<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 MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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: 1,455,289 shares at May 7, 1999
-----------
1
<PAGE> 2
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the registrant and its
subsidiaries are as follows:
Consolidated Balance Sheets - March 31, 1999 and December 31,
1998.
Consolidated Statements of Earnings - For the three months ended
March 31, 1999 and 1998.
Consolidated Statements of Comprehensive Earnings - For the three
months ended March 31, 1999 and 1998.
Consolidated Statements of Cash Flows - For the three months
ended March 31, 1999 and 1998.
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
Signatures
2
<PAGE> 3
WILSON BANK HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 December 31,
1999 1998
---------- ------------
(In Thousands)
<S> <C> <C>
Assets
Loans $ 307,341 295,930
Less: Allowance for loan losses (3,401) (3,244)
--------- ---------
Net loans 303,940 292,686
Securities:
Held to maturity, at cost (market value - $18,859,000
and $20,870,000, respectively) 18,551 20,408
Available-for-sale, at market (amortized cost - $63,765,000
and $52,843,000, respectively) 63,630 53,180
--------- --------
Total securities 82,181 73,588
Loans held for sale 1,793 3,881
Federal funds sold 30,146 24,976
--------- --------
Total earning assets 418,060 395,131
Cash and due from banks 12,665 16,024
Bank premises and equipment, net 15,017 14,807
Accrued interest receivable 3,640 3,373
Organizational costs, net of accumulated amortization of $108,000 -- 28
Deferred income tax asset 898 714
Other real estate 38 138
Other assets 1,566 1,760
--------- --------
Total assets $ 451,884 431,975
========= ========
Liabilities and Stockholders' Equity
Deposits $ 406,905 389,105
Securities sold under repurchase agreements 8,336 7,258
Accrued interest and other liabilities 2,993 2,760
Minority interest 3,581 3,587
--------- --------
Total liabilities 421,815 402,710
--------- --------
Stockholders' equity:
Common stock, $2.00 par value; authorized 5,000,000 shares, issued
1,455,289 and 1,438,781 shares, respectively 2,910 2,877
Additional paid-in capital 9,132 8,530
Retained earnings 18,092 17,663
Accumulated other comprehensive earnings:
Net unrealized gains on available-for-sale securities, net of
income tax benefit of $51,000 and taxes of $121,000,
respectively (65) 195
--------- --------
Total stockholders' equity 30,069 29,265
--------- --------
Total liabilities and stockholders' equity $ 451,884 431,975
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 4
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars In Thousands
Except Per Share Amount)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 6,937 5,805
Interest and dividends on securities:
Taxable securities 998 744
Exempt from Federal income taxes 201 280
Interest on loans held for sale 42 61
Interest on Federal funds sold 360 397
---------- ---------
Total interest income 8,538 7,287
---------- ---------
Interest expense:
Interest on negotiable order of withdrawal accounts 93 105
Interest on money market and savings accounts 1,000 912
Interest on certificates of deposit 3,053 2,642
Interest on securities sold under repurchase agreements 71 64
---------- ---------
Total interest expense 4,217 3,723
---------- ---------
Net interest income before provision for possible loan losses 4,321 3,564
Provision for possible loan losses 332 228
---------- ---------
Net interest income after provision for possible
loan losses 3,989 3,336
---------- ---------
Non-interest income:
Service charges on deposit accounts 459 367
Other fees and commissions 333 356
Gain on sale of loans 211 269
Gain on sale of fixed assets -- 6
Gain on sale of other real estate 3 --
---------- ---------
1,006 998
---------- ---------
Non-interest expense:
Salaries and employee benefits 1,791 1,419
Occupancy expenses, net 230 196
Furniture and equipment expense 268 201
Data processing expense 89 109
Other operating expenses 797 644
Loss on sale of other real estate -- 2
Minority interest in net earnings of subsidiaries 24 32
---------- ---------
3,199 2,603
---------- ---------
Earnings before income taxes 1,796 1,731
Income taxes 648 596
---------- ---------
Net earnings $ 1,148 1,135
========== =========
Weighted average number of shares outstanding 1,449,787 1,417,546
========== =========
Net earnings per common share $ .79 .80
========== =========
Dividends per share $ .50 .40
========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Net earnings $ 1,148 1,135
------- ------
Other comprehensive losses, net of tax:
Unrealized losses on available-for-sale securities
arising during period, net of taxes of $161,000 and
$22,000, respectively (260) (36)
------- ------
Other comprehensive losses (260) (36)
------- ------
Comprehensive earnings $ 888 1,099
======= ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 8,252 7,152
Fees and commissions received 792 723
Proceeds from sale of loans 11,444 19,136
Origination of loans held for sale (9,145) (20,695)
Interest paid (4,181) (3,706)
Cash paid to suppliers and employees (2,861) (2,321)
Income taxes paid (253) (237)
-------- -------
Net cash provided by operating activities 4,048 52
-------- -------
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities 2,721 798
Purchase of held-to-maturity securities (863) (681)
Purchase of available-for-sale securities (21,295) (19,571)
Proceeds from maturities of available-for-sale securities 10,391 10,662
Proceeds from sale of fixed assets -- 27
Proceeds from sale of other real estate 103 61
Loans made to customers, net of repayments (11,586) (6,587)
Purchase of premises and equipment (502) (1,041)
-------- -------
Net cash used in investing activities (21,031) (16,332)
-------- -------
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW
deposit accounts 10,827 15,450
Net increase in time deposits 6,973 14,772
Increase in securities sold under repurchase agreement 1,078 1,341
Dividends paid (719) (563)
Proceeds from sale of common stock 635 502
-------- -------
Net cash provided by financing activities 18,794 31,502
-------- -------
Net increase in cash and cash equivalents 1,811 15,222
Cash and cash equivalents at beginning of period 41,000 31,780
-------- -------
Cash and cash equivalents at end of period $ 42,811 47,002
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
WILSON BANK HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided
by operating activities:
Net earnings $ 1,148 1,135
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 317 274
Provision for loan losses 332 228
Minority interests in net earnings of commercial bank
subsidiaries 24 32
Gain on sale of fixed assets -- (6)
Loss (gain) on sale of other real estate (3) 2
Decrease (increase) in loans held for sale 2,088 (1,828)
Decrease in refundable income taxes 347 175
Increase in taxes payable 48 184
FHLB dividend reinvestment (18) (15)
Increase in other assets, net (153) (23)
Increase (decrease) in other liabilities 149 (6)
Increase in interest receivable (267) (117)
Increase in interest payable 36 17
------- ------
Total adjustments 2,900 (1,083)
------- ------
Net cash provided by operating activities $ 4,048 52
======= ======
Supplemental schedule of non-cash activities:
Unrealized loss in values of securities available-for-sale,
net of income tax benefit of $161,000 and $22,000 for the
quarters ended March 31, 1999 and 1998, respectively $ (260) (36)
======= ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
<PAGE> 8
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 and
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 March 31, 1999 and December 31, 1998, the results of
operations for the three months ended March 31, 1999 and 1998, comprehensive
earnings for the three months ended March 31, 1999 and 1998 and changes in cash
flows for the three months ended March 31, 1999 and 1998. 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 1998 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>
Three Months Ended
March 31,
------------------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Balance, January 1, 1999 and 1998, respectively $ 3,244 2,890
Add (deduct):
Losses charged to allowance (194) (80)
Recoveries credited to allowance 19 19
Provision for loan losses 332 228
---------- ---------
Balance, March 31, 1999 and 1998, respectively $ 3,401 3,057
========== =========
</TABLE>
8
<PAGE> 9
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. Reference should also be made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 for a
more complete discussion of factors that impact liquidity, capital and the
results of operations.
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 and
uncertainties, including, but not limited to, sudden adverse interest rate
changes, inadequate allowance for loan losses, loss of key personnel, and
interruptions in operations caused by the Year 2000 problem. These risks and
uncertainties may cause the actual results or performance of the Company to be
materially different from any future results or performance expressed or implied
by such forward-looking statements. The Company's future operating results
depend on a number of factors which were derived utilizing numerous assumptions
that could cause actual results to differ materially from those projected in
forward-looking statements.
RESULTS OF OPERATIONS
Net earnings increased 1.1% to $1,148,000 for the three months
ended March 31, 1999 from $1,135,000 in the first quarter of 1998. The increase
in net earnings was primarily due to a 21.2% increase in net interest income and
a .8% increase in non-interest income which were partially offset by a 22.9%
increase in non-interest expenses.
NET INTEREST INCOME
Net interest income represents the amount by which interest earned
in 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 interest income, excluding tax equivalent
adjustments, increased $1,251,000 or 17.2% during the three months ended March
31, 1999 as compared to the first quarter 1998. The increase in 1999 was
primarily attributable to an increase in average earning assets. The ratio of
average earning assets to total average assets was 92.6% for the quarter ended
March 31, 1999 and 94.1% for the quarter ended March 31, 1998.
9
<PAGE> 10
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
NET INTEREST INCOME, CONTINUED
Interest expense increased by $494,000 for the three months ended
March 31, 1999 compared to an increase of $900,000 for the same period in 1998.
The increase for the quarters ended March 31, 1999 and 1998 was due primarily to
an increase in average interest bearing liabilities.
The foregoing resulted in an increase in net interest income,
before the provision for loan losses, of $757,000 or 21.2% for the first three
months of 1999 as compared to the first quarter 1998.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for loan losses was $332,000 and $228,000,
respectively, for the first three months of 1999 and 1998. The provision for
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 identifying and monitoring its loan portfolio. The provision
for loan losses raised the allowance for possible loan losses (net of charge
offs and recoveries) to $3,401,000, an increase of 4.8% from $3,244,000 at
December 31, 1998. The allowance for possible loan losses was 1.1% of total
loans outstanding at March 31, 1999 and December 31, 1998, 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 March 31, 1999 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, gain on sale of fixed assets and gain on sale of other real estate. Total
non-interest income for the three months ended March 31, 1999 increased by .8%
to $1,006,000 from $998,000 for the same period in 1998. This increase was due
to an increase of $92,000 or 25.1% in service charges on deposit accounts from
$367,000 during the first quarter of 1998 to $459,000 for the same period in
1999. Other fees and commissions decreased $23,000 or 6.5% to $333,000, and gain
on sale of loans decreased $58,000 or 21.6% to $211,000 compared to the same
quarter in 1998.
10
<PAGE> 11
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 EXPENSES
Non-interest expenses consist primarily of employee costs,
occupancy expenses, furniture and equipment expenses, data processing expenses,
loss on sale of other real estate, other operating expenses and minority
interest in net earnings of subsidiaries. Total non-interest expenses increased
$596,000 or 22.9% during the first three months of 1999 compared to same period
in 1998. The increases in non-interest expenses are attributable primarily to
increases in employee salaries and benefits associated with an increase in the
number of employees necessary to support the Company's operations. The number of
employees increased from 172 at March 31, 1998 to 186 at March 31, 1999.
Increases in occupancy and furniture and equipment expenses were also due to the
Company's growth, specifically as a result of the opening of new branch offices
in Gladeville, Tennessee and on Castle Heights Avenue in Lebanon, Tennessee
since March 31, 1998. Other operating expenses for the three months ended March
31, 1999 increased to $797,000 from $644,000 for the three months ended March
31, 1998. These expenses include Federal deposit insurance premiums, directors
fees, 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 $648,000 for the three months
ended March 31, 1999, an increase of $52,000 over the comparable period in 1998.
The percentage of income tax expense to net income before taxes was 36.1% and
34.4% for the periods ended March 31, 1999 and 1998, respectively. 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 2.4% at
March 31, 1999 compared to 3.8% at March 31, 1998.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
The Company's total assets increased 4.6% to $451,884,000 during
the three months ended March 31, 1999 from $431,975,000 at December 31, 1998.
Loans, net of allowance for possible loan losses, totaled $303,940,000 at March
31, 1999, a 3.8% increase compared to $292,686,000 at December 31, 1998. This
increase was primarily due to the continued favorable interest rate environment
which motivated the refinancing of mortgages and the Company's ability to
increase its market share of such loans while maintaining its loan underwriting
standards. Securities increased $8,593,000 or 11.7% to $82,181,000 at March 31,
1999. The increase in securities included a net unrealized loss of $135,000
during the quarter as a result of the decrease in unrealized gain on
available-for-sale securities. Federal funds sold increased $5,170,000 to
$30,146,000 at March 31, 1999 from $24,976,000 at December 31, 1998.
Total liabilities increased by 4.7% to $421,815,000 for the three
months ended March 31, 1999 compared to $402,710,000 at December 31, 1998. This
increase was composed primarily of a $17,800,000 increase in total deposits
(4.6% increase). Securities sold under repurchase agreements increased
$1,078,000 during the quarter ended March 31, 1999.
11
<PAGE> 12
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company follows the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". These pronouncements apply to impaired
loans except for large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment including 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.
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $132,044,000, $48,769,000 and
$1,493,000, respectively at March 31, 1999, 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 March
31, 1999, the Company had nonaccrual loans totaling $287,000 as compared to
$223,000 at December 31, 1998.
12
<PAGE> 13
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Other loans may be classified as impaired when the current net
worth and financial capacity of the borrower or of the collateral pledged, if
any, is viewed as inadequate. 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 March 31, 1999, the Company had no loans that
have had the terms modified in a troubled debt restructuring.
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
March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------------- -------------------------
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 $ -- -- 241 156
Impaired loans with no allowance for
loan loss -- -- -- --
--------- ----------- ------- --------
$ -- -- 241 156
========= =========== ======= ========
</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, 1998 was $219,000. There was no interest income recognized on
these loans during 1998.
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
The following schedule details selected information as to
non-performing loans of the Company at March 31, 1999:
<TABLE>
<CAPTION>
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 144 51
Installment loans 201 236
Commercial 19 --
------- -------
$ 364 287
======= =======
Renegotiated loans $ -- --
======= =======
</TABLE>
Non-performing loans, which included non-accrual loans and loans
90 days past due, at March 31, 1999 totaled $651,000 as compared to $779,000 at
December 31, 1998.
At March 31, 1999, loans totaling $1,206,000 (including the above
past due and non-accrual loans) were included in the Company's internal
classified loan list. Of these loans $759,000 are real estate and $447,000 are
personal. The collateral values securing these loans total approximately
$1,420,000, ($1,083,000 related to real property and $337,000 related to
personal loans). Internally classified loans decreased $397,000 or 24.8% from
$1,603,000 at December 31, 1998. Internally classified real estate loans
decreased $427,000 and personal loans increased $30,000 from December 31, 1998
amounts. 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.
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 March 31, 1999,
the Company's liquid assets totaled $67,050,000.
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
The Company's primary source of liquidity is a stable core deposit
base. In addition loan payments 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 approximately $3 million mature or will be subject
to rate adjustments within the next twelve months.
A secondary source of liquidity is the Company's loan portfolio.
At March 31, 1999 loans totaling approximately $190 million either will become
due or will be subject to rate adjustments within twelve months from the
respective date. Continued emphasis will be placed on structuring adjustable
rate loans.
As for liabilities, certificates of deposit of $100,000 or greater
totaling approximately $65 million will become due or reprice during the next
twelve months. Historically, there has been no significant reduction in
immediately withdrawable accounts such as negotiable order of withdrawal
accounts, money market demand accounts, demand deposit and regular savings.
Management anticipates that there will be no significant withdrawals from these
accounts in the future.
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 March 31, 1999, total stockholders' equity was
$30,069,000 or 6.7% of total assets, which compares with $29,265,000 or 6.8% of
total assets at December 31, 1998. The dollar increase in stockholders' equity
during the three months ended March 31, 1999 results from the Company's net
income of $1,148,000, the net effect of a $260,000 unrealized loss on investment
securities net of applicable income taxes, and cash dividends declared of
$719,000 of which $635,000 was reinvested under the Company's dividend
reinvestment plan.
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
The Company's principal regulators have established minimum
risk-based capital requirements and leverage capital requirements for the
Company and its subsidiary banks. These guidelines classify capital into two
categories of Tier I and total risk-based capital. Total risk-based capital
consists of Tier I (or core) capital (essentially common equity less intangible
assets) and Tier II capital (essentially qualifying long-term debt, of which the
Company and subsidiary banks have none, and a part of the allowance for possible
loan losses). In determining risk-based capital requirements, assets are
assigned risk-weights of 0% to 100%, depending on regulatory assigned levels of
credit risk associated with such assets. The risk-based capital guidelines
require the subsidiary banks and the Company to have a total risk-based capital
ratio of 8.0% and a Tier I risk-based capital ratio of 4.0%. At March 31, 1999
the Company's total risk-based capital ratio was 12.0% and its Tier I risk-based
capital ratio was 10.9%. At December 31, 1998, the Company's total risk-based
capital ratio was 12.3% and its Tier I risk-based capital ratio was 11.2%. At
March 31, 1999, the Company had a leverage ratio of 7.6% compared to 7.8% at
December 31, 1998. The required Tier I leverage capital ratio (Tier I capital to
average assets for the most recent quarter) for the Company is 4.0%.
IMPACT OF INFLATION
Although interest rates are significantly affected by inflation,
the inflation rate is immaterial when reviewing the Company's results of
operations.
YEAR 2000 ISSUES
The term "Year 2000 issue" refers to the necessity of converting
computer information systems so that such systems recognize more than two digits
to identify a year in any given date field, and are thereby able to
differentiate between years in the twentieth and twenty-first centuries ending
with the same two digits (e.g., 1900 and 2000). To address the Year 2000 issue,
the Company has adopted a broad-based approach designed to encompass the
Company's total environment.
The Company has appointed a Year 2000 committee which was
established in mid-1997. The Y2K Committee has representation from all affected
areas for the purpose of managing the process of assessing and correcting
non-compliance throughout the organization. Areas being addressed by the Y2K
Committee include:
- Subsidiary banks' primary data processing system. Jack Henry, a major
data processor, provides the primary software and hardware for the data
processing system of the subsidiary banks. This software and hardware is
of the highest priority for day to day operations, accounting and success
of the subsidiary banks.
- Government systems, such as the Federal Reserve Bank for check clearing,
wire transfers, and the free flow and exchange of funds between
institutions are absolutely critical.
- The internal PC hardware and software systems within the subsidiary
banks, along with telecommunications systems.
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
- The primary securities portfolio accounting and safekeeping system for the
subsidiary banks.
- Credit administration - the committee is reviewing the risk associated
with Year 2000 status of the subsidiary banks' loan customers and
depositors.
The Company's Y2K Committee is using a 4-phase approach in its
Year 2000 project made up of awareness, assessment, renovation, and
validation-testing. The Company is currently in the final phase of its Y2K
project.
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
March 31, 1999 the Y2K committee has determined that substantially all of the
Company's systems will operate properly in the Year 2000.
The programming changes and software replacement for systems that
were not Year 2000 compliant were completed during the first quarter of 1999.
The Jack Henry Company has tested the Jack Henry Silver Lake Operating system
and the Company has documentation on file that the operating system is Y2K
compliant. However, the Company tested the software using its own database to
ensure the readiness of the Company to service its customer base into the Year
2000. The testing was completed the week of December 7, 1998 and the results
have been reviewed by the Company's Audit Department. A test script has been
prepared on the findings. No problems were noted during the examination of the
Company records.
The Company has requested and received written documentation from
vendors and suppliers with whom the Company has a material relationship
regarding their ability to operate properly in the Year 2000. These vendors and
suppliers have either confirmed their current Y2K readiness or provided target
Y2K readiness dates acceptable to the Company. The Company will consider
alternatives related to vendors and suppliers that do not meet their Year 2000
readiness target dates. There can be no assurance however, that all of the
Company's significant vendors and suppliers will have remedied their Year 2000
issues. The Company will continue to monitor its significant vendors and
suppliers to seek to minimize the Company's risk.
The Company is requiring Y2K readiness information from all of its
major borrowers. The Company believes commercial borrowers must realize the
impact that the Y2K could have on their respective businesses. Seminars,
questionnaires and individual contact with loan customers will be continued as
an ongoing prevention measure during the 1999 year. The Company realizes the
materially adverse impact that the lack of Y2K preparation of loan customers
would have on the Company during the Year 2000.
Customer awareness of the Company's Y2K readiness is critical. The
steps taken by the Company to prepare for the Year 2000 will be shared with
customers through Quarterly Newsletters, statement stuffers and the Y2K training
of employees. The Company believes customers must have a high confidence level
in the Company at the end of 1999 to avoid mass withdrawals of funds from the
Company. The Company is working toward a comprehensive customer awareness
program during the 1999 year.
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
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 March 31, 1999,
the cost that have been incurred on the Year 2000 issue is the cost of testing
the operating system of $30,000 plus the cost of testing the personal computers
of $2,500. The cost of renovations has been minimal because there have not been
any major renovations, upgrades or software conversions needed. The personnel
cost continues to be one of the more costly aspects of the Y2K project. The
current personnel cost to date is approximately $82,500. The personnel cost have
been expensed through the regular salary structure. The cost expected to be
incurred the remaining portion of the year will be used to promote the Customer
Awareness program.
The Company believes that the reasonably likely worse case
scenario that could occur as a result of the Year 2000 issue is loss of
electricity and telephone services. Deposit, withdrawal, and other transaction
processing for customers of the subsidiary banks depends directly on the
Company's information technology systems and also on use of electricity as well
as telephone services. While the Company believes its own systems to be Y2K
ready, loss of power could significantly delay the subsidiary banks' ability to
adequately process bank and customer transactions, thus adversely impacting the
Company's operations. The Company has developed a contingency plan to address
the possibility of power outages and telephone service disruption, as well as
all other operational impairments identified that could occur as a result of the
Y2K problem.
The Board of Directors has approved the Company's written
contingency plan and receives monthly updates on the Company's Y2K readiness and
the Y2K Committee's progress. The contingency plan addresses all aspects of the
Company's operation systems identifying the subsidiary banks' major processing
systems as critical, semi-critical, and non-critical. Alternative plans are in
place for many of the systems identified detailing information on contingency
processes, their capabilities, and the personnel that are responsible for
addressing and correcting system issues and supervising alternative plans. For
example, certain personnel are identified to test electricity and telephone
services at each bank office on Saturday, January 1, 2000. These persons have
addresses, phone, beeper and mobile numbers for other key bank and Company
management in order to communicate findings. The plan identifies contact
individuals phone numbers, and addresses of electrical service and telephone
service providers. The plan further provides for both on-site and off-site
locations, materials, personnel staff, and procedures to implement back-up
transaction processing in the event electricity is not restored by Monday,
January 3, 2000 going forward. The contingency plan will continually be updated
as final testing of each critical and semi-critical application has been
completed, and if and as new critical and semi-critical systems are identified.
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.
18
<PAGE> 19
WILSON BANK HOLDING COMPANY
FORM 10-Q, CONTINUED
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 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 three months ended March 31, 1999.
19
<PAGE> 20
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 March
31, 1999 (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
March 31, 1999.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
20
<PAGE> 21
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: May 7, 1999 /s/ Randall Clemons
-------------------- --------------------------------------
Randall Clemons
President and Chief Executive Officer
DATE: May 7, 1999 /s/ Becky Taylor
-------------------- -------------------------------------
Becky Taylor
Sr. Vice President & Cashier
21
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,665
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 30,146
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,630
<INVESTMENTS-CARRYING> 18,551
<INVESTMENTS-MARKET> 18,859
<LOANS> 307,341
<ALLOWANCE> 3,401
<TOTAL-ASSETS> 451,884
<DEPOSITS> 406,905
<SHORT-TERM> 8,336
<LIABILITIES-OTHER> 6,574
<LONG-TERM> 0
0
0
<COMMON> 2,910
<OTHER-SE> 27,159
<TOTAL-LIABILITIES-AND-EQUITY> 451,884
<INTEREST-LOAN> 6,937
<INTEREST-INVEST> 1,199
<INTEREST-OTHER> 402
<INTEREST-TOTAL> 8,538
<INTEREST-DEPOSIT> 4,146
<INTEREST-EXPENSE> 4,217
<INTEREST-INCOME-NET> 4,321
<LOAN-LOSSES> 332
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,199
<INCOME-PRETAX> 1,796
<INCOME-PRE-EXTRAORDINARY> 1,796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,148
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 1.03
<LOANS-NON> 287
<LOANS-PAST> 364
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 651
<ALLOWANCE-OPEN> 3,244
<CHARGE-OFFS> 194
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 3,401
<ALLOWANCE-DOMESTIC> 3,401
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
