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EX-32.2 - EXHIBIT 32.2 - WILSON BANK HOLDING COwbhc09302017ex322.htm
EX-32.1 - EXHIBIT 32.1 - WILSON BANK HOLDING COwbhc09302017ex321.htm
EX-31.2 - EXHIBIT 31.2 - WILSON BANK HOLDING COwbhc09302017ex312.htm
EX-31.1 - EXHIBIT 31.1 - WILSON BANK HOLDING COwbhc09302017ex311.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-20402
 

WILSON BANK HOLDING COMPANY
(Exact name of registrant as specified in its charter) 
 
 
Tennessee
 
62-1497076
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
623 West Main Street, Lebanon, TN
 
37087
(Address of principal executive offices)
 
(Zip Code)
 (615) 444-2265
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
(Do not check if a smaller reporting company)
Emerging growth company
o





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock outstanding: 10,449,719 shares at November 9, 2017
 



Part I:
 
  
 
 
 
 
 
Item 1.
 
  
 
 
 
 
 
The unaudited consolidated financial statements of the Company and its subsidiary are as follows:
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
Item 2.
 
  
 
 
 
 
 
Item 3.
 
  
 
 
 
 
 
 
 
Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  
 
 
 
 
 
 
Item 4.
 
  
 
 
 
 
 
Part II:
 
  
 
 
 
 
 
Item 1.
 
  
 
 
 
 
 
Item 1A.
 
  
 
 
 
 
 
Item 2.
 
  
 
 
 
 
 
Item 3.
 
  
 
 
 
 
 
Item 4.
 
  
 
 
 
 
 
Item 5.
 
  
 
 
 
 
 
Item 6.
 
  
 
 
 
 
 
  
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
  
 
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
  
 
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
  
 
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  
 
EX-101 INTERACTIVE DATA FILE
  
 



Part I. Financial Information
Item 1. Financial Statements
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
September 30, 2017 and December 31, 2016


 
(Unaudited)
 
(Audited)
 
September 30,
2017
 
December 31,
2016
 
(Dollars in Thousands
Except Share Amounts)
Assets
 
 
 
Loans
$
1,750,294

 
$
1,689,819

Less: Allowance for loan losses
(23,688
)
 
(22,731
)
Net loans
1,726,606

 
1,667,088

Securities:
 
 
 
Held to maturity, at cost (market value $32,719 and $36,145, respectively)
32,822

 
36,624

Available-for-sale, at market (amortized cost $316,570 and $319,201, respectively)
313,357

 
312,585

Total securities
346,179

 
349,209

Loans held for sale
11,115

 
14,788

Restricted equity securities
3,012

 
3,012

Federal funds sold
9,000

 

Total earning assets
2,095,912

 
2,034,097

Cash and due from banks
88,941

 
47,918

Bank premises and equipment, net
51,102

 
44,414

Accrued interest receivable
5,603

 
6,104

Deferred income tax asset
10,306

 
10,758

Other real estate
1,849

 
4,527

Bank owned life insurance
29,272

 
28,616

Other assets
16,855

 
16,812

Goodwill
4,805

 
4,805

Total assets
$
2,304,645

 
$
2,198,051

Liabilities and Stockholders’ Equity
 
 
 
Deposits
$
2,021,315

 
$
1,942,135

Securities sold under repurchase agreements
1,354

 
736

Accrued interest and other liabilities
16,391

 
10,560

Total liabilities
2,039,060

 
1,953,431

Stockholders’ equity:
 
 
 
Common stock, $2.00 par value; authorized 50,000,000 shares, issued and outstanding 10,449,719 and 10,319,673 shares, respectively
20,899

 
20,639

Additional paid-in capital
65,926

 
60,541

Retained earnings
180,743

 
167,523

Net unrealized losses on available-for-sale securities, net of income taxes of $1,230 and $2,533, respectively
(1,983
)
 
(4,083
)
Total stockholders’ equity
265,585

 
244,620

Total liabilities and stockholders’ equity
$
2,304,645

 
$
2,198,051


See accompanying notes to consolidated financial statements (unaudited)

4



WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
Three Months and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
 
(Dollars in Thousands Except Per Share Amounts)
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
20,944

 
$
19,347

 
$
61,813

 
$
56,796

Interest and dividends on securities:
 
 
 
 
 
 
 
Taxable securities
1,316

 
1,524

 
3,950

 
4,380

Exempt from Federal income taxes
280

 
329

 
925

 
830

Interest on loans held for sale
77

 
136

 
210

 
295

Interest on Federal funds sold
82

 
87

 
186

 
275

Interest on balances held at depository institutions
182

 

 
360

 

Interest and dividends on restricted securities
23

 
31

 
89

 
92

Total interest income
22,904

 
21,454

 
67,533

 
62,668

Interest expense:
 
 
 
 
 
 
 
Interest on negotiable order of withdrawal accounts
338

 
348

 
968

 
1,076

Interest on money market and savings accounts
630

 
477

 
1,560

 
1,476

Interest on time deposits
1,361

 
1,251

 
3,909

 
3,738

Interest on federal funds purchased

 

 
8

 
2

Interest on securities sold under repurchase agreements
3

 
1

 
5

 
2

Total interest expense
2,332

 
2,077

 
6,450

 
6,294

Net interest income before provision for loan losses
20,572

 
19,377

 
61,083

 
56,374

Provision for loan losses
436

 
141

 
1,245

 
290

Net interest income after provision for loan losses
20,136

 
19,236

 
59,838

 
56,084

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
1,607

 
1,513

 
4,530

 
4,247

Other fees and commissions
2,760

 
2,665

 
8,931

 
7,732

Income on BOLI and annuity contracts
215

 
345

 
656

 
630

Gain on sale of loans
1,124

 
1,244

 
3,214

 
3,141

Gain (loss) on the sale of fixed assets

 
(26
)
 
8

 
(26
)
Gain (loss) on sale of other real estate
(14
)
 

 
40

 
373

Gain (loss) on sale of securities
(23
)
 
377

 
(61
)
 
620

Total non-interest income
5,669

 
6,118

 
17,318

 
16,717

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
9,442

 
8,528

 
27,313

 
25,230

Occupancy expenses, net
997

 
999

 
2,782

 
2,693

Furniture and equipment expense
528

 
492

 
1,572

 
1,526

Data processing expense
713

 
581

 
2,094

 
1,942

Directors’ fees
163

 
158

 
476

 
496

Other operating expenses
3,524

 
3,501

 
10,731

 
10,559

Loss on sale of other assets

 

 
2

 
1

Total non-interest expense
15,367

 
14,259

 
44,970

 
42,447

Earnings before income taxes
10,438

 
11,095

 
32,186

 
30,354

Income taxes
3,969

 
4,177

 
12,234

 
11,523

Net earnings
$
6,469

 
$
6,918

 
$
19,952

 
$
18,831

Weighted average number of common shares outstanding-basic
10,435,032

 
10,300,323

 
10,392,828

 
10,266,061

Weighted average number of common shares outstanding-diluted
10,440,277

 
10,305,312

 
10,397,826

 
10,271,018

Basic earnings per common share
$
0.62

 
$
0.67

 
$
1.92

 
$
1.83

Diluted earnings per common share
$
0.62

 
$
0.67

 
$
1.92

 
$
1.83

Dividends per share
$
0.35

 
$
0.30

 
$
0.65

 
$
0.65

See accompanying notes to consolidated financial statements (unaudited)

5



WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings
Three Months and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
 
(In Thousands)
Net earnings
$
6,469

 
$
6,918

 
$
19,952

 
$
18,831

Other comprehensive earnings (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $44, $2, $1,280 and $1,708, respectively
(73
)
 
4

 
2,062

 
2,755

Reclassification adjustment for net losses (gains) included in net earnings, net of taxes of $8, $144, $23 and $236, respectively
15

 
(233
)
 
38

 
(383
)
Other comprehensive earnings (loss)
(58
)
 
(229
)
 
2,100

 
2,372

Comprehensive earnings
$
6,411

 
$
6,689

 
$
22,052

 
$
21,203


See accompanying notes to consolidated financial statements (unaudited)


6



WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2017 and 2016
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Interest received
$
70,032

 
$
64,223

Fees and commissions received
13,461

 
11,979

Proceeds from sale of loans held for sale
109,054

 
121,254

Origination of loans held for sale
(102,167
)
 
(118,997
)
Interest paid
(6,423
)
 
(6,466
)
Cash paid to suppliers and employees
(36,172
)
 
(33,811
)
Income taxes paid
(13,712
)
 
(11,283
)
Net cash provided by operating activities
34,073

 
26,899

Cash flows from investing activities:
 
 
 
Proceeds from maturities, calls, and principal payments of held-to-maturity securities
3,578

 
2,678

Proceeds from maturities, calls, and principal payments of available-for-sale securities
29,556

 
85,932

Proceeds from the sale of available-for-sale securities
25,207

 
69,440

Purchase of held-to-maturity securities

 
(11,479
)
Purchase of available-for-sale securities
(53,967
)
 
(181,285
)
Loans made to customers, net of repayments
(60,743
)
 
(158,726
)
Purchase of bank owned life insurance and annuity contracts

 
(11,916
)
Purchase of premises and equipment
(8,836
)
 
(2,484
)
Proceeds from sale of premises and equipment
8

 

Proceeds from sale of other real estate
2,696

 
542

Proceeds from sale of other assets
1

 
15

Net cash used in investing activities
(62,500
)
 
(207,283
)
Cash flows from financing activities:
 
 
 
Net increase in non-interest bearing, savings and NOW deposit accounts
71,280

 
128,316

Net increase (decrease) in time deposits
7,900

 
(8,878
)
Net increase (decrease) in securities sold under repurchase agreements
618

 
(936
)
Dividends paid
(6,730
)
 
(5,756
)
Proceeds from sale of common stock pursuant to dividend reinvestment
5,266

 
4,316

Proceeds from exercise of stock options
116

 
112

Net cash provided by financing activities
78,450

 
117,174

Net increase (decrease) in cash and cash equivalents
50,023

 
(63,210
)
Cash and cash equivalents at beginning of period
47,918

 
109,253

Cash and cash equivalents at end of period
$
97,941

 
$
46,043

 
See accompanying notes to consolidated financial statements (unaudited)






7



WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Nine Months Ended September 30, 2017 and 2016
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
 
 
 
 
Net earnings
 
19,952

 
18,831

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization, and accretion
 
4,146

 
3,977

Provision for loan losses
 
1,245

 
290

Gain on sale of other real estate
 
(40
)
 
(373
)
Losses (gains) on sale of securities
 
61

 
(620
)
Stock-based compensation expense
 
261

 
29

Loss on the sale of other assets
 
2

 
1

Loss (gain) on the sale of bank premises and equipment
 
(8
)
 
26

Decrease (increase) in loans held for sale
 
3,673

 
(884
)
Increase in deferred tax asset
 
(851
)
 
(1,987
)
Increase in other assets, bank owned life insurance and annuity contract earnings, net
 
(700
)
 
(2,338
)
Decrease (increase) in interest receivable
 
501

 
(356
)
Increase in other liabilities
 
6,431

 
8,248

Increase (decrease) in taxes payable
 
(627
)
 
2,227

Increase (decrease) in interest payable
 
27

 
(172
)
Total adjustments
 
14,121

 
8,068

                         Net cash provided by operating activities
 
$
34,073


$
26,899

 
 
 
 
 
Supplemental schedule of non-cash activities:
 
 
 
 
Unrealized gain in value of securities available-for-sale, net of taxes of $1,303 and $1,472 for the nine months ended September 30, 2017 and 2016, respectively
 
$
2,100

 
$
2,372

Non-cash transfers from loans to other real estate
 
$
173

 
$
696

Non-cash transfers from other real estate to loans
 
$
195

 
$
1,050

Non-cash transfers from loans to other assets
 
$
2

 
$
16

See accompanying notes to consolidated financial statements (unaudited)

8



WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Nature of Business — Wilson Bank Holding Company (the “Company”) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Wilson Bank & Trust (the “Bank”). The Bank is a commercial bank headquartered in Lebanon, Tennessee. The Bank provides a full range of banking services in its primary market areas of Wilson, Davidson, Rutherford, Trousdale, Sumner, Dekalb, Putnam and Smith Counties, Tennessee.

Basis of Presentation — The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated audited financial statements and related notes appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
These consolidated financial statements include the accounts of the Company and the Bank. Significant intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the 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 include the determination of the allowance for loan losses, the valuation of deferred tax assets, determination of any impairment of intangibles, other-than-temporary impairment of securities, the valuation of other real estate, and the fair value of financial instruments. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no significant changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.
Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.
Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.

All loans that are placed on nonaccrual are further analyzed to determine if they should be classified as impaired loans. At December 31, 2016 and at September 30, 2017, there were no loans classified as nonaccrual that were not also deemed to be impaired except for those loans not individually evaluated for impairment as described below. 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. This determination is made using a variety of techniques, which include a review of the borrower’s financial condition, debt-service coverage ratios, global cash flow analysis, guarantor support, other loan file information, meetings with borrowers, inspection or reappraisal of collateral and/or consultation with legal counsel as well as

9



results of reviews of other similar industry credits (e.g. builder loans, development loans, church loans, etc). Loans with an identified weakness and principal balance of $500,000 or more are subject to individual identification for impairment. Individually identified 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 if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a specific valuation allowance is established as a component of the allowance for loan losses or, in the case of collateral dependent loans, the excess may be charged off. Changes to the valuation allowance are recorded as a component of the provision for loan losses. Any subsequent adjustments to present value calculations for impaired loan valuations as a result of the passage of time, such as changes in the anticipated payback period for repayment, are recorded as a component of the provision for loan losses. For loans less than $500,000, the Company assigns a valuation allowance to these loans utilizing an allocation rate equal to the allocation rate calculated for non-impaired loans of a similar type.
Allowance for Loan Losses — The allowance for loan losses is maintained at a level that management believes to be adequate to absorb probable losses in the loan portfolio. Loan losses are charged against the allowance when they are known. Subsequent recoveries are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio, current economic conditions, volume, growth, composition of the loan portfolio, homogeneous pools of loans, risk ratings of specific loans, historical loan loss factors, loss experience of various loan segments, identified impaired loans and other factors related to the portfolio. This evaluation is performed quarterly and is inherently subjective, as it requires material estimates that are susceptible to significant change including the amounts and timing of future cash flows expected to be received on any impaired loans.
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.

Recently Issued Accounting Pronouncements    

Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date" which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We expect that ASU 2014-09 will require us to change how we recognize certain recurring revenue streams within investment management fees, insurance commissions and fees and other categories of non-interest income; however, we do not expect these changes to have a significant impact on our financial statements. We expect to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.

In February 2016, FASB issued ASU 2016-02, "Leases (Topic 842)."  The amendments in this ASU are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption is permitted.  As a result of the amendment, lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustments, such as adjustments for initial direct costs. For income statement purposes, FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines.  We currently do not expect this ASU to have a material impact on our consolidated financial statements.

10




In June 2016, FASB  issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements.  We are also evaluating the sufficiency of current systems and data needed to comply with this ASU. 

In August 2016, FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230.  The update addresses eight specific cash flow issues including, but not limited to, proceeds from the settlement of bank-owned life insurance policies, with the objective of reducing the existing diversity in practice.  ASU 2016-15 will be effective on January 1, 2018. We are currently evaluating the potential impact of ASU 2016-15 on our financial statements.

In March 2017, FASB issued ASU 2017-08, “Receivables -  Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 provides guidance on the amortization period for certain purchased callable debt securities held at a premium.  This update shortens the amortization period for the premium to the earliest call date.  Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument related to certain cash flow issues. ASU 2017-08 will be effective for us on January 1, 2019.  We are currently evaluating the potential impact of ASU 2017-08 on our financial statements.

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

Subsequent Events  - Accounting Standards Codification (ASC) Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  Wilson Bank Holding Company evaluated all events or transactions that occurred after September 30, 2017 through the date of the issued financial statements.

Note 2. Loans and Allowance for Loan Losses
For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).
The following schedule details the loans of the Company at September 30, 2017 and December 31, 2016:

11



 
(In Thousands)
 
September 30,
2017
 
December 31,
2016
Mortgage loans on real estate
 
 
 
       Residential 1-4 family
$
409,545

 
$
393,268

Multifamily
111,816

 
109,410

Commercial
670,865

 
689,695

Construction and land development
363,149

 
297,315

Farmland
33,258

 
46,314

Second mortgages
9,661

 
9,193

Equity lines of credit
60,373

 
56,038

Total mortgage loans on real estate
1,658,667

 
1,601,233

Commercial loans
45,295

 
40,301

Agricultural loans
1,605

 
1,562

Consumer installment loans
 
 
 
Personal
38,557

 
41,117

Credit cards
3,059

 
3,157

Total consumer installment loans
41,616

 
44,274

Other loans
10,666

 
9,055

                                Total loans before net deferred loan fees
1,757,849

 
1,696,425

Net deferred loan fees
(7,555
)
 
(6,606
)
Total loans
1,750,294

 
1,689,819

Less: Allowance for loan losses
(23,688
)
 
(22,731
)
Net loans
$
1,726,606

 
$
1,667,088


Risk characteristics relevant to each portfolio segment are as follows:

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

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

1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit.

12



These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.

Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

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

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

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

The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance is based upon 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 borrowers’ ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, current and anticipated economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.

13



Transactions in the allowance for loan losses for the nine months ended September 30, 2017 and year ended December 31, 2016 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
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
4,571

 
839

 
9,541

 
5,387

 
658

 
112

 
675

 
386

 
562

 
22,731

Provision
813

 
335

 
(465
)
 
255

 
(203
)
 
3

 
34

 
(13
)
 
486

 
1,245

Charge-offs
(118
)
 

 

 

 
(3
)
 
(11
)
 

 

 
(728
)
 
(860
)
Recoveries
22

 

 
140

 
101

 

 
3

 
3

 
3

 
300

 
572

Ending balance
$
5,288

 
1,174

 
9,216

 
5,743

 
452

 
107

 
712

 
376

 
620

 
23,688

Ending balance individually evaluated for impairment
$
140

 

 
293

 

 

 

 

 

 

 
433

Ending balance collectively evaluated for impairment
$
5,148

 
1,174

 
8,923

 
5,743

 
452

 
107

 
712

 
376

 
620

 
23,255

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
409,545

 
111,816

 
670,865

 
363,149

 
33,258

 
9,661

 
60,373

 
45,295

 
53,887

 
1,757,849

Ending balance individually evaluated for impairment
$
656

 

 
4,031

 
1,260

 

 

 

 

 

 
5,947

Ending balance collectively evaluated for impairment
$
408,889

 
111,816

 
666,834

 
361,889

 
33,258

 
9,661

 
60,373

 
45,295

 
53,887

 
1,751,902

 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity Lines
of Credit
 
Commercial
 
Agricultural, Installment and Other
 
Total
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,024

 
619

 
9,986

 
5,136

 
654

 
106

 
594

 
301

 
480

 
22,900

Provision
(400
)
 
220

 
(399
)
 
283

 
2

 
2

 
66

 
81

 
524

 
379

Charge-offs
(109
)
 

 
(100
)
 
(66
)
 

 

 

 
(11
)
 
(674
)
 
(960
)
Recoveries
56

 

 
54

 
34

 
2

 
4

 
15

 
15

 
232

 
412

Ending balance
$
4,571

 
839

 
9,541

 
5,387

 
658

 
112

 
675

 
386

 
562

 
22,731

Ending balance individually evaluated for impairment
$
196

 

 
120

 

 

 

 

 

 

 
316

Ending balance collectively evaluated for impairment
$
4,375

 
839

 
9,421

 
5,387

 
658

 
112

 
675

 
386

 
562

 
22,415

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
393,268

 
109,410

 
689,695

 
297,315

 
46,314

 
9,193

 
56,038

 
40,301

 
54,891

 
1,696,425

Ending balance individually evaluated for impairment
$
679

 

 
4,689

 
1,618

 
103

 

 

 

 

 
7,089

Ending balance collectively evaluated for impairment
$
392,589

 
109,410

 
685,006

 
295,697

 
46,211

 
9,193

 
56,038

 
40,301

 
54,891

 
1,689,336


14



Impaired Loans
At September 30, 2017, the Company had certain impaired loans of $2.7 million which were on non-accruing interest status. At December 31, 2016, the Company had certain impaired loans of $3.0 million 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 September 30, 2017 and December 31, 2016. 
 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
September 30, 2017
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
252

 
299

 

 
217

 
11

Multifamily

 

 

 

 

Commercial real estate
895

 
894

 

 
905

 
29

Construction
1,264

 
1,260

 

 
1,410

 
50

Farmland

 

 

 
34

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
2,411

 
2,453

 

 
2,566

 
90

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
408

 
583

 
140

 
478

 
22

Multifamily

 

 

 

 

Commercial real estate
3,137

 
3,137

 
293

 
3,140

 
13

Construction

 

 

 

 

Farmland

 

 

 

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
3,545

 
3,720

 
433

 
3,618

 
35

Total
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
660

 
882

 
140

 
695

 
33

Multifamily

 

 

 

 

Commercial real estate
4,032

 
4,031

 
293

 
4,045

 
42

Construction
1,264

 
1,260

 

 
1,410

 
50

Farmland

 

 

 
34

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
5,956

 
6,173

 
433

 
6,184

 
125


15



 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
December 31, 2016
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
150

 
148

 

 
150

 
7

Multifamily

 

 

 

 

Commercial real estate
4,248

 
4,246

 

 
4,352

 
38

Construction
1,623

 
1,618

 

 
1,778

 
82

Farmland
104

 
103

 

 
79

 
5

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
6,125

 
6,115

 

 
6,359

 
132

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
540

 
531

 
196

 
540

 
32

Multifamily

 

 

 

 

Commercial real estate
443

 
443

 
120

 
111

 
5

Construction

 

 

 

 

Farmland

 

 

 

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
983

 
974

 
316

 
651

 
37

Total:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
690

 
679

 
196

 
690

 
39

Multifamily

 

 

 

 

Commercial real estate
4,691

 
4,689

 
120

 
4,463

 
43

Construction
1,623

 
1,618

 

 
1,778

 
82

Farmland
104

 
103

 

 
79

 
5

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
7,108

 
7,089

 
316

 
7,010

 
169

Impaired loans also include loans that the Company may elect to formally restructure due to the weakening credit status of a borrower such that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Company may otherwise incur. These loans are classified as impaired loans and, if on non-accruing status as of the date of restructuring, the loans are included in the nonperforming loan balances. Not included in nonperforming loans are loans that have been restructured that were performing as of the restructure date.

Troubled Debt Restructuring
The Bank’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. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

16



The following table summarizes the carrying balances of TDRs at September 30, 2017 and December 31, 2016. 
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Performing TDRs
$
3,330

 
$
3,277

Nonperforming TDRs
945

 
1,319

Total TDRS
$
4,275

 
$
4,596


The following table outlines the amount of each troubled debt restructuring categorized by loan classification for the nine months ended September 30, 2017 and the year ended December 31, 2016 (in thousands, except for number of contracts): 
 
September 30, 2017
 
December 31, 2016
 
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
5

 
$
361

 
$
361

 
4

 
$
130

 
$
130

Multifamily

 

 

 

 

 

Commercial real estate

 

 

 
2

 
1,364

 
1,244

Construction

 

 

 

 

 

Farmland
1

 
86

 
86

 
1

 
103

 
103

Second mortgages

 

 

 

 

 

Equity lines of credit

 

 

 

 

 

Commercial

 

 

 

 

 

Agricultural, installment and other
1

 
3

 
3

 
2

 
17

 
17

Total
7

 
$
450

 
$
450

 
9

 
$
1,614

 
$
1,494

    
As of September 30, 2017 and December 31, 2016, the Company had no loan relationships that had been previously classified as a TDR subsequently default within twelve months of restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.

As of September 30, 2017 and December 31, 2016, the Company’s recorded investment in consumer mortgage loans in the process of foreclosure amounted to $220,000 and $389,000, respectively.
Potential problem loans, which include nonperforming loans, amounted to approximately $15.9 million at September 30, 2017 and $16.2 million at December 31, 2016. 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 Bank’s primary federal regulator, for loans classified as special mention, substandard, or doubtful.
The following summary 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 Bank’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 Bank will sustain some loss if the deficiencies are not corrected.

17



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

18



The following table is a summary of the Bank’s loan portfolio by risk rating at September 30, 2017 and December 31, 2016: 
 
(In Thousands)
 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity
Lines
of Credit
 
Commercial
 
Agricultural, installment and other
 
Total
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
400,605

 
111,816

 
665,897

 
362,854

 
32,359

 
9,241

 
60,186

 
45,292

 
53,721

 
1,741,971

Special Mention
5,699

 

 
855

 
121

 
238

 
272

 
40

 
3

 
89

 
7,317

Substandard
3,241

 

 
4,113

 
174

 
661

 
148

 
147

 

 
77

 
8,561

Doubtful

 

 

 

 

 

 

 

 

 

Total
$
409,545

 
111,816

 
670,865

 
363,149

 
33,258

 
9,661

 
60,373

 
45,295

 
53,887

 
1,757,849

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
384,383

 
109,410

 
684,202

 
297,089

 
45,470

 
8,775

 
55,883

 
40,301

 
54,754

 
1,680,267

Special Mention
5,616

 

 
668

 
121

 
147

 
303

 

 

 
26

 
6,881

Substandard
3,269

 

 
4,825

 
105

 
697

 
115

 
155

 

 
111

 
9,277

Doubtful

 

 

 

 

 

 

 

 

 

Total
$
393,268

 
109,410

 
689,695