WILSON BANK HOLDING CO

Provision for Credit Losses

On January 1, 2022, we adopted FASB ASU 2016-13, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loan portfolio. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management's evaluation is adequate to provide coverage for all expected credit losses. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1, "Summary of Significant Accounting Policies" in the notes to our consolidated financial statements for a detailed discussion regarding ACL methodology.

The provision for credit losses-loans in 2023 and 2022 was $6,300,000 and $8,656,000 calculated under the CECL methodology. The provision for loan losses in 2021 was $1,143,000 under the incurred loss methodology. The benefit for the allowance for credit losses on off-balance sheet exposures in 2023 and 2022 were $2,989,000 and $1,014,000 calculated under the CECL methodology. In 2021, there was a provision of $262,000 under the incurred loss methodology.

The decrease in the provision for credit losses-loans for the year ended December 31, 2023 was primarily attributable to a decrease in the volume of loans originated during the period, partially offset by the macroeconomic forecast in our CECL model reflecting the potential for a recession. The increase in the provision for credit losses-loans for the year ended December 31, 2022 was primarily attributable to an increase in the volume of loans originated during the period. The provision for loan losses recorded during 2021 was primarily the result of loan growth.

As discussed below under Financial Condition-Loans, loan growth tapered for the twelve months ended December 31, 2023 compared to the same period in 2022. Gross loan growth totaled $440,839,000, $671,824,000 and $165,338,000 for the years ended 2023, 2022 and 2021, respectively.

The increase in the benefit for credit losses on off-balance sheet credit exposures was the result of a decrease in our off-balance sheet commitments and an increase in our unconditionally cancellable commitments as a percentage of our off-balance sheet commitments, which are excluded from the calculation of the allowance of credit losses on off-balance sheet credit exposures under ASC 326.

The following detail provides a breakdown of the provision for credit loss-loans expense and net (charge-offs) recoveries at and for the twelve months ended December 31, 2023, 2022 and 2021:

Following our adoption of CECL, the provision for credit losses - loans charged to operating expense requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Other factors which, in management’s judgment, deserve current recognition in estimating expected credit losses - loans include growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for credit losses - loans to outstanding loans, adverse situations that may affect our borrowers' ability to repay, the estimated value of any underlying collateral and current economic conditions that may affect our borrowers' ability to pay.

Credit loss expense related to off-balance sheet exposures was previously reported as a component of other non-interest expense for the fiscal year ended December 31, 2021. Such amounts have been reclassified to credit loss expense to make prior periods comparable to the current presentation. See the section captioned "Allowance for Credit Losses" elsewhere in this discussion for further analysis of credit loss expense related to loans and off-balance sheet credit exposures.

There was no provision for credit losses on available-for-sale securities for the twelve months ended December 31, 2023 or 2022, respectively.