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EX-31.2 - EXHIBIT 31.2 - WILSON BANK HOLDING COwbhc06302018ex312.htm
EX-32.2 - EXHIBIT 32.2 - WILSON BANK HOLDING COwbhc06302018ex322.htm
EX-32.1 - EXHIBIT 32.1 - WILSON BANK HOLDING COwbhc06302018ex321.htm
EX-31.1 - EXHIBIT 31.1 - WILSON BANK HOLDING COwbhc06302018ex311.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 June 30, 2018
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 every Interactive Data File required to be submitted 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 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: 10,622,022 shares at August 8, 2018
 



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
June 30, 2018 and December 31, 2017

 
(Unaudited)
 
(Audited)
 
June 30,
2018
 
December 31,
2017
 
(Dollars in Thousands
Except Share Amounts)
Assets
 
 
 
Loans
$
1,906,488

 
$
1,751,162

Less: Allowance for loan losses
(25,738
)
 
(23,909
)
Net loans
1,880,750

 
1,727,253

Securities:
 
 
 
Held to maturity, at cost (market value $27,376 and $32,111, respectively)
28,206

 
32,480

Available-for-sale, at market (amortized cost $291,118 and $338,449, respectively)
278,191

 
332,716

Total securities
306,397

 
365,196

Loans held for sale
3,021

 
5,106

Interest bearing deposits
84,529

 
83,787

Restricted equity securities
3,012

 
3,012

Federal funds sold
2,000

 

Total earning assets
2,279,709

 
2,184,354

Cash and due from banks
10,355

 
11,731

Bank premises and equipment, net
58,752

 
54,215

Accrued interest receivable
6,279

 
6,266

Deferred income tax asset
9,541

 
7,424

Other real estate
1,941

 
1,635

Bank owned life insurance
29,896

 
29,475

Other assets
18,572

 
17,128

Goodwill
4,805

 
4,805

Total assets
$
2,419,850

 
$
2,317,033

Liabilities and Stockholders’ Equity
 
 
 
Deposits
$
2,127,326

 
$
2,037,745

Securities sold under repurchase agreements

 
864

Accrued interest and other liabilities
15,528

 
10,694

Total liabilities
2,142,854

 
2,049,303

Stockholders’ equity:
 
 
 
Common stock, $2.00 par value; authorized 50,000,000 shares, issued and outstanding 10,524,670 and 10,450,711 shares, respectively
21,049

 
20,901

Additional paid-in capital
69,346

 
66,047

Retained earnings
196,149

 
185,017

Net unrealized losses on available-for-sale securities, net of income taxes of $3,379 and $1,498, respectively
(9,548
)
 
(4,235
)
Total stockholders’ equity
276,996

 
267,730

Total liabilities and stockholders’ equity
$
2,419,850

 
$
2,317,033


See accompanying notes to consolidated financial statements (unaudited)

4



WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
Three Months and Six Months Ended June 30, 2018 and 2017 (Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in Thousands Except Per Share Amounts)
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
23,347

 
$
20,924

 
$
45,180

 
$
40,869

Interest and dividends on securities:
 
 
 
 
 
 
 
Taxable securities
1,602

 
1,351

 
3,268

 
2,634

Exempt from Federal income taxes
298

 
308

 
601

 
645

Interest on loans held for sale
42

 
67

 
81

 
133

Interest on Federal funds sold
18

 
23

 
30

 
35

Interest on balances held at depository institutions
209

 
163

 
418

 
247

Interest and dividends on restricted securities
32

 
35

 
64

 
66

Total interest income
25,548

 
22,871

 
49,642

 
44,629

Interest expense:
 
 
 
 
 
 
 
Interest on negotiable order of withdrawal accounts
430

 
311

 
774

 
630

Interest on money market and savings accounts
883

 
484

 
1,590

 
930

Interest on time deposits
1,782

 
1,298

 
3,374

 
2,548

Interest on federal funds purchased
2

 

 
2

 
8

Interest on securities sold under repurchase agreements

 
1

 
16

 
2

Total interest expense
3,097

 
2,094

 
5,756

 
4,118

Net interest income before provision for loan losses
22,451

 
20,777

 
43,886

 
40,511

Provision for loan losses
1,090

 
420

 
2,113

 
809

Net interest income after provision for loan losses
21,361

 
20,357

 
41,773

 
39,702

Non-interest income:
 
 
 
 
 
 
 
Service charges on deposit accounts
1,669

 
1,494

 
3,211

 
2,923

Other fees and commissions
3,805

 
3,530

 
6,808

 
6,171

Income on BOLI and annuity contracts
207

 
219

 
421

 
441

Gain on sale of loans
993

 
1,114

 
2,024

 
2,090

Gain on the sale of fixed assets

 
8

 

 
8

Gain on sale of other real estate

 
30

 

 
54

Loss on sale of securities
(571
)
 

 
(571
)
 
(38
)
Total non-interest income
6,103

 
6,395

 
11,893

 
11,649

Non-interest expense:
 
 
 
 
 
 
 
Salaries and employee benefits
10,733

 
9,177

 
20,556

 
18,173

Occupancy expenses, net
1,092

 
934

 
2,055

 
1,785

Advertising & public relations expense
759

 
690

 
1,241

 
1,089

Furniture and equipment expense
659

 
524

 
1,244

 
1,044

Data processing expense
743

 
735

 
1,453

 
1,381

ATM & interchange expense
737

 
633

 
1,421

 
1,213

Directors’ fees
130

 
151

 
279

 
313

Other operating expenses
2,810

 
2,520

 
5,463

 
4,603

Loss on sale of other assets
3

 
2

 
3

 
2

Total non-interest expense
17,666

 
15,366

 
33,715

 
29,603

Earnings before income taxes
9,798

 
11,386

 
19,951

 
21,748

Income taxes
2,489

 
4,398

 
5,162

 
8,265

Net earnings
$
7,309

 
$
6,988

 
$
14,789

 
$
13,483

Weighted average number of common shares outstanding-basic
10,523,556

 
10,381,860

 
10,515,460

 
10,371,377

Weighted average number of common shares outstanding-diluted
10,530,926

 
10,387,076

 
10,521,739

 
10,376,408

Basic earnings per common share
$
0.69

 
$
0.67

 
$
1.41

 
$
1.30

Diluted earnings per common share
$
0.69

 
$
0.67

 
$
1.41

 
$
1.30

Dividends per share
$

 
$

 
$
0.35

 
$
0.30

See accompanying notes to consolidated financial statements (unaudited)

5



WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings
Three Months and Six Months Ended June 30, 2018 and 2017
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
 
(In Thousands)
Net earnings
$
7,309

 
$
6,988

 
$
14,789

 
$
13,483

Other comprehensive earnings (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $343, $1,381, $2,030 and $1,324, respectively
(969
)
 
2,224

 
(5,735
)
 
2,135

Reclassification adjustment for net losses on the sale of securities included in net earnings, net of taxes of $149, $0, $149 and $15, respectively
422

 

 
422

 
23

Other comprehensive earnings (loss)
(547
)
 
2,224

 
(5,313
)
 
2,158

Comprehensive earnings
$
6,762

 
$
9,212

 
$
9,476

 
$
15,641


See accompanying notes to consolidated financial statements (unaudited)


6



WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2018 and 2017
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
Six Months Ended June 30,
 
2018
 
2017
 
(In Thousands)
Cash flows from operating activities:
 
 
 
Interest received
$
50,868

 
$
46,846

Fees and commissions received
10,019

 
9,094

Proceeds from sale of loans held for sale
57,324

 
70,214

Origination of loans held for sale
(53,215
)
 
(60,569
)
Interest paid
(5,555
)
 
(4,220
)
Cash paid to suppliers and employees
(27,836
)
 
(24,622
)
Income taxes paid
(6,221
)
 
(9,447
)
Net cash provided by operating activities
25,384

 
27,296

Cash flows from investing activities:
 
 
 
Proceeds from maturities, calls, and principal payments of held-to-maturity securities
4,146

 
2,737

Proceeds from maturities, calls, and principal payments of available-for-sale securities
19,674

 
18,176

Proceeds from the sale of available-for-sale securities
35,093

 
12,446

Purchase of available-for-sale securities
(9,118
)
 
(12,563
)
Loans made to customers, net of repayments
(155,938
)
 
(45,299
)
Purchase of premises and equipment
(6,172
)
 
(5,863
)
Proceeds from sale of other real estate
15

 
2,583

Proceeds from sale of other assets
4

 
1

Net cash used in investing activities
(112,296
)
 
(27,782
)
Cash flows from financing activities:
 
 
 
Net increase in non-interest bearing, savings and NOW deposit accounts
71,232

 
70,427

Net increase in time deposits
18,349

 
16,412

Net increase (decrease) in securities sold under repurchase agreements
(864
)
 
793

Dividends paid
(3,658
)
 
(3,096
)
Proceeds from sale of common stock pursuant to dividend reinvestment
2,902

 
2,398

Proceeds from exercise of stock options
317

 
99

Net cash provided by financing activities
88,278

 
87,033

Net increase in cash and cash equivalents
1,366

 
86,547

Cash and cash equivalents at beginning of period
95,518

 
47,918

Cash and cash equivalents at end of period
$
96,884

 
$
134,465

 
See accompanying notes to consolidated financial statements (unaudited)










7




WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Six Months Ended June 30, 2018 and 2017
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited) 
 
 
Six Months Ended June 30,
 
 
2018
 
2017
 
 
(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
 
 
 
 
Net earnings
 
14,789

 
13,483

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization, and accretion
 
2,874

 
2,763

Provision for loan losses
 
2,113

 
809

Gain on sale of other real estate
 

 
(54
)
Loss on sale of securities
 
571

 
38

Stock-based compensation expense
 
229

 
152

Loss on the sale of other assets
 
3

 
2

Gain on the sale of bank premises and equipment
 

 
(8
)
Decrease in loans held for sale
 
2,085

 
7,555

Decrease (increase) in deferred tax asset
 
(236
)
 
238

Increase in other assets, bank owned life insurance and annuity contract earnings, net
 
(1,865
)
 
(965
)
Decrease (increase) in interest receivable
 
(13
)
 
878

Increase in other liabilities
 
5,455

 
3,927

Decrease in taxes payable
 
(822
)
 
(1,420
)
Increase (decrease) in interest payable
 
201

 
(102
)
Total adjustments
 
10,595

 
13,813

                         Net cash provided by operating activities
 
$
25,384


$
27,296

 
 
 
 
 
Supplemental schedule of non-cash activities:
 
 
 
 
Unrealized gain (loss) in value of securities available-for-sale, net of taxes of $1,881 and $1,339 for the six months ended June 30, 2018 and 2017, respectively
 
$
(5,313
)
 
$
2,158

Non-cash transfers from loans to other real estate
 
$
321

 
$
80

Non-cash transfers from other real estate to loans
 
$

 
$
195

Non-cash transfers from loans to other assets
 
$
7

 
$
2

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, 2017.
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, 2017. 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, 2017.
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, 2017 and June 30, 2018, 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 results of

9



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    

In May 2014, FASB issued 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. We adopted ASU 2014-09 effective January 1, 2018. The adoption of this ASU did not have a material impact on our consolidated financial statements.

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.

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

10



for credit losses on held-to-maturity 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. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.

In January 2017, FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for us on January 1, 2020, with early adoption permitted for interim or annual impairment tests beginning in 2017. ASU 2017-04 is not expected to have a significant impact 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. We expect that the impact of adoption will be significantly influenced by the composition of our securities portfolio as of the adoption date.

In February 2018, FASB Issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220).”  On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act).  The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users.  The Company elected to adopt this update as of December 31, 2017 and as a result reclassified $697,000 from retained earnings to accumulated other comprehensive income.

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 June 30, 2018 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 June 30, 2018 and December 31, 2017:

11



 
(In Thousands)
 
June 30,
2018
 
December 31,
2017
Mortgage loans on real estate
 
 
 
       Residential 1-4 family
$
420,332

 
$
406,667

Multifamily
100,491

 
91,992

Commercial
701,988

 
661,223

Construction and land development
477,439

 
392,039

Farmland
25,569

 
34,212

Second mortgages
9,936

 
8,952

Equity lines of credit
70,469

 
60,650

Total mortgage loans on real estate
1,806,224

 
1,655,735

Commercial loans
51,098

 
47,939

Agricultural loans
1,594

 
1,665

Consumer installment loans
 
 
 
Personal
41,597

 
39,624

Credit cards
3,557

 
3,385

Total consumer installment loans
45,154

 
43,009

Other loans
9,544

 
10,193

                                Total loans before net deferred loan fees
1,913,614

 
1,758,541

Net deferred loan fees
(7,126
)
 
(7,379
)
Total loans
1,906,488

 
1,751,162

Less: Allowance for loan losses
(25,738
)
 
(23,909
)
Net loans
$
1,880,750

 
$
1,727,253


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 six months ended June 30, 2018 and year ended December 31, 2017 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
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,156

 
1,011

 
9,267

 
6,094

 
487

 
94

 
723

 
401

 
676

 
23,909

Provision
608

 
44

 
232

 
1,008

 
(220
)
 
6

 
64

 
1

 
370

 
2,113

Charge-offs
(28
)
 

 

 
(2
)
 

 

 

 

 
(553
)
 
(583
)
Recoveries
15

 

 

 
42

 

 

 
1

 
3

 
238

 
299

Ending balance
$
5,751

 
1,055

 
9,499

 
7,142

 
267

 
100

 
788

 
405

 
731

 
25,738

Ending balance individually evaluated for impairment
$
919

 

 
384

 

 

 

 

 

 

 
1,303

Ending balance collectively evaluated for impairment
$
4,832

 
1,055

 
9,115

 
7,142

 
267

 
100

 
788

 
405

 
731

 
24,435

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
420,332

 
100,491

 
701,988

 
477,439

 
25,569

 
9,936

 
70,469

 
51,098

 
56,292

 
1,913,614

Ending balance individually evaluated for impairment
$
4,110

 

 
2,481

 
844

 
310

 

 

 

 

 
7,745

Ending balance collectively evaluated for impairment
$
416,222

 
100,491

 
699,507

 
476,595

 
25,259

 
9,936

 
70,469

 
51,098

 
56,292

 
1,905,869

 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity Lines
of Credit
 
Commercial
 
Agricultural, Installment and Other
 
Total
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
4,571

 
839

 
9,541

 
5,387

 
658

 
112

 
675

 
386

 
562

 
22,731

Provision
675

 
172

 
(414
)
 
586

 
(168
)
 
(10
)
 
45

 
9

 
786

 
1,681

Charge-offs
(118
)
 

 

 

 
(3
)
 
(11
)
 

 

 
(1,090
)
 
(1,222
)
Recoveries
28

 

 
140

 
121

 

 
3

 
3

 
6

 
418

 
719

Ending balance
$
5,156

 
1,011

 
9,267

 
6,094

 
487

 
94

 
723

 
401

 
676

 
23,909

Ending balance individually evaluated for impairment
$
136

 

 
291

 

 

 

 

 

 

 
427

Ending balance collectively evaluated for impairment
$
5,020

 
1,011

 
8,976

 
6,094

 
487

 
94

 
723

 
401

 
676

 
23,482

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
406,667

 
91,992

 
661,223

 
392,039

 
34,212

 
8,952

 
60,650

 
47,939

 
54,867

 
1,758,541

Ending balance individually evaluated for impairment
$
2,678

 

 
3,046

 
1,182

 

 

 

 

 

 
6,906

Ending balance collectively evaluated for impairment
$
403,989

 
91,992

 
658,177

 
390,857

 
34,212

 
8,952

 
60,650

 
47,939

 
54,867

 
1,751,635


14



Impaired Loans
At June 30, 2018, the Company had certain impaired loans of $2.1 million which were on non-accruing interest status. At December 31, 2017, the Company had certain impaired loans of $1.7 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 June 30, 2018 and December 31, 2017. 
 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
June 30, 2018
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
2,312

 
2,321

 

 
2,303

 
65

Multifamily

 

 

 

 

Commercial real estate
321

 
320

 

 
513

 
8

Construction
846

 
844

 

 
979

 
22

Farmland
310

 
310

 

 
207

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
3,789

 
3,795

 

 
4,002

 
95

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
1,848

 
2,016

 
919

 
1,376

 
39

Multifamily

 

 

 

 

Commercial real estate
2,161

 
2,160

 
384

 
2,161

 
9

Construction

 

 

 

 

Farmland

 

 

 

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
4,009

 
4,176

 
1,303

 
3,537

 
48

Total
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
4,160

 
4,337

 
919

 
3,679

 
104

Multifamily

 

 

 

 

Commercial real estate
2,482

 
2,480

 
384

 
2,674

 
17

Construction
846

 
844

 

 
979

 
22

Farmland
310

 
310

 

 
207

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
7,798

 
7,971

 
1,303

 
7,539

 
143


15



 
In Thousands
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
December 31, 2017
 
 
 
 
 
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
2,314

 
2,322

 

 
742

 
103

Multifamily

 

 

 

 

Commercial real estate
893

 
889

 

 
902

 
39

Construction
1,185

 
1,182

 

 
1,354

 
64

Farmland

 

 

 
26

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
4,392

 
4,393

 

 
3,024

 
206

With allowance recorded:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
409

 
581

 
136

 
461

 
29

Multifamily

 

 

 

 

Commercial real estate
2,157

 
2,157

 
291

 
2,894

 
17

Construction

 

 

 

 

Farmland

 

 

 

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
2,566

 
2,738

 
427

 
3,355

 
46

Total:
 
 
 
 
 
 
 
 
 
Residential 1-4 family
$
2,723

 
2,903

 
136

 
1,203

 
132

Multifamily

 

 

 

 

Commercial real estate
3,050

 
3,046

 
291

 
3,796

 
56

Construction
1,185

 
1,182

 

 
1,354

 
64

Farmland

 

 

 
26

 

Second mortgages

 

 

 

 

Equity lines of credit

 

 

 

 

Commercial

 

 

 

 

Agricultural, installment and other

 

 

 

 

 
$
6,958

 
7,131

 
427

 
6,379

 
252

Impaired loans also include loans that the Bank 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 Bank 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 or other 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 June 30, 2018 and December 31, 2017. 
 
June 30, 2018
 
December 31, 2017
 
(In thousands)
Performing TDRs
$
1,766

 
$
2,250

Nonperforming TDRs
1,361

 
1,834

Total TDRS
$
3,127

 
$
4,084


The following table outlines the amount of each troubled debt restructuring categorized by loan classification for the six months ended June 30, 2018 and the year ended December 31, 2017 (in thousands, except for number of contracts): 
 
June 30, 2018
 
December 31, 2017
 
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
2

 
$
46

 
$
46

 
6

 
$
610

 
$
535

Multifamily

 

 

 

 

 

Commercial real estate

 

 

 

 

 

Construction

 

 

 

 

 

Farmland
1

 
310

 
310

 
1

 
86

 
86

Second mortgages

 

 

 

 

 

Equity lines of credit

 

 

 

 

 

Commercial

 

 

 

 

 

Agricultural, installment and other

 

 

 
1

 
3

 
3

Total
3

 
$
356

 
$
356

 
8

 
$
699

 
$
624

    
As of June 30, 2018 the Company had two loan relationships totaling $553,000 that had been previously classified as TDRs subsequently default within twelve months of restructuring. As of December 31, 2017, the Company had one loan relationship totaling $103,000 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 June 30, 2018 and December 31, 2017, the Company’s recorded investment in consumer mortgage loans in the process of foreclosure amounted to $1,218,000 and $201,000, respectively.
Potential problem loans, which include nonperforming loans, amounted to approximately $12.6 million at June 30, 2018 and $16.2 million at December 31, 2017. 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 the Bank's 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

17



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.
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 June 30, 2018 and December 31, 2017: 
 
(In Thousands)
 
Residential
1-4 Family
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Farmland
 
Second
Mortgages
 
Equity
Lines
of Credit
 
Commercial
 
Agricultural, installment and other
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
411,078

 
100,491

 
700,064

 
477,010

 
25,091

 
9,713

 
70,333

 
51,098

 
56,164

 
1,901,042

Special Mention
3,625

 

 

 
142

 
97

 
182

 

 

 
79

 
4,125

Substandard
5,629

 

 
1,924

 
287

 
381

 
41

 
136

 

 
49

 
8,447

Doubtful

 

 

 

 

 

 

 

 

 

Total
$
420,332

 
100,491

 
701,988

 
477,439

 
25,569

 
9,936

 
70,469

 
51,098

 
56,292

 
1,913,614

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by Internally Assigned Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
395,664

 
91,992

 
657,456

 
391,778

 
33,500

 
8,765

 
60,553

 
47,937

 
54,697

 
1,742,342

Special Mention
5,677

 

 
646

 
84

 
125

 
43

 
41

 
2

 
77

 
6,695

Substandard
5,326

 

 
3,121

 
177

 
587

 
144

 
56

 

 
93

 
9,504

Doubtful