1
EXHIBIT 13.1
WILSON BANK HOLDING COMPANY
COMMON STOCK MARKET INFORMATION
The common stock of Wilson Bank Holding Company is not traded on an
exchange nor is there a known active trading market. The number of stockholders
of record at December 31, 1998 was 1,193. Based solely on information made
available to the Company from limited numbers of buyers and sellers, the Company
believes that the following table sets forth the quarterly range of sale prices
for the Company's stock during the years 1998 and 1997.
STOCK PRICES
1997 HIGH LOW
First Quarter $30.25 $29.50
Second Quarter 31.00 30.25
Third Quarter 31.75 31.00
Fourth Quarter 32.50 31.75
1998
First Quarter $32.50 $32.50
Second Quarter 33.25 32.50
Third Quarter 34.75 33.25
Fourth Quarter 35.50 34.75
On January 1, 1998 a $.40 per share cash dividend was declared and on
July 1, 1998 a $.45 per share cash dividend was declared and paid to
shareholders of record on those dates. On January 1, 1997 a $.35 per share cash
dividend was declared and on July 1, 1997 a $.40 per share cash dividend was
declared and paid to shareholders of record on those dates. Future dividends
will be dependent upon the Company's profitability, its capital needs, overall
financial condition and economic and regulatory consideration.
2
WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
AS OF DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ----------- -----------
CONSOLIDATED
BALANCE SHEETS:
Total assets end of year $431,975 351,709 275,304 226,689 192,406
Loans, net $292,686 237,666 183,642 146,738 123,177
Securities $ 73,588 61,497 55,545 52,023 43,128
Deposits $389,105 316,641 243,250 200,037 171,517
Stockholders' equity $ 29,265 24,817 21,252 18,398 15,618
Years Ended December 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ----------- -----------
CONSOLIDATED STATEMENT
OF EARNINGS:
Interest income $ 30,950 25,141 19,448 16,366 12,470
Interest expense 16,003 12,675 9,797 8,425 5,604
----------- ---------- ---------- ----------- -----------
Net interest income 14,947 12,466 9,651 7,941 6,866
Provision for possible loan losses 1,010 828 665 527 298
----------- ---------- ---------- ----------- -----------
Net interest income after provision for
possible loan losses 13,937 11,638 8,986 7,414 6,568
Non-interest income 4,200 3,410 2,781 1,874 1,497
Non-interest expense 11,376 9,618 7,254 5,871 5,287
----------- ---------- ---------- ----------- -----------
Earnings before income taxes 6,761 5,430 4,513 3,417 2,778
Income taxes 2,257 1,766 1,406 996 678
----------- ---------- ---------- ----------- -----------
Net earnings $ 4,504 3,664 3,107 2,421 2,100
=========== ========== ========== =========== ===========
Comprehensive earnings $ 4,586 3,702 3,007 2,940 1,161
=========== ========== ========== =========== ===========
Cash dividends declared $ 1,203 1,039 950 929 651
=========== ========== ========== =========== ===========
PER SHARE DATA:
Net earnings $ 3.15 2.62 2.27 1.81 1.60
Cash dividends $ 0.85 0.75 0.70 0.70 0.50
Book value $ 20.34 17.63 15.42 13.63 11.84
RATIOS:
Return on average stockholders'
equity 16.72% 16.02% 16.87% 14.33% 14.09%
Return on average assets 1.15% 1.16% 1.27% 1.16% 1.18%
Capital to assets 6.78% 7.06% 7.72% 8.12% 8.12%
Dividends declared as percentage
of earnings 26.98% 28.63% 30.84% 38.67% 31.25%
3
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Wilson Bank Holding Company (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 investment in each bank was $1,750,000. 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 subsidiary banks are community banks headquartered in
Lebanon, Smithville and Carthage, Tennessee, respectively, serving Wilson
County, DeKalb County, Smith County and Trousdale County, Tennessee as their
primary market areas. The subsidiary banks have twelve locations including their
three main offices. 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.
During 1998, Wilson Bank and Trust opened an additional branch facility
in Lebanon, Wilson County, Tennessee. During 1997, Wilson Bank and Trust opened
a branch facility in Hartsville, Trousdale County, Tennessee which also adjoins
Wilson County. DeKalb Community Bank opened a branch in Alexandria, DeKalb
County, Tennessee.
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, 1998 were $4,504,000 an
increase of $840,000 or 22.9% over 1997. Net earnings for the year ended
December 31, 1997 totaled $3,664,000 which was an increase of $557,000 or 17.9%
from $3,107,000 for 1996. On a per share basis, net income equaled $3.15 in
1998, $2.62 in 1997 and $2.27 in 1996.
NET INTEREST INCOME
Net interest income represents the amount by which interest earned on
various earning assets exceeds interest paid on deposits and other
interest-bearing liabilities and is the most significant component of the
Company's earnings. Total interest income in 1998 was $30,950,000 compared with
$25,141,000 in 1997 and $19,448,000 in 1996. The increase in total interest
income in 1998 was primarily due to a $71.5 million or 24.3% increase in average
earning assets over 1997. Average earning assets increased $64.7 million from
December 31, 1996 to December 31, 1997. The average interest rate earned on
earning assets was 8.62% in 1998 compared with 8.74% in 1997 and 8.73% in 1996.
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
$16,000 in 1998, $11,000 in 1997 and $12,000 in 1996.
Total interest expense for 1998 was $16,003,000, an increase of
$3,328,000 or 26.3%, compared to total interest expense of $12,675,000 in 1997.
The increase in total interest expense was due
4
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
to an increase in average interest bearing deposits of approximately $62,580,000
and a slight increase in the weighted average cost of funds from 4.41% to 4.46%.
Interest expense increased from $9,797,000 in 1996 to $12,675,000 in 1997 or an
increase of $2,878,000 or 29.4%. The increase in 1997 was due to a $56,792,000
increase in average interest bearing deposits and an increase in the weighted
average cost of funds from 4.38% to 4.41%.
Net interest income for 1998 totaled $14,947,000 as compared to
$12,466,000 and $9,651,000 in 1997 and 1996, 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 4.16% for 1998 as compared to 4.33% in 1997, primarily as a result
of the decrease in the yield on earning assets. The net interest spread was
4.35% in 1996. The net interest yield, which is net interest income expressed as
a percentage of average earning assets, decreased to 4.24% for 1998 compared to
4.44% in 1997 and 4.46% in 1996. Interest rates declined slightly during 1998
and are expected to remain stable or increase slightly in 1999. The Company is
in a position to reprice its liabilities faster than the assets are repricing.
Accordingly, management expects the projected stable interest rates to have an
insignificant impact on the net interest yield and net interest income. 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, is adequate to provide coverage for estimated losses on outstanding
loans and to provide for uncertainties in the economy. The 1998 provision for
loan losses was $1,010,000, an increase of $182,000 from the provision of
$828,000 in 1997. The increase in the provision was primarily a result of
increases in the loans and increased net charge-offs. The provision for loan
losses was $665,000 in 1996. Net charge-offs increased to $656,000 in 1998 from
$390,000 in 1997. Net charge-offs in 1996 totaled $157,000. The ratio of net
charge-offs to average total outstanding loans in 1998 was .25% and in 1997 was
.18%. The provision for loan losses in 1998 exceeded net charge-offs by $354,000
compared to $438,000 in 1997 and $508,000 in 1996.
The provision for loan losses raised the allowance for possible loan
losses (net of charge-offs and recoveries) to $3,244,000 at December 31, 1998
from $2,890,000 and $2,452,000 at December 31, 1997 and 1996, respectively. This
represents a 12.2% increase in the allowance at December 31, 1998 over December
31, 1997. The allowance for possible loan losses was 1.10% of total loans
outstanding at December 31, 1998 compared to 1.20% at December 31, 1997 and
1.32% at December 31, 1996. Additionally, as a percentage of nonperforming loans
at year end 1998, 1997 and 1996, the allowance for loan losses represented 416%,
210% and 233%, 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, 1998 to be adequate.
NON-INTEREST INCOME
The components of the Company's non-interest income include service
charges on deposit accounts, other fees, gains on sale of loans, net gains on
sale of fixed assets and minority interest in net losses of subsidiaries. Total
non-interest income for 1998 was $4,200,000 compared with $3,410,000 in 1997 and
$2,781,000 in 1996. The 23.2% increase over 1997 was primarily due to increases
in service charges on deposit accounts (which increased $290,000), other fees
(which increased $142,000) and net gains on sales of loans (which increased
$350,000). Management projects that gains on sales of loans will increase in
1999 due to increases in loan demand in the existing market, improved marketing
plans and expansion into a broader market area. Management intends to continue
to aggressively market the services of the trust department; however, trust
income is not expected to have a significant impact on earnings in the immediate
future. The Company has recently entered into a commission participation
arrangement with a local insurance
5
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
agency to sell insurance products. Management does not anticipate that this
arrangement will materially impact 1999 non-interest income.
NON-INTEREST EXPENSES
Non-interest expenses consist primarily of employee costs, occupancy
expenses, furniture and equipment expenses, loss on sale of other real estate,
FDIC insurance, Directors' fees and other operating expenses. Total non-interest
expenses for 1998 increased 18.3% to $11,376,000 from $9,618,000 in 1997. The
1997 non-interest expense was up 32.6% over 1996 which totaled $7,254,000. The
increases in non-interest expenses 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, including the new branch which was opened in 1998. Other operating
expenses increased to $2,921,000 in 1998 from $2,781,000 in 1997. These expenses
included data processing, supplies and general operating expenses, which
increased as a result of continued growth of the Company and expansion into new
market areas.
INCOME TAXES
The Company's income tax expense was $2,257,000 for 1998 an increase of
$491,000 from 1997. The percentage of income tax expense to earnings before
taxes increased to 33.4% in 1998 from 32.5% in 1997. The percentage was 31.2% in
1996. The percentage for 1998 as compared to 1997 increased primarily as a
result of a decrease in the percentage of interest income exempt from Federal
income taxes to earnings before taxes from 21.5% in 1997 to 16.7% in 1998. The
increase from 1996 to 1997 is due to a decrease in the percentage of interest
income exempt from Federal income taxes from 25.7% in 1996 to 21.5% in 1997.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY. The Company's total assets increased $80,266,000
or 22.8% to $431,975,000 at December 31, 1998, after increasing 27.8% in 1997 to
$351,709,000 at December 31, 1997. Loans, net of allowance for possible loan
losses, totaled $292,686,000 at December 31, 1998, a 23.2% increase compared to
December 31, 1997. Investment securities increased in 1998, primarily as a
result of increased deposits. At year end 1998 securities totaled $73,588,000,
an increase of 19.7% from $61,497,000 at December 31, 1997. The increase in
securities in 1998 includes a $143,000 increase in unrealized gains on
securities available-for-sale.
Total liabilities increased $75,818,000 at December 31, 1998 to
$402,710,000 compared to $326,892,000 at December 31, 1997. This increase was
composed primarily of the $72,464,000 increase in total deposits to $389,105,000
(a 22.9% increase). Securities sold under repurchase agreements increased to
$7,258,000 from $4,560,000 at the respective year ends 1998 and 1997.
Stockholders' equity increased $4,448,000 or 17.9% 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 and a $82,000 increase in net
unrealized gains on available-for-sale securities. A more detailed discussion of
assets, liabilities and capital follows.
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LOANS:
Loan categories are as follows:
1998 1997
---------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ----------
(In Thousands)
Commercial, financial,
and agricultural $100,217 33.7% $ 82,515 34.1%
Installment 44,299 14.9 38,423 15.8
Real estate - mortgage 130,927 44.1 103,155 42.6
Real estate - construction 21,809 7.3 18,159 7.5
-------- ----- -------- -----
TOTAL $297,252 100.0% $242,252 100.0%
======== ===== ======== =====
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6
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Loans are the largest component of the Company's assets and are its
primary source of income. The Company's loan portfolio, net of allowance for
loan loses, increased 23.2% by year end 1998. 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 1998 and 1997.
As represented in the table, primary loan growth was in real estate
mortgage loans and commercial loans. Real estate mortgage loans increased 26.9%
in 1998 and at December 31, 1998 comprised 44.1% of total loans compared to
42.6% of total loans at December 31, 1997. 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 21.5% in 1998 and comprised 33.7% of the
total loan portfolio at December 31, 1998, compared to 34.1% at December 31,
1997.
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, 1998, 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 and loans 90 days
past due, totaled $779,000 at December 31, 1998, a decrease from $1,379,000 at
December 31, 1997. Non-accrual loans are loans on which accrual of interest is
stopped when 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 $223,000 at December
31, 1998 compared to $160,000 at December 31, 1997. Loans 90 days past due, as a
component of non-performing loans, decreased to $556,000 at December 31, 1998
from $1,219,000 at December 31, 1997. This decrease is primarily a result of
decreases in installment loans that are 90 days past due offset by an increase
of real estate mortgage loans 90 days past due. The Bank 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 $1,603,000 at December 31, 1998 as compared to
$1,162,000 at December 31, 1997. Of the internally classified loans at December
31, 1998, $1,186,000 are real estate related loans and $417,000 are various
other types of loans. The internally classified loans as a percentage of the
allowance for possible loan losses were 49.4% and 40.2%, respectively, at
December 31, 1998 and 1997.
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 deemed by management to be adequate to provide for the
possibility of loan losses in the loan portfolio.
Essentially all of the Company's loans were from Wilson County, 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, 1998 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.
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 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 75.3% and 76.8%. As a practice, the Company
generates its
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WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 19.7% to $73,588,000 at year end 1998 from
$61,497,000 at December 31, 1997, and comprised the second largest and other
primary component of the Company's earning assets. This increase followed a
10.7% securities portfolio increase from year end 1996 to 1997. 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 $18,290,000 or 56.7%
in 1998. Mortgage-backed securities decreased $2,332,000 or 31.6%. The average
yield of the securities portfolio at December 31, 1998 was 6.93% with an average
maturity of 7.42 years, as compared to an average yield of 7.09% and an average
maturity of 5.33 years at December 31, 1997. Management has extended the average
maturity of securities to increase or maintain the average yield.
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.
The Company's classification of securities as of December 31, 1998 is as
follows:
- --------------------------------------------------------------------------------
(In Thousands) HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------------- --------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------- ------ ------ ------
U.S. Treasury and other
U.S. Government agencies
and Corporations $ 1,097 1,104 49,189 49,429
Obligations of states and
political subdivisions 15,202 15,681 2,732 2,823
Mortgage-backed
securities 4,109 4,085 922 928
------- ------ ------ ------
$20,408 20,870 52,843 53,180
======= ====== ====== ======
No securities have been classified as trading securities.
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8
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
Net unrealized gain on securities available-for-sale decreased $100,000
during the year ended December 31, 1996 and represents the unrealized
depreciation in securities available-for-sale of $161,000 less applicable tax
benefit of $61,000. The net increase for the year ended December 31, 1997
totaled $38,000 which represents the unrealized appreciation in securities
available-for-sale of $57,000 less applicable income taxes of $19,000. During
the year ended December 31, 1998, the net increase totaled $82,000 which
represents an increase in the unrealized appreciation in securities
available-for-sale of $138,000 less applicable income taxes of $56,000.
DEPOSITS
The increases in assets in 1998 and 1997 were funded primarily by
increases in deposits. Total deposits, which are the principal source of funds
for the Company, totaled $389,105,000 at December 31, 1998 compared to
$316,641,000 and $243,250,000 at December 31, 1997 and 1996, 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, 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.
The $72,464,000 or 22.9% growth in deposits in 1998 consisted of
changes in several deposit categories: savings accounts increased $2,500,000
(14.7%) to $19,471,000; total certificates of deposit (including individual
retirement accounts) increased $41,158,000 (23.1%) to $219,070,000, money market
demand accounts increased $18,608,000 (29.5%) to $81,638,000 and demand deposits
increased $10,972,000 (33.9%) to $43,345,000.
The average rate paid on average total interest-bearing deposits was
5.0% for 1998, compared to 4.9% for 1997. The average rate paid in 1996 was
4.8%.
The ratio of average loans to average deposits was 75.3% in 1998
compared with 76.8% and 77.0% in 1997 and 1996, 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 involved
in 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, 1998, the Company's liquid assets
approximated $67.1 million.
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
9
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
analyze the rate sensitivity position. These meetings focus the spread between
the cost of funds and interest yields generated primarily through loans and
investments.
At December 31, 1998, the Company had a liability sensitive position (a
negative gap) for 1998. Liability sensitivity means that more of the Company's
liabilities are capable of repricing over certain time frames than assets. The
interest rates associated with these liabilities may not actually change over
this period but are capable of changing. The 1998 net earnings would have
deteriorated in a rising rate environment as compared with the fairly stable
rate environment that existed for most of 1998. The 1997 earnings would have
deteriorated in a rising rate environment as compared with the fairly stable
rate environment that existed during most of 1997. The 1996 earnings were
enhanced by the stable rate environment.
- --------------------------------------------------------------------------------
The following table shows the rate sensitivity gaps for different time periods
as of December 31, 1998:
INTEREST RATE SENSITIVITY GAPS One Year
December 31, 1998 1-90 91-180 181-365 and
(In Thousands) Days Days Days Longer Total
------------------------------ --------- ------- ------- ------- -------
Interest-earning assets $ 147,049 29,395 40,925 181,006 398,375
Interest-earning liabilities 186,698 36,606 62,798 66,916 353,018
--------- ------- ------- ------- -------
Interest-rate sensitivity gap $ (39,649) (7,211) (21,873) 114,090 45,357
========= ======= ======= ======= =======
Cumulative gap $ (39,649) (46,860) (68,733) 45,357
========= ======= ======= =======
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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, 1998, total stockholders' equity was
$29,265,000 or 6.8% of total assets, which compares with $24,817,000 or 7.1% of
total assets at December 31, 1997, and $21,252,000 or 7.7% of total assets at
December 31, 1996. The dollar increase in stockholders' equity during 1998
reflects (i) the Company's net income of $4,504,000 less cash dividends of $.85
per share totaling $1,203,000, (ii) the issuance of 31,314 shares of common
stock for $1,065,000 in lieu of payment of cash dividends and (iii) increase in
the net unrealized gains on available-for-sale securities of $82,000.
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, 1998 the
Company's total risk-based capital ratio was 12.3% and its Tier I risk-based
capital ratio was 11.2%, respectively, compared to a ratios of 13.4% and 12.2%,
respectively at December 31, 1997. The required Tier I leverage capital ratio
(Tier I capital to average assets for the most recent quarter) for the Company
is 4%. At December 31, 1998, the Company had a leverage ratio of 7.8% compared
to 8.2% at December 31, 1997.
10
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A. 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,
1998.
- -------------------------------------------------------------------------------
EXPECTED MATURITY DATE - YEAR ENDING DECEMBER 31,
------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
EARNING ASSETS:
Loans, net of unearned
interest:
Variable rate $ 65,330 8,752 13,107 8,130 8,144 2,429 105,892 105,892
Average interest rate 8.68% 8.83% 8.51% 8.83% 8.83% 7.75% 8.72%
Fixed rate 117,847 11,381 16,915 13,479 13,415 17,001 190,038 190,460
Average interest rate 9.06% 10.48% 10.15% 10.16% 10.16% 7.74% 9.10%
Securities 3,910 5,674 1,880 3,354 1,909 56,861 73,588 74,050
Average interest rate 8.07% 7.05% 7.39% 6.86% 7.52% 6.87% 6.86%
Loans held for sale 3,881 - - - - - 3,881 3,881
Average interest rate 6.20% - - - - - 6.20%
Federal funds sold 24,976 - - - - - 24,976 24,976
Average interest rate 5.11% - - - - - 5.11%
Interest-bearing deposits 266,373 68,653 9,812 336 408 178 345,760 348,375
Average interest rate 4.98% 5.80% 5.79% 6.02% 5.97% 5.73% 5.23%
Short-term borrowings 7,258 - - - - - 7,258 7,258
Average interest rate 4.54% - - - - - 4.82%
- -------------------------------------------------------------------------------
11
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 is 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.
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.
Tennessee has enacted interstate branching laws in response to federal law
which, effective June 1, 1997, will prohibit the establishment or acquisition in
Tennessee by any bank of a branch office, branch bank or other branch facility
in Tennessee except (i) a Tennessee-chartered Bank (ii) a national bank which
has its main office in Tennessee, or (iii) a bank which merges or consolidates
with a Tennessee-chartered bank or a national bank with its main office in
Tennessee.
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 "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
12
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 standards for
all insured depository institutions and their holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agencies deem
appropriate.
As a result of a federal law enacted in 1991 requiring each federal
banking agency to revise its risk-based capital standards to insure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities, each of the federal banking
agencies have revised the risk-based capital guidelines described above to take
account of concentration of credit risk and risk of non-traditional activities.
In addition, the Board and the FDIC recently adopted a new rule that amended,
effective September 1, 1995, the capital standards to include explicitly a
bank's exposure to declines in the economic value of its capital due to changes
in interest rates as a factor to be considered in evaluating a bank's capital
adequacy. This rules does not codify a measurement framework for assessing the
level of a bank's interest rate exposure. These agencies, together with the
Office of the Comptroller of the Currency have issued for comment a joint policy
statement that describes the process to be used to measure and assess the
exposure of a bank's net economic value to changes in interest rates. These
agencies have indicated that they intend to issue a proposed rule that would
establish an explicit minimum capital charge for interest rate risk based on the
level of a bank's measured interest rate exposure. The agencies intend to
implement the proposed rule after they and the banking industry have had more
experience with the proposed supervisory and measurement process.
Pursuant to FDICIA, the FDIC has established a risk-based assessment
system for deposit insurance. Under the risk-based assessment regulations,
insured institutions such as the Subsidiary Banks, are assigned an assessment
risk classification based upon capital levels and supervisory evaluations. On
August 8, 1995, the FDIC voted to reduce the assessment rates paid by most
banks. Under the revised rate structure, the best-rated banks would pay an
assessment at 0.04% of insured deposits, while the weakest banks would continue
to pay at a 0.31% rate. The revised rate structure became effective on a
retroactive basis as of June 1, 1995. As a result of the revised rate structure,
the Company received a refund of $111,000 in the third quarter of 1995. On
November 14, 1995, the FDIC further reduced the rate structure starting in
January, 1996. Under the 1996 rate structure, the best rated banks will pay only
the statutory minimum assessment of $2,000 per year while the weakest banks will
pay at a rate of 0.27% of insured deposits. Wilson Bank and Trust paid the
statutory annual minimum assessment of $2,000 per year and DeKalb Community Bank
paid $1,000 for the half year it was in operation. Effective January 1, 1998 the
banks were assessed an annual assessment of .0122% of insured deposits.
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material effect on
the Registrant'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
13
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 changed 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 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 immaterial when reviewing the Company's results of operations.
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than two digits
to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g., 1900 and 2000). To address the Year 2000 issue,
the Company has adopted a broad-based approach designed to encompass the
Company's total environment.
The Company has appointed a Year 2000 committee which was established
in mid-1997. The Y2K Committee has representation from all affected areas for
the purpose of managing the process of assessing and correcting non-compliance
throughout the organization. Areas being addressed by the Y2K Committee include:
- - Subsidiary banks' primary data processing system. Jack Henry, a major
data processor, provides the primary software and hardware for the data
processing system of the subsidiary banks. This software and hardware is
of the highest priority for day to day operations, accounting and success
of the subsidiary banks.
- - Government systems, such as the Federal Reserve Bank for check clearing,
wire transfers, and the free flow and exchange of funds between
institutions are absolutely critical.
- - The internal PC hardware and software systems within the subsidiary
banks, along with telecommunications systems.
- - The primary securities portfolio accounting and safekeeping system for
the subsidiary banks.
- - Credit administration - the committee is reviewing the risk associated
with Year 2000 status of the subsidiary banks' loan customers and
depositors.
The Company's Y2K Committee is using a 4-phase approach in its Year
2000 project made up of awareness, assessment, renovation, and
validation-testing. The Company is currently in the final phase of the Y2K Plan.
The purpose of the Y2K committee is to assess, test and correct the
Company's hardware, software and equipment to ensure these systems operate
properly in the Year 2000. The Committee has substantially completed its
assessment of the company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the Year 2000 and has
remedied the problem with the replacement of hardware that is compliant. As of
December 31, 1998 the Y2K committee has determined that substantially all of the
Company's systems will operate properly in the Year 2000.
The Company expects that programming changes and software replacement
for systems that are not Year 2000 compliant will be completed during the first
quarter of 1999. The Jack Henry Company has tested the Jack Henry Silver Lake
Operating system and the Company has documentation on file that the operating
system is
14
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Y2K compliant. However, the Company tested the software using its own database
to ensure the readiness of the Company to service its customer base into the
Year 2000. The testing was completed the week of December 7, 1998 and the
results are currently being evaluated.
The Company has requested written documentation from vendors and
suppliers with whom the Company has a material relationship regarding their
ability to operate properly in the Year 2000. The Company will consider
alternatives related to vendors and suppliers that do not confirm their Year
2000 readiness. There can be no assurance however, that all of the Company's
significant vendors and suppliers will have remedied their Year 2000 issues. The
Company will continue to monitor its significant vendors and suppliers to seek
to minimize the Company's risk.
The Company is requiring Y2K readiness information from all of its
major borrowers. The Company believes commercial borrowers must realize the
impact that the Y2K could have on their respective businesses. Seminars,
questionnaires and individual contact with loan customers will be continued as
an ongoing prevention measure during the 1999 year. The Company realizes the
materially adverse impact that the lack of Y2K preparation of loan customers
would have on the Company during the Year 2000.
Customer awareness of the Company's Y2K readiness is critical. The
steps taken by the Company to prepare for the Year 2000 will be shared with
customers through Quarterly Newsletters, statement stuffers and the Y2K training
of employees. The Company believes customers must have a high confidence level
in the Company at the end of 1999 to avoid mass withdrawals of funds from the
Company. The Company is working toward a comprehensive customer awareness
program during the 1999 year.
Based on the Company's current estimates, the Company has allocated
$250,000 in its 1999 budget to fund testing and replacement costs. Included in
the Company's cost estimates are the cost of replacing hardware and software of
approximately $100,000, which will be capitalized and amortized over their
estimated useful lives. The remaining costs are expensed as incurred. These
projected costs are based upon management's best estimates, which are derived
utilizing numerous assumptions of future events. As of December 31, 1998, the
only cost that has been incurred on the Year 2000 issue is the cost of the
Company's personnel. Their time was used to effectively gather and organize the
information used to assess the Company's hardware and software compliance. Using
an estimate of the hours worked on this project, the cost would be $55,000 to
date. This cost has been expensed through the regular salary structure. This
cost has been minimal because there have not been any major renovations,
upgrades or software conversions needed.
The Board of Directors is aware of the Y2K problem and is receiving
monthly updates on the Y2K Committee's progress. The board has approved the
Company's written contingency plan. The plan addresses all aspects of the
Company's operation systems identifying alternative solutions. The contingency
plan identifies all of the subsidiary banks' major processing systems as
critical, semi-critical and non-critical. A processing solution is in place on
each of these applications detailing information on alternative processors and
their capabilities. This plan will continually be updated as each critical and
semi-critical application has completed its final testing phase.
The foregoing notwithstanding, management does not currently believe
that the costs of assessment, remediation, or replacement of the Company's
systems, or the potential failure of third parties' systems will have a material
adverse effect on the Company's business, financial condition, results of
operations, or liquidity.
15
WILSON BANK HOLDING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
16
MAGGART & ASSOCIATES, P.C.
Certified Public Accountants
FIRST UNION TOWER
SUITE 2150
150 FOURTH AVENUE, NORTH
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, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Maggart & Associates, P.C.
Nashville, Tennessee
January 14, 1999
17
WILSON BANK HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
In Thousands
----------------------------
1998 1997
---- ----
ASSETS
Loans, net of allowance for possible loan losses of $3,244,000
and $2,890,000, respectively $ 292,686 237,666
Securities:
Held-to-maturity, at amortized cost (market value $20,870,000
and $24,547,000, respectively) 20,408 24,251
Available-for-sale, at market (amortized cost $52,843,000 and
$37,052,000, respectively) 53,180 37,246
----------- -----------
Total securities 73,588 61,497
Loans held for sale 3,881 4,092
Federal funds sold 24,976 17,657
----------- -----------
Total earning assets 395,131 320,912
----------- -----------
Cash and due from banks 16,024 14,123
Premises and equipment, net 14,807 11,929
Accrued interest receivable 3,373 2,715
Organizational costs, net of accumulated amortization
of $108,000 and $58,000, respectively 28 78
Deferred income taxes 714 695
Other real estate 138 63
Other assets 1,760 1,194
----------- -----------
$ 431,975 351,709
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 389,105 316,641
Securities sold under repurchase agreements 7,258 4,560
Accrued interest and other liabilities 2,760 2,236
Minority interest 3,587 3,455
----------- -----------
Total liabilities 402,710 326,892
----------- -----------
Stockholders' equity:
Common stock, par value $2.00 per share, authorized 5,000,000,
1,438,781 and 1,407,467 shares issued and outstanding, respectively 2,877 2,815
Additional paid-in capital 8,530 7,527
Retained earnings 17,663 14,362
Net unrealized gains on available-for-sale securities, net of taxes
of $121,000 and $65,000, respectively 195 113
----------- -----------
Total stockholders' equity 29,265 24,817
----------- -----------
COMMITMENTS AND CONTINGENCIES
$ 431,975 351,709
=========== ===========
See accompanying notes to consolidated financial statements.
2
18
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
In Thousands
--------------------------------------------
1998 1997 1996
---- ---- ----
Interest income:
Interest and fees on loans $ 24,790 20,466 15,725
Interest and dividends on securities:
Taxable securities 3,480 2,457 1,934
Exempt from Federal income taxes 1,126 1,166 1,161
Interest on loans held for sale 219 111 106
Interest on Federal funds sold 1,335 941 517
Interest on interest-bearing deposits in financial
institutions -- -- 5
----------- ----------- -----------
Total interest income 30,950 25,141 19,448
----------- ----------- -----------
Interest expense:
Interest on negotiable order of withdrawal accounts 423 515 479
Interest on money market accounts and other
savings accounts 3,591 2,652 1,885
Interest on certificates of deposit 11,601 9,155 7,011
Interest on securities sold under repurchase agreements 386 353 422
Interest on Federal funds purchased 2 -- --
----------- ----------- -----------
Total interest expense 16,003 12,675 9,797
----------- ----------- -----------
Net interest income before provision for possible loan losses 14,947 12,466 9,651
Provision for possible loan losses (1,010) (828) (665)
----------- ----------- -----------
Net interest income after provision for possible loan losses 13,937 11,638 8,986
Non-interest income 4,200 3,410 2,781
Non-interest expense (11,376) (9,618) (7,254)
----------- ----------- -----------
Earnings before income taxes 6,761 5,430 4,513
Income taxes 2,257 1,766 1,406
----------- ----------- -----------
Net earnings $ 4,504 3,664 3,107
=========== =========== ===========
Net earnings per common share $ 3.15 2.62 2.27
=========== =========== ===========
Weighted average number of shares outstanding 1,428,175 1,397,471 1,368,675
=========== =========== ===========
See accompanying notes to consolidated financial statements.
3
19
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
In Thousands
---------------------------------
1998 1997 1996
---- ---- ----
Net earnings: $ 4,504 3,664 3,107
------- ------ ------
Other comprehensive earnings, net of tax:
Unrealized gains on available-for-sale securities
arising during period, net of tax expense of
$53,000 and $19,000 and tax benefits of
$61,000, respectively 87 38 (100)
Less: reclassification adjustment for gains included
in net earnings, net of tax expense of $3,000 (5) -- --
------- ------ ------
Other comprehensive earnings 82 38 (100)
------- ------ ------
Comprehensive earnings $ 4,586 3,702 3,007
======= ====== ======
See accompanying notes to consolidated financial statements.
4
20
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1998
In Thousands
------------------------------------------------------------
Net
Unrealized
Gain (Loss)
Additional On Available-
Common Paid-In Retained For-Sale
Stock Capital Earnings Securities Total
----- ------- -------- ---------- -----
Balance December 31, 1995 $ 2,699 5,944 9,580 175 18,398
Cash dividends declared, $.70 per share -- -- (950) -- (950)
Issuance of 28,458 shares of stock
pursuant to dividend reinvestment plan 57 740 -- -- 797
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $61,000 -- -- -- (100) (100)
Net earnings for year -- -- 3,107 -- 3,107
------- ------- ------- ------- -------
Balance December 31, 1996 2,756 6,684 11,737 75 21,252
Cash dividends declared, $.75 per share -- -- (1,039) -- (1,039)
Issuance of 29,393 shares of stock
pursuant to dividend reinvestment plan 59 843 -- -- 902
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $19,000 -- -- -- 38 38
Net earnings for year -- -- 3,664 -- 3,664
------- ------- ------- ------- -------
Balance December 31, 1997 2,815 7,527 14,362 113 24,817
Cash dividends declared, $.85 per share -- -- (1,203) -- (1,203)
Issuance of 31,314 shares of stock
pursuant to dividend reinvestment plan 62 1,003 -- -- 1,065
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $56,000 -- -- -- 82 82
Net earnings for year -- -- 4,504 -- 4,504
------- ------- ------- ------- -------
Balance December 31, 1998 $ 2,877 8,530 17,663 195 29,265
======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
5
21
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
-------------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Interest received $ 30,226 24,434 19,236
Fees received 3,214 2,789 2,213
Proceeds from sale of loans 66,623 39,406 31,803
Origination of loans held for sale (65,446) (40,663) (31,816)
Interest paid (15,714) (12,206) (9,814)
Cash paid to suppliers and employees (10,134) (8,734) (6,756)
Income taxes paid (2,459) (1,939) (1,595)
-------- -------- --------
Net cash provided by operating activities 6,310 3,087 3,271
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (60,182) (22,813) (9,757)
Proceeds from sales of available-for-sale securities 1,507 -- --
Proceeds from maturities of available-for-sale securities 42,753 14,704 7,264
Purchase of held-to-maturity securities (3,439) (5,133) (4,143)
Proceeds from maturities of held-to-maturity securities 7,487 7,417 2,999
Loans made to customers, net of repayments (56,424) (54,915) (37,569)
Purchase of bank premises and equipment (4,113) (3,335) (4,162)
Proceeds from maturities of interest-bearing deposits
in financial institutions -- -- 100
Proceeds from sale of fixed assets 35 6 --
Proceeds from sales of other real estate 262 -- --
Payments of organizational costs -- -- (111)
-------- -------- --------
Net cash used in investing activities (72,114) (64,069) (45,379)
-------- -------- --------
Cash flows from financing activities:
Net increase in non-interest bearing savings and
NOW deposit accounts 31,307 37,323 14,302
Net increase in time deposits 41,157 36,068 28,911
Proceeds from sale of securities under agreements to repurchase 2,698 -- --
Payments on securities under agreements to repurchase -- (1,056) (1,077)
Dividends paid (1,203) (1,039) (950)
Proceeds from sale of common stock 1,065 902 797
Proceeds from sale of subsidiaries' stock to minority
shareholders -- -- 3,500
-------- -------- --------
Net cash provided by financing activities 75,024 72,198 45,483
-------- -------- --------
Net increase in cash and cash equivalents 9,220 11,216 3,375
Cash and cash equivalents at beginning of year 31,780 20,564 17,189
-------- -------- --------
Cash and cash equivalents at end of year $ 41,000 31,780 20,564
======== ======== ========
See accompanying notes to consolidated financial statements.
6
22
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
-----------------------------------
1998 1997 1996
---- ---- ----
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 4,504 3,664 3,107
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,247 1,045 682
Provision for possible loan losses 1,010 828 665
Provision for deferred taxes (78) (106) (202)
Security gains related to available-for-sale securities (8) -- --
Loss on sale of other real estate 57 -- --
Gain on sale of fixed assets (12) (5) --
FHLB dividend reinvestment (66) (55) (45)
Decrease (increase) in loans held for sale 211 (1,873) (504)
Write-off of temporary facilities 15 -- --
Increase in refundable income taxes (172) (38) (57)
Increase (decrease) in taxes payable 49 (28) 69
Increase in accrued interest receivable (658) (652) (167)
Increase (decrease) in interest payable 289 469 (17)
Increase in other assets (395) (216) (331)
Increase in accrued expenses 186 34 148
Net gains (losses) of minority interests of commercial
bank subsidiaries 131 20 (77)
------- ------- -------
Total adjustments 1,806 (577) 164
------- ------- -------
Net cash provided by operating activities $ 6,310 3,087 3,271
======= ======= =======
Supplemental Schedule of Non-Cash Activities:
Investment securities transferred to held-to-maturity $ 205 -- --
======= ======= =======
Unrealized gain (loss) in value of securities available-for-sale,
net of taxes of $56,000 in 1998, $19,000 in 1997,
and $61,000 in 1996 $ 82 38 (100)
======= ======= =======
Non-cash transfers from loans to other real estate $ 394 63 --
======= ======= =======
See accompanying notes to consolidated financial statements.
7
23
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Wilson Bank Holding Company
and Subsidiaries are in accordance with generally accepted accounting
principles 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.
DeKalb Community Bank and Community Bank of Smith County were
organized in 1996. 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 nine 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.
(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.
8
24
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS, CONTINUED
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.
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.
9
25
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(D) LOANS, CONTINUED
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 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.
10
26
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
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.
- 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.
11
27
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(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.
(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.
12
28
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(L) ADVERTISING COSTS
Advertising costs are expensed when incurred.
(M) EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net earnings
by the weighted average number of common shares outstanding
during each year.
(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 1997 and 1996
figures to conform to the presentation for 1998.
(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.
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The classification of loans at December 31, 1998 and 1997 is as
follows:
In Thousands
--------------------------
1998 1997
---- ----
Commercial, financial and agricultural $ 100,217 82,515
Installment 44,299 38,423
Real estate - construction 21,809 18,159
Real estate - mortgage 130,927 103,155
---------- ----------
297,252 242,252
Unearned interest (1,322) (1,696)
Allowance for possible loan losses (3,244) (2,890)
---------- ----------
$ 292,686 237,666
========== ==========
13
29
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
The principal maturities on loans at December 31, 1998 are as follows:
In Thousands
--------------------------------------------------------------------------------
Commercial
Financial
and Real Estate - Real Estate-
Agricultural Installment Construction Mortgage Total
------------ ----------- ------------ -------- -----
3 months or less $ 25,329 2,503 9,891 1,179 38,902
3 to 12 months 35,432 2,730 10,675 1,500 50,337
1 to 5 years 20,780 37,691 240 33,663 92,374
Over 5 Years 18,676 1,375 1,003 94,585 115,639
----------- --------- ----------- --------- ---------
$ 100,217 44,299 21,809 130,927 297,252
=========== ========= =========== ========= =========
At December 31, 1998, variable rate and fixed rate loans total
$105,365,000 and $191,887,000, respectively. At December 31, 1997,
variable rate loans were $99,020,000 and fixed rate loans totaled
$143,232,000.
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 $4,657,000 and $6,387,000 at December 31, 1998 and
1997, respectively. As of December 31, 1998 none of these loans were
restructured, nor were any related party loans charged-off during the
past three years.
An analysis of the activity with respect to such loans to related
parties is as follows:
In Thousands
---------------------------
December 31,
---------------------------
1998 1997
---- ----
Balance January 1 $ 6,387 3,105
New loans during the year 5,534 7,978
Repayments during the year (7,264) (4,696)
---------- ----------
Balance, December 31 $ 4,657 6,387
========== ==========
A director of the Company performs appraisals related to certain loan
customers. Fees paid to the director for these services were $273,000
in 1998, $225,000 in 1997 and $250,000 in 1996.
Loans which had been placed on non-accrual status totaled $223,000 and
$160,000 at December 31, 1998 and 1997, respectively. Had interest on
these loans been accrued, interest income would have been increased by
approximately $16,000 in 1998 and $11,000 in 1997. In 1996, interest
income that would have been earned had there been no non-accrual loans
totaled approximately $12,000.
14
30
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
Transactions in the allowance for possible loan losses for the years
ended December 31, 1998, 1997 and 1996 are summarized as follows:
In Thousands
-------------------------------------------
1998 1997 1996
---- ---- ----
Balance, beginning of year $ 2,890 2,452 1,944
Provision charged to operating expense 1,010 828 665
Loans charged off (705) (486) (174)
Recoveries on losses 49 96 17
---------- --------- ---------
Balance, end of year $ 3,244 2,890 2,452
========== ========= =========
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.
Impaired loans and related loan loss reserve amounts at December 31,
1998 and 1997 were as follows:
In Thousands
-------------------------
December 31,
-------------------------
1998 1997
---- ----
Recorded investment $ 241 1,025
Loan loss reserve $ 156 227
The average recorded investment in impaired loans for the years ended
December 31, 1998 and 1997 was $219,000 and $543,000, respectively.
There was no interest income recognized on these loans during 1998. The
related total amount of interest income recognized on the accrual basis
for the period that such loans were impaired was $23,000 for 1997.
In 1998, 1997 and 1996, the Company originated and sold loans in the
secondary market of $65,446,000, $40,663,000, and $31,816,000,
respectively. At December 31, 1998, 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 $966,000, $616,000, and $491,000 in 1998, 1997 and 1996,
respectively.
15
31
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
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, 1998, loans sold to
the Federal Home Loan Mortgage Corporation with existing recourse
totaled $7,326,000. 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,
1998, total loans sold with recourse to the Bank, including those sold
to the Federal Home Loan Mortgage Corporation, aggregated $24,360,000.
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, 1998 consist of the following:
Securities Held-To-Maturity
---------------------------------------------------------------
In Thousands
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and other U.S.
Government agencies and
corporations $ 1,097 7 -- 1,104
Obligations of states and political
subdivision 15,202 479 -- 15,681
Mortgage-backed securities 4,109 15 39 4,085
---------- ---------- ---------- ----------
$ 20,408 501 39 20,870
========== ========== ========== ==========
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 $ 49,189 283 43 49,429
Obligations of states and political
subdivision 2,732 91 -- 2,823
Mortgage-backed securities 922 7 1 928
---------- ---------- ---------- ----------
$ 52,843 381 44 53,180
========== ========== ========== ==========
16
32
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The Company's classification of securities at December 31, 1997 is as
follows:
Securities Held-To-Maturity
----------------------------------------------------------
In Thousands
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and other U.S.
Government agencies and
corporations $ 1,197 16 -- 1,213
Obligations of states and political
subdivision 16,989 332 7 17,314
Mortgage-backed securities 6,065 12 57 6,020
------------ ---------- --------- ----------
$ 24,251 360 64 24,547
============ ========== ========= ==========
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 $ 30,977 82 20 31,039
Obligations of states and political
subdivision 4,781 123 1 4,903
Mortgage-backed securities 1,294 19 9 1,304
------------ ---------- --------- ------------
$ 37,052 224 30 37,246
============ ========== ========= ============
17
33
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt securities at
December 31, 1998, 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.
Securities Held-To-Maturity Estimated
Amortized Market
Cost Value
------------ ---------
Due in one year or less $ 2,304 2,312
Due after one year through five years 5,078 5,187
Due after five years through ten years 5,089 5,308
Due after ten years 3,828 3,978
------------ ----------
16,299 16,785
Mortgage-backed securities 4,109 4,085
------------ ----------
$ 20,408 20,870
============ ==========
Securities Available-For-Sale Estimated
Amortized Market
Cost Value
------------ -----------
Due in one year or less $ 1,446 1,459
Due after one year through five years 7,418 7,575
Due after five years through ten years 35,997 36,126
Due after ten years 6,048 6,080
------------ ----------
50,909 51,240
Mortgage-backed securities 922 928
Federal Home Loan Bank stock 1,012 1,012
------------ ----------
$ 52,843 53,180
============ ==========
Results from sales of debt and equity securities are as follows:
In Thousands
---------------------------------------
1998 1997 1996
---- ---- ----
Gross proceeds $ 1,507 -- --
========== =========== ==========
Gross realized gains $ 8 -- --
Gross realized losses -- -- --
---------- ------------ ----------
Net realized gains $ 8 -- --
========== ============== ==========
18
34
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(3) DEBT AND EQUITY SECURITIES, CONTINUED
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 $46,076,000
(approximate market value of $46,626,000) and $41,803,000 (approximate
market value of $42,037,000), were pledged to secure public deposits
and for other purposes as required or permitted by law at December 31,
1998 and 1997, respectively.
Included in the securities above are $14,751,000 (market value of
$15,159,000) and $18,547,000 (market value of $18,819,000) at December
31, 1998 and 1997, 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
$4,750,000 (market value $4,726,000) at December 31, 1998.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $1,012,000 and $847,000 at December 31, 1998 and
1997, respectively. The stock can be sold back at par and only to the
Federal Home Loan Bank or to another member institution.
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1998 and 1997 is
as follows:
In Thousands
------------------------
1998 1997
---- ----
Land $ 2,898 2,153
Buildings 9,815 7,314
Leasehold improvements 137 153
Furniture and equipment 6,466 5,029
Automobiles 106 114
Construction in progress 24 647
--------- ---------
19,446 15,410
Less accumulated depreciation (4,639) (3,481)
--------- ---------
$ 14,807 11,929
========= =========
Building additions during 1998 and 1997 include payments of $1,281,000
and $716,000, respectively, to a construction company owned by a
director of the Company.
19
35
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(5) DEPOSITS
Deposits at December 31, 1998 and 1997 are summarized as follows:
In Thousands
---------------------------
1998 1997
---- ----
Demand deposits $ 43,345 32,373
Savings accounts 19,471 16,971
Negotiable order of withdrawal 25,581 26,355
Money market demand accounts 81,638 63,030
Certificates of deposit $100,000 or greater 74,596 56,560
Other certificates of deposit 126,674 105,976
Individual retirement accounts $100,000 or greater 4,619 4,386
Other individual retirement accounts 13,181 10,990
------------ ------------
$ 389,105 316,641
============ ============
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1998 are as follows:
In Thousands
---------------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
-------- --------------- -------------- -----
3 months or less $ 24,258 23,525 47,783
3 to 6 months 21,270 15,691 36,961
6 to 12 months 44,155 19,567 63,722
1 to 5 years 50,172 20,432 70,604
------------ ---------- ----------
$ 139,855 79,215 219,070
============ ========== ==========
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, 1998 and 1997 were approximately
$2,091,000 and $1,328,000, respectively.
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The maximum amounts of outstanding repurchase agreements at any month
end during 1998 and 1997 was $12,399,000 and $9,632,000, respectively.
The average daily balance outstanding during 1998, 1997 and 1996 was
$8,503,000, $7,327,000, and $8,224,000, respectively. The underlying
securities are typically held by other financial institutions and are
designated as pledged.
20
36
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(7) 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
------------------------------------------
1998 1997 1996
---- ---- ----
Non-interest income:
Service charges on deposits $ 1,720 1,430 1,251
Other fees 1,493 1,351 962
Gains on sales of loans 966 616 491
Security gains 8 -- --
Gains on sales of fixed assets 12 5 --
Other income 1 8 --
Minority interest in net losses of subsidiaries -- -- 77
---------- ---------- ----------
$ 4,200 3,410 2,781
========== ========== ==========
Non-interest expense:
Employee salaries and benefits $ 5,605 4,583 3,811
Employee benefit plan 334 271 188
Occupancy expenses 775 725 469
Furniture and equipment expenses 1,039 811 624
Loss on sale of other real estate 57 -- --
FDIC insurance 39 30 3
Directors' fees 475 397 349
Other operating expenses 2,921 2,781 1,810
Minority interest in net income of
subsidiaries 131 20 --
---------- ---------- -----------
$ 11,376 9,618 7,254
========== ========== ===========
(8) INCOME TAXES
The components of the net deferred tax asset are as follows:
In Thousands
----------------------------
1998 1997
---- ----
Deferred tax asset:
Federal $ 964 871
State 181 164
------------ ------------
1,145 1,035
------------ ------------
Deferred tax liability:
Federal (363) (286)
State (68) (54)
------------ ------------
(431) (340)
------------ ------------
$ 714 695
============ ============
21
37
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(8) INCOME TAXES, CONTINUED
The tax effects of each type of significant item that gave rise to
deferred taxes are:
In Thousands
-------------------------
1998 1997
---- ----
Financial statement allowance for loan losses
in excess of tax allowance $ 1,094 999
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (224) (192)
Financial statement deduction for deferred compensation
in excess of deduction for tax purposes 26 16
Financial statement deduction for preopening expenses and
organizational costs in excess of the amounts deducted
for tax purposes 24 20
Financial statement income on FHLB stock dividends
not recognized for tax purposes (78) (38)
Unrealized gain on securities available-for-sale (128) (74)
---------- --------
714 731
Benefit of 50% owned bank subsidiaries' Federal net
operating loss not recognized -- (36)
---------- --------
$ 714 695
========== ========
The components of income tax expense (benefit) are summarized as
follows:
In Thousands
-------------------------------------
Federal State Total
------- ----- -----
1998
Current $ 1,913 422 2,335
Deferred (72) (6) (78)
----------- --------- ---------
Total $ 1,841 416 2,257
=========== ========= =========
1997
Current $ 1,524 348 1,872
Deferred (91) (15) (106)
----------- --------- ---------
Total $ 1,433 333 1,766
=========== ========= =========
1996
Current $ 1,304 304 1,608
Deferred (162) (40) (202)
----------- --------- ---------
Total $ 1,142 264 1,406
=========== ========= =========
22
38
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(8) INCOME TAXES, CONTINUED
A reconciliation of actual income tax expense of $2,257,000, $1,766,000
and $1,406,000 for the years ended December 31, 1998, 1997 and 1996,
respectively, to the "expected" tax expense (computed by applying the
statutory rate of 34% to earnings before income taxes) is as follows:
In Thousands
----------------------------------------
1998 1997 1996
---- ---- ----
Computed "expected" tax expense $ 2,299 1,846 1,534
State income taxes, net of Federal income tax benefit 276 220 175
Tax exempt interest, net of interest expense exclusion (315) (335) (331)
Tax expense (benefit) related to minority interest
income (loss) in subsidiaries 45 7 (26)
Tax benefits of net operating losses of 50% owned
bank subsidiaries not recognized -- 31 52
Tax benefits of net operating losses of 50% owned
bank subsidiaries not previously recognized (46) (33) --
Other (2) 30 2
---------- ---------- ---------
$ 2,257 1,766 1,406
========== ========== =========
Total income tax expense for 1998 includes income tax expense of $3,000
related to the gain on sale of securities. There were no sales of
securities in 1997 and 1996.
(9) 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
------------------------- ------------
1999 $ 59
2000 43
2001 33
2002 28
2003 12
---------
$ 175
=========
Total rent expense amounted to $85,000, $80,000 and $59,000,
respectively, during the years ended December 31, 1998, 1997 and 1996.
23
39
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(9) COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than
two digits to identify a year in any given date field, and are thereby
able to differentiate between years in the twentieth and twenty-first
centuries ending with the same two digits (e.g., 1900 and 2000). To
address the Year 2000 issue, the subsidiary banks have appointed a Year
2000 Committee to coordinate the identification, evaluation and
implementation of changes to computer systems and applications
necessary to achieve Year 2000 compliance.
Areas being addressed by the Committee include:
- Subsidiary banks' primary data processing system. A major
data processor provides the primary software and hardware
for the data processing system of the subsidiary banks. This
is of the highest priority for day to day operations,
accounting and success of the subsidiary banks.
- Government systems, such as the Federal Reserve Bank for
check clearing, wire transfers, and the free flow and
exchange of funds between institutions are absolutely
critical.
- The internal PC hardware and software systems within the
subsidiary banks, along with telecommunications systems.
- The primary securities portfolio accounting and safekeeping
system for the subsidiary banks.
- Credit administration - the committee is reviewing the risk
associated with Year 2000 status of the subsidiary banks'
loan customers and depositors.
- Status of subsidiary banks' primary vendors' Year 2000
compliance.
Management does not currently believe that the costs of assessment,
remediation, or replacement of the subsidiary banks' systems, or the
potential failure of third parties' systems will have a material
adverse effect on the subsidiary banks' business, financial condition,
results of operations, or liquidity.
(10) 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.
24
40
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
In Thousands
--------------------------
Contract or
Notional Amount
---------------------------
1998 1997
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $ 28,327 25,212
Unfunded lines-of-credit 9,929 7,726
Letters of credit 1,277 1,730
----------- ----------
Total $ 39,533 34,668
=========== ==========
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.
(11) 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.
At December 31, 1998 and 1997, the Company's cash and due from banks
included commercial bank deposit accounts aggregating $100,000 and
$78,000, respectively in excess of the Federal Deposit Insurance
Corporation limit of $100,000 per institution.
In addition, Federal funds sold were deposited with six banks.
(12) 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, 1998, 1997
and 1996, the subsidiary banks contributed $334,000, $271,000 and
$188,000, respectively, to this plan.
25
41
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(13) 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 31,314 in 1998,
29,393 in 1997 and 28,458 in 1996 were sold to participants under the
terms of the plan.
(14) 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 status and
the amount of dividends the subsidiaries may distribute. At December
31, 1998, management believes that the Company and all of its
subsidiaries meet all such capital requirements to which they are
subject.
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, 1998, 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 11.20% and 12.31%, respectively. The leverage ratio
at December 31, 1998 was 7.78% and the minimum requirement was 4%.
(15) 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 five employees participating in the plan at
December 31, 1998.
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, 1998 and 1997, the deferred compensation
liability totaled $69,000 and $43,000, respectively, the cash surrender
value of life insurance was $283,000 and $181,000, respectively, and
the face amount of the insurance policies in force approximated
$2,280,000 and $1,480,000 in 1998 and 1997, respectively. The deferred
compensation plan is not qualified under Section 401 of the Internal
Revenue Code.
26
42
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
In Thousands
------------
1998 1997
---- ----
ASSETS
Cash $ 1* 16*
Investment in wholly-owned commercial bank subsidiary 25,596* 21,266*
Investment in 50% owned commercial bank subsidiaries 3,587* 3,455*
Refundable income taxes 81 80
----------- ---------
Total assets $ 29,265 24,817
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $2.00 per share, authorized
5,000,000 shares, issued and outstanding 1,438,781
and 1,407,467 shares, respectively $ 2,877 2,815
Additional paid-in capital 8,530 7,527
Retained earnings 17,663 14,362
Unrealized gain on available-for-sale securities,
net of taxes of $121,000 and $65,000, respectively 195 113
----------- ---------
29,265 24,817
----------- ---------
Total liabilities and stockholders' equity $ 29,265 24,817
=========== =========
*Eliminated in consolidation.
27
43
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
THREE YEARS ENDED DECEMBER 31, 1998
-------------------------------------------
In Thousands
-------------------------------------------
1998 1997 1996
---- ---- ----
Expenses:
Employee salary and benefits $ -- 20 9
Amortization of organizational costs -- 4 5
Directors fees 198 167 129
Other 15 20 11
----------- ------------ ------------
Loss before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiaries (213) (211) (154)
Federal income tax benefits 81 80 58
----------- ------------ ------------
(132) (131) (96)
Equity in undistributed earnings of commercial
bank subsidiaries 4,636* 3,795* 3,203*
----------- ------------ ------------
Net earnings 4,504 3,664 3,107
----------- ------------ ------------
Other comprehensive earnings, net of tax:
Unrealized gains on available-for-sale securities
arising during period, net of tax expense of
$53,000 and $19,000, and tax benefits of
$61,000, respectively 87 38 (100)
Less: reclassification adjustment for gains included
in net earnings, net of tax expense of $3,000 (5) -- --
----------- ------------ ------------
Other comprehensive earnings 82 38 (100)
----------- ------------ ------------
Comprehensive earnings $ 4,586 3,702 3,007
=========== ============ ============
*Eliminated in consolidation.
28
44
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1998
In Thousands
-----------------------------------------------------------
Net Unrealized
Gain (Loss)
Additional On Available-
Common Paid-In Retained For-Sale
Stock Capital Earnings Securities Total
----- ------- -------- ---------- -----
Balance December 31, 1995 $ 2,699 5,944 9,580 175 18,398
Cash dividends declared, $.70 per share -- -- (950) -- (950)
Issuance of stock pursuant to dividend
reinvestment plan 57 740 -- -- 797
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $61,000 -- -- -- (100) (100)
Net earnings for year -- -- 3,107 -- 3,107
------- ------- ------- ------- -------
Balance December 31, 1996 2,756 6,684 11,737 75 21,252
Cash dividends declared, $.75 per share -- -- (1,039) -- (1,039)
Issuance of 29,393 shares of stock
pursuant to dividend reinvestment plan 59 843 -- -- 902
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $19,000 -- -- -- 38 38
Net earnings for year -- -- 3,664 -- 3,664
------- ------- ------- ------- -------
Balance December 31, 1997 2,815 7,527 14,362 113 24,817
Cash dividends declared, $.85 per share -- -- (1,203) -- (1,203)
Issuance of 31,314 shares of stock
pursuant to dividend reinvestment plan 62 1,003 -- -- 1,065
Net change in unrealized gain on
available-for-sale securities during
the year, net of taxes of $56,000 -- -- -- 82 82
Net earnings for year -- -- 4,504 -- 4,504
------- ------- ------- ------- -------
Balance December 31, 1998 $ 2,877 8,530 17,663 195 29,265
======= ======= ======= ======= =======
29
45
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
---------------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Cash paid to suppliers and other $ (213) (201) (155)
Tax benefits received 80 58 41
---------- ----------- ----------
Net cash used in operating activities (133) (143) (114)
---------- ----------- ----------
Cash flows from investing activities:
Purchase of stock in minority owned subsidiaries -- -- (3,500)
Decrease in due from subsidiaries -- -- 16
Dividend received from commercial bank subsidiary 256 235 3,757
---------- ----------- ----------
Net cash provided by investing activities 256 235 273
---------- ----------- ----------
Cash flows from financing activities:
Dividends paid (1,203) (1,039) (950)
Proceeds from sale of stock 1,065 902 797
---------- ----------- ----------
Net cash used in financing activities (138) (137) (153)
---------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents (15) (45) 6
Cash and cash equivalents at beginning of period 16 61 55
---------- ----------- ----------
Cash and cash equivalents at end of year $ 1 16 61
========== =========== ==========
30
46
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(16) 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, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
In Thousands
----------------------------------------
1998 1997 1996
---- ---- ----
Reconciliation of net earnings to net cash used
in operating activities:
Net earnings $ 4,504 3,664 3,107
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in earnings of commercial bank
subsidiaries (4,636) (3,795) (3,203)
Amortization of organization costs -- 4 5
(Increase) decrease in other assets -- 6 (6)
Increase in refundable income taxes (1) (22) (17)
---------- ---------- -----------
Total adjustments (4,637) (3,807) (3,221)
---------- ---------- -----------
Net cash used in operating activities $ (133) (143) (114)
========== ========== ===========
31
47
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(17) 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.
32
48
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(17) 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.
33
49
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(17) 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, 1998 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, 1998 and
1997 are as follows:
In Thousands
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets:
Cash and short-term
investments $ 41,000 41,000 31,780 31,780
Securities 73,588 74,050 61,497 61,793
Loans 295,930 240,556
Less: allowance for
loan losses 3,244 2,890
----------- -----------
Loans, net of allowance 292,686 293,108 237,666 237,398
----------- -----------
Loans held for sale 3,881 3,881 4,092 4,092
----------- -----------
Financial liabilities:
Deposits 389,105 391,720 316,641 317,766
Securities sold
under repurchase
agreements 7,258 7,258 4,560 4,560
Unrecognized financial
instruments:
Commitments to
extend credit -- -- -- --
Standby letters of credit -- -- -- --
34
50
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(17) 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.
35