EXHIBIT 13.1
Wilson Bank Holding Company
Common Stock Market Information
The number of stockholders of record at December 31, 2001 was 1,389. Based
solely on information made available to the Company from limited number of
buyers and sellers, the Company believes that the following table sets forth the
quarterly range of sale prices for the Company's stock during the years 2001 and
2000.
Stock Prices
2000 High Low
First Quarter $33.00 $32.00
Second Quarter 34.00 33.00
Third Quarter 34.75 34.00
Fourth Quarter 35.50 34.75
2001 High Low
First Quarter $36.25 $35.50
Second Quarter 37.00 36.25
Third Quarter 38.00 37.00
Fourth Quarter 38.75 38.00
- ------------------
On January 1, 2001, a $.45 per share cash dividend was declared and on
July 1, 2001 a $.50 per share cash dividend was declared and paid to
shareholders of record as of those dates. On January 1, 2000, a $.40 per share
cash dividend was declared and on July 1, 2000 a $.40 per share cash dividend
was declared and paid to shareholders of record as of those dates. Future
dividends will be dependent on the Company's profitability, its capital needs,
overall financial condition, economic and regulatory consideration.
32
WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
AS OF DECEMBER 31,
------------------------------------------------------------
2001 2000 1999 1998 1997
-------- ------- ------- ------- -------
CONSOLIDATED
BALANCE SHEETS:
Total assets end of year $667,804 602,218 495,218 431,975 351,709
Loans, net $489,277 427,764 354,758 292,686 237,666
Securities $98,561 91,064 83,780 73,588 61,497
Deposits $602,576 543,583 447,792 389,105 316,641
Stockholders' equity $45,971 38,735 32,250 29,265 24,817
Years Ended December 31
-----------------------------------------------------------
2001 2000 1999 1998 1997
------- ------ ------ ------ ------
CONSOLIDATED STATEMENTS
OF EARNINGS:
Interest income $47,883 42,426 35,193 30,950 25,141
Interest expense 25,633 22,860 17,457 16,003 12,675
------- ------ ------ ------ ------
Net interest income 22,250 19,566 17,736 14,947 12,466
Provision for possible loan losses 1,976 1,417 1,103 1,010 828
------- ------ ------ ------ ------
Net interest income after provision for
possible loan losses 20,274 18,149 16,633 13,937 11,638
Non-interest income 7,732 5,752 4,350 4,200 3,410
Non-interest expense 17,314 14,871 13,265 11,376 9,618
------- ------ ------ ------ ------
Earnings before income taxes 10,692 9,030 7,718 6,761 5,430
Income taxes 4,041 3,397 2,816 2,257 1,766
------- ------ ------ ------ ------
Net earnings $ 6,651 5,633 4,902 4,504 3,664
======= ====== ====== ====== ======
Minority interest in net earnings of
subsidiaries $ 587 460 271 131 20
======= ====== ====== ====== ======
Cash dividends declared $ 1,920 1,579 1,447 1,203 1,039
======= ====== ====== ====== ======
PER SHARE DATA: (1)
Basic earnings per common share $ 3.26 2.83 2.52 2.37 1.97
Diluted earnings per common share $ 3.26 2.83 2.52 2.37 1.97
Cash dividends $ 0.95 0.80 0.75 0.64 0.56
Book value $ 22.38 19.31 16.43 15.26 13.22
RATIOS:
Return on average stockholders'
equity 15.70% 16.39% 16.04% 16.72% 16.02%
Return on average assets (2) 1.14% 1.14% 1.12% 1.18% 1.17%
Capital to assets (3) 7.61% 7.13% 7.25% 7.61% 8.04%
Dividends declared per share as percentage
of basic earnings per share 29.14% 28.27% 29.76% 27.00% 28.43%
(1) Per share data has been retroactively adjusted to reflect a 4 for 3
stock split which occurred effective September 30, 1999.
(2) Includes minority interest earnings of consolidated subsidiaries in
numerator.
(3) Includes minority interest of consolidated subsidiaries in numerator.
33
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This report includes certain forward-looking statements (any statement
other than those made solely with respect to historical fact) based upon
management's beliefs, as well as assumptions made by and data currently
available to management. This information has been, or in the future may be,
included in reliance on the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The words "expect," "anticipate," "intend,"
"should," "may," "could," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify such forward-looking statements, but other
statements not based on historical information may also be considered
forward-looking. All forward-looking statements are subject to risks,
uncertainties and other facts that may cause the actual results, performance or
achievements of Wilson Bank Holding Company (the "Company") to differ materially
from any results expressed or implied by such forward-looking statements. Such
factors include, without limitation, (i) increased competition with other
financial institutions, (ii) lack of sustained growth in the economy in the
Company's market area, (iii) rapid fluctuations in interest rates, (iv)
significant downturns in the businesses of one or more large customers, (v)
changes in the legislative and regulatory environment, (vi) inadequate allowance
for loan losses, and (vii) loss of key personnel. Many of such factors are
beyond the Company's ability to control or predict, and readers are cautioned
not to put undue reliance on such forward-looking statements. The Company
disclaims any obligation to update or revise any forward-looking statements
contained in this discussion, whether as a result of new information, future
events or otherwise.
The Company is a registered bank holding company that owns 100% of the
common stock of Wilson Bank and Trust, a state bank headquartered in Lebanon,
Tennessee. The Company was formed in 1992.
During 1996, the Company and other organizers consisting primarily of
residents of DeKalb and Smith Counties, Tennessee formed DeKalb Community Bank
and Community Bank of Smith County. The Company acquired 50% of the common stock
of each bank. Each of the banks were capitalized with $3,500,000; and
accordingly, the Company's initial investment in each bank was $1,750,000. Each
of the banks have a dividend reinvestment plan whereby the stockholders are
given the opportunity to reinvest all or a portion of their dividends in the
bank's stock. The Company reinvests its dividends in the amount necessary to
maintain a 50% ownership. DeKalb Community Bank and Community Bank of Smith
County are accounted for as consolidated subsidiaries of the Company and their
accounts are included in the consolidated financial statements. The equity and
earnings applicable to the minority stockholders are shown as minority interest
in the consolidated financial statements.
The Company's three subsidiary banks are community banks headquartered
in Lebanon, Smithville and Carthage, Tennessee, respectively, serving Wilson
County, DeKalb County, Smith County, Trousdale County, and the eastern part of
Davidson County, Tennessee as their primary market areas. The subsidiary banks
have thirteen locations including their three main offices. Davidson, DeKalb,
Smith and Trousdale Counties adjoin Wilson County. Management believes that
these counties offer an environment for continued growth, and the Company's
target market is local consumers, professionals and small businesses. The banks
offer 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 custodial and trust
services and 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 must be
read in conjunction with such consolidated financial statements.
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 2001 were $6,651,000, an
increase of $1,018,000, or 18.1%, over 2000. Net earnings for the year ended
December 31, 2000 were $5,633,000, an increase of $731,000, or 14.9%, over 1999.
On a per share basis, net income equaled $3.26 in 2001, compared with $2.83 in
2000 and $2.52 in 1999.
NET INTEREST INCOME
Net interest income represents the amount by which interest earned on
various earning assets exceeds
34
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
interest paid on deposits and other interest- bearing liabilities and is
the most significant component of the Company's earnings. Total interest income
in 2001 was $47,883,000 compared with $42,426,000 in 2000 and $35,193,000 in
1999. The increase in total interest income in 2001 was primarily due to a
$103.0 million or 20.6% increase in average earning assets over 2000. Average
earning assets increased $68.4 million from December 31, 1999 to December 31,
2000. The average interest rate earned on earning assets was 8.03% in 2001
compared with 8.59% in 2000 and 8.27% in 1999.
Interest earned on earning assets does not include any interest income
which would have been recognized on non-accrual loans if such loans were
performing. The amount of interest not recognized on nonaccrual loans totaled
$12,000 in 2001, compared with $17,000 in 2000 and $8,000 in 1999.
Total interest expense for 2001 was $25,633,000, an increase of
$2,773,000, or 12.1%, compared to total interest expense of $22,860,000 in 2000.
The increase in total interest expense was due to an increase in average
interest bearing deposits of approximately $86,205,000, offset by a decrease in
the weighted average cost of funds from 4.67% to 4.39%. Interest expense
increased from $17,457,000 in 1999 to $22,860,000 in 2000 or an increase of
$5,403,000 or 31.0%. The increase in 2000 was due to a $59,546,000 increase in
average interest bearing deposits and an increase in the weighted average cost
of funds from 4.11% to 4.67%.
Net interest income for 2001 totaled $22,250,000 as compared to
$19,566,000 and $17,736,000 in 2000 and 1999, 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 3.64% from 3.92% in 2000. The net interest spread was 4.16% in
1999. The net interest yield, which is net interest income expressed as a
percentage of average earning assets, decreased to 3.77% for 2001 compared to
4.01% in 2000 and 4.22% in 1999. Interest rates decreased in 2001 as a result of
the Federal Reserve Bank's decision to lower the discount rate to stimulate the
economy. The Company believes that interest rates will stabilize in 2002. The
Company is in a position to reprice its liabilities faster than the assets are
repricing. However, due to the very low interest rate environment, the Company
may have to pay more for deposits to compete with the customers' other
investment opportunities. Management also believes that growth in 2002 will
approximate the growth experienced in 2001. A significant increase in interest
rates could have an adverse impact on net interest yields and earnings.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for loan losses represents a charge to earnings necessary
to establish an allowance for possible loan losses that, in management's
evaluation, should be adequate to provide coverage for estimated losses on
outstanding loans and to provide for uncertainties in the economy. The 2001
provision for loan losses was $1,976,000, an increase of $559,000 from the
provision of $1,417,000 in 2000. The increase in the provision was primarily a
result of increases in loans and general economic conditions. The provision for
loan losses was $1,103,000 in 1999. Net charge-offs increased to $1,012,000 in
2001 from $739,000 in 2000. Net charge-offs in 1999 totaled $500,000. The ratio
of net charge-offs to average total outstanding loans in 2001 was .22% and in
2000 was .19% and in 1999 was .15%. The provision for loan losses in 2001
exceeded net charge-offs by $964,000 compared to $678,000 in 2000 and $603,000
in 1999. Charge-offs increased due to the general economic conditions.
The provision for loan losses raised the allowance for possible loan
losses (net of charge-offs and recoveries) to $5,489,000 at December 31, 2001
from $4,525,000 and $3,847,000 at December 31, 2000 and 1999, respectively. This
represents a 21.3% increase in the allowance at December 31, 2001 over December
31, 2000 as compared to a 14.4% increase in total loans. The allowance for
possible loan losses was 1.11% of total loans outstanding at December 31, 2001
compared to 1.05% at December 31, 2000 and 1.07% at December 31, 1999.
Additionally, as a percentage of nonperforming loans at year end 2001, 2000 and
1999, the allowance for possible loan losses represented 725%, 1,160% and 760%,
respectively.
The level of the allowance and the amount of the provision involve
evaluation of uncertainties and matters of judgment. Management believes the
allowance for possible loan losses at December 31, 2001 to be adequate.
35
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NON-INTEREST INCOME
The components of the Company's non-interest income include service
charges on deposit accounts, other fees, gains on sales of loans, gains on sales
of fixed assets and other income. Total non-interest income for 2001 was
$7,732,000 compared with $5,752,000 in 2000 and $4,350,000 in 1999. The 34.4%
increase over 2000 was primarily due to increases in the volume of service
charges on deposit accounts (which increased $775,000), other fees (which
increased $736,000) and gains on sales of loans (which increased $466,000).
Management intends to continue to aggressively market the services of the trust
department; however, trust income is not expected to have a material impact on
earnings in the immediate future. The Company has entered into a commission
participation arrangement with a local insurance agency to sell insurance
products. Management does not anticipate that this arrangement will materially
impact 2002 non-interest income.
NON-INTEREST EXPENSES
Non-interest expenses consist primarily of employee costs, occupancy
expenses, furniture and equipment expenses, loss on sales of other real estate,
FDIC insurance, Directors' fees and other operating expenses. Total non-interest
expenses for 2001 increased 16.4% to $17,314,000 from $14,871,000 in 2000. The
2000 non-interest expense was up 12.1% over non-interest expense in 1999 which
totaled $13,265,000. The increases in non-interest expenses in 2001 resulted
primarily from increases in employee salaries and related benefits. This
increase was principally due to an increase in the number of employees necessary
to support the Company's expanded operations. Other operating expenses increased
to $4,790,000 in 2001 from $3,719,000 in 2000. These expenses included data
processing, supplies and general operating expenses, which increased as a result
of continued growth of the Company.
INCOME TAXES
The Company's income tax expense was $4,041,000 for 2001 an increase of
$744,000 from $3,397,000 from 2000. The percentage of income tax expense to
earnings before taxes increased to 37.8% in 2001 from 37.6% in 2000. The
percentage was 36.5% in 1999. The percentage for 2001 as compared to 2000
increased primarily as a result of a decrease in the percentage of interest
income exempt from Federal income taxes to earnings before taxes from 9.2% in
2000 to 7.9% in 2001. The increase from 1999 to 2000 is also due to a decrease
in the percentage of interest income exempt from Federal income taxes from 10.8%
in 1999 to 9.2% in 2000. Management continues to evaluate the increases in the
effective income tax rate and believes that the after tax yields on taxable
securities are generally higher than the yields presently available on
non-taxable securities.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY. The Company's total assets increased $65,586,000
or 10.9% to $667,804,000 at December 31, 2001, after increasing 21.6% in 2000 to
$602,218,000 at December 31, 2000. Loans, net of allowance for possible loan
losses, totaled $489,277,000 at December 31, 2001, a 14.4% increase compared to
December 31, 2000. Investment securities increased in 2001, primarily as a
result of increased deposits. At year end 2001 securities totaled $98,561,000,
an increase of 8.2% from $91,064,000 at December 31, 2000. The increase in
securities in 2001 includes a $1,287,000 increase in unrealized gains and losses
on securities available-for-sale.
Total liabilities increased $58,350,000 at December 31, 2001 to
$621,833,000 compared to $563,483,000 at December 31, 2000. This increase was
composed primarily of the $58,993,000 increase in total deposits to $602,576,000
(a 10.9% increase). Securities sold under repurchase agreements decreased to
$8,551,000 from $9,710,000 at the respective year ends 2001 and 2000. Advances
from the Federal Home Loan Bank decreased from $1,857,000 at December 31, 2000
to $1,370,000 at December 31, 2001.
Stockholders' equity increased $7,236,000 or 18.7% due to net earnings
and sales of stock pursuant to the Company's Dividend Reinvestment Plan, net of
dividends paid on the Company's common stock. The increase includes a $724,000
increase in unrealized gains and losses on available-for-sale securities, net of
taxes. A more detailed discussion of assets, liabilities and capital follows.
36
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LOANS:
Loan categories are as follows:
2001 2000
-------------------------- --------------------------
(In Thousands) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ----------
Commercial, financial
and agricultural $190,700 38.5% $157,254 36.4%
Installment 50,741 10.3 48,198 11.1
Real estate - mortgage 228,316 46.1 195,480 45.2
Real estate - construction 25,044 5.1 31,531 7.3
-------- ----- -------- -----
TOTAL $494,801 100.0% $432,463 100.0%
======== ===== ======== =====
Loans are the largest component of the Company's assets and are its
primary source of income. The Company's loan portfolio, net of allowance for
possible loan losses, increased 14.4% as of year end 2001. The loan portfolio is
composed of four primary loan categories: commercial, financial and
agricultural; installment; real estate-mortgage; and real estate- construction.
The table above sets forth the loan categories and the percentage of such loans
in the portfolio at December 31, 2001 and 2000.
As represented in the table, primary loan growth was in real estate
mortgage loans and commercial loans. Real estate mortgage loans increased 16.8%
in 2001 and at December 31, 2001 comprised 46.1% of total loans compared to
45.2% of total loans at December 31, 2000. Management believes this increase was
primarily due to the favorable interest rate environment and the Company's
ability to increase its market share of such loans while maintaining its loan
underwriting standards. Commercial loans increased 21.3% in 2001 and comprised
38.5% of the total loan portfolio at December 31, 2001, compared to 36.4% at
December 31, 2000.
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, 2001, the Company had
no highly leveraged transactions, and there were no foreign loans outstanding
during any of the reporting periods.
Non-performing loans, which include non-accrual loans, loans 90 days
past due, and renegotiated loans totaled $757,000 at December 31, 2001, an
increase from $390,000 at December 31, 2000. Non-accrual loans are loans on
which interest is no longer accrued because management believes collection of
such interest is doubtful due to management's evaluation of the borrower's
financial condition, collateral liquidation value, economic and business
conditions and other factors affecting the borrower's ability to pay.
Non-accrual loans totaled $169,000 at December 31, 2001 compared to $100,000 at
December 31, 2000. Loans 90 days past due, as a component of non-performing
loans, increased to $588,000 at December 31, 2001 from $290,000 at December 31,
2000. This increase is primarily a result of increases in installment loans and
real estate mortgage and construction loans that are 90 days past due. The
Company had no renegotiated loans, which would have been included in
non-performing loans.
The Company also internally classifies loans about which management
questions the borrower's ability to comply with the repayment terms of the loan
agreement. These internally classified loans, inclusive of certain
non-performing loans, totaled $3,153,000 at December 31, 2001 as compared to
$1,271,000 at December 31, 2000. Of the internally classified loans at December
31, 2001, $2,441,000 are real estate related loans and $712,000 are various
other types of loans. The internally classified loans as a percentage of the
allowance for possible loan losses were 57.4% and 28.1%, respectively, at
December 31, 2001 and 2000.
The allowance for possible loan losses is discussed under "Provision
for Possible Loan Losses." The Company maintains its allowance for possible loan
losses at an amount believed by management to be adequate to provide for the
possibility of loan losses in the loan portfolio.
37
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Essentially all of the Company's loans were from Wilson, DeKalb, Smith,
Trousdale and adjacent counties. The Company seeks to exercise prudent risk
management in lending, including diversification by loan category and industry
segment (at December 31, 2001 no single industry segment accounted for more than
10% of the Company's portfolio other than real estate loans), as well as by
identification of credit risks.
The Company's management believes there is a significant opportunity to
continue to increase the loan portfolio in the Company's primary market area
which was expanded in 1999 to include eastern Davidson County, Tennessee. The
Company has targeted commercial business lending, commercial and residential
real estate lending and consumer lending. Although it is the Company's objective
to achieve a loan portfolio equal to approximately 75% of deposit balances,
various factors, including demand for loans which meet its underwriting
standards, will likely determine the size of the loan portfolio in a given
economic climate. This is reflected in the past two years when the Company's
average loan to average deposit ratio was 80.7% and 82.4%, respectively. As a
practice, the Company generates its own loans and does not buy participations
from other institutions. The Company may sell some of the loans it generates to
other financial institutions if the transaction profits the Company and improves
the liquidity of the loan portfolio. The subsidiary banks sell loan
participations to other banks within the consolidated group. The Company seeks
to build a loan portfolio which is capable of adjusting to swings in the
interest rate market, and it is the Company's policy to maintain a diverse loan
portfolio not dependent on any particular market or industrial segment.
SECURITIES
Securities increased 8.2% to $98,561,000 at year end 2001 from
$91,064,000 at December 31, 2000, and comprised the second largest and other
primary component of the Company's earning assets. The growth in the carrying
value of securities for 2001 includes a $8,416,000 increase in market value of
securities classified as available-for-sale. This increase followed a 8.7%
securities portfolio increase from year end 1999 to 2000. The growth in
securities resulted from continued deposit growth in excess of funds necessary
to fund loan growth.
The primary increase in the Company's securities portfolio was in U.S.
Treasury and other U.S. Government agencies which increased $8,093,000 or 11.3%
in 2001. The average yield of the securities portfolio at December 31, 2001 was
5.64% with an average maturity of 5.33 years, as compared to an average yield of
6.86% and an average maturity of 6.75 years at December 31, 2000. Due to falling
interest rates in 2001, payoffs in the securities portfolio increased.
Management reinvested in lower yielding securities, with shorter maturities,
which resulted in the decrease in both average yields and average maturities
from 2000 to 2001.
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments
in Debt and Equity Securities". Under the provisions of the Statement,
securities are to be classified in three categories and accounted for as
follows:
- - Debt securities that the enterprise has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost.
- - Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value with unrealized gains and losses
included in earnings.
- - Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity.
38
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's classification of securities as of December 31, 2001 is as
follows:
(In Thousands) HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------------- ---------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
U.S. Treasury and other
U.S. Government agencies
and Corporations $ -- -- 79,561 79,712
Obligations of states and political
subdivisions 13,273 13,538 2,258 2,291
Mortgage-backed securities 2,857 2,849 423 428
-------- ------ ------ ------
$ 16,130 16,387 82,242 82,431
======== ====== ====== ======
No securities have been classified as trading securities.
The classification of a portion of the securities portfolio as
available-for-sale was made to provide for more flexibility in asset/liability
management and capital management.
DEPOSITS
The increases in assets in 2001 and 2000 were funded primarily by
increases in deposits. Total deposits, which are the principal source of funds
for the Company, totaled $602,576,000 at December 31, 2001 compared to
$543,583,000 and $447,792,000 at December 31, 2000 and 1999, respectively. 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, Smith County and
Trousdale County areas are growing economic markets offering growth
opportunities for the Company; however, the Company competes with several of the
larger bank holding companies that have bank offices in these counties; and
therefore, no assurances of market growth or maintenance of current market share
can be given. Even though the Company is in a very competitive market,
management currently believes that its market share will be maintained or
expanded. Management believes that the acquisition of two of its primary
competitors by larger bank holding companies during 1999 resulted in an
expansion of the Company's market share in 2000 and 2001.
The $58,993,000, or 10.9%, growth in deposits in 2001 consisted of
changes in several deposit categories: savings accounts increased $2,968,000
(10.7%) to $30,755,000, total certificates of deposit (including individual
retirement accounts) increased $14,633,000 (4.6%) to $332,864,000, NOW accounts
increased $7,880,000 (20.8%) to $45,774,000, money market accounts increased
$25,620,000 (24.0%) to $132,115,000 and demand deposits increased $7,892,000
(14.8%) to $61,068,000.
The average rate paid on average total interest- bearing deposits was
4.9% for 2001, compared to 5.2% for 2000. The average rate paid in 1999 was
4.6%.
The ratio of average loans to average deposits was 80.7% in 2001
compared with 82.4% and 78.6% in 2000 and 1999, respectively.
LIQUIDITY AND ASSET MANAGEMENT
The Company's management seeks to maximize net interest income by
managing the Company's assets and liabilities within appropriate constraints on
capital, liquidity and interest rate risk. Liquidity is the ability to maintain
sufficient cash levels necessary to fund operations, meet the requirements of
depositors and borrowers and fund attractive investment opportunities. Higher
levels of liquidity bear corresponding costs, measured in terms of lower yields
on short-term, more liquid earning assets and higher interest expense associated
with extending liability maturities. Liquid assets include cash and cash
equivalents and investment securities and money market instruments that will
mature within one year. At December 31, 2001, the Company's liquid assets
approximated $67.9 million.
39
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's primary source of liquidity is a stable core deposit
base. In addition, short-term investments, loan payments and investment security
maturities provide a secondary source.
Interest rate risk (sensitivity) management focuses on the earnings
risk associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus on
the spread between the cost of funds and interest yields generated primarily
through loans and investments.
At December 31, 2001, the Company had a liability sensitive position (a
negative gap) for 2002 Liability sensitivity means that more of the Company's
liabilities are capable of repricing 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. The 2001 net earnings increased in
the declining rate environment primarily due to a 20.6% growth in earning
assets. The 2000 earnings deteriorated in the rising rate environment, and the
1999 earnings would have also deteriorated in a rising rate environment as
compared with the fairly stable rate environment that existed during most of
1999.
The following table shows the rate sensitivity gaps for different time periods
as of December 31, 2001:
INTEREST RATE SENSITIVITY GAPS One Year
December 31, 2001 1-90 91-180 181-365 and
(In Thousands) Days Days Days Longer Total
- ------------------------------ --------- -------- -------- ------- -------
Interest-earning assets $ 139,011 44,877 71,120 374,194 629,202
Interest-bearing liabilities 308,316 90,790 101,613 50,710 551,429
--------- -------- -------- ------- -------
Interest-rate sensitivity gap $(169,305) (45,913) (30,493) 323,484 77,773
========= ======== ======== ======= =======
Cumulative gap $(169,305) (215,218) (245,711) 77,773
========= ======== ======== =======
At the present time there are no known trends or any known commitments,
demands, events or uncertainties that will result in, or that are reasonably
likely to result in, the Company's liquidity changing in any material way.
CAPITAL POSITION AND DIVIDENDS
CAPITAL. At December 31, 2001, total stockholders' equity was
$45,971,000, or 6.9% of total assets, which compares with $38,735,000, or 6.4%
of total assets at December 31, 2000, and $32,250,000, or 6.5% of total assets,
at December 31, 1999. The dollar increase in stockholders' equity during 2001
reflects (i) the Company's net income of $6,651,000 less cash dividends of $.95
per share totaling $1,920,000, (ii) the issuance of 46,865 shares of common
stock for $1,743,000 in lieu of payment of cash dividends, (iii) the issuance of
1,266 shares of common stock pursuant to exercise of stock options for $38,000
and (iv) the decrease in the net unrealized loss on available-for-sale
securities of $724,000.
The Company's principal regulators have established minimum risk-based
capital requirements and leverage capital requirements for the Company and its
subsidiary banks. These guidelines classify capital into two categories of Tier
I and Total risk-based capital. Total risk-based capital consists of Tier I (or
core) capital (essentially common equity less intangible assets) and Tier II
capital (essentially qualifying long-term debt, of which the Company and
subsidiary banks have none, and a part of the allowance for possible loan
losses). In determining risk-based capital requirements, assets are assigned
risk-weights of 0% to 100%, depending on regulatory assigned levels of credit
risk associated with such assets. The risk-based capital guidelines require the
subsidiary banks and the Company to have a total risk- based capital ratio of
8.0% and a Tier I risk-based capital ratio of 4.0%. At December 31, 2001 the
Company's total risk-based capital ratio was 12.2% and its Tier I risk- based
capital ratio was 11.0%, respectively, compared to ratios of 10.5% and 11.6%,
40
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
respectively at December 31, 2000. The required Tier I leverage capital ratio
(Tier I capital to average assets for the most recent quarter) for the Company
is 4.0%. At December 31, 2001, the Company had a leverage ratio of 7.4% compared
to 7.3% at December 31, 2000. Management believes it can adequately capitalize
its growth for the next few years with earnings.
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 immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus on
the spread between the cost of funds and interest yields generated primarily
through loans and investments. The following table provides information about
the Company's financial instruments that are sensitive to changes in interest
rates as of December 31, 2001.
(DOLLARS IN THOUSANDS)
EXPECTED MATURITY DATE - YEAR ENDING DECEMBER 31, FAIR
2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
EARNING ASSETS:
Loans, net of unearned interest:
Variable rate $ 21,124 3,453 3,711 6,587 6,437 179,687 220,999 220,999
Average interest rate 6.53% 6.68% 6.54% 6.74% 6.74% 7.69% 7.55%
Fixed rate 112,424 28,854 21,454 30,734 30,566 49,735 273,767 279,173
Average interest rate 7.77% 8.92% 8.96% 8.06% 8.06% 7.70% 8.03%
Securities 3,424 5,225 13,363 23,550 6,592 46,407 98,561 98,818
Average interest rate 6.06% 4.60% 4.38% 4.88% 5.61% 6.27% 5.53%
Loans held for sale 4,369 -- -- -- -- -- 4,369 4,369
Average interest rate 4.66% -- -- -- -- 4.66%
Federal funds sold 31,506 -- -- -- -- -- 31,506 31,506
Average interest rate 3.89% -- -- -- -- 3.89%
Interest-bearing deposits 475,389 39,698 23,220 1,325 1,570 306 541,508 546,240
Average interest rate 3.89% 5.83% 5.00% 6.59% 5.74% 4.38% 4.07%
Short-term borrowings 8,551 -- -- -- -- -- 8,551 8,551
Average interest rate 3.40% -- -- -- -- 3.40%
Advances from Federal
Home Loan Bank -- -- -- -- -- 1,370 1,370 1,582
Average interest rate -- -- -- -- 7.18% 7.18%
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUPERVISION AND REGULATION
Bank Holding Company Act of 1956. As a bank holding company, the
Company is subject to regulation under the Bank Holding Company Act of 1956 (the
"Act"), and the regulations adopted by the Board of Governors of the Federal
Reserve System (the "Board") under the Act. The Company is required to file
reports with, and is subject to examination by, the Board. The subsidiary banks
are Tennessee state chartered banks, and are therefore subject to the
supervision of and are regularly examined by the Tennessee Department of
Financial Institutions (the "TDFI") and the Federal Deposit Insurance
Corporation ("FDIC").
Under the Act, a bank holding company may not directly or indirectly
acquire the ownership or control of more than five percent of the voting shares
or substantially all of the assets of any company, including a bank, without the
prior approval of the Board. In addition, bank holding companies are generally
prohibited under the Act from engaging in non-banking activities, subject to
certain exceptions. Under the Act, the Board is authorized to approve the
ownership by a bank holding company of shares of any company whose activities
have been determined by the Board to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto.
In November, 1999, the Gramm-Leach-Bliley Act of 1999 (the "GLB Act")
became law. Under the GLB Act, a "financial holding company" may engage in
activities the Board determines to be financial in nature or incidental to such
financial activity or complementary to a financial activity and not a
substantial risk to the safety and soundness of such depository institutions or
the financial system. Generally, such companies may engage in a wide range of
securities activities and insurance underwriting and agency activities.
Under the Tennessee Bank Structure Act, a bank holding company which
controls 30% or more of the total deposits (excluding certain deposits) in all
federally insured financial institutions in Tennessee is prohibited from
acquiring any bank in Tennessee. State banks and national banks in Tennessee may
establish branches anywhere in the state.
Congress enacted the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "IBBEA") which authorizes interstate acquisitions of
banks and bank holding companies without geographic limitation beginning June 1,
1997. In addition, on that date, the IBBEA authorizes a bank to merge with a
bank in another state as long as neither of the states has opted out of
interstate branching between the date of enactment of the IBBEA and May 1, 1997.
In response to IBBEA, Tennessee enacted interstate banking and branching laws
that generally prohibit (i) out-of-state banks and bank holding companies from
directly or indirectly acquiring control of, merging, or consolidating with any
Tennessee bank that has been in operation for less than five years, and (ii) an
out-of-state bank from acquiring a bank branch located in Tennessee or
establishing a de novo branch in Tennessee unless the laws of the such bank's
home state reciprocally permit Tennessee banks to acquire, or establish de novo,
bank branches.
The Company and the subsidiary banks are subject to certain
restrictions imposed by the Federal Reserve Act and the Federal Deposit
Insurance Act, respectively, on any extensions of credit to the Company or the
subsidiary banks, on investments in the stock or other securities of the Company
or the subsidiary banks, and on taking such stock or other securities as
collateral for loans of any borrower.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal banking regulators have assigned each insured
institution to one of five categories ("well capitalized," "adequately
capitalized" or one of three under capitalized categories) based upon the three
measures of capital adequacy discussed above. Institutions which have a Tier I
leverage capital ratio of 5%, a Tier I risk based capital ratio of 5% and a
total risk based capital ratio of 10% are defined as "well capitalized". All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any of its capital
requirements for "adequately capitalized" status. The subsidiary banks currently
meet the requirements for "well capitalized" status.
An institution that fails to meet the minimum level for any relevant
capital measure (an
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"undercapitalized institution") may be: (i) subject to increased monitoring by
the appropriate federal banking regulator; (ii) required to submit an acceptable
capital restoration plan within 45 days (which must be guaranteed by the
institution's holding company); (iii) subject to asset growth limits; and (iv)
required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses. The bank regulatory agencies have discretionary authority
to reclassify a well capitalized institution as adequately capitalized or to
impose on an adequately capitalized institution requirements or actions
specified for undercapitalized institutions if the agency determines that the
institution is in an unsafe or unsound condition or is engaging in an unsafe or
unsound practice.
A "significantly undercapitalized" institution may be subject to a
number of additional requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized," requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator.
Under FDICIA, bank regulatory agencies have prescribed safety and
soundness guidelines for all insured depository institutions relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, asset
quality, earnings and compensation.
The subsidiary banks are assessed quarterly at the rate of .00455% of
insured deposits for deposit insurance.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material effect on
the Company's liquidity, capital resources or operations.
Monetary Policy. The subsidiary banks are affected by commercial bank
credit policies of regulatory authorities, including the Board. An important
function of the Board is to regulate the national supply of bank credit in order
to attempt to combat recessionary and curb inflationary pressures. Among the
instruments of monetary policy used by the Board of implement these objectives
are: open market operations in U.S. Government securities, changes in discount
rates on member borrowings, changes in reserve requirements against bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. These means are used in varying combinations to influence
overall growth of bank loans, investments and deposits, and may also affect
interest rates charged on loans or paid on deposits. The monetary policies of
the Board have had a significant effect on the operating results of commercial
banks, including nonmembers (such as the Company's bank subsidiaries) as well as
members, in the past and are expected to continue to do so in the future.
IMPACT OF INFLATION
Although interest rates are significantly affected by inflation, the
inflation rate is believed to be immaterial when reviewing the Company's results
of operations.
WILSON BANK HOLDING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
MAGGART & ASSOCIATES, P.C.
Certified Public Accountants
150 FOURTH AVENUE, NORTH
SUITE 2150
NASHVILLE, TENNESSEE 37219-2417
Telephone (615) 252-6100
Facsimile (615) 252-6105
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Wilson Bank Holding Company:
We have audited the accompanying consolidated balance sheets of Wilson Bank
Holding Company and Subsidiaries as of December 31, 2001 and 2000, 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, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wilson
Bank Holding Company and Subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 17, 2002
WILSON BANK HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
In Thousands
----------------------
2001 2000
---- ----
ASSETS
Loans, net of allowance for possible loan losses of $5,489,000
and $4,525,000, respectively $489,277 427,764
Securities:
Held-to-maturity, at amortized cost (market value $16,387,000
and $17,052,000, respectively) 16,130 17,049
Available-for-sale, at market (amortized cost $82,242,000 and
$75,113,000, respectively) 82,431 74,015
-------- --------
Total securities 98,561 91,064
Loans held for sale 4,369 1,295
Federal funds sold 31,506 34,665
-------- --------
Total earning assets 623,713 554,788
-------- --------
Cash and due from banks 20,154 23,201
Premises and equipment, net 15,139 15,499
Accrued interest receivable 4,648 4,934
Deferred income taxes 1,579 1,555
Other real estate 415 425
Other assets 2,156 1,816
-------- --------
Total assets $667,804 602,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $602,576 543,583
Securities sold under repurchase agreements 8,551 9,710
Advances from Federal Home Loan Bank 1,370 1,857
Accrued interest and other liabilities 4,466 4,112
Minority interest 4,870 4,221
-------- --------
Total liabilities 621,833 563,483
-------- --------
Stockholders' equity:
Common stock, par value $2.00 per share, authorized 5,000,000 shares,
2,054,089 and 2,005,958 shares issued and outstanding, respectively 4,108 4,012
Additional paid-in capital 11,847 10,162
Retained earnings 29,903 25,172
Net unrealized gains (losses) on available-for-sale securities, net of income
tax expense of $69,000 and income tax benefit of $373,000, respectively 113 (611)
-------- --------
Total stockholders' equity 45,971 38,735
-------- --------
COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' equity $667,804 602,218
======== ========
See accompanying notes to consolidated financial statements.
2
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 2001
In Thousands (except per share data)
------------------------------------
2001 2000 1999
---- ---- ----
Interest income:
Interest and fees on loans $ 40,262 35,743 28,937
Interest and dividends on securities:
Taxable securities 5,136 4,727 4,371
Exempt from Federal income taxes 850 829 830
Interest on loans held for sale 182 94 128
Interest on Federal funds sold 1,453 1,033 927
-------- ------- -------
Total interest income 47,883 42,426 35,193
-------- ------- -------
Interest expense:
Interest on negotiable order of withdrawal accounts 515 577 406
Interest on money market accounts and other
savings accounts 4,610 4,724 3,967
Interest on certificates of deposit 20,000 16,960 12,674
Interest on securities sold under repurchase agreements 392 502 408
Interest on advances from Federal Home Loan Bank 112 89 --
Interest on Federal funds purchased 4 8 2
-------- ------- -------
Total interest expense 25,633 22,860 17,457
-------- ------- -------
Net interest income before provision for possible loan losses 22,250 19,566 17,736
Provision for possible loan losses (1,976) (1,417) (1,103)
-------- ------- -------
Net interest income after provision for possible loan losses 20,274 18,149 16,633
Non-interest income 7,732 5,752 4,350
Non-interest expense (17,314) (14,871) (13,265)
-------- ------- -------
Earnings before income taxes 10,692 9,030 7,718
Income taxes 4,041 3,397 2,816
-------- ------- -------
Net earnings $ 6,651 5,633 4,902
======== ======= =======
Basic earnings per common share $ 3.26 2.83 2.52
======== ======= =======
Diluted earnings per common share $ 3.26 2.83 2.52
======== ======= =======
See accompanying notes to consolidated financial statements.
3
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 2001
In Thousands
-----------------------------
2001 2000 1999
---- ---- ----
Net earnings $6,651 5,633 4,902
------ ----- ------
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities
arising during period, net of taxes of $442,000
$615,000 and $1,109,000, respectively 724 1,005 (1,811)
------ ----- ------
Other comprehensive earnings (loss) 724 1,005 (1,811)
------ ----- ------
Comprehensive earnings $7,375 6,638 3,091
====== ===== ======
See accompanying notes to consolidated financial statements.
4
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2001
In Thousands
------------------------------------------------------------
Net Unrealized
Additional Gain (Loss) On
Common Paid-In Retained Available-For-
Stock Capital Earnings Sale Securities Total
------ ---------- ------- --------------- -------
Balance December 31, 1998 $2,877 8,530 17,663 195 29,265
Cash dividends declared, $.75 per share -- -- (1,447) -- (1,447)
Issuance of 32,363 shares of stock pursuant
to dividend reinvestment plan 65 1,216 -- -- 1,281
Sale of 2,000 shares of stock 4 56 -- -- 60
Issuance of 490,019 shares of stock pursuant
to a 4 for 3 stock split 980 (980) -- -- --
Net change in unrealized gain (loss) on
available-for-sale securities during
the year, net of taxes of $1,109,000 -- -- -- (1,811) (1,811)
Net earnings for the year -- -- 4,902 -- 4,902
------ ------- ------- ------ -------
Balance December 31, 1999 3,926 8,822 21,118 (1,616) 32,250
Cash dividends declared, $.80 per share -- -- (1,579) -- (1,579)
Issuance of 42,795 shares of stock pursuant
to dividend reinvestment plan 86 1,340 -- -- 1,426
Net change in unrealized gain (loss) on
available-for-sale securities during
the year, net of taxes of $615,000 -- -- -- 1,005 1,005
Net earnings for the year -- -- 5,633 -- 5,633
------ ------- ------- ------ -------
Balance December 31, 2000 4,012 10,162 25,172 (611) 38,735
Cash dividends declared, $.95 per share -- -- (1,920) -- (1,920)
Issuance of 46,865 shares of stock pursuant
to dividend reinvestment plan 94 1,649 -- -- 1,743
Issuance of 1,266 shares of stock pursuant
to exercise of stock options 2 36 -- -- 38
Net change in unrealized gain (loss) on
available-for-sale securities during
the year, net of taxes of $442,000 -- -- -- 724 724
Net earnings for the year -- -- 6,651 -- 6,651
------ ------- ------- ------ -------
Balance December 31, 2001 $4,108 11,847 29,903 113 45,971
====== ======= ======= ====== =======
See accompanying notes to consolidated financial statements.
5
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2001
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Interest received $ 48,046 41,290 34,597
Fees received 6,692 5,172 3,781
Proceeds from sales of loans 62,005 37,249 42,392
Origination of loans held for sale (64,039) (36,135) (39,786)
Interest paid (26,027) (21,806) (17,298)
Cash paid to suppliers and employees (15,193) (13,090) (11,960)
Income taxes paid (4,422) (3,616) (2,601)
-------- ------- -------
Net cash provided by operating activities 7,062 9,064 9,125
-------- ------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (96,899) (9,664) (31,619)
Proceeds from maturities of available-for-sale securities 89,893 4,578 14,606
Purchase of held-to-maturity securities (1,475) (2,293) (861)
Proceeds from maturities of held-to-maturity securities 2,394 1,981 4,532
Loans made to customers, net of repayments (64,379) (75,068) (63,706)
Purchase of bank premises and equipment (870) (516) (2,699)
Proceeds from sales of fixed assets -- 26 1
Proceeds from sales of other real estate 875 459 404
-------- ------- -------
Net cash used in investing activities (70,461) (80,497) (79,342)
-------- ------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings, NOW
and money market deposit accounts 44,361 33,509 21,808
Net increase in time deposits 14,632 62,282 36,879
Proceeds from (purchase of) sale of securities under
agreements to repurchase (1,159) 1,167 1,285
Advances from (repayments to) Federal Home Loan Bank, net (487) 1,857 --
Dividends paid (1,920) (1,579) (1,447)
Dividends paid to minority shareholders (120) (87) --
Proceeds from sale of stock to minority shareholders 105 75 --
Proceeds from sale of common stock dividend reinvestment 1,743 1,426 1,341
Proceeds from sale of common stock pursuant to exercise
of stock options 38 -- --
-------- ------- -------
Net cash provided by financing activities 57,193 98,650 59,866
-------- ------- -------
Net increase (decrease) in cash and cash equivalents (6,206) 27,217 (10,351)
Cash and cash equivalents at beginning of year 57,866 30,649 41,000
-------- ------- -------
Cash and cash equivalents at end of year $ 51,660 57,866 30,649
======== ======= =======
See accompanying notes to consolidated financial statements.
6
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 2001
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
---------------------------------
2001 2000 1999
---- ---- ----
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 6,651 5,633 4,902
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,230 1,255 1,265
Provision for possible loan losses 1,976 1,417 1,103
Provision for deferred taxes (512) (158) (137)
Loss on sales of other real estate 27 21 2
Net loss (gain) on sales of fixed assets -- (5) 9
FHLB dividend reinvestment (123) (96) (75)
Decrease (increase) in loans held for sale (3,074) 540 2,046
Decrease in refundable income taxes -- 26 321
Increase (decrease) in taxes payable 131 (87) 33
Decrease (increase) in accrued interest receivable 286 (1,040) (521)
Increase (decrease) in interest payable (394) 1,054 159
Increase in other assets (342) (136) (266)
Increase in accrued expenses 619 180 13
Net gains of minority interests of commercial
bank subsidiaries 587 460 271
------- ------ ------
Total adjustments 411 3,431 4,223
------- ------ ------
Net cash provided by operating activities $ 7,062 9,064 9,125
======= ====== ======
Supplemental Schedule of Non-Cash Activities:
Unrealized gain (loss) in value of securities available-for-sale,
net of taxes of $442,000 in 2001, $615,000 in 2000,
and $1,109,000 in 1999 $ 724 1,005 (1,811)
======= ====== ======
Non-cash transfers from loans to other real estate $ 890 551 403
======= ====== ======
See accompanying notes to consolidated financial statements.
7
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Wilson Bank Holding Company
and Subsidiaries ("the Company") are in accordance with accounting
principles generally accepted in the United States of America 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, its wholly-owned subsidiary, Wilson Bank & Trust,
Hometown Finance Company, a wholly-owned subsidiary of Wilson
Bank & Trust, DeKalb Community Bank, a 50% owned subsidiary,
and Community Bank of Smith County, a 50% owned subsidiary.
The assets and liabilities of Hometown were distributed to
Wilson Bank and Trust in December, 2001. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(B) NATURE OF OPERATIONS
Wilson Bank & Trust, DeKalb Community Bank and Community Bank
of Smith County operate under state bank charters and provide
full banking services. Wilson Bank & Trust also provides trust
services. As state banks, the subsidiary banks are subject to
regulations of the Tennessee Department of Financial
Institutions and the Federal Deposit Insurance Corporation.
The areas served by the banks include Wilson County, DeKalb
County, Smith County and Trousdale County, Tennessee and
surrounding counties in Middle Tennessee. Services are
provided at the three main offices and ten branch locations.
(C) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to
determination of the allowance for possible loan losses and
the valuation of debt and equity securities and the related
deferred taxes.
8
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS
Loans are stated at the principal amount outstanding. Unearned
discount, deferred loan fees net of loan acquisition costs,
and the allowance for possible loan losses are shown as
reductions of loans. Loan origination and commitment fees and
certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield
over the contractual life of the loan. Unearned discount
represents the unamortized amount of finance charges,
principally related to certain installment loans. Interest
income on most loans is accrued based on the principal amount
outstanding.
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures." These pronouncements apply to impaired loans
except for large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment including
residential mortgage and installment loans.
A loan is impaired when it is probable that the Company will
be unable to collect the scheduled payments of principal and
interest due under the contractual terms of the loan
agreement. Impaired loans are measured at the present value of
expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the
fair value of the collateral if the loan is collateral
dependent. If the measure of the impaired loan is less than
the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with
a corresponding charge to the provision for possible loan
losses or by adjusting an existing valuation allowance for the
impaired loan with a corresponding charge or credit to the
provision for possible loan losses.
The Company's installment loans are divided into various
groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment and, thus, are not
subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for
impairment under the provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as
to timely collection of principal or interest exists, or when
principal or interest is past due 90 days or more unless such
loans are well-secured and in the process of collection.
Delays or shortfalls in loan payments are evaluated along with
various other factors to determine if a loan is impaired.
Generally, delinquencies under 90 days are considered
insignificant unless certain other factors are present which
indicate impairment is probable. The decision to place a loan
on nonaccrual status is also based on an evaluation of the
borrower's financial condition, collateral, liquidation value,
and other factors that affect the borrower's ability to pay.
9
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS, CONTINUED
Generally, at the time a loan is placed on nonaccrual status,
all interest accrued and uncollected on the loan in the
current fiscal year is reversed from income, and all interest
accrued and uncollected from the prior year is charged off
against the allowance for possible loan losses. Thereafter,
interest on nonaccrual loans is recognized as interest income
only to the extent that cash is received and future collection
of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such cash received is
applied as a reduction of principal. A nonaccrual loan may be
restored to an accruing status when principal and interest are
no longer past due and unpaid and future collection of
principal and interest on a timely basis is not in doubt.
Loans not on nonaccrual status are classified as impaired in
certain cases when there is inadequate protection by the
current net worth and financial capacity of the borrower or of
the collateral pledged, if any. In those cases, such loans
have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will
sustain some loss. In such cases, interest income continues to
accrue as long as the loan does not meet the Company's
criteria for nonaccrual status.
Generally, the Company also classifies as impaired any loans
the terms of which have been modified in a troubled debt
restructuring. Interest is generally accrued on such loans
that continue to meet the modified terms of their loan
agreements.
The Company's charge-off policy for impaired loans is similar
to its charge-off policy for all loans in that loans are
charged off in the month when they are considered
uncollectible.
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents a charge to
earnings necessary, after loan charge-offs and recoveries, to
maintain the allowance for possible loan losses at an
appropriate level which is adequate to absorb estimated losses
inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from
other sources, including commitments to extend credit and
standby letters of credit. The level of the allowance is
determined on a quarterly basis using procedures which
include: (1) categorizing commercial and commercial real
estate loans into risk categories to estimate loss
probabilities based primarily on the historical loss
experience of those risk categories and current economic
conditions; (2) analyzing significant commercial and
commercial real estate credits and calculating specific
reserves as
10
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
necessary; (3) assessing various homogeneous consumer loan
categories to estimate loss probabilities based primarily on
historical loss experience; (4) reviewing unfunded
commitments; and (5) considering various other factors, such
as changes in credit concentrations, loan mix, and economic
conditions which may not be specifically quantified in the
loan analysis process.
The allowance for possible loan losses consists of an
allocated portion and an unallocated, or general portion. The
allocated portion is maintained to cover estimated losses
applicable to specific segments of the loan portfolio. The
unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not
identified by the more objective processes used for the
allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an
allocated portion and an unallocated portion, these terms are
primarily used to describe a process. Both portions of the
allowance are available to provide for inherent loss in the
entire portfolio.
The allowance for possible loan losses is increased by
provisions for possible loan losses charged to expense and is
reduced by loans charged off net of recoveries on loans
previously charged off. The provision is based on management's
determination of the amount of the allowance necessary to
provide for estimated loan losses based on its evaluation of
the loan portfolio. Determining the appropriate level of the
allowance and the amount of the provision involves
uncertainties and matters of judgment and therefore cannot be
determined with precision.
(F) DEBT AND EQUITY SECURITIES
The Company applies the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the
provisions of the Statement, securities are classified in
three categories and accounted for as follows:
- Securities Held-to-Maturity
Debt securities that the enterprise has the positive
intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized
cost. Amortization of premiums and accretion of
discounts are recognized by the interest method.
11
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(F) DEBT AND EQUITY SECURITIES, CONTINUED
- Trading Securities
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term are classified as trading securities and reported
at fair value, with unrealized gains and losses included
in earnings.
- Securities Available-for-Sale
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported
at estimated fair value, with unrealized gains and
losses excluded from earnings and reported in a separate
component of stockholders' equity. Premiums and
discounts are recognized by the interest method.
No securities have been classified as trading securities.
Realized gains or losses from the sale of debt and equity
securities are recognized based upon the specific
identification method.
(G) LOANS HELD FOR SALE
Mortgage loans held for sale are reported at the lower of cost
or market value, determined by outstanding commitments from
investors at the balance sheet date. These loans are valued on
an aggregate basis.
(H) 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. Gain or loss on
items retired and otherwise disposed of is credited or charged
to operations and cost and related accumulated depreciation
are removed from the asset and accumulated depreciation
accounts.
Expenditures for major renewals and improvements of premises
and equipment are capitalized and those for maintenance and
repairs are charged to earnings as incurred.
12
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(I) LONG-LIVED ASSETS
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that long-lived
assets and certain identifiable intangibles to be held and
used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The
Company has determined that no impairment loss need be
recognized for its long-lived assets.
(J) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and
Federal funds sold. Generally, Federal funds sold are
purchased and sold for one-day periods. The Company maintains
deposits with other financial institutions in excess of the
Federal insurance amounts. Management makes deposits only with
financial institutions it considers to be financially sound.
(K) INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of
non-taxable income such as interest on state and municipal
securities) and deferred taxes on temporary differences
between the amount of taxable and pretax financial income and
between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to
the period in which the deferred tax asset and liabilities are
expected to be realized or settled as prescribed in Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
The Company and its wholly-owned subsidiaries file a
consolidated Federal income tax return. The 50% owned
subsidiaries file a separate Federal income tax return but are
included in the Company's consolidated state income tax
return. Each subsidiary provides for income taxes on a
separate-return basis.
(L) ADVERTISING COSTS
Advertising costs are expensed when incurred.
13
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(M) STOCK SPLIT
The Company's Board of Directors voted a 4 for 3 stock split
for stockholders of record as of September 30, 1999. Each
stockholder received one (1) additional share for each three
(3) shares owned with no allowance for fractional shares. Per
share data included in these financial statements has been
restated to give effect to the stock split.
(N) OTHER REAL ESTATE
Real estate acquired in settlement of loans is initially
recorded at the lower of cost (loan value of real estate
acquired in settlement of loans plus incidental expense) or
estimated fair value, less estimated cost to sell. Based on
periodic evaluations by management, the carrying values are
reduced by a direct charge to earnings when they exceed net
realizable value. Costs relating to the development and
improvement of the property are capitalized, while holding
costs of the property are charged to expense in the period
incurred.
(O) RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999
figures to conform to the presentation for 2001.
(P) OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the subsidiary banks have
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.
14
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The classification of loans at December 31, 2001 and 2000 is as
follows:
In Thousands
------------------------
2001 2000
---- ----
Commercial, financial and agricultural $ 190,700 157,254
Installment 50,741 48,198
Real estate - construction 25,044 31,531
Real estate - mortgage 228,316 195,480
--------- --------
494,801 432,463
Unearned interest (35) (174)
Allowance for possible loan losses (5,489) (4,525)
--------- --------
$ 489,277 427,764
========= ========
The principal maturities on loans at December 31, 2001 are as follows:
In Thousands
-----------------------------------------------------------------------------
Commercial,
Financial
and Real Estate - Real Estate -
Agricultural Installment Construction Mortgage Total
------------ ----------- ------------- ------------- -----
3 months or less $ 31,146 3,381 11,712 3,002 49,241
3 to 12 months 67,222 4,123 13,028 2,400 86,773
1 to 5 years 61,757 40,965 197 29,196 132,115
Over 5 Years 30,575 2,272 107 193,718 226,672
-------- ------ ------- ------- -------
$190,700 50,741 25,044 228,316 494,801
======== ====== ======= ======= =======
At December 31, 2001, variable rate and fixed rate loans total
$220,999,000 and $273,802,000, respectively. At December 31, 2000,
variable rate loans were $180,732,000 and fixed rate loans totaled
$251,731,000.
In the normal course of business, the Company's subsidiaries have made
loans at prevailing interest rates and terms to directors and executive
officers of the Company and to their affiliates. The aggregate amount
of these loans was $12,471,000 and $13,472,000 at December 31, 2001 and
2000, respectively. As of December 31, 2001 none of these loans were
restructured, nor were any related party loans charged-off during the
past three years.
15
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
An analysis of the activity with respect to such loans to related
parties is as follows:
In Thousands
----------------------
December 31,
----------------------
2001 2000
---- ----
Balance, January 1 $ 13,472 9,433
New loans during the year 15,345 12,160
Repayments during the year (16,346) (8,121)
---------- ------
Balance, December 31 $ 12,471 13,472
========== ======
A director of the Company performs appraisals related to certain loan
customers. Fees paid to the director for these services were $208,000
in 2001, $278,000 in 2000 and $239,000 in 1999.
Loans which had been placed on non-accrual status totaled $169,000 and
$100,000 at December 31, 2001 and 2000, respectively. Had interest on
these loans been accrued, interest income would have been increased by
approximately $12,000 in 2001 and $17,000 in 2000. In 1999, interest
income that would have been earned had there been no non-accrual loans
totaled approximately $8,000.
Transactions in the allowance for possible loan losses for the years
ended December 31, 2001, 2000 and 1999 are summarized as follows:
In Thousands
-------------------------------------
2001 2000 1999
---- ---- ----
Balance, beginning of year $ 4,525 3,847 3,244
Provision charged to operating expense 1,976 1,417 1,103
Loans charged off (1,251) (873) (589)
Recoveries on losses 239 134 89
------- ------ ------
Balance, end of year $ 5,489 4,525 3,847
======= ====== ======
The Company's principal customers are basically in the Middle Tennessee
area with a concentration in Wilson County, Tennessee. Credit is
extended to businesses and individuals and is evidenced by promissory
notes. The terms and conditions of the loans including collateral
varies depending upon the purpose of the credit and the borrower's
financial condition.
16
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
Impaired loans and related loan loss reserve amounts at December 31,
2001 and 2000 were as follows:
In Thousands
---------------
December 31,
---------------
2001 2000
---- ----
Recorded investment $168 100
Loan loss reserve $ 55 48
The average recorded investment in impaired loans for the years ended
December 31, 2001 and 2000 was $111,000 and $52,000, respectively.
There was no interest income recognized on these loans during 2001 or
2000.
In 2001, 2000 and 1999, the Company originated and sold loans in the
secondary market of $64,039,000, $36,135,000, and $39,786,000,
respectively. At December 31, 2001, the wholly-owned subsidiary Bank
had not been required to repurchase any of the loans originated by the
Bank and sold in the secondary market. The gain on sale of these loans
totaled $1,040,000, $574,000, and $560,000 in 2001, 2000 and 1999,
respectively.
Of the loans sold in the secondary market, the recourse to the
wholly-owned subsidiary Bank is limited. On loans sold to the Federal
Home Loan Mortgage Corporation, the Bank has a recourse obligation for
one year from the purchase date. At December 31, 2001, loans sold to
the Federal Home Loan Mortgage Corporation with existing recourse
totaled $159,000. All other loans sold in the secondary market provide
the purchase recourse to the Bank for a period of 90 days from the date
of purchase and only in the event of a default by the borrower pursuant
to the terms of the individual loan agreement. At December 31, 2001,
total loans sold with recourse to the Bank, including those sold to the
Federal Home Loan Mortgage Corporation, aggregated $23,883,000.
Management expects no loss to result from these recourse provisions.
(3) DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the consolidated
balance sheet according to management's intent. Debt and equity
securities at December 31, 2001 consist of the following:
Securities Held-To-Maturity
-------------------------------------------------------
In Thousands
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of states and political
subdivisions $13,273 292 27 13,538
Mortgage-backed securities 2,857 8 16 2,849
------- --- -- ------
$16,130 300 43 16,387
======= === == ======
17
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(3) DEBT AND EQUITY SECURITIES, CONTINUED
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 and
corporations $79,561 451 300 79,712
Obligations of states and political
subdivisions 2,258 40 7 2,291
Mortgage-backed securities 423 5 -- 428
------- --- ------ ------
$82,242 496 307 82,431
======= === ====== ======
The Company's classification of securities at December 31, 2000 is as
follows:
Securities Held-To-Maturity
------------------------------------------------------
In Thousands
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of states and political
subdivisions $13,966 132 90 14,008
Mortgage-backed securities 3,083 13 52 3,044
------- --- ------ ------
$17,049 145 142 17,052
======= === ====== ======
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 and
corporations $72,732 38 1,151 71,619
Obligations of states and political
subdivisions 1,851 16 2 1,865
Mortgage-backed securities 530 5 4 531
------- ----- ------ ------
$75,113 59 1,157 74,015
======= ===== ====== ======
18
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt securities at
December 31, 2001, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
In Thousands
Securities Held-To-Maturity --------------------------
--------------------------- Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 665 669
Due after one year through five years 4,063 4,187
Due after five years through ten years 4,341 4,426
Due after ten years 4,204 4,256
------- ------
13,273 13,538
Mortgage-backed securities 2,857 2,849
------- ------
$16,130 16,387
======= ======
In Thousands
Securities Available-For-Sale --------------------------
----------------------------- Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 2,755 2,828
Due after one year through five years 43,455 43,482
Due after five years through ten years 32,108 32,190
Due after ten years 1,498 1,500
------- ------
79,816 80,000
Mortgage-backed securities 423 428
Federal Home Loan Bank stock 1,915 1,915
Bankers Bank stock 88 88
------- ------
$82,242 82,431
======= ======
The Company periodically applies the stress test to its securities
portfolio. To satisfy the stress test a security's estimated market
value should not decline more than certain percentages given certain
assumed interest rate increases. The Company had no securities that
failed to meet the stress test.
Securities carried in the balance sheet of approximately $74,839,000
(approximate market value of $75,297,000) and $70,218,000 (approximate
market value of $69,224,000), were pledged to secure public deposits
and for other purposes as required or permitted by law at December 31,
2001 and 2000, respectively.
19
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(3) DEBT AND EQUITY SECURITIES, CONTINUED
Included in the securities above are $14,574,000 (approximate market
value of $14,827,000) and $13,033,000 (approximate market value of
$14,766,000) at December 31, 2001 and 2000, respectively, in
obligations of political subdivisions located within the State of
Tennessee. Management purchases only obligations of such political
subdivisions it considers to be financially sound.
Securities that have rates that adjust prior to maturity totaled
$3,098,000 (approximate market value of $3,094,000) and $3,404,000
(approximate market value of $3,370,000) at December 31, 2001 and 2000,
respectively.
Included in the securities portfolio is stock of the Federal Home Loan
Bank and Bankers Bank amounting to $1,915,000 and $88,000 at December
31, 2001. Included in the securities portfolio is stock of the Federal
Home Loan Bank and Bankers Bank amounting to $1,552,000 and $88,000 at
December 31, 2000. The stock can be sold back at par and only to the
Federal Home Loan Bank or to another member institution or to Bankers
Bank, respectively.
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 2001 and 2000 is
as follows:
In Thousands
-------------------------
2001 2000
---- ----
Land $ 3,287 3,400
Buildings 11,718 11,232
Leasehold improvements 137 137
Furniture and equipment 8,183 7,687
Automobiles 122 122
-------- -------
23,447 22,578
Less accumulated depreciation (8,308) (7,079)
-------- -------
$ 15,139 15,499
======== =======
Building additions during 2001 include payments of $464,000 to a
construction company owned by a director of the Company.
20
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(5) DEPOSITS
Deposits at December 31, 2001 and 2000 are summarized as follows:
In Thousands
---------------------
2001 2000
---- ----
Demand deposits $ 61,068 53,176
Savings accounts 30,755 27,787
Negotiable order of withdrawal accounts 45,774 37,894
Money market demand accounts 132,115 106,495
Certificates of deposit $100,000 or greater 115,197 107,190
Other certificates of deposit 188,986 187,445
Individual retirement accounts $100,000 or greater 5,164 4,641
Other individual retirement accounts 23,517 18,955
-------- -------
$602,576 543,583
======== =======
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 2001 are as follows:
In Thousands
---------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
-------- -------------- ------------- -----
3 months or less $ 52,318 37,082 89,400
3 to 6 months 52,269 36,899 89,168
6 to 12 months 69,907 32,672 102,579
1 to 5 years 38,009 13,708 51,717
-------- ------- -------
$212,503 120,361 332,864
======== ======= =======
The subsidiary banks are required to maintain cash balances or balances
with the Federal Reserve Bank or other correspondent banks based on
certain percentages of deposit types. The average required amounts for
the years ended December 31, 2001 and 2000 were approximately
$4,552,000 and $3,624,000, respectively.
21
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The maximum amounts of outstanding repurchase agreements at any month
end during 2001 and 2000 was $14,201,000 and $11,804,000, respectively.
The average daily balance outstanding during 2001, 2000 and 1999 was
$11,540,000, $7,791,000 and $9,374,000, respectively. The underlying
securities are typically held by other financial institutions and are
designated as pledged.
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at December 31, 2001 and
2000 consist of the following:
In Thousands
------------------
December 31,
------------------
Interest Rate 2001 2000
------------- ---- ----
6.90% $ 323 436
7.25% 1,047 1,421
------ -----
$1,370 1,857
====== =====
Advances from the Federal Home Loan Bank are to mature as follows at
December 31, 2001:
In Thousands
Year Ending ------------
December 31, Amount
------------ --------
2010 $ 1,370
========
These advances are collateralized by approximately $1,863,000 of the
Company's mortgage loan portfolio.
22
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(8) NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The significant components of non-interest income and non-interest
expense for the years ended December 31 are presented below:
In Thousands
-----------------------------------
2001 2000 1999
---- ---- ----
Non-interest income:
Service charges on deposits $ 3,863 3,088 2,105
Other fees 2,820 2,084 1,675
Gains on sales of loans 1,040 574 560
Gains on sales of fixed assets -- 5 1
Other income 9 1 9
------- ------ ------
$ 7,732 5,752 4,350
======= ====== ======
Non-interest expense:
Employee salaries and benefits $ 8,553 7,461 6,466
Employee benefit plan 508 461 404
Occupancy expenses 991 925 917
Furniture and equipment expenses 1,154 1,166 1,115
Loss on sales of fixed assets -- -- 10
Loss on sales of other real estate 27 21 2
FDIC insurance 103 91 46
Directors' fees 601 567 560
Other operating expenses 4,790 3,719 3,474
Minority interest in net earnings of
subsidiaries 587 460 271
------- ------ ------
$17,314 14,871 13,265
======= ====== ======
(9) INCOME TAXES
The components of the net deferred tax asset are as follows:
In Thousands
----------------------
2001 2000
---- ----
Deferred tax asset:
Federal $ 1,726 1,659
State 325 312
------- ------
2,051 1,971
------- ------
Deferred tax liability:
Federal (398) (350)
State (74) (66)
------- ------
(472) (416)
------- ------
$ 1,579 1,555
======= ======
23
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(9) INCOME TAXES, CONTINUED
The tax effects of each type of significant item that gave rise to
deferred taxes are:
In Thousands
-----------------------
2001 2000
---- ----
Financial statement allowance for loan losses
in excess of tax allowance $ 1,854 1,495
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (185) (248)
Financial statement deduction for deferred compensation
in excess of deduction for tax purposes 196 51
Financial statement deduction for preopening expenses and
organizational costs in excess of the amounts deducted
for tax purposes -- 8
Financial statement income on FHLB stock dividends
not recognized for tax purposes (215) (168)
Unrealized (gain) loss on securities available-for-sale (71) 417
------- ------
$ 1,579 1,555
======= ======
The components of income tax expense (benefit) are summarized as
follows:
In Thousands
-----------------------------------
Federal State Total
------- ----- -----
2001
Current $ 3,808 745 4,553
Deferred (431) (81) (512)
------- ---- ------
Total $ 3,377 664 4,041
======= ==== ======
2000
Current $ 2,959 596 3,555
Deferred (133) (25) (158)
------- ---- ------
Total $ 2,826 571 3,397
======= ==== ======
1999
Current $ 2,448 505 2,953
Deferred (115) (22) (137)
------- ---- ------
Total $ 2,333 483 2,816
======= ==== ======
24
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(9) INCOME TAXES, CONTINUED
A reconciliation of actual income tax expense of $4,041,000, $3,397,000
and $2,816,000 for the years ended December 31, 2001, 2000 and 1999,
respectively, to the "expected" tax expense (computed by applying the
statutory rate of 34% to earnings before income taxes) is as follows:
In Thousands
------------------------------------
2001 2000 1999
---- ---- ----
Computed "expected" tax expense $ 3,635 3,070 2,624
State income taxes, net of Federal income tax benefit 439 377 319
Tax exempt interest, net of interest expense exclusion (225) (226) (239)
Tax expense related to minority interest income in
subsidiaries 200 157 92
Other (8) 19 20
------- ------ ------
$ 4,041 3,397 2,816
======= ====== ======
There were no sales of securities in 1999, 2000 or 2001.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and
claims will not be material to the consolidated financial position.
The subsidiary banks lease land for certain branch facilities and
automatic teller machine locations. Future minimum rental payments
required under the terms of the noncancellable leases are as follows:
Years Ending December 31, In Thousands
------------------------- ------------
2002 $ 46
2003 34
2004 25
2005 11
--------
$ 116
========
Total rent expense amounted to $58,000, $58,000 and $74,000,
respectively, during the years ended December 31, 2001, 2000 and 1999.
25
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(11) 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
-------------------------
2001 2000
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 80,030 56,478
Unfunded lines-of-credit 18,107 16,612
Letters of credit 6,079 8,019
-------- ------
Total $104,216 81,109
======== ======
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.
(12) 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
the subsidiary banks. Investment in state and municipal securities also
include governmental entities within the Company's market area. The
concentrations of credit by type of loan are set forth in note 2 to the
consolidated financial statements.
26
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(12) CONCENTRATION OF CREDIT RISK, CONTINUED
At December 31, 2001, the Company's cash and due from banks included
commercial bank deposit accounts aggregating $215,000 in excess of the
Federal Deposit Insurance Corporation limit of $100,000 per
institution.
In addition, Federal funds sold were deposited with six banks.
(13) EMPLOYEE BENEFIT PLAN
The Company has in effect a 401(k) plan which covers eligible
employees. To be eligible an employee must have obtained the age of
20 1/2. The provisions of the plan provide for both employee and
employer contributions. For the years ended December 31, 2001, 2000 and
1999, the subsidiary banks contributed $527,000, $461,000 and $404,000,
respectively, to this plan.
(14) DIVIDEND REINVESTMENT PLAN
Under the terms of the Company's dividend reinvestment plan 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 46,865 in 2001,
42,795 in 2000 and 32,363 in 1999 were sold to participants under the
terms of the plan.
(15) REGULATORY MATTERS AND RESTRICTIONS ON DIVIDENDS
The Company and its bank subsidiaries are subject to regulatory capital
requirements administered by the Federal Deposit Insurance Corporation,
the Federal Reserve and the Tennessee Department of Financial
Institutions. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
the Company's financial statements. The Company's capital
classification is also subject to qualitative judgments about
components, risk weightings and other factors. Those qualitative
judgments could also affect the subsidiary banks' capital statuses and
the amount of dividends the subsidiaries may distribute.
The Company and its subsidiary banks are required to maintain minimum
amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. At December 31, 2001, the Company and its bank
subsidiaries are required to have minimum Tier I and total risk-based
capital ratios of 4% and 8%, respectively. The Company's actual ratios
at that date were 10.97% and 12.15%, respectively, compared to ratios
of 10.48% and 11.57%, respectively, at December 31, 2000. The leverage
ratio at December 31, 2001 was 7.42%, compared to 7.32% at December 31,
2000. The minimum requirement was 4%. At December 31, 2001, management
believes that the Company and all of its subsidiaries meet all capital
requirements to which they are subject.
27
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(15) REGULATORY MATTERS AND RESTRICTIONS ON DIVIDENDS, CONTINUED
As of December 31, 2001, the most recent notification from the banking
regulators categorized the Company and its subsidiaries as well
capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since the notification that
management believes have changed the Company's category.
(16) DEFERRED COMPENSATION PLAN
The Company's wholly-owned subsidiary bank provides its executive
officers a deferred compensation plan, which also provides for death
and disability benefits. The plan was established by the Board of
Directors to reward executive management for past performance and to
provide additional incentive to retain the service of executive
management. There were six employees participating in the plan at
December 31, 2001.
The plan provides retirement benefits for a period of 180 months after
the employee reaches the age of 65. This benefit can be reduced if the
wholly-owned subsidiary bank's average return on assets falls below 1%.
The plan also provides benefits in the event the executive should die
or become disabled prior to reaching retirement. The wholly-owned
subsidiary bank has purchased insurance policies or other assets to
provide the benefits listed above. The insurance policies remain the
sole property of the wholly-owned subsidiary bank and are payable to
the Bank. At December 31, 2001 and 2000, the deferred compensation
liability totaled $516,000 and $135,000, respectively, the cash
surrender value of life insurance was $669,000 and $468,000,
respectively, and the face amount of the insurance policies in force
approximated $2,939,000 and $2,280,000 in 2001 and 2000, respectively.
The deferred compensation plan is not qualified under Section 401 of
the Internal Revenue Code.
(17) STOCK OPTION PLAN
In April, 1999, the stockholders of the Company approved the Wilson
Bank Holding Company 1999 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan provides for the granting of stock options, and
authorizes the issuance of common stock upon the exercise of such
options, for up to 100,000 shares of common stock, to officers and
other key employees of the Company and its subsidiaries. Furthermore,
the Company may issue additional shares under the Stock Option Plan as
needed in order that the aggregate number of shares that may be issued
during the term of the Plan is equal to five percent (5%) of the shares
of common stock then issued and outstanding.
Under the Stock Option Plan, stock option awards may be granted in the
form of incentive stock options or nonstatutory stock options, and are
generally exercisable for up to ten years following the date such
option awards are granted. Exercise prices of incentive stock options
must be equal to or greater than 100% of the fair market value of the
common stock on the grant date.
28
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(17) STOCK OPTION PLAN, CONTINUED
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting
for Stock Based Compensation" sets forth the method for recognition of
cost of plans similar to those of the Company. As is permitted,
management has elected to account for the plan under APB Opinion 25 and
related Interpretations. However, under SFAS No. 123, the Company is
required to make proforma disclosures as if cost had been recognized in
accordance with the pronouncement. Had compensation cost for the
Company's stock option plan been determined based on the fair value at
the grant dates for awards under the plan consistent with the method of
SFAS No. 123, the Company's net earnings, basic earnings per common
share and diluted earnings per common share would have not been
affected as indicated in the proforma amounts below:
In Thousands
Except Per Share Amounts
---------------------------
2001 2000 1999
---- ---- ----
Net earnings As Reported $6,651 5,633 4,902
Proforma $6,628 5,610 4,902
Basic earnings per As Reported $ 3.26 2.83 2.52
common share Proforma $ 3.25 2.82 2.52
Diluted earnings per As Reported $ 3.26 2.83 2.52
common share Proforma $ 3.25 2.82 2.52
A summary of the stock option activity for 2001, 2000 and 1999 is as
follows:
2001 2000 1999
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ---------- ------ ---------- ------ ----------
Outstanding at
beginning of year 47,481 $ 30.64 48,311 $ 30.56 -- $ --
Granted 2,250 36.25 2,500 32.00 48,311 30.56
Exercised (1,266) 30.56 -- -- -- --
Forfeited (1,316) 30.56 (3,330) (30.56) -- --
------ ---------- ------ ---------- ------ ----------
Outstanding at end of
year 47,149 $ 30.90 47,481 $ 30.64 48,311 $ 30.56
====== ========== ====== ========== ====== ==========
Options exercisable at
year end 8,755 4,498 -
====== ====== =======
29
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(17) STOCK OPTION PLAN, CONTINUED
The following table summarizes information about fixed stock options
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/01 Price Life at 12/31/01 Price
-------- ----------- -------- ---------- ----------- --------
$ 30.56 -
$ 36.25 47,149 $ 30.90 8.0 years 8,755 $ 30.60
(18) EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
Per Share" establishes uniform standards for computing and presenting
earnings per share. The computation of basic earnings per share is
based on the weighted average number of common shares outstanding
during the period. For the Company the computation of diluted earnings
per share 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):
In Thousands (except share data)
------------------------------------------------
2001 2000 1999
---- ---- ----
Basic EPS Computation:
Numerator - Earnings available to
common stockholders $ 6,651 5,633 4,902
---------- --------- ---------
Denominator - Weighted average number
of common shares outstanding 2,037,896 1,992,149 1,947,404
---------- --------- ---------
Basic earnings per common share $ 3.26 2.83 2.52
========== ========= =========
Diluted EPS Computation:
Numerator - Earnings available to
common stockholders $ 6,651 5,633 4,902
---------- --------- ---------
Denominator:
Weighted average number of common
shares outstanding 2,037,896 1,992,149 1,947,404
Dilutive effect of stock options 1,539 380 --
---------- --------- ---------
2,039,435 1,992,529 1,947,404
---------- --------- ---------
Diluted earnings per common
share $ 3.26 2.83 2.52
========== ========= =========
30
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(19) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
In Thousands
------------
2001 2000
---- ----
ASSETS
Cash $ 26* 27*
Investment in wholly-owned commercial bank subsidiary 40,971* 34,378*
Investment in 50% owned commercial bank subsidiaries 4,870* 4,221*
Refundable income taxes 104 109
------- -------
Total assets $45,971 38,735
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $2.00 per share, authorized
5,000,000 shares, 2,054,089 and 2,005,958 shares
issued and outstanding, respectively $ 4,108 4,012
Additional paid-in capital 11,847 10,162
Retained earnings 29,903 25,172
Unrealized gains (losses) on available-for-sale securities, net
of income taxes of $69,000 and $373,000, respectively 113 (611)
------- -------
Total stockholders' equity 45,971 38,735
------- -------
Total liabilities and stockholders' equity $45,971 38,735
======= =======
*Eliminated in consolidation.
31
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(19) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 2001
-------------------------------------------
In Thousands
-------------------------------------------
2001 2000 1999
---- ---- ----
Expenses:
Directors' fees $ 272 272 267
Other 1 15 27
------- ------ ------
Loss before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiaries (273) (287) (294)
Federal income tax benefits 104 109 112
------- ------ ------
(169) (178) (182)
Equity in undistributed earnings of commercial
bank subsidiaries 6,820* 5,811* 5,084*
------- ------ ------
Net earnings 6,651 5,633 4,902
------- ------ ------
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during period, net of taxes
of $442,000, $615,000 and $1,109,000,
respectively 724 1,005 (1,811)
------- ------ ------
Other comprehensive earnings (loss) 724 1,005 (1,811)
------- ------ ------
Comprehensive earnings $ 7,375 6,638 3,091
======= ====== ======
*Eliminated in consolidation.
32
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(19) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2001
In Thousands
-----------------------------------------------------------------------------
Net Unrealized
Additional Gain (Loss) On
Common Paid-In Retained Available-For-
Stock Capital Earnings Sale Securities Total
----- ---------- -------- ---------------- -------
Balance December 31, 1998 $2,877 8,530 17,663 195 29,265
Cash dividends declared, $.75 per share -- -- (1,447) -- (1,447)
Issuance of 32,363 shares of stock pursuant
to dividend reinvestment plan 65 1,216 -- -- 1,281
Issuance of 2,000 shares of stock 4 56 -- -- 60
Issuance of 490,019 shares of stock
pursuant to a 4 for 3 stock split 980 (980) -- -- --
Net change in unrealized gain (loss) on
available-for-sale securities during the
year, net of taxes of $1,109,000 -- -- -- (1,811) (1,811)
Net earnings for the year -- -- 4,902 -- 4,902
------ ------- ------- ------ -------
Balance December 31, 1999 3,926 8,822 21,118 (1,616) 32,250
Cash dividends declared, $.80 per share -- -- (1,579) -- (1,579)
Issuance of 42,795 shares of stock pursuant
to dividend reinvestment plan 86 1,340 -- -- 1,426
Net change in unrealized gain (loss) on
available-for-sale securities during the
year, net of taxes of $615,000 -- -- -- 1,005 1,005
Net earnings for the year -- -- 5,633 -- 5,633
------ ------- ------- ------ -------
Balance December 31, 2000 4,012 10,162 25,172 (611) 38,735
Cash dividends declared, $.95 per share -- -- (1,920) -- (1,920)
Issuance of 46,865 shares of stock pursuant
to dividend reinvestment plan 94 1,649 -- -- 1,743
Issuance of 1,266 shares of stock pursuant
to exercise of stock options 2 36 -- -- 38
Net change in unrealized gain (loss) on
available-for-sale securities during the
year, net of taxes of $442,000 -- -- -- 724 724
Net earnings for the year -- -- 6,651 -- 6,651
------ ------- ------- ------ -------
Balance December 31, 2001 $4,108 11,847 29,903 113 45,971
====== ======= ======= ====== =======
33
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(19) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2001
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
--------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Cash paid to suppliers and other $ (273) (287) (294)
Tax benefits received 109 112 81
------- ------ ------
Net cash used in operating activities (164) (175) (213)
------- ------ ------
Cash flows from investing activities:
Dividends received from commercial bank
subsidiaries 445 351 395
Dividends reinvested in commercial bank
subsidiaries (105) (73) --
Capital contribution to bank subsidiary (38) -- --
------- ------ ------
Net cash provided by investing activities 302 278 395
------- ------ ------
Cash flows from financing activities:
Dividends paid (1,920) (1,579) (1,447)
Proceeds from sale of stock 1,743 1,426 1,341
Proceeds from exercise of stock options 38 -- --
------- ------ ------
Net cash used in financing activities (139) (153) (106)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents (1) (50) 76
Cash and cash equivalents at beginning of year 27 77 1
------- ------ ------
Cash and cash equivalents at end of year $ 26 27 77
======= ====== ======
34
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(19) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 2001
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
-------------------------------------
2001 2000 1999
---- ---- ----
Reconciliation of net earnings to net cash used in
operating activities:
Net earnings $ 6,651 5,633 4,902
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in earnings of commercial bank
subsidiaries (6,820) (5,811) (5,084)
Decrease (increase) in refundable income taxes 5 3 (31)
------- ------ ------
Total adjustments (6,815) (5,808) (5,115)
------- ------ ------
Net cash used in operating activities $ (164) (175) (213)
======= ====== ======
35
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS No. 107), requires that the
Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods, and assumptions are set forth below for
the Company's financial instruments.
Cash and short-term investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
The carrying amounts for short-term securities approximate
fair value because they mature in 90 days or less and do not
present unanticipated credit concerns. The fair value of
longer-term securities and mortgage-backed securities,
except certain state and municipal securities, is estimated
based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value
of certain state and municipal securities is not readily
available through market sources other than dealer
quotations, so fair value estimates are based on quoted
market prices of similar instruments, adjusted for
differences between the quoted instruments and the
instruments being valued.
SFAS No. 107 specifies that fair values should be calculated
based on the value of one unit without regard to any premium
or discount that may result from concentrations of ownership
of a financial instrument, possible tax ramifications, or
estimated transaction costs. Accordingly, these
considerations have not been incorporated into the fair
value estimates.
Loans
Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated by
type such as commercial, mortgage, credit card and other
consumer. Each loan category is further segmented into fixed
and adjustable rate interest terms.
36
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Loans, Continued
The fair value of the various categories of loans is
estimated by discounting the future cash flows using the
current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same
remaining average estimated maturities.
The estimated maturity for mortgages is modified from the
contractual terms to give consideration to management's
experience with prepayments. Management has made estimates
of fair value discount rates that it believes to be
reasonable. However, because there is no market for many of
these financial instruments, management has no basis to
determine whether the fair value presented below would be
indicative of the value negotiated in an actual sale.
The value of the loan portfolio is also discounted in
consideration of the credit quality of the loan portfolio as
would be the case between willing buyers and sellers.
Particular emphasis has been given to loans on the
subsidiary banks' internal watch list. Valuation of these
loans is based upon borrower performance, collateral values
(including external appraisals), etc.
Deposit Liabilities
The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on
demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar
remaining maturities. Under the provision of SFAS No. 107
the fair value estimates for deposits does not include the
benefit that results from the low cost funding provided by
the deposit liabilities compared to the cost of borrowing
funds in the market.
Securities Sold Under Repurchase Agreements
The securities sold under repurchase agreements are payable
upon demand. For this reason the carrying amount is a
reasonable estimate of fair value.
Advances from Federal Home Loan Bank
The fair value of the advances from the Federal Home Loan
Bank are estimated by discounting the future cash outflows
using the current market rates.
37
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Commitments to Extend Credit, Standby Letters of Credit and
Financial Guarantees Written
Loan commitments are made to customers generally for a
period not to exceed one year and at the prevailing interest
rates in effect at the time the loan is closed. Commitments
to extend credit related to construction loans are made for
a period not to exceed six months with interest rates at the
current market rate at the date of closing. In addition,
standby letters of credit are issued for periods up to three
years with rates to be determined at the date the letter of
credit is funded. Fees are only charged for the construction
loans and the standby letters of credit and the amounts
unearned at December 31, 2001 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant
fair value.
The carrying value and estimated fair values of the
Company's financial instruments at December 31, 2001 and
2000 are as follows:
In Thousands
-------------------------------------------------------
2001 2000
-------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets:
Cash and short-term
investments $ 51,660 51,660 57,866 57,866
Securities 98,561 98,818 91,064 91,067
Loans, net of unearned
interest 494,766 432,289
Less: allowance for possible
loan losses 5,489 4,525
-------- -------
Loans, net of allowance 489,277 494,683 427,764 424,107
-------- -------
Loans held for sale 4,369 4,369 1,295 1,295
-------- -------
Financial liabilities:
Deposits 602,576 607,308 543,583 545,545
Securities sold
under repurchase
agreements 8,551 8,551 9,710 9,710
Advances from Federal Home
Loan Bank 1,370 1,582 1,857 1,895
Unrecognized financial
instruments:
Commitments to
extend credit -- -- -- --
Standby letters of credit -- -- -- --
38
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2001, 2000 AND 1999
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Limitations
Fair value estimates are made at a specific point in time,
based on relevant market information and information about
the financial instruments. These estimates do not reflect
any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists
for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on estimating
on-and-off-balance sheet financial instruments without
attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are
not considered financial instruments. For example, a
subsidiary Bank has a mortgage department that contributes
net fee income annually. The mortgage department is not
considered a financial instrument, and its value has not
been incorporated into the fair value estimates. Other
significant assets and liabilities that are not considered
financial assets or liabilities include deferred tax assets
and liabilities and property, plant and equipment. In
addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered
in the estimates.
39