WILSON BANK HOLDING CO

Loans

The following schedule details the loans and percentage of loans in each category of the Company at December 31, 2023 and 2022 (dollars in thousands):

Loans are the largest component of the Company’s assets and are its primary source of income. The Company’s loan portfolio, net of allowance for credit losses, increased 14.03% at year-end 2023 when compared to year-end 2022. Overall, the Bank's loan demand and related new loan production has continued to be steady, though loan demand slightly slowed in 2023. The net loan growth of 14.03% from December 31, 2022 reflects the continued emphasis of management on growing the loan portfolio. The table above sets forth the loan categories and the percentage of such loans in the portfolio as of December 31, 2023 and 2022.

As represented in the above table, Wilson Bank experienced loan growth for the year ended December 31, 2023 in all loan categories. Contributing to the Company's loan growth in 2023 were the continued population growth and corporate relocations in the Bank's primary market areas, the opening of new branches, and increased marketing efforts. Residential 1-4 family real estate loans increased 12.2% in 2023 and comprised 26.6% of the total loan portfolio at December 31, 2023, compared to 27.0% at December 31, 2022. The increase in residential 1-4 family real estate loans is attributable to the Bank successfully growing its residential portfolio through enhanced marketing efforts directed at homebuilders in the Company's market areas, and the increase the Company is seeing in the investor sector of 1-4 family. Commercial and multi-family real estate loans increased 23.4% in 2023 and comprised 36.4% of the total loan portfolio at December 31, 2023, compared to 33.6% at December 31, 2022. Construction, land development and farmland loans increased 2.5% in 2023 and comprised 25.0% of the total loan portfolio at December 31, 2023, compared to 27.8% at December 31, 2022. One-to-four family equity lines of credit loans increased 34.2% in 2023 and comprised 5.6% of the total loan portfolio at December 31, 2023, compared to 4.8% at December 31, 2022. The increase in commercial and multi-family real estate, construction, land development and farmland loans, and 1-4 family equity lines of credit is primarily attributable to continued economic growth and expansion in the Bank's primary market areas. Wilson Bank continues to seek to diversify its real estate portfolio over the long term as it seeks to lessen concentrations in any one type of loan. As noted above, the Company expects loan growth to further slow in 2024 as a result of the elevated interest rate environment and the potential challenging economic conditions, as well as the Company's continued moderation of its lending as it seeks to preserve adequate liquidity.

Because construction loans remain a meaningful portion of our portfolio, the Bank has implemented an additional layer of monitoring as it seeks to avoid advancing funds that exceed the present value of the collateral securing the loan. The responsibility for monitoring percentage of completion and distribution of funds tied to these completion percentages is now monitored and administered by a Credit Administration Department independent of the lending function. The Bank continues to seek to diversify its real estate portfolio as it seeks to lessen concentrations in any one type of loan.

Banking regulators define highly leveraged transactions to include leveraged buy-outs, acquisition loans and recapitalization loans of an existing business. Under the regulatory definition, at December 31, 2023, the Company had no highly leveraged transactions, and there were no foreign loans outstanding during any of the reporting periods. As of December 31, 2023, the Company had not underwritten any loans in connection with capital leases.

The following table classifies the Company's fixed and variable rate loans at December 31, 2023 according to contractual maturities of: (1) one year or less, (2) after one year through five years, (3) after five years through fifteen years, and (4) after fifteen years (dollars in thousands):

The following table details selected information as to non-accrual loans of the Company at December 31, 2023, 2022 and 2021:

The accrual of interest income is discontinued when it is determined that collection of interest is less than probable or the collection of any amount of principal is doubtful. The decision to place a loan on non-accrual status is based on an evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors that affect the borrower’s ability to pay. At the time a loan is placed on non-accrual status, the accrued but unpaid interest is also evaluated as to collectability. If collectability is doubtful, the unpaid interest is charged off. Thereafter, interest on non-accrual loans is recognized only as received. There were no non-accrual loans at December 31, 2023, 2022, or 2021.

At December 31, 2023, there were four outstanding loan modifications made to borrowers experiencing financial difficulty totaling $3,446,000, all of which were on accrual status.

At December 31, 2023, and December 31, 2022, there was no other real estate owned outstanding.

The following table sets forth for the reported periods loans that were at least 30 days but less than 60 days past due, 60 days but less than 90 days past due and nonaccrual loans and those loans past due greater than 89 days:

Past due loans, which include nonaccrual loans and loans greater than 89 days past due, totaled $13,571,000 at December 31, 2023, an increase from $7,458,000 at December 31, 2022. The increase in 30-59 days past due loans during the year ended December 31, 2023 of $7,762,000 was primarily due to the additions of one large commercial real estate relationship, one large construction loan relationship, and several 1-4 family equity lines of credit. The increase in nonaccrual and greater than 89 days past due loans during the year ended December 31, 2023 of $540,000 was due primarily to the addition of one large residential 1-4 family real estate loan relationship that was greater than 89 days past due and the addition of one large 1-4 family equity line of credit loan relationship that was greater than 89 days past due. Management believes that it is probable that it will incur losses on nonaccrual and greater than 89 days past due loans but believes that these losses should not exceed the amount in the allowance for credit losses already allocated to these loans, unless there is a severe deterioration of local real estate values.

The net non-performing asset ratio (NPA) is used as a measure of the overall quality of the Company's assets. Our NPA ratio is calculated by dividing the total of our loans greater than 89 days past due and accruing interest, non-accrual loans, and other real estate owned by our total assets outstanding. Our NPA ratios for the periods ended December 31, 2023 and December 31, 2022 were 0.03% and 0.02%, respectively. The increase in our NPA ratio was impacted by increases in loans greater than 89 days past due and accruing interest as described above.

Other loans may be classified as collateral dependent when the current net worth and financial capacity of the borrower or of the collateral pledged, if any, is viewed as inadequate and 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. Such loans generally 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. Collateral dependent loans are measured at the fair value of the collateral less estimated selling costs. If the fair value of the collateral dependent loan less estimated selling costs is less than the recorded investment in the loan, the Company shall recognize impairment by creating a valuation allowance with a corresponding charge to the provision for credit losses or by adjusting an existing valuation allowance for the collateral dependent loan with a corresponding charge or credit to the provision for credit losses.

At December 31, 2023, the Company had a recorded investment in collateral dependent loans totaling $4,838,000, an increase from a recorded investment in collateral dependent loans totaling $638,000 at December 31, 2022. The increase during the year ended December 31, 2023 as compared to December 31, 2022 is primarily due to the addition of two 1-4 family real estate relationships and the addition of two commercial real estate relationships. As of December 31, 2023 and December 31, 2022, no valuation allowance was recorded on collateral dependent loans. The allowance for credit losses for loans related to collateral dependent loans was measured based upon the estimated fair value of related collateral.

The internally classified loans as a percentage of the allowance for credit losses were 13.2% and 16.0%, respectively, at December 31, 2023 and 2022. At December 31, 2023, loans totaling $5,900,000 were included in the Company’s internal classified loan list compared to $6,376,000 at December 31, 2022. Of these loans, $5,493,000 are real estate secured and $407,000 are secured by various other types of collateral. Classified loan balances have remained relatively consistent due to the stable markets in which we operate; however, if short-term rates continue to remain elevated for a significant period of time and economic conditions worsen, our classified loan balances could increase. Such loans are listed as classified when information obtained about possible credit problems of the borrowers has prompted management to question the ability of the borrower to comply with the repayment terms of the loan agreement.

The allowance for credit losses is discussed under “Critical Accounting Estimates”, “Provision for Credit Losses”, and "Summary of Significant Accounting Policies." The Company maintains its allowance for credit losses at an amount believed by management to be adequate to absorb expected credit losses inherent in the loan portfolio as of December 31, 2023.

Substantially all of the Company’s loans are from Wilson, DeKalb, Smith, Putnam, Trousdale, Davidson, Rutherford, Sumner, Williamson and adjacent counties. Although the majority of the Company's loans are in the real estate market, the Company seeks to exercise prudent risk management in lending through the diversification by loan category within the real estate segment, including residential 1-4 family real estate, commercial and multi-family real estate, construction, land development and farmland, and 1-4 family equity lines of credit.

The Company will target owner-occupied commercial real estate, residential real estate lending and consumer lending as areas of emphasis in 2024. At December 31, 2023, the Company’s total loans equaled 82.3% of its total deposits as compared to 81.0% at December 31, 2022. The Company may sell portions of the loans it generates to other financial institutions for cash in order to improve the liquidity of the Company’s loan portfolio or extend its lending capacity.