,818		8
Second mortgages		156		155		49		157		—
Equity lines of credit		174		174		10		175		9
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—

	$	17,435		19,285		4,516		24,950		468

Total:
Residential 1-4 family	$	4,329		4,590		1,150		8,054		203
Multifamily		—		—		—		—		—
Commercial real estate		17,823		19,425		2,300		15,584		524
Construction		3,806		3,806		950		8,124		11
Farmland		131		131		57		1,818		8
Second mortgages		762		761		49		822		—
Equity lines of credit		174		174		10		175		9
Commercial		—		—		—		52		—
Agricultural, installment and other		—		—		—		—		—

	$	27,025		28,887		4,516		34,629		755

The following tables present the Company’s nonaccrual loans, credit quality indicators and past due loans as of December 31, 2014 and 2013.

Loans on Nonaccrual Status


	In Thousands
	2014		2013
Residential 1-4 family	$	42		726
Multifamily		—		—
Commercial real estate		—		21
Construction		—		3,524
Farmland		574		700
Second mortgages		—		606
Equity lines of credit		—		—
Commercial		—		—
Agricultural, installment and other		—		—

Total	$	616		5,577

The amount of interest income that would have been recognized for the years ended December 31, 2014 and 2013 amounted to $39,000 and $296,000, respectively, if the above nonaccrual loans had been current.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued

Potential problem loans, which include nonperforming loans, amounted to approximately $35.8 million at December 31, 2014 compared to $38.0 million at December 31, 2013. Potential problem loans represent those loans with a well defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, the Company’s primary federal regulator, for loans classified as special mention, substandard, or doubtful, excluding the impact of nonperforming loans.

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

•

Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

•

Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

•

Doubtful loans have all the characteristics of substandard loans with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loans on nonaccrual status.

Credit Quality Indicators


	In Thousands
	Residential 1-4 Family		Multifamily		Commercial Real Estate		Construction		Farmland		Second Mortgages		Equity Lines of Credit		Commercial		Agricultural, Installment and Other		Total
Credit Risk Profile by Internally Assigned Grade
December 31, 2014
Pass	$	339,529		31,242		545,301		243,416		29,260		8,007		41,274		29,893		53,048		1,320,970
Special mention		7,681		—		13,313		2,362		57		347		176		18		16		23,970
Substandard		3,548		—		6,351		52		919		672		46		89		161		11,838
Doubtful		—		—		—		—		—		—		—		—		—		—

Total	$	350,758		31,242		564,965		245,830		30,236		9,026		41,496		30,000		53,225		1,356,778

December 31, 2013
Pass	$	319,762		13,920		507,769		190,083		22,324		9,135		33,964		29,298		46,248		1,172,503
Special mention		9,460		—		5,308		367		64		665		174		26		46		16,110
Substandard		3,210		—		13,181		3,976		383		711		47		120		214		21,842
Doubtful		—		—		—		—		—		—		—		—		—		—

Total	$	332,432		13,920		526,258		194,426		22,771		10,511		34,185		29,444		46,508		1,210,455

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued

Age Analysis of Past Due Loans


	In Thousands
	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual and Greater Than 90 Days		Total Nonaccrual and Past Due		Current		Total Loans		Recorded Investment Greater Than 90 Days and Accruing
December 31, 2014
Residential 1-4 family	$	6,166		1,275		1,352		8,793		341,965		350,758		1,310
Multifamily		—		—		—		—		31,242		31,242		—
Commercial real estate		2,151		242		19		2,412		562,553		564,965		19
Construction		125		91		73		289		245,541		245,830		73
Farmland		88		—		594		682		29,554		30,236		20
Second mortgages		286		18		70		374		8,652		9,026		70
Equity lines of credit		346		—		5		351		41,145		41,496		5
Commercial		37		—		—		37		29,963		30,000		—
Agricultural, installment and other		301		126		44		471		52,754		53,225		44

Total		9,500		1,752		2,157		13,409		1,343,369		1,356,778		1,541

December 31, 2013
Residential 1-4 family	$	5,034		221		1,582		6,837		325,595		332,432		856
Multifamily		—		—		—		—		13,920		13,920		—
Commercial real estate		287		19		710		1,016		525,242		526,258		689
Construction		948		20		3,795		4,763		189,663		194,426		271
Farmland		8		—		700		708		22,063		22,771		—
Second mortgages		78		—		611		689		9,822		10,511		5
Equity lines of credit		48		27		—		75		34,110		34,185		—
Commercial		122		—		285		407		29,037		29,444		285
Agricultural, installment and other		484		115		27		626		45,882		46,508		27

Total	$	7,009		402		7,710		15,121		1,195,334		1,210,455		2,133

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued

Transactions in the allowance for loan losses for the years ended December 31, 2014 and 2013 are summarized as follows:


	In Thousands
	Residential 1-4 Family			Multifamily		Commercial Real Estate			Construction			Farmland		Second Mortgages			Equity Lines of Credit		Commercial			Agricultural, Installment and Other			Total
December 31, 2014
Allowance for loan losses:
Beginning balance	$	4,935			77		10,918			5,159			618		205			300		395			328			22,935
Provision		1,059			95		(378	)		102			176		(164	)		3		(641	)		246			498
Charge-offs		(468	)		—		(968	)		(7	)		—		—			—		(37	)		(387	)		(1,867	)
Recoveries		56			—		6			324			1		20			1		459			139			1,006

Ending balance	$	5,582			172		9,578			5,578			795		61			304		176			326			22,572

Ending balance individually evaluated for impairment	$	376			—		1,135			—			120		—			—		—			—			1,631

Ending balance collectively evaluated for impairment	$	5,206			172		8,443			5,578			675		61			304		176			326			20,941

Ending balance loans acquired with deteriorated credit quality	$	—			—		—			—			—		—			—		—			—			—

Loans:
Ending balance	$	350,758			31,242		564,965			245,830			30,236		9,026			41,496		30,000			53,225			1,356,778

Ending balance individually evaluated for impairment	$	3,061			—		6,455			—			701		280			—		—			—			10,497

Ending balance collectively evaluated for impairment	$	347,697			31,242		558,510			245,830			29,535		8,746			41,496		30,000			53,225			1,346,281

Ending balance loans acquired with deteriorated credit quality	$	—			—		—			—			—		—			—		—			—			—

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued


	In Thousands
	Residential 1-4 Family			Multifamily			Commercial Real Estate			Construction			Farmland			Second Mortgages			Equity Lines of Credit			Commercial			Agricultural, Installment and Other			Total
December 31, 2013
Allowance for loan losses:
Beginning balance	$	5,699			89			9,305			7,191			1,658			272			492			382			409			25,497
Provision		36			(12	)		3,063			(741	)		(266	)		(70	)		(89	)		131			125			2,177
Charge-offs		(877	)		—			(1,478	)		(1,470	)		(781	)		(7	)		(104	)		(149	)		(381	)		(5,247	)
Recoveries		77			—			28			179			7			10			1			31			175			508

Ending balance	$	4,935			77			10,918			5,159			618			205			300			395			328			22,935

Ending balance individually evaluated for impairment	$	1,150			—			2,300			950			57			49			10			—			—			4,516

Ending balance collectively evaluated for impairment	$	3,785			77			8,618			4,209			561			156			290			395			328			18,419

Ending balance loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—			—			—

Loans:
Ending balance	$	332,432			13,920			526,258			194,426			22,771			10,511			34,185			29,444			46,508			1,210,455

Ending balance individually evaluated for impairment	$	4,303			—			17,722			3,806			130			761			174			—			—			26,896

Ending balance collectively evaluated for impairment	$	328,129			13,920			508,536			190,620			22,641			9,750			34,011			29,444			46,508			1,183,559

Ending balance loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—			—			—

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(2)

Loans and Allowance for Loan Losses, Continued

The following table summarizes the carrying balances of TDRs at December 31, 2014 and December 31, 2013 (dollars in thousands):


	2014		2013
Performing TDRs	$	5,448		6,487
Nonperforming TDRs		2,592		758

Total TDRs	$	8,040		7,245

The following table outlines the amount of each troubled debt restructuring categorized by loan classification for the years ended December 31, 2014 and 2013

(dollars in thousands):


	December 31, 2014						December 31, 2013
	Number of Contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, Net of Related Allowance		Number of Contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, Net of Related Allowance
Residential 1-4 family		6	$	1,346	$	1,218		6	$	800	$	800
Multifamily		—		—		—		—		—		—
Commercial real estate		2		1,020		1,020		2		5,522		3,291
Construction		—		—		—		1		282		282
Farmland		—		—		—		—		—		—
Second mortgages		—		—		—		1		24		24
Equity lines of credit		—		—		—		—		—		—
Commercial		1		3		3		—		—		—
Agricultural, installment and other		1		1		1		2		13		13

Total		10	$	2,370	$	2,242		12	$	6,641	$	4,410

As of December 31, 2014 the Company had two loans totaling $844,000 previously classified as troubled debt restructurings default within twelve months of the restructuring. As of December 31, 2013 the Company did not have any loans previously classified as troubled debt restructurings subsequently defult within twelve months of the restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(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 2014, 2013 and 2012, the Company originated loans in the secondary market of $105,078,000, $109,131,000 and $135,107,000, respectively. The fees and gain on sale of these loans totaled $2,780,000 $3,298,000 and $3,602,000 in 2014, 2013 and 2012, respectively. The Company sells loans to third-party investors on a loan-by-loan basis and has not entered into any forward commitments with investors for future bulk sales. All of these loans sales transfer servicing rights to the buyer.

In some instances Wilson Bank sells loans that contain provisions which permit the borrower to seek recourse against Wilson Bank in certain circumstances. At December 31, 2014 and 2013, total loans sold with recourse in the secondary market aggregated $79,682,000 and $111,914,000, respectively. At December 31, 2014, Wilson Bank has not been required to repurchase a significant amount of the 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, 2014 consist of the following:


	Securities Held-To-Maturity
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Mortgage-backed:
Government-sponsored enterprises (GSEs)* residential	$	7,398		76		147		7,327
Obligations of states and political subdivisions		20,725		389		41		21,073

	$	28,123		465		188		28,400


	Securities Available-For-Sale
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. Government-sponsored enterprises (GSEs)*	$	131,767		129		1,329		130,567
Mortgage-backed:
GSE residential		170,802		731		464		171,069
Asset-backed:
SBAP		30,627		98		205		30,520
Obligations of states and political subdivisions		14,324		98		158		14,264

	$	347,520		1,056		2,156		346,420

*	Such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Farm Credit Banks and Government National Mortgage Association.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(3)

Debt and Equity Securities, Continued

The Company’s classification of securities at December 31, 2013 is as follows:


	Securities Held-To-Maturity
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Mortgage-backed:
Government-sponsored enterprises (GSEs)* residential	$	8,649		73		520		8,202
Obligations of states and political subdivisions		18,174		424		239		18,359

	$	26,823		497		759		26,561


	Securities Available-For-Sale
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. Government-sponsored enterprises (GSEs)*	$	141,968		10		5,892		136,086
Mortgage-backed:
GSE residential		175,855		808		1,481		175,182
Asset-backed:
SBAP		4,801		—		69		4,732
Obligations of states and political subdivisions		13,711		71		409		13,373

	$	336,335		889		7,851		329,373

*	Such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Farm Credit Banks and Government National Mortgage Association.

Included in mortgage-backed GSE residential available for sale securities are collateralized mortgage obligations totaling $12,254,000 (fair value of $12,305,000) and $5,617,000 (fair value of $5,674,000) at December 31, 2014 and 2013, respectively.

The amortized cost and estimated market value of debt securities at December 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	In Thousands
Securities Held-To-Maturity			Estimated
	Amortized		Market
	Cost		Value
Due in one year or less	$	3,131		3,179
Due after one year through five years		10,088		10,325
Due after five years through ten years		3,202		3,241
Due after ten years		4,304		4,328

		20,725		21,073
Mortgage-backed securities		7,398		7,327

	$	28,123		28,400

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(3)

Debt and Equity Securities, Continued


	In Thousands
Securities Available-For-Sale			Estimated
	Amortized		Market
	Cost		Value
Due in one year or less	$	2,351		2,354
Due after one year through five years		55,661		55,283
Due after five years through ten years		87,398		86,514
Due after ten years		681		680

		146,091		144,831
Mortgage and asset-backed securities		201,429		201,589

	$	347,520		346,420

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


	In Thousands
	2014			2013		2012
Gross proceeds	$	72,215			6,867		37,353

Gross realized gains	$	638			78	$	261
Gross realized losses		(93	)		—		(2	)

Net realized gains	$	545			78	$	259

Securities carried in the balance sheet of approximately $187,059,000 (approximate market value of $186,091,000) and $156,443,000 (approximate market value of $151,345,000) were pledged to secure public deposits and for other purposes as required or permitted by law at December 31, 2014 and 2013, respectively.

Included in the securities above are $21,823,000 (approximate market value of $22,162,000) and $18,391,000 (approximate market value of $18,545,000) at December 31, 2014 and 2013, respectively, in obligations of political subdivisions located within the State of Tennessee. Management purchases only obligations of such political subdivisions it considers to be financially sound.

Securities that have rates that adjust prior to maturity totaled $11,950,000 (approximate market value of $11,943,000) and $12,000 (approximate market value of $12,000) at December 31, 2014 and 2013, 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, 2014.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(3)

Debt and Equity Securities, Continued

Available for sale and held to maturity securities that have been in a continuous unrealized loss position at December 31, 2014 are as follows:


	In Thousands, Except Number of Securities
	Less than 12 Months						12 Months or More						Total
	Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses
Held to Maturity Securities:
Debt securities:
Mortgage-backed:
GSE residential	$	—	$	—		—	$	4,674	$	147		4	$	4,674	$	147
Obligations of states and political subdivisions		—		—		—		2,577		41		6		2,577		41

	$	—	$	—		—	$	7,251	$	188		10	$	7,251	$	188

Available-for-Sale Securities:
Debt securities:
GSEs	$	34,753	$	143		10	$	74,250	$	1,186		24	$	109,003	$	1,329
Mortgage-backed:
GSE residential		66,504		279		36		22,172		185		13		88,676		464
Asset-backed:
SBAP		16,114		205		9		—		—		—		16,114		205
Obligations of states and political subdivisions		2,078		8		4		4,699		150		13		6,777		158

	$	119,449	$	635		59	$	101,121	$	1,521		50	$	220,570	$	2,156

(4)

Restricted Equity Securities

Restricted equity securities consists of stock of the Federal Home Loan Bank of Cincinnati amounting to $3,012,000 at December 31, 2014 and 2013. 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, 2014 and 2013 is as follows:


	In Thousands
	2014			2013
Land	$	16,662			15,140
Buildings		27,898			25,859
Leasehold improvements		140			140
Furniture and equipment		7,115			6,698
Automobiles		112			123
Construction-in-progress		3			1,100

		51,930			49,060
Less accumulated depreciation		(11,807	)		(10,884	)

	$	40,123			38,176

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(5)

Premises and Equipment, Continued

During 2014, 2013 and 2012 payments of $1,176,000, $1,154,000 and $343,000, respectively, were made to an entity owned by a director for the construction of buildings and minor repair work.

Depreciation expense was $2,205,000, $1,763,000 and $1,530,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

(6)

Acquired Intangible Assets and Goodwill

The intangible assets result from the excess of purchase price over the applicable book value of the net assets acquired of 50% owned subsidiaries in 2005.

The premium on purchased deposits was amortized on a straight-line basis over 7 years ending in 2012. Amortization was $112,000 and $396,000 for the years ended December 31, 2013 and 2012, respectively.


	In Thousands
	2014		2013
Goodwill:
Balance at January 1,	$	4,805		4,805
Goodwill acquired during year		—		—
Impairment loss		—		—

Balance at December 31,	$	4,805		4,805

(7)

Deposits

Deposits at December 31, 2014 and 2013 are summarized as follows:


	In Thousands
	2014		2013
Demand deposits	$	155,721		136,525
Savings accounts		102,432		93,130
Negotiable order of withdrawal accounts		375,967		329,572
Money market demand accounts		479,549		406,984
Certificates of deposit $100,000 or greater		229,709		251,722
Other certificates of deposit		225,766		240,815
Individual retirement accounts $100,000 or greater		40,590		42,487
Other individual retirement accounts		50,536		53,020

	$	1,660,270		1,554,255

Principal maturities of certificates of deposit and individual retirement accounts at December 31, 2014 are as follows:


	(In Thousands)
Maturity	Total
2015	$	293,919
2016		103,990
2017		98,920
2018		28,209
2019		21,311
Thereafter		252

	$	546,601

The aggregate amount of overdrafts reclassified as loans receivable was $373,000 and $212,000 December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, the Bank was not required to maintain a cash balance with the Federal Reserve.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(8)

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements were $3,437,000 and $9,078,000 at December 31, 2014 and 2013, respectively. The maximum amounts of outstanding repurchase agreements at any month end during 2014 and 2013 was $8,753,000 and $10,527,000, respectively. The average daily balance outstanding during 2014 and 2013 was $5,784,000 and $9,438,000, respectively. The weighted-average interest rate on the outstanding balance at December 31, 2014 and 2013 was .27% and .50%, respectively. The underlying securities are typically held by other financial institutions and are designated as pledged.

(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, 2014, 2013 and 2012 are presented below:


	In Thousands
	2014		2013		2012
Non-interest income:
Service charges on deposits	$	4,374		4,090		4,568
Other fees and commissions		8,895		7,726		7,603
Security gains, net		545		78		259
Fees and gains on sales of loans		2,780		3,298		3,602
Gain on sale of other real estate, net		77		—		—
Other income		7		12		3

	$	16,678		15,204		16,035


	In Thousands
	2014		2013		2012
Non-interest expense:
Employee salaries and benefits	$	27,793		25,697		23,984
Occupancy expenses		3,100		2,715		2,626
Furniture and equipment expenses		1,767		1,406		1,175
Loss on sales of other assets, net		6		3		2
Write downs and loss on sales of other real estate, net		—		1,642		3,286
Data processing expenses		2,313		1,902		1,433
FDIC insurance		1,049		1,220		1,738
Directors’ fees		720		707		762
Legal fees and litigation losses		92		2,980		178
Other operating expenses		10,865		10,515		9,914

	$	47,705		48,787		45,098

(10)

Income Taxes

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


	In Thousands
	2014			2013
Deferred tax asset:
Federal	$	9,818			11,638
State		1,556			1,928

		11,374			13,566

Deferred tax liability:
Federal		(1,829	)		(1,768	)
State		(374	)		(361	)

		(2,203	)		(2,129	)

Net deferred tax asset	$	9,171			11,437

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(10)

Income Taxes, Continued

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


	In Thousands
	2014			2013
Financial statement allowance for loan losses in excess of tax allowance	$	8,191			8,330
Excess of depreciation deducted for tax purposes over the amounts deducted in the financial statements		(1,723	)		(1,650	)
Financial statement deduction for deferred compensation in excess of deduction for tax purposes		1,010			908
Writedown of other real estate not deductible for income tax purposes until sold		1,024			1,586
Financial statement income on FHLB stock dividends not recognized for tax purposes		(480	)		(480	)
Unrealized loss on securities available-for-sale		421			2,666
Miscellaneous		728			77

	$	9,171			11,437

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


	In Thousands
	Federal			State			Total
2014
Current	$	10,201			1,475			11,676
Deferred		526			108			634

Total	$	10,727			1,583			12,310

2013
Current	$	7,193			1,045			8,238
Deferred		898			170			1,068

Total	$	8,091			1,215			9,306

2012
Current	$	7,022			1,307			8,329
Deferred		(732	)		(82	)		(814	)

Total	$	6,290			1,225			7,515

A reconciliation of actual income tax expense of $12,310,000, $9,306,000 and $7,515,000 for the years ended December 31, 2014, 2013 and 2012, respectively, to the “expected” tax expense (computed by applying the statutory rate of 34% to earnings before income taxes) is as follows:


	In Thousands
	2014			2013			2012
Computed “expected” tax expense	$	11,250			8,559			6,686
State income taxes, net of Federal income tax benefit		1,029			937			780
Tax exempt interest, net of interest expense exclusion		(244	)		(234	)		(203	)
Federal income tax rate in excess of statutory rate related to taxable income over $10 million		290			204			206
Earnings on cash surrender value of life insurance		(128	)		(25	)		(82	)
Expenses not deductible for tax purposes		37			35			26
Stock based compensation expense		14			11			10
Other		62			(181	)		92

	$	12,310			9,306			7,515

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(10)

Income Taxes, Continued

Total income tax expense for 2014, 2013 and 2012, includes $209,000, $30,000 and $100,000 of expense related to the realized gain and loss, respectively, on sale of securities.

As of December 31, 2014, 2013 and 2012 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, 2014.

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, 2014, were approximately $11.4 million of tax positions (deferred tax assets) for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company and Wilson Bank file income tax returns in the United States (“U.S.”), as well as in the State of Tennessee. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2010. The Company’s Federal tax returns have been audited through December 31, 2004 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 consolidated financial position.

In addition, the Company is currently involved in a lawsuit in which borrowers have alleged improper conduct by a former officer of the Company. Management, after consultation with legal counsel, does not believe losses, if any, will be material to the financial position of the Company.

Wilson Bank leases 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
2015	$	96
2016		50
2017		22

Total rent expense amounted to $133,000, $128,000 and $153,000, respectively, during the years ended December 31, 2014, 2013 and 2012.

The Company has lines of credit with other financial institutions totaling $53,000,000 at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, respectively, there was no balance outstanding under these lines of credit.

(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.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(12)

Financial Instruments with Off-Balance-Sheet Risk, Continued

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
	2014		2013
Financial instruments whose contract amounts represent credit risk:
Unused commitments to extend credit	$	307,332		185,633
Standby letters of credit		33,447		28,077

Total	$	340,779		213,710

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.

(13)

Concentration of Credit Risk

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 counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. 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 $33.4 million at December 31, 2014.

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. Investment in state and municipal securities also include governmental entities within the Company’s market area. The concentrations of credit by type of loan are set forth in note 2 to the consolidated financial statements.

At December 31, 2014, the Company’s cash and due from banks and federal funds sold included commercial bank deposits aggregating $16,483,000 in excess of the FDIC limit of $250,000 per depositor.

Federal funds sold were deposited with two banks.

(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, 2014, 2013 and 2012, Wilson Bank contributed $1,734,000, $1,612,000 and $1,519,000, respectively, to the 401(k) Plan.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(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 69,289 in 2014, 73,411 in 2013 and 106,230 in 2012 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 and 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). Management believes, as of December 31, 2014 and 2013, that the Company and Wilson Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2014, 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 as of December 31, 2014 and 2013, an institution must have maintained minimum total risk-based, Tier 1 risk-based and Tier 1 leverage 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 minimum capital levels required to be considered well-capitalized from and after January 1, 2015, are as follows: a Tier 1 leverage capital ratio of 5%, a common equity Tier 1 capital ratio of 6.5%, a Tier 1 risk-based capital ratio of 8% (up from 6.0% under the previous rules) and a total risk-based capital ratio of 10%. The Company’s and Wilson Bank’s actual capital amounts and ratios as of December 31, 2014 and 2013, are also presented in the table:


						Regulatory					Regulatory
						Minimum Capital					Minimum To Be
	Actual					Requirement					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
December 31, 2014
Total capital to risk weighted assets:
Consolidated	$	214,779		15.0	%	$	114,549		8.0	%	$	143,186		10.0	%
Wilson Bank		213,447		14.9			114,602		8.0			143,253		10.0
Tier 1 capital to risk weighted assets:
Consolidated		196,765		13.7			57,450		4.0			86,174		6.0
Wilson Bank		195,433		13.6			57,480		4.0			86,220		6.0
Tier 1 capital to average assets:
Consolidated		196,765		10.6			74,251		4.0			N/A		N/A
Wilson Bank		195,433		10.5			74,451		4.0			93,063		5.0

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(16)

Regulatory Matters and Restrictions on Dividends, Continued


						Regulatory					Regulatory
						Minimum Capital					Minimum To Be
	Actual					Requirement					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
December 31, 2013
Total capital to risk weighted assets:
Consolidated	$	193,746		14.7	%	$	105,656		8.0	%	$	132,070		10.0	%
Wilson Bank		190,911		14.5			105,622		8.0			132,027		10.0
Tier 1 capital to risk weighted assets:
Consolidated		177,161		13.4			52,805		4.0			79,208		6.0
Wilson Bank		174,326		13.2			52,826		4.0			79,239		6.0
Tier 1 capital to average assets:
Consolidated		177,161		10.3			69,001		4.0			N/A		N/A
Wilson Bank		174,326		10.1			69,040		4.0			86,300		5.0

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 are effective January 1, 2015 and include a new “Common Equity Tier I Ratio”, which has stricter rules as to what qualifies as Common Equity Tier I Capital. A summary of the changes to the Regulatory Capital Ratios are as follows:


	Guideline in Effect
	At December 31, 2014						Basel III Requirements
	Minimum			Well Capitalized			Minimum			Well Capitalized
Common Equity Tier I Ratio (Common Equity to Risk Weighted Assets)		No Applicable			Not Applicable			4.5	%		6.5	%
Tier I Capital to Risk Weighted Assets		4	%		6	%		6	%		8	%
Total Capital to Risk Weighted Assets		8	%		10	%		8	%		10	%
Tier I Leverage Ratio		4	%		5	%		4	%		5	%


	2016			2017			2018			2019
Common Equity Tier I Ratio		5.125	%		5.75	%		6.375	%		7.0	%
Tier I Capital to Risk Weighted Assets Ratio		6.625	%		7.25	%		7.875	%		8.5	%
Total Capital to Risk Weighted Assets Ratio		8.625	%		9.25	%		9.875	%		10.5	%

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(16)

Regulatory Matters and Restrictions on Dividends, Continued

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 I Capital. In addition, the risk weights assigned to certain assets such as past due loans and certain real estate loans have been increased.

(17)

Salary Deferral Plans

Wilson Bank provides its executive officers an Executive Salary Continuation Plan, which also provides for death and disability benefits. The Executive Salary Continuation Plan was 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. There were ten employees participating in the Executive Salary Continuation Plan at December 31, 2014.

The Executive Salary Continuation Plan provides retirement benefits for a period of 180 months after the employee reaches the age of 65 and/or age 55 after 20 years of service. The Executive Salary Continuation Plan also provides benefits over a period of fifteen years in the event the executive should die or become disabled prior to reaching retirement. Wilson Bank has purchased insurance policies or other assets to provide the benefits listed above. The insurance policies remain the sole property of Wilson Bank and are payable to Wilson Bank. At December 31, 2014 and 2013, the salary deferral compensation liability totaled $1,878,000 and $1,916,000, respectively, the cash surrender value of life insurance was $3,024,000 and $2,381,000, respectively, and the face amount of the insurance policies in force approximated $9,984,000 and $7,109,000, respectively, at December 31, 2014 and 2013. The Executive Salary Continuation Plan is not qualified under Section 401 of the Internal Revenue Code.

During November 2012, the Company amended its Executive Salary Continuation Plan effectively freezing accrued benefits so that no additional benefits will be accrued under the existing Executive Salary Continuation Plan. The frozen disability benefit will be paid until the applicable executive’s normal retirement age at which time such benefit will be reduced to the normal retirement benefit provided for under the applicable Executive Salary Continuation Plan agreement for the remaining benefit period.

In November 2012, Supplemental Executive Retirement Plan (SERP) Agreements were entered into with Wilson Bank’s executive officers to provide certain supplemental nonqualified pension benefits to the executives in coordination with the freezing of the benefits under the executive’s Salary Continuation Agreement. The SERP Agreements when combined with the frozen Salary Continuation Agreements continue to provide the executives with the same benefits as provided under the Salary Continuation Agreements for the 180-month period provided for thereunder and then continue a portion of that benefit for the remainder of each of the executives’ lives. In November 2012, Wilson Bank purchased Flexible Premium Indexed Deferred Annuity Contracts in the amount of $3,809,000 to fund the benefits under the SERP Agreements. The Salary Continuation Agreements, as amended, and the SERP Agreements together provide for the payment of an annual cash benefit to each of the executives (or their beneficiaries) following the executive’s separation from service from Wilson Bank under a variety of circumstances including both the executive’s voluntary termination of the executive’s employment with Wilson Bank and the involuntary termination of the executive by Wilson Bank without cause. The payments are made partially from the frozen Salary Continuation Agreements and partially from the SERP Agreements for 180 months following an executive’s termination of service (in most cases) and a portion of the payments then continue for the remainder of the executive’s life under the SERP Agreements. At December 31, 2014 and 2013, the value of the Flexible Indexed Annuity Contracts totaled $3,987,000 and $4,009,000 and the salary deferral compensation liability totaled $697,000 and $364,000, respectively.

The Company purchased insurance policies during 2014 to provide death benefits as provided for in the plans. The insurance policies remain the sole property of the Company and are payable to the Company. The cash surrender value of life insurance totaled $10,320,000 and $5,000,000 and the face amount of the insurance policies in force approximated $26,090,000 and $12,939,000 at December 31, 2014 and 2013, respectively.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(18)

Stock Option 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 provides for the granting of stock options, and authorizes 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 subsidiaries. Furthermore, the Company may reserve additional shares for issuance under the 1999 Stock Option Plan as needed in order that the aggregate number of shares that may be issued during the term of the 1999 Stock Option Plan is equal to five percent (5%) of the shares of common stock then issued and outstanding.

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 is effective as of April 14, 2009 and replaces the 1999 Stock Option Plan which expired on April 13, 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 75,000 shares. As of December 31, 2014, the Company has granted 37,750 options to employees pursuant to the 2009 Stock Option Plan.

Under the 2009 Stock Option Plan, stock option awards may be granted in the form of incentive stock options or nonstatutory stock options and are generally exercisable for up to ten years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than 100% of the fair market value of the common stock on the grant date.

The fair value of each 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 2014, 2013 and 2012:


	2014			2013			2012
Expected dividends		1.11	%		1.12	%		1.08	%
Expected term (in years)		9.33			9.56			6.09
Expected volatility		23	%		25	%		27	%
Risk-free rate		2.62	%		2.04	%		1.27	%

The expected 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 assumption is based on the Company’s history and expectation of dividend payouts.

A summary of the stock option activity for 2014, 2013 and 2012 is as follows:


	2014					2013					2012
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		47,654		$	36.43		48,987		$	34.24		52,708		$	31.24
Granted		3,250			45.75		5,500			44.16		6,000			42.06
Exercised		(6,144	)		30.24		(5,973	)		26.00		(8,788	)		21.50
Forfeited or expired		(1,191	)		35.36		(860	)		33.07		(933	)		34.85

Outstanding at end of year		43,569		$	38.03		47,654		$	36.43		48,987		$	34.24

Options exercisable at year end		12,064		$	34.59		12,009		$	32.35		11,453		$	29.69

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(18)

Stock Option Plan, Continued

The following table summarizes information about stock options outstanding at December 31, 2014:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/14		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Number Exercisable at 12/31/14		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
$ 23.63 - $ 35.75		11,145	$	30.61		2.33 years		5,797	$	29.73		2.05 years
$ 37.75 - $ 45.75		32,424	$	40.58		6.42 years		6,267	$	39.09		5.51 years

		43,569						12,064

Aggregate intrinsic value (in thousands)	$	424					$	159

The weighted average fair value at the grant date of options granted during the years 2014, 2013 and 2012 was $13.41, $13.03 and $10.47, respectively. The total intrinsic value of options exercised during the years 2014, 2013 and 2012 was $99,000, $109,000 and $182,000, respectively.

As of December 31, 2014, there was $241,000 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. The cost is expected to be recognized over a weighted-average period of 6.7 years.

(19)

Earnings Per Share

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


	In Thousands (except share data)
	2013		2013		2012
Basic EPS Computation:
Numerator - Earnings available to common stockholders	$	20,777		15,869		12,148

Denominator - Weighted average number of common shares outstanding		7,547,087		7,472,373		7,360,485

Basic earnings per common share	$	2.75		2.12		1.65

Diluted EPS Computation:
Numerator - Earnings available to common stockholders	$	20,777		15,869	$	12,148

Denominator:
Weighted average number of common shares outstanding		7,547,087		7,472,373		7,360,485
Dilutive effect of stock options		4,393		4,798		5,163

		7,551,480		7,477,171		7,365,648

Diluted earnings per common share	$	2.75		2.12		1.65

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(20)

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

•

Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 3—inputs to the valuation methodology that are unobservable and significant to the fair value measurement.

Assets

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.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(20)

Disclosures About Fair Value of Financial Instruments, Continued

Assets, Continued


	Measured on a Recurring Basis
	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Investment securities available-for-sale:
U.S. Government sponsored enterprises	$	130,567		—		130,567		—
Mortgage-backed securities		171,069		—		171,069		—
Asset-backed securities		30,520		—		30,520		—
State and municipal securities		14,264		—		14,264		—

Total investment securities available-for-sale		346,420		—		346,420		—
Other assets		17,331		—		—		17,331

Total assets at fair value	$	363,751		—		346,420		17,331


	Measured on a Recurring Basis
	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2013
Investment securities available-for-sale:
U.S. Government sponsored enterprises and agency-backed	$	136,086		—		136,086		—
Mortgage-backed securities		175,182		—		175,182		—
Asset-backed securities		4,732		—		4,732		—
State and municipal securities		13,373		—		13,373		—

Total investment securities available-for-sale		329,373		—		329,373		—
Other assets		11,390		—		—		11,390

Total assets at fair value	$	340,763		—		329,373		11,390

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(20)

Disclosures About Fair Value of Financial Instruments, Continued


	Measured on a Non-Recurring Basis
	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Other real estate owned	$	7,298		—		—		7,298
Impaired loans, net (¹)		8,866		—		—		8,866

Total	$	16,164		—		—		16,164

December 31, 2013
Other real estate owned	$	12,869		—		—		12,869
Impaired loans, net (¹)		22,380		—		—		22,380

Total	$	35,249		—		—		35,249

(1)	Amount is net of a valuation allowance of $1.6 million at December 31, 2014 and $4.5 million at December 31, 2013 as required by ASC 310, “Receivables.”

The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2014 and 2013 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):


	For the Year Ended December 31,
	2014				2013
	Other Assets		Other Liabilities		Other Assets		Other Liabilities
Fair value, January 1	$	11,390		—	$	6,315		—
Total realized gains included in income		376		—		75		—
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at December 31		—		—		—		—
Purchases, issuances and settlements, net		5,565		—		5,000		—
Transfers out of Level 3		—		—		—		—

Fair value, December 31	$	17,331		—	$	11,390		—

Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at December 31	$	376		—	$	75		—

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(20)

Disclosures About Fair Value of Financial Instruments, Continued

Deposits and Securities sold under agreements to repurchase—The carrying amounts of demand deposits, savings deposits and securities sold under agreements to repurchase, approximate their fair values. Fair values for certificates of deposit are estimated using discounted cash flow models, using current market interest rates offered on certificates with similar remaining maturities.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(20)

Disclosures About Fair Value of Financial Instruments, Continued


(in Thousands)	Carrying/ Notional Amount		Estimated Fair Value (¹)		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
December 31, 2014
Financial assets:
Securities held-to-maturity	$	28,123		28,400		—		28,400		—
Loans, net		1,329,865		1,346,569		—		—		1,346,569
Mortgage loans held-for-sale		9,466		9,466		—		—		9,466
Financial liabilities:
Deposits and securities sold under agreements to repurchase		1,663,707		1,530,607		—		—		1,530,607
Off-balance sheet instruments:
Commitments to extend credit		—		—		—		—		—
Standby letters of credit		—		—		—		—		—
December 31, 2013
Financial assets:
Securities held-to-maturity	$	26,823		26,561		—		26,561		—
Loans, net		1,184,267		1,185,271		—		—		1,185,271
Mortgage loans held-for-sale		7,022		7,022		—		—		7,022
Financial liabilities:
Deposits and securities sold under agreements to repurchase		1,563,333		1,554,839		—		—		1,554,839
Off-balance sheet instruments:
Commitments to extend credit		—		—		—		—		—
Standby letters of credit		—		—		—		—		—

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

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(21)

Wilson Bank Holding Company

- Parent Company Financial Information

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Balance Sheets

December 31, 2014 and 2013


	Dollars In Thousands
	2014			2013
ASSETS
Cash	$	1,120	*		2,662	*
Investment in wholly-owned commercial bank subsidiary		199,560			174,836
Refundable income taxes		212			173

Total assets	$	200,892			177,671

LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ equity:
Common stock, par value $2.00 per share, authorized 15,000,000 shares, 7,571,968 and 7,498,588 shares issued and outstanding, respectively	$	15,144			14,997
Additional paid-in capital		57,709			54,519
Retained earnings		128,718			112,451
Net unrealized losses on available-for-sale securities, net of income taxes of $421 and $2,666, respectively		(679	)		(4,296	)

Total stockholders’ equity		200,892			177,671

Total liabilities and stockholders’ equity	$	200,892			177,671

*	Eliminated in consolidation.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(21)

Wilson Bank Holding Company -

Parent Company Financial Information, Continued

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Earnings and Comprehensive Earnings

Three Years Ended December 31, 2014


	Dollars In Thousands
	2014			2013			2012
Expenses:
Directors’ fees	$	351			337			319
Other		191			83			88

Loss before Federal income tax benefits and equity in undistributed earnings of commercial bank subsidiaries		(542	)		(420	)		(407	)
Federal income tax benefits		212			173			173

		(330	)		(247	)		(234	)
Equity in undistributed earnings of commercial bank subsidiary		21,107	*		16,116	*		12,382	*

Net earnings		20,777			15,869			12,148

Other comprehensive earnings (losses), net of tax:
Net unrealized gains (losses) on available-for-sale- securities arising during period, net of taxes of $2,454, $4,231 and $1,158, respectively		3,953			(6,820	)		1,867
Reclassification adjustments for net gains included in net earnings, net of taxes of $209, $30 and $100, respectively		(336	)		(48	)		(160	)

Other comprehensive earnings (losses)		3,617			(6,868	)		1,707

Comprehensive earnings	$	24,394			9,001			13,855

*	Eliminated in consolidation.

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(21)

Wilson Bank Holding Company -

Parent Company Financial Information, Continued

WILSON BANK HOLDING COMPANY

(Parent Company Only)

Statements of Changes in Stockholders’ Equity

Three Years Ended December 31, 2014


	Dollars In Thousands
										Net Unrealized
				Additional						Gain (Loss) On
	Common			Paid-In			Retained			Available-For-
	Stock			Capital			Earnings			Sale Securities			Total
Balance December 31, 2011		14,608			46,734			95,141			865			157,348
Cash dividends declared, $.85 per share		—			—			(6,243	)		—			(6,243	)
Issuance of 106,230 shares of stock pursuant to dividend reinvestment plan		212			4,306			—			—			4,518
Issuance of 8,788 shares of stock pursuant to exercise of stock options		18			171			—			—			189
Share based compensation expense		—			31			—			—			31
Net change in fair value of available-for-sale securities during the year, net of taxes of $1,058		—			—			—			1,707			1,707
Net earnings for the year		—			—			12,148			—			12,148

Balance December 31, 2012		14,838			51,242			101,046			2,572			169,698
Cash dividends declared, $.60 per share		—			—			(4,464	)		—			(4,464	)
Issuance of 73,411 shares of stock pursuant to dividend reinvestment plan		147			3,101			—			—			3,248
Issuance of 5,973 shares of stock pursuant to exercise of stock options		12			144			—			—			156
Share based compensation expense		—			32			—			—			32
Net change in fair value of available-for-sale securities during the year, net of taxes of $4,261		—			—			—			(6,868	)		(6,868	)
Net earnings for the year		—			—			15,869			—			15,869

Balance December 31, 2013		14,997			54,519			112,451			(4,296	)		177,671
Cash dividends declared, $.60 per share		—			—			(4,510	)		—			(4,510	)
Issuance of 69,289 shares of stock pursuant to dividend reinvestment plan		139			3,065			—			—			3,204
Issuance of 6,144 shares of stock pursuant to exercise of stock options		12			174			—			—			186
Share based compensation expense		—			41			—			—			41
Net change in fair value of available-for-sale securities during the year, net of taxes of $2,245		—			—			—			3,617			3,617
Repurchase of 2,053 common shares		(4	)		(90	)		—			—			(94	)
Net earnings for the year		—			—			20,777			—			20,777

Balance December 31, 2014	$	15,144			57,709			128,718			(679	)		200,892

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(21)

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, 2014

Increase (Decrease) in Cash and Cash Equivalents


	Dollars In Thousands
	2014			2013			2012
Cash flows from operating activities:
Cash paid to suppliers and other	$	(501	)		(388	)		(376	)
Tax benefits received		173			173			170

Net cash used in operating activities		(328	)		(215	)		(206	)

Cash flows from investing activities:
Dividends received from commercial bank subsidiary		—			2,600			1,500

Net cash provided by investing activities		—			2,600			1,500

Cash flows from financing activities:
Dividends paid		(4,510	)		(4,464	)		(6,243	)
Proceeds from sale of stock pursuant to dividend reinvestment		3,204			3,248			4,518
Proceeds from exercise of stock options		186			156			189
Common shares repurchased		(94	)		—			—

Net cash used in financing activities		(1,214	)		(1,060	)		(1,536	)

Net increase (decrease) in cash and cash equivalents		(1,542	)		1,325			(242	)
Cash and cash equivalents at beginning of year		2,662			1,337			1,579

Cash and cash equivalents at end of year	$	1,120			2,662			1,337

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(21)

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, 2014

Increase (Decrease) in Cash and Cash Equivalents


	Dollars In Thousands
	2014			2013			2012
Reconciliation of net earnings to net cash used in operating activities:
Net earnings	$	20,777			15,869			12,148
Adjustments to reconcile net earnings to net cash used in operating activities:
Equity in earnings of commercial bank subsidiary		(21,107	)		(16,116	)		(12,382	)
Increase in refundable income taxes		(39	)		—			(3	)
Share based compensation expense		41			32			31

Total adjustments		(21,105	)		(16,084	)		(12,354	)

Net cash used in operating activities	$	(328	)		(215	)		(206	)

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(22)

Quarterly Financial Data (Unaudited)

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


	(In Thousands, except per share data)
	2014								2013								2012
	Fourth		Third		Second		First		Fourth		Third		Second		First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter
Interest income	$	19,180		18,980		18,286		17,934	$	18,315		17,930		17,749		17,820		18,263		18,027		18,166		17,905
Net interest income		16,783		16,554		15,849		15,426		15,704		15,263		15,001		14,967		15,079		14,628		14,590		13,957
Provision for loan losses		134		87		28		249		15		738		755		669		2,655		2,407		2,210		2,256
Earnings before income taxes		8,888		8,772		8,503		6,924		6,514		7,115		6,684		4,862		4,267		5,643		5,122		4,631
Net earnings		6,100		5,351		5,154		4,172		4,163		4,481		4,247		2,978		2,715		3,459		3,149		2,825
Basic earnings per common share		0.81		0.71		0.68		0.55		0.56		0.60		0.57		0.40		0.37		0.47		0.43		0.39
Diluted earnings per common share		0.81		0.71		0.68		0.55		0.55		0.60		0.57		0.40		0.37		0.47		0.43		0.39

WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements, Continued

December 31, 2014, 2013 and 2012

(23)

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, 2014, through the date of the issued financial statements. During this period there were no material recognizable subsequent events that required recognition in our disclosures to the December 31, 2014 financial statements.

This financial information has not been reviewed for accuracy or relevance by the FDIC.

WILSON BANK HOLDING CO - FORM 10-K - EX-13.1 - March 13, 2015

Attached files

WILSON BANK HOLDING CO Reports