<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
MARK ONE
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 0-20402
WILSON BANK HOLDING COMPANY
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 62-1497076
- ------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
623 West Main Street, Lebanon, TN 37087
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(615) 444-2265
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock outstanding: 1,438,781 shares at November 2, 1998.
---------- -------------
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the registrant and its
subsidiaries are as follows:
Consolidated Balance Sheets - September 30, 1998 and December 31,
1997.
Consolidated Statements of Earnings - For the three months and nine
months ended September 30, 1998 and 1997.
Consolidated Statements of Comprehensive Earnings - For the three
months and nine months ended September 30, 1998 and 1997.
Consolidated Statements of Cash Flows - For the nine months ended
September 30, 1998 and 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures.
2
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WILSON BANK HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- --------
(In Thousands)
<S> <C> <C>
Assets
Loans $ 281,868 240,556
Less: Allowance for loan losses (3,294) (2,890)
--------- --------
Net loans 278,574 237,666
Securities:
Held-to-maturity, at cost (market value $23,104,000 and
$24,547,000, respectively) 22,667 24,251
Available-for-sale, at market (amortized cost $55,380,000 and
$37,052,000, respectively) 55,782 37,246
--------- --------
Total securities 78,449 61,497
--------- --------
Loans held for sale 3,325 4,092
Federal funds sold 16,808 17,657
--------- --------
Total earning assets 377,156 320,912
Cash and due from banks 9,981 14,123
Bank premises and equipment, net 13,477 11,929
Accrued interest receivable 3,601 2,715
Organizational costs, net of accumulated amortization of
$75,000 and $58,000, respectively 61 78
Other real estate -- 63
Deferred income tax asset 629 695
Other assets 1,267 1,194
--------- --------
Total assets $ 406,172 351,709
========= ========
Liabilities and Stockholders' Equity
Deposits $ 360,888 316,641
Securities sold under repurchase agreements 10,469 4,560
Accrued interest and other liabilities 2,492 2,236
Federal funds purchased 352 --
Minority interest 3,565 3,455
--------- --------
Total liabilities 377,766 326,892
--------- --------
Stockholders' equity:
Common stock, $2.00 par value; authorized 5,000,000 shares; issued 1,438,781
at September 30, 1998 and 1,407,467
shares at December 31, 1997, respectively 2,878 2,815
Additional paid-in capital 8,529 7,527
Retained earnings 16,766 14,362
Net unrealized gains on available-for-sale securities, net of tax
expense of $153,000 and $65,000, respectively 233 113
--------- --------
Total stockholders' equity 28,406 24,817
--------- --------
Total liabilities and stockholders' equity $ 406,172 351,709
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
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WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
(Dollars In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,451 5,632 $ 18,450 15,637
Interest and dividends on securities:
Taxable securities 974 646 2,642 1,842
Exempt from Federal income taxes 263 280 807 841
Interest on loans held for sale 39 26 166 80
Interest on federal funds sold 321 237 1,079 676
---------- --------- ---------- ---------
Total interest income 8,048 6,821 23,144 19,076
---------- --------- ---------- ---------
Interest expense:
Interest on negotiable order of withdrawal accounts 113 108 327 407
Interest on money market and savings accounts 914 736 2,743 1,890
Interest on certificates of deposit 3,010 2,375 8,506 6,599
Interest on securities sold under repurchase agreements 116 94 268 237
Interest on Federal funds purchased 1 -- 1 --
---------- --------- ---------- ---------
Total interest expense 4,154 3,313 11,845 9,133
---------- --------- ---------- ---------
Net interest income before provision for possible
loan losses 3,894 3,508 11,299 9,943
Provision for possible loan losses 270 187 782 575
---------- --------- ---------- ---------
Net interest income after provision for possible
loan losses 3,624 3,321 10,517 9,368
---------- --------- ---------- ---------
Non-interest income:
Service charges on deposit accounts 447 354 1,231 1,072
Other fees and commissions 375 201 1,142 485
Security gains 8 -- 8 --
Gain on sale of loans 260 193 803 507
Gain on sale of fixed assets 6 -- 12 --
Minority interest in net loss of subsidiaries -- -- -- 2
---------- --------- ---------- ---------
1,096 748 3,196 2,066
---------- --------- ---------- ---------
Non-interest expenses:
Salaries and employee benefits 1,506 1,268 4,387 3,759
Occupancy expenses, net 225 163 642 456
Furniture and equipment expense 250 297 694 977
Data processing expense 120 182 342 471
Other operating expenses 699 400 2,027 1,305
Loss on sale of other real estate 6 -- 8 --
Minority interest in net earnings of subsidiaries 28 -- 97 --
---------- --------- ---------- ---------
2,834 2,310 8,197 6,968
---------- --------- ---------- ---------
Earnings before income taxes 1,886 1,759 5,516 4,466
Income taxes 662 587 1,909 1,480
---------- --------- ---------- ---------
Net earnings $ 1,224 1,172 $ 3,607 2,986
========== ========= ========== =========
Weighted average number of shares outstanding 1,433,499 1,392,182 1,424,602 1,394,103
========== ========= ========== =========
Basic earnings per common share .85 .84 2.53 2.14
========== ========= ========== =========
Dividends per share $ .45 .40 $ .85 .80
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
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WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Net earnings $ 1,224 1,172 $ 3,607 2,986
---------- --------- ---------- ---------
Other comprehensive earnings net of tax:
Unrealized gains on available-for-sale
securities arising during period, net
of tax expense of $118,000, $25,000, $76,000
and $28,000, respectively 192 41 125 45
Less: reclassification adjustment for gains
included in net earnings, net of tax expense of $3,000 (5) -- (5) --
---------- --------- ---------- ---------
Other comprehensive earnings 187 41 120 45
---------- --------- ---------- ---------
Comprehensive earnings $ 1,411 1,213 $ 3,727 3,031
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
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WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- -------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 22,199 18,406
Fees and commissions received 2,373 1,528
Proceeds from sale of loans 47,997 30,908
Origination of loans held for sale (46,427) (29,434)
Interest paid (11,694) (8,882)
Cash paid to suppliers and employees (7,258) (6,199)
Income taxes paid (1,821) (1,617)
-------- -------
Net cash provided by operating activities 5,369 4,710
-------- -------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 29,731 10,638
Proceeds from maturities of held-to-maturity securities 3,854 5,286
Proceeds from sales of available-for-sale securities 1,507 500
Purchase of held-to-maturity securities (2,265) (4,046)
Purchase of available-for-sale securities (49,504) (18,378)
Loans made to customers, net of repayments (41,796) (46,546)
Purchase of premises and equipment (2,453) (2,840)
Proceeds from sale of premises and equipment 35 --
Proceeds from sale of other real estate 161 288
-------- -------
Net cash used in investing activities (60,730) (55,098)
-------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW deposit
accounts 11,944 28,090
Net increase in time deposits 32,303 30,090
Increase in securities sold under repurchase agreement 5,909 3,494
Proceeds from advances from Federal funds purchased 1,778 --
Repayment of advances from Federal funds purchased (1,426) --
Dividends paid (1,203) (1,039)
Proceeds from sale of common stock 1,065 902
-------- -------
Net cash provided by financing activities 50,370 61,537
-------- -------
Net increase (decrease) in cash and cash equivalents (4,991) 11,149
Cash and cash equivalents at beginning of period 31,780 20,564
-------- -------
Cash and cash equivalents at end of period $ 26,789 31,713
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
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WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- ------
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 3,607 2,986
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 888 728
Provision for loan losses 782 575
Net gains (losses) of minority interest of commercial
bank subsidiaries 97 (2)
FHLB dividend reinvestment (48) (40)
Gain on sale of premises and equipment (12) --
Gain on sale of securities (8) --
Loss on sale of other real estate 8 --
Decrease in loans held for sale 767 967
Decrease in refundable income taxes 175 --
Decrease (increase) in deferred tax asset (9) 16
Increase in other assets, net (248) (18)
Increase in interest receivable (886) (644)
Decrease in taxes payable (78) (137)
Increase in other liabilities 183 28
Increase in interest payable 151 251
------- ------
Total adjustments 1,762 1,724
------- ------
Net cash provided by operating activities $ 5,369 4,710
======= ======
Supplemental schedule of non-cash activities:
Unrealized gain in values of securities available-for-sale, net of
income tax expense of $76,000 and $28,000 for the nine months
ended September 30, 1998 and 1997, respectively $ 120 45
======= ======
Non-cash transfers from loans to other real estate $ 106 288
======= ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
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WILSON BANK HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of Wilson
Bank Holding Company (Company), its wholly-owned subsidiary, Wilson Bank &
Trust, Hometown Finance Company, a wholly-owned subsidiary of Wilson Bank and
Trust, DeKalb Community Bank, a 50% owned subsidiary, and Community Bank of
Smith County, a 50% owned subsidiary.
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the consolidated financial statements contain all
adjustments and disclosures necessary to summarize fairly the financial position
of the Company as of September 30, 1998 and December 31, 1997, and the results
of operations for the three months and nine months ended September 30, 1998 and
1997, comprehensive earnings for the three months and nine months ended
September 30, 1998 and 1997 and changes in cash flows for the nine months ended
September 30, 1998 and 1997. All significant intercompany transactions have been
eliminated. The interim consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements presented in
the Company's 1997 Annual Report to Stockholders. The results for interim
periods are not necessarily indicative of results to be expected for the
complete fiscal year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
------- ------
(In Thousands)
<S> <C> <C>
Balance, January 1, 1998 and 1997, respectively $ 2,890 2,452
Add (deduct):
Losses charged to allowance (421) (156)
Recoveries credited to allowance 43 28
Provision for loan losses 782 575
------- ------
Balance, September 30, 1998 and 1997, respectively $ 3,294 2,899
======= ======
</TABLE>
8
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WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to provide insight into the
financial condition and results of operations of the Company and its
subsidiaries. This discussion should be read in conjunction with the
consolidated financial statements.
RESULTS OF OPERATIONS
Net earnings increased 20.8% to $3,607,000 for the nine months
ended September 30, 1998 from $2,896,000 in the first nine months of 1997. Net
earnings were $1,224,000 for the quarter ended September 30, 1998, an increase
of $52,000 or 4.4% from $1,172,000 for the three months ended September 30, 1997
and a decrease of $24,000 or 1.9% over the quarter ended June 30, 1998. The
increase in net earnings during the nine months ending September 30, 1998 was
primarily due to a 13.6% increase in net interest income and a 54.7% increase in
non-interest income which was partially offset by a 17.6% increase in
non-interest expenses.
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. The Company's total interest income, excluding tax
equivalent adjustments, increased $4,068,000 or 21.3% during the nine months
ended September 30, 1998 as compared to the same period in 1997. The increase in
total interest income was $1,227,000 or 18.0% for the quarter ended September
30, 1998 as compared to the quarter ended September 30, 1997 and $239,000 or
3.1% over the second quarter of 1998. The increase in 1998 was primarily
attributable to an increase in average earning assets. The ratio of average
earning assets to total average assets was 92.5%, 92.5% and 94.1% for the
quarters ended September 30, 1998, June 30, 1998 and March 31, 1998,
respectively, and 93.3% for the year ended December 31, 1997.
Interest expense increased $2,712,000 or 29.7% for the nine months
ended September 30, 1998 as compared to the same period in 1997. The increase
was $841,000 or 25.4% for the three months ended September 30, 1998 as compared
to the same period in 1997. Interest expense increased $186,000 or 4.7% for the
quarter ended September 30, 1998 over the second quarter of 1998. The overall
increase in total interest expense for the first nine months of 1998 was
primarily attributable to an increase in weighted average interest-bearing
liabilities.
The foregoing resulted in an increase in net interest income of
$1,356,000 or 13.6% for the first nine months of 1998 as compared to the same
period in 1997. The increase was $386,000 or 11.0% for the quarter ended
September 30, 1998 compared to the quarter ended September 30, 1997 and an
increase of $53,000 or 1.4% when compared to the second quarter of 1998.
9
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WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $782,000 and $575,000
for the first nine months of 1998 and 1997, respectively. The provision for
possible loan losses during the three month periods ended September 30, 1998 and
1997 was $270,000 and $187,000, respectively. The provision for possible loan
losses is based on past loan experience and other factors which, in management's
judgment, deserve current recognition in estimating possible loan losses. Such
factors include past loan loss experience, growth and composition of the loan
portfolio, review of specific problem loans, the relationship of the allowance
for loan losses to outstanding loans, and current economic conditions that may
affect the borrower's ability to repay. Management has in place a system
designed for monitoring its loan portfolio in an effort to identify potential
problem loans. The provision for possible loan losses raised the allowance for
possible loan losses to $3,294,000, an increase of 14.0% from $2,890,000 at
December 31, 1997. The allowance for possible loan losses as a percentage of
total outstanding loans was 1.2% at September 30, 1998 and December 31, 1997,
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 September 30, 1998 to be adequate.
NON-INTEREST INCOME
The components of the Company's non-interest income include
service charges on deposit accounts, other fees and commissions, gain on sale of
loans, security gains, gain on sale of fixed assets and minority interest in net
losses of subsidiaries. Total non-interest income for the nine months ended
September 30, 1998 increased by 54.7% to $3,196,000 from $2,066,000 for the same
period in 1997. The increase was $348,000 or 46.5% during the quarter ended
September 30, 1998 compared to the third quarter in 1997 and the decrease was
$6,000 or .5% over the quarter ended June 30, 1998. The overall increase in
non-interest income was due primarily to increases in other fees and commissions
and gain on sale of loans. Other fees and commissions increased $657,000 or
135.5% during the nine months ended September 30, 1998 compared to the same
period in 1997. Other fees and commissions increased $174,000 or 86.6% during
the quarter ended September 30, 1998 compared to the same period in 1997. Gain
on sales of loans totaled $803,000 and $507,000 during the nine months ended
September 30, 1998 and 1997, respectively, an increase of $296,000 or 58.4% and
$260,000 and $193,000 during the quarters ended September 30, 1998 and 1997,
respectively, an increase of $67,000 or 34.7%.
10
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WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
NON-INTEREST EXPENSE
Non-interest expense consists primarily of salaries and employee
benefits, occupancy expenses, furniture and equipment expenses, data processing
expenses, other operating expenses and minority interest in net earnings of
subsidiaries. Total non-interest expense increased $1,229,000 or 17.6% during
the first nine months of 1998 compared to the same period in 1997. The increase
for the quarter ended September 30, 1998 was $524,000 or 22.7% as compared to
the comparable quarter in 1997 and $74,000 or 2.7% as compared to the second
quarter of 1998. The increase in non-interest expense was attributable primarily
to increases in salaries and employee benefits associated with an increase in
the number of employees necessary to support the Company's expanded operations.
The number of employees increased to 188 at September 30, 1998, an increase from
162 at September 30, 1997. The increase in occupancy expenses was also due to
the Company's expanded operations. Other operating expenses for the nine months
ended September 30, 1998 increased to $2,027,000 from $1,305,000 for the
comparable period in 1997. Other operating expenses increased $299,000 or 74.8%
during the quarter ended September 30, 1998 as compared to the same period in
1997 and $15,000 or 2.2% as compared to the second quarter of 1998. These
expenses include Federal deposit insurance premiums, supplies and general
operating costs which increased as a result of continued growth of the Company.
INCOME TAXES
The Company's income tax expense was $1,909,000 for the nine
months ended September 30, 1998, an increase of $429,000 as compared to the
comparable period in 1997. Income tax expense was $662,000 for the quarter ended
September 30, 1998, an increase of $75,000 over the same period in 1997. The
percentage of income tax expense to net income before taxes was 34.6% and 33.1%
for the nine months ended September 30, 1998 and 1997, respectively and 35.1%
and 33.4% for the quarters ended September 30, 1998 and 1997, respectively. The
percentage of income tax expense to net income before tax was 34.3% for the
second quarter of 1998. The increase in the percentage is due to a decrease in
the amount of tax exempt interest income as a percentage of total interest
income. This percentage was 3.5% for the nine months ended September 30, 1998
compared to 4.4% for the nine months ended September 30, 1997.
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WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
The Company's total assets increased 15.5% to $406,172,000 during
the nine months ended September 30, 1998 from $351,709,000 at December 31, 1997.
Total assets increased $14,581,000 or 3.7%, $7,062,000 or 1.8% and $32,820,000
or 9.3% during the three month periods ended September 30, 1998, June 30, 1998
and March 31, 1998, respectively. Loans, net of allowance for possible loan
losses totaled $278,574,000 at September 30, 1998 or a 17.2% increase compared
to $237,666,000 at December 31, 1997. Net loans increased $21,041,000 or 8.2%,
$13,508,000 or 5.5% and $6,359,000 or 2.7% during the quarters ended September
30, 1998, June 30, 1998 and March 31, 1998, respectively. These increases were
primarily due to the continued favorable interest rate environment which
motivated refinancing of mortgages and the Company's ability to increase its
market share of such loans while maintaining its loan underwriting standards.
Securities increased $16,952,000 or 27.6% to $78,449,000 at September 30, 1998
from $61,497,000 at December 31, 1997. Securities increased $31,000 or .04%
during the three months ended September 30, 1998. The increase in securities
included a net unrealized gain of $402,000 during the nine month period ending
September 30, 1998. Federal funds sold decreased $849,000 to $16,808,000 at
September 30, 1998 from $17,657,000 at December 31, 1997.
Total liabilities increased by 15.6% to $377,766,000 for the nine
months ended September 30, 1998 compared to $326,892,000 at December 31, 1997.
The increase by quarter totaled $13,247,000 or 3.6%, $5,845,000 or 1.6% and
$31,782,000 or 9.7% during the quarters ended September 30, 1998, June 30, 1998
and March 31, 1998, respectively. These increases were composed primarily of a
$44,247,000 or 14.0% increase in total deposits and an increase of $5,909,000 or
129.6% in securities sold under repurchase agreements during the nine months
ended September 30, 1998.
Effective January 1, 1995, the Company adopted on a prospective
basis 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 credit card, residential mortgage, and consumer installment loans.
A loan is impaired when it is probable that the Company will be
unable to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with a corresponding
charge to the provision for loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.
12
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WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
FINANCIAL CONDITION, CONTINUED
BALANCE SHEET SUMMARY, CONTINUED
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $111,627,000, $47,555,000 and
$1,330,000, respectively at September 30, 1998, 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 subject to the provisions of SFAS
114 and 118 that are 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 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 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 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 interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to 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. At
September 30, 1998, the Company had nonaccrual loans totaling $400,000 as
compared to $160,000 at December 31, 1997.
Loans not on nonaccrual status are classified as impaired in
certain cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the
terms of which have been modified in a troubled debt restructuring after January
1, 1995. Interest is accrued on such loans that continue to meet the modified
terms of their loan agreements. At September 30, 1998, the Company had no loans
that have had the terms modified in a troubled debt restructuring.
13
<PAGE> 14
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
FINANCIAL CONDITION, CONTINUED
BALANCE SHEET SUMMARY, CONTINUED
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.
Impaired loans and related allowance for loan loss amounts at
September 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------- -----------------------
Allowance Allowance
Recorded for Recorded for
(In Thousands) Investment Loan Loss Investment Loan Loss
-------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Impaired loans with allowance for
loan loss $ -- -- 1,025 227
Impaired loans with no allowance
for loan loss -- -- -- --
------ ----- ----- ---
$ -- -- 1,025 227
====== ===== ===== ===
</TABLE>
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral.
The average recorded investment in impaired loans for the year
ended December 31, 1997 was $543,000. The related amount of interest income
recognized on the accrual method for the period that such loans were impaired
was approximately $23,000.
The following schedule details selected information as to
non-performing loans of the Company at September 30, 1998:
<TABLE>
<CAPTION>
September 30, 1998
----------------------------
Past Due
90 Days Non-Accrual
-------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $298 182
Installment loans 532 218
Commercial, financial and agricultural
loans 61
---- ---
$891 400
==== ===
Renegotiated loans $ -- --
==== ===
</TABLE>
14
<PAGE> 15
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
FINANCIAL CONDITION, CONTINUED
BALANCE SHEET SUMMARY, CONTINUED
Non-performing loans, which included non-accrual loans and loans
90 days past due, at September 30, 1998 totaled $1,291,000, a decrease of 6.4%
from $1,379,000 at December 31, 1997. During the three months ended September
30, 1998, non-performing loans increased $12,000 or .9% from $1,279,000 at June
30, 1998. The decrease in non-performing loans for the nine months ended
September 30, 1998 is due primarily to an improvement in certain real estate
loans.
At September 30, 1998, loans totaling $1,985,000 (including the
above past due and non-accrual loans) were included in the Company's internal
classified loan list. Of these loans, $1,384,000 are real estate and $601,000
are personal. The collateral values securing these loans total approximately
$1,733,000, ($1,413,000 related to real property and $320,000 related to
personal loans). The internally classified loans have increased from $1,162,000
at December 31, 1997 to $1,985,000 at September 30, 1998. This increase is
represented by an increase of $1,107,000 related to real estate loans offset by
a reduction of $255,000 in classified personal loans. 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.
15
<PAGE> 16
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
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 securities and
money market instruments that will mature within one year. At September 30,
1998, the Company's liquid assets totaled $30,228,000.
The Company's primary source of liquidity is its core deposit
base. In addition short-term investments, loan payments and investment security
maturities provide a secondary source.
Interest rate risk (sensitivity) 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 of the subsidiary banks.
These meetings focus on the spread between the Company's cost of funds and
interest yields generated primarily through loans and investments.
The Company's securities portfolio consists of earning assets that
provide interest income. For those securities classified as held-to-maturity the
Company has the ability and intent to hold these securities to maturity or on a
long-term basis. Securities classified as available-for-sale include securities
intended to be used as part of the Company's asset/liability strategy and/or
securities that may be sold in response to changes in interest rate, prepayment
risk, the need or desire to increase capital and similar economic factors.
Securities totaling $6.7 million mature or will be subject to rate adjustments
within the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At
September 30, 1998 loans of approximately $181.9 million either will become due
or will be subject to rate adjustments within twelve months from that date.
Continued emphasis will be placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit of $100,000 or greater
totaling approximately $56.9 million will become due during the next twelve
months. Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal accounts, money
market demand accounts, demand deposit and regular savings. Management does not
anticipate that there will be significant withdrawals from these accounts in the
future.
16
<PAGE> 17
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND ASSET MANAGEMENT, CONTINUED
Management believes that with present maturities, the anticipated
growth in deposit base, and the efforts of management in its asset/liability
management program, liquidity will not pose a problem in the near term future.
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 a materially adverse way.
CAPITAL POSITION AND DIVIDENDS
Capital. At September 30, 1998, total stockholders' equity was
$28,406,000 or 7.0% of total assets, which compares with $24,817,000 or 7.1% of
total assets at December 31, 1997. The dollar increase in stockholders' equity
during the nine months ended September 30, 1998 results from the Company's net
income of $3,607,000, the net effect of a $120,000 unrealized gain on investment
securities net of applicable income taxes, less cash dividends declared of
$1,203,000, of which $1,065,000 was reinvested under the Company's dividend
reinvestment plan.
The Company's principal regulators have established minimum
risk-based capital requirements and leverage capital requirements for the
Company and its subsidiary banks. These guidelines classify capital into two
categories of Tier I and total risk-based capital. Total risk-based capital
consists of Tier I (or core) capital (essentially common equity less intangible
assets) and Tier II capital (essentially qualifying long-term debt, of which the
Company and its subsidiary banks have none, and a part of the allowance for
possible loans 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
requires 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 September 30,
1998 the Company's total risk-based capital ratio was 12.5% and its Tier I
risk-based capital ratio was approximately 11.3% compared to ratios of 13.4% and
12.2%, respectively at December 31, 1997. The required Tier I leverage capital
ratio (Tier I capital to average assets for the most recent quarter) for the
Company is 4.0%. At September 30, 1998, the Company had a leverage ratio of
7.9%, compared to 8.2% at December 31, 1997.
IMPACT OF INFLATION
Although interest rates are significantly affected by inflation,
the inflation rate is immaterial when reviewing the Company's results of
operations.
17
<PAGE> 18
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than two digits
to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g., 1900 and 2000). To address the Year 2000 issue,
the Company has adopted a broad-based approach designed to encompass the
Company's total environment.
The Company has appointed a Year 2000 Committee which was
established in mid-1997. The Y2K Committee has representation from all affected
areas for the purpose of managing the process of assessing and correcting
non-compliance throughout the organization. Areas being addressed by the Y2K
Committee include:
- Banks' primary data processing system. Jack Henry, a major
data processor, provides the primary software and hardware
for the data processing system of the Banks. This is of the
highest priority for day to day operations, accounting and
success of the Banks.
- Government systems, such as the Federal Reserve Bank for
check clearing, wire transfers, and the free flow and
exchange of funds between institutions are absolutely
critical.
- The internal PC hardware and software systems within the
Banks, along with telecommunications systems.
- The primary securities portfolio accounting and safekeeping
system for the Banks.
- Credit administration - the committee is reviewing the risk
associated with Year 2000 status of Banks' loan customers and
depositors.
The Company's Y2K Committee is using a 4-phase approach in its
Year 2000 project made up of awareness, assessment, renovation, and
validation-testing. The Company is currently in the final phase of the Y2K Plan.
The purpose of the Y2K committee is to assess, test and correct
the Company's hardware, software and equipment to ensure these systems operate
properly in the Year 2000. The Committee has substantially completed its
assessment of the company's systems, has identified the Company's hardware,
software and equipment that will not operate properly in the Year 2000 and has
remedied the problem with the replacement of hardware that is compliant. As of
September 30, 1998 the Y2K committee has determined that the majority of the
Company's systems will operate properly in the Year 2000.
18
<PAGE> 19
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
YEAR 2000 ISSUES, CONTINUED
The Company expects that programming changes and software
replacement for systems that are not Year 2000 compliant will be completed
during the first quarter of 1999. The Company plans to test their primary
processing system during the month of December, 1998. The Jack Henry Company has
tested the Jack Henry Silver Lake Operating system and the Company has
documentation on file that the operating system is Y2K compliant. However, the
Company will test the software using its own database to ensure the readiness of
the Company to service its customer base into the Year 2000. The end of 1998
will substantially complete the testing phase of the plan.
The Company has requested written documentation from vendors and
suppliers with whom the Company has a material relationship regarding their
ability to operate properly in the Year 2000. The Company will consider
alternatives related to vendors and suppliers that do not confirm their Year
2000 readiness. There can be no assurance however that the Company's significant
vendors and suppliers will have remedied their Year 2000 issues. The Company
will continue to monitor its significant vendors and suppliers to minimize the
Company's risk.
The Company is requiring Y2K readiness information from all of its
major borrowers. The commercial borrowers must realize the impact that the Y2K
could have on their respective businesses. Seminars, questionnaires and
individual contact with our loan customers will be continued as an ongoing
prevention measure during the 1999 year. The Company realizes the materially
adverse impact that the lack of Y2K preparation of our loan customers would have
on the Company during the Year 2000.
Customer awareness of the Company's Y2K readiness is critical. The
steps taken by the Company to prepare for the Year 2000 will be shared with
their customers through Quarterly Newsletters, statement stuffers and the Y2K
training of our employees. Our customers must have a high confidence level in
our Company at the end of 1999 to avoid mass withdrawals of funds from the
Company. The Company is working toward a comprehensive customer awareness
program during the 1999 year.
Based on the Company's current estimates, the Company has
allocated $250,000 in its 1999 budget to fund testing and replacement costs.
Included in the Company's cost estimates are the cost of replacing hardware and
software of approximately $100,000, which will be capitalized and amortized over
their estimated useful lives. The remaining costs are expensed as incurred.
These projected costs are based upon management's best estimates, which are
derived utilizing numerous assumptions of future events. As of September 30,
1998, the only cost that has been incurred on the Year 2000 issue is the cost
of the Company's personnel. Their time was used to effectively gather and
organize the information used to assess the Company's hardware and software
compliance. Using an estimate of the hours worked on this project, the cost
would be $35,000 to date. This cost has been minimal because there have not
been any major renovations, upgrades or software conversions needed.
The Board of Directors is aware of the Y2K problem and is
receiving monthly updates on the Y2K Committee's progress. The board has
approved the Company's written contingency plan. The plan addresses all aspects
of the Company's operation systems identifying alternative solutions. The
contingency plan identifies all of the bank's major processing systems as
critical, semi-critical and non-critical. A processing solution is in place on
each of these applications detailing information on alternative processors and
their capabilities. This plan will continually be updated as each critical and
semi-critical application has completed its final testing phase.
19
<PAGE> 20
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
YEAR 2000 ISSUES, CONTINUED
The foregoing notwithstanding, management does not currently
believe that the costs of assessment, remediation, or replacement of the
Company's systems, or the potential failure of third parties' systems will have
a material adverse effect on the Company's business, financial condition,
results of operations, or liquidity.
FORWARD-LOOKING STATEMENTS
This form 10-Q contains certain forward-looking statements
regarding, among other things, the anticipated financial and operating results
of the Company. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any modifications or revisions to
these forward-looking statements to reflect events or circumstances occurring
after the date hereof or to reflect the occurrence of unanticipated events.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions investors that
future financial and operating results may differ materially from those
projected in forward-looking statements made by, or on behalf of, the Company.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. The Company's future operating results depend on a number of factors
which were derived utilizing numerous assumptions and other important factors
that could cause actual results to differ materially from those projected in
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Based upon the nature of the Company's operations, the Company is not
subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the
earnings risk associated with changing interest rates. Management seeks to
maintain profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets monthly to analyze the rate sensitivity position. These meetings focus on
the spread between the cost of funds and interest yields generated primarily
through loans and investments.
There have been no material changes in reported market risks
during the nine months ended September 30, 1998.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This
schedule contains summary financial information extracted
from the consolidated financial statements of the Company at
September 30, 1998 (unaudited) and is qualified in its
entirety by reference to such financial statements as set
forth in the Company's quarterly report on Form 10-Q for the
period ending September 30, 1998.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WILSON BANK HOLDING COMPANY
(Registrant)
DATE: November 2, 1998 /s/ Randall Clemons
------------------ -------------------------------------
Randall Clemons
President and Chief Executive Officer
DATE: November 2, 1998 /s/ Becky Taylor
------------------ -------------------------------------
Becky Taylor
Sr. Vice President & Cashier
22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WILSON BANK HOLDING COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,981
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,808
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,782
<INVESTMENTS-CARRYING> 22,667
<INVESTMENTS-MARKET> 23,104
<LOANS> 281,868
<ALLOWANCE> 3,294
<TOTAL-ASSETS> 406,172
<DEPOSITS> 360,888
<SHORT-TERM> 10,821
<LIABILITIES-OTHER> 2,492
<LONG-TERM> 0
0
0
<COMMON> 2,878
<OTHER-SE> 25,528
<TOTAL-LIABILITIES-AND-EQUITY> 406,172
<INTEREST-LOAN> 18,450
<INTEREST-INVEST> 3,449
<INTEREST-OTHER> 1,245
<INTEREST-TOTAL> 23,144
<INTEREST-DEPOSIT> 11,576
<INTEREST-EXPENSE> 11,845
<INTEREST-INCOME-NET> 11,299
<LOAN-LOSSES> 782
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 8,197
<INCOME-PRETAX> 5,516
<INCOME-PRE-EXTRAORDINARY> 5,516
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,607
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.53
<YIELD-ACTUAL> 3.0
<LOANS-NON> 400
<LOANS-PAST> 891
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,985
<ALLOWANCE-OPEN> 2,890
<CHARGE-OFFS> 421
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 3,294
<ALLOWANCE-DOMESTIC> 3,294
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
