<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-10402
WILSON BANK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Tennessee 62-1497076
- ------------------------------------------ -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
623 West Main Street
Lebanon, Tennessee 37087
- ------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 444-2265
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $2.00 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 15, 1998, was approximately $40,659,829. The market value
calculation was determined using $33.25 per share.
Shares of common stock, $2.00 par value per share, outstanding on March 15,
1998, were 1,422,585.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Documents from which portions are incorporated by reference
- ----------------- -----------------------------------------------------------
Part II Portions of the Registrant's Annual Report to Shareholders
for the fiscal year ended December 31, 1997 are incorporated
by reference into Items 5, 6, 7, 7A and 8.
Part III Portions of the Registrant's Proxy Statement relating to the
Registrant's Annual Meeting of Shareholders to be held on
April 14, 1998 are incorporated by reference into Items 10,
11, 12 and 13.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Wilson Bank Holding Company (the "Company") was incorporated on March 17, 1992
under the laws of the State of Tennessee. The purpose of the Company was to
acquire all of the issued and outstanding capital stock of Wilson Bank and Trust
(the "Bank") and act as a one bank holding company. On November 17, 1992, the
Company acquired 100% of the capital stock of the Bank pursuant to the terms of
a plan of share exchange and agreement.
All of the Company's banking business is conducted through the Bank, a state
chartered bank organized under the laws of the State of Tennessee, the Bank's
wholly-owned subsidiary Hometown Finance, Inc., DeKalb Community Bank ("DCB")
and Community Bank of Smith County ("CBSC"). The Bank on December 31, 1997 had
eight full service banking offices. Hometown Finance, Inc., a finance company
organized under the Tennessee Industrial Loan and Thrift Companies Act (the
"Finance Company") had one office in Lebanon on December 31, 1997. As of
December 31, 1997, DCB had one office located in Smithville, Tennessee and one
office located in Alexandria, Tennessee. CBSC has one office located in
Carthage, Tennessee. The Finance Company began operations in September 1994, DCB
in April 1996 and CBSC in December 1996 and, to date, their revenues and
expenses have not had a material effect on the earnings of the Company.
The Company's principal executive office is located at 623 West Main Street,
Lebanon, Tennessee, which is also the principal location of the Bank. The Bank's
branch offices are located at 1444 Baddour Parkway, Lebanon, Tennessee; 200
Tennessee Boulevard, Lebanon, Tennessee; Public Square, Watertown, Tennessee;
8875 Stewart's Ferry Pike, Gladeville, Tennessee; 1476 North Mt. Juliet Road,
Mt. Juliet, Tennessee; 127 McMurry Boulevard, Hartsville, Tennessee; and the
Wal-Mart Super Center, Lebanon, Tennessee. The Finance Company is located at 502
West Main, Lebanon, Tennessee 37087. Management believes that Wilson County
offers an environment for continued growth and the Company's target market
consists of local consumers, professionals and small businesses. The Bank offers
a wide range of banking services, including checking, savings, and money market
deposit accounts, certificates of deposit and loans for consumer, commercial and
real estate purposes. The Bank also offers custodial, trust and discount
brokerage services to its customers. The Bank does not have a concentration of
deposits obtained from a single person or entity or a small group of persons or
entities, the loss of which would have a material adverse affect on the business
of the Bank. Furthermore, no concentration of loans exists within a single
industry or group of related industries.
The Bank was organized in 1987 to provide Wilson County a locally owned, locally
managed commercial bank. Since its opening, the Bank has experienced a steady
growth in deposits and loans as a result of providing personal, service oriented
banking services to its targeted market. For the year ended December 31, 1997,
the Company reported net earnings of approximately $3.7 million and had total
assets of approximately $351.7 million.
On October 16, 1995, the Company filed an application to form a branch in DeKalb
County, Tennessee and subsequently filed a related application to incorporate
such branch as a de novo bank under the name DeKalb Community Bank on November
29, 1995. The application was approved on March 8, 1996 and DCB opened for
business on April 18, 1996. DCB is 50% owned by the Company and 50% owned by
residents of DeKalb County. DCB opened a full service branch in Alexandria,
Tennessee on December 6, 1997. DCB is considered a subsidiary of the Company for
purposes of the Bank Holding Company Act of 1956.
Management believes that DeKalb County offers an environment for continued
growth since it is geographically close to Wilson County, and two locally-owned
banks in DeKalb County recently were acquired by larger banks. DCB offers a wide
range of banking services, including checking, savings, and money market deposit
accounts, certificates of deposit and loans for consumer, commercial and real
estate purposes. DCB does not have a concentration of deposits obtained from a
single person or entity or a small group of persons or entities, the loss of
which would have a material adverse affect on the business of DCB. Furthermore,
no concentration of loans exists within a single industry or group of related
industries.
1
<PAGE> 3
On August 28, 1996, the Company filed an application to form a de novo bank in
Smith County, Tennessee under the name Community Bank of Smith County. The
application was approved on November 25, 1996 and CBSC opened for business on
December 16, 1996. CBSC is 50% owned by the Company and 50% owned by residents
of Smith County. CBSC is considered a subsidiary of the Company for purposes of
the Bank Holding Company Act of 1956. Management believes that Smith County
offers an environment for continued growth since it is contiguous to Wilson
County and has only three other financial institutions. CBSC offers a wide range
of banking services, including checking, savings, and money market deposit
accounts, certificates of deposit and loans for consumer, commercial and real
estate purposes. It is anticipated that CBSC will not have a concentration of
deposits obtained from a single person or entity or a small group of persons or
entities, the loss of which would have a material adverse affect on the business
of CBSC. Furthermore, no concentration of loans should exist within a single
industry or group of related industries.
FINANCIAL AND STATISTICAL INFORMATION
The Company's audited financial statements, selected financial data and
Management's Discussion and Analysis of Financial Condition and Results of
Operation contained in the Company's Annual Report to Shareholders for the year
ended December 31, 1997 filed as Exhibit 13 to this Form 10-K (the "1997Annual
Report"), are incorporated herein by reference.
REGULATION AND SUPERVISION
In addition to the information set forth herein, Management's Discussion and
Analysis of Financial Condition and Results of Operations, incorporated by
reference in Item 6 hereof, further discusses recent banking legislation and
regulation and should be reviewed in conjunction herewith.
The Company, the Bank, DCB, CBSC and the Finance Company are subject to
extensive regulation under state and federal statutes and regulations. The
discussion in this section, which briefly summarizes certain of such statutes,
does not purport to be complete, and is qualified in its entirety by reference
to such statutes. Other state and federal legislation and regulations directly
and indirectly affecting banks are likely to be enacted or implemented in the
future; however, such legislation and regulations and their effect on the
business of the Company and its subsidiary cannot be predicted.
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act") and is registered with the Board of Governors of
the Federal Reserve System (the "Board"). The Company is required to file annual
reports with, and is subject to examination by, the Board. The Bank, DCB, CBSC
and the Finance Company are chartered under the laws of the state of Tennessee
and are subject to the supervision of, and are regularly examined by, the
Tennessee Department of Financial Institutions. The Bank, DCB and CBSC are also
regularly examined by the Federal Deposit Insurance Corporation.
Under the Tennessee Bank Structure Act, a bank holding company which controls
30% or more of the total deposits in all federally insured financial
institutions in Tennessee is prohibited from acquiring any bank in Tennessee.
Furthermore, no bank holding company may acquire any bank in Tennessee that has
been in operation less than five years or organize a new bank in Tennessee,
except in the case of certain interim bank mergers and acquisitions of banks in
financial difficulty. State banks and national banks in Tennessee, however, may
establish branches anywhere in the state.
Under the Act, a bank holding company may not directly or indirectly acquire
ownership or control or 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.
Recently, 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 on 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,
2
<PAGE> 4
1997. Tennessee has enacted interstate branching laws in response to the 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 national bank with its
main office in Tennessee.
The Company, Bank, DCB and CBSC 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 bank holding company or its subsidiary on
investments in the stock or other securities of the bank holding company or its
subsidiary.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
covers a wide expanse of banking regulatory issues. FDICIA deals with
recapitalization of the Bank Insurance Fund, with deposit insurance reform,
including requiring the FDIC to establish a risk-based premium assessment
system, and with a number of other regulatory and supervisory matters.
The Financial Reform, Recovery and Enforcement Act of 1989 ("FIRREA") provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the FDIC in connection with the default of, or any
FDIC-assisted transaction involving, an affiliated insured bank or savings
association.
The maximum permissible rates of interest on most commercial and consumer loans
made by the Bank and the Finance Company are governed by Tennessee's general
usury law and the Tennessee Industrial Loan and Thrift Companies Act
("Industrial Loan Act"). Certain other usury laws affect limited classes of
loans, but the laws referenced above are by far the most significant.
Tennessee's general usury law authorizes a floating rate of 4% per annum over
the average prime or base commercial loan rate, as published by the Federal
Reserve Board from time to time, subject to an absolute 24% per annum limit. The
Industrial Loan Act, which is applicable to the Finance Company and also is
generally applicable to most of the loans made by the Bank in Tennessee,
authorizes an interest rate of up to 24% per annum and also allows certain loan
charges, generally on a more liberal basis than does the general usury law.
COMPETITION
The banking industry is highly competitive. The Company, through its subsidiary,
competes with national and state banks for deposits, loans, and trust and other
services.
The Bank competes with much larger commercial banks in Wilson County, including
three banks owned by regional multi-bank holding companies headquartered out of
Tennessee and four banks owned by Tennessee multi-bank holding companies. These
institutions enjoy existing depositor relationships and greater financial
resources than the Company and can be expected to offer a wider range of banking
services. These institutions enjoy existing depositor relationships and greater
financial resources than the Company and can be expected to offer a wider range
of banking services. In addition the Bank competes with one commercial bank
headquartered in Wilson County and one headquartered in an adjacent county. Two
credit unions provide additional competition.
DCB competes with much larger commercial banks in DeKalb County, including three
banks owned by Tennessee multi-bank holding companies. These banks were
previously locally owned banks which were recently acquired by the larger banks.
While these institutions enjoy existing depositor relationships and greater
financial resources than the DCB and can be expected to offer a wider range of
banking services, DCB can expect to attract customers since it is locally owned
and most loan and management decisions will be made at the local level. In
addition the Bank competes with one commercial bank headquartered in DeKalb
County.
CBSC competes with three commercial banks in or near Smith County, including two
banks based in Smith County and one based in an adjacent county. These
institutions enjoy existing depositor relationships; however, the Company can be
expected to offer a wider range of banking services at CBSC through its
financial resources as well as programs offered by other subsidiaries of the
Company.
3
<PAGE> 5
Given the competitive market place, the Company makes no predictions as to how
its relative position will change in the future.
MONETARY POLICIES
The results of operations of the Bank and the Company are affected by the
policies of the regulatory authorities, particularly the Board. An important
function of the Board is to regulate the national supply of bank credit in order
to combat recession and curb inflation. Among the instruments used to attain
these objectives are open market operations in U.S. government securities,
changes in the discount rate on bank borrowings and changes in reserve
requirements relating to member bank deposits. These instruments are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may also affect interest rates charged
on loans and paid for deposits. Policies of the regulatory agencies have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future. The effect of such policies upon the future
business and results of operations of the Company, Bank, DCB and CBSC cannot be
predicted with accuracy.
EMPLOYMENT
The Company and is subsidiaries collectively employ 157 full-time equivalent
employees and 24 part-time employees. Additional personnel will be hired to meet
future growth.
YEAR 2000
As with other companies, advances and changes in technology can have a
significant impact on the business and operations. Many computer programs were
originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields will not work properly with
dates from the year 2000 and beyond. This "Year 2000 computer issue" can create
risk for a company from unforeseen problems in its own computer systems and from
the company's vendors and customers.
The Company has implemented a plan in order to avoid any problems related to the
Year 2000 computer issue. Based upon current information, management presently
believes that specific costs related to the Company's Year 2000 systems issues
will not have a material impact on the operations, cash flows or financial
condition of the Company.
STATISTICAL INFORMATION REQUIRED BY GUIDE 3
The statistical information required to be displayed under Item I pursuant to
Guide 3, "Statistical Disclosure by Bank Holding Companies," of the Exchange Act
Industry Guides is incorporated herein by reference to the Consolidated
Financial Statements and the notes thereto and the Management's Discussion and
Analysis sections in the Company's 1997 Annual Report; certain information not
contained in the Company's 1997 Annual Report, but required by Guide 3, is
contained in the tables immediately following:
4
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
I. Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rate and Interest Differential
The Schedule which follows indicates the average balances for each
major balance sheet item, an analysis of net interest income and the
change in interest income and interest expense attributable to changes
in volume and changes in rates.
The difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities is net interest
income, which is the Company's gross margin. Analysis of net interest
income is more meaningful when income from tax-exempt earning assets is
adjusted to a tax equivalent basis. Accordingly, the following schedule
includes a tax-equivalent adjustment of tax-exempt earning assets,
assuming a weighted average Federal income tax rate of 34%.
In this Schedule "change due to volume" is the change in volume
multiplied by the interest rate for the prior year. "Change due to
rate" is the change in interest rate multiplied by the volume for the
current year. Changes in interest income and expense not due solely to
volume or rate changes are included in the "change due to rate"
category.
Non-accrual loans have been included in the loan category. Loan fees of
$271,000, $150,000 and $155,000 for 1997, 1996 and 1995, respectively,
are included in loan income and represent an adjustment of the yield on
these loans.
5
<PAGE> 7
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
---------------------------------------------------------------------------------
1997 1996 1997/1996 CHANGE
--------------------------- -------------------------- -----------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $215,073 9.52% 20,466 165,807 9.48% 15,725 4,670 71 4,741
Investment securities - taxable 38,609 6.36 2,457 32,805 5.90 1,934 342 181 523
Investment securities - tax exempt 20,346 5.73 1,166 19,499 5.95 1,161 50 (45) 5
Taxable equivalent adjustment -- 2.95 600 -- 3.07 598 26 (24) 2
-------- ---- ------ ------- ---- ------ -----
Total tax-exempt
investment securities 20,346 8.68 1,766 19,499 9.02 1,759 76 (69) 7
-------- ---- ------ ------- ---- ------ -----
Total investment securities 58,955 7.16 4,223 52,304 7.06 3,693 470 60 530
-------- ---- ------ ------- ---- ------ -----
Loans held for sale 2,062 5.38 111 1,823 5.81 106 14 (9) 5
Federal funds sold 18,356 5.13 941 9,710 5.32 517 460 (36) 424
Interest-bearing deposits in banks -- -- -- 60 8.33 5 (5) -- (5)
-------- ---- ------ ------- ---- ------ -----
Total earning assets 294,446 8.74 25,741 229,704 8.73 20,046 5,652 43 5,695
-------- ---- ------ ------- ---- ------ -----
Cash and due from banks 8,943 7,644
Allowance for possible loan losses (2,730) (2,165)
Bank premises and equipment 10,855 7,664
Other assets 4,113 2,297
-------- -------
Total assets $315,627 245,144
======== =======
</TABLE>
6
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
-------------------------------------------------------------------------------
1997 1996 1997/1996 CHANGE
--------------------------- ------------------------- -----------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of withdrawal
accounts $ 23,232 2.22% 515 20,102 2.38% 479 75 (39) 36
Money market demand accounts 54,222 3.82 2,069 41,627 3.62 1,508 455 106 561
Individual retirement accounts 13,765 5.72 787 11,224 5.77 648 147 (8) 139
Other savings deposits 12,766 4.57 583 8,638 4.36 377 180 26 206
Certificates of deposit,
$100,000 and over 51,315 5.76 2,957 33,476 5.79 1,938 1,033 (14) 1,019
Certificates of deposit
under $100,000 95,813 5.65 5,411 78,354 5.65 4,425 986 -- 986
-------- ---- ------ ------- ---- ------ ------
Total interest-bearing
deposits 251,113 4.91 12,322 193,421 4.85 9,375 2,798 149 2,947
Demand 28,865 -- -- 21,807 -- -- --
-------- ---- ------ ------- ---- ------ -----
Total deposits 279,978 4.40 12,322 215,228 4.36 9,375 2,823 124 2,947
-------- ---- ------ ------- ---- ------ -----
Securities sold under repurchase
agreements 7,326 4.82 353 8,226 5.13 422 46 (115) (69)
-------- ---- ------ ------- ---- ------ -----
Total deposits and
borrowed funds 287,304 4.41 12,675 223,454 4.38 9,797 2,797 81 2,878
-------- ---- ------ ------- ---- ------ -----
Other liabilities 5,458 3,271
Stockholders' equity 22,865 18,419
-------- -------
Total liabilities and
stockholders' equity $315,627 245,144
======== =======
Net interest income 13,066 10,249
====== ======
Net yield on earning assets 4.44% 4.46%
==== ====
Net interest spread 4.33% 4.35%
==== ====
</TABLE>
7
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
---------------------------- --------------------------- -------------------------
1996 1995 1996/1995 CHANGE
---------------------------- --------------------------- -------------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $165,807 9.48% 15,725 134,552 9.49% 12,763 2,966 (4) 2,962
Investment securities - taxable 32,805 5.90 1,934 30,217 5.93 1,792 153 (11) 142
Investment securities - tax exempt 19,499 5.95 1,161 17,565 6.00 1,054 116 (9) 107
Taxable equivalent adjustment -- 3.07 598 -- 3.09 543 60 (5) 55
-------- ---- ------ ------- ---- ------ -----
Total tax-exempt
investment securities 19,499 9.02 1,759 17,565 9.09 1,597 176 (14) 162
-------- ---- ------ ------- ---- ------ -----
Total investment securities 52,304 7.06 3,693 47,782 7.09 3,389 321 (17) 304
-------- ---- ------ ------- ---- ------ -----
Loans held for sale 1,823 5.81 106 1,526 8.26 126 24 (44) (20)
Federal funds sold 9,710 5.32 517 10,895 5.71 622 (68) (37) (105)
Interest-bearing deposits in banks 60 8.33 5 102 8.82 9 4 -- (4)
-------- ---- ------ ------- ---- ------ -----
Total earning assets 229,704 8.73 20,046 194,857 8.68 16,909 3,025 112 3,137
-------- ---- ------ ------- ---- ------ -----
Cash and due from banks 7,644 6,992
Allowance for possible loan losses (2,165) (1,758)
Bank premises and equipment 7,664 5,779
Other assets 2,297 2,297
-------- -------
Total assets $245,144 208,167
======== =======
</TABLE>
8
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
--------------------------------------------------------------------------------
1996 1995 1996/1995 CHANGE
-------------------------- -------------------------- -----------------------
Average Interest Income/ Average Interest Income/ Due to Due to
Balance Rate Expense Balance Rate Expense Volume Rate Total
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of withdrawal
accounts $ 20,102 2.38% 479 18,988 2.48% 471 28 (20) 8
Money market demand accounts 41,627 3.62 1,508 33,427 3.69 1,232 303 (27) 276
Individual retirement accounts 11,224 5.77 648 10,319 5.76 594 52 2 54
Other savings deposits 8,638 4.36 377 5,207 4.47 233 153 (9) 144
Certificates of deposit,
$100,000 and over 33,476 5.79 1,938 29,779 5.91 1,761 218 41 259
Certificates of deposit
under $100,000 78,354 5.65 4,425 66,874 5.66 3,787 650 12 638
-------- ---- ------ ------- ---- ----- -----
Total interest-bearing
deposits 193,421 4.85 9,375 164,594 4.91 8,078 1,415 118 1,379
Demand 21,807 -- -- 18,878 -- -- -- -- --
-------- ---- ------ ------- ---- ----- -----
Total deposits 215,228 4.36 9,375 183,472 4.40 8,078 1,397 (100) 1,297
-------- ---- ------ ------- ---- ----- -----
Securities sold under repurchase
agreements 8,226 5.13 422 6,411 5.41 347 98 (23) 75
-------- ---- ------ ------- ---- ----- -----
Total deposits and
borrowed funds 223,454 4.38 9,797 189,883 4.44 8,425 1,491 (119) 1,372
-------- ---- ------ ------- ---- ----- -----
Other liabilities 3,271 1,384
Stockholders' equity 18,419 16,900
-------- -------
Total liabilities and
stockholders' equity 245,144 208,167
======== =======
Net interest income 10,249 8,484
====== =====
Net yield on earning assets 4.46% 4.35%
==== ====
Net interest spread 4.35% 4.24%
==== ====
</TABLE>
9
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
II. Investment Portfolio
A. Securities at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies and
corporations $ 1,197 16 -- 1,213
Obligations of state and
political subdivisions 16,989 332 7 17,314
Mortgage-backed
securities 6,065 12 57 6,020
------- ------- ------- -------
$24,251 360 64 24,547
======= ======= ======= =======
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies and
corporations $30,977 82 20 31,039
Obligations of state and
political subdivisions 4,781 123 1 4,903
Mortgage-backed
securities 1,294 19 9 1,304
------- ------- ------- -------
$37,052 224 30 37,246
======= ======= ======= =======
</TABLE>
10
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
II. Investment Portfolio, Continued
A. Continued
Investment securities at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY
------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies and
corporations 3,097 3 12 3,088
Obligations of state and
political subdivisions 15,961 263 51 16,173
Mortgage-backed
securities 7,477 33 69 7,441
------- ------- ------- -------
$26,535 299 132 26,702
======= ======= ======= =======
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies and
corporations $22,317 34 84 22,267
Obligations of state and
political subdivisions 4,561 169 3 4,727
Mortgage-backed
securities 2,010 25 19 2,016
------- ------- ------- -------
$28,888 228 106 29,010
======= ======= ======= =======
</TABLE>
11
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WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
II. Investment Portfolio, Continued
B. The following schedule details the estimated maturities and weighted
average yields of investment securities (including mortgage backed
securities) of the Company at December 31, 1997.
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Available-For-Sale Securities Cost Value Yields
----------------------------- --------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies
and corporations, including
mortgage-backed securities:
Less than one year $ 2,616 2,609 5.10
One to five years 17,240 17,285 6.19
Five to ten years 10,379 10,398 6.94
More than ten years 1,189 1,204 6.84
------- ------ ----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 31,424 31,496 6.37
------- ------ ----
Obligations of states and
political subdivisions*:
Less than one year 2,152 2,183 10.89
One to five years 1,268 1,326 9.27
Five to ten years 642 666 8.70
More than ten years 719 728 7.54
------- ------ ----
Total obligations of states
and political subdivisions 4,781 4,903 9.66
------- ------ ----
Other:
Federal Home Loan Bank stock 847 847 7.38
------- ------ ----
Total investment securities $37,052 37,246 6.82
======= ====== ====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
12
<PAGE> 14
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
II. Investment Portfolio, Continued
B. Continued
<TABLE>
<CAPTION>
Estimated Weighted
Amortized Market Average
Held-to-Maturity Securities Cost Value Yields
--------------------------- --------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Obligations of U.S. Treasury and
other U.S. Government agencies
and corporations, including
mortgage-backed securities:
Less than one year $ 100 100 6.13
One to five years 2,114 2,133 7.42
Five to ten years 2,485 2,445 6.49
More than ten years 2,563 2,555 7.18
------- ------ ----
Total securities of
U.S. Treasury and other
U.S. Government agencies
and corporations 7,262 7,233 7.00
------- ------ ----
Obligations of states and political
subdivisions*:
Less than one year 1,849 1,860 8.39
One to five years 6,281 6,373 7.49
Five to ten years 4,775 4,878 7.45
More than ten years 4,084 4,203 8.07
------- ------ ----
Total obligations of states
and political subdivisions 16,989 17,314 7.72
------- ------ ----
Total investment securities $24,251 24,547 7.50
======= ====== ====
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
13
<PAGE> 15
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
In Thousands
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Commercial, financial and
agricultural $ 82,515 $ 57,449
Real estate - construction 18,159 16,828
Real estate - mortgage 103,155 80,955
Installment 38,423 32,558
--------- ---------
Total loans 242,252 187,790
Less unearned interest (1,696) (1,696)
--------- ---------
Total loans, net of unearned interest 240,556 186,094
--------- ---------
Less allowance for possible loan losses (2,890) (2,452)
--------- ---------
Net loans $ 237,666 $ 183,642
========= =========
</TABLE>
14
<PAGE> 16
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
III. Loan Portfolio, Continued:
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following schedule details maturities and sensitivity to interest
rates changes for commercial loans of the Company at December 31, 1997.
<TABLE>
<CAPTION>
1 Year to
Less Than Less Than After 5
1 Year 5 Years Years Total
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Maturity Distribution:
Commercial, financial
and agricultural $46,162 22,755 13,598 82,515
Real estate -
construction 16,983 199 977 18,159
------- ------ ------ -------
$63,145 22,954 14,575 100,674
======= ====== ====== =======
Interest-Rate Sensitivity:
Fixed interest rates $52,014 15,648 1,652 69,314
Floating or adjustable
interest rates 11,131 7,306 12,923 31,360
------- ------ ------ -------
Total commercial,
financial and
agricultural
loans plus
real estate -
construction
loans $63,145 22,954 14,575 100,674
======= ====== ====== =======
</TABLE>
* Includes demand loans, bankers acceptances, commercial paper and deposit
notes.
15
<PAGE> 17
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
III. Loan Portfolio, Continued
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Non-accrual loans:
Commercial, financial and agricultural $ 1 $ 24
Real estate - construction -- --
Real estate - mortgage 6 59
Installment 153 177
Lease financing receivable -- --
-------- --------
Total non-accrual $ 160 $ 260
======== ========
Loans 90 days past due:
Commercial, financial and agricultural 30 80
Real estate - construction -- --
Real estate - mortgage 66 344
Installment 1,123 370
Lease financing receivable -- --
-------- --------
Total loans 90 days past due $ 1,219 $ 794
======== ========
Renegotiated loans:
Commercial, financial and agricultural $ -- $ --
Real estate - construction -- --
Real estate - mortgage -- --
Installment -- --
Lease financing receivable -- --
-------- --------
Total renegotiated loans past due $ -- $ --
======== ========
Loans current - considered uncollectible $ -- $ --
======== ========
Total non-performing loans $ 1,379 $ 1,054
======== ========
Total loans, net of unearned interest $240,556 $186,094
======== ========
Percent of total loans outstanding,
net of unearned interest 0.57% 0.57
======== ========
Other real estate 63 --
======== ========
</TABLE>
16
<PAGE> 18
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
III. Loan Portfolio, Continued:
C. Risk Elements, Continued:
The accrual of interest income is discontinued when it is determined
that collection of interest is less than probable or the collection of
any amount of principal is doubtful. The decision to place a loan on a
non-accrual status is based on an evaluation of the borrower's
financial condition, collateral liquidation value, economic and
business conditions and other factors that affect the borrower's
ability to pay. At the time a loan is placed on a non-accrual status,
the accrued but unpaid interest is also evaluated as to collectibility.
If collectibility is doubtful, the unpaid interest is charged off.
Thereafter, interest on non-accrual loans is recognized only as
received. Non-accrual loans totaled $160,000 at December 31, 1997,
$260,000 at December 31, 1996 and $117,000 at December 31, 1995. Gross
interest income on loans, that would have been recorded for the year
ended December 31, 1997 if the loans had been current totaled $11,000
as compared to $12,000 in 1996 and $7,000 in 1995. The amount of
interest income recognized on the loans during 1997 totaled $20,466,000
as compared to $15,725,000 in 1996 and $12,763,000 in 1995.
At December 31, 1997, loans, which include the above, totaling
$1,162,000 were included in the Company's internal classified loan
list. Of these loans $306,000 are real estate and $856,000 are various
other types of loans. The collateral values securing these loans total
approximately $1,546,000, ($298,000 related to real property and
$1,248,000 related to the various other types of loans). Such loans are
listed as classified when information obtained about possible credit
problems of the borrower has prompted management to question the
ability of the borrower to comply with the repayment terms of the loan
agreement. The loan classifications do not represent or result from
trends or uncertainties which management expects will materially impact
future operating results, liquidity or capital resources.
At December 31, 1997 there were no loan concentrations that exceeded
ten percent of total loans other than as included in the preceding
table of types of loans. Loan concentrations are amounts loaned to a
multiple number of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions.
At December 31, 1997 other real estate totaled $63,000. There was no
other real estate at December 31, 1996.
17
<PAGE> 19
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
III. Loan Portfolio, Continued:
C. Risk Elements, Continued:
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at
December 31, 1997 which would be required to be disclosed as past due,
non-accrual, restructured or potential problem loans, if such
interest-bearing assets were loans.
18
<PAGE> 20
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
IV. Summary of Loan Loss Experience
The following schedule details selected information related to the
allowance for possible loan loss account of the Company at December 31,
1997 and 1996 and the years then ended.
<TABLE>
<CAPTION>
In Thousands Except Percentages
-------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Allowance for loan losses at beginning of period $ 2,452 $ 1,944
--------- ---------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial and agricultural -- (1)
Real estate construction -- --
Real estate - mortgage (9) --
Installment (477) (173)
Lease financing -- --
--------- ---------
(486) (174)
--------- ---------
Recoveries:
Commercial, financial and agricultural -- --
Real estate construction -- --
Real estate - mortgage -- --
Installment 96 17
Lease financing -- --
--------- ---------
96 17
--------- ---------
Net loan charge-offs (390) (157)
--------- ---------
Provision for loan losses charged to expense 828 665
--------- ---------
Allowance for loan losses at end of period $ 2,890 $ 2,452
========= =========
Total loans, net of unearned interest, at end of year $ 240,556 $ 186,094
========= =========
Average total loans outstanding,
net of unearned interest, during year 215,073 165,807
========= =========
Net charge-offs as a percentage of average
total loans outstanding, net of unearned
interest, during year 0.18% 0.09%
========= =========
Ending allowance for loan losses as a
percentage of total loans outstanding
net of unearned interest, at end of year 1.20% 1.32%
========= =========
</TABLE>
19
<PAGE> 21
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
IV. Summary of Loan Loss Experience, Continued
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans that
may become uncollectible. The provision for possible loan losses charged to
operating expense is based on past loan loss experience and other factors
which, in management's judgment, deserve current recognition in estimating
possible loan losses. Such other factors considered by management include
growth and composition of the loan portfolio, review of specific loan
problems, the relationship of the allowance for possible loan losses to
outstanding loans, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral and
current economic conditions that may affect the borrower's ability to pay.
Management conducts a continuous review of all loans that are delinquent,
previously charged down or loans which are determined to potentially
uncollectible. Loan classifications are reviewed periodically by a person
independent of the lending function. The Board of Directors periodically
reviews the adequacy of the allowance for possible loan losses.
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------- --------------------
Percent Percent
of Loans of Loans
In Each In Each
Category Category
In To Total In To Total
Thousands Loans Thousands Loans
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 483 34.1 $ 357 30.6
Real estate construction 249 7.5 217 9.0
Real estate mortgage 1,552 42.6 1,348 43.1
Installment 606 15.8 530 17.3
------ ----- ------ -----
$2,890 100.0 $2,452 100.0
====== ===== ====== =====
</TABLE>
20
<PAGE> 22
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
V. Deposits
The average amounts and average interest rates for deposits for 1997 and
1996 are detailed in the following schedule:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Average Average
Balance Balance
------------ Average ------------ Average
In Thousands Rate In Thousands Rate
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 28,865 --% $ 21,807 --%
Negotiable order of withdrawal
accounts 23,232 2.22% 20,102 2.38%
Money market demand accounts 54,222 3.82% 41,627 3.62%
Individual retirement accounts 13,765 5.72% 11,224 5.77%
Other savings 12,766 4.57% 8,638 4.36%
Certificates of deposit $100,000
and over 51,315 5.76% 33,476 5.79%
Certificates of deposit under
$100,000 95,813 5.65% 78,354 5.65%
-------- ---- -------- ----
$279,978 4.40% $215,228 4.36%
======== ==== ======== ====
</TABLE>
The following schedule details the maturities of certificates of deposit
and individual retirement accounts of $100,000 and over at December 31,
1997.
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
Certificates Individual
of Retirement
Deposit Accounts Total
------------ ---------- -------
<S> <C> <C> <C>
Less than three months $19,046 140 19,186
Three to six months 9,561 156 9,717
Six to twelve months 16,842 1,491 18,333
More than twelve months 11,111 2,599 13,710
------- ------- -------
$56,560 4,386 60,946
======= ======= =======
</TABLE>
21
<PAGE> 23
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at
December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on assets 1.16% 1.27% 1.16%
(Net income divided by average total assets)
Return on equity 16.02% 16.87% 14.33%
(net income divided by average equity)
Dividend payout ratio 28.63% 30.84% 38.67%
(Dividends declared per share divided
by net income per share)
Equity to assets ratio 7.24% 7.51% 8.12%
(Average equity divided by average
total assets)
Leverage capital ratio 8.21% 9.24% 8.16%
(Equity divided by fourth quarter
average total assets, excluding the net
unrealized loss on available-for-sale
securities and including minority interest)
</TABLE>
The minimum leverage capital ratio required by the regulatory agencies is
4%.
Beginning January 1, 1991, new risk-based capital guidelines were adopted
by regulatory agencies. Under these guidelines, a credit risk is assigned
to various categories of assets and commitments ranging from 0% to 100%
based on the risk associated with the asset.
22
<PAGE> 24
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
VI. Return on Equity and Assets, Continued
The following schedule details the Company's risk-based capital at December
31, 1997 excluding the net unrealized loss on available-for-sale securities
which is shown as an addition to stockholders' equity in the consolidated
financial statements:
<TABLE>
<CAPTION>
In Thousands
------------
<S> <C>
Tier I capital:
Stockholders' equity, excluding the net
unrealized gain on available-for-sale
securities $ 24,704
Add: Minority interest (limited to
25% of Tier I capital) 3,455
--------
Total Tier I capital 28,159
Total capital:
Allowable allowance for loan losses
(limited to 1.25% of risk-weighted assets) 2,890
--------
Total capital $ 31,049
========
Risk-weighted assets $231,751
========
Risk-based capital ratios:
Tier I capital ratio 12.15%
========
Total risk-based capital ratio 13.40%
========
</TABLE>
23
<PAGE> 25
WILSON BANK HOLDING COMPANY
Form 10-K
December 31, 1997
VI. Return on Equity and Assets, Continued
The Company is required to maintain a Total capital to risk-weighted asset
ratio of 8% and a Tier I capital to risk-weighted asset ratio of 4%. At
December 31, 1997, the Company and its subsidiary bank were in compliance
with these requirements.
The following schedule details the Company's interest rate sensitivity at
December 31, 1997:
<TABLE>
<CAPTION>
(In Thousands) Repricing Within
----------------------------------------------------------------------------------------
Total 0-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
-------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest $240,556 31,312 20,784 28,831 41,368 118,261
Securities 61,497 6,220 1,243 3,398 2,474 48,162
Loans held for sale 4,092 4,092 -- -- -- --
Federal funds sold 17,657 17,657 -- -- -- --
-------- -------- -------- -------- -------- --------
Total earning assets 323,802 59,281 22,027 32,229 43,842 166,423
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Negotiable order of
withdrawal accounts 26,355 26,355 -- -- -- --
Money market demand
accounts 63,030 63,030 -- -- -- --
Individual retirement
accounts 15,376 7,604 455 599 1,992 --
Other savings 16,971 16,971 -- -- -- --
Certificates of deposit,
$100,000 and over 56,560 6,166 12,880 9,561 16,841 4,726
Certificates of deposit,
under $100,000 105,976 6,645 17,133 18,287 37,459 11,112
Securities sold under
repurchase agreements 4,560 4,560 -- -- -- 26,452
-------- -------- -------- -------- -------- --------
288,828 131,331 30,468 28,447 56,292 42,290
-------- -------- -------- -------- -------- --------
Interest-sensitivity gap $ 34,974 (72,050) (8,441) 3,782 (12,450) 124,133
======== ======== ======== ======== ======== ========
Cumulative gap (72,050) (80,491) (76,709) (89,159) 34,974
======== ======== ======== ======== ========
Interest-sensitivity gap
as% of total assets (20.49)% (2.40)% 1.08% (3.54)% 35.29%
======== ======== ======== ======== ========
Cumulative gap as% of
total assets (20.49)% (22.89)% (21.81)% (25.35)% 9.94%
======== ======== ======== ======== ========
</TABLE>
The Company presently maintains a liability sensitive position over the
next twelve months. However, management expects that liabilities of a
demand nature will renew and that it will not be necessary to replace them
with significantly higher cost funds.
24
<PAGE> 26
ITEM 2. DESCRIPTION OF PROPERTY
The Company's main office is owned by the Company and consists of approximately
four acres at 623 West Main Street, Lebanon, Tennessee. The building is a two
story, brick building, with approximately 35,000 square feet. The lot has
approximately 350 feet of road frontage on West Main Street. In addition
thereto, the Bank has seven branch locations located at 1444 Baddour Parkway,
Lebanon, Tennessee; 200 Tennessee Boulevard, Lebanon, Tennessee; 8875 Stewart's
Ferry Pike, Gladeville, Tennessee; Public Square, Watertown, Tennessee; 1476
North Mt. Juliet Road, Mt. Juliet, Tennessee; 127 McMurry Boulevard, Hartsville,
Tennessee and the Wal-Mart Super Center, Lebanon, Tennessee. The branch
locations are new facilities with the exception of the Watertown and Gladeville
offices which have been remodeled to serve the needs of the customer base
effectively. The Bank owns five of these branch facilities and leases the
Lebanon facility at Tennessee Boulevard under a long term lease. The Wal-Mart
Super Center branch has a five year lease for the space used at the Lebanon
Wal-Mart location. The Finance Company's principal place of business is at 502
West Main Street, Lebanon, Tennessee in a building which the Bank leases. The
Bank also leases space at three locations within Wilson County where it
maintains and operates automatic teller machines. The Bank purchased a trailer
in early 1997 which can be used as a bank facility for use at new branch
locations of the Company while a permanent building is being constructed.
DCB has a new bank facility at 576 West Broad Street in Smithville, Tennessee,
containing approximately 6,800 square feet of space, which serves as the main
office of DCB. In addition, DCB has a new branch facility which opened on
December 6, 1997 and is located at 306 Brush Creek Road in Alexandria,
Tennessee. This branch facility contains approximately 2,400 square feet and
will serve the eastern portion of DeKalb County. CBSC is currently leasing
office space at 1210 Main Street North. A site has been selected to build a
permanent building during 1998.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending at December 31, 1997, against
the Company, the Bank, DCB, CBSC or the Finance Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information required by this item is contained under the heading "Wilson Bank
Holding Company Common Stock Market Information" on page 58 of the Company's
1997 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is contained under the heading "Wilson Bank
Holding Company Financial Highlights Unaudited" on page 12 of the Company's 1997
Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is contained under the heading as set forth
for this item on pages 13 through 23 of the Company's 1997 Annual Report and is
incorporated herein by reference.
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 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,
1997.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE -- FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------- Fair
(Dollars in thousands) 1998 1999 2000 2001 2002 Thereafter Total Value
-------- ------ ------ ----- ----- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD FOR PURPOSES OTHER THAN TRADING
Earning assets:
Loans, net of unearned interest:
Variable rate $ 62,300 10,411 10,511 5,788 5,207 198 94,415 94,415
Average interest rate 9.03% 8.23% 9.87% 9.03% 9.03% 8.75% 9.03%
Fixed rate 63,631 13,110 16,752 19,308 18,750 14,590 146,141 145,873
Average interest rate 9.22% 10.04% 10.58% 10.27% 10.26% 8.36% 9.64%
Securities 7,558 5,744 9,316 3,310 7,255 28,314 61,497 61,793
Average interest rate 7.87% 7.10% 7.19% 6.80% 6.78% 6.51% 6.88%
Loans held for sale 4,092 -- -- -- -- -- 4.092 4,092
Average interest rate 5.38% -- -- -- -- -- 5.38%
Federal funds sold 17,657 -- -- -- -- -- 17,657 17,657
Average interest rate 5.13% -- -- -- -- -- 5.13%
Interest-bearing deposits 240,093 26,619 16,277 1,133 123 23 284,268 285,438
Average interest rate 4.91% 5.93% 6.02% 6.22% 6.08% 6.00% 5.07%
Short-term borrowings 4,580 -- -- -- -- -- 4,560 4,560
Average interest rate 4.82% -- -- -- -- -- 4.82%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS
The consolidated financial statements and the independent auditors report of
Maggart & Associates, P.C. required by this item are contained in pages 24
through 57 and on page 24, respectively, of the Company's 1997 Annual Report and
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is incorporated
by reference herein by reference to "Proposal No. 1: Election of Directors" in
the Company's Proxy Statement. The information required by this item with
respect to executive officers is set forth below:
James Randall Clemons (45) - Mr. Clemons is President and Chief
Executive Officer of the Company and the Bank. He has held such
positions with the Company since its formation in March 1992 and has
held his Bank positions since the Bank commenced operations in May
1987. Prior to that time, Mr. Clemons served as Senior Vice President
and Cashier for Peoples Bank, Lebanon, Tennessee.
Becky Taylor (53) - Ms. Taylor is the principal accounting officer of
the Company and a Senior Vice-President and Cashier of the Bank. She
has served as Vice President and Cashier of the Bank since May 1987 and
as the principal accounting officer of the Company since its formation
in March 1992. She has held her positions with the Bank since it
commenced operations. From 1963 to 1987, Ms. Taylor was employed by
Lebanon Bank, Lebanon, Tennessee, where her duties included Data
Processing Coordinator, Auditor, Security Officer and Compliance
Officer. Ms. Taylor held the title of Vice President and Cashier of
Lebanon Bank.
Elmer Richerson (45) - Mr. Richerson joined the Bank in February 1989.
Prior to such time, Mr. Richerson was the manager of the Lebanon branch
of Heritage Federal Savings and Loan Association from March 1988 to
February 1989. From September 1986 until March 1988, Mr. Richerson was
a liquidation assistant for the Federal Deposit Insurance Corporation.
Currently, Mr. Richerson is an Executive Vice President and Senior Loan
Officer of the Bank and oversees the branch administration for the
Bank.
Larry Squires (45) - Mr. Squires joined the Bank in 1989 and is
currently Senior Vice President and Investment Officer. Prior to that
time Mr. Squires was Vice President of Liberty State Bank in Lebanon.
His principal duty is overseeing the Bank's investment and brokerage
center.
Gary Whitaker (40) - Mr. Whitaker joined the Bank in May 1996. Prior to
that time Mr. Whitaker was employed with NationsBank of Tennessee, N.A.
in Nashville (and its predecessors) from 1979. He has held positions in
collections, branch manager, construction lending, retail marketing,
automobile lending, loan administration, operations analyst and most
recently Vice President. His principal duties include overseeing the
Bank's lending function and loan operations.
All officers serve at the pleasure of the Board of Directors. No officers are
involved in any legal proceedings which are material to an evaluation of their
ability and integrity.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is contained under the caption "Executive
Compensation" in the Company's Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained under the captions "Certain
Relationships and Related Transactions" and "Personnel Committee Interlocks and
Insider Participation" in the Company's Proxy Statement and is incorporated
herein by reference.
26
<PAGE> 28
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See Item 8.
(a)(2) Financial Statement Schedules. Inapplicable.
(a)(3) Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K
None.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE> 29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WILSON BANK HOLDING COMPANY
By: /s/ J. Randall Clemons
------------------------------------------------
J. Randall Clemons
President and Chief Executive Officer
Date: March 23, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Randall Clemons President, Chief March 23, 1998
- ------------------------------ Executive Officer
J. Randall Clemons and Director
/s/ Becky Taylor Principal March 23, 1998
- ------------------------------ Accounting Officer
Becky Taylor and Chief Financial
Officer
/s/ Charles Bell Director March 23, 1998
- ------------------------------
Charles Bell
/s/ Jack W. Bell Director March 23, 1998
- ------------------------------
Jack W. Bell
/s/ Mackey Bentley Director March 23, 1998
- ------------------------------
Mackey Bentley
/s/ James F. Comer Director March 23, 1998
- ------------------------------
James F. Comer
/s/ Jerry L. Franklin Director March 23, 1998
- ------------------------------
Jerry L. Franklin
/s/ John B. Freeman Director March 23, 1998
- ------------------------------
John B. Freeman
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marshall Griffith Director March 23, 1998
- ------------------------------
Marshall Griffith
/s/ Harold R. Patton Director March 23, 1998
- ------------------------------
Harold R. Patton
/s/ James Anthony Patton Director March 23, 1998
- ------------------------------
James Anthony Patton
/s/ John R. Trice Director March 23, 1998
- ------------------------------
John R. Trice
/s/ Robert T. VanHooser, Jr. Director March 23, 1998
- ------------------------------
Robert T. VanHooser, Jr.
</TABLE>
29
<PAGE> 31
INDEX TO EXHIBITS
3.1 Charter (previously filed as Exhibit 3(a) to the Company's Registration
Statement on Form S-4 dated March 18, 1992 (Registration No. 33-46469)
and incorporated herein by reference).
3.2 Bylaws (previously filed as Exhibit 3(a) to the Company's Registration
Statement on Form S-4 dated March 18, 1992 (Registration No. 33-46469)
and incorporated herein by reference).
13.1 Selected Portions of the Wilson Bank Holding Company Annual Report to
Shareholders for the year ended December 31, 1997, incorporated by
reference into Items 5, 6, 7, 7A and 8.
21.1 Subsidiaries of the Company.
27 Financial Data Schedule (for SEC use only)
30
<PAGE> 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, 1997 was 1,153. 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 1997 and 1996.
Stock Prices
<TABLE>
<CAPTION>
1997 HIGH LOW
<S> <C> <C>
First Quarter $30.25 $29.50
Second Quarter 31.00 30.25
Third Quarter 31.75 31.00
Fourth Quarter 32.50 31.75
1996
First Quarter $27.50 $27.00
Second Quarter 28.00 27.50
Third Quarter 28.50 28.00
Fourth Quarter 29.50 28.50
</TABLE>
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 of those dates. On January 1, 1996 and July 1, 1996 a
$.35 per share cash dividend was declared and paid to shareholders of record of
that date. Future dividends will be dependent upon the Company's profitability,
its capital needs and overall financial condition, and economic and regulatory
consideration.
<PAGE> 2
WILSON BANK HOLDING COMPANY FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
AS OF DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS:
- ----------------------------
Total assets end of year $351,709 275,304 226,689 192,406 170,737
Loans, net $237,666 183,642 146,738 123,177 89,730
Securities $ 61,497 55,545 52,023 43,128 58,186
Deposits $316,641 243,250 200,037 171,517 152,425
Stockholders' equity $ 24,817 21,252 18,398 15,618 13,996
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS: Years Ended December 31
- ----------------------------------- --------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 25,141 19,448 16,366 12,470 10,889
Interest expense 12,675 9,797 8,425 5,604 5,074
-------- -------- -------- -------- --------
Net interest income 12,466 9,651 7,941 6,866 5,815
Provision for possible loan losses 828 665 527 298 434
-------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses 11,638 8,986 7,414 6,568 5,381
Non-interest income 3,410 2,781 1,874 1,497 1,374
None-interest expense 9,618 7,254 5,871 5,287 4,015
-------- -------- -------- -------- --------
Earnings before income taxes and
cumulative effect of a change in
accounting principle 5,430 4,513 3,417 2,778 2,740
Income taxes 1,766 1,406 996 678 683
-------- -------- -------- -------- --------
Net earnings before cumulative
effect of a change in accounting
principle 3,664 3,107 2,421 2,100 2,057
Cumulative effect of a change in
accounting principle -- -- -- -- 19
-------- -------- -------- -------- --------
Net earnings $ 3,664 3,107 2,421 2,100 2,076
======== ======== ======== ======== ========
Cash dividends declared $ 1,039 950 929 651 322
======== ======== ======== ======== ========
PER SHARE DATA:
- ---------------
Earnings before cumulative effect
of a change in accounting principle $ 2.62 2.27 1.81 1.60 1.60
Net earnings $ 2.62 2.27 1.81 1.60 1.61
Cash dividends $ 0.75 0.70 0.70 0.50 0.25
Book value $ 17.63 15.42 13.63 11.84 10.79
RATIOS:
- -------
Return on average stockholders'
equity 16.02% 16.87% 14.33% 14.09% 16.01%
Return on average assets 1.16% 1.27% 1.16% 1.18% 1.29%
Capital to assets 7.06% 7.72% 8.12% 8.12% 8.20%
Dividends declared as percentage
of earnings 28.63% 31% 38.67% 31.25% 15.53%
</TABLE>
<PAGE> 3
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Effective November 17, 1992, Wilson Bank Holding Company (the
"Company") acquired 100% of the common stock of Wilson Bank and Trust, and
accordingly, became a bank holding company. Management believes that the holding
company structure permits greater flexibility in the expansion of the Company's
present business and will allow the Company to be more responsive to its
customers' broadening and changing financial needs.
During 1996, the Company and other organizers consisting primarily of
residents of DeKalb and Smith Counties 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, serving Wilson County, DeKalb
County, Smith County and Trousdale County, Tennessee as their primary market
areas. The subsidiary banks have eleven 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 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, 1997 were $3,664,000 an
increase of $557,000 or 17.9% over 1996. Net earnings for the year ended
December 31, 1996 totaled $3,107,000 which was an increase of $686,000 or 28.3%
from $2,421,000 for 1995. On a per share basis, net income equaled $2.62 in
1997, $2.27 in 1996 and $1.81 in 1995.
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 1997 was $25,141,000 compared with
$19,448,000 in 1996 and $16,366,000 in 1995. The increase in total interest
income in 1997 was primarily due to a $64.7 million or 28.2% increase in average
earning assets over 1996. Average earning assets increased $34.8 million from
December 31, 1995 to December 31, 1996. The average interest rate earned on
earning assets was 8.74% in 1997 compared with 8.73% in 1996 and 8.68% in 1995.
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
<PAGE> 4
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
on nonaccrual loans totaled $11,000 in 1997, $12,000 in 1996 and $7,000 in 1995.
Total interest expense for 1997 was $12,675,000, an increase of
$2,878,000 or 29.4%, compared to total interest expense of $9,797,000 in 1996.
The increase in total interest expense was due to an increase in average
interest bearing liabilities of approximately $56,792,000 and an increase in the
weighted average cost of funds from 4.38% to 4.41%. Interest expense increased
from $8,425,000 in 1995 to $9,797,000 in 1996 or an increase of $1,372,000 or
16.3%. The increase in 1996 was due to a $30,642,000 increase in average
interest bearing liabilities offset by a decrease in the weighted average cost
of funds from 4.44% to 4.38%..
Net interest income for 1997 totaled $12,466,000 as compared to
$9,651,000 and $7,941,000 in 1996 and 1995, 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 4.33% for 1997 as compared to 4.35% in 1996. The net interest
spread was 4.24% in 1995. The net interest yield, which is net interest income
expressed as a percentage of average earning assets, decreased to 4.44% for 1997
compared to 4.46% in 1996 and 4.35% in 1995. Interest rates remained stable
during 1997 and are expected to remain stable or decline slightly in 1998. 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 1997 provision for
loan losses was $828,000, an increase of $163,000 from the provision of $665,000
in 1996. The provision for loan losses was $527,000 in 1995. Net charge-offs
increased to $390,000 in 1997 from $157,000 in 1996. Net charge-offs in 1995
totaled $139,000. The ratio of net charge-offs to average total outstanding
loans in 1997 was .18% and in 1996 was .09%. The provision for loan losses in
1997 exceeded net charge-offs by $438,000 compared to $508,000 in 1996 and
$388,000 in 1995.
The provision for loan losses raised the allowance for possible loan
losses (net of charge-offs and recoveries) to $2,890,000 at December 31, 1997
from $2,452,000 and $1,944,000 at December 31, 1996 and 1995, respectively. This
represents a 17.9% increase in the allowance at December 31, 1997 over December
31, 1996. The allowance for possible loan losses was 1.20% of total loans
outstanding at December 31, 1997 compared to 1.32% at December 31, 1996 and
1.31% at December 31, 1995. Additionally, as a percentage of nonperforming loans
at year end 1997, 1996 and 1995, the allowance for loan losses represented 210%,
233% and 675%, 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, 1997 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 1997 was $3,410,000 compared with $2,781,000 in 1996 and
$1,874,000 in 1995. The 22.6% increase over 1996 was primarily due to increases
in service charges on deposit accounts (which increased $179,000), other fees
(which increased $389,000) and net gains on sales of loans (which increased
$125,000). Management projects that gains on sales of loans will increase in
1998 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,
<PAGE> 5
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
trust income is not expected to have a significant impact on earnings in the
immediate future.
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, other operating expenses and security losses.
Total non-interest expenses for 1997 increased 32.6% to $9,618,000 from
$7,254,000 in 1996. The 1996 non-interest expense was up 23.6% over 1995 which
totaled $5,871,000. 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 two new bank subsidiaries which
were opened in 1996 and the two new branches which were opened in 1997. The FDIC
insurance premiums increased from $3,000 in 1996 to $30,000 in 1997 or $27,000.
The decrease from 1995 to 1996 was $195,000. The decrease in 1996 resulted from
a suspension of premiums as of January 1, 1996 due to full capitalization of the
FDIC insurance fund. Other operating expenses increased to $2,781,000 in 1997
from $1,810,000 in 1996. 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 $1,766,000 for 1997 an increase of
$360,000 from 1996. The percentage of income tax expense to earnings before
taxes increased to 32.5% in 1997 from 31.2% in 1996. The percentage was 29.1% in
1995. The percentage for 1997 as compared to 1996 increased primarily as a
result of a decrease in the percentage of interest income exempt from Federal
income taxes to earnings before taxes from 25.7% in 1996 to 21.5% in 1997. The
increase from 1995 to 1996 is due to net operating losses of 50% owned bank
subsidiaries not recognized for Federal tax purposes and a decrease in the
percentage of interest income exempt from Federal income taxes from 30.8% in
1995 to 25.7% in 1996.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY. The Company's total assets increased $76,405,000
or 27.8% to $351,709,000 at December 31, 1997, after increasing 21.4% in 1996 to
$275,304,000 at December 31, 1996. Loans, net of allowance for possible loan
losses, totaled $237,666,000 at December 31, 1997, a 29.4% increase compared to
December 31, 1996. Investment securities increased in 1997, primarily as a
result of the increased deposits. At year end 1997 securities totaled
$61,497,000, an increase of 10.7% from $55,545,000 at December 31, 1996. The
increase in securities in 1997 includes a $72,000 increase in unrealized gains
on securities available-for-sale.
Total liabilities increased $72,840,000 at December 31, 1997 to
$326,892,000 compared to $254,052,000 at December 31, 1996. This increase was
composed primarily of the $73,391,000 increase in total deposits to $316,641,000
(a 30.2% increase). Securities sold under repurchase agreements decreased to
$4,560,000 from $5,616,000 at the respective year ends 1997 and 1996.
Stockholders' equity increased $3,565,000 or 16.8% due to net earnings,
sales of stock pursuant to the Company's Dividend Reinvestment Plan, net of
dividends paid on the Company's common stock and a $38,000 increase in net
unrealized gains on available-for-sale securities. A more detailed discussion of
assets, liabilities and capital follows.
A subsidiary bank currently expects to construct a new main office
facility during 1998. The cost of the construction is currently estimated to be
$750,000.
<PAGE> 6
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LOANS:
Loan categories are as follows:
<TABLE>
<CAPTION>
1997 1996
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 82,515 34.1% $ 57,449 30.6%
Installment 38,423 15.9 32,558 17.3
Real estate - mortgage 103,155 42.6 80,955 43.1
Real estate - construction 18,159 7.4 16,828 9.0
-------- ----- -------- -----
TOTAL $242,252 100.0% $187,790 100.0%
======== ===== ======== =====
</TABLE>
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 29.4% by year end 1997. 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 1997 and 1996.
As represented in the table, primary loan growth was in real estate
mortgage loans and commercial loans. Real estate mortgage loans increased 27.4%
in 1997 and at December 31, 1997 comprised 42.6% of total loans compared to
43.1% of total loans at December 31, 1996. 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 43.6% in 1997 and comprised 34.1% of the
total loan portfolio at December 31, 1997, compared to 30.6% at December 31,
1996.
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, 1997, 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 $1,379,000 at December 31, 1997, an increase from $1,054,000
at December 31, 1996. 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 $160,000 at
<PAGE> 7
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 1997 compared to $260,000 at December 31, 1996. Loans 90 days past
due, as a component of non-performing loans, increased to $1,219,000 at December
31, 1997 from $794,000 at December 31, 1996. This increase is primarily a result
of increases in installment loans that are 90 days past due offset by a
reduction 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 $1,162,000 at December 31, 1997 as compared to
$561,000 at December 31, 1996. Of the internally classified loans at December
31, 1997, $306,000 are real estate related loans and $856,000 are various other
types of loans. The internally classified loans as a percentage of the allowance
for possible loan losses were 40.2% and 22.9%, respectively, at December 31,
1997 and 1996.
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 and
adjoining counties. The Company seeks to exercise prudent risk management in
lending, including diversification by loan category and industry segment (at
December 31, 1997 no single industry segment accounted for more than 10% of the
Company's portfolio), 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 76.8% and 77.0%. As a practice, the Company
generates its own loans and does not buy participations from other institutions.
The Company will sell 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 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 10.7% to $61,497,000 at year end 1997 from
$55,545,000 at December 31, 1996, and comprised the second largest and other
primary component of the Company's earning assets. This increase followed a 6.8%
securities portfolio increase from year end 1995 to 1996. 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 $6,872,000 or 27.1%
in 1997. Mortgage-backed securities decreased $2,124,000 or 22.4%. The average
yield of the securities portfolio at December 31, 1997 was 7.09% with an average
maturity of 5.33 years, as compared to an average yield of 6.9% and an average
maturity of 4.2 years at December 31, 1996. 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
<PAGE> 8
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997 is as
follows:
<TABLE>
<CAPTION>
(In Thousands)
------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------- ------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies
and Corporations $ 1,197 1,213 30,977 31,039
Obligations of states and
political subdivisions 16,989 17,314 4,781 4,903
Mortgage-backed
securities 6,065 6,020 1,294 1,304
------- ------- ------- -------
$24,251 24,547 37,052 37,246
======= ======= ======= =======
</TABLE>
No securities have been classified as trading securities.
<PAGE> 9
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.
A component of the net increase in capital for the year ended December
31, 1995 totaling $519,000 represents the unrealized appreciation in securities
available-for-sale of $836,000 less applicable tax expense of $317,000. The net
decrease in capital for the year ended December 31, 1996 totaled $100,000 which
represents the unrealized appreciation in securities available-for-sale of
$161,000 less applicable tax expense of $61,000. During the year ended December
31, 1997, the net increase in capital totaled $38,000 which represents an
increase in the unrealized appreciation in securities available-for-sale of
$57,000 less applicable tax benefit of $19,000.
In November, 1995 the Financial Accounting Standards Board issued "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities" which permits the reassessment of the
appropriateness of the classifications of all securities by December 31, 1995.
Reclassifications from the held-to-maturity classification that result from this
one-time reassessment will not call into question the intent of an entity to
hold other debt securities to maturity in the future. The Company transferred
securities with an amortized cost of $1,095,000 (market value - $1,088,000) to
the available-to-sale classification in December 1995 pursuant to these
provisions.
DEPOSITS
The increases in assets in 1997 and 1996 were funded primarily by
increases in deposits. Total deposits, which are the principal source of funds
for the Company, totaled $316,641,000 at December 31, 1997 compared to
$243,250,000 and $200,037,000 at December 31, 1996 and 1995, 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 believes that the
market share will be maintained or expanded.
The $73,391,000 or 30.2% growth in deposits in 1997 consisted of
changes in several deposit categories: savings accounts increased $7,558,000
(80.3%) to $16,971,000; total certificates of deposit (including individual
retirement accounts) increased $36,067,000 (25.4%) to $177,912,000, money market
demand accounts increased $18,381,000 (41.2%) to $63,030,000 and demand deposits
increased $5,168,000 (19.0%) to $32,373,000.
The average rate paid on average total interest-bearing deposits was
4.9% for 1997, compared to 4.8% for 1996. The average rate paid in 1995 was
4.9%.
The ratio of average loans to average deposits was 76.8% in 1997
compared with 77.0% and 73.3% in 1996 and 1995, 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
<PAGE> 10
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
within one year. At December 31, 1997, the Company's liquid assets approximated
$32.1 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 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, 1997, the Company had a liability sensitive position (a
negative gap) for 1997. 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 1997 net earnings would have
deteriorated in a rising rate environment as compared with the fairly stable
rate environment. The 1996 earnings were enhanced by the stable rate
environment. The 1995 earnings were reduced by the rising interest rates
experienced in 1995.
The following table shows the rate sensitivity gaps for different time periods
as of December 31, 1997:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAPS One Year
December 31, 1997 1-90 91-180 181-365 and
(In Thousands) Days Days Days Longer Total
------------------------------ --------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets $ 81,308 32,229 43,842 166,423 323,802
Interest-earning liabilities 161,799 28,447 56,292 42,290 288,828
--------- ------- ------- ------- -------
Interest-rate sensitivity gap $ (80,491) 3,782 (12,450) 124,133 34,974
========= ======= ======= ======= =======
Cumulative gap $ (80,491) (76,709) (89,159) 34,974
========= ======= ======= =======
</TABLE>
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, 1997, total stockholders' equity was
$24,817,000 or 7.1% of total assets, which compares with $21,252,000 or 7.7% of
total assets at December 31, 1996, and $18,398,000 or 8.1% of total assets at
December 31, 1995. The dollar increase in stockholders' equity during 1997
reflects (i) the Company's net income of $3,664,000 less cash dividends of $.75
per share totaling $1,039,000, (ii) the issuance of 29,393 shares of common
stock for $902,000 in lieu of payment of cash dividends and (iii) increase in
the net unrealized gains on available-for-sale securities of $38,000.
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
<PAGE> 11
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997 the
Company's total risk-based capital ratio was 13.4% and its Tier I risk-based
capital ratio was 12.2%, respectively, compared to a ratios of 15.0% and 13.7%,
respectively at December 31, 1996. 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, 1997, the Company had a leverage ratio of 8.2% compared
to 9.2% at December 31, 1996.
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. Furthermore, no bank holding company may
acquire any bank in Tennessee that has been in operation less than five years or
organize a new bank in Tennessee, except in the case of certain interim bank
mergers and acquisitions of banks in financial difficulty. State banks and
national banks in Tennessee, however, 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 the 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
<PAGE> 12
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
("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 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" institu-tion 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 has 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 rule 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
<PAGE> 13
WILSON BANK HOLDING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997 the
banks were assessed an annual assessment of .01296% 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.
The Company plans to adopt Statement of Financial Accounting Standards
No. 130 (SFAS 130) "Reporting Comprehensive Income" during the first quarter of
1998. The Company plans to present an additional financial statement which
reports comprehensive income. The primary difference between reported earnings
and comprehensive income will be unrealized gains and losses related to certain
investment securities.
Monetary Policy. The subsidiary banks are affected by commercial bank
credit policies of regulatory authorities, including the Board. An important
function of the Board is to regulate the national supply of bank credit in order
to attempt to combat recessionary and curb inflationary pressures. Among the
instruments of monetary policy used by the Board to implement these objectives
are: open market operations in U.S. Government securities, changes in discount
rates on member borrowings, changes in reserve requirements against bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. These means are used in varying combinations to influence
overall growth of bank loans, investments and deposits, and may also affect
interest rates charged on loans or paid on deposits. The monetary policies of
the Board have had a significant effect on the operating results of commercial
banks, including nonmembers 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.
<PAGE> 14
WILSON BANK HOLDING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
<PAGE> 15
[MAGGART & ASSOCIATES, P.C. LETTERHEAD]
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, 1997 and 1996, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 10, 1998
<PAGE> 16
WILSON BANK HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
In Thousands
----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Loans, net of allowance for possible loan losses of $2,890,000
and $2,452,000, respectively $237,666 183,642
Securities:
Held-to-maturity, at amortized cost (market value $24,547,000
and $26,702,000, respectively) 24,251 26,535
Available-for-sale, at market (amortized cost $37,052,000 and
$28,888,000, respectively) 37,246 29,010
-------- --------
Total securities 61,497 55,545
Loans held for sale 4,092 2,219
Federal funds sold 17,657 10,626
-------- --------
Total earning assets 320,912 252,032
-------- --------
Cash and due from banks 14,123 9,938
Premises and equipment, net 11,929 9,614
Accrued interest receivable 2,715 2,063
Organizational costs, net of accumulated amortization
of $58,000 and $32,000, respectively 78 104
Deferred income taxes 695 612
Other real estate 63 --
Other assets 1,194 941
-------- --------
$351,709 275,304
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $316,641 243,250
Securities sold under repurchase agreements 4,560 5,616
Accrued interest and other liabilities 2,236 1,761
Minority interest 3,455 3,425
-------- --------
Total liabilities 326,892 254,052
-------- --------
Stockholders' equity:
Common stock, par value $2.00 per share, authorized 5,000,000,
1,407,467 and 1,378,074 shares issued and outstanding, respectively 2,815 2,756
Additional paid-in capital 7,527 6,684
Retained earnings 14,362 11,737
Net unrealized gains on available-for-sale securities, net of taxes
of $65,000 and $46,000, respectively 113 75
-------- --------
Total stockholders' equity 24,817 21,252
-------- --------
COMMITMENTS AND CONTINGENCIES
$351,709 275,304
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 17
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 20,466 15,725 12,763
Interest and dividends on securities:
Taxable securities 2,457 1,934 1,792
Exempt from Federal income taxes 1,166 1,161 1,054
Interest on loans held for sale 111 106 126
Interest on Federal funds sold 941 517 622
Interest on interest-bearing deposits in financial institutions -- 5 9
----------- ----------- -----------
Total interest income 25,141 19,448 16,366
----------- ----------- -----------
Interest expense:
Interest on negotiable order of withdrawal accounts 515 479 471
Interest on money market accounts and other
savings accounts 2,652 1,885 1,465
Interest on certificates of deposit 9,155 7,011 6,142
Interest on securities sold under repurchase agreements 353 422 347
----------- ----------- -----------
Total interest expense 12,675 9,797 8,425
----------- ----------- -----------
Net interest income before provision for loan losses 12,466 9,651 7,941
Provision for possible loan losses (828) (665) (527)
----------- ----------- -----------
Net interest income after provision for possible loan losses 11,638 8,986 7,414
Non-interest income 3,410 2,781 1,874
Non-interest expense (9,618) (7,254) (5,871)
----------- ----------- -----------
Earnings before income taxes 5,430 4,513 3,417
Income taxes 1,766 1,406 996
----------- ----------- -----------
Net earnings $ 3,664 3,107 2,421
=========== =========== ===========
Net earnings per common share $ 2.62 2.27 1.81
=========== =========== ===========
Weighted average number of shares outstanding 1,397,471 1,368,675 1,339,070
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 18
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional On Available-
Common Paid-In Retained For-Sale
Stock Capital Earnings Securities Total
------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 2,638 5,236 8,088 (344) 15,618
Cash dividends declared, $.70 per share -- -- (929) -- (929)
Issuance of 30,482 shares of stock
pursuant to dividend reinvestment plan 61 708 -- -- 769
Net change in unrealized gain (loss) on
available-for-sale securities during
the year, net of taxes of $317,000 -- -- -- 519 519
Net earnings for year -- -- 2,421 -- 2,421
------- ------- ------- ------- -------
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
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 19
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 24,434 19,236 15,731
Fees received 2,789 2,213 1,328
Proceeds from sale of loans 39,406 31,803 24,018
Origination of loans held for sale (40,663) (31,816) (24,356)
Interest paid (12,206) (9,814) (7,883)
Cash paid to suppliers and employees (8,734) (6,756) (5,320)
Income taxes paid (1,939) (1,595) (1,018)
-------- -------- --------
Net cash provided by operating activities 3,087 3,271 2,500
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (22,813) (9,757) (16,241)
Proceeds from sales of available-for-sale securities -- -- 4,542
Proceeds from maturities of available-for-sale securities 14,704 7,264 1,914
Purchase of held-to-maturity securities (5,133) (4,143) (1,090)
Proceeds from maturities of held-to-maturity securities 7,417 2,999 2,825
Loans made to customers, net of repayments (54,915) (37,569) (24,088)
Purchase of bank premise and equipment (3,335) (4,162) (1,127)
Proceeds from maturities of interest-bearing deposits
in financial institutions -- 100 --
Proceeds from sale of fixed assets 6 -- 14
Proceeds from sales of other real estate -- -- 20
Payments of organizational costs -- (111) --
-------- -------- --------
Net cash used in investing activities (64,069) (45,379) (33,231)
-------- -------- --------
Cash flows from financing activities:
Net increase in non-interest bearing savings and
NOW deposit accounts 37,323 14,302 12,311
Net increase in time deposits 36,068 28,911 16,210
Proceeds from sale of securities under agreements to repurchase -- -- 2,384
Payments on securities under agreements to repurchase (1,056) (1,077) --
Dividends paid (1,039) (950) (929)
Proceeds from sale of common stock 902 797 769
Proceeds from sale of subsidiaries stock to minority shareholders -- 3,500 --
-------- -------- --------
Net cash provided by financing activities 72,198 45,483 30,745
-------- -------- --------
Net increase in cash and cash equivalents 11,216 3,375 14
Cash and cash equivalents at beginning of year 20,564 17,189 17,175
-------- -------- --------
Cash and cash equivalents at end of year $ 31,780 20,564 17,189
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 20
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,664 3,107 2,421
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,045 682 542
Provision for possible loan losses 828 665 527
Provision for deferred taxes (106) (202) (112)
Securities losses related to available-for-sale securities -- -- 26
Loss on sale of other real estate -- -- 11
Gain on sale of fixed assets (5) -- (5)
FHLB dividend reinvestment (55) (45) (37)
Increase in loans held for sale (1,873) (504) (707)
Decrease (increase) in refundable income taxes (38) (57) 6
Increase (decrease) in taxes payable (28) 69 84
Increase in accrued interest receivable (652) (167) (598)
Increase (decrease) in interest payable 469 (17) 542
Increase in other assets (216) (331) (172)
Increase (decrease) in accrued expenses 34 148 (28)
Net gains (losses) of minority interests of commercial
bank subsidiaries 20 (77) --
------- ------- -------
Total adjustments (577) 164 79
------- ------- -------
Net cash provided by operating activities $ 3,087 3,271 2,500
======= ======= =======
Supplemental Schedule of Non-Cash Activities:
Investment securities transferred to available-for-sale $ -- -- 1,095
======= ======= =======
Unrealized gain (loss) in value of securities available-for-sale
net of taxes of $19,000 in 1997, $61,000 in 1996,
and $317,000 in 1995 $ 38 (100) 519
======= ======= =======
Non-cash transfers from loans to other real estate $ 63 -- --
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 eight 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 adopted, on a prospective basis effective January
1, 1995, 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.
<PAGE> 22
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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.
<PAGE> 23
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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.
<PAGE> 24
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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 (increased) 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 adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective January
1, 1994. 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.
<PAGE> 25
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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
In March, 1995, 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," was
issued. SFAS No. 121 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. During 1996, the
company adopted this statement and 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.
<PAGE> 26
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(l) 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.
(m) 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.
(n) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995
figures to conform to the presentation for 1997.
(o) OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the subsidiary bank has
entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under
credit card arrangements, commercial letters of credit and
standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or
related fees are incurred or received.
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The classifications of loans at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 82,515 57,449
Installment 38,423 32,558
Real estate - construction 18,159 16,828
Real estate - mortgage 103,155 80,955
---------- -------
242,252 187,790
Unearned interest (1,696) (1,696)
Allowance for possible loan losses (2,890) (2,452)
---------- -------
$ 237,666 183,642
========== =======
</TABLE>
<PAGE> 27
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
The principal maturities on loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In Thousands
------------------------------------------------------------------
Commercial
Financial
and Real Estate - Real Estate-
Agricultural Installment Construction Mortgage Total
------------ ----------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C>
3 months or less $17,289 1,928 8,435 981 28,633
3 to 12 months 28,873 2,650 8,548 2,222 42,293
1 to 5 years 22,755 32,725 199 28,356 84,035
Over 5 Years 13,598 1,120 977 71,596 87,291
------- ------- ------- ------- -------
$82,515 38,423 18,159 103,155 242,252
======= ======= ======= ======= =======
</TABLE>
At December 31, 1997, variable rate and fixed rate loans total
$99,020,000 and $143,232,000, respectively. At December 31, 1996,
variable rate loans were $71,874,000 and fixed rate loans totaled
$115,916,000.
In the normal course of business, the Company's subsidiary has made
loans at prevailing interest rates and terms to directors and executive
officers of the Company and to their affiliates. The aggregate amount
of these loans was $4,494,000 and $3,105,000 at December 31, 1997 and
1996, respectively. As of December 31, 1997 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:
<TABLE>
<CAPTION>
In Thousands
-----------------
December 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Balance January 1 $ 3,105 2,286
New loans during the year 6,085 3,547
Repayments during the year (4,696) (2,728)
------- -------
Balance, December 31 $ 4,494 3,105
======= =======
</TABLE>
A director of the Company performs appraisals related to certain loan
customers. Fees paid to the director for these services were $225,000
in 1997, $250,000 in 1996 and $162,000 in 1995.
Loans which had been placed on non-accrual status totaled $160,000 and
$260,000 at December 31, 1997 and 1996, respectively. Had interest on
these loans been accrued, interest income would have been increased by
approximately $11,000 in 1997, $12,000 in 1996 and $7,000 in 1995.
<PAGE> 28
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
Transactions in the allowance for possible loan losses for the years
ended December 31, 1997, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 2,452 1,944 1,556
Provision charged to operating expense 828 665 527
Loans charged off (486) (174) (165)
Recoveries on losses 96 17 26
------- ------- -------
Balance, end of year $ 2,890 2,452 1,944
======= ======= =======
</TABLE>
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,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
In Thousands
------------------
December 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Recorded investment $1,025 264
Loan loss reserve $ 227 113
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $543,000 and $270,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $23,000 and
$9,000 for 1997 and 1996, respectively.
In 1997, 1996 and 1995, the Company originated and sold loans in the
secondary market of $40,663,000, $31,816,000, and $24,356,000,
respectively. At December 31, 1997, 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 $616,000, $491,000, and $369,000 in 1997, 1996 and 1995,
respectively.
<PAGE> 29
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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, 1997, loans sold to
the Federal Home Loan Mortgage Corporation with existing recourse
totaled $2,443,000. 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,
1997, total loans sold with recourse to the Bank, including those sold
to the Federal Home Loan Mortgage Corporation, aggregated $14,348,000.
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. The Company's
classification of securities at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
------------------------------------------------
In Thousands
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
<CAPTION>
Securities Available-For-Sale
------------------------------------------------
In Thousands
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<PAGE> 30
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(3) DEBT AND EQUITY SECURITIES, CONTINUED
Debt and equity securities at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
Securities Held-To-Maturity
------------------------------------------------
In Thousands
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $ 3,097 3 12 3,088
Obligations of states and political
subdivision 15,961 263 51 16,173
Mortgage-backed securities 7,477 33 69 7,441
------- ------- ------- -------
$26,535 299 132 26,702
======= ======= ======= =======
<CAPTION>
Securities Available-For-Sale
------------------------------------------------
In Thousands
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and
corporations $22,317 34 84 22,267
Obligations of states and political
subdivision 4,561 169 3 4,727
Mortgage-backed securities 2,010 25 19 2,016
------- ------- ------- -------
$28,888 228 106 29,010
======= ======= ======= =======
</TABLE>
<PAGE> 31
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt securities at
December 31, 1997, 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.
<TABLE>
<CAPTION>
Securities Held-To-Maturity Estimated
--------------------------- Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 1,949 1,960
Due after one year through five years 7,377 7,485
Due after five years through ten years 4,775 4,878
Due after ten years 4,085 4,204
------- -------
18,186 18,527
Mortgage-backed securities 6,065 6,020
------- -------
$24,251 24,547
======= =======
<CAPTION>
Securities Available-for-Sale Estimated
----------------------------- Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 4,702 4,726
Due after one year through five years 17,969 18,081
Due after five years through ten years 11,021 11,064
Due after ten years 1,219 1,224
------- -------
34,911 35,095
Mortgage-backed securities 1,294 1,304
Federal Home Loan Bank stock 847 847
------- -------
$37,052 37,246
======= =======
</TABLE>
Results from sales of debt and equity securities are as follows:
<TABLE>
<CAPTION>
In Thousands
-------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross proceeds $ -- -- 4,542
====== ====== ======
Gross realized gains $ -- -- 20
Gross realized losses -- -- (46)
------ ------ ------
Net realized losses $ -- -- (26)
====== ====== ======
</TABLE>
<PAGE> 32
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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 $41,803,000
(approximate market value of $42,037,000) and $41,451,000 (approximate
market value of $41,546,000), were pledged to secure public deposits
and for other purposes as required or permitted by law at December 31,
1997 and 1996, respectively.
Included in the securities above are $18,547,000 (market value of
$18,819,000) and $16,220,000 (market value of $16,399,000) at December
31, 1997 and 1996, 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
$5,742,000 (market value $5,755,000) at December 31, 1997.
Included in the securities portfolio is stock of the Federal Home Loan
Bank amounting to $847,000 and $708,000 at December 31, 1997 and 1996,
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, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 2,153 1,506
Buildings 7,314 6,152
Leasehold improvements 153 151
Furniture and equipment 5,029 4,154
Automobiles 114 75
Construction in progress 647 57
-------- --------
15,410 12,095
Less accumulated depreciation (3,481) (2,481)
-------- --------
$ 11,929 9,614
======== ========
</TABLE>
Building additions during 1997 include payments of $716,000 to a
construction company owned by a director of the Company.
<PAGE> 33
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(5) DEPOSITS
Deposits at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
In Thousands
----------------------
1997 1996
---- ----
<S> <C> <C>
Demand deposits $ 32,373 27,205
Savings accounts 16,971 9,413
Negotiable order of withdrawal 26,355 20,138
Money market demand accounts 63,030 44,649
Certificates of deposit $100,000 or greater 56,560 39,712
Other certificates of deposit 105,976 90,555
Individual retirement accounts $100,000 or greater 4,386 1,898
Other individual retirement accounts 10,990 9,680
-------- --------
$316,641 243,250
======== ========
</TABLE>
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In Thousands
---------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
-------- -------------- ------------- -----
<S> <C> <C> <C>
3 months or less $ 25,480 19,186 44,666
3 to 6 months 19,530 9,717 29,247
6 to 12 months 40,735 18,333 59,068
1 to 5 years 31,221 13,710 44,931
-------- -------- --------
$116,966 60,946 177,912
======== ======== ========
</TABLE>
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, 1997 and 1996 were approximately
$1,328,000 and $1,049,000, respectively.
(6) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The maximum amounts of outstanding repurchase agreements at any month
end during 1997 and 1996 was $9,632,000 and $11,552,000, respectively.
The average daily balance outstanding during 1997, 1996 and 1995 was
$7,327,000, $8,224,000, and $6,411,000, respectively. The underlying
securities are typically held by other financial institutions and are
designated as pledged.
<PAGE> 34
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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:
<TABLE>
<CAPTION>
In Thousands
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits $1,430 1,251 974
Other fees 1,351 962 526
Gains on sales of loans 616 491 369
Gains on sales of fixed assets 5 -- 5
Other income 8 -- --
Minority interest in net losses of subsidiaries -- 77 --
------ ------ ------
$3,410 2,781 1,874
====== ====== ======
Non-interest expense:
Employee salaries and benefits $4,583 3,811 3,009
Employee benefit plan 271 188 127
Occupancy expenses 725 469 290
Furniture and equipment expenses 811 624 568
Loss on sale of other real estate -- -- 11
FDIC insurance 30 3 198
Directors' fees 397 349 245
Other operating expenses 2,781 1,810 1,397
Security losses related to available-for-sale
securities -- -- 26
Minority interest in net income of
subsidiaries 20 -- --
------ ------ ------
$9,618 7,254 5,871
====== ====== ======
</TABLE>
(8) INCOME TAXES
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
In Thousands
--------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset: $ 871 691
Federal 164 139
------- -------
State 1,035 830
------- -------
Deferred tax liability:
Federal (286) (183)
State (54) (35)
------- -------
(340) (218)
------- -------
$ 695 612
======= =======
</TABLE>
<PAGE> 35
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(8) INCOME TAXES, CONTINUED
The tax effects of each type of significant item that gave rise to
deferred taxes are:
<TABLE>
<CAPTION>
In Thousands
-----------------
1997 1996
---- ----
<S> <C> <C>
Financial statement allowance for loan losses
in excess of tax allowance $ 999 835
Excess of depreciation deducted for tax purposes
over the amounts deducted in the financial statements (192) (177)
Financial statement deduction for deferred compensation
in excess of deduction for tax purposes 16 9
Financial statement deduction for preopening expenses
in excess of the amounts deducted for tax purposes 20 40
Financial statement income on FHLB stock dividends
not recognized for tax purposes (38) --
Unrealized gain on securities available-for-sale (74) (46)
----- -----
731 661
Benefit of 50% owned bank subsidiaries' Federal net
operating loss not recognized (36) (49)
----- -----
$ 695 612
===== =====
</TABLE>
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
Federal State Total
<S> <C> <C> <C>
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
======= ======= =======
1995
----
Current $ 887 221 1,108
Deferred (95) (17) (112)
------- ------- -------
Total $ 792 204 996
======= ======= =======
</TABLE>
<PAGE> 36
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(8) INCOME TAXES, CONTINUED
A reconciliation of actual income tax expense of $1,766,000, $1,406,000
and $996,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, to the "expected" tax expense (computed by applying the
statutory rate of 34% to earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,846 1,534 1,162
State income taxes, net of Federal income tax benefit 220 175 134
Tax exempt interest, net of interest expense exclusion (335) (331) (306)
Tax expense related to minority interest income (loss)
in subsidiaries 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 (33) -- --
Other 30 2 6
------- ------- -------
$ 1,766 1,406 996
======= ======= =======
</TABLE>
Total income tax expense for 1995 includes an income tax benefit of
$10,000 related to the loss 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.
During the year ended December 31, 1993, a subsidiary bank entered into
an operating lease agreement for the land on which a branch facility is
located. The agreement is for a period of five years and can be renewed
for up to ten additional terms of five years each. In the fourth year,
the lease is to be adjusted for the annual rate of inflation as
determined by the Consumer Price Index. In August, 1994, the
wholly-owned subsidiary of the bank subsidiary entered into an
operating lease agreement for a building. The agreement is for a period
of three years and can be renewed for an additional term of five years.
During the year ending December 31, 1995, the subsidiary entered into
an operating lease agreement for facilities related to the operation of
a new branch. The agreement is for a period of five years and can be
renewed for up to two consecutive five year terms. During 1996, one of
the 50% owned bank subsidiaries entered into an operating lease
agreement for a building. The agreement is for one year with a six
month renewal option. The subsidiary bank also leases land on which a
stand-alone automatic teller machine is located. Future minimum rental
payments required under the terms of the noncancellable leases are as
follows:
<TABLE>
<CAPTION>
Years Ending December 31, In Thousands
------------------------- ------------
<S> <C>
1998 $ 50,456
1999 34,356
2000 20,790
2001 10,100
2002 4,725
------------
$ 120,427
============
</TABLE>
<PAGE> 37
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(9) COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
Total rent expense amounted to $80,000, $59,000 and $40,000,
respectively, during the years ended December 31, 1997, 1996 and 1995.
(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.
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.
<TABLE>
<CAPTION>
In Thousands
--------------------
Contract or
Notional Amount
--------------------
1997 1996
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commercial loan commitments $25,212 20,022
Unfunded lines-of-credit 7,726 5,461
Letters of credit 1,730 826
------- -------
Total $34,668 26,309
======= =======
</TABLE>
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.
<PAGE> 38
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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, 1997 and 1996, the Company's cash and due from banks
included commercial bank deposit accounts aggregating $78,000 and
$96,000, respectively in excess of the Federal Deposit Insurance
Corporation limit of $100,000 per institution.
In addition, Federal funds sold were deposited with five 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, 1997, 1996 and 1995,
the Bank contributed $271,000, $188,000 and $127,000, respectively, to
this plan.
(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 29,393 in 1997,
28,458 in 1996 and 30,482 in 1995 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 Bank's capital status and the amount of
dividends the subsidiary may distribute. At December 31, 1997,
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, 1997, 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 12.15% and 13.40%, respectively. The leverage ratio
at December 31, 1997 was 8.21% and the minimum requirements was 4%.
<PAGE> 39
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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 four employees participating in the plan at
December 31, 1997.
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 subsidiaries 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, 1997 and 1996, the deferred compensation
liability totaled $43,000 and $24,000, respectively, the cash surrender
value of life insurance was $181,000 and $122,000, respectively, and
the face amount of the insurance policies in force approximated
$1,480,000 in 1997 and 1996. The deferred compensation plan is not
qualified under Section 401 of the Internal Revenue Code.
<PAGE> 40
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
In Thousands
------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Cash $ 16* 61*
Organizational costs, net -- 4
Investment in wholly-owned commercial bank subsidiary 21,266* 17,698*
Investment in 50% owned commercial bank subsidiaries 3,455* 3,425*
Refundable income taxes 80 58
Other assets -- 6
------- -------
Total assets $24,817 21,252
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Stockholders equity:
Common stock, par value $2.00 per share, authorized
5,000,000 shares, issued and outstanding 1,407,467
and 1,378,074 shares, respectively $ 2,815 2,756
Additional paid-in capital 7,527 6,684
Retained earnings 14,362 11,737
Unrealized gain on available-for-sale securities,
net of taxes of $65,000 and $46,000, respectively 113 75
------- -------
24,817 21,252
------- -------
Total liabilities and stockholders' equity $24,817 21,252
======= =======
</TABLE>
*Eliminated in consolidation.
<PAGE> 41
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
-------------------------------------
In Thousands
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expenses:
Employee salary and benefits $ 20 9 14
Amortization of organizational costs 4 5 5
Directors fees 167 129 48
Other 20 11 4
------- ------- -------
Loss before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiaries (211) (154) (71)
Federal income tax benefits 80 58 27
------- ------- -------
(131) (96) (44)
Equity in undistributed earnings of commercial
bank subsidiaries 3,795* 3,203* 2,465*
------- ------- -------
Net earnings $ 3,664 3,107 2,421
======= ======= =======
</TABLE>
*Eliminated in consolidation.
<PAGE> 42
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
Additional On Available-
Common Paid-In Retained For-Sale
Stock Capital Earnings Securities Total
------- ---------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 2,638 5,236 8,088 (344) 15,618
Cash dividends declared, $.70 per share -- -- (929) -- (929)
Issuance of stock pursuant to dividend
reinvestment plan 61 708 -- -- 769
Net change in unrealized gain (loss) on
available-for-sale securities during
the year, net of taxes of $317,000 -- -- -- 519 519
Net earnings for year -- -- 2,421 -- 2,421
------- ------- ------- ------- -------
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
======= ======= ======= ======= =======
</TABLE>
<PAGE> 43
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers and other $ (201) (155) (82)
Tax benefits received 58 41 27
------- ------- -------
Net cash used in operating activities (143) (114) (55)
------- ------- -------
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 235 3,757 257
------- ------- -------
Net cash provided by investing activities 235 273 257
------- ------- -------
Cash flows from financing activities:
Dividends paid (1,039) (950) (929)
Proceeds from sale of stock 902 797 769
------- ------- -------
Net cash used in financing activities (137) (153) (160)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents (45) 6 42
Cash and cash equivalents at beginning of period 61 55 13
------- ------- -------
Cash and cash equivalents at end of year $ 16 61 55
======= ======= =======
</TABLE>
<PAGE> 44
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(16) WILSON BANK HOLDING COMPANY -
PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
WILSON BANK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used in
operating activities:
Net earnings $ 3,664 3,107 2,421
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in earnings of commercial bank
subsidiaries (3,795) (3,203) (2,465)
Amortization of organization costs 4 5 5
(Increase) decrease in other assets 6 (6) (16)
Increase in refundable income taxes (22) (17) --
------- ------- -------
Total adjustments (3,807) (3,221) (2,476)
------- ------- -------
Net cash used in operating activities $ (143) (114) (55)
======= ======= =======
</TABLE>
<PAGE> 45
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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.
<PAGE> 46
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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.
<PAGE> 47
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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,
1997 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, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
In Thousands
--------------------------------------------------------
1997 1996
--------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 31,780 31,780 20,564 20,564
Securities 61,497 61,793 55,545 55,712
Loans 240,556 186,094
Less: allowance for
loan losses (2,890) (2,452)
-------- -------
Loans, net of allowance 237,666 237,398 183,642 183,263
-------- -------
Loans held for sale 4,092 4,092 2,219 2,219
-------- -------
Financial liabilities:
Deposits 316,641 317,766 243,250 243,962
Securities sold
under repurchase
agreements 4,560 4,560 5,616 5,616
Unrecognized financial
instruments:
Commitments to
extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
<PAGE> 48
WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
(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.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Issuer
The Company has a wholly-owned subsidiary, Wilson Bank and Trust, a
state chartered bank incorporated under the laws of the State of Tennessee and
doing business under the same name. Wilson Bank and Trust has a wholly-owned
subsidiary, Hometown Finance Company, a state chartered loan and thrift company
incorporated under the laws of the State of Tennessee and doing business under
the same name. The Company also owns 50% of DeKalb Community Bank, a state
chartered bank incorporated under the laws of the State of Tennessee and doing
business under the same name and 50% of Community Bank of Smith County, a state
chartered bank incorporated under the laws of the State of Tennessee and doing
business under the same name.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,123
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,657
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,246
<INVESTMENTS-CARRYING> 24,251
<INVESTMENTS-MARKET> 24,547
<LOANS> 240,556
<ALLOWANCE> 2,890
<TOTAL-ASSETS> 351,709
<DEPOSITS> 316,641
<SHORT-TERM> 4,560
<LIABILITIES-OTHER> 5,691
<LONG-TERM> 0
0
0
<COMMON> 2,815
<OTHER-SE> 22,002
<TOTAL-LIABILITIES-AND-EQUITY> 351,709
<INTEREST-LOAN> 20,466
<INTEREST-INVEST> 3,623
<INTEREST-OTHER> 1,052
<INTEREST-TOTAL> 25,141
<INTEREST-DEPOSIT> 12,322
<INTEREST-EXPENSE> 12,675
<INTEREST-INCOME-NET> 12,466
<LOAN-LOSSES> 828
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,618
<INCOME-PRETAX> 5,430
<INCOME-PRE-EXTRAORDINARY> 5,430
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,664
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
<YIELD-ACTUAL> 4.44
<LOANS-NON> 160
<LOANS-PAST> 1,219
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,379
<ALLOWANCE-OPEN> 2,452
<CHARGE-OFFS> 486
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 2,890
<ALLOWANCE-DOMESTIC> 2,890
<ALLOWANCE-FOREIGN> 2,890
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
