0000885275wbhc:OtherNoninterestIncomeMember2020-01-012020-12-31
Exhibit 13.1
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
The Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for these losses, (ii) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on the Company's and its customers' business, results of operations, asset quality and financial condition; (iii) further public acceptance of the booster shots of the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines including recommendations related to booster shots and requirements that seek to mandate that individuals receive or employers require that their employees receive the vaccine, (iv) those vaccines' efficacy in reducing the severity of outcomes for individuals contracting the virus, including new variants, (v) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to maintain deposit rates at current levels in a rising rate environment or overcome the impact of loan floors embedded in variable rate loans as quickly as deposit costs increase, or that affect the yield curve, (vi) the effect on our allowance for loan losses and provisioning expense as a result of our decision to defer the implementation of CECL, (vii) deterioration in the real estate market conditions in the Company’s market areas, (viii) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net interest margin, (ix) deterioration of the economy in the Company’s market areas, (x) the ability to grow and retain low-cost core deposits, (xi) significant downturns in the business of one or more large customers, (xii) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels, or regulatory requests or directives, (xiii) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the new regulations implemented by federal regulatory agencies who are experiencing changes in senior leadership, (xiv) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xv) inadequate allowance for credit losses, (xvi) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xvii) the Company's adoption as of January 1, 2022 of ASU 2016-13, the current expected credit losses standard applicable to the Company's allowance for credit losses, (xviii) results of regulatory examinations, (xix) the vulnerability of the Company's network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches, (xx) the possibility of additional increases to compliance costs or other operational expenses as a result of increased regulatory oversight, (xxi) loss of key personnel and increased costs of human capital resulting from the competitive labor market in the Company's market areas, and (xxii) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, examinations or other legal and/or regulatory actions, including as a result of the Company's participation in and execution of government progress related to the COVID-19 pandemic. These risks and uncertainties may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. The Company’s future operating results depend on a number of factors which were derived utilizing numerous assumptions that could cause actual results to differ materially from those projected in forward-looking statements.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Impact of COVID-19
The outbreak and spread of the novel Coronavirus Disease 2019 (“COVID-19”) in 2020 created a global public health crisis that has periodically contributed to uncertainty, volatility and deterioration in financial markets and in governmental, commercial and consumer activity including in the United States, where we conduct substantially all of our activity. Though progress has been made in responding to the pandemic, the emergence of new variants of the virus and public reaction thereto has continued to cause disruption to our operations and the economies in the markets where we operate.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program ("PPP"), a nearly $659 billion program designed to aid small and medium-sized businesses and sole proprietors through federally guaranteed loans distributed through banks. These loans were intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On December 21, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act ("Coronavirus Relief Act") was signed into law. The Coronavirus Relief Act earmarked an additional $284 billion for a new round of PPP loans. The Company funded $125.2 million of PPP loans to our small business and other eligible customers, $5.0 million of which remained outstanding as of December 31, 2021.
In response to the COVID-19 pandemic and its economic impact to our customers, we proactively began providing relief to our customers in the middle of March 2020 through a 90 day interest only payment option or a full 90 day payment deferral option. Following the passage of the CARES Act we expanded this program to provide a six-month interest only payment option in an effort to provide flexibility to our customers as they sought to navigate the uncertainty caused by the pandemic. Pursuant to interagency regulatory guidance and the CARES Act, we could elect to not classify loans for which these deferrals are granted between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency as troubled debt restructurings.
As of December 31, 2021, the Bank had no loans for which principal or both principal and interest were being deferred. As of December 31, 2020, the Bank had 13 loans, totaling $36.4 million in aggregate principal amount for which principal or both principal and interest were being deferred. Under the applicable guidance, none of these deferrals required a troubled debt restructuring designation as of December 31, 2021 and December 31, 2020.
In connection with our initial response to COVID-19, we took deliberate actions to try to ensure that we had the balance sheet strength to serve our clients and communities, including maintaining increased liquidity and reserves supported by a strong capital position. We currently expect our levels of liquidity and reserves to remain above historical levels through 2022.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company is a registered bank holding company that owns 100% of the common stock of Wilson Bank and Trust (“Wilson Bank”), a Tennessee state-chartered bank headquartered in Lebanon, Tennessee. The Company was formed in 1992. Wilson Bank commenced operations in 1987.
Wilson Bank is a community bank headquartered in Lebanon, Tennessee, serving Wilson County, DeKalb County, Smith County, Trousdale County, Rutherford County, Davidson County, Putnam County, Sumner County, and Williamson County, Tennessee as its primary market areas. Generally, this market is the Nashville-Davidson-Murfreesboro-Franklin, Tennessee metropolitan statistical area. At December 31, 2021, Wilson Bank had twenty-eight locations in Wilson, Davidson, DeKalb, Smith, Sumner, Rutherford, Putnam, Trousdale and Williamson Counties. Management believes that these counties offer an environment for continued growth, and the Company’s target market is local consumers, professionals and small businesses. Wilson Bank offers a wide range of banking services, including checking, savings and money market deposit accounts, certificates of deposit and loans for consumer, commercial and real estate purposes. The Company also offers an investment center which offers a full line of investment services to its customers.
The following discussion and analysis is designed to assist readers in their analysis of the Company’s consolidated financial statements and should be read in conjunction with such consolidated financial statements and the notes thereto.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses have been critical to the determination of our financial position and results of operations. Additional information regarding significant accounting policies is described in Note 1 to the Company's consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K.
Allowance for Loan Losses (“allowance”)-Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indicators and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible.
A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.
An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan is less than the recorded investment in the loan, the Company recognizes an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.
The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.
In assessing the adequacy of the allowance, we also consider the results of our ongoing loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. We incorporate loan review results in the determination of whether or not it is probable that we will be able to collect all amounts due according to the contractual terms of a loan.
As part of management’s quarterly assessment of the allowance, management divides the loan portfolio into twelve segments based on bank call reporting requirements. Each segment is then analyzed such that an allocation of the allowance is estimated for each loan segment.
The allowance allocation begins with a process of estimating the loan losses in each of the twelve loan segments. The estimates for these loans are based on our historical loss data for that category over the last twenty quarters.
The estimated loan loss allocation for all twelve loan portfolio segments is then adjusted for several qualitative factors. The allocation for qualitative factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures, changes in interest rate, and other influencing factors. These qualitative factors are considered for each of the twelve loan segments, and the allowance allocation, as determined by the processes noted above for each component, is increased or decreased based on the incremental assessment of these various qualitative factors.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We then test the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluates the result of the procedures performed, including the result of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety. The board of directors reviews and approves the assessment prior to the filing of quarterly and annual financial information.
ASU 2016-13, which is known as the Current Expected Credit Losses (CECL) standard, had an effective date of January 1, 2020. Pursuant to the CARES Act, lenders, like us, were given the option to defer the implementation of ASU 2016-13 until 60 days after the declaration of the end of the public health emergency related to the COVID-19 pandemic or December 31, 2020, whichever came first. On December 27, 2020, President Trump signed into law the Coronavirus Response and Relief Supplemental Appropriations Act. The law contained a provision that allowed lenders, including us, the option to further defer the implementation of ASU 2016-13 until the fiscal year beginning after January 1, 2022. In addition, the Securities and Exchange Commission (SEC) staff has stated that opting to delay the implementation of CECL shall be considered to be in accordance with generally accepted accounting principles. As a result, we elected to delay implementation of CECL until January 1, 2022. Our implementation of CECL as of January 1, 2022 will modify the accounting for the allowance for loan losses from an incurred loss model to an expected loss model. See Note 1. Recently Issued Accounting Pronouncements in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-K for further information regarding our implementation of CECL.
Other-than-temporary Impairment - Impaired securities are assessed quarterly for the presence of other-than-temporary impairment (“OTTI”). A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for an anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized in that period as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not more-likely-than-not that the Company will be required to sell the security before the recovery of the security’s cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity.
Fair Value of Financial Instruments - Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22 to the Company's consolidated financial statements for the year ended December 31, 2021 included in the Company's Annual Report on Form 10-K. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selected Financial Information
The Executive management and Board of Directors of the Company evaluate key performance indicators (KPIs) on a continuing basis. These KPIs serve as benchmarks of Company performance and are used in making strategic decisions. The following table represents the KPIs that management has determined to be important in making decisions for the Bank, in each case as of and for the year ended December 31, 2021, 2020 and 2019:
| | | 2021 | | | 2020 | | | 2019 | |
Return on average assets (Net income divided by average total assets) | | | 1.35 | % | | | 1.24 | % | | | 1.34 | % |
Return on average stockholders' equity (Net income divided by average stockholders' equity) | | | 12.45 | % | | | 10.65 | % | | | 11.31 | % |
Dividend payout ratio (Dividends declared per share divided by net income per share) | | | 30.41 | % | | | 34.09 | % | | | 32.74 | % |
Equity to asset ratio (Average equity divided by average total assets) | | | 10.86 | % | | | 11.68 | % | | | 11.88 | % |
Leverage capital ratio (Equity excluding the net unrealized gain (loss) on available-for-sale securities and intangible assets divided by average total assets) | | | 10.77 | % | | | 11.16 | % | | | 12.44 | % |
Efficiency ratio (Non-interest expense divided by net-interest income plus non-interest income) | | | 58.22 | % | | | 58.33 | % | | | 60.29 | % |
Non-performing asset ratio (Loans greater than 90 days past due and accruing interest, non-accrual loans, other real estate owned, and nonperforming TDRs divided by total assets) | | | 0.01 | % | | | 0.08 | % | | | 0.22 | % |
Results of Operations
Net earnings for the year ended December 31, 2021 were $49,426,000, an increase of $10,934,000, or 28.41%, compared to net earnings of $38,492,000 for the year ended December 31, 2020. Our 2020 net earnings were 6.79%, or $2,448,000, above our net earnings of $36,044,000 for 2019. Basic earnings per share were $4.44 in 2021, compared with $3.52 in 2020 and $3.36 in 2019. Diluted earnings per share were $4.43 in 2021, compared to $3.51 in 2020 and $3.35 in 2019. The increase in net earnings and diluted and basic earnings per share during the year ended December 31, 2021 as compared to the year ended December 31, 2020 was primarily due to an increase in net interest income, an increase in non-interest income and a reduction in provision expense, partially offset by an increase in non-interest expense. The increase in net interest income was due to an increase in average interest earning asset balances between the relevant periods, an increase in SBA fees earned on PPP loans and a decrease in cost of funds, partially offset by decreased net interest margin. Net interest margin for the year ended December 31, 2021 was 3.47%, compared to 3.63% and 3.81% for the years ended December 31, 2020 and December 31, 2019, respectively. Net interest spread for the year ended December 31, 2021 was 3.39%, compared to 3.48% and 3.60% for the years ended December 31, 2020 and December 31, 2019, respectively. The increase in non-interest expense resulted from the Company's continued growth as well as rising costs of employees' salaries and benefits as a result of competition we are experiencing for human capital in our market areas. See below for further discussion regarding variances related to net interest income, net interest margin, provision for loan losses, non-interest income, non-interest expense and income taxes.
The increase in Return on Average Assets (ROA) for the year ended December 31, 2021 when compared to December 31, 2020 and December 31, 2019 as set forth in the table above was primarily attributable to an increase in net interest income, an increase in debit and credit card interchange income, an increase in brokerage income, and a decrease in provision expense when compared to the year ended December 31, 2020, in which we had an increased level of provision expense driven by the COVID-19 pandemic, offset in part by an increase in employee salaries and benefits. Also negatively impacting our ROA was an increase in average deposits of $544,464,000 and a decline in our average loan to deposit ratio of 9.49% in each case from the levels at December 31, 2020.
Net Interest Income
The schedule which follows indicates the average balances for each major balance sheet item, an analysis of net interest income and net interest expense and the change in interest income and interest expense attributable to changes in volume and changes in rates.
The difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities is net interest income, which is the Company's gross margin. Analysis of net interest income is more meaningful when income from tax-exempt earning assets is adjusted to a tax equivalent basis. Accordingly, the following schedule includes a tax equivalent adjustment of tax-exempt earning assets, assuming a weighted average Federal income tax rate of 21% for 2021, 2020 and 2019.
In this schedule, "change due to volume" is the change in volume multiplied by the interest rate for the prior year. "Change due to rate" is the change in interest rate multiplied by the volume for the prior year. Changes in interest income and expense not due solely to volume or rate changes have been allocated to the “change due to volume” and “change due to rate” in proportion to the relationship of the absolute dollar amounts of the change in each category.
Non-accrual loans have been included in the loan category.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2021/2020 Change | |
| | | Average | | | | | | | Income/ | | | Average | | | | | | | Income/ | | | Due to | | | Due to | | | | | | | Percent | |
| | | Balance | | | Rates/Yields | | | Expense | | | Balance | | | Rates/Yields | | | Expense | | | Volume | | | Rate | | | Total | | | Change | |
Loans, net of unearned interest (2) (3) | | $ | 2,382,262 | | | | 5.07 | % | | | 118,676 | | | $ | 2,236,815 | | | | 5.16 | % | | | 113,224 | | | $ | 7,484 | | | | (2,032 | ) | | | 5,452 | | | | | |
Investment securities—taxable | | | 645,513 | | | | 1.38 | | | | 8,922 | | | | 430,349 | | | | 1.69 | | | | 7,272 | | | | 3,151 | | | | (1,501 | ) | | | 1,650 | | | | | |
Investment securities—tax exempt | | | 79,096 | | | | 1.55 | | | | 1,229 | | | | 67,333 | | | | 1.64 | | | | 1,102 | | | | 185 | | | | (58 | ) | | | 127 | | | | | |
Taxable equivalent adjustment (1) | | | — | | | | 0.41 | | | | 327 | | | | — | | | | 0.44 | | | | 293 | | | | 49 | | | | (15 | ) | | | 34 | | | | | |
Total tax-exempt investment securities | | | 79,096 | | | | 1.97 | | | | 1,556 | | | | 67,333 | | | | 2.08 | | | | 1,395 | | | | 234 | | | | (73 | ) | | | 161 | | | | | |
Total investment securities | | | 724,609 | | | | 1.45 | | | | 10,478 | | | | 497,682 | | | | 1.74 | | | | 8,667 | | | | 3,385 | | | | (1,574 | ) | | | 1,811 | | | | | |
Loans held for sale | | | 16,478 | | | | 2.66 | | | | 438 | | | | 22,432 | | | | 2.75 | | | | 616 | | | | (159 | ) | | | (19 | ) | | | (178 | ) | | | | |
Federal funds sold | | | 31,083 | | | | 0.04 | | | | 13 | | | | 7,183 | | | | 0.78 | | | | 56 | | | | 49 | | | | (92 | ) | | | (43 | ) | | | | |
Interest bearing deposits | | | 349,000 | | | | 0.13 | | | | 445 | | | | 206,281 | | | | 0.28 | | | | 582 | | | | 280 | | | | (417 | ) | | | (137 | ) | | | | |
Restricted equity securities | | | 5,089 | | | | 2.32 | | | | 118 | | | | 4,939 | | | | 2.35 | | | | 116 | | | | 3 | | | | (1 | ) | | | 2 | | | | | |
Total earning assets | | | 3,508,521 | | | | 3.77 | | | | 130,168 | | | | 2,975,332 | | | | 4.22 | | | | 123,261 | | | | 11,042 | | | | (4,135 | ) | | | 6,907 | | | | 5.60 | % |
Cash and due from banks | | | 31,225 | | | | | | | | | | | | 19,145 | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | (39,194 | ) | | | | | | | | | | | (32,360 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Bank premises and equipment | | | 59,772 | | | | | | | | | | | | 59,353 | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | 93,204 | | | | | | | | | | | | 74,114 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,653,528 | | | | | | | | | | | $ | 3,095,584 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2021/2020 Change | |
| | | Average | | | | | | | Income/ | | | Average | | | | | | | Income/ | | | Due to | | | Due to | | | | | | | Percent | |
| | | Balance | | | Rates/Yields | | | Expense | | | Balance | | | Rates/Yields | | | Expense | | | Volume | | | Rate | | | Total | | | Change | |
Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Negotiable order of withdrawal accounts | | $ | 852,110 | | | | 0.10 | % | | | 878 | | | $ | 669,224 | | | | 0.20 | % | | | 1,314 | | | $ | 297 | | | | (733 | ) | | | (436 | ) | | | | |
Money market demand accounts | | | 1,079,002 | | | | 0.14 | | | | 1,547 | | | | 881,669 | | | | 0.40 | | | | 3,496 | | | | 653 | | | | (2,602 | ) | | | (1,949 | ) | | | | |
Time deposits | | | 605,162 | | | | 1.26 | | | | 7,610 | | | | 619,387 | | | | 1.77 | | | | 10,939 | | | | (246 | ) | | | (3,083 | ) | | | (3,329 | ) | | | | |
Other savings deposits | | | 253,265 | | | | 0.19 | | | | 480 | | | | 171,849 | | | | 0.39 | | | | 667 | | | | 238 | | | | (425 | ) | | | (187 | ) | | | | |
Total interest-bearing deposits | | | 2,789,539 | | | | 0.38 | | | | 10,515 | | | | 2,342,129 | | | | 0.70 | | | | 16,416 | | | | 942 | | | | (6,843 | ) | | | (5,901 | ) | | | | |
Federal Home Loan Bank advances | | | 858 | | | | 15.50 | | | | 133 | | | | 18,858 | | | | 5.13 | | | | 967 | | | | 581 | | | | (1,415 | ) | | | (834 | ) | | | | |
Total interest-bearing liabilities | | | 2,790,397 | | | | 0.38 | | | | 10,648 | | | | 2,360,987 | | | | 0.74 | | | | 17,383 | | | | 1,523 | | | | (8,258 | ) | | | (6,735 | ) | | | (38.74 | )% |
Demand deposits | | | 445,731 | | | | | | | | | | | | 348,677 | | | | | | | | | | | | | | | | | | | | | | | | | |
Other liabilities | | | 20,521 | | | | | | | | | | | | 24,376 | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity | | | 396,879 | | | | | | | | | | | | 361,544 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 3,653,528 | | | | | | | | | | | $ | 3,095,584 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | | | | | | $ | 119,520 | | | | | | | | | | | $ | 105,878 | | | $ | 9,519 | | | $ | 4,123 | | | $ | 13,642 | | | | 12.88 | % |
Net interest margin (4) | | | | | | | 3.47 | % | | | | | | | | | | | 3.63 | % | | | | | | | | | | | | | | | | | | | | |
Net interest spread (5) | | | | | | | 3.39 | % | | | | | | | | | | | 3.48 | % | | | | | | | | | | | | | | | | | | | | |
| (1) | The tax equivalent adjustment for 2021 and 2020 have been computed using a 21% Federal tax rate. |
| (2) | Yields on loans and total earning assets include the impact of State income tax credits related incentive loans at below market rates and tax exempt loans to municipalities of $2.1 million and $2.2 million for the years ended December 31, 2021 and 2020. |
| (3) | Loan fees of $16.1 million are included in interest income in 2021, inclusive of $3.6 million in SBA fees related to PPP loans. Loan fees of $12.0 million are included in interest income in 2020, inclusive of $3.2 million in SBA fees related to PPP loans. |
| (4) | Annualized net interest income on a tax equivalent basis divided by average interest-earning assets. |
| (5) | Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities. |
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | Dollars In Thousands | |
| | | 2020 | | | 2019 | | | 2020/2019 Change | |
| | | Average | | | | | | | Income/ | | | Average | | | | | | | Income/ | | | Due to | | | Due to | | | | | | | Percent | |
| | | Balance | | | Rates/Yields | | | Expense | | | Balance | | | Rates/Yields | | | Expense | | | Volume | | | Rate | | | Total | | | Change | |
Loans, net of unearned interest (2) (3) | | $ | 2,236,815 | | | | 5.16 | % | | | 113,224 | | | $ | 2,030,861 | | | | 5.31 | % | | | 105,783 | | | $ | 10,685 | | | | (3,244 | ) | | | 7,441 | | | | | |
Investment securities—taxable | | | 430,349 | | | | 1.69 | | | | 7,272 | | | | 347,873 | | | | 2.46 | | | | 8,559 | | | | 1,755 | | | | (3,042 | ) | | | (1,287 | ) | | | | |
Investment securities—tax exempt | | | 67,333 | | | | 1.64 | | | | 1,102 | | | | 38,859 | | | | 1.99 | | | | 773 | | | | 485 | | | | (156 | ) | | | 329 | | | | | |
Taxable equivalent adjustment (1) | | | — | | | | 0.44 | | | | 293 | | | | — | | | | 0.53 | | | | 205 | | | | 130 | | | | (42 | ) | | | 88 | | | | | |
Total tax-exempt investment securities | | | 67,333 | | | | 2.08 | | | | 1,395 | | | | 38,859 | | | | 2.52 | | | | 978 | | | | 615 | | | | (198 | ) | | | 417 | | | | | |
Total investment securities | | | 497,682 | | | | 1.74 | | | | 8,667 | | | | 386,732 | | | | 2.47 | | | | 9,537 | | | | 2,370 | | | | (3,240 | ) | | | (870 | ) | | | | |
Loans held for sale | | | 22,432 | | | | 2.75 | | | | 616 | | | | 9,613 | | | | 3.38 | | | | 325 | | | | 362 | | | | (71 | ) | | | 291 | | | | | |
Federal funds sold | | | 7,183 | | | | 0.78 | | | | 56 | | | | 14,645 | | | | 1.88 | | | | 275 | | | | (102 | ) | | | (117 | ) | | | (219 | ) | | | | |
Interest bearing deposits | | | 206,281 | | | | 0.28 | | | | 582 | | | | 121,399 | | | | 1.78 | | | | 2,164 | | | | 935 | | | | (2,517 | ) | | | (1,582 | ) | | | | |
Restricted equity securities | | | 4,939 | | | | 2.35 | | | | 116 | | | | 4,241 | | | | 4.67 | | | | 198 | | | | 29 | | | | (111 | ) | | | (82 | ) | | | | |
Total earning assets | | | 2,975,332 | | | | 4.22 | | | | 123,261 | | | | 2,567,491 | | | | 4.69 | | | | 118,282 | | | | 14,279 | | | | (9,300 | ) | | | 4,979 | | | | 4.21 | % |
Cash and due from banks | | | 19,145 | | | | | | | | | | | | 10,480 | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | (32,360 | ) | | | | | | | | | | | (28,073 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Bank premises and equipment | | | 59,353 | | | | | | | | | | | | 58,545 | | | | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | 74,114 | | | | | | | | | | | | 72,487 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,095,584 | | | | | | | | | | | $ | 2,680,930 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Dollars In Thousands | |
| | | 2020 | | | 2019 | | | 2020/2019 Change | |
| | | Average | | | | | | | Income/ | | | Average | | | | | | | Income/ | | | Due to | | | Due to | | | | | | | Percent | |
| | | Balance | | | Rates/Yields | | | Expense | | | Balance | | | Rates/Yields | | | Expense | | | Volume | | | Rate | | | Total | | | Change | |
Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Negotiable order of withdrawal accounts | | $ | 669,224 | | | | 0.20 | % | | | 1,314 | | | $ | 526,026 | | | | 0.44 | % | | | 2,311 | | | $ | 514 | | | | (1,511 | ) | | | (997 | ) | | | | |
Money market demand accounts | | | 881,669 | | | | 0.40 | | | | 3,496 | | | | 749,366 | | | | 0.80 | | | | 6,030 | | | | 926 | | | | (3,460 | ) | | | (2,534 | ) | | | | |
Time deposits | | | 619,387 | | | | 1.77 | | | | 10,939 | | | | 642,513 | | | | 2.01 | | | | 12,896 | | | | (451 | ) | | | (1,506 | ) | | | (1,957 | ) | | | | |
Other savings deposits | | | 171,849 | | | | 0.39 | | | | 667 | | | | 136,912 | | | | 0.60 | | | | 825 | | | | 180 | | | | (338 | ) | | | (158 | ) | | | | |
Total interest-bearing deposits | | | 2,342,129 | | | | 0.70 | | | | 16,416 | | | | 2,054,817 | | | | 1.07 | | | | 22,062 | | | | 1,169 | | | | (6,815 | ) | | | (5,646 | ) | | | | |
Federal Home Loan Bank advances | | | 18,858 | | | | 5.13 | | | | 967 | | | | 21,712 | | | | 2.68 | | | | 581 | | | | 581 | | | | (195 | ) | | | 386 | | | | | |
Federal funds purchased | | | — | | | | — | | | | — | | | | 597 | | | | 0.67 | | | | 4 | | | | (4 | ) | | | — | | | | (4 | ) | | | | |
Total interest-bearing liabilities | | | 2,360,987 | | | | 0.74 | | | | 17,383 | | | | 2,077,126 | | | | 1.09 | | | | 22,647 | | | | 1,746 | | | | (7,010 | ) | | | (5,264 | ) | | | (23.24 | )% |
Demand deposits | | | 348,677 | | | | | | | | | | | | 270,136 | | | | | | | | | | | | | | | | | | | | | | | | | |
Other liabilities | | | 24,376 | | | | | | | | | | | | 14,994 | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity | | | 361,544 | | | | | | | | | | | | 318,674 | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 3,095,584 | | | | | | | | | | | $ | 2,680,930 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | | | | | | $ | 105,878 | | | | | | | | | | | $ | 95,635 | | | $ | 12,533 | | | $ | (2,290 | ) | | $ | 10,243 | | | | 10.71 | % |
Net interest margin (4) | | | | | | | 3.63 | % | | | | | | | | | | | 3.81 | % | | | | | | | | | | | | | | | | | | | | |
Net interest spread (5) | | | | | | | 3.48 | % | | | | | | | | | | | 3.60 | % | | | | | | | | | | | | | | | | | | | | |
| (1) | The tax equivalent adjustment for 2020 and 2019 have been computed using a 21% Federal tax rate. |
| (2) | Yields on loans and total earning assets include the impact of State income tax credits related incentive loans at below market rates and tax exempt loans to municipalities of $2.2 million and $2.2 million for the years ended December 31, 2020 and 2019. |
| (3) | Loan fees of $12.0 million and $7.8 million are included in interest income in 2020 and 2019, respectively, inclusive, in 2020, of approximately $3.2 million in SBA fees related to PPP loans. |
| (4) | Annualized net interest income on a tax equivalent basis divided by average interest-earning assets. |
| (5) | Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities. |
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. Total interest income in 2021 was $129,841,000, up 5.59% when compared with $122,968,000 in 2020, which was up 4.14% when compared to $118,077,000 in 2019, in each case excluding tax exempt adjustments relating to tax exempt securities and loans. The increase in total interest income in 2021 when compared to 2020 was primarily attributable to an increase in interest and fees earned on loans as well as an increase in interest and dividends earned on securities. The increase in interest and fees earned on loans resulted from an overall increase in average loans, a resulting increase in origination fees earned on loans, an increase in SBA fees earned on PPP loans from loans originated in 2020 and 2021, and an increase in prepayment fees earned from the early payoff of loans. The increase in interest and dividends earned on securities resulted from an overall increase in the average balance of securities, due to management's decision to purchase additional securities to utilize a portion of the Company's excess liquidity. The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate, which is the rate offered on loans to borrowers with strong credit. The prime interest rate did not change during 2021, decreased 150 basis points during 2020, and decreased 75 basis points in 2019 as a result of corresponding changes in the federal funds rate by the Federal Reserve. The direction and speed with which short-term interest rates move has an impact on our net interest income. In the fourth quarter of 2021, the Federal Reserve announced it expected to raise rates three times in 2022; however, the exact number, magnitude and timing of any rate increases remains uncertain. If short-term interest rates are increased and we remain liability-sensitive at that time, those increases could put pressure on our net interest margin and net interest spread, and consequently our net interest income, if we are unable to raise rates on our loans faster than we are required to raise rates on our deposits, including as a result of competitive pricing pressures in our markets. Similarly, in a rising rate environment, loan floors that we have embedded in our floating rate loans may cause a lag in our ability to capture the benefit of rising rates on our loan products. The yield on loans decreased in 2021 from 2020 due to the declining rate environment discussed above, which was partially offset by an increase in loan volume, an increase in fees earned on PPP loans from loans originated in 2020 and 2021, an increase in origination fees on loans, and prepayment fees earned from the early payoff of loans. Fees earned on loans totaled $16,085,000, $12,043,000 and $7,751,000 for the years ended 2021, 2020 and 2019, respectively. The total amount of state income tax credits included in our loan yields were $2,092,000, $2,191,000 and $2,154,000 for the years ended 2021, 2020 and 2019, respectively. The yield on securities decreased due to the declining rate environment discussed above, in which higher yielding securities were called by issuers and were replaced with securities yielding lower market rates. In addition, excess liquidity on the Company's balance sheet led to additional investment purchases that had lower yields due to the current rate environment.
The ratio of average earning assets to total average assets was 96.0%, 96.1% and 95.8% for each of the years ended December 31, 2021, 2020 and 2019, respectively. Average earning assets increased $533,189,000 from December 31, 2020 toDecember 31, 2021. The average rate earned on earning assets for 2021 was 3.77%, compared with 4.22% in 2020 and 4.69% in 2019. The increase in average earning assets was largely due to an increase in the average balance of investment securities, interest bearing deposits, and federal funds sold, which resulted from increased liquidity due to increased deposit balances during the pandemic. This increase was also attributable to an increase in the average balance of loans due to loan growth. The decrease in the average rate earned on earning assets resulted from the historically low interest rate environment we experienced in 2021 and the deployment of some of our excess liquidity in lower yielding assets as compared to loans.
Total interest expense for 2021 was $10,648,000, a decrease of $6,735,000, or 38.74%, compared to total interest expense of $17,383,000 in 2020. Average interest-bearing deposits increased to $2,789,539,000 for 2021 compared to $2,342,129,000 for 2020. The average rate paid on interest-bearing deposits was 0.38% for 2021 compared to 0.70% for 2020. Total interest expense decreased from $22,647,000 in 2019 to $17,383,000 in 2020, a decrease of $5,264,000, or 23.24%. The decrease in total interest expense in 2021 resulted primarily from a decrease in the rates on average interest bearing deposits, reflecting the declining rate environment that we have experienced since the first quarter of 2020, partially offset by an overall increase in the volume of average interest-bearing deposits and a pre-payment penalty related to the early payoff of our FHLB advances. The decrease in total interest expense in 2020 resulted primarily from a decrease in the rates on interest bearing deposits, as we decreased the rates on several of our deposit products in response to decreases in short-term rates throughout 2019 and the first quarter of 2020, partially offset by an overall increase in the volume of average interest-bearing deposits.
Net interest income for 2021 totaled $119,193,000 as compared to $105,585,000 and $95,430,000 in 2020 and 2019, respectively. The net interest spread, defined as the effective yield on earning assets less the effective cost of deposits and borrowed funds (calculated on a fully taxable equivalent basis), decreased to 3.39% in 2021 from 3.48% in 2020. The net interest spread was 3.60% in 2019. Net interest margin decreased to 3.47% in 2021 from 3.63% in 2020. The net interest margin was 3.81% in 2019. The decrease in net interest margin was due to a decrease in the yield earned on all earning assets that outpaced the decrease in rates paid on our interest-bearing liabilities, in each case for the reasons discussed above. Changes in interest rates paid on products such as interest checking, savings, and money market accounts will generally increase or decrease in a manner that is consistent with changes in the short-term environment, but are also impacted by competitive market conditions. The Company’s liabilities are positioned to re-price faster than its assets such that a short-term declining rate environment could have a positive impact on the Company’s earnings as its interest expense decreases faster than interest income. Conversely, a rising rate environment (like the one currently contemplated) could have a short-term negative impact on margins, as deposits would likely re-price faster than assets. Management regularly monitors the deposit rates of the Company’s competitors and these rates continue to put pressure on the Company’s deposit pricing, just as loan pricing pressure from competition within our markets continues to negatively impact loan yields. This pressure could negatively impact the Company’s net interest margin and earnings in 2022 if short-term rates begin to rise. Elevated levels of on-balance sheet liquidity resulting from government stimulus programs will also likely continue to negatively impact our net interest margin in 2022.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Loan Losses
The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. The 2021 provision for loan losses was $1,143,000, a decrease of $8,553,000 from the provision of $9,696,000 in 2020, which was $7,656,000 higher than the provision in 2019. The decrease in the provision for the year ended December 31, 2021 was attributable to returning to a more normalized level in 2021, as the economic impacts of the COVID-19 pandemic waned, after an extraordinary increased provision in 2020 due to the COVID-19 pandemic and its economic impact. The provision for loan losses recorded during 2021 was primarily the result of loan growth. The increased levels in the provision for loan losses for the year ended December 31, 2020 can be primarily attributed to the pandemic and the impact it had on the local and national economy. While the local and national economic outlooks improved in 2021, we believe the ultimate impact of the pandemic remains uncertain due to the lingering effects of COVID-19, and challenges affecting supply chains globally and labor shortages that are impacting our clients. In addition, inflation remains a risk to the economic recovery. Loan loss provisions recorded during the twelve months ended December 31, 2021, were largely the result of our loan portfolio growth. Gross loan growth totaled $165,338,000 ($5,020,000 of which was attributable to PPP loans), $237,558,000 ($62,437,000 of which was attributable to PPP loans) and $42,843,000 for the years ended 2021, 2020 and 2019, respectively. Management continues to fund the allowance for loan losses through provisions based on management’s calculation of the allowance for loan losses. The provision for loan losses is based on past loan experience and other factors which, in management’s judgment, deserve current recognition in estimating loan losses. Such factors include growth and composition of the loan portfolio, review of specific problem loans, past due and nonperforming loans, change in lending staff, the recommendations of the Company’s regulators, and current economic conditions that may affect the borrowers’ ability to repay. Beginning in 2022, the Company will recalculate its allowance for loan losses under ASU 2016-13, which is known as the Current Expected Credit Losses (CECL) model.
Wilson Bank’s charge-off policy for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when a determination is made that the loan is uncollectible. Net charge-offs increased to $50,000 in 2021 from net recoveries of $117,000 in 2020. Net charge-offs in 2019 totaled $488,000. The ratio of net charge-offs to average total outstanding loans was 0.00% in 2021, (0.01%) in 2020 and 0.02% in 2019. Overall, the Bank experienced minimal charge-offs during 2021.
Provision for loan losses in 2021 resulted in an increase of the allowance for loan losses (net of charge-offs and recoveries) to $39,632,000 at December 31, 2021 from $38,539,000 at December 31, 2020 and $28,726,000 at December 31, 2019. The allowance for loan losses increased 2.84% between December 31, 2020 and December 31, 2021 as compared to the 7.01% increase in total loans (including PPP loans) over the same period. The allowance for loan losses was 1.60% of total loans outstanding at December 31, 2021 compared to 1.66% at December 31, 2020 and 1.38% at December 31, 2019. As a percentage of nonperforming loans at December 31, 2021, 2020 and 2019, the allowance for loan losses represented 7,154%, 1,482% and 359%, respectively. The internally classified loans as a percentage of the allowance for loan losses were 19.4% and 21.4%, respectively, at December 31, 2021 and 2020. We believe the overall allowance for credit losses will increase slightly upon the adoption of CECL in order to provide for expected credit losses over the life of the loan portfolio. This is primarily resulting from the impact of adjusting from the incurred loss model to the expected loss model. Once finalized, the cumulative effect adjustment of our adoption of CECL will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2022. This estimate is subject to change as key assumptions are refined and model validations are finalized.
The level of the allowance and the amount of the provision involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly by the Chief Financial Officer and Chief Credit Officer and is provided to the Board of Directors to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analysis of historical performance, the level of non-performing and adversely rated loans, specific analysis of certain problem loans, loan activity since the previous assessment, reports prepared by the Company's independent Loan Review Department, consideration of current economic conditions and other pertinent information. The level of the allowance to net loans outstanding will vary depending on the overall results of this quarterly assessment. See the discussion above under “Critical Accounting Estimates” for more information. Management believes the allowance for loan losses at December 31, 2021 to be adequate, but if economic conditions deteriorate beyond management’s current expectations and additional charge-offs are incurred, the allowance for loan losses may require an increase through additional provision for loan losses expense which would negatively impact earnings.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-Interest Income
The Company's non-interest income is composed of several components, some of which vary significantly between periods. Service charges on deposit accounts and other non-interest income generally reflect the Company’s growth, while fees for origination of mortgage loans and brokerage fees and commissions will often reflect home mortgage market and stock market conditions and fluctuate more widely from period to period.
The following is a summary of our non-interest income for the years ended December 31, 2021, 2020 and 2019 (in thousands):
| | | Twelve Months Ended December 31, | | | | Twelve Months Ended December 31, | |
| | | 2021 | | | 2020 | | | $ Increase (Decrease) | | | % Increase (Decrease) | | | 2020 | | | 2019 | | | $ Increase (Decrease) | | | % Increase (Decrease) | |
Service charges on deposits | | $ | 6,137 | | | $ | 5,659 | | | $ | 478 | | | | 8.45 | % | | $ | 5,659 | | | $ | 6,952 | | | $ | (1,293 | ) | | | (18.60 | %) |
Brokerage income | | | 6,368 | | | | 4,837 | | | | 1,531 | | | | 31.65 | | | | 4,837 | | | | 4,411 | | | | 426 | | | | 9.66 | |
Debit and credit card interchange income | | | 12,029 | | | | 9,187 | | | | 2,842 | | | | 30.94 | | | | 9,187 | | | | 8,301 | | | | 886 | | | | 10.67 | |
Other fees and commissions | | | 1,446 | | | | 1,404 | | | | 42 | | | | 2.99 | | | | 1,404 | | | | 1,608 | | | | (204 | ) | | | (12.69 | ) |
BOLI and annuity earnings | | | 1,109 | | | | 959 | | | | 150 | | | | 15.64 | | | | 959 | | | | 723 | | | | 236 | | | | 32.64 | |
Security gain (losses), net | | | 28 | | | | 882 | | | | (854 | ) | | | (96.83 | ) | | | 882 | | | | (268 | ) | | | 1,150 | | | | (429.10 | ) |
Fees and gains on sales of mortgage loans | | | 9,997 | | | | 9,560 | | | | 437 | | | | 4.57 | | | | 9,560 | | | | 6,802 | | | | 2,758 | | | | 40.55 | |
Gain (loss) on sale of other real estate, net | | | (15 | ) | | | 658 | | | | (673 | ) | | | (102.28 | ) | | | 658 | | | | (48 | ) | | | 706 | | | | (1,470.83 | ) |
Loss on the sale of fixed assets, net | | | (43 | ) | | | (63 | ) | | | 20 | | | | (31.75 | ) | | | (63 | ) | | | (128 | ) | | | 65 | | | | (50.78 | ) |
Gain (loss) on sale of other assets, net | | | 6 | | | | (4 | ) | | | 10 | | | | (250.00 | ) | | | (4 | ) | | | (4 | ) | | | — | | | | 0.00 | |
Other income | | | 34 | | | | 61 | | | | (27 | ) | | | (44.26 | ) | | | 61 | | | | — | | | | 61 | | | | 100.00 | |
Total non-interest income | | $ | 37,096 | | | $ | 33,140 | | | $ | 3,956 | | | | 11.94 | % | | $ | 33,140 | | | $ | 28,349 | | | $ | 4,791 | | | | 16.90 | % |
2021 v. 2020
The increase in non-interest income for the year ended December 31, 2021 when compared to the year ended December 31, 2020 is primarily attributable to an increase in debit and credit card interchange income, an increase in brokerage income, an increase in service charges on deposits, and an increase in fees and gains on sales of mortgage loans, offset in part by a decrease in gain on sale of securities and an increase in loss on sale of other real estate.
Debit and credit card interchange income primarily increased due to an increase in the number and volume of debit card and credit card holders and transactions. The increase in the volume of transactions was partially attributable to an increase in economic activity as many businesses reopened and mitigation efforts were relaxed, which resulted in increased consumer spending.
Brokerage income primarily increased due to the opening of new investment accounts, which was aided by the hiring of new investment managers and an increase in estate planning and trust asset accounts. Brokerage income was also aided by the continued strong recovery in the stock market from the lows of the first quarter of 2020 resulting from the COVID-19 pandemic.
Service charges on deposit accounts primarily increased due to an increase in service charges earned on overdraft fees, fees for paper statements, analysis charges, and fees from ATM transactions. The increase in service charges earned on overdraft fees and ATM transactions resulted from increased consumer spending resulting from the increase in economic activity. The increase in analysis charges resulted from an increase in monthly maintenance fees resulting from an increase in business customers.
The fees and gains on sales of mortgage loans primarily increased due to the continued influx of refinance volume as a result of continued low interest rates due to ongoing pandemic stimulus efforts. Rates have started their expected upward climb as a result of inflationary pressure and tapering of the Federal Reserve's purchase of mortgage backed securities from quantitative easing which may reduce growth on fees and gains on sale of mortgage loans in 2022.
The decrease in the gain on sale of securities for the year ended December 31, 2021 when compared to December 31, 2020 was due to management's opportunistic trading in 2020 to recognize additional income and management's strategy to sell securities in the fourth quarter of 2020 and use the gain to pay down Federal Home Loan Bank advances.
2020 v. 2019
The increase in non-interest income for the year ended December 31, 2020 when compared to the year ended December 31, 2019 is primarily attributable to an increase in fees and gains on sales of mortgage loans, an increase in the gain on the sale of securities, an increase in debit and credit card interchange income, an increase in a gain on the sale of other real estate, and an increase in brokerage income, offset in part by a decrease in service charges on deposits.
The fees and gains on sales of mortgage loans primarily increased due to an increase in the overall volume from the sale of loans of $64,720,000, as a result of our mortgage group experiencing heightened demand in 2020. This increased demand was due to mortgage rates hitting all-time lows as a result of quantitative easing and the government's purchase of mortgage backed securities, as well as strong demand and related housing starts in Wilson County and the surrounding counties in which we serve.
Gain on sale of securities primarily increased from a loss on sale of securities in 2019 due to management's opportunistic trading to recognize additional income and management's strategy to sell securities in the fourth quarter of 2020 and use the gain to pay down Federal Home Loan Bank advances. The loss on sale of securities in 2019 was due to management's decision to sell securities for a loss and reinvest the proceeds in higher yielding assets.
Debit and credit card interchange income primarily increased due to an increase in the number and volume of debit card and credit card holders and transactions. The increase in the volume of transactions was partially attributable to an increase in online shopping as consumers sought to purchase more goods and services remotely due to COVID-19.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Brokerage income primarily increased due to client acquisition and the opening of new investment accounts. Brokerage income was also aided by the continued strong recovery in the stock market from first quarter 2020 lows resulting from the COVID-19 pandemic, with the market ending 2020 at then all-time highs.
Service charges on deposit accounts primarily decreased due to a decrease in service charges earned on insufficient income that resulted from the economic stimulus payments received by our customers and corresponding increases in deposit account balances and less consumer spending as a result of COVID-19.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-Interest Expenses
Non-interest expenses consist primarily of employee costs, FDIC premiums, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, ATM & interchange expenses, directors’ fees, audit, legal and consulting fees, and other operating expenses.
The following is a summary of the Company's non-interest expense for the years ended December 31, 2021, 2020 and 2019 (in thousands):
| | | Twelve Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | 2021 | | | 2020 | | | $ Increase (Decrease) | | | % Increase (Decrease) | | | 2020 | | | 2019 | | | $ Increase (Decrease) | | | % Increase (Decrease) | |
Employee salaries and benefits | | $ | 52,722 | | | $ | 45,661 | | | $ | 7,061 | | | | 15.46 | % | | $ | 45,661 | | | $ | 42,541 | | | $ | 3,120 | | | | 7.33 | % |
Equity-based compensation | | | 1,428 | | | | 1,180 | | | | 248 | | | | 21.02 | | | | 1,180 | | | | 786 | | | | 394 | | | | 50.13 | |
Occupancy expenses | | | 5,473 | | | | 5,216 | | | | 257 | | | | 4.93 | | | | 5,216 | | | | 4,789 | | | | 427 | | | | 8.92 | |
Furniture and equipment expenses | | | 3,323 | | | | 3,267 | | | | 56 | | | | 1.71 | | | | 3,267 | | | | 3,110 | | | | 157 | | | | 5.05 | |
Data processing expenses | | | 6,079 | | | | 5,101 | | | | 978 | | | | 19.17 | | | | 5,101 | | | | 4,495 | | | | 606 | | | | 13.48 | |
Advertising expenses | | | 2,736 | | | | 2,487 | | | | 249 | | | | 10.01 | | | | 2,487 | | | | 2,498 | | | | (11 | ) | | | (0.44 | ) |
ATM & interchange fees | | | 4,783 | | | | 3,880 | | | | 903 | | | | 23.27 | | | | 3,880 | | | | 3,439 | | | | 441 | | | | 12.82 | |
Accounting, legal & consulting expenses | | | 988 | | | | 909 | | | | 79 | | | | 8.69 | | | | 909 | | | | 1,382 | | | | (473 | ) | | | (34.23 | ) |
FDIC insurance | | | 1,130 | | | | 598 | | | | 532 | | | | 88.96 | | | | 598 | | | | 373 | | | | 225 | | | | 60.32 | |
Directors’ fees | | | 686 | | | | 634 | | | | 52 | | | | 8.20 | | | | 634 | | | | 586 | | | | 48 | | | | 8.19 | |
Other operating expenses | | | 11,640 | | | | 11,986 | | | | (346 | ) | | | (2.89 | ) | | | 11,986 | | | | 10,629 | | | | 1,357 | | | | 12.77 | |
Total non-interest expense | | $ | 90,988 | | | $ | 80,919 | | | $ | 10,069 | | | | 12.44 | % | | $ | 80,919 | | | $ | 74,628 | | | $ | 6,291 | | | | 8.43 | % |
2021 v. 2020
The increase in non-interest expenses for the year ended December 31, 2021 when compared to the year ended December 31, 2020 is primarily attributable to a year-over-year increase in salaries and employee benefits, equity-based compensation, occupancy expenses, data processing expenses, ATM and interchange fees, FDIC insurance, and advertising expenses, partially offset by a decrease in other operating expenses.
The increase in salaries and employee benefits for the year ended December 31, 2021 when compared to the year ended December 31, 2020 is primarily attributable to an increase in the number of employees necessary to support the Company’s growth in operations as well as an increase in salaries for employees including as a result of increased levels of competition for talent in our market areas. The increase was also due to increases in incentives and commissions, due to an increase in the volume of booked mortgage loans and the success of new additional investment advisor personnel. This increase also resulted from the payment of a $812,000, in the aggregate, mid-year bonus paid to employees in the second quarter of 2021 to acknowledge their hard work and perseverance throughout the pandemic and implementation of PPP. The increase in equity-based compensation is due to equity awards granted to certain of our directors, senior executive officers and other officers, in connection with their assumption of additional responsibilities and an increase in the weighted average grant date value of those awards. The increase in occupancy expense is primarily attributable to an increase in maintenance and repairs on buildings, an increase in property taxes, an increase in depreciation expense on buildings resulting from improvements, an increase in lease expense due to an increase in leased branches, and an increase in utility expense due to a transition back to the office by employees. The Company anticipates that salaries and employee benefits expense and occupancy expense will continue to increase as the Company's operations grow particularly if competition for talent remains strong in our markets and if inflationary pressures continue to impact our markets.
The increase in data processing expenses is primarily attributable to an increase in computer maintenance and computer licenses. These expenses included upgrades of our current systems as well as additional investments in computer software, an increase in I.T. consulting expense and an increase in information security expenses. The Company anticipates that data processing expenses will continue to increase as the Company's operations grow and the focus on the acceleration of digital product offerings and on data security increases.
The increase in ATM and interchange fees is primarily attributable to an increase in debit card interchange fee expense due to the volume of transactions, and the increase in economic activity.
The increase in FDIC insurance is primarily attributable an increase in deposit account balances resulting from economic growth and stimulus programs.
The increase in advertising expenses is primarily attributable to targeted marketing efforts in order to increase our market share in existing markets.
The decrease in other operating expenses is primarily attributable to a decrease in professional fees on loans and a decrease in state bank assessment fees, partially offset by an increase in telephone expense, cash back expense, and fees and licenses expense. The decrease in professional fees on loans resulted from the investment in required software to facilitate participation in PPP lending that occurred in June 2020. The increase in telephone expense resulted from a one-time setup fee resulting from a conversion to a new vendor. The increase in cash back expense resulted from growth in market share that resulted in the opening of new deposit accounts.
2020 v. 2019
The increase in non-interest expenses for the year ended December 31, 2020 when compared to the year ended December 31, 2019 is primarily attributable to a year-over-year increase in salaries and employee benefits, equity-based compensation, occupancy expenses, other operating expenses, data processing expenses, ATM and interchange fees, and FDIC insurance, partially offset by a decrease in accounting, legal and consulting fees.
The increase in salaries and employee benefits for the year ended December 31, 2020 when compared to the year ended December 31, 2019 is primarily attributable to an increase in the number of employees necessary to support the Company’s growth in operations and branch expansion. The increase in equity-based compensation is due to equity awards granted to certain of our directors, senior executive officers and other officers, including in connection with their assumption of additional responsibilities. The increase in occupancy expense is primarily attributable to an increase in maintenance and repairs on buildings, an increase in depreciation expense on buildings resulting from improvements, an increase in lease expense due to an increase in leased branches, and an increase in sanitation supplies and protective facial masks related to COVID-19.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The increase in other operating expenses is primarily attributable to an increase of $896,000 in professional fees on loans. This increase was largely attributable to expenses relating to the origination of PPP loans.
The increase in data processing expenses is primarily attributable to an increase in computer maintenance and computer licenses. These expenses included upgrades of our current systems as well as additional investments in computer software, an increase in I.T. consulting expense and an increase in information security expenses. COVID-19 related expenses contributed to this increase with more reliance on virtual meetings and remote work.
The increase in ATM and interchange fees is primarily attributable to an increase in debit card interchange fee expense due to the volume of transactions, which resulted in part from increased online shopping due to COVID-19, as well as an increase in ATM expenses resulting from the purchase of new ATMs for all existing locations.
The increase in FDIC insurance is primarily attributable an increase in deposit accounts resulting from the government issued economic stimulus relief attributable to COVID-19, the result of PPP loan proceeds being deposited in the Bank pending use of the funds by the borrower, and reduced consumer spending as a result of the pandemic.
The decrease in accounting, legal and consulting fees is primarily attributable to a decrease in legal and professional fees associated with the Company's general operations.
The efficiency ratio is a common and comparable KPI used in the banking industry. The Company uses this metric to monitor how effective management is at using our internal resources. It is calculated by taking our non-interest expense divided by our net-interest income plus non-interest income. Our efficiency ratio for the years ended 2021, 2020 and 2019 was 58.22%, 58.33% and 60.29%, respectively.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Taxes
The Company’s income tax expense was $14,732,000 for 2021, an increase of $5,114,000 from $9,618,000 for 2020, which was down by $1,449,000 from the 2019 total of $11,067,000. The percentage of income tax expense to earnings before taxes was 23.0% in 2021, 20.0% in 2020 and 23.5% in 2019. The increase in income tax expense in 2021 from 2020 was due to an increase in earnings before income taxes and the decrease in 2020 from 2019 was due to additional state tax credits that lowered our effective tax rate. Our effective tax rate represents our blended federal and state rate of 26.135% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as bank-owned life insurance, income earned on tax-exempt securities and certain federal and state tax credits.
Our income tax expense, deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes at both the federal and state level. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for changes in accounting policies and incorporate assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. Changes in current tax laws and rates could also affect recorded deferred tax assets and liabilities in the future as was the case with the passage of the Tax Cuts and Jobs Act in 2017.
Financial Accounting Standards Board (“FASB”) ASC Topic 740, Income Taxes (“ASC 740”) provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. ASC Topic 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
We recognize tax liabilities in accordance with ASC Topic 740 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
Balance Sheet Summary
The Company’s total assets increased in 2021 by $619,992,000 or 18.40%, to $3,989,596,000 at December 31, 2021, after increasing 20.59% in 2020 to $3,369,604,000 at December 31, 2020. Loans, net of allowance for loan losses, totaled $2,444,282,000 at December 31, 2021, a $161,516,000, or 7.08%, increase compared to December 31, 2020. In 2020, management focused on growing all segments of our loan portfolio as we managed through the COVID-19 pandemic. In 2021, management targeted owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of focus. The increase in loans in 2021 resulted from an overall increase in loan demand in the housing market, as well as other sectors in which we lend money, along with continued demand during the first part of 2021 for PPP loans by small businesses and individuals as a result of the COVID-19 pandemic. At year end 2021, securities totaled $897,585,000, an increase of54.61% from $580,543,000 at December 31, 2020, primarily as a result of management's decision to invest excess liquidity. The current rate environment also caused the fair market value on the securities portfolio to decrease. As a result of deposit growth that outpaced loan growth, interest bearing deposits at other financial institutions increased by $96,190,000, to $400,940,000 at December 31, 2021. Deferred income taxes totaled $12,792,000 at December 31, 2021, a $5,703,000, or 80.45%, increase compared to December 31, 2020. The increase in deferred income taxes was largely attributable to a decline in the unrealized gains on our available-for-sale securities of $18,251,000.
Total liabilities increased by $586,396,000, or 19.62%, to $3,575,879,000 at December 31, 2021 compared to $2,989,483,000 at December 31, 2020. This increase was composed primarily of the $594,476,000 increase in total deposits to $3,555,071,000, a 20.08% increase from December 31, 2020. The increase in total deposits since December 31, 2020 was primarily attributable to growth in market share that resulted in the opening of new accounts, increased economic activity and economic stimulus programs. Federal Home Loan Bank advances decreased to $0 from $3,638,000 at respective year ends 2021 and 2020. The decrease in Federal Home Loan Bank advances was due to management's strategic decision to utilize excess liquidity to pay off these advances and a lack of need for such advances in 2021 due to increased liquidity/deposit balances.
Stockholders’ equity increased $33,596,000, or 8.84%, in 2021, due to net earnings, the issuance of stock pursuant to the Company’s Dividend Reinvestment Plan, and the exercise of stock options, offset by dividends paid on the Company’s common stock and a decrease in the fair value of available-for-sale securities. The change in stockholders’ equity includes a $13,480,000 decrease in net unrealized gains on available-for-sale securities, net of taxes during the period. A more detailed discussion of assets, liabilities and capital follows.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Loans
The following schedule details the loans and percentage of loans in each category of the Company at December 31, 2021 and 2020 (dollars in thousands):
| | | December 31, 2021 | | | December 31, 2020 | |
| | | AMOUNT | | | % | | | AMOUNT | | | % | |
Mortgage loans on real estate: | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 679,536 | | | | 27.2 | % | | $ | 535,994 | | | | 23.0 | % |
Multifamily | | | 29,300 | | | | 1.2 | | | | 111,646 | | | | 4.8 | |
Commercial real estate | | | 879,373 | | | | 35.2 | | | | 837,766 | | | | 35.9 | |
Construction and land development | | | 603,292 | | | | 24.2 | | | | 488,626 | | | | 21.0 | |
Farmland | | | 9,367 | | | | 0.4 | | | | 15,429 | | | | 0.7 | |
Second mortgages | | | 10,043 | | | | 0.4 | | | | 8,433 | | | | 0.4 | |
Equity lines of credit | | | 92,229 | | | | 3.7 | | | | 78,889 | | | | 3.4 | |
Total mortgage loans on real estate | | | 2,303,140 | | | | 92.3 | | | | 2,076,783 | | | | 89.1 | |
| | | | | | | | | | | | | | | | | |
Commercial loans | | | 116,717 | | | | 4.7 | | | | 172,811 | | | | 7.4 | |
| | | | | | | | | | | | | | | | | |
Agricultural loans | | | 1,438 | | | | 0.1 | | | | 1,206 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | |
Consumer installment loans: | | | | | | | | | | | | | | | | |
Personal | | | 59,513 | | | | 2.4 | | | | 66,193 | | | | 2.8 | |
Credit cards | | | 5,281 | | | | 0.2 | | | | 4,324 | | | | 0.2 | |
Total consumer installment loans | | | 64,794 | | | | 2.6 | | | | 70,517 | | | | 3.0 | |
| | | | | | | | | | | | | | | | | |
Other loans | | | 9,849 | | | | 0.4 | | | | 9,283 | | | | 0.4 | |
| | | | 2,495,938 | | | | 100.0 | % | | | 2,330,600 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
Net deferred loan fees | | | (12,024 | ) | | | | | | | (9,295 | ) | | | | |
| | | | | | | | | | | | | | | | | |
Total loans | | | 2,483,914 | | | | | | | | 2,321,305 | | | | | |
| | | | | | | | | | | | | | | | | |
Less: Allowance for loan losses | | | (39,632 | ) | | | | | | | (38,539 | ) | | | | |
| | | | | | | | | | | | | | | | | |
Net loans | | $ | 2,444,282 | | | | | | | $ | 2,282,766 | | | | | |
Loans are the largest component of the Company’s assets and are its primary source of income. The Company’s loan portfolio, net of allowance for loan losses, increased 7.1% at year end 2021 when compared to year end 2020. The table above sets forth the loan categories and the percentage of such loans in the portfolio as of December 31, 2021 and 2020.
As represented in the table, Wilson Bank experienced loan growth for the year ended December 31, 2021 in residential 1-4 family loans and construction and land development loans; partially offset by a decrease in multifamily loans and commercial loans. Residential 1-4 family loans increased 26.8% in 2021 and comprised 27.2% of the total loan portfolio at December 31, 2021, compared to 23.0% at December 31, 2020. Management believes the increase in residential 1-4 family loans was primarily due to an increase in demand for such loans due to, among other things, favorable interest rates resulting from the declining rate environment that started in the third and fourth quarters of 2019 and throughout much of 2020, as well as the completion of some construction projects which transitioned to permanent financing and continued increased population growth in some of our markets. Construction and land development loans increased 23.5% in 2021 and comprised 24.2% of the total loan portfolio at December 31, 2021, compared to 21.0% at December 31, 2020. The increase in construction and land development loans reflected the overall increase in demand for such loans in the overall economy and our markets. Because the construction portfolio remains a meaningful portion of our portfolio, Wilson Bank actively monitors these loans as it seeks to avoid advancing funds that exceed the present value of the collateral securing the loan. The responsibility for monitoring percentage of completion and distribution of funds tied to these completion percentages are monitored and administered by a credit administration department independent of the lending function. Multifamily loans decreased 73.8% in 2021 and comprised 1.2% of the portfolio at December 31, 2021, compared to 4.8% at December 31, 2020. The decrease in multifamily loans was largely due to the payoff of several large loan relationships. Commercial loans decreased 32.5% in 2021 and comprised 4.7% of the total loan portfolio at December 31, 2021, compared to 7.4% at December 31, 2020. The decrease in commercial loans is largely attributable to the forgiveness or repayment of PPP loans we previously made to small businesses and individuals as a result of the COVID-19 pandemic and the payoff of several other large loan relationships. In total, we funded $125.2 million of PPP loans, $5.0 million of which remained outstanding as of December 31, 2021. Wilson Bank continues to seek to diversify its real estate portfolio as it seeks to lessen concentrations in any one type of loan.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Banking regulators define highly leveraged transactions to include leveraged buy-outs, acquisition loans and recapitalization loans of an existing business. Under the regulatory definition, at December 31, 2021, the Company had no highly leveraged transactions, and there were no foreign loans outstanding during any of the reporting periods. As of December 31, 2021, the Company had not underwritten any loans in connection with capital leases.
The following table classifies the Company's fixed and variable rate loans at December 31, 2021 according to contractual maturities of: (1) one year or less, (2) after one year through five years, (3) after five years through fifteen years, and (4) after fifteen years (dollars in thousands):
| | | December 31, 2021 | |
| | | One Year or Less | | | After One Year Through Five Years | | | After Five Years Through Fifteen Years | | | After Fifteen Years | | | Total | |
Residential 1-4 family | | $ | 29,662 | | | $ | 78,645 | | | $ | 108,828 | | | $ | 462,401 | | | $ | 679,536 | |
Multifamily | | | 491 | | | | 842 | | | | 6,856 | | | | 21,111 | | | | 29,300 | |
Commercial real estate | | | 12,833 | | | | 95,967 | | | | 203,674 | | | | 566,899 | | | | 879,373 | |
Construction and land development | | | 181,343 | | | | 179,259 | | | | 49,269 | | | | 193,421 | | | | 603,292 | |
Farmland | | | 1,858 | | | | 2,056 | | | | 4,376 | | | | 1,077 | | | | 9,367 | |
Second mortgages | | | 304 | | | | 5,281 | | | | 3,548 | | | | 910 | | | | 10,043 | |
Equity lines of credit | | | 4,520 | | | | 797 | | | | 86,912 | | | | — | | | | 92,229 | |
Commercial loans | | | 12,061 | | | | 44,254 | | | | 32,185 | | | | 28,217 | | | | 116,717 | |
Agriculture, installment and other | | | 18,384 | | | | 42,322 | | | | 8,752 | | | | — | | | | 76,081 | |
Total | | $ | 261,456 | | | $ | 449,423 | | | $ | 504,400 | | | $ | 1,280,659 | | | $ | 2,495,938 | |
Loans with fixed interest rates: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 25,714 | | | $ | 55,267 | | | $ | 24,405 | | | $ | 27,350 | | | $ | 132,736 | |
Multifamily | | | 36 | | | | — | | | | — | | | | — | | | | 36 | |
Commercial real estate | | | 4,310 | | | | 70,391 | | | | 12,529 | | | | 5,439 | | | | 92,669 | |
Construction and land development | | | 124,102 | | | | 89,240 | | | | 317 | | | | 20,859 | | | | 234,518 | |
Farmland | | | 1,137 | | | | 995 | | | | — | | | | — | | | | 2,132 | |
Second mortgages | | | 133 | | | | 581 | | | | 110 | | | | — | | | | 824 | |
Equity lines of credit | | | 2,556 | | | | — | | | | — | | | | — | | | | 2,556 | |
Commercial loans | | | 8,271 | | | | 37,444 | | | | 8,524 | | | | — | | | | 54,239 | |
Agriculture, installment and other | | | 8,216 | | | | 41,441 | | | | 8,748 | | | | 863 | | | | 59,268 | |
Total | | $ | 174,475 | | | $ | 295,359 | | | $ | 54,633 | | | $ | 54,511 | | | $ | 578,978 | |
Loans with variable interest rates: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 3,948 | | | $ | 23,378 | | | $ | 84,423 | | | $ | 435,051 | | | $ | 546,800 | |
Multifamily | | | 455 | | | | 842 | | | | 6,856 | | | | 21,111 | | | | 29,264 | |
Commercial real estate | | | 8,523 | | | | 25,576 | | | | 191,145 | | | | 561,460 | | | | 786,704 | |
Construction and land development | | | 57,241 | | | | 90,019 | | | | 48,952 | | | | 172,562 | | | | 368,774 | |
Farmland | | | 721 | | | | 1,061 | | | | 4,376 | | | | 1,077 | | | | 7,235 | |
Second mortgages | | | 171 | | | | 4,700 | | | | 3,438 | | | | 910 | | | | 9,219 | |
Equity lines of credit | | | 1,964 | | | | 797 | | | | 86,912 | | | | — | | | | 89,673 | |
Commercial loans | | | 3,790 | | | | 6,810 | | | | 23,661 | | | | 28,217 | | | | 62,478 | |
Agriculture, installment and other | | | 10,168 | | | | 881 | | | | 4 | | | | 5,760 | | | | 16,813 | |
Total | | $ | 86,981 | | | $ | 154,064 | | | $ | 449,767 | | | $ | 1,226,148 | | | $ | 1,916,960 | |
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following schedule provides an allocation of the year-end allowance for loan losses on loans by portfolio segment for the Company as of and for the fiscal years ended December 31, 2021 and 2020:
| | | In Thousands, Except Percentages | |
| | | Amount of Allowance Allocated | | | Percent of Loans in Each Category to Total Loans | | | Total Loans | | | Ratio of Allowance Allocated to Loans in Each Category | |
December 31, 2021 | | | | | | | | | | | | | | | | |
Mortgage Loans on real estate | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 9,124 | | | | 27.2 | % | | $ | 679,536 | | | | 1.34 | % |
Multifamily | | | 396 | | | | 1.2 | | | | 29,300 | | | | 1.35 | |
Commercial real estate | | | 16,450 | | | | 35.2 | | | | 879,373 | | | | 1.87 | |
Construction and land development | | | 9,663 | | | | 24.2 | | | | 603,292 | | | | 1.60 | |
Farmland | | | 94 | | | | 0.4 | | | | 9,367 | | | | 1.00 | |
Second mortgage | | | 118 | | | | 0.4 | | | | 10,043 | | | | 1.17 | |
Equity lines of credit | | | 1,098 | | | | 3.7 | | | | 92,229 | | | | 1.19 | |
Total mortgage loans on real estate | | | 36,943 | | | | 92.3 | | | | 2,303,140 | | | | 1.60 | |
| | | | | | | | | | | | | | | | | |
Commercial loans | | | 1,314 | | | | 4.7 | | | | 116,717 | | | | 1.13 | |
| | | | | | | | | | | | | | | | | |
Agriculture, installment and other | | | 1,375 | | | | 3.0 | | | | 76,081 | | | | 1.81 | |
| | | $ | 39,632 | | | | 100.0 | % | | | 2,495,938 | | | | 1.59 | |
Net deferred loan fees | | | | | | | | | | | (12,024 | ) | | | | |
| | | | | | | | | | | $ | 2,483,914 | | | | 1.60 | % |
December 31, 2020 | | | | | | | | | | | | | | | | |
Mortgage Loans on real estate | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 8,098 | | | | 23.0 | % | | $ | 535,994 | | | | 1.51 | % |
Multifamily | | | 1,541 | | | | 4.8 | | | | 111,646 | | | | 1.38 | |
Commercial real estate | | | 16,802 | | | | 35.9 | | | | 837,766 | | | | 2.01 | |
Construction and land development | | | 7,936 | | | | 21.0 | | | | 488,626 | | | | 1.62 | |
Farmland | | | 154 | | | | 0.7 | | | | 15,429 | | | | 1.00 | |
Second mortgage | | | 105 | | | | 0.4 | | | | 8,433 | | | | 1.25 | |
Equity lines of credit | | | 997 | | | | 3.4 | | | | 78,889 | | | | 1.26 | |
Total mortgage loans on real estate | | | 35,633 | | | | 89.1 | | | | 2,076,783 | | | | 1.72 | |
| | | | | | | | | | | | | | | | | |
Commercial loans | | | 1,378 | | | | 7.4 | | | | 172,811 | | | | 0.80 | |
| | | | | | | | | | | | | | | | | |
Agriculture, installment and other | | | 1,528 | | | | 3.5 | | | | 81,006 | | | | 1.89 | |
| | | $ | 38,539 | | | | 100.0 | % | | | 2,330,600 | | | | 1.65 | |
Net deferred loan fees | | | | | | | | | | | (9,295 | ) | | | | |
| | | | | | | | | | | $ | 2,321,305 | | | | 1.66 | % |
The allowance for loan losses is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The allowance for loan losses as a percentage of total loans outstanding at December 31, 2021 , net of deferred fees, decreased from the year ended December 31, 2020 . This decrease was largely due to decreased provision expense when compared to the year ended December 31, 2020, that was driven by the COVID-19 pandemic, as well as (i) the small amount of charge-offs, (ii) a decrease in non-performing loans, internally classified loans and impaired loans, (iii) loan growth, and (iv) management's evaluation of the overall credit quality of the loan portfolio.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following detail provides a breakdown of the provision for loan loss expense and net (charge-offs) recoveries at December 31, 2021, 2020 and 2019 :
| | In Thousands, Except Percentages | |
| | Provision for Loan Loss Expense (Benefit) | | Net (Charge-Offs) Recoveries | | Average Loans | Ratio of Net (Charge-offs) Recoveries to Average Loans | |
| | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | |
Residential 1-4 family | $ | 958 | | $ | 68 | | $ | 599,956 | | 0.01 | % |
Multifamily | | (1,145 | ) | | — | | | 69,568 | | — | |
Commercial real estate | | (352 | ) | | — | | | 847,538 | | — | |
Construction and land development | | 1,356 | | | 371 | | | 538,944 | | 0.07 | |
Farmland | | (60 | ) | | — | | | 12,239 | | — | |
Second mortgage | | 13 | | | — | | | 9,119 | | — | |
Equity lines of credit | | 101 | | | — | | | 84,460 | | — | |
Commercial loans | | (37 | ) | | (27 | ) | | 142,904 | | (0.02 | ) |
Agriculture, installment and other | | 309 | | | (462 | ) | | 77,534 | | (0.60 | ) |
Total | $ | 1,143 | | $ | (50 | ) | $ | 2,382,262 | | 0.00 | % |
December 31, 2020 | | | | | | | | | | | |
Residential 1-4 family | $ | 920 | | $ | 34 | | $ | 529,539 | | 0.01 | % |
Multifamily | | 424 | | | — | | | 105,554 | | — | |
Commercial real estate | | 5,388 | | | 300 | | | 824,789 | | 0.04 | |
Construction and land development | | 1,766 | | | 173 | | | 462,068 | | 0.04 | |
Farmland | | (33 | ) | | — | | | 17,544 | | 0.00 | |
Second mortgage | | (37 | ) | | 19 | | | 9,705 | | 0.20 | |
Equity lines of credit | | 74 | | | 34 | | | 76,489 | | 0.04 | |
Commercial loans | | 343 | | | (9 | ) | | 137,070 | | (0.01 | ) |
Agriculture, installment and other | | 851 | | | (434 | ) | | 74,057 | | (0.59 | ) |
Total | $ | 9,696 | | $ | 117 | | $ | 2,236,815 | | 0.01 | % |
December 31, 2019 | | | | | | | | | | | |
Residential 1-4 family | $ | 838 | | $ | 9 | | $ | 476,409 | | — | % |
Multifamily | | (364 | ) | | — | | | 113,579 | | — | |
Commercial real estate | | 1,484 | | | (123 | ) | | 732,515 | | (0.02 | ) |
Construction and land development | | (1,510 | ) | | 423 | | | 462,434 | | 0.09 | |
Farmland | | (34 | ) | | — | | | 21,243 | | — | |
Second mortgage | | 5 | | | — | | | 10,763 | | — | |
Equity lines of credit | | 158 | | | — | | | 65,874 | | — | |
Commercial loans | | 422 | | | — | | | 86,519 | | — | |
Agriculture, installment and other | | 1,041 | | | (797 | ) | | 61,525 | | (1.30 | ) |
Total | $ | 2,040 | | $ | (488 | ) | $ | 2,030,861 | | (0.02 | %) |
The provision for loan losses charged to operating expense is based on past loan loss experience and other factors which, in management’s judgment, deserve current recognition in estimating possible loan losses. Such other factors considered by management include growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for loan losses to outstanding loans, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions that may affect the borrower’s ability to pay.
Management conducts a continuous review of all loans that are delinquent, previously charged down or which are determined to be potentially uncollectible. Loan classifications are reviewed periodically by a person independent of the lending function. The Board of Directors of the Company periodically reviews the adequacy of the allowance for loan losses.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table details selected information as to non-accrual loans of the Company at December 31, 2021, 2020 and 2019:
| | | In Thousands, Except Percentages | |
| | | December 31, 2021 | | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | Non-Accrual Loans | | | | | | | Non-Accrual Loans | | | | | | | Non-Accrual Loans | |
| | | Total Loans | | | Amount | | | Percent of Loans in Category | | | Total Loans | | | Amount | | | Percent of Loans in Category | | | Total Loans | | | Amount | | | Percent of Loans in Category | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 679,536 | | | $ | — | | | | — | % | | $ | 535,994 | | | $ | 1,022 | | | | 0.19 | % | | $ | 511,250 | | | $ | 949 | | | | 0.19 | % |
Multifamily | | | 29,300 | | | | — | | | | — | | | | 111,646 | | | | — | | | | — | | | | 97,104 | | | | — | | | | — | |
Commercial real estate | | | 879,373 | | | | — | | | | — | | | | 837,766 | | | | 311 | | | | 0.04 | | | | 793,379 | | | | 1,661 | | | | 0.21 | |
Construction and land development | | | 603,292 | | | | — | | | | — | | | | 488,626 | | | | — | | | | — | | | | 425,185 | | | | — | | | | — | |
Farmland | | | 9,367 | | | | — | | | | — | | | | 15,429 | | | | — | | | | — | | | | 19,268 | | | | — | | | | — | |
Second mortgage | | | 10,043 | | | | — | | | | — | | | | 8,433 | | | | — | | | | — | | | | 10,760 | | | | — | | | | — | |
Equity lines of credit | | | 92,229 | | | | — | | | | — | | | | 78,889 | | | | — | | | | — | | | | 72,379 | | | | — | | | | — | |
Commercial loans | | | 116,717 | | | | — | | | | — | | | | 172,811 | | | | — | | | | — | | | | 98,265 | | | | — | | | | — | |
Agriculture, installment and other | | | 76,081 | | | | — | | | | — | | | | 81,006 | | | | — | | | | — | | | | 65,452 | | | | — | | | | — | |
Total | | $ | 2,495,938 | | | $ | — | | | | | | | $ | 2,330,600 | | | $ | 1,333 | | | | | | | $ | 2,093,042 | | | $ | 2,610 | | | | | |
Allowance for loan losses on loans | | | | | | $ | 39,632 | | | | | | | | | | | $ | 38,539 | | | | | | | | | | | $ | 28,726 | | | | | |
Ratio of non-accrual loans to total loans outstanding | | | | | | | | | | | — | % | | | | | | | | | | | 0.06 | % | | | | | | | | | | | 0.12 | % |
Ratio of allowance for credit losses on loans to non-accrual loans | | | | | | | — | % | | | | | | | | | | | 2,891.15 | % | | | | | | | | | | | 1,100.61 | % | | | | |
The accrual of interest income is discontinued when it is determined that collection of interest is less than probable or the collection of any amount of principal is doubtful. The decision to place a loan on a non-accrual status is based on an evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors that affect the borrower’s ability to pay. At the time a loan is placed on a non-accrual status, the accrued but unpaid interest is also evaluated as to collectability. If collectability is doubtful, the unpaid interest is charged off. Thereafter, interest on non-accrual loans is recognized only as received. There were no non-accrual loans at December 31, 2021. Non-accrual loans totaled $1,333,000 at December 31, 2020. For the years ended December 31, 2021 and 2020, the amount of interest income on non-accrual loans that would have been recognized if loans were on accruing status was insignificant. The amount of interest and fee income recognized on total loans during 2021 totaled $118,676,000 as compared to $113,224,000 in 2020.
The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic, or other, concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. The concessions typically result from the Company’s loss mitigation activities and could include reduction in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs as of December 31, 2021 decreased $364,000 to $165,000 at December 31, 2021 when compared to December 31, 2020 due to the payoff of two TDR loan relationships and the pay down of one TDR loan relationship that were non-performing at December 31, 2020, partially offset by one TDR loan relationship that was performing at December 31, 2020 that is now classified as non-performing at December 31, 2021. Total TDRs decreased $1,635,000 to $1,041,000 from December 31, 2020 to December 31, 2021 due the payoff of 4 loan relationships that were classified as TDRs in 2020.
The CARES Act and interagency guidance provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs through January 1, 2022 to account for those loans which have been granted deferrals due to the effects of COVID-19. For more information regarding the deferrals we offered to our customers, see "Impact of COVID-19" above.
At December 31, 2021, real estate construction and mortgage loans made up 24.2% and 68.1%, respectively, of the Company’s loan portfolio.
At December 31, 2021, and December 31, 2020, there was no other real estate owned outstanding.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth for the reported periods loans that were at least 30 days but less than 60 days past due, 60 days but less than 90 days past due and nonaccrual loans and those loans past due greater than 90 days:
| | | (In thousands) | |
| | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | Nonaccrual and Greater Than 90 Days Past Due | | | Past Due | | | Current | | | Total Loans | | | Loans Greater Than 90 Days Past Due and Accruing Interest | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 1,951 | | | | 169 | | | | 357 | | | | 2,477 | | | | 677,059 | | | | 679,536 | | | $ | 357 | |
Multifamily | | | — | | | | — | | | | — | | | | — | | | | 29,300 | | | | 29,300 | | | | — | |
Commercial real estate | | | — | | | | — | | | | — | | | | — | | | | 879,373 | | | | 879,373 | | | | — | |
Construction | | | 1,154 | | | | 215 | | | | — | | | | 1,369 | | | | 601,923 | | | | 603,292 | | | | — | |
Farmland | | | — | | | | — | | | | — | | | | — | | | | 9,367 | | | | 9,367 | | | | — | |
Second mortgages | | | 121 | | | | — | | | | — | | | | 121 | | | | 9,922 | | | | 10,043 | | | | — | |
Equity lines of credit | | | 170 | | | | — | | | | 9 | | | | 179 | | | | 92,050 | | | | 92,229 | | | | 9 | |
Commercial | | | 58 | | | | 81 | | | | — | | | | 139 | | | | 116,578 | | | | 116,717 | | | | — | |
Agricultural, installment and other | | | 288 | | | | 99 | | | | 23 | | | | 410 | | | | 75,671 | | | | 76,081 | | | | 23 | |
Total | | $ | 3,742 | | | | 564 | | | | 389 | | | | 4,695 | | | | 2,491,243 | | | | 2,495,938 | | | $ | 389 | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 2,634 | | | | 511 | | | | 1,818 | | | | 4,963 | | | | 531,031 | | | | 535,994 | | | $ | 796 | |
Multifamily | | | — | | | | — | | | | — | | | | — | | | | 111,646 | | | | 111,646 | | | | — | |
Commercial real estate | | | — | | | | — | | | | 460 | | | | 460 | | | | 837,306 | | | | 837,766 | | | | 149 | |
Construction | | | 768 | | | | — | | | | 44 | | | | 812 | | | | 487,814 | | | | 488,626 | | | | 44 | |
Farmland | | | — | | | | — | | | | — | | | | — | | | | 15,429 | | | | 15,429 | | | | — | |
Second mortgages | | | 265 | | | | — | | | | — | | | | 265 | | | | 8,168 | | | | 8,433 | | | | — | |
Equity lines of credit | | | 31 | | | | 302 | | | | — | | | | 333 | | | | 78,556 | | | | 78,889 | | | | — | |
Commercial | | | 114 | | | | 104 | | | | — | | | | 218 | | | | 172,593 | | | | 172,811 | | | | — | |
Agricultural, installment and other | | | 363 | | | | 81 | | | | 60 | | | | 504 | | | | 80,502 | | | | 81,006 | | | | 60 | |
Total | | $ | 4,175 | | | | 998 | | | | 2,382 | | | | 7,555 | | | | 2,323,045 | | | | 2,330,600 | | | $ | 1,049 | |
Past due loans, which include nonaccrual loans and loans 90 days past due, totaled $389,000 at December 31, 2021, a decrease from $2,382,000 at December 31, 2020, resulting from a $1,333,000, or 100.00%, decrease in nonaccrual loans and a $660,000, or 62.92%, decrease in 90 day past due and accruing loans. The decrease in nonaccrual and greater than 90 days past due loans during the year ended December 31, 2021 of $1,993,000 was due primarily to the removal of one large residential 1-4 family real estate nonaccrual loan that was upgraded due to payment performance, the payoff of one large commercial real estate loan relationship that was on nonaccrual status, and the payoff of two large residential 1-4 family real estate loan relationships; partially offset by the addition of one large residential 1-4 family real estate loan relationship that was greater than 90 days past due. Management believes that it is probable that it will incur losses on nonaccrual and greater than 90 days past due loans but believes that these losses should not exceed the amount in the allowance for loan losses already allocated to these loans, unless there is a deterioration of local real estate values.
The net non-performing asset ratio (NPA) is used as a measure of the overall quality of the Company's assets. Our NPA ratio is calculated by taking the total of our loans greater than 90 days past due and accruing interest, non-accrual loans, nonperforming TDRs, and other real estate owned divided by our total assets outstanding. Our NPA ratios for the periods ended December 31, 2021 and December 31, 2020 were 0.01% and 0.08%, respectively. The NPA ratio was favorably impacted by decreases in loans greater than 90 days past due and accruing interest, non-accrual loans, and nonperforming TDRs, as well as an increase in our total assets, including as a result of loan growth (including from the PPP) and the increase in deposits associated with the pandemic.
The internally classified loans as a percentage of the allowance for loan losses were 19.4% and 21.4%, respectively, at December 31, 2021 and 2020. At December 31, 2021, loans totaling $7,686,000 were included in the Company’s internal classified loan list. Of these loans $7,459,000 are real estate secured and $227,000 are secured by various other types of collateral. The value collateralizing these loans is estimated by management to be approximately $21,833,000 ($21,437,000 related to real property securing real estate loans and $396,000 related to the various other types of loans). Such loans are listed as classified when information obtained about possible credit problems of the borrowers has prompted management to question the ability of the borrower to comply with the repayment terms of the loan agreement. The loan classifications do not represent or result from trends or uncertainties which management expects will materially impact future operating results, liquidity or capital resources.
The allowance for loan losses is discussed under “Critical Accounting Estimates” and “Provision for Loan Losses.” The Company maintains its allowance for loan losses at an amount believed by management to be adequate to absorb probable loan losses inherent in the loan portfolio as of December 31, 2021.
Substantially all of the Company’s loans are from Wilson, DeKalb, Smith, Putnam, Trousdale, Davidson, Rutherford, Williamson and adjacent counties. Although the majority of the Company's loans are in the real estate market, the Company seeks to exercise prudent risk management in lending through the diversification by loan category within the real estate segment, including 1-4 family residential real estate, commercial real estate, multifamily, construction, second mortgages, farmland, and equity lines of credit.
The Company’s management believes there is an opportunity to increase the loan portfolio in 2022 as economic conditions in the Company's primary market areas continue to perform well. The Company will target owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of emphasis in 2022. At December 31, 2021, the Company’s total loans equaled 69.9% of its total deposits. As a practice, the Company generally generates its own loans and does not buy participations from other institutions. The Company may sell portions of the loans it generates to other financial institutions for cash in order to improve the liquidity of the Company’s loan portfolio or extend its lending capacity.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Securities
Securities increased 54.61% to $897,585,000 at December 31, 2021 from $580,543,000 at December 31, 2020, and comprised the second largest and other primary component of the Company’s earning assets. Securities increased as the result of deposit growth that outpaced loan growth and management's decision to invest increased liquidity resulting from the pandemic. The average yield, excluding tax equivalent adjustment, of the securities portfolio at December 31, 2021 was 1.59% with a weighted average life of 8.17 years, as compared to an average yield of 1.63% and a weighted average life of 8.00 years at December 31, 2020. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.
Certain debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
No securities have been classified as trading securities or held-to-maturity at December 31, 2021, December 31, 2020, or December 31, 2019.
Investment securities at December 31, 2021 and December 31, 2020 consisted of the following:
| | | December 31, 2021 | |
| | | Securities Available-For-Sale | |
| | | (In Thousands) | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| | | Cost | | | Gains | | | Losses | | | Value | |
U.S. Treasury and other U.S. government agencies | | $ | 7,320 | | | | — | | | | 99 | | | | 7,221 | |
U.S. Government-sponsored enterprises (GSEs) | | | 163,700 | | | | 20 | | | | 4,490 | | | | 159,230 | |
Mortgage-backed securities | | | 465,588 | | | | 2,726 | | | | 6,537 | | | | 461,777 | |
Asset-backed securities | | | 46,583 | | | | 213 | | | | 83 | | | | 46,713 | |
Corporate bonds | | | 2,500 | | | | 75 | | | | — | | | | 2,575 | |
Obligations of states and political subdivisions | | | 220,444 | | | | 2,611 | | | | 2,986 | | | | 220,069 | |
| | | $ | 906,135 | | | | 5,645 | | | | 14,195 | | | | 897,585 | |
| | | December 31, 2020 | |
| | | Securities Available-For-Sale | |
| | | (In Thousands) | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Market | |
| | | Cost | | | Gains | | | Losses | | | Value | |
U.S. Government-sponsored enterprises (GSEs) | | $ | 125,712 | | | | 328 | | | | 135 | | | | 125,905 | |
Mortgage-backed securities | | | 258,774 | | | | 5,636 | | | | 620 | | | | 263,790 | |
Asset-backed securities | | | 36,394 | | | | 582 | | | | 19 | | | | 36,957 | |
Corporate bonds | | | 2,500 | | | | 100 | | | | — | | | | 2,600 | |
Obligations of states and political subdivisions | | | 147,462 | | | | 4,229 | | | | 400 | | | | 151,291 | |
| | | $ | 570,842 | | | | 10,875 | | | | 1,174 | | | | 580,543 | |
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table details the contractual maturities and weighted average yields of investment securities of the Company. Actual maturities may differ from contractual maturities of mortgage and asset-backed securities because the mortgages or other assets underlying such securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories noted below as of December 31, 2021:
| | | December 31, 2021 | |
Available-For-Sale Securities | | Estimated Market Value | | | Weighted Average Yields | |
| | | (In Thousands, Except Yields) | |
Mortgage and asset-backed securities | | | | | | | | |
One year or less | | | 22 | | | | 1.50 | |
After one year through five years | | | 25,489 | | | | 1.97 | |
After five years through ten years | | | 62,167 | | | | 1.51 | |
After ten years | | | 420,812 | | | | 1.46 | |
Total Mortgage and asset backed securities | | $ | 508,490 | | | | 1.49 | % |
U.S. Treasury and other U.S. government agencies: | | | | | | | | |
One year or less | | | — | | | | — | |
After one year through five years | | | 2,429 | | | | 0.77 | |
After five years through ten years | | | 4,792 | | | | 1.12 | |
After ten years | | | — | | | | — | |
Total U.S. Treasury and other U.S. government agencies: | | | 7,221 | | | | 1.00 | |
U.S. Government-sponsored enterprises (GSEs): | | | | | | | | |
One year or less | | | — | | | | — | |
After one year through five years | | | 16,131 | | | | 0.58 | |
After five years through ten years | | | 117,887 | | | | 1.16 | |
After ten years | | | 25,212 | | | | 1.34 | |
Total U.S. Government-sponsored enterprises (GSEs) | | | 159,230 | | | | 1.13 | |
Obligations of states and political subdivisions*: | | | | | | | | |
One year or less | | | — | | | | — | |
After one year through five years | | | 10,817 | | | | 2.15 | |
After five years through ten years | | | 51,037 | | | | 1.80 | |
After ten years | | | 158,215 | | | | 2.30 | |
Total obligations of states and political subdivisions | | | 220,069 | | | | 2.18 | |
Corporate bonds: | | | | | | | | |
One year or less | | | — | | | | — | |
After one year through five years | | | 2,575 | | | | 4.25 | |
After five years through ten years | | | — | | | | — | |
After ten years | | | — | | | | — | |
Total corporate bonds | | | 2,575 | | | | 4.25 | |
Total available-for-sale securities | | $ | 897,585 | | | | 1.60 | % |
| * | Weighted average yield on tax-exempt obligations is stated on a tax-equivalent basis, assuming a weighted average Federal income tax rate of 21%. |
We computed weighted average yields using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. We computed the weighted average yield for each maturity range using the fair value of each security in that range.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Deposits
The increases in assets in 2021 and 2020 were funded primarily by increases in deposits and the Company��s earnings. Total deposits, which are the principal source of funds for the Company, totaled $3,555,071,000 at December 31, 2021 compared to $2,960,595,000 at December 31, 2020, an increase of 20.08%. The Company has targeted local consumers, professionals and small businesses as its central clientele; therefore, deposit instruments in the form of demand deposits, savings accounts, money market demand accounts, certificates of deposits and individual retirement accounts are offered to customers. Management believes the Wilson County, Davidson County, DeKalb County, Putnam County, Smith County, Sumner County, Rutherford County, Trousdale County and Williamson County areas are attractive economic markets offering growth opportunities for the Company; however, the Company competes with several larger banks and community banks that have bank offices in these counties which may negatively impact market growth or maintenance of current market share. Even though the Company is in a very competitive market, management currently believes that its market share can be maintained or expanded.
The $594,476,000, or 20.08%, growth in deposits in 2021 was due to a $216,558,000, or 21.99%, increase in money market accounts, a $114,898,000, or 29.36%, increase in demand deposit accounts, a $186,790,000, or 24.22%, increase in NOW accounts, and a $94,450,000, or 46.76%, increase in savings accounts, partially offset by a decrease in certificates of deposits of $14,848,000, or 2.76%, and a decrease in individual retirement accounts of $3,372,000, or 4.60%. The decrease in certificates of deposits and the decrease in individual retirement accounts reflect the reduction in short-term interest rates and a shift in deposits to lower paying transaction and money market accounts. The average rate paid on average total interest-bearing deposits was 0.38% for 2021 compared to 0.70% for 2020. The average rate paid in 2019 was 1.07%. The increase in total deposits since December 31, 2020 is primarily attributable to the government issued economic stimulus relief programs associated with COVID-19 as well as growth in market share which resulted in the opening of new accounts. Deposit growth was also the result of PPP loan proceeds being deposited in the Bank pending use of the funds by the borrower, advance child tax credit payments, and other government stimulus programs. Competitive pressure from other banks in our market area relating to deposit pricing could adversely affect the rates paid on deposit accounts as it limits our ability to lower deposit rates as short-term interest rates fall. It’s these same competitive pressures that may cause our deposit rates to rise more quickly than we are able to increase the rates we earn on loans in a rising rate environment. If either of these scenarios were to happen, our net interest margin would experience compression and our results of operations would be negatively impacted. The ratio of average loans to average deposits was 73.6% in 2021, 83.1% in 2020, and 87.4% in 2019.
The average amounts and average interest rates for deposits for 2021 and 2020 are detailed in the following schedule:
| | | 2021 | | | 2020 | |
| | | Average | | | | | | | Average | | | | | |
| | | Balance | | | | | | | Balance | | | | | |
| | | In | | | Average | | | In | | | Average | |
| | | Thousands | | | Rate | | | Thousands | | | Rate | |
Non-interest bearing deposits | | $ | 445,731 | | | | — | % | | $ | 348,677 | | | | — | % |
Interest-bearing deposits: | | | | | | | | | | | | | | | | |
Negotiable order of withdrawal accounts | | | 852,110 | | | | 0.10 | | | | 669,224 | | | | 0.20 | |
Money market demand accounts | | | 1,079,002 | | | | 0.14 | | | | 881,669 | | | | 0.40 | |
Time deposits | | | 605,162 | | | | 1.26 | | | | 619,387 | | | | 1.77 | |
Other savings | | | 253,265 | | | | 0.19 | | | | 171,849 | | | | 0.39 | |
Total interest-bearing deposits | | | 2,789,539 | | | | 0.38 | % | | | 2,342,129 | | | | 0.70 | % |
Total deposits | | $ | 3,235,270 | | | | 0.33 | % | | $ | 2,690,806 | | | | 0.61 | % |
At December 31, 2021 and 2020, we estimate that we had approximately $1.084 million and $804.6 million, respectively, in uninsured deposits, which are the portion of deposit amounts that exceed the FDIC insurance limit.
The following schedule details the maturities of uninsured time deposits greater than $250,000 at December 31, 2021:
| | | In Thousands | |
Time deposits otherwise uninsured with a maturity of: | | | | |
Three months or less | | $ | 29,811 | |
Over three through six months | | | 19,345 | |
Over six through twelve months | | | 41,969 | |
Over twelve months | | | 42,343 | |
Portion of U.S. time deposits in excess of insurance limit | | $ | 133,468 | |
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Off Balance Sheet Arrangements
At December 31, 2021, the Company had unfunded lines of credit of $1,148 million and outstanding standby letters of credit of $91 million. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. If needed to fund these outstanding commitments, the Company’s bank subsidiary has the ability to access interest-bearing deposits in other financial institutions, liquidate Federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase Federal funds from other financial institutions. Additionally, the Company’s bank subsidiary could sell participations in these or other loans to correspondent banks. As mentioned below, Wilson Bank has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, its investment security maturities, and short-term borrowings.
Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the Company’s operations, the Company is not subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings risk associated with changing interest rates. Management seeks to maintain profitability in both short term and long term earnings through funds management/interest rate risk management. The Company’s rate sensitivity position has an important impact on earnings. Senior management of the Company meets quarterly to analyze the rate sensitivity position. These meetings focus on the spread between the cost of funds and interest yields generated primarily through loans and investments.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Asset Management
The Company’s management seeks to maximize net interest income by managing the Company’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers and fund attractive investment opportunities. Higher levels of liquidity, like those we built up in response to the COVID-19 pandemic, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher interest expense involved in extending liability maturities. Liquid assets include cash, due from banks, interest bearing deposits in other financial institutions and unpledged investment securities. At December 31, 2021, the Company’s liquid assets totaled approximately $985.9 million. Additionally, as of December 31, 2021, the Company had available approximately $99.8 million in unused federal funds lines of credit and, subject to certain restrictions and collateral requirements, approximately $426.3 million of borrowing capacity with the Federal Home Loan Bank of Cincinnati to meet short term funding needs.
The Company maintains a formal asset and liability management process to quantify, monitor and control interest rate risk, and to assist management in maintaining stability in the net interest margin under varying interest rate environments. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines and competitive market conditions.
Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income can not be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.
The Company’s primary source of liquidity is a stable core deposit base. In addition, short-term borrowings, loan payments and investment security maturities provide a secondary source. At December 31, 2021, the Company had a liability sensitive position (a negative gap). Liability sensitivity means that more of the Company’s liabilities are capable of re-pricing over certain time frames than its assets. The interest rates associated with these liabilities may not actually change over this period but are capable of changing. Liability sensitivity generally should lead to an expansion in net interest margin in a declining rate environment, but for that to occur the Bank will need to reprice its deposits more quickly than it reprices rates it earns on loans. Conversely, a rising rate environment could have a short-term negative impact on net interest margin, as deposits would likely re-price faster than assets and rates would need to rise above those loan floors that we have included in certain of our variable rate loans before we begin to see the benefit of rising rates on those loans. Management regularly monitors the deposit rates of the Company’s competitors and these rates continue to put pressure on the Company’s deposit pricing, just as loan pricing pressure from competition within our markets continues to negatively impact loan yields. This pressure could continue to negatively impact the Company’s net interest margin and earnings if short-term rates begin to rise as we anticipate will be the case in 2022 or these competitive pressures limit the Company's ability to lower deposit rates in a declining rate environment. As discussed elsewhere herein, the Bank anticipates that its net interest margin is likely to contract during 2022 because of such competitive pressures in its markets, continued excess on-balance sheet liquidity and the expected short-term impact of the anticipated increases in federal funds rate due to the Company's liability sensitive position.
The Company’s securities portfolio consists of earning assets that provide interest income. Securities classified as available-for-sale include securities intended to be used as part of the Company’s asset/liability strategy and/or securities that may be sold in response to changes in interest rates, prepayment risk, the need or desire to increase capital and similar economic factors. At December 31, 2021, securities totaling approx imately $39.6 million mature or will be subject to rate adjustments within the next twelve months.
A secondary source of liquidity is the Company’s loan portfolio. At December 31, 2021, loans totaling app roximately $784.5 million either will become due or will be subject to rate adjustments within twelve months from that date. Continued emphasis will be placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit and individual retirement accounts of $250,000 or greater totaling approximately $98.9 million will become due or reprice during the next twelve months. Historically, there has been no significant reduction in immediately withdrawable accounts such as negotiable order of withdrawal accounts, money market demand accounts, demand deposit accounts and regular savings accounts. Management anticipates that there will be no significant withdrawals from these accounts in the future.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest Rate Sensitivity Gaps
The following schedule details the Company's interest rate sensitivity gaps for different time periods at December 31, 2021:
| | | Repricing Within | |
(In Thousands) | | Total | | | 0-30 Days | | | 31-90 Days | | | 91-180 Days | | | 181-365 Days | | | Over 1 Year | |
Earning assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net of deferred fees | | $ | 2,483,914 | | | | 372,071 | | | | 59,171 | | | | 106,170 | | | | 247,057 | | | | 1,699,445 | |
Securities | | | 897,585 | | | | 26,113 | | | | 2,507 | | | | 6,055 | | | | 4,878 | | | | 858,032 | |
Loans held for sale | | | 11,843 | | | | — | | | | — | | | | — | | | | — | | | | 11,843 | |
Interest bearing deposits | | | 400,940 | | | | 400,940 | | | | — | | | | — | | | | — | | | | — | |
Federal funds sold | | | 27,055 | | | | 27,055 | | | | — | | | | — | | | | — | | | | — | |
Restricted equity securities | | | 5,089 | | | | 5,089 | | | | — | | | | — | | | | — | | | | — | |
Total earning assets | | | 3,826,426 | | | | 831,268 | | | | 61,678 | | | | 112,225 | | | | 251,935 | | | | 2,569,320 | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Negotiable order of withdrawal accounts | | | 957,985 | | | | 957,985 | | | | — | | | | — | | | | — | | | | — | |
Money market demand accounts | | | 1,201,235 | | | | 1,201,235 | | | | — | | | | — | | | | — | | | | — | |
Individual retirement accounts | | | 70,012 | | | | 4,274 | | | | 8,861 | | | | 9,423 | | | | 15,818 | | | | 31,636 | |
Other savings | | | 296,434 | | | | 296,434 | | | | — | | | | — | | | | — | | | | — | |
Certificates of deposit | | | 523,147 | | | | 33,312 | | | | 63,411 | | | | 76,402 | | | | 127,591 | | | | 222,431 | |
| | | | 3,048,813 | | | | 2,493,240 | | | | 72,272 | | | | 85,825 | | | | 143,409 | | | | 254,067 | |
Interest-sensitivity gap | | $ | 777,613 | | | | (1,661,972 | ) | | | (10,594 | ) | | | 26,400 | | | | 108,526 | | | | 2,315,253 | |
Cumulative gap | | | | | | | (1,661,972 | ) | | | (1,672,566 | ) | | | (1,646,166 | ) | | | (1,537,640 | ) | | | 777,613 | |
Interest-sensitivity gap as % of total assets | | | | | | | (41.7 | )% | | | (0.3 | )% | | | 0.7 | % | | | 2.7 | % | | | 58.1 | % |
Cumulative gap as % of total assets | | | | | | | (41.7 | )% | | | (42.0 | )% | | | (41.3 | )% | | | (38.6 | )% | | | 19.5 | % |
As detailed in the chart, as of December 31, 2021, the Company is forecasted to maintain a liability sensitive position over the next twelve months. However, management expects that liabilities of a demand nature will renew and that it will not be necessary to replace them with significantly higher cost funds.
WILSON BANK HOLDING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Asset Liability Committee meets quarterly to analyze the interest rate shock simulation. The interest rate simulation model is based on a number of assumptions. The assumptions relate primarily to loan and deposit growth, asset and liability prepayments, the call features of investment securities, interest rates and balance sheet management strategies. The Company also uses Economic Value of Equity (“EVE”) sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. The EVE is a longer term view of interest rate risk because it measures the present value of the future cash flows. Presented below is the estimated impact on Wilson Bank’s net interest income and EVE as of December 31, 2021, assuming an immediate shift in interest rates:
| | | % Change from Base Case for Immediate Parallel Changes in Rates | |
| | | -200 BP(1) | | | -100 BP(1) | | | +100 BP | | | +200 BP | | | +300 BP | |
Net interest income | | | (7.62 | )% | | | (4.07 | )% | | | 0.67 | % | | | 1.96 | % | | | 3.14 | % |
EVE | | | (18.26 | ) | | | (8.79 | ) | | | 0.63 | | | | 0.33 | | | | (1.06 | ) |
| (1) Currently, some short term interest rates are below the standard down rate scenarios (100, 200 bps). The asset liability model does not calculate negative interest rates and will floor any index at 0. |
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income or EVE will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. We review each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of our responsibility to seek to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies.
Management believes that with present maturities, the anticipated growth in deposit base, and the efforts of management in its asset/liability management program, liquidity will not pose a problem in the near term future.
Impact of Inflation
Although interest rates are significantly affected by inflation, for the fiscal years ended December 31, 2021, 2020, and 2019, the inflation rate is believed to have had an immaterial impact on the Company’s results of operations. While inflation has increased to date in 2022 and is forecasted to remain at elevated levels through the rest of the year, outside of its potential impact on our customers, we do not expect such increased inflation to have a material impact on our operations in 2022 other than any effect it may have on interest rates. Continued elevated levels of inflation could also negatively impact our non-interest expense.
Capital Resources, Capital Position and Dividends
At December 31, 2021, total stockholders’ equity was $413,717,000, or 10.37% of total assets, which compares with $380,121,000, or 11.28% of total assets, at December 31, 2020, and $336,984,000, or 12.06% of total assets, at December 31, 2019. The dollar increase in the Company’s stockholders’ equity during 2021 reflects (i) net income of $49,426,000 less cash dividends of $1.35 per share totaling $14,909,000, (ii) the issuance of 186,583 shares of common stock for $11,188,000, as reinvestment of cash dividends, (iii) the issuance of 21,517 shares of common stock pursuant to exercise of stock options for $862,000, (iv) the net change in unrealized loss on available-for-sale securities of $13,480,000, and (v) a stock-based compensation expense of $509,000.
For a discussion of the Company's and Wilson Bank's capital levels and required minimum levels of capital each is required to maintain under applicable regulatory requirements see Note 17, Regulatory Matters and Restrictions on Dividends in the notes to the Company's consolidated financial statements appearing elsewhere in this report.
Holding Company & Stock Information
Wilson Bank Holding Company Directors
James Anthony Patton; James F. Comer; J. Randall Clemons; Jack W. Bell; William P. Jordan, Chairman; John C. McDearman III; H. Elmer Richerson; Clinton M. Swain; Michael G. Maynard; and Deborah Varallo.
Common Stock Market Information
The common stock of Wilson Bank Holding Company is not traded on an exchange nor is there a known active trading market. The number of stockholders of record at February 24, 2022 was 4,563. Based solely on information made available to the Company from limited numbers of buyers and sellers, the Company believes that the following table sets forth the quarterly range of sale prices for the Company’s common stock during the years 2020 and 2021.
On January 2, 2020, a $.60 per share cash dividend was declared and on July 1, 2020, a $.60 per share cash dividend was declared and paid to shareholders of record on those dates. On January 1, 2021, a $.60 per share cash dividend was declared and on July 1, 2021, a $.75 per share cash dividend was declared and paid to shareholders of record on those dates. Future dividends will be dependent upon the Company’s profitability, its capital needs, overall financial condition and economic and regulatory considerations.
Stock Prices
2020 | | High | | | Low | |
First Quarter | | $ | 55.75 | | | $ | 54.75 | |
Second Quarter | | $ | 56.75 | | | $ | 54.75 | |
Third Quarter | | $ | 60.00 | * | | $ | 56.75 | |
Fourth Quarter | | $ | 58.75 | | | $ | 56.75 | |
2021 | | High | | | Low | |
First Quarter | | $ | 59.80 | | | $ | 58.75 | |
Second Quarter | | $ | 60.95 | | | $ | 59.80 | |
Third Quarter | | $ | 62.10 | | | $ | 60.95 | |
Fourth Quarter | | $ | 63.25 | | | $ | 62.10 | |
*Represents one transaction of 377 shares during the third quarter of 2020 of which the Company is aware where the sale price were at least $2.25 higher than any other trade during the quarter. The volume weighted average stock price during the third quarter of 2020 was $56.83. |
Annual Meeting and Information Contacts
The Annual Meeting of Shareholders of Wilson Bank Holding Company will be held on Thursday, April 28, 2022 at 6:00 p.m. (CDT) at the Clemons-Richerson Operations Center, located at 105 North Castle Heights Avenue, Lebanon, TN 37087.
For further information concerning Wilson Bank Holding Company or Wilson Bank & Trust, or to obtain a copy of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission, which is available without charge to shareholders, please contact Lisa Pominski, CFO, Wilson Bank & Trust, P.O. Box 768, Lebanon, Tennessee 37088-0768, phone (615) 443-6612.
WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)
| | | In Thousands, Except Per Share Information | |
| | | As Of December 31, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
CONSOLIDATED BALANCE SHEETS: | | | | | | | | | | | | | | | | | | | | |
Total assets end of year | | $ | 3,989,596 | | | | 3,369,604 | | | | 2,794,209 | | | | 2,543,682 | | | | 2,317,033 | |
Loans, net | | $ | 2,444,282 | | | | 2,282,766 | | | | 2,057,175 | | | | 2,016,005 | | | | 1,727,253 | |
Securities | | $ | 897,585 | | | | 580,543 | | | | 421,145 | | | | 285,252 | | | | 365,196 | |
Deposits | | $ | 3,555,071 | | | | 2,960,595 | | | | 2,417,605 | | | | 2,235,655 | | | | 2,037,745 | |
Stockholders’ equity | | $ | 413,717 | | | | 380,121 | | | | 336,984 | | | | 295,667 | | | | 267,730 | |
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
CONSOLIDATED STATEMENTS OF EARNINGS: | | | | | | | | | | | | | | | | | | | | |
Interest income | | $ | 129,841 | | | | 122,968 | | | | 118,077 | | | | 103,525 | | | | 91,020 | |
Interest expense | | | 10,648 | | | | 17,383 | | | | 22,647 | | | | 14,018 | | | | 8,889 | |
Net interest income | | | 119,193 | | | | 105,585 | | | | 95,430 | | | | 89,507 | | | | 82,131 | |
Provision for loan losses | | | 1,143 | | | | 9,696 | | | | 2,040 | | | | 4,298 | | | | 1,681 | |
Net interest income after provision for loan losses | | | 118,050 | | | | 95,889 | | | | 93,390 | | | | 85,209 | | | | 80,450 | |
Non-interest income | | | 37,096 | | | | 33,140 | | | | 28,349 | | | | 25,248 | | | | 22,821 | |
Non-interest expense | | | 90,988 | | | | 80,919 | | | | 74,628 | | | | 69,080 | | | | 60,391 | |
Earnings before income taxes | | | 64,158 | | | | 48,110 | | | | 47,111 | | | | 41,377 | | | | 42,880 | |
Income taxes | | | 14,732 | | | | 9,618 | | | | 11,067 | | | | 8,783 | | | | 19,354 | |
Net earnings | | $ | 49,426 | | | | 38,492 | | | | 36,044 | | | | 32,594 | | | | 23,526 | |
Cash dividends declared | | $ | 14,909 | | | | 13,013 | | | | 11,725 | | | | 9,447 | | | | 6,729 | |
PER SHARE DATA: | | | | | | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 4.44 | | | | 3.52 | | | | 3.36 | | | | 3.09 | | | | 2.26 | |
Diluted earnings per common share | | $ | 4.43 | | | | 3.51 | | | | 3.35 | | | | 3.08 | | | | 2.26 | |
Cash dividends | | $ | 1.35 | | | | 1.20 | | | | 1.10 | | | | 0.90 | | | | 0.65 | |
Book value | | $ | 36.93 | | | | 34.58 | | | | 31.24 | | | | 27.83 | | | | 25.62 | |
RATIOS: | | | | | | | | | | | | | | | | | | | | |
Return on average stockholders’ equity | | | 12.45 | % | | | 10.65 | | | | 11.31 | | | | 11.70 | | | | 9.06 | |
Return on average assets | | | 1.35 | % | | | 1.24 | | | | 1.34 | | | | 1.35 | | | | 1.04 | |
Total capital to assets | | | 10.37 | % | | | 11.28 | | | | 12.06 | | | | 11.62 | | | | 11.55 | |
Dividends declared per share as a percentage of basic earnings per share | | | 30.41 | % | | | 34.09 | | | | 32.74 | | | | 29.13 | | | | 28.76 | |
WILSON BANK HOLDING COMPANY
Consolidated Financial Statements
December 31, 2021 and 2020
(With Independent Auditor’s Report Thereon)
| | Stephen M. Maggart, CPA, ABV, CFF |
| | J. Mark Allen, CPA |
| | Joshua K. Cundiff, CPA |
| | Michael T. Holland, CPA, ABV, CFF |
| | M. Todd Maggart, CPA, ABV, CFF |
| | James M. Moorehead, CPA |
| | P. Jason Ricciardi, CPA, CGMA |
| | David B. von Dohlen, CPA |
| | T. Keith Wilson, CPA, CITP |
| | |
To the Shareholders and the Board of Directors of
Wilson Bank Holding Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Wilson Bank Holding Company (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of earnings, comprehensive earnings, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
1201 DEMONBREUN STREET ▪ SUITE 1220 ▪ NASHVILLE, TENNESSEE 37203-3140 ▪ (615) 252-6100 ▪ Fax ▪ (615) 252-6105
www.maggartpc.com
To the Shareholders and the Board of Directors of
Wilson Bank Holding Company
Page Two
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
Allowance for Loan Losses
Description of the Matter
The Company’s loan portfolio totaled $2.5 billion as of December 31, 2021 and the associated allowance for loan losses (ALL) was $39.6 million. As discussed in Notes 1 and 2 to the consolidated financial statements, the ALL is established to absorb inherent losses that have been incurred within the existing portfolio of loans. Management’s estimate of inherent losses within the loan portfolio is established using quantitative, as well as qualitative, considerations. The Company’s methodology to determine the ALL considers quantitative calculations including: specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans, historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions, and general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to the Company. The Company’s ALL methodology also includes qualitative amounts that include valuation allowances based on general economic conditions and other risk factors to the Company.
Management’s estimate of the ALL involves significant estimates and subjective assumptions, which require a high degree of judgment. The level of the allowance is based upon management's evaluation of the loan portfolio, loan loss experience, asset quality trends, known and inherent risks in the loan portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Changes in these assumptions could have a material effect on the Company’s financial results.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ALL, including the qualitative valuation allowances of the ALL. We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ALL, the accuracy of the calculation of the ALL, management’s review and approval of methodologies used to establish the ALL, analysis of changes in various components of the ALL relative to changes in the Company’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ALL. In doing so, we tested the operating effectiveness of review and approval controls in the Company’s governance process designed to identify and assess the qualitative valuation allowances which is meant to measure inherent loan losses associated with factors not captured fully in the other components of the ALL.
To the Shareholders and the Board of Directors of
Wilson Bank Holding Company
Page Three
To test the reasonableness of the qualitative valuation allowances, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Company to estimate the ALL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ALL, evaluating the appropriateness of assumptions used in estimating the qualitative valuation allowances, analyzing the changes in assumptions and various components of the ALL relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative valuation allowances. For example, specific to the qualitative valuation allowances, we 1) analyzed the changes, assumptions and adjustments made to the qualitative valuation allowances; and 2) evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative valuation allowances. We also evaluated the data and information utilized by management to estimate the qualitative valuation allowances by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management. In addition, we evaluated the overall ALL amount, inclusive of the adjustments for the qualitative valuation allowances, and whether the amount appropriately reflects losses incurred in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether they corroborate or contradict the Company’s conclusion.
/s/ MAGGART & ASSOCIATES, P.C.
We have served as the Company’s auditor since 1987.
Nashville, Tennessee (PCAOB 763)
March 4, 2022
| | Stephen M. Maggart, CPA, ABV, CFF |
| | J. Mark Allen, CPA |
| | Joshua K. Cundiff, CPA |
| | Michael T. Holland, CPA, ABV, CFF |
| | M. Todd Maggart, CPA, ABV, CFF |
| | James M. Moorehead, CPA |
| | P. Jason Ricciardi, CPA, CGMA |
| | David B. von Dohlen, CPA |
| | T. Keith Wilson, CPA, CITP |
| | |
To the Shareholders and the Board of Directors of
Wilson Bank Holding Company
Opinion on Internal Control over Financial Reporting
We have audited Wilson Bank Holding Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wilson Bank Holding Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, and the related consolidated statements of earnings, comprehensive earnings, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
1201 DEMONBREUN STREET ▪ SUITE 1220 ▪ NASHVILLE, TENNESSEE 37203-3140 ▪ (615) 252-6100 ▪ Fax ▪ (615) 252-6105
www.maggartpc.com
To the Shareholders and the Board of Directors of
Wilson Bank Holding Company
Page Two
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ MAGGART & ASSOCIATES, P.C.
Nashville, Tennessee (PCAOB 763)
March 4, 2022
WILSON BANK HOLDING COMPANY
Consolidated Balance Sheets
December 31, 2021 and 2020
| | | Dollars in thousands | |
| | | 2021 | | | 2020 | |
ASSETS | | | | | | | | |
| | | | | | | | | |
Loans, net of allowance for loan losses of $39,632 and $38,539, respectively | | $ | 2,444,282 | | | | 2,282,766 | |
Available-for-sale securities, at market (amortized cost $906,135 and $570,842, respectively) | | | 897,585 | | | | 580,543 | |
Loans held for sale | | | 11,843 | | | | 19,474 | |
Interest bearing deposits | | | 400,940 | | | | 304,750 | |
Federal funds sold | | | 27,055 | | | | 675 | |
Restricted equity securities, at cost | | | 5,089 | | | | 5,089 | |
Total earning assets | | | 3,786,794 | | | | 3,193,297 | |
Cash and due from banks | | | 25,423 | | | | 33,431 | |
Premises and equipment, net | | | 62,846 | | | | 58,202 | |
Accrued interest receivable | | | 7,641 | | | | 7,516 | |
Deferred income taxes | | | 12,792 | | | | 7,089 | |
Bank owned life insurance | | | 46,206 | | | | 35,197 | |
Goodwill | | | 4,805 | | | | 4,805 | |
Other assets | | | 43,089 | | | | 30,067 | |
Total assets | | $ | 3,989,596 | | | | 3,369,604 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Deposits | | $ | 3,555,071 | | | | 2,960,595 | |
Federal Home Loan Bank advances | | | 0 | | | | 3,638 | |
Accrued interest and other liabilities | | | 20,808 | | | | 25,250 | |
Total liabilities | | | 3,575,879 | | | | 2,989,483 | |
Stockholders’ equity: | | | | | | | | |
Common stock, par value $2.00 per share, authorized 50,000,000 shares, 11,201,504 and 10,993,404 shares issued and outstanding, respectively | | | 22,403 | | | | 21,987 | |
Additional paid-in capital | | | 105,177 | | | | 93,034 | |
Retained earnings | | | 292,452 | | | | 257,935 | |
Net unrealized gains (losses) on available-for-sale securities, net of taxes of $2,235 and $2,536, respectively | | | (6,315 | ) | | | 7,165 | |
Total stockholders’ equity | | | 413,717 | | | | 380,121 | |
Total liabilities and stockholders’ equity | | $ | 3,989,596 | | | | 3,369,604 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Consolidated Statements of Earnings
Three Years Ended December 31, 2021
| | | Dollars In Thousands (except per share data) | |
| | | 2021 | | | 2020 | | | 2019 | |
Interest income: | | | | | | | | | | | | |
Interest and fees on loans | | $ | 118,676 | | | | 113,224 | | | | 105,783 | |
Interest and dividends on securities: | | | | | | | | | | | | |
Taxable securities | | | 8,922 | | | | 7,272 | | | | 8,559 | |
Exempt from Federal income taxes | | | 1,229 | | | | 1,102 | | | | 773 | |
Interest on loans held for sale | | | 438 | | | | 616 | | | | 325 | |
Interest on Federal funds sold | | | 13 | | | | 56 | | | | 275 | |
Interest on interest bearing deposits | | | 445 | | | | 582 | | | | 2,164 | |
Interest and dividends on restricted equity securities | | | 118 | | | | 116 | | | | 198 | |
Total interest income | | | 129,841 | | | | 122,968 | | | | 118,077 | |
Interest expense: | | | | | | | | | | | | |
Interest on negotiable order of withdrawal accounts | | | 878 | | | | 1,314 | | | | 2,311 | |
Interest on money market accounts and other savings accounts | | | 2,027 | | | | 4,163 | | | | 6,855 | |
Interest on certificates of deposit and individual retirement accounts | | | 7,610 | | | | 10,939 | | | | 12,896 | |
Interest on Federal funds purchased | | | 0 | | | | 0 | | | | 4 | |
Interest on Federal Home Loan Bank advances | | | 133 | | | | 967 | | | | 581 | |
Total interest expense | | | 10,648 | | | | 17,383 | | | | 22,647 | |
Net interest income before provision for loan losses | | | 119,193 | | | | 105,585 | | | | 95,430 | |
Provision for loan losses | | | 1,143 | | | | 9,696 | | | | 2,040 | |
Net interest income after provision for loan losses | | | 118,050 | | | | 95,889 | | | | 93,390 | |
Non-interest income | | | 37,096 | | | | 33,140 | | | | 28,349 | |
Non-interest expense | | | 90,988 | | | | 80,919 | | | | 74,628 | |
Earnings before income taxes | | | 64,158 | | | | 48,110 | | | | 47,111 | |
Income taxes | | | 14,732 | | | | 9,618 | | | | 11,067 | |
Net earnings | | $ | 49,426 | | | | 38,492 | | | | 36,044 | |
Basic earnings per common share | | $ | 4.44 | | | | 3.52 | | | | 3.36 | |
Diluted earnings per common share | | $ | 4.43 | | | | 3.51 | | | | 3.35 | |
Weighted average common shares outstanding: | | | | | | | | | | | | |
Basic | | | 11,131,897 | | | | 10,927,065 | | | | 10,743,269 | |
Diluted | | | 11,162,956 | | | | 10,953,746 | | | | 10,761,467 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Consolidated Statements of Comprehensive Earnings
Three Years Ended December 31, 2021
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Net earnings | | $ | 49,426 | | | | 38,492 | | | | 36,044 | |
Other comprehensive earnings (losses): | | | | | | | | | | | | |
Unrealized gains (losses) on available-for-sale securities | | | (18,223 | ) | | | 9,645 | | | | 11,101 | |
Reclassification adjustment for net losses (gains) included in net earnings | | | (28 | ) | | | (882 | ) | | | 268 | |
Tax effect | | | 4,771 | | | | (2,291 | ) | | | (2,971 | ) |
Other comprehensive earnings (losses) | | | (13,480 | ) | | | 6,472 | | | | 8,398 | |
Comprehensive earnings | | $ | 35,946 | | | | 44,964 | | | | 44,442 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Consolidated Statements of Changes in Stockholders’ Equity
Three Years Ended December 31, 2021
| | | Dollars In Thousands | |
| | | Common Stock | | | Additional Paid In Capital | | | Retained Earnings | | | Net Unrealized Gain (Loss) On Available For Sale Securities | | | Total | |
Balance December 31, 2018 | | $ | 21,248 | | | | 73,960 | | | | 208,164 | | | | (7,705 | ) | | | 295,667 | |
Cash dividends declared, $1.10 per share | | | 0 | | | | 0 | | | | (11,725 | ) | | | 0 | | | | (11,725 | ) |
Issuance of 179,199 shares of common stock pursuant to dividend reinvestment plan | | | 358 | | | | 8,776 | | | | 0 | | | | 0 | | | | 9,134 | |
Issuance of 21,764 shares of common stock pursuant to exercise of stock options | | | 44 | | | | 731 | | | | 0 | | | | 0 | | | | 775 | |
Share based compensation expense | | | 0 | | | | 347 | | | | 0 | | | | 0 | | | | 347 | |
Net change in fair value of available-for-sale securities during the year, net of taxes of $(2,971) | | | 0 | | | | 0 | | | | 0 | | | | 8,398 | | | | 8,398 | |
Reclassification adjustment for the adoption of lease standard | | | 0 | | | | 0 | | | | (27 | ) | | | 0 | | | | (27 | ) |
Repurchase of 31,774 common shares | | | (64 | ) | | | (1,565 | ) | | | 0 | | | | 0 | | | | (1,629 | ) |
Net earnings for the year | | | 0 | | | | 0 | | | | 36,044 | | | | 0 | | | | 36,044 | |
Balance December 31, 2019 | | | 21,586 | | | | 82,249 | | | | 232,456 | | | | 693 | | | | 336,984 | |
Cash dividends declared, $1.20 per share | | | 0 | | | | 0 | | | | (13,013 | ) | | | 0 | | | | (13,013 | ) |
Issuance of 180,424 shares of common stock pursuant to dividend reinvestment plan | | | 361 | | | | 9,695 | | | | 0 | | | | 0 | | | | 10,056 | |
Issuance of 19,981 shares of common stock pursuant to exercise of stock options | | | 40 | | | | 678 | | | | 0 | | | | 0 | | | | 718 | |
Share based compensation expense | | | 0 | | | | 412 | | | | 0 | | | | 0 | | | | 412 | |
Net change in fair value of available-for-sale securities during the year, net of taxes of $(2,291) | | | 0 | | | | 0 | | | | 0 | | | | 6,472 | | | | 6,472 | |
Net earnings for the year | | | 0 | | | | 0 | | | | 38,492 | | | | 0 | | | | 38,492 | |
Balance December 31, 2020 | | | 21,987 | | | | 93,034 | | | | 257,935 | | | | 7,165 | | | | 380,121 | |
Cash dividends declared, $1.35 per share | | | 0 | | | | 0 | | | | (14,909 | ) | | | 0 | | | | (14,909 | ) |
Issuance of 186,583 shares of common stock pursuant to dividend reinvestment plan | | | 373 | | | | 10,815 | | | | 0 | | | | 0 | | | | 11,188 | |
Issuance of 21,517 shares of common stock pursuant to exercise of stock options | | | 43 | | | | 819 | | | | 0 | | | | 0 | | | | 862 | |
Share based compensation expense | | | 0 | | | | 509 | | | | 0 | | | | 0 | | | | 509 | |
Net change in fair value of available-for-sale securities during the year, net of taxes of $4,771 | | | 0 | | | | 0 | | | | 0 | | | | (13,480 | ) | | | (13,480 | ) |
Net earnings for the year | | | 0 | | | | 0 | | | | 49,426 | | | | 0 | | | | 49,426 | |
Balance December 31, 2021 | | $ | 22,403 | | | | 105,177 | | | | 292,452 | | | | (6,315 | ) | | | 413,717 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows
Three Years Ended December 31, 2021
Increase (Decrease) in Cash and Cash Equivalents
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Consolidated net income | | $ | 49,426 | | | $ | 38,492 | | | $ | 36,044 | |
Adjustments to reconcile consolidated net income to net cash provided by operating activities | | | | | | | | | | | | |
Provision for loan losses | | | 1,143 | | | | 9,696 | | | | 2,040 | |
Deferred income taxes provision | | | (932 | ) | | | (3,304 | ) | | | (478 | ) |
Depreciation and amortization of premises and equipment | | | 4,235 | | | | 4,250 | | | | 3,984 | |
Loss on disposal of premises and equipment | | | 43 | | | | 63 | | | | 128 | |
Net amortization of securities | | | 5,377 | | | | 4,588 | | | | 2,510 | |
Net realized losses (gains) on sales of securities | | | (28 | ) | | | (882 | ) | | | 268 | |
Gains on mortgage loans sold, net | | | (9,997 | ) | | | (9,560 | ) | | | (6,802 | ) |
Stock-based compensation expense | | | 1,428 | | | | 1,180 | | | | 786 | |
Loss (gain) on other real estate | | | 15 | | | | (658 | ) | | | 48 | |
Loss (gain) on sale of repossessed assets | | | (6 | ) | | | 4 | | | | 4 | |
Increase in value of life insurance and annuity contracts | | | (1,109 | ) | | | (959 | ) | | | (723 | ) |
Mortgage loans originated for resale | | | (215,813 | ) | | | (213,483 | ) | | | (160,921 | ) |
Proceeds from sale of mortgage loans | | | 233,441 | | | | 221,748 | | | | 157,028 | |
Gain on lease modification | | | 0 | | | | (29 | ) | | | 0 | |
Right of use asset amortization | | | 387 | | | | 376 | | | | 268 | |
Change in | | | | | | | | | | | | |
Accrued interest receivable | | | (125 | ) | | | (1,571 | ) | | | 779 | |
Other assets | | | (4,458 | ) | | | (805 | ) | | | 258 | |
Accrued interest payable | | | (1,458 | ) | | | (763 | ) | | | 682 | |
Other liabilities | | | (121 | ) | | | 1,855 | | | | 443 | |
TOTAL ADJUSTMENTS | | | 12,022 | | | | 11,746 | | | | 302 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | | | 61,448 | | | | 50,238 | | | | 36,346 | |
INVESTING ACTIVITIES | | | | | | | | | | | | |
Activities in available for sale securities | | | | | | | | | | | | |
Purchases | | | (530,155 | ) | | | (409,996 | ) | | | (255,432 | ) |
Sales | | | 39,652 | | | | 54,870 | | | | 37,325 | |
Maturities, prepayments and calls | | | 149,861 | | | | 200,785 | | | | 90,805 | |
Purchase of restricted equity securities | | | 0 | | | | (409 | ) | | | (1,668 | ) |
Net increase in loans | | | (164,095 | ) | | | (236,411 | ) | | | (43,568 | ) |
Purchase of buildings, leasehold improvements, and equipment | | | (8,922 | ) | | | (2,220 | ) | | | (6,044 | ) |
Proceeds from sale of other assets | | | 109 | | | | 9 | | | | 14 | |
Proceeds from sale of other real estate | | | 167 | | | | 2,307 | | | | 952 | |
Purchase of life insurance and annuity contracts | | | (15,079 | ) | | | (6,687 | ) | | | 0 | |
Increase in other investments | | | (2,000 | ) | | | 0 | | | | 0 | |
NET CASH USED IN INVESTING ACTIVITIES | | | (530,462 | ) | | | (397,752 | ) | | | (177,616 | ) |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Net change in deposits - non-maturing | | | 612,696 | | | | 563,605 | | | | 163,721 | |
Net change in deposits - time | | | (18,220 | ) | | | (20,615 | ) | | | 18,229 | |
Net change in Federal Home Loan Bank Advances | | | (3,638 | ) | | | (19,975 | ) | | | 23,613 | |
Change in escrow balances | | | (4,403 | ) | | | 5,824 | | | | (269 | ) |
Issuance of common stock related to exercise of stock options | | | 862 | | | | 718 | | | | 775 | |
Issuance of common stock pursuant to dividend reinvestment plan | | | 11,188 | | | | 10,056 | | | | 9,134 | |
Repurchase of common stock | | | 0 | | | | 0 | | | | (1,629 | ) |
Cash dividends paid on common stock | | | (14,909 | ) | | | (13,013 | ) | | | (11,725 | ) |
NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 583,576 | | | | 526,600 | | | | 201,849 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | | | 114,562 | | | | 179,086 | | | | 60,579 | |
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR | | | 338,856 | | | | 159,770 | | | | 99,191 | |
CASH AND CASH EQUIVALENTS - END OF YEAR | | $ | 453,418 | | | $ | 338,856 | | | $ | 159,770 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Consolidated Statements of Cash Flows, Continued
Three Years Ended December 31, 2021
Increase (Decrease) in Cash and Cash Equivalents
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | 12,106 | | | $ | 18,146 | | | $ | 21,965 | |
Taxes | | $ | 16,827 | | | $ | 13,156 | | | $ | 11,731 | |
Non-cash investing and financing activities: | | | | | | | | | | | | |
Change in fair value of securities available-for-sale, net of taxes of $4,771 in 2021, $(2,291) in 2020, and $(2,971) in 2019 | | $ | (13,480 | ) | | $ | 6,472 | | | $ | 8,398 | |
Non-cash transfers from loans to other real estate | | $ | 182 | | | $ | 992 | | | $ | 884 | |
Non-cash transfers from other real estate to loans | | $ | 0 | | | $ | 40 | | | $ | 544 | |
Non-cash transfers from loans to other assets | | $ | 129 | | | $ | 14 | | | $ | 18 | |
See accompanying notes to consolidated financial statements.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
(1) | Summary of Significant Accounting Policies |
The accounting and reporting policies of Wilson Bank Holding Company (“the Company”) and its wholly owned subsidiary, Wilson Bank & Trust (“Wilson Bank” or "the Bank"), are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. The following is a brief summary of the significant policies.
(a) | Principles of Consolidation |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Wilson Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
Wilson Bank operates under a state bank charter and provides full banking services. As a Tennessee state-chartered bank that is not a member of the Federal Reserve, Wilson Bank is subject to regulations of the Tennessee Department of Financial Institutions and the Federal Deposit Insurance Corporation (“FDIC”). The areas served by Wilson Bank include Wilson County, DeKalb County, Rutherford County, Smith County, Trousdale County, Putnam County, Sumner County, Davidson County and Williamson County, Tennessee and surrounding counties in Middle Tennessee. Services are provided at the main office and twenty-seven branch locations.
In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets and other real estate, other-than-temporary impairments of securities, and the fair value of financial instruments.
| (d) | Significant Group Concentrations of Credit Risk |
Most of the Company’s activities are with customers located within Middle Tennessee. The types of securities in which the Company invests are described in note 3. The types of lending in which the Company engages are described in note 2. The Company does not have any significant concentrations to any one industry or customer other than as disclosed in note 2.
Residential 1-4 family, commercial real estate and construction mortgage loans, represented 27%, 35% and 24% and 23%, 36% and 21% of the loan portfolio at December 31, 2021 and 2020, respectively.
The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout Middle Tennessee. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for unearned income, the allowance for loan losses, and any unamortized deferred fees or costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized on a straight line basis over the respective term of the loan.
As part of its routine credit monitoring process, the Company performs regular credit reviews of the loan portfolio and loans receive risk ratings by the assigned credit officer, which are subject to validation by the Company's independent loan review department. Risk ratings are categorized as pass, special mention, substandard or doubtful. The Company believes that its categories follow those outlined by the FDIC, Wilson Bank's primary federal regulator.
Generally the accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than when they become 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements
December 31, 2021, 2020 and 2019
| (f) | Allowance for Loan Losses |
Management provides for loan losses by establishing an allowance. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s quarterly review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, independent loan reviewers, and reviews that may have been conducted by third-party reviewers. We incorporate relevant loan review results in the loan impairment determination. In addition, regulatory agencies, as an integral part of their examination process, will periodically review the Company’s allowance for loan losses and may require the Company to record adjustments to the allowance based on their judgment about information available to them at the time of their examinations.
In addition to the independent loan review process, the aforementioned risk ratings are subject to continual review by loan officers to determine that the appropriate risk ratings are being utilized in our allowance for loan loss process. Each risk rating is also subject to review by our independent loan review department. Currently, our independent loan review department targets reviews of 100% of existing loan relationships with aggregate debt of $2.0 million and greater and new loans with aggregate debt of $500,000 and greater. In addition, our independent loan review department periodically targets particular portfolio segments, loans assigned to a particular lending officer, past due loans, and loans with four or more renewals.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are individually classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience, historical loan loss factors, loss experience of various loan segments, and other adjustments based on management’s assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, mortgage and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower. All other loans and troubled debt restructurings over $500,000 and $100,000, respectively are individually evaluated for impairment.
Troubled debt restructurings greater than $100,000 are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio segment.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| (g) | Debt and Equity Securities |
Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held-to-maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value based on available market prices, with unrealized gains and losses excluded from earnings and reported in other comprehensive income on an after-tax basis. Securities classified as “available-for-sale” are held for indefinite periods of time and may be sold in response to movements in market interest rates, changes in the maturity or mix of Company assets and liabilities or demand for liquidity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
Other-than-temporary Impairment—Impaired securities are assessed quarterly for the presence of other-than-temporary impairment (“OTTI”). A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) Wilson Bank’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not “more-likely-than-not” that the Company will be required to sell the security before the recovery of the security’s cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity.
No securities have been classified as trading securities or held-to-maturity securities at December 31, 2021 or 2020.
Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
| (i) | Transfers of Financial Assets |
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
| (j) | Federal Home Loan Bank Stock |
The Company, as a member of the Federal Home Loan Bank (“FHLB”) Cincinnati system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at par value, which approximates its fair value. Management reviews the investment for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. As of December 31, 2021, this minimum required investment was valued at approximately $3.4 million. Stock redemptions are at the discretion of the FHLB.
Mortgage loans held for sale are carried at fair value. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
| (l) | Premises and Equipment |
Premises and equipment are stated at cost. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the related assets ranging from 3 to 40 years. Gains or losses realized on items retired and otherwise disposed of are credited or charged to operations and cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts.
Expenditures for major renovations and improvements of premises and equipment are capitalized and those for maintenance and repairs are charged to earnings as incurred.
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less the estimated cost to sell at the date the Company acquires the property, establishing a new cost basis. Subsequent to their acquisition by the Company, valuations of these assets are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance [i.e. any direct write-downs] are included within non-interest expense.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| (n) | Goodwill and Intangible Assets |
The Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 350, Goodwill and Other Intangible Assets requires that management determine the allocation of intangible assets into identifiable groups at the date of acquisition and that appropriate amortization periods be established. Under the provisions of FASB ASC 350, goodwill is not to be amortized; rather, it is to be monitored for impairment and written down to the impairment value at the time impairment occurs. The Company determined that no impairment loss needed to be recognized related to its goodwill at December 31, 2021 and December 31, 2020.
| (o) | Cash and Cash Equivalents |
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, interest-bearing deposits with maturities fewer than 90 days, amounts due from banks and Federal funds sold. Generally, Federal funds sold are purchased and sold for one day periods. Management makes deposits only with financial institutions it considers to be financially sound.
Premises and equipment, intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
| (q) | Bank Owned Life Insurance |
The Bank has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
The Company accounts for Income Taxes in accordance with income tax accounting guidance (FASB ASC 740, Income Taxes). The Company follows accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.
The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term "more-likely-than-not" means a likelihood of more than 50 percent. The terms "examined" and "upon examination" also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest rate on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on sale of mortgage loans.
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| (t) | Equity-Based Incentives |
Stock compensation accounting guidance (FASB ASC 718, “Compensation—Stock Compensation”) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, cash-settled stock appreciation rights (SARs), and employee share purchase plans. Because cash-settled SARs do not give the grantee the choice of receiving stock, all cash-settled SARs are accounted for as liabilities, not equity, as compensation is accrued over the requisite service period.
The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and cash-settled SARs.
Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.
Advertising costs are expensed as incurred by the Company and totaled $2,736,000, $2,487,000 and $2,498,000 for 2021, 2020 and 2019, respectively.
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, net of taxes, which are also recognized as separate components of equity.
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.
Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
Management analyzes the operations of the Company assuming 1 operating segment, community lending services.
| (bb) | Fair Value of Financial Instruments |
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22 - Disclosures About Fair Value of Financial Instruments of the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Certain reclassifications have been made to the 2020 and 2019 figures to conform to the presentation for 2021.
| (dd) | Off-Balance-Sheet Financial Instruments |
In the ordinary course of business, Wilson Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| (ee) | Accounting Standard Updates |
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 along with several other subsequent codification updates related to accounting for credit losses, 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 was originally to become effective for the Company on January 1, 2020. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security ("CARES") Act. The law contains several provisions applicable to companies like the Company. Among others, it gives lenders, including the Company, the option to defer the implementation of ASU 2016-13, which is known as the Current Expected Credit Losses (CECL) standard, until 60 days after the declaration of the end of the public health emergency related to the COVID-19 pandemic or December 31, 2020, whichever comes first. On December 27, 2020, President Trump signed into law the Coronavirus Response and Relief Supplemental Appropriations Act. The law contains several provisions applicable to companies like the Company. Among them, it gives lenders, including the Company, the option to further defer the implementation of ASU 2016-13, until the fiscal year beginning after January 1, 2022. In addition, the Securities and Exchange Commission (SEC) staff has stated that opting to delay the implementation of CECL shall be considered to be in accordance with U.S. GAAP. As a result, the Company has elected to delay implementation of CECL until January 1, 2022.
We currently believe the adoption of ASU 2016-13 would have resulted in an approximately 2 - 6% increase in our allowance for loan losses as of January 1, 2020. That estimated increase is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. As of December 31, 2021, we currently believe the adoption of ASU 2016-13 would have resulted in a slight increase in our allowance for loan losses over the level recorded at December 31, 2021.
Prior to the CARES Act being signed and the Company’s decision to delay the implementation of CECL, the Company was completing its CECL implementation plan with a cross-functional working group, under the direction of the Chief Credit Officer along with our Chief Financial Officer. The working group also included individuals from various functional areas including credit, risk management, accounting and information technology, among others. The Company’s implementation plan included assessment and documentation of processes, internal controls and data sources; model development, documentation and validation; and system configuration, among other things. The Company contracted with a third-party vendor to assist it in the implementation of CECL. Implementation efforts have been finalized and controls and processes are in place. The ultimate impact of the adoption of ASU 2016-13 could differ from our current expectation. Furthermore, ASU 2016- 13 will necessitate that we establish an allowance for expected credit losses for available-for-sale securities and other financial assets and it also applies to off-balance sheet credit exposure like loan commitments and other investments; however, we do not expect these allowances to be significant. Pursuant to an interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company has the option to phase in over a three-year period the transition adjustments to capital resulting from the adoption of CECL for regulatory capital purposes. If adopted, the cumulative amount of the transition adjustments will become fixed at the start of the three-year period, and will be phased out of the regulatory capital calculations evenly over such period, with 75% recognized in year one, 50% recognized in year two, and 25% recognized in year three. The Company will not need to take advantage of this option. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.
ASU 2020-4, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-4 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-4 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020- 4 did not significantly impact our financial statements.
ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.” ASU 2020-08 clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU 2020-8 was effective for us on January 1, 2021 and did not have a significant impact on our financial statements.
ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not significantly impact our financial statements.
Other than those previously discussed, there were no other recently issued accounting pronouncements that are expected to materially impact the Company.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(2) | Loans and Allowance for Loan Losses |
The classification of loans at December 31, 2021 and 2020 is as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Mortgage loans on real estate: | | | | | | | | |
Residential 1-4 family | | $ | 679,536 | | | | 535,994 | |
Multifamily | | | 29,300 | | | | 111,646 | |
Commercial | | | 879,373 | | | | 837,766 | |
Construction | | | 603,292 | | | | 488,626 | |
Farmland | | | 9,367 | | | | 15,429 | |
Second mortgages | | | 10,043 | | | | 8,433 | |
Equity lines of credit | | | 92,229 | | | | 78,889 | |
Total mortgage loans on real estate | | | 2,303,140 | | | | 2,076,783 | |
Commercial loans | | | 116,717 | | | | 172,811 | |
Agricultural loans | | | 1,438 | | | | 1,206 | |
Consumer installment loans: | | | | | | | | |
Personal | | | 59,513 | | | | 66,193 | |
Credit cards | | | 5,281 | | | | 4,324 | |
Total consumer installment loans | | | 64,794 | | | | 70,517 | |
Other loans | | | 9,849 | | | | 9,283 | |
| | | | 2,495,938 | | | | 2,330,600 | |
Net deferred loan fees | | | (12,024 | ) | | | (9,295 | ) |
Total loans | | | 2,483,914 | | | | 2,321,305 | |
Less: Allowance for loan losses | | | (39,632 | ) | | | (38,539 | ) |
Loans, net | | $ | 2,444,282 | | | | 2,282,766 | |
At December 31, 2021, variable rate and fixed rate loans totaled $1,916,960,000 and $578,978,000, respectively. At December 31, 2020, variable rate and fixed rate loans totaled $1,777,303,000 and $553,297,000, respectively.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Risk characteristics relevant to each portfolio segment are as follows:
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
1-4 family residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value (LTV), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans (which are discussed below), in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
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. Also included in this category are PPP loans guaranteed by the SBA, which totaled $5.0 million at December 31, 2021. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporates a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The following tables present the Company’s nonaccrual loans, credit quality indicators and past due loans as of December 31, 2021 and 2020.
Loans on Nonaccrual Status
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Residential 1-4 family | | $ | 0 | | | | 1,022 | |
Multifamily | | | 0 | | | | 0 | |
Commercial real estate | | | 0 | | | | 311 | |
Construction | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | |
Total | | $ | 0 | | | | 1,333 | |
At December 31, 2021, the Company had 0 impaired loans on non-accruing interest status. At December 31, 2020, the Company had two impaired loans totaling $1,333,000 that 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.
The impact on net interest income for these loans was not material to the Company’s results of operations for the years ended December 31, 2021, 2020 and 2019.
Potential problem loans, which include nonperforming loans, amounted to approximately $7.7 million at December 31, 2021 compared to $8.2 million at December 31, 2020. Potential problem loans represent those loans with a well defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, the Company’s primary federal regulator, for loans classified as special mention, substandard, or doubtful, excluding the impact of nonperforming loans.
The following table presents our loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:
| | • | Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. |
| | | |
| | • | Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. |
| | | |
| | • | Doubtful loans have all the characteristics of substandard loans with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loans on nonaccrual status. |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Credit Quality Indicators
The following table presents loan balances classified within each risk rating category by primary loan type as of December 31, 2021 and December 31, 2020.
| | | In Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agricultural, | | | | | |
| | | Residential 1-4 | | | | | | | Commercial | | | | | | | | | | | Second | | | Equity Lines | | | | | | | Installment and | | | | | |
| | | Family | | | Multifamily | | | Real Estate | | | Construction | | | Farmland | | | Mortgages | | | of Credit | | | Commercial | | | Other | | | Total | |
Credit Risk Profile by Internally Assigned Grade | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 672,676 | | | | 29,300 | | | | 879,109 | | | | 603,267 | | | | 9,270 | | | | 9,851 | | | | 92,208 | | | | 116,668 | | | | 75,903 | | | | 2,488,252 | |
Special mention | | | 5,405 | | | | 0 | | | | 0 | | | | 25 | | | | 68 | | | | 161 | | | | 11 | | | | 49 | | | | 136 | | | | 5,855 | |
Substandard | | | 1,455 | | | | 0 | | | | 264 | | | | 0 | | | | 29 | | | | 31 | | | | 10 | | | | 0 | | | | 42 | | | | 1,831 | |
Total | | $ | 679,536 | | | | 29,300 | | | | 879,373 | | | | 603,292 | | | | 9,367 | | | | 10,043 | | | | 92,229 | | | | 116,717 | | | | 76,081 | | | | 2,495,938 | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 529,546 | | | | 111,646 | | | | 837,028 | | | | 488,571 | | | | 15,301 | | | | 8,148 | | | | 78,565 | | | | 172,779 | | | | 80,770 | | | | 2,322,354 | |
Special mention | | | 2,745 | | | | 0 | | | | 149 | | | | 27 | | | | 79 | | | | 169 | | | | 314 | | | | 0 | | | | 156 | | | | 3,639 | |
Substandard | | | 3,703 | | | | 0 | | | | 589 | | | | 28 | | | | 49 | | | | 116 | | | | 10 | | | | 32 | | | | 80 | | | | 4,607 | |
Total | | $ | 535,994 | | | | 111,646 | | | | 837,766 | | | | 488,626 | | | | 15,429 | | | | 8,433 | | | | 78,889 | | | | 172,811 | | | | 81,006 | | | | 2,330,600 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Age Analysis of Past Due Loans
| | | In Thousands | |
| | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | Nonaccrual and Greater Than 90 Days | | | Total Nonaccrual and Past Due | | | Current | | | Total Loans | | | Recorded Investment Greater Than 90 Days and Accruing | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 1,951 | | | | 169 | | | | 357 | | | | 2,477 | | | | 677,059 | | | | 679,536 | | | $ | 357 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 29,300 | | | | 29,300 | | | | 0 | |
Commercial real estate | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 879,373 | | | | 879,373 | | | | 0 | |
Construction | | | 1,154 | | | | 215 | | | | 0 | | | | 1,369 | | | | 601,923 | | | | 603,292 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 9,367 | | | | 9,367 | | | | 0 | |
Second mortgages | | | 121 | | | | 0 | | | | 0 | | | | 121 | | | | 9,922 | | | | 10,043 | | | | 0 | |
Equity lines of credit | | | 170 | | | | 0 | | | | 9 | | | | 179 | | | | 92,050 | | | | 92,229 | | | | 9 | |
Commercial | | | 58 | | | | 81 | | | | 0 | | | | 139 | | | | 116,578 | | | | 116,717 | | | | 0 | |
Agricultural, installment and other | | | 288 | | | | 99 | | | | 23 | | | | 410 | | | | 75,671 | | | | 76,081 | | | | 23 | |
Total | | $ | 3,742 | | | | 564 | | | | 389 | | | | 4,695 | | | | 2,491,243 | | | | 2,495,938 | | | $ | 389 | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 2,634 | | | | 511 | | | | 1,818 | | | | 4,963 | | | | 531,031 | | | | 535,994 | | | $ | 796 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 111,646 | | | | 111,646 | | | | 0 | |
Commercial real estate | | | 0 | | | | 0 | | | | 460 | | | | 460 | | | | 837,306 | | | | 837,766 | | | | 149 | |
Construction | | | 768 | | | | 0 | | | | 44 | | | | 812 | | | | 487,814 | | | | 488,626 | | | | 44 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 15,429 | | | | 15,429 | | | | 0 | |
Second mortgages | | | 265 | | | | 0 | | | | 0 | | | | 265 | | | | 8,168 | | | | 8,433 | | | | 0 | |
Equity lines of credit | | | 31 | | | | 302 | | | | 0 | | | | 333 | | | | 78,556 | | | | 78,889 | | | | 0 | |
Commercial | | | 114 | | | | 104 | | | | 0 | | | | 218 | | | | 172,593 | | | | 172,811 | | | | 0 | |
Agricultural, installment and other | | | 363 | | | | 81 | | | | 60 | | | | 504 | | | | 80,502 | | | | 81,006 | | | | 60 | |
Total | | $ | 4,175 | | | | 998 | | | | 2,382 | | | | 7,555 | | | | 2,323,045 | | | | 2,330,600 | | | $ | 1,049 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Transactions in the allowance for loan losses for the years ended December 31, 2021 and 2020 are summarized as follows:
| | | In Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agricultural, | | | | | |
| | | Residential 1-4 | | | | | | | Commercial | | | | | | | | | | | Second | | | Equity Lines | | | | | | | Installment and | | | | | |
| | | Family | | | Multifamily | | | Real Estate | | | Construction | | | Farmland | | | Mortgages | | | of Credit | | | Commercial | | | Other | | | Total | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 8,098 | | | | 1,541 | | | | 16,802 | | | | 7,936 | | | | 154 | | | | 105 | | | | 997 | | | | 1,378 | | | | 1,528 | | | | 38,539 | |
Provision | | | 958 | | | | (1,145 | ) | | | (352 | ) | | | 1,356 | | | | (60 | ) | | | 13 | | | | 101 | | | | (37 | ) | | | 309 | | | | 1,143 | |
Charge-offs | | | 0 | | | | 0 | | | | 0 | | | | (23 | ) | | | 0 | | | | 0 | | | | 0 | | | | (33 | ) | | | (992 | ) | | | (1,048 | ) |
Recoveries | | | 68 | | | | 0 | | | | 0 | | | | 394 | | | | 0 | | | | 0 | | | | 0 | | | | 6 | | | | 530 | | | | 998 | |
Ending balance | | $ | 9,124 | | | | 396 | | | | 16,450 | | | | 9,663 | | | | 94 | | | | 118 | | | | 1,098 | | | | 1,314 | | | | 1,375 | | | | 39,632 | |
Ending balance individually evaluated for impairment | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Ending balance collectively evaluated for impairment | | $ | 9,124 | | | | 396 | | | | 16,450 | | | | 9,663 | | | | 94 | | | | 118 | | | | 1,098 | | | | 1,314 | | | | 1,375 | | | | 39,632 | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 679,536 | | | | 29,300 | | | | 879,373 | | | | 603,292 | | | | 9,367 | | | | 10,043 | | | | 92,229 | | | | 116,717 | | | | 76,081 | | | | 2,495,938 | |
Ending balance individually evaluated for impairment | | $ | 134 | | | | 0 | | | | 531 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 665 | |
Ending balance collectively evaluated for impairment | | $ | 679,402 | | | | 29,300 | | | | 878,842 | | | | 603,292 | | | | 9,367 | | | | 10,043 | | | | 92,229 | | | | 116,717 | | | | 76,081 | | | | 2,495,273 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| | | In Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Agricultural, | | | | | |
| | | Residential 1-4 | | | | | | | Commercial | | | | | | | | | | | Second | | | Equity Lines | | | | | | | Installment and | | | | | |
| | | Family | | | Multifamily | | | Real Estate | | | Construction | | | Farmland | | | Mortgages | | | of Credit | | | Commercial | | | Other | | | Total | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 7,144 | | | | 1,117 | | | | 11,114 | | | | 5,997 | | | | 187 | | | | 123 | | | | 889 | | | | 1,044 | | | | 1,111 | | | | 28,726 | |
Provision | | | 920 | | | | 424 | | | | 5,388 | | | | 1,766 | | | | (33 | ) | | | (37 | ) | | | 74 | | | | 343 | | | | 851 | | | | 9,696 | |
Charge-offs | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (7 | ) | | | (9 | ) | | | (898 | ) | | | (914 | ) |
Recoveries | | | 34 | | | | 0 | | | | 300 | | | | 173 | | | | 0 | | | | 19 | | | | 41 | | | | 0 | | | | 464 | | | | 1,031 | |
Ending balance | | $ | 8,098 | | | | 1,541 | | | | 16,802 | | | | 7,936 | | | | 154 | | | | 105 | | | | 997 | | | | 1,378 | | | | 1,528 | | | | 38,539 | |
Ending balance individually evaluated for impairment | | $ | 594 | | | | 0 | | | | 148 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 742 | |
Ending balance collectively evaluated for impairment | | $ | 7,504 | | | | 1,541 | | | | 16,654 | | | | 7,936 | | | | 154 | | | | 105 | | | | 997 | | | | 1,378 | | | | 1,528 | | | | 37,797 | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 535,994 | | | | 111,646 | | | | 837,766 | | | | 488,626 | | | | 15,429 | | | | 8,433 | | | | 78,889 | | | | 172,811 | | | | 81,006 | | | | 2,330,600 | |
Ending balance individually evaluated for impairment | | $ | 2,399 | | | | 0 | | | | 970 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 3,369 | |
Ending balance collectively evaluated for impairment | | $ | 533,595 | | | | 111,646 | | | | 836,796 | | | | 488,626 | | | | 15,429 | | | | 8,433 | | | | 78,889 | | | | 172,811 | | | | 81,006 | | | | 2,327,231 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The following tables present the Company’s impaired loans (including loans on nonaccrual status and loans past due 90 days or more) at December 31, 2021 and 2020:
| | | In Thousands | |
| | | Recorded Investment | | | Unpaid Principal Balance | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 136 | | | | 134 | | | | — | | | | 614 | | | | 7 | |
Multifamily | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Commercial real estate | | | 532 | | | | 531 | | | | — | | | | 303 | | | | 25 | |
Construction | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
| | | $ | 668 | | | | 665 | | | | — | | | | 917 | | | | 32 | |
With allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 0 | | | | 0 | | | | 0 | | | | 602 | | | | 0 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 0 | | | | 0 | | | | 0 | | | | 342 | | | | 0 | |
Construction | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | $ | 0 | | | | 0 | | | | 0 | | | | 944 | | | | 0 | |
Total: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 136 | | | | 134 | | | | 0 | | | | 1,216 | | | | 7 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 532 | | | | 531 | | | | 0 | | | | 645 | | | | 25 | |
Construction | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | $ | 668 | | | | 665 | | | | 0 | | | | 1,861 | | | | 32 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| | | In Thousands | |
| | | Recorded Investment | | | Unpaid Principal Balance | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 1,162 | | | | 1,507 | | | | — | | | | 395 | | | | 26 | |
Multifamily | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Commercial real estate | | | 311 | | | | 311 | | | | — | | | | 311 | | | | 0 | |
Construction | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | — | | | | 0 | | | | 0 | |
| | | $ | 1,473 | | | | 1,818 | | | | — | | | | 706 | | | | 26 | |
With allowance recorded: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 1,242 | | | | 1,240 | | | | 594 | | | | 1,273 | | | | 66 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 662 | | | | 659 | | | | 148 | | | | 676 | | | | 22 | |
Construction | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | $ | 1,904 | | | | 1,899 | | | | 742 | | | | 1,949 | | | | 88 | |
Total: | | | | | | | | | | | | | | | | | | | | |
Residential 1-4 family | | $ | 2,404 | | | | 2,747 | | | | 594 | | | | 1,668 | | | | 92 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 973 | | | | 970 | | | | 148 | | | | 987 | | | | 22 | |
Construction | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | $ | 3,377 | | | | 3,717 | | | | 742 | | | | 2,655 | | | | 114 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic or other concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. The concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
The following table summarizes the carrying balances of TDRs at December 31, 2021 and December 31, 2020 (dollars in thousands):
| | | 2021 | | | 2020 | |
Performing TDRs | | $ | 876 | | | | 2,147 | |
Nonperforming TDRs | | | 165 | | | | 529 | |
Total TDRs | | $ | 1,041 | | | | 2,676 | |
The following table outlines the amount of each TDR categorized by loan classification for the years ended December 31, 2021, 2020 and 2019 (dollars in thousands):
| | | December 31, 2021 | | | December 31, 2020 | |
| | | 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 | | | 0 | | | $ | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | | | $ | 0 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 111 | | | | 132 | |
Construction | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Total | | | 0 | | | $ | 0 | | | $ | 0 | | | | 1 | | | $ | 111 | | | $ | 132 | |
| | | December 31, 2019 | |
| | | Number of Contracts | | | Pre Modification Outstanding Recorded Investment | | | Post Modification Outstanding Recorded Investment, Net of Related Allowance | |
Residential 1-4 family | | | 1 | | | $ | 1,338 | | | $ | 619 | |
Multifamily | | | 0 | | | | 0 | | | | 0 | |
Commercial real estate | | | 4 | | | | 2,677 | | | | 2,399 | |
Construction | | | 0 | | | | 0 | | | | 0 | |
Farmland | | | 0 | | | | 0 | | | | 0 | |
Second mortgages | | | 0 | | | | 0 | | | | 0 | |
Equity lines of credit | | | 0 | | | | 0 | | | | 0 | |
Commercial | | | 0 | | | | 0 | | | | 0 | |
Agricultural, installment and other | | | 0 | | | | 0 | | | | 0 | |
Total | | | 5 | | | $ | 4,015 | | | $ | 3,018 | |
As of December 31, 2021, 2020 and 2019 the Company did not have any loan previously classified as a TDR default within twelve months of the restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.
In response to the COVID-19 pandemic and its economic impact to the Bank’s customers, the Bank proactively began providing relief to its customers in the middle of March 2020 through a 90-day interest-only payment option or a full 90-day payment deferral option. Following the passage of the CARES Act, the Bank expanded this program to provide a six-month interest only payment option in an effort to provide flexibility to its customers as they navigated uncertainties resulting from the pandemic. Pursuant to interagency regulatory guidance and the CARES Act, the Bank may elect to not classify loans as troubled debt restructurings for which these deferrals are granted between March 1, 2020 and the earlier of (i) January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency. As of December 31, 2021, the Bank had no loans for which principal or both principal and interest were being deferred.
As of December 31, 2021 the Bank had $262,000 of consumer mortgage loans in the process of foreclosure. As of December 31, 2020 the Bank had $301,000 of consumer mortgage loans in the process of foreclosure.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The Company’s principal customers are primarily in Middle Tennessee. Credit is extended to businesses and individuals and is evidenced by promissory notes. The terms and conditions of the loans including collateral vary depending upon the purpose of the credit and the borrower’s financial condition.
In the normal course of business, Wilson Bank has made loans at prevailing interest rates and terms to directors and executive officers of the Company and to their affiliates. The aggregate amount of these loans was $5,725,000 and $7,675,000 at December 31, 2021 and 2020, respectively. None of these loans were restructured, charged-off or involved more than the normal risk of collectibility or presented other unfavorable features during the three years ended December 31, 2021.
An analysis of the activity with respect to such loans to related parties is as follows:
| | | In Thousands | |
| | | December 31, | |
| | | 2021 | | | 2020 | |
Balance, January 1 | | $ | 7,675 | | | | 12,878 | |
New loans and renewals during the year | | | 11,009 | | | | 11,153 | |
Repayments (including loans paid by renewal) during the year | | | (12,959 | ) | | | (16,356 | ) |
Balance, December 31 | | $ | 5,725 | | | | 7,675 | |
In 2021, 2020 and 2019, Wilson Bank originated mortgage loans for sale into the secondary market of $215,813,000, $213,483,000 and $160,921,000, respectively. The fees and gain on sale of these loans totaled $9,997,000, $9,560,000 and $6,802,000 in 2021, 2020 and 2019, respectively. All of these loan sales transfer servicing rights to the buyer.
In some instances, Wilson Bank sells loans that contain provisions which permit the buyer to seek recourse against Wilson Bank in certain circumstances. At December 31, 2021 and 2020, total mortgage loans sold with recourse in the secondary market aggregated $165,061,000 and $181,700,000, respectively. At December 31, 2021, Wilson Bank has not been required to repurchase a significant amount of the mortgage loans originated by Wilson Bank and sold in the secondary market. Management expects no material losses to result from these recourse provisions.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(3) | Debt and Equity Securities |
Debt and equity securities have been classified in the consolidated balance sheet according to management’s intent. Debt and equity securities at December 31, 2021 consist of the following:
| | | Securities Available-For-Sale | |
| | | In Thousands | |
| | | | | | | Gross Unrealized | | | Gross Unrealized | | | Estimated Market | |
| | | Amortized Cost | | | Gains | | | Losses | | | Value | |
U.S. Treasury and other U.S. government agencies | | $ | 7,320 | | | | 0 | | | | 99 | | | | 7,221 | |
U.S. Government-sponsored enterprises (GSEs) | | | 163,700 | | | | 20 | | | | 4,490 | | | | 159,230 | |
Mortgage-backed securities | | | 465,588 | | | | 2,726 | | | | 6,537 | | | | 461,777 | |
Asset-backed securities | | | 46,583 | | | | 213 | | | | 83 | | | | 46,713 | |
Corporate bonds | | | 2,500 | | | | 75 | | | | — | | | | 2,575 | |
Obligations of states and political subdivisions | | | 220,444 | | | | 2,611 | | | | 2,986 | | | | 220,069 | |
| | | $ | 906,135 | | | | 5,645 | | | | 14,195 | | | | 897,585 | |
The Company’s classification of securities at December 31, 2020 was as follows:
| | | Securities Available-For-Sale | |
| | | In Thousands | |
| | | | | | | Gross Unrealized | | | Gross Unrealized | | | Estimated Market | |
| | | Amortized Cost | | | Gains | | | Losses | | | Value | |
U.S. Government-sponsored enterprises (GSEs) | | $ | 125,712 | | | | 328 | | | | 135 | | | | 125,905 | |
Mortgage-backed securities | | | 258,774 | | | | 5,636 | | | | 620 | | | | 263,790 | |
Asset-backed securities | | | 36,394 | | | | 582 | | | | 19 | | | | 36,957 | |
Corporate bonds | | | 2,500 | | | | 100 | | | | 0 | | | | 2,600 | |
Obligations of states and political subdivisions | | | 147,462 | | | | 4,229 | | | | 400 | | | | 151,291 | |
| | | $ | 570,842 | | | | 10,875 | | | | 1,174 | | | | 580,543 | |
Included in mortgage-backed securities are collateralized mortgage obligations totaling $130,594,000 (fair value of $128,281,000) and $88,472,000 (fair value of $89,116,000) at December 31, 2021 and 2020, respectively.
The amortized cost and estimated market value of debt securities at December 31, 2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities of mortgage and asset-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | In Thousands | |
Securities Available-For-Sale | | Amortized Cost | | | Estimated Market Value | |
Due in one year or less | | $ | 22 | | | | 22 | |
Due after one year through five years | | | 57,492 | | | | 57,441 | |
Due after five years through ten years | | | 240,922 | | | | 235,883 | |
Due after ten years | | | 607,699 | | | | 604,239 | |
| | | $ | 906,135 | | | | 897,585 | |
Results from sales of debt and equity securities are as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Gross proceeds | | $ | 39,652 | | | | 54,870 | | | | 37,325 | |
Gross realized gains | | $ | 137 | | | | 901 | | | | 75 | |
Gross realized losses | | | (109 | ) | | | (19 | ) | | | (343 | ) |
Net realized gains (losses) | | $ | 28 | | | | 882 | | | | (268 | ) |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Securities carried on the balance sheet of approximately $368,718,000 (approximate market value of $364,893,000) and $282,028,000 (approximate market value of $288,013,000) were pledged to secure public deposits and for other purposes as required or permitted by law at December 31, 2021 and 2020, respectively.
Included in the securities above are $111,103,000 (approximate market value of $110,384,000) and $78,931,000 (approximate market value of $80,713,000) at December 31, 2021 and 2020, respectively, in obligations of political subdivisions located within the states of Tennessee, Alabama, and Texas.
Securities that have rates that adjust prior to maturity totaled $102,590,000 (approximate market value of $101,315,000) and $48,215,000 (approximate market value of $48,439,000) at December 31, 2021 and 2020, respectively.
Temporarily Impaired Securities
The following table shows the gross unrealized losses and fair value of the Company’s available-for-sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2021 and 2020.
| | | In Thousands, Except Number of Securities | |
| | | Less than 12 Months | | | 12 Months or More | | | Total | |
| | | | | | | | | | | Number of | | | | | | | | | | | Number of | | | | | | | | | |
| | | | | | | Unrealized | | | Securities | | | | | | | Unrealized | | | Securities | | | | | | | Unrealized | |
2021 | | Fair Value | | | Losses | | | Included | | | Fair Value | | | Losses | | | Included | | | Fair Value | | | Losses | |
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury and other U.S. government agencies | | $ | 7,221 | | | $ | 99 | | | | 3 | | | $ | 0 | | | $ | 0 | | | | 0 | | | $ | 7,221 | | | $ | 99 | |
U.S. Government-sponsored enterprises (GSEs) | | | 110,981 | | | | 2,466 | | | | 33 | | | | 45,725 | | | | 2,024 | | | | 19 | | | | 156,706 | | | | 4,490 | |
Mortgage-backed securities | | | 317,211 | | | | 4,644 | | | | 96 | | | | 54,692 | | | | 1,893 | | | | 33 | | | | 371,903 | | | | 6,537 | |
Asset-backed securities | | | 17,945 | | | | 67 | | | | 9 | | | | 484 | | | | 16 | | | | 1 | | | | 18,429 | | | | 83 | |
Corporate bonds | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Obligations of states and political subdivisions | | | 83,510 | | | | 1,460 | | | | 74 | | | | 36,225 | | | | 1,526 | | | | 32 | | | | 119,735 | | | | 2,986 | |
| | | $ | 536,868 | | | $ | 8,736 | | | | 215 | | | $ | 137,126 | | | $ | 5,459 | | | | 85 | | | $ | 673,994 | | | $ | 14,195 | |
| | | In Thousands, Except Number of Securities | |
| | | Less than 12 Months | | | 12 Months or More | | | Total | |
| | | | | | | | | | | Number of | | | | | | | | | | | Number of | | | | | | | | | |
| | | | | | | Unrealized | | | Securities | | | | | | | Unrealized | | | Securities | | | | | | | Unrealized | |
2020 | | Fair Value | | | Losses | | | Included | | | Fair Value | | | Losses | | | Included | | | Fair Value | | | Losses | |
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government-sponsored enterprises (GSEs) | | | $ 47,991 | | | | $ 135 | | | | 18 | | | | $ — | | | | $ — | | | | — | | | | $ 47,991 | | | | $ 135 | |
Mortgage-backed securities | | | 78,381 | | | | 573 | | | | 29 | | | | 6,776 | | | | 47 | | | | 12 | | | | 85,157 | | | | 620 | |
Asset-backed securities | | | 4,950 | | | | 19 | | | | 3 | | | | — | | | | — | | | | — | | | | 4,950 | | | | 19 | |
Corporate bonds | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Obligations of states and political subdivisions | | | 44,061 | | | | 394 | | | | 33 | | | | 689 | | | | 6 | | | | 1 | | | | 44,750 | | | | 400 | |
| | | | $ 175,383 | | | | $ 1,121 | | | | 83 | | | | $ 7,465 | | | | $ 53 | | | | 13 | | | | $ 182,848 | | | | $ 1,174 | |
As of December 31, 2021, management does not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not the Company will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2021, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in our consolidated statement of earnings.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Lessee Accounting
The majority of leases in which the Company is the lessee are comprised of real estate property for branches and office space and are recorded as operating leases with terms extending beyond 2026. These leases are classified as operating leases at commencement. Right-of-use assets representing the right to use the underlying asset and lease liabilities representing the obligation to make future lease payments are recognized on the balance sheet. These assets and liabilities are estimated based on the present value of future lease payments discounted using the Company's incremental secured borrowing rates as of the commencement date of the lease. Certain lease agreements contain renewal options which are considered in the determination of the lease term if they are deemed reasonably certain to be exercised. The Company has elected not to recognize leases with an original term of less than 12 months on the balance sheet.
The following table represents lease assets and lease liabilities as of December 31, 2021 and December 31, 2020 (in thousands).
Lease right-of-use assets | Classification | | December 31, 2021 | | | December 31, 2020 | |
Operating lease right-of-use assets | Other Assets | | $ | 4,110 | | | | 3,825 | |
Lease liabilities | Classification | | December 31, 2021 | | | December 31, 2020 | |
Operating lease liabilities | Other Liabilities | | $ | 4,247 | | | | 3,947 | |
The total lease cost related to operating leases and short term leases is recognized on a straight-line basis over the lease term. The components of the Bank's total least cost were as follows for the year ended December 31, 2021 and 2020.
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Operating lease cost | | $ | 550 | | | | 535 | |
Short-term lease cost | | | 40 | | | | 4 | |
Net lease cost | | $ | 590 | | | | 539 | |
The weighted average remaining lease term and weighted average discount rate for operating leases at December 31, 2021 and 2020 were as follows:
| | | 2021 | | | 2020 | |
Operating Leases | | | | | | | | |
Weighted average remaining lease term (in years) | | | 10.42 | | | | 11.31 | |
Weighted average discount rate | | | 4.00 | % | | | 4.00 | % |
Cash flows related to operating leases during the year ended December 31, 2021 and 2020 were as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Operating cash flows related to operating leases | | $ | 535 | | | | 426 | |
Future undiscounted lease payments for operating leases with initial terms of more than 12 months at December 31, 2021 and 2020 were as follows:
| | | In Thousands | |
| | | 2021 | |
2022 | | $ | 544 | |
2023 | | | 553 | |
2024 | | | 566 | |
2025 | | | 571 | |
2026 | | | 576 | |
Thereafter | | | 2,392 | |
Total undiscounted lease payments | | | 5,202 | |
Less: imputed interest | | | (955 | ) |
Net lease liabilities | | $ | 4,247 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(5) | Restricted Equity Securities |
Restricted equity securities consists of stock of the FHLB of Cincinnati amounting to $5,089,000 at December 31, 2021 and 2020, respectively. The stock can be sold back only at par or a value as determined by the issuing institution and only to the respective financial institution or to another member institution. These securities are recorded at cost.
(6) | Premises and Equipment |
The detail of premises and equipment at December 31, 2021 and 2020 is as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Land | | $ | 20,156 | | | | 17,093 | |
Buildings | | | 46,112 | | | | 46,584 | |
Leasehold improvements | | | 1,155 | | | | 573 | |
Furniture and equipment | | | 14,705 | | | | 13,861 | |
Automobiles | | | 241 | | | | 175 | |
Construction-in-progress | | | 3,335 | | | | 317 | |
| | | | 85,704 | | | | 78,603 | |
Less accumulated depreciation | | | (22,858 | ) | | | (20,401 | ) |
| | | $ | 62,846 | | | | 58,202 | |
During 2021, 2020 and 2019, payments of $1,227,000, $571,000 and $2,207,000, respectively, were made to an entity owned by a director for the construction of buildings and repair work on existing buildings.
Depreciation expense was $4,235,000, $4,250,000 and $3,984,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company's intangible assets result from the excess of purchase price over the applicable book value of the net assets acquired related to outside ownership of two previously 50% owned subsidiaries that the Company acquired 100% of in 2005.
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Goodwill: | | | | | | | | |
Balance at January 1, | | $ | 4,805 | | | | 4,805 | |
Goodwill acquired during year | | | 0 | | | | 0 | |
Impairment loss | | | 0 | | | | 0 | |
Balance at December 31, | | $ | 4,805 | | | | 4,805 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Deposits at December 31, 2021 and 2020 are summarized as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Demand deposits | | $ | 506,258 | | | | 391,360 | |
Savings accounts | | | 296,434 | | | | 201,984 | |
Negotiable order of withdrawal accounts | | | 957,985 | | | | 771,195 | |
Money market demand accounts | | | 1,201,235 | | | | 984,677 | |
Certificates of deposit $250,000 or greater | | | 123,297 | | | | 112,696 | |
Other certificates of deposit | | | 399,850 | | | | 425,299 | |
Individual retirement accounts $250,000 or greater | | | 8,618 | | | | 10,323 | |
Other individual retirement accounts | | | 61,394 | | | | 63,061 | |
| | | $ | 3,555,071 | | | | 2,960,595 | |
Principal maturities of certificates of deposit and individual retirement accounts at December 31, 2021 are as follows:
| | | (In Thousands) | |
Maturity | | Total | |
2022 | | $ | 339,093 | |
2023 | | | 137,141 | |
2024 | | | 71,616 | |
2025 | | | 21,398 | |
2026 | | | 23,898 | |
Thereafter | | | 13 | |
| | | $ | 593,159 | |
The aggregate amount of overdrafts reclassified as loans receivable was $529,000 and $284,000 at December 31, 2021 and 2020, respectively.
The aggregate balances of related party deposits at December 31, 2021 and 2020 were $5,806,000 and $3,786,000, respectively.
As of December 31, 2021 and 2020, Wilson Bank was not required to maintain a cash balance with the Federal Reserve.
(9) | Federal Home Loan Bank Advances |
At December 31, 2021 the Company had 0 outstanding advances from the FHLB of Cincinnati, compared to $3,638,000 in outstanding advances from the FHLB of Cincinnati at December 31, 2020. During the year ended December 31, 2021, management made a strategic decision to utilize excess liquidity to pay off these advances. The weighted average rate of the total borrowings at December 31, 2020 was 2.68%. Advances from the FHLB of Cincinnati are collateralized by a blanket security agreement which includes Wilson Bank's 1-4 family loans. The Company’s additional borrowing capacity from the FHLB of Cincinnati was $426,347,000 at December 31, 2021.
Required future principal payments on Federal Home Loan Bank borrowings for the year ended December 31, 2020 were as follows:
| | | (In Thousands) | |
Maturity | | Total | |
2021 | | $ | 1,350 | |
2022 | | | 1,350 | |
2023 | | | 788 | |
2024 | | | 150 | |
2025 | | | 0 | |
Thereafter | | | 0 | |
Total | | $ | 3,638 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(10) | Non-Interest Income and Non-Interest Expense |
The significant components of non-interest income and non-interest expense for the years ended December 31, 2021, 2020 and 2019 are presented below:
| | | In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Non-interest income: | | | | | | | | | | | | |
Service charges on deposits | | $ | 6,137 | | | | 5,659 | | | | 6,952 | |
Brokerage income | | | 6,368 | | | | 4,837 | | | | 4,411 | |
Debit and credit card interchange income | | | 12,029 | | | | 9,187 | | | | 8,301 | |
Other fees and commissions | | | 1,446 | | | | 1,404 | | | | 1,608 | |
BOLI and annuity earnings | | | 1,109 | | | | 959 | | | | 723 | |
Security gain (loss), net | | | 28 | | | | 882 | | | | (268 | ) |
Fees and gains on sales of mortgage loans | | | 9,997 | | | | 9,560 | | | | 6,802 | |
Gain (loss) on sale of other real estate, net | | | (15 | ) | | | 658 | | | | (48 | ) |
Loss on sale of fixed assets, net | | | (43 | ) | | | (63 | ) | | | (128 | ) |
Gain (loss) on sale of other assets, net | | | 6 | | | | (4 | ) | | | (4 | ) |
Other income | | | 34 | | | | 61 | | | | 0 | |
| | | $ | 37,096 | | | | 33,140 | | | | 28,349 | |
| | | In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Non-interest expense: | | | | | | | | | | | | |
Employee salaries and benefits | | $ | 52,722 | | | | 45,661 | | | | 42,541 | |
Equity-based compensation | | | 1,428 | | | | 1,180 | | | | 786 | |
Occupancy expenses | | | 5,473 | | | | 5,216 | | | | 4,789 | |
Furniture and equipment expenses | | | 3,323 | | | | 3,267 | | | | 3,110 | |
Data processing expenses | | | 6,079 | | | | 5,101 | | | | 4,495 | |
Advertising expenses | | | 2,736 | | | | 2,487 | | | | 2,498 | |
ATM & interchange fees | | | 4,783 | | | | 3,880 | | | | 3,439 | |
Accounting, legal & consulting expenses | | | 988 | | | | 909 | | | | 1,382 | |
FDIC insurance | | | 1,130 | | | | 598 | | | | 373 | |
Directors’ fees | | | 686 | | | | 634 | | | | 586 | |
Other operating expenses | | | 11,640 | | | | 11,986 | | | | 10,629 | |
| | | $ | 90,988 | | | | 80,919 | | | | 74,628 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The components of the net deferred tax asset at December 31, 2021 and 2020 were as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Deferred tax asset: | | | | | | | | |
Federal | | $ | 11,604 | | | | 9,500 | |
State | | | 3,613 | | | | 2,913 | |
| | | | 15,217 | | | | 12,413 | |
Deferred tax liability: | | | | | | | | |
Federal | | | (1,822 | ) | | | (4,000 | ) |
State | | | (603 | ) | | | (1,324 | ) |
| | | | (2,425 | ) | | | (5,324 | ) |
Net deferred tax asset | | $ | 12,792 | | | | 7,089 | |
The tax effects of each type of significant item that gave rise to deferred tax assets (liabilities) at December 31, 2021 and 2020 were:
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Financial statement allowance for loan losses in excess of tax allowance | | $ | 10,129 | | | | 9,840 | |
Excess of depreciation deducted for tax purposes over the amounts deducted in the financial statements | | | (2,098 | ) | | | (2,461 | ) |
Financial statement deduction for deferred compensation in excess of deduction for tax purposes | | | 1,347 | | | | 1,253 | |
Writedown of other real estate not deductible for income tax purposes until sold | | | 0 | | | | 0 | |
Financial statement income on FHLB stock dividends not recognized for tax purposes | | | (327 | ) | | | (327 | ) |
Unrealized loss (gain) on securities available-for-sale | | | 2,235 | | | | (2,535 | ) |
Equity based compensation | | | 1,028 | | | | 854 | |
Other items, net | | | 478 | | | | 465 | |
Net deferred tax asset | | $ | 12,792 | | | | 7,089 | |
The components of income tax expense (benefit) at December 31, 2021, 2020 and 2019 are summarized as follows:
| | | In Thousands | |
| | | Federal | | | State | | | Total | |
2021 | | | | | | | | | | | | |
Current | | $ | 13,580 | | | | 2,084 | | | | 15,664 | |
Deferred | | | (698 | ) | | | (234 | ) | | | (932 | ) |
Total | | $ | 12,882 | | | | 1,850 | | | | 14,732 | |
2020 | | | | | | | | | | | | |
Current | | $ | 11,383 | | | | 1,539 | | | | 12,922 | |
Deferred | | | (2,503 | ) | | | (801 | ) | | | (3,304 | ) |
Total | | $ | 8,880 | | | | 738 | | | | 9,618 | |
2019 | | | | | | | | | | | | |
Current | | $ | 10,134 | | | | 1,411 | | | | 11,545 | |
Deferred | | | (335 | ) | | | (143 | ) | | | (478 | ) |
Total | | $ | 9,799 | | | | 1,268 | | | | 11,067 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
A reconciliation of actual income tax expense of $14,732,000, $9,618,000 and $11,067,000 for the years ended December 31, 2021, 2020 and 2019, respectively, to the “expected” tax expense (computed by applying the statutory rate of 21% for 2021, 2020 and 2019 to earnings before income taxes) is as follows:
| | | In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Computed “expected” tax expense | | $ | 13,473 | | | | 10,103 | | | | 9,893 | |
State income taxes, net of Federal income tax benefit | | | 1,584 | | | | 552 | | | | 1,056 | |
Tax exempt interest, net of interest expense exclusion | | | (237 | ) | | | (245 | ) | | | (186 | ) |
Earnings on cash surrender value of life insurance | | | (205 | ) | | | (173 | ) | | | (170 | ) |
Expenses not deductible for tax purposes | | | 12 | | | | 14 | | | | 37 | |
Equity based compensation | | | (28 | ) | | | (6 | ) | | | 15 | |
Other | | | 133 | | | | (627 | ) | | | 422 | |
| | | $ | 14,732 | | | | 9,618 | | | | 11,067 | |
Total income tax expense for 2021, 2020 and 2019, includes $7,000, $231,000 and $(70,000) of expense (benefit) related to the realized gain and loss on sale of securities, respectively.
As of December 31, 2021, 2020 and 2019 the Company has not accrued or recognized interest or penalties related to uncertain tax positions. It is the Company’s policy to recognize interest and/or penalties related to income tax matters in income tax expense.
No valuation allowance for deferred tax assets was recorded at December 31, 2021 and 2020 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. There were no unrecognized tax benefits during any of the reported periods.
The Company and Wilson Bank file income tax returns in the United States (“U.S.”), as well as in the State of Tennessee. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2018. The Company’s Federal tax returns have been audited through December 31, 2005 with no changes.
(12) | Commitments and Contingent Liabilities |
The Company is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such litigation and claims will not be material to the Company's consolidated financial position.
At December 31, 2021 and 2020, respectively, the Company has lines of credit with other correspondent banks totaling $74,817,000 and $70,488,000. At December 31, 2021 and 2020, respectively, there was no balance outstanding under these lines of credit.
The Company also has a Cash Management Advance ("CMA") Line of Credit agreement. The CMA is a component of the Company's Blanket Agreement for advances with the FHLB of Cincinnati. The purpose of the CMA is to assist with short-term liquidity management. Under the terms of the CMA, the Company may borrow a maximum of $25,000,000, selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. There were no borrowings outstanding under the CMA at December 31, 2021 or December 31, 2020.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(13) | Financial Instruments with Off-Balance-Sheet Risk |
The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
| | | In Thousands | |
| | | Contract or Notional Amount | |
| | | 2021 | | | 2020 | |
Financial instruments whose contract amounts represent credit risk: | | | | | | | | |
Unused commitments to extend credit | | $ | 1,147,654 | | | | 851,196 | |
Standby letters of credit | | | 90,929 | | | | 81,952 | |
Total | | $ | 1,238,583 | | | | 933,148 | |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to be drawn upon, the total commitment amounts generally represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral normally consists of real property.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most guarantees extend from one to two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments and the present creditworthiness of such counterparties. Such commitments have been made on terms which are competitive in the markets in which the Company operates; thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure. The maximum potential amount of future payments that the Company could be required to make under the guarantees totaled $90,929,000 at December 31, 2021.
(14) | Concentration of Credit Risk |
Practically all of the Company’s loans, commitments, and commercial and standby letters of credit have been granted to customers in the Company’s market area. Practically all such customers are depositors of Wilson Bank. The concentrations of credit by type of loan are set forth in note 2 - Loans and Allowance for Loan Losses.
Interest bearing deposits totaling $164,587,000 were deposited with five commercial banks at December 31, 2021. Included in interest bearing deposits is $1,200,000 of collateral deposits related to our fixed rate loan hedging program deposited with one commercial bank. In addition, the Bank has funds deposited with the FHLB of Cincinnati in the amount of $414,000. Funds deposited with the FHLB of Cincinnati are not insured by the FDIC.
Federal funds sold in the amount of $27,055,000 were deposited with one commercial bank at December 31, 2021.
(15) | Employee Benefit Plan |
Wilson Bank has in effect a 401(k) plan (the “401(k) Plan”) which covers eligible employees. To be eligible an employee must have obtained the age of 18. The provisions of the 401(k) Plan provide for both employee and employer contributions. For the years ended December 31, 2021, 2020 and 2019, Wilson Bank contributed $3,120,000, $2,926,000 and $2,540,000, respectively, to the 401(k) Plan.
(16) | Dividend Reinvestment Plan |
Under the terms of the Company’s dividend reinvestment plan (the “DRIP”) holders of common stock may elect to automatically reinvest cash dividends in additional shares of common stock. The Company may elect to sell original issue shares or to purchase shares in the open market for the account of participants. Original issue shares of 186,583 in 2021, 180,424 in 2020 and 179,199 in 2019 were sold to participants under the terms of the DRIP.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(17) | Regulatory Matters and Restrictions on Dividends |
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2021, the Bank and the Company meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is classified as adequately capitalized or lower, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is growth and expansion, and capital restoration plans are required. As of December 31, 2021, and 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
In October 2019, the federal banking agencies approved final rules under the Growth Act that exempt a qualifying community bank and its holding company that have Community Bank Leverage Ratios, calculated as Tier 1 capital over average total consolidated assets (the "Community Bank Leverage Ratio"), of greater than 9 percent from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community banking organization and its holding company that have chosen the proposed framework are not required to calculate the existing risk-based and leverage capital requirements. Such a bank would also be considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a Community Bank Leverage Ratio greater than 9 percent. Tier 1 capital for purposes of calculating the Community Bank Leverage Ratio is defined as total equity less accumulated other comprehensive income, less goodwill, less all other intangible assets, less deferred tax assets that arise from net operating loss and tax carryforwards, net of any related valuation allowances. Institutions seeking to utilize the Community Bank Leverage Ratio must not have total off-balance sheet exposures equal to 25% or more of total consolidated assets. For purposes of this test, off-balance sheet exposures include, among other items, unused portions of commitments, securities lent or borrowed, credit enhancements and financial standby letters of credit. The federal regulators when establishing the Community Bank Leverage Ratio also established a grace period of two fiscal quarters during which a qualifying financial institution that temporarily failed to meet any of the qualifying criteria for use of the Community Bank Leverage Ratio would nonetheless be considered well capitalized so long as the institution maintained a Community Bank Leverage Ratio of greater than 7%.
The Company and the Bank each opted to take advantage of this rule effective January 1, 2020. During the year ended December 31, 2021, the Company determined its total off balance sheet exposures, calculated in accordance with applicable regulations, exceeded 25% of its total consolidated assets during the period of time it had opted to utilize the Community Bank Leverage Ratio, and as a result, neither the Company nor the Bank was able to take advantage of the Community Bank Leverage Ratio rules. The Company has reported its and the Bank's December 31, 2020 capital ratios herein as if they had not elected the Community Bank Leverage Ratio rule for comparative purposes. The Company and the Bank have been well-capitalized under all applicable capital regulations as of the period ends for each relevant period since January 1, 2020, including as of December 31, 2021, in each case, applying the Basel III capital guidelines that were applicable to it as a result of its not qualifying for the Community Bank Leverage Ratio.
The Company's and Wilson Bank's actual capital amounts and ratios as of December 31, 2021 and December 31, 2020 are presented in the following tables. The capital conservation buffer of 2.5% is not included in the required minimum ratios of the tables presented below.
| | | | | | | | | | | | | | | | | | | For Classification Under | |
| | | | | | Minimum | | | Corrective Action Plan | |
| | | Actual | | | Capital Adequacy | | | as Well Capitalized | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
| | | (dollars in thousands) | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 455,813 | | | | 13.9 | % | | $ | 261,404 | | | | 8.0 | % | | $ | 326,755 | | | | 10.0 | % |
Wilson Bank | | | 452,130 | | | | 13.8 | | | | 261,317 | | | | 8.0 | | | | 326,646 | | | | 10.0 | |
Tier 1 capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 415,226 | | | | 12.7 | | | | 196,052 | | | | 6.0 | | | | 261,403 | | | | 8.0 | |
Wilson Bank | | | 411,543 | | | | 12.6 | | | | 195,987 | | | | 6.0 | | | | 261,316 | | | | 8.0 | |
Common equity Tier 1 capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 415,226 | | | | 12.7 | | | | 147,039 | | | | 4.5 | | | | N/A | | | | N/A | |
Wilson Bank | | | 411,543 | | | | 12.6 | | | | 146,990 | | | | 4.5 | | | | 212,319 | | | | 6.5 | |
Tier 1 capital to average assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 415,226 | | | | 10.8 | | | | 154,280 | | | | 4.0 | | | | N/A | | | | N/A | |
Wilson Bank | | | 411,543 | | | | 10.7 | | | | 154,230 | | | | 4.0 | | | | 192,787 | | | | 5.0 | |
| | | | | | | | | | | | | | | | | | | For Classification Under | |
| | | Actual | | | Minimum | | | Corrective Action Plan | |
| | | | | | Capital Adequacy | | | as Well Capitalized | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
| | | (dollars in thousands) | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 403,419 | | | | 14.3 | % | | $ | 225,405 | | | | 8.0 | % | | $ | 281,757 | | | | 10.0 | % |
Wilson Bank | | | 400,235 | | | | 14.2 | | | | 225,337 | | | | 8.0 | | | | 281,671 | | | | 10.0 | |
Tier 1 capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 368,150 | | | | 13.1 | | | | 169,055 | | | | 6.0 | | | | 225,406 | | | | 8.0 | |
Wilson Bank | | | 364,976 | | | | 13.0 | | | | 169,003 | | | | 6.0 | | | | 225,337 | | | | 8.0 | |
Common equity Tier 1 capital to risk weighted assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 368,150 | | | | 13.1 | | | | 126,791 | | | | 4.5 | | | | N/A | | | | N/A | |
Wilson Bank | | | 364,976 | | | | 13.0 | | | | 126,752 | | | | 4.5 | | | | 183,087 | | | | 6.5 | |
Tier 1 capital to average assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | | 368,150 | | | | 11.2 | | | | 131,996 | | | | 4.0 | | | | N/A | | | | N/A | |
Wilson Bank | | | 364,976 | | | | 11.1 | | | | 131,959 | | | | 4.0 | | | | 164,949 | | | | 5.0 | |
Dividend Restrictions
The Company and the Bank are subject to dividend restrictions set forth by the Tennessee Department of Financial Institutions and federal banking agencies, as applicable. Additional restrictions may be imposed by the Tennessee Department of Financial Institutions and federal banking agencies under the powers granted to them by law.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(18) | Salary Deferral Plans |
The Company provides some of its officers non-qualified pension benefits through an Executive Salary Continuation Plan ("the Plan") and Supplemental Executive Retirement Plan (SERP) Agreements ("SERP Agreements"). The Plan and SERP Agreements were established by the Board of Directors to reward executive management for past performance and to provide additional incentive to retain the service of executive management. The Plan and SERP Agreements generally provide executives with benefits of a portion of their salary beginning at retirement through life. As a result, the Company has accrued a liability for future obligations under the Plan and SERP Agreements. At December 31, 2021 and 2020, the liability related to the Plan totaled $1,660,000 and $1,742,000, respectively. At December 31, 2021 and 2020 the liability related to the SERP Agreements totaled $3,496,000 and $3,052,000, respectively. The expense incurred for these plans totaled $705,000, $575,000 and $438,000 for the year ended December 31, 2021, 2020 and 2019, respectively.
The Company has purchased life insurance policies to provide the benefits related to the Plan, which at December 31, 2021 and 2020 had an aggregate cash surrender value of $5,669,000 and $5,$5,547,000, respectively, and an aggregate face value of insurance policies in force of $15,497,000 and $15,499,000, respectively. The life insurance policies remain the sole property of the Company and are payable to the Company.
The Company has also purchased bank owned life insurance policies on some of its officers. The insurance policies remain the sole property of the Company and are payable to the Company. The cash surrender value of the life insurance contracts totaled $40,536,000 and $29,650,000 and the face amount of the insurance policies in force approximated $98,879,000 and $68,827,000 at December 31, 2021 and 2020, respectively.
The Company has also purchased Flexible Premium Indexed Deferred Annuity Contracts (“Annuity Contracts”) to provide benefits related to the SERP Agreements. The Annuity Contracts remain the sole property of the Company and are payable to the Company. Included in other assets at December 31, 2021 and 2020 are the Annuity Contracts with an aggregate value of $23,861,000 and $18,682,000, respectively.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(19) | Equity Incentive Plan |
In April 2009, the Company’s shareholders approved the Wilson Bank Holding Company 2009 Stock Option Plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan was effective as of April 14, 2009. Under the 2009 Stock Option Plan, awards could be in the form of options to acquire common stock of the Company. Subject to adjustment as provided by the terms of the 2009 Stock Option Plan, the maximum number of shares of common stock with respect to which awards could be granted under the 2009 Stock Option Plan was 100,000 shares. The 2009 Stock Option Plan terminated on April 13, 2019, and 0 additional awards may be issued under the 2009 Stock Option Plan. The awards granted under the 2009 Stock Option Plan prior to the Plan's expiration will remain outstanding until exercised or otherwise terminated. As of December 31, 2021, the Company had outstanding 8,475 options under the 2009 Stock Option Plan with a weighted average exercise price of $35.00.
During the second quarter of 2016, the Company’s shareholders approved the Wilson Bank Holding Company 2016 Equity Incentive Plan, which authorizes awards of up to 750,000 shares of common stock. The 2016 Equity Incentive Plan was approved by the Board of Directors and effective as of January 25, 2016 and approved by the Company’s shareholders on April 12, 2016. On September 26, 2016, the Board of Directors approved an amendment and restatement of the 2016 Equity Incentive Plan (as amended and restated the “2016 Equity Incentive Plan”) to make clear that directors who are not also employees of the Company may be awarded stock appreciation rights. The primary purpose of the 2016 Equity Incentive Plan is to promote the interest of the Company and its shareholders by, among other things, (i) attracting and retaining key officers, employees and directors of, and consultants to, the Company and its subsidiaries and affiliates, (ii) motivating those individuals by means of performance-related incentives to achieve long-range performance goals, (iii) enabling such individuals to participate in the long-term growth and financial success of the Company, (iv) encouraging ownership of stock in the Company by such individuals, and (v) linking their compensation to the long-term interests of the Company and its shareholders. Except for certain limitations, awards can be in the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted shares and restricted share units, performance awards and other stock-based awards. As of December 31, 2021, the Company had 362,096 shares remaining available for issuance under the 2016 Equity Incentive Plan. As of December 31, 2021, the Company had outstanding under the 2016 Equity Incentive Plan 195,157 stock options with a weighted average exercise price of $51.63 and 153,622 cash-settled stock appreciation rights with a weighted average exercise price of $49.17.
As of December 31, 2021, under all of its equity incentive plans, the Company had outstanding 203,632 stock options with a weighted average exercise price of $50.94 and 153,622 cash-settled stock appreciation rights with a weighted average exercise price of $49.17. Included in other liabilities at December 31, 2021 and 2020 were $2,708,000 and $2,303,000 in accrued stock appreciation rights, respectively.
The fair value of each stock option and cash-settled SAR grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2021, 2020 and 2019:
| | | 2021 | | | 2020 | | | 2019 | |
Expected dividends | | | 1.53 | % | | | 1.56 | % | | | 1.60 | % |
Expected term (in years) | | | 9.13 | | | | 7.38 | | | | 7.14 | |
Expected stock price volatility | | | 36 | % | | | 31 | % | | | 25 | % |
Risk-free rate | | | 1.45 | % | | | 0.52 | % | | | 1.90 | % |
The expected stock price volatility is based on historical volatility adjusted for consideration of other relevant factors. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield and forfeiture rate assumptions are based on the Company’s history and expectation of dividend payouts and forfeitures.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
A summary of the stock option and cash-settled SAR activity for 2021, 2020 and 2019 is as follows:
| | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | Weighted Average | | | | | | | Weighted Average | | | | | | | Weighted Average | |
| | | Shares | | | Exercise Price | | | Shares | | | Exercise Price | | | Shares | | | Exercise Price | |
Outstanding at beginning of year | | | 284,591 | | | $ | 43.71 | | | | 273,039 | | | $ | 41.19 | | | | 277,820 | | | $ | 40.11 | |
Granted | | | 121,830 | | | | 61.48 | | | | 43,833 | | | | 55.72 | | | | 17,833 | | | | 51.16 | |
Exercised | | | (48,867 | ) | | | 40.76 | | | | (24,881 | ) | | | 37.84 | | | | (22,614 | ) | | | 35.78 | |
Forfeited or expired | | | (300 | ) | | | 37.60 | | | | (7,400 | ) | | | 41.70 | | | | 0 | | | | 0 | |
Outstanding at end of year | | | 357,254 | | | $ | 50.18 | | | | 284,591 | | | $ | 43.71 | | | | 273,039 | | | $ | 41.19 | |
Options and cash-settled SARs exercisable at year end | | | 159,560 | | | $ | 41.93 | | | | 151,695 | | | $ | 40.89 | | | | 122,932 | | | $ | 40.19 | |
The weighted average fair value at the grant date of options and cash-settled SARs granted during the years 2021, 2020 and 2019 was $22.10, $14.92 and $13.43, respectively. The total intrinsic value of options and cash-settled SARs exercised during the years 2021, 2020 and 2019 was $962,000, $463,000 and $369,000, respectively.
The following table summarizes information about outstanding and exercisable stock options and cash-settled SARs at December 31, 2021:
| | | Options and Cash-Settled SARs Outstanding | | | Options and Cash-Settled SARs Exercisable | |
Range of Exercise Prices | | Number Outstanding at 12/31/21 | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (In Years) | | | Number Outstanding at 12/31/21 | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (In Years) | |
$31.31 - $47.25 | | | 178,380 | | | $ | 41.09 | | | | 4.86 | | | | 147,782 | | | $ | 40.98 | | | | 4.81 | |
$51.00 - $63.25 | | | 178,874 | | | $ | 59.24 | | | | 9.15 | | | | 11,778 | | | $ | 53.55 | | | | 7.88 | |
| | | | 357,254 | | | | | | | | | | | | 159,560 | | | | | | | | | |
Aggregate intrinsic value (in thousands) | | $ | 4,670 | | | | | | | | | | | $ | 3,406 | | | | | | | | | |
As of December 31, 2021, there was $3,358,000 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the Company’s equity incentive plans. The cost is expected to be recognized over a weighted-average period of 4.22 years.
A summary of restricted stock shares activity is as follows:
| | | Restricted Stock Shares | |
| | | Shares | | | Weighted Average Grant-Date Fair Value | |
Outstanding at December 31, 2020 | | | 0 | | | $ | 0 | |
Granted | | | 1,250 | | | | 62.10 | |
Vested | | | 0 | | | | 0 | |
Forfeited | | | 0 | | | | 0 | |
Outstanding at December 31, 2021 | | | 1,250 | | | $ | 62.10 | |
The shares vest over three years. As of December 31, 2021, there was $64,000 of unrecognized compensation cost related to non-vested restricted share awards. The cost is expected to be charged over a weighted-average period of 1.82 years for the restricted stock share awards.
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share for the Company begins with the basic earnings per share plus the effect of common shares contingently issuable from stock options.
The following is a summary of the components comprising basic and diluted earnings per share (“EPS”):
| | | Years Ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
Basic EPS Computation: | | | | | | | | | | | | |
Numerator – Earnings available to common stockholders | | $ | 49,426 | | | | 38,492 | | | | 36,044 | |
Denominator – Weighted average number of common shares outstanding | | | 11,131,897 | | | | 10,927,065 | | | | 10,743,269 | |
Basic earnings per common share | | $ | 4.44 | | | | 3.52 | | | | 3.36 | |
Diluted EPS Computation: | | | | | | | | | | | | |
Numerator – Earnings available to common stockholders | | $ | 49,426 | | | | 38,492 | | | | 36,044 | |
Denominator – Weighted average number of common shares outstanding | | | 11,131,897 | | | | 10,927,065 | | | | 10,743,269 | |
Dilutive effect of stock options and restricted stock shares | | | 31,059 | | | | 26,681 | | | | 18,198 | |
| | | | 11,162,956 | | | | 10,953,746 | | | | 10,761,467 | |
Diluted earnings per common share | | $ | 4.43 | | | | 3.51 | | | | 3.35 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Derivatives Designated as Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.
During the second quarter of 2020, the Company entered into one swap transaction with a notional amount of $30,000,000 pursuant to which the Company pays the counter-party a fixed interest rate and receives a floating rate equal to 1 month LIBOR. The derivative transaction is designated as a fair value hedge.
A summary of the Company's fair value hedge relationships as of December 31, 2021 and December 31, 2020 are as follows (in thousands):
December 31, 2021 | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | Weighted Average Remaining Maturity (In Years) | | | Weighted Average Pay Rate | | Receive Rate | | Notional Amount | | | Estimated Fair Value | |
Interest rate swap agreements - loans | Other assets | | | 8.42 | | | | 0.65 | % | 1 month LIBOR | | $ | 30,000 | | | | 1,192 | |
| | | | | | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | Weighted Average Remaining Maturity (In Years) | | | Weighted Average Pay Rate | | Receive Rate | | Notional Amount | | | Estimated Fair Value | |
Interest rate swap agreements - loans | Other liabilities | | | 9.42 | | | | 0.65 | % | 1 month LIBOR | | $ | 30,000 | | | | (51 | ) |
| | | | | | | | | | | | | | | | | | | |
The effects of fair value hedge relationships reported in interest income on loans on the consolidated statements of income for the twelve months ended December 31, 2021 and 2020 were as follows (in thousands):
| | | Twelve Months Ended December 31, | |
Gain (loss) on fair value hedging relationship | | 2021 | | | 2020 | |
Interest rate swap agreements - loans: | | | | | | | | |
Hedged items | | $ | (1,125 | ) | | | (158 | ) |
Derivative designated as hedging instruments | | | 1,243 | | | | (51 | ) |
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2021 and December 31, 2020 (in thousands):
| | | Carrying Amount of the Hedged Assets | | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | |
Line item on the balance sheet | | December 31, 2021 | | | December 31, 2020 | | | December 31, 2021 | | | December 31, 2020 | |
Loans | | $ | 28,875 | | | | 29,842 | | | | (1,283 | ) | | | (158 | ) |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Mortgage Banking Derivatives
Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. At December 31, 2021 and December 31, 2020, the Company had approximately $20,340,000 and $20,981,000, respectively, of interest rate lock commitments and approximately $20,500,000 and $21,250,000, respectively, of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by derivative assets of $657,000 and $714,000 and derivative assets of $6,000 and derivative liabilities of $157,000, respectively, at December 31, 2021 and December 31, 2020. Changes in the fair values of these mortgage-banking derivatives are included in net gains on sale of loans.
The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below (in thousands):
| | | In Thousands | |
| | | 2021 | | | 2020 | |
Interest rate contracts for customers | | $ | (57 | ) | | | 386 | |
Forward contracts related to mortgage loans held for sale and interest rate contracts | | | 163 | | | | (134 | ) |
The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of December 31, 2021 and December 31, 2020 (in thousands):
| | | In Thousands | |
| | | 2021 | | | 2020 | |
| | | Notional Amount | | | Fair Value | | | Notional Amount | | | Fair Value | |
Included in other assets (liabilities): | | | | | | | | | | | | | | | | |
Interest rate contracts for customers | | $ | 20,340 | | | | 657 | | | | 20,981 | | | | 714 | |
Forward contracts related to mortgage loans held-for-sale | | | 20,500 | | | | 6 | | | | 21,250 | | | | (157 | ) |
(22) | Disclosures About Fair Value of Financial Instruments |
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| | • | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets |
| | | |
| | • | Level 2 - inputs to the valuation methodology include all prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| | • | Level 3 - inputs to the valuation methodology that are unobservable and significant to the fair value measurement. |
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
Asset
Securities available-for-sale - Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy. Quarterly we will validate prices supplied by our third party vendor by comparison to prices obtained from third parties.
Hedged Loans - The fair value of our hedged loan portfolio is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction.
Impaired loans - A loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower’s underlying financial condition.
Other real estate owned - Other real estate owned (“OREO”) represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Upon acquisition, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for loan losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest income. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.
Mortgage loans held for sale - Mortgage loans held for sale are carried at fair value. The fair value of mortgage loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan and mortgage loans held for sale are included in Level 2 of the valuation hierarchy.
Derivatives - The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).
Other investments — Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The following tables present the financial instruments carried at fair value as of December 31, 2021 and December 31, 2020, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):
| | | Measured on a Recurring Basis | |
| | | Total Carrying Value in the Consolidated Balance Sheet | | | Quoted Market Prices in an Active Market (Level 1) | | | Models with Significant Observable Market Parameters (Level 2) | | | Models with Significant Unobservable Market Parameters (Level 3) | |
December 31, 2021 | | | | | | | | | | | | | | | | |
Hedged Loans | | $ | 28,875 | | | | 0 | | | | 28,875 | | | | 0 | |
Investment securities available-for-sale: | | | | | | | | | | | | | | | | |
U.S. Treasury and other U.S. government agencies | | | 7,221 | | | | 7,221 | | | | 0 | | | | 0 | |
U.S. Government sponsored enterprises | | | 159,230 | | | | 0 | | | | 159,230 | | | | 0 | |
Mortgage-backed securities | | | 461,777 | | | | 0 | | | | 461,777 | | | | 0 | |
Asset-backed securities | | | 46,713 | | | | 0 | | | | 46,713 | | | | 0 | |
Corporate bonds | | | 2,575 | | | | 0 | | | | 2,575 | | | | 0 | |
State and municipal securities | | | 220,069 | | | | 0 | | | | 220,069 | | | | 0 | |
Total investment securities available-for-sale | | | 897,585 | | | | 7,221 | | | | 890,364 | | | | 0 | |
Mortgage loans held for sale | | | 11,843 | | | | 0 | | | | 11,843 | | | | 0 | |
Derivatives | | | 1,855 | | | | 0 | | | | 1,855 | | | | 0 | |
Other investments | | | 2,034 | | | | 0 | | | | 0 | | | | 2,034 | |
Total assets | | $ | 942,192 | | | | 7,221 | | | | 932,937 | | | | 2,034 | |
| | | | | | | | | | | | | | | | | |
Derivatives | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | |
Total liabilities | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | Measured on a Recurring Basis | |
| | | Total Carrying Value in the Consolidated Balance Sheet | | | Quoted Market Prices in an Active Market (Level 1) | | | Models with Significant Observable Market Parameters (Level 2) | | | Models with Significant Unobservable Market Parameters (Level 3) | |
December 31, 2020 | | | | | | | | | | | | | | | | |
Hedged Loans | | $ | 29,842 | | | | 0 | | | | 29,842 | | | | 0 | |
Investment securities available-for-sale: | | | | | | | | | | | | | | | | |
U.S. Government sponsored enterprises | | | 125,905 | | | | 0 | | | | 125,905 | | | | 0 | |
Mortgage-backed securities | | | 263,790 | | | | 0 | | | | 263,790 | | | | 0 | |
Asset-backed securities | | | 36,957 | | | | 0 | | | | 36,957 | | | | 0 | |
Corporate bonds | | | 2,600 | | | | 0 | | | | 2,600 | | | | 0 | |
State and municipal securities | | | 151,291 | | | | 0 | | | | 151,291 | | | | 0 | |
Total investment securities available-for-sale | | | 580,543 | | | | 0 | | | | 580,543 | | | | 0 | |
Mortgage loans held for sale | | | 19,474 | | | | 0 | | | | 19,474 | | | | 0 | |
Derivatives | | | 714 | | | | 0 | | | | 714 | | | | 0 | |
Total assets | | $ | 630,573 | | | | 0 | | | | 630,573 | | | | 0 | |
| | | | | | | | | | | | | | | | | |
Derivatives | | $ | 208 | | | | 0 | | | | 208 | | | | 0 | |
Total liabilities | | $ | 208 | | | | 0 | | | | 208 | | | | 0 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
| | | Measured on a Non-Recurring Basis | |
| | | Total Carrying Value in the Consolidated Balance Sheet | | | Quoted Market Prices in an Active Market (Level 1) | | | Models with Significant Observable Market Parameters (Level 2) | | | Models with Significant Unobservable Market Parameters (Level 3) | |
December 31, 2021 | | | | | | | | | | | | | | | | |
Other real estate owned | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | |
Impaired loans, net (¹) | | | 668 | | | | 0 | | | | 0 | | | | 668 | |
Total | | $ | 668 | | | | 0 | | | | 0 | | | | 668 | |
December 31, 2020 | | | | | | | | | | | | | | | | |
Other real estate owned | | $ | 0 | | | | 0 | | | | 0 | | | | 0 | |
Impaired loans, net (¹) | | | 2,635 | | | | 0 | | | | 0 | | | | 2,635 | |
Total | | $ | 2,635 | | | | 0 | | | | 0 | | | | 2,635 | |
| (1) | As of December 31, 2021 no valuation allowance was recorded. Amount is net of a valuation allowance of $742,000 at December 31, 2020 as required by ASC 310, “Receivables.” |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2021 and 2020:
| | Valuation Techniques (2) | Significant Unobservable Inputs | | Range (Weighted Average) | |
Impaired loans | Appraisal | Estimated costs to sell | | | 10 | % |
Other real estate owned | Appraisal | Estimated costs to sell | | | 10 | % |
| | | | | | | |
(2) The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. |
In the case of its investment securities portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the twelve months ended December 31, 2021, there were no transfers between Levels 1, 2 or 3.
The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2021 and 2020 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):
| | | For the Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| | | Other Assets | | | Other Assets | |
Fair value, January 1 | | $ | 0 | | | $ | 0 | |
Total realized gains included in income | | | 34 | | | | 0 | |
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at December 31 | | | 0 | | | | 0 | |
Purchases, issuances and settlements, net | | | 2,000 | | | | 0 | |
Transfers out of Level 3 | | | 0 | | | | 0 | |
Fair value, December 31 | | $ | 2,034 | | | $ | 0 | |
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at December 31 | | $ | 34 | | | $ | 0 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2021 and December 31, 2020. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Cash and cash equivalents - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
Loans - The fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.
Deposits and Federal Home Loan Bank advances - Fair values for deposits are estimated using discounted cash flow models, using current market interest rates offered on deposits with similar remaining maturities.
Restricted equity securities - It is not practical to determine the fair value of Federal Home Loan Bank or Federal Reserve Bank stock due to restrictions placed on its transferability.
Off-balance sheet instruments - The fair values of the Company’s off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2021 and December 31, 2020. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.
(in Thousands) | | Carrying/Notional Amount | | | Estimated Fair Value (¹) | | | Quoted Market Prices in an Active Market (Level 1) | | | Models with Significant Observable Market Parameters (Level 2) | | | Models with Significant Unobservable Market Parameters (Level 3) | |
December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 453,418 | | | | 453,418 | | | | 453,418 | | | | 0 | | | | 0 | |
Loans, net | | | 2,444,282 | | | | 2,439,539 | | | | 0 | | | | 0 | | | | 2,439,539 | |
Restricted equity securities | | | 5,089 | | | NA | | | NA | | | NA | | | NA | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | | 3,555,071 | | | | 3,227,520 | | | | 0 | | | | 0 | | | | 3,227,520 | |
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 338,856 | | | | 338,856 | | | | 338,856 | | | | 0 | | | | 0 | |
Loans, net | | | 2,282,766 | | | | 2,302,530 | | | | 0 | | | | 0 | | | | 2,302,530 | |
Restricted equity securities | | | 5,089 | | | NA | | | NA | | | NA | | | NA | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | | 2,960,595 | | | | 2,796,339 | | | | 0 | | | | 0 | | | | 2,796,339 | |
Federal Home Loan Bank borrowings | | | 3,638 | | | | 3,755 | | | | 0 | | | | 0 | | | | 3,755 | |
(1) | Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction. |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(23) | Wilson Bank Holding Company - |
Parent Company Financial Information
WILSON BANK HOLDING COMPANY
(Parent Company Only)
Balance Sheets
December 31, 2021 and 2020
| | | Dollars In Thousands | | | |
| | | 2021 | | | | 2020 | | | |
ASSETS | | | | | | | | | | | |
Cash | | $ | 5,113 | | * | | | 4,381 | | * | |
Investment in wholly-owned commercial bank subsidiary | | | 410,034 | | | | | 376,947 | | | |
Deferred income taxes | | | 1,028 | | | | | 854 | | | |
Refundable income taxes | | | 362 | | | | | 242 | | | |
Total assets | | $ | 416,537 | | | | | 382,424 | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
Other liabilities | | $ | 2,820 | | | | | 2,303 | | | |
Total liabilities | | | 2,820 | | | | | 2,303 | | | |
| | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | |
Common stock, par value $2.00 per share, authorized 50,000,000 shares, 11,201,504 and 10,993,404 shares issued and outstanding, respectively | | | 22,403 | | | | | 21,987 | | | |
Additional paid-in capital | | | 105,177 | | | | | 93,034 | | | |
Retained earnings | | | 292,452 | | | | | 257,935 | | | |
Net unrealized gains on available-for-sale securities, net of income taxes of $2,235 and $2,536, respectively | | | (6,315 | ) | | | | 7,165 | | | |
Total stockholders’ equity | | | 413,717 | | | | | 380,121 | | | |
Total liabilities and stockholders’ equity | | $ | 416,537 | | | | | 382,424 | | | |
* | Eliminated in consolidation. |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
WILSON BANK HOLDING COMPANY
(Parent Company Only)
Statements of Earnings
Three Years Ended December 31, 2021
| | | Dollars In Thousands | | | |
| | | 2021 | | | | 2020 | | | | 2019 | | | |
Income: | | | | | | | | | | | | | | | | |
Dividends from commercial bank subsidiary | | $ | 4,300 | | | | | 5,000 | | | | | 2,800 | | | |
Other income | | | 0 | | | | | 61 | | | | | 0 | | | |
| | | | 4,300 | | | | | 5,061 | | | | | 2,800 | | | |
Expenses: | | | | | | | | | | | | | | | | |
Directors’ fees | | | 341 | | | | | 335 | | | | | 283 | | | |
Other | | | 1,575 | | | | | 1,264 | | | | | 885 | | | |
| | | | 1,916 | | | | | 1,599 | | | | | 1,168 | | | |
Income before Federal income tax benefits and equity in undistributed earnings of commercial bank subsidiary | | | 2,384 | | | | | 3,462 | | | | | 1,632 | | | |
Federal income tax benefits | | | 475 | | | | | 471 | | | | | 287 | | | |
| | | | 2,859 | | | | | 3,933 | | | | | 1,919 | | | |
Equity in undistributed earnings of commercial bank subsidiary | | | 46,567 | | * | | | 34,559 | | * | | | 34,125 | | * | |
Net earnings | | $ | 49,426 | | | | | 38,492 | | | | | 36,044 | | | |
* | Eliminated in consolidation. |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
WILSON BANK HOLDING COMPANY
(Parent Company Only)
Statements of Cash Flows
Three Years Ended December 31, 2021
Increase (Decrease) in Cash and Cash Equivalents
| | | Dollars In Thousands | |
| | | 2021 | | | 2020 | | | 2019 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net earnings | | $ | 49,426 | | | | 38,492 | | | | 36,044 | |
Adjustments to reconcile net earnings to net cash used in operating activities: | | | | | | | | | | | | |
Equity in earnings of commercial bank subsidiary | | | (50,867 | ) | | | (39,559 | ) | | | (36,925 | ) |
Decrease (increase) in refundable income taxes | | | (120 | ) | | | (110 | ) | | | 45 | |
Increase in deferred taxes | | | (174 | ) | | | (229 | ) | | | (156 | ) |
Share based compensation expense | | | 1,428 | | | | 1,180 | | | | 786 | |
Increase in other liabilities | | | 113 | | | | 0 | | | | 0 | |
Total adjustments | | | (49,620 | ) | | | (38,718 | ) | | | (36,250 | ) |
Net cash used in operating activities | | | (194 | ) | | | (226 | ) | | | (206 | ) |
Cash flows from investing activities: | | | | | | | | | | | | |
Dividends received from commercial bank subsidiary | | | 4,300 | | | | 5,000 | | | | 2,800 | |
Net cash provided by investing activities | | | 4,300 | | | | 5,000 | | | | 2,800 | |
Cash flows from financing activities: | | | | | | | | | | | | |
Payments made to stock appreciation rights holders | | | (515 | ) | | | (53 | ) | | | (9 | ) |
Dividends paid | | | (14,909 | ) | | | (13,013 | ) | | | (11,725 | ) |
Proceeds from sale of stock pursuant to dividend reinvestment plan | | | 11,188 | | | | 10,056 | | | | 9,134 | |
Proceeds from exercise of stock options | | | 862 | | | | 718 | | | | 775 | |
Repurchase of stock options | | | 0 | | | | 0 | | | | (1,629 | ) |
Net cash used in financing activities | | | (3,374 | ) | | | (2,292 | ) | | | (3,454 | ) |
Net increase (decrease) in cash and cash equivalents | | | 732 | | | | 2,482 | | | | (860 | ) |
Cash and cash equivalents at beginning of year | | | 4,381 | | | | 1,899 | | | | 2,759 | |
Cash and cash equivalents at end of year | | $ | 5,113 | | | | 4,381 | | | | 1,899 | |
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
(24) | Quarterly Financial Data (Unaudited) |
Selected quarterly results of operations for the four quarters ended December 31 are as follows:
| | | (In Thousands, except per share data) | |
| | | 2021 | | | 2020 | | | 2019 | |
| | | Fourth | | | Third | | | Second | | | First | | | Fourth | | | Third | | | Second | | | First | | | Fourth | | | Third | | | Second | | | First | |
| | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | |
Interest income | | $ | 33,810 | | | | 33,719 | | | | 31,570 | | | | 30,742 | | | $ | 30,351 | | | | 30,961 | | | | 31,569 | | | | 30,087 | | | $ | 29,897 | | | | 30,329 | | | | 29,567 | | | | 28,284 | |
Interest expense | | | 2,249 | | | | 2,586 | | | | 2,780 | | | | 3,033 | | | | 3,969 | | | | 4,112 | | | | 4,308 | | | | 4,994 | | | | 5,522 | | | | 5,991 | | | | 5,923 | | | | 5,211 | |
Net interest income | | | 31,561 | | | | 31,133 | | | | 28,790 | | | | 27,709 | | | | 26,382 | | | | 26,849 | | | | 27,261 | | | | 25,093 | | | | 24,375 | | | | 24,338 | | | | 23,644 | | | | 23,073 | |
Provision for loan losses | | | 131 | | | | 130 | | | | 55 | | | | 827 | | | | 3,065 | | | | 1,038 | | | | 4,124 | | | | 1,469 | | | | 686 | | | | 167 | | | | 154 | | | | 1,033 | |
Earnings before income taxes | | | 17,512 | | | | 17,405 | | | | 14,449 | | | | 14,792 | | | | 10,771 | | | | 14,669 | | | | 11,313 | | | | 11,357 | | | | 10,222 | | | | 13,556 | | | | 12,451 | | | | 10,882 | |
Net earnings | | | 13,801 | | | | 13,342 | | | | 11,139 | | | | 11,144 | | | | 8,902 | | | | 11,532 | | | | 9,027 | | | | 9,031 | | | | 7,972 | | | | 10,266 | | | | 9,516 | | | | 8,290 | |
Basic earnings per common share | | | 1.23 | | | | 1.19 | | | | 1.00 | | | | 1.01 | | | | 0.81 | | | | 1.05 | | | | 0.83 | | | | 0.83 | | | | 0.74 | | | | 0.95 | | | | 0.89 | | | | 0.77 | |
Diluted earnings per common share | | | 1.23 | | | | 1.19 | | | | 1.00 | | | | 1.00 | | | | 0.81 | | | | 1.05 | | | | 0.83 | | | | 0.83 | | | | 0.74 | | | | 0.95 | | | | 0.89 | | | | 0.77 | |
| (25) | Revenue from Contracts with Customers |
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Company’s sources of non-interest income for the periods presented. Items outside the scope of ASC Topic 606 are noted as such.
| | | Years ended December 31, | |
| | | 2021 | | | 2020 | | | 2019 | |
| | | (dollars in thousands) | |
| | | | | | | | | | | | | |
Fees and gains on sales of mortgage loans(1) | | $ | 9,997 | | | $ | 9,560 | | | $ | 6,802 | |
Service charges on deposits | | | 6,137 | | | | 5,659 | | | | 6,952 | |
Debit and credit card interchange income | | | 12,029 | | | | 9,187 | | | | 8,301 | |
Brokerage income | | | 6,368 | | | | 4,837 | | | | 4,411 | |
BOLI and annuity earnings(1) | | | 1,109 | | | | 959 | | | | 723 | |
Security gain (loss), net(1) | | | 28 | | | | 882 | | | | (268 | ) |
Other non-interest income | | | 1,428 | | | | 2,056 | | | | 1,428 | |
Total non-interest income | | $ | 37,096 | | | $ | 33,140 | | | $ | 28,349 | |
(1)Not within the scope of ASC Topic 606.
A description of the Company's revenue streams accounted for under ASC Topic 606 follows:
Service charges on deposit accounts - The Company earns fees on its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, and ACH fees are recognized at the time the transaction is executed and the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Account maintenance fees are recognized in the same month the Company earns and satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Debit and credit card interchange income - The Company earns interchange fees from debit and credit cardholder transactions conducted through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Brokerage income - The Company earns fees from investment brokerage services provided to its customers by a third-party service provider. The Company receives commissions from the third-party service provider on a bi-monthly basis based upon customer activity for the month. The fees are recognized monthly when the Company satisfies the performance obligation. Because the Company (1) acts as an agent in arranging the relationship between the customer and third-party service provider and (2) does not control the services rendered to the customer, investment brokerage fees are presented net of related servicing and administration costs.
WILSON BANK HOLDING COMPANY
Notes to Consolidated Financial Statements, Continued
December 31, 2021, 2020 and 2019
ASC Topic 855, Subsequent Events, as amended by ASU No. 2010-90, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The Company evaluated all events or transactions that occurred after December 31, 2021, through the date of the issued financial statements. During this period there were no material recognizable subsequent events that required recognition in the disclosures to the Company's December 31, 2021 financial statements.
