Quarterly Report (10-q)

0000885275WILSON BANK HOLDING COfalse--12-31Q3201900002015 2016 2017 20182016 2017 20182Amount is net of a valuation allowance of $1,704,000 at September 30, 2019 and $1,164,000 at December 31, 2018 as required by ASC 310, "Receivables."Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐

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 incorporation or organization)			(I.R.S. Employer Identification No.)

623 West Main Street	Lebanon	TN	37087
(Address of principal executive offices)			(Zip Code)

(615) 444-2265

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Exchange Act: None

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: 10,784,936 shares at November 8, 2019

Table of Contents

*Part I:*	*FINANCIAL INFORMATION*	3

Item 1.	Financial Statements.	3

The unaudited consolidated financial statements of the Company and its subsidiary are as follows:

	Consolidated Balance Sheets — September 30, 2019 and December 31, 2018.	3

	Consolidated Statements of Earnings — For the three months and nine months ended September 30, 2019 and 2018.	4

	Consolidated Statements of Comprehensive Earnings — For the three months and nine months ended September 30, 2019 and 2018.	5

	Consolidated Statements of Changes in Stockholders' Equity — For the three months and nine months ended September 30, 2019 and 2018.	6

	Consolidated Statements of Cash Flows — For the nine months ended September 30, 2019 and 2018.	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	42

	Disclosures required by Item 3 are incorporated by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4.	Controls and Procedures.	42

*Part II:*	*OTHER INFORMATION*	43

Item 1.	Legal Proceedings.	43

Item 1A.	Risk Factors.	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	43

Item 3.	Defaults Upon Senior Securities.	43

Item 4.	Mine Safety Disclosures.	43

Item 5.	Other Information.	43

Item 6.	Exhibits.	44

Signatures		45

EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
EX-101.INS
EX-101.SCH
EX-101.CAL
EX-101.DEF
EX-101.LAB
EX-101.PRE

EX-104

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

WILSON BANK HOLDING COMPANY

Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

	(Unaudited)			(Audited)
	September 30, 2019			December 31, 2018
	(Dollars in Thousands Except Share Amounts)
Assets
Loans	$	1,983,365		$	2,043,179
Less: Allowance for loan losses		(28,385	)		(27,174	)
Net loans		1,954,980			2,016,005
Available-for-sale, at market (amortized cost $436,988 and $295,683, respectively)		436,977			285,252
Loans held for sale		10,783			7,484
Interest bearing deposits		161,040			80,215
Restricted equity securities		4,680			3,012
Federal funds sold		41,000			9,000
Total earning assets		2,609,460			2,400,968
Cash and due from banks		12,719			9,976
Bank premises and equipment, net		58,604			58,363
Accrued interest receivable		6,704			6,724
Deferred income tax asset		7,195			8,901
Other real estate		845			1,357
Bank owned life insurance		31,560			30,952
Other assets		26,992			21,636
Goodwill		4,805			4,805
Total assets	$	2,758,884		$	2,543,682
Liabilities and Stockholders’ Equity
Deposits	$	2,380,666		$	2,235,655
Federal home loan bank advances		26,413			—
Accrued interest and other liabilities		23,914			12,360
Total liabilities		2,430,993			2,248,015
Stockholders’ equity:
Common stock, $2.00 par value; authorized 50,000,000 shares, issued and outstanding 10,783,663 and 10,623,810 shares, respectively		21,567			21,248
Additional paid-in capital		81,848			73,960
Retained earnings		224,484			208,164
Net unrealized losses on available-for-sale securities, net of income taxes of $3 and $2,726, respectively		(8	)		(7,705	)
Total stockholders’ equity		327,891			295,667
Total liabilities and stockholders’ equity	$	2,758,884		$	2,543,682

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Earnings

Three Months and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(Dollars in Thousands Except Per Share Amounts)						(Dollars in Thousands Except Per Share Amounts)
Interest income:
Interest and fees on loans	$	27,035		$	24,342		$	79,020		$	69,522
Interest and dividends on securities:
Taxable securities		2,318			1,362			6,428			4,630
Exempt from federal income taxes		217			245			535			846
Interest on loans held for sale		85			53			230			134
Interest on federal funds sold		113			10			171			40
Interest on balances held at depository institutions		517			215			1,652			633
Interest and dividends on restricted securities		44			71			144			135
Total interest income		30,329			26,298			88,180			75,940
Interest expense:
Interest on negotiable order of withdrawal accounts		619			483			1,807			1,257
Interest on money market and savings accounts		1,807			1,147			5,338			2,737
Interest on time deposits		3,371			2,024			9,566			5,398
Interest on federal funds purchased		—			2			—			4
Interest on federal home loan bank advances		190			—			410			—
Interest on securities sold under repurchase agreements		4			—			4			16
Total interest expense		5,991			3,656			17,125			9,412
Net interest income before provision for loan losses		24,338			22,642			71,055			66,528
Provision for loan losses		167			1,088			1,354			3,201
Net interest income after provision for loan losses		24,171			21,554			69,701			63,327
Non-interest income:
Service charges on deposit accounts		1,756			1,770			5,114			4,981
Other fees and commissions		3,765			3,390			10,660			10,198
Income on BOLI and annuity contracts		204			206			608			627
Gain on sale of loans		1,870			1,287			5,131			3,311
Loss on the sale of fixed assets		(1	)		(2	)		(2	)		(2	)
Loss on sale of other real estate		(35	)		(38	)		(48	)		(38	)
Gain (loss) on sale of securities		41			(79	)		(268	)		(650	)
Loss on sale of other assets		(3	)		—			(3	)		(3	)
Total non-interest income		7,597			6,534			21,192			18,424
Non-interest expense:
Salaries and employee benefits		10,440			10,005			31,101			30,561
Occupancy expenses, net		1,242			1,194			3,567			3,249
Advertising & public relations expense		540			576			1,638			1,817
Furniture and equipment expense		784			778			2,337			2,022
Data processing expense		1,161			751			3,136			2,204
ATM & interchange expense		867			807			2,529			2,228
Directors’ fees		142			117			404			396
Audit, legal & consulting expenses		372			228			1,096			662
Other operating expenses		2,664			2,914			8,196			7,943
Total non-interest expense		18,212			17,370			54,004			51,082
Earnings before income taxes		13,556			10,718			36,889			30,669
Income taxes		3,290			2,746			8,817			7,908
Net earnings	$	10,266		$	7,972		$	28,072		$	22,761
Weighted average number of common shares outstanding-basic		10,766,738			10,601,882			10,729,065			10,544,584
Weighted average number of common shares outstanding-diluted		10,786,752			10,611,766			10,746,130			10,551,536
Basic earnings per common share	$	0.95		$	0.75		$	2.62		$	2.16
Diluted earnings per common share	$	0.95		$	0.75		$	2.61		$	2.16
Dividends per share	$	0.55		$	0.55		$	1.10		$	0.90

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Comprehensive Earnings

Three Months and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019		2018
	(In Thousands)
Net earnings	$	10,266		$	7,972		$	28,072	$	22,761
Other comprehensive earnings (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities arising during period, net of taxes of $231, $614, $2,653, and $2,645, respectively		655			(1,737	)		7,499		(7,472	)
Reclassification adjustment for net losses (gains) on the sale of securities included in net earnings, net of taxes of $11, $21, $70, and $170, respectively		(30	)		58			198		480
Other comprehensive earnings (loss)		625			(1,679	)		7,697		(6,992	)
Comprehensive earnings	$	10,891		$	6,293		$	35,769	$	15,769

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Changes in Stockholders’ Equity

Three Months and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	*Dollars In Thousands*
	*Common Stock*		*Additional Paid-In Capital*		*Retained Earnings*			*Net Unrealized Gain (Loss) On Available-For-Sale Securities*			*Total*
Three months ended:
September 30, 2019
Balance at beginning of period	$	21,390		77,331		220,100			(633	)		318,188
Cash dividends declared, $.55 per share		—		—		(5,882	)		—			(5,882	)
Issuance of 87,712 shares of common stock pursuant to the dividend reinvestment plan		175		4,408		—			—			4,583
Issuance of 919 shares of common stock pursuant to exercise of stock options		2		26		—			—			28
Share based compensation expense		—		83		—			—			83
Net change in fair value of available-for-sale securities during the period, net of taxes of $220		—		—		—			625			625
Net earnings for the quarter		—		—		10,266			—			10,266
Balance at end of period	$	21,567		81,848		224,484			(8	)		327,891

September 30, 2018
Balance at beginning of period	$	21,049		69,346		196,149			(9,548	)		276,996
Cash dividends declared, $.55 per share		—		—		(5,789	)		—			(5,789	)
Issuance of 96,677 shares of common stock pursuant to dividend reinvestment plan		193		4,375		—			—			4,568
Issuance of 675 shares of common stock pursuant to exercise of stock options		2		16		—			—			18
Share based compensation expense		—		81		—			—			81
Net change in fair value of available-for-sale securities during the period, net of taxes of $594		—		—		—			(1,679	)		(1,679	)
Net earnings for the quarter		—		—		7,972			—			7,972
Balance at end of period	$	21,244		73,818		198,332			(11,227	)		282,167

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Changes in Stockholders’ Equity, Continued

Three Months and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	*Dollars In Thousands*
	Common Stock			Additional Paid-In Capital			Retained Earnings			Net Unrealized Gain (Loss) On Available-For-Sale Securities			Total
Nine months ended:
September 30, 2019
Balance at beginning of period	$	21,248			73,960			208,164			(7,705	)		295,667
Cash dividends declared, $1.10 per share		—			—			(11,725	)		—			(11,725	)
Issuance of 179,199 shares of common stock pursuant to dividend reinvestment plan		358			8,776			—			—			9,134
Issuance of 12,428 shares of common stock pursuant to exercise of stock options		25			412			—			—			437
Share based compensation expense		—			265			—			—			265
Net change in fair value of available-for-sale securities during the period, net of taxes of $2,723		—			—			—			7,697			7,697
Reclassification adjustment for the adoption of lease standard		—			—			(27	)		—			(27	)
Repurchase of 31,774 common shares		(64	)		(1,565	)		—			—			(1,629	)
Net earnings for the year		—			—			28,072			—			28,072
Balance at end of period	$	21,567			81,848			224,484			(8	)		327,891

September 30, 2018
Balance at beginning of period	$	20,901			66,047			185,017			(4,235	)		267,730
Cash dividends declared, $.90 per share		—			—			(9,446	)		—			(9,446	)
Issuance of 161,514 shares of common stock pursuant to dividend reinvestment plan		323			7,147			—			—			7,470
Issuance of 9,797 shares of common stock pursuant to exercise of stock options		20			314			—			—			334
Share based compensation expense		—			310			—			—			310
Net change in fair value of available-for-sale securities during the period, net of taxes of $2,475		—			—			—			(6,992	)		(6,992	)
Net earnings for the year		—			—			22,761			—			22,761
Balance at end of period	$	21,244			73,818			198,332			(11,227	)		282,167

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019 and 2018

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
	(In Thousands)
Cash flows from operating activities:
Interest received	$	89,856		$	77,403
Fees and commissions received		15,774			15,179
Proceeds from sale of loans held for sale		114,385			96,428
Origination of loans held for sale		(112,553	)		(94,631	)
Interest paid		(16,104	)		(8,741	)
Cash paid to suppliers and employees		(46,537	)		(45,786	)
Income taxes paid		(8,915	)		(8,011	)
Net cash provided by operating activities		35,906			31,841
Cash flows from investing activities:
Proceeds from maturities, calls, and principal payments of held-to-maturity securities		—			4,651
Proceeds from maturities, calls, and principal payments of available-for-sale securities		53,211			30,334
Proceeds from the sale of available-for-sale securities		37,325			35,093
Proceeds from the sale of held-to-maturity securities		—			4,764
Purchase of available-for-sale securities		(233,765	)		(9,118	)
Loans made to customers, net of repayments		59,366			(217,539	)
Purchase of restricted equity securities		(1,668	)		—
Purchase of bank owned life insurance and annuity contracts		—			(637	)
Purchase of premises and equipment		(3,229	)		(6,958	)
Proceeds from sale of other real estate		767			33
Proceeds from sale of other assets		14			4
Net cash used in investing activities		(87,979	)		(159,373	)
Cash flows from financing activities:
Net increase in non-interest bearing, savings and NOW deposit accounts		118,383			64,729
Net increase in time deposits		26,628			57,212
Net decrease in securities sold under repurchase agreements		—			(864	)
Net increase in Federal Home Loan Bank advances		26,413			—
Common stock dividends paid		(11,725	)		(9,446	)
Proceeds from sale of common stock pursuant to dividend reinvestment plan		9,134			7,470
Repurchase of common stock		(1,629	)		—
Proceeds from exercise of stock options		437			334
Net cash provided by financing activities		167,641			119,435
Net increase (decrease) in cash and cash equivalents		115,568			(8,097	)
Cash and cash equivalents at beginning of period		99,191			95,518
Cash and cash equivalents at end of period	$	214,759		$	87,421

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows, Continued

Nine Months Ended September 30, 2019 and 2018

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
	(In Thousands)
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings	$	28,072		$	22,761
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation, amortization, and accretion		4,642			4,463
Provision for loan losses		1,354			3,201
Loss on sale of other real estate		48			38
Loss on sale of securities		268			650
Stock-based compensation expense		265			310
Loss on the sale of other assets		3			3
Loss on the sale of bank premises and equipment		2			2
Increase in loans held for sale		(3,299	)		(1,514	)
Increase in deferred tax asset		(1,017	)		(306	)
Increase in other assets, bank owned life insurance and annuity contract earnings, net		(3,379	)		(4,949	)
Decrease (increase) in interest receivable		20			(368	)
Increase in other liabilities		6,987			6,676
Increase in taxes payable		919			203
Increase in interest payable		1,021			671
Total adjustments		7,834			9,080
Net cash provided by operating activities	$	35,906		$	31,841

Supplemental schedule of non-cash activities:
Unrealized gain (loss) in value of securities available-for-sale, net of taxes of $2,723 and $2,475 for the nine months ended September 30, 2019 and 2018, respectively	$	7,697		$	(6,992	)
Non-cash transfers from held-to-maturity securities to available-for-sale securities	$	-		$	22,800
Non-cash transfers from loans to other real estate	$	847		$	563
Non-cash transfers from other real estate to loans	$	544		$	95
Non-cash transfers from loans to other assets	$	2		$	7

See accompanying notes to consolidated financial statements (unaudited)

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WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Nature of Business — Wilson Bank Holding Company (the “Company”) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Wilson Bank & Trust (the “Bank”). The Bank is a commercial bank headquartered in Lebanon, Tennessee. The Bank provides a full range of banking services in its primary market areas of Wilson, Davidson, Rutherford, Trousdale, Sumner, Dekalb, Putnam, Smith, and Williamson Counties, Tennessee.

Basis of Presentation — The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated audited financial statements and related notes appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

These consolidated financial statements include the accounts of the Company and the Bank. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, the valuation of deferred tax assets, determination of any impairment of goodwill or other intangibles, other-than-temporary impairment of securities, the valuation of other real estate, and the fair value of financial instruments. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.

Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.

All loans that are placed on nonaccrual are further analyzed to determine if they should be classified as impaired loans. At December 31, 2018 and September 30, 2019, there were no loans classified as nonaccrual that were not also deemed to be impaired except for those loans not individually evaluated for impairment as described below. A loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan. This determination is made using one or more of a variety of techniques, which include a review of the borrower’s financial condition, debt-service coverage ratios, global cash flow analysis, guarantor support, other loan file information, meetings with borrowers, inspection or reappraisal of collateral and/or consultation with legal counsel as well as results of reviews of other similar industry credits (e.g. builder loans, development loans, church loans, etc). Loans with an identified weakness and principal balance of $500,000 or more are subject to individual identification for impairment. Individually identified impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a specific valuation allowance is established as a component of the allowance for loan losses or, in the case of collateral dependent loans, the excess may be charged off. Changes to the valuation allowance are recorded as a component of the provision for loan losses. Any subsequent adjustments to present value calculations for impaired loan valuations as a result of the passage of time, such as changes in the anticipated payback period for repayment, are recorded as a component of the provision for loan losses. For loans less than $500,000, the Company assigns a valuation allowance to these loans utilizing an allocation rate equal to the allocation rate calculated for non-impaired loans of a similar type.

Allowance for Loan Losses — The allowance for loan losses is maintained at a level that management believes to be adequate to absorb probable losses in the loan portfolio. Loan losses are charged against the allowance when they are known. Subsequent recoveries are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the portfolio, current economic conditions, volume, growth, composition of the loan portfolio, homogeneous pools of loans, risk ratings of specific loans, historical loan loss factors, loss experience of various loan segments, identified impaired loans and other factors related to the portfolio. This evaluation is performed quarterly and is inherently subjective, as it requires material estimates that are susceptible to significant change including the amounts and timing of future cash flows expected to be received on any impaired loans.

In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, independent loan reviewers, and reviews that may have been conducted by third-party reviewers. We incorporate relevant loan review results in the loan impairment determination. In addition, regulatory agencies, as an integral part of their examination process, will periodically review the Company’s allowance for loan losses, and may require the Company to record adjustments to the allowance based on their judgment about information available to them at the time of their examinations.

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Recently Issued Accounting Pronouncements

In February 2016, FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 was effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recorded a right-of-use asset in the amount of $2,600,000 and an offsetting lease liability in the amount of $2,627,000. Upon adoption, using a modified retrospective transition adoption approach, we recognized a cumulative effect reduction to retained earnings totaling $27,000. We have elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We have utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on held-to-maturity debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements. We are also evaluating the sufficiency of current systems and data needed to comply with this ASU. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.

In January 2017, FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for us on January 1, 2020, as we did not elect to adopt it early. ASU 2017-04 is not expected to have a significant impact on our financial statements.

In March 2017, FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 provides guidance on the amortization period for certain purchased callable debt securities held at a premium. This update shortens the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument related to certain cash flow issues. ASU 2017-08 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

In August 2017, FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements. In April 2019, ASU 2019-04 was issued to clarify certain aspects of accounting for hedging activities addressed by ASU 2017-12, among other things.

In August 2018, FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 will be effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements. We do not expect to adopt ASU 2018-15 before January 1, 2020.

In October 2018, FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Rate. ASU 2018-16 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

Other than those previously discussed, there were no other recently issued accounting pronouncements that we believe are reasonably likely to materially impact the Company.

Subsequent Events - Accounting Standards Codification (ASC) Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Wilson Bank Holding Company evaluated all events or transactions that occurred after September 30, 2019 through the date of the issued financial statements.

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Note 2. Loans and Allowance for Loan Losses

For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with that utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).

The following schedule details the loans of the Company at September 30, 2019 and December 31, 2018:

	(In Thousands)
	September 30, 2019			December 31, 2018
Mortgage loans on real estate:
Residential 1-4 family	$	468,772		$	460,692
Multifamily		106,072			134,613
Commercial		745,080			701,055
Construction and land development		410,494			518,245
Farmland		20,425			24,071
Second mortgages		11,204			11,197
Equity lines of credit		69,666			62,013
Total mortgage loans on real estate		1,831,713			1,911,886
Commercial loans		90,450			78,245
Agricultural loans		1,527			1,985
Consumer installment loans
Personal		52,943			45,072
Credit cards		3,849			3,687
Total consumer installment loans		56,792			48,759
Other loans		9,283			9,324
Total loans before net deferred loan fees		1,989,765			2,050,199
Net deferred loan fees		(6,400	)		(7,020	)
Total loans		1,983,365			2,043,179
Less: Allowance for loan losses		(28,385	)		(27,174	)
Net loans	$	1,954,980		$	2,016,005

Risk characteristics relevant to each portfolio segment are as follows:

Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayments substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

1-4 family residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value ("LTV") , minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.

1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV ratios, minimum credit scores, and maximum debt to income ratios. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.

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Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower, if any. The cash flows of borrowers, however, may not be as expected and any collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV ratios on secured consumer loans, minimum credit scores, and maximum debt to income ratios. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance is based upon evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, current and anticipated economic conditions, historical loss experience, industry and peer bank loan quality indicators and other pertinent factors, including regulatory recommendations.

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Transactions in the allowance for loan losses for the nine months ended September 30, 2019 and September 30, 2018 and year ended December 31, 2018 are summarized as follows:

	(In Thousands)
	Residential 1-4 Family			Multifamily			Commercial Real Estate		Construction			Farmland			Second Mortgages		Equity Lines of Credit		Commercial			Agricultural, Installment and Other			Total
September 30, 2019
Allowance for loan losses:
Beginning balance	$	6,297			1,481			9,753		7,084			221			118		731		622			867			27,174
Provision		285			(261	)		1,632		(1,564	)		(23	)		11		123		338			813			1,354
Charge-offs		(14	)		—			—		—			—			—		—		(15	)		(824	)		(853	)
Recoveries		20			—			—		408			—			—		—		15			267			710
Ending balance	$	6,588			1,220			11,385		5,928			198			129		854		960			1,123			28,385
Ending balance individually evaluated for impairment	$	789			—			915		—			—			—		—		—			—			1,704
Ending balance collectively evaluated for impairment	$	5,799			1,220			10,470		5,928			198			129		854		960			1,123			26,681
Loans:
Ending balance	$	468,772			106,072			745,080		410,494			20,425			11,204		69,666		90,450			67,602			1,989,765
Ending balance individually evaluated for impairment	$	2,648			—			3,195		—			—			—		—		—			—			5,843
Ending balance collectively evaluated for impairment	$	466,124			106,072			741,885		410,494			20,425			11,204		69,666		90,450			67,602			1,983,922

	Residential 1-4 Family			Multifamily		Commercial Real Estate		Construction			Farmland			Second Mortgages		Equity Lines of Credit		Commercial		Agricultural, Installment and Other			Total
December 31, 2018
Allowance for loan losses:
Beginning balance	$	5,156			1,011		9,267		6,094			487			94		723		401		676			23,909
Provision		1,568			470		436		921			(266	)		24		7		218		920			4,298
Charge-offs		(492	)		—		—		(19	)		—			—		—		—		(1,152	)		(1,663	)
Recoveries		65			—		50		88			—			—		1		3		423			630
Ending balance	$	6,297			1,481		9,753		7,084			221			118		731		622		867			27,174
Ending balance individually evaluated for impairment	$	852			—		312		—			—			—		—		—		—			1,164
Ending balance collectively evaluated for impairment	$	5,445			1,481		9,441		7,084			221			118		731		622		867			26,010
Loans:
Ending balance	$	460,692			134,613		701,055		518,245			24,071			11,197		62,013		78,245		60,068			2,050,199
Ending balance individually evaluated for impairment	$	2,829			—		1,831		686			—			—		—		—		—			5,346
Ending balance collectively evaluated for impairment	$	457,863			134,613		699,224		517,559			24,071			11,197		62,013		78,245		60,068			2,044,853

	Residential 1-4 Family			Multifamily		Commercial Real Estate		Construction			Farmland			Second Mortgages		Equity Lines of Credit		Commercial		Agricultural, Installment and Other			Total
September 30, 2018
Allowance for loan losses:
Beginning balance	$	5,156			1,011		9,267		6,094			487			94		723		401		676			23,909
Provision		1,147			296		322		1,001			(271	)		1		123		4		578			3,201
Charge-offs		(78	)		—		—		(18	)		—			—		—		—		(839	)		(935	)
Recoveries		40			—		—		68			—			—		1		3		341			453
Ending balance	$	6,265			1,307		9,589		7,145			216			95		847		408		756			26,628
Ending balance individually evaluated for impairment	$	884			—		310		—			—			—		—		—		—			1,194
Ending balance collectively evaluated for impairment	$	5,381			1,307		9,279		7,145			216			95		847		408		756			25,434
Loans:
Ending balance	$	443,392			124,515		709,067		478,835			24,834			9,424		75,713		51,226		57,874			1,974,880
Ending balance individually evaluated for impairment	$	3,342			—		2,477		844			310			—		—		—		—			6,973
Ending balance collectively evaluated for impairment	$	440,050			124,515		706,590		477,991			24,524			9,424		75,713		51,226		57,874			1,967,907

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Impaired Loans

At September 30, 2019, the Company had certain impaired loans of $3.3 million which were on non-accruing interest status. At December 31, 2018, the Company had certain impaired loans of $2.1 million which were on non-accruing interest status. In each case, at the date such loans were placed on nonaccrual status, the Company reversed all previously accrued interest income against current year earnings. The rest of the Company's impaired loans as of such dates remained on accruing status. The following table presents the Company’s impaired loans at September 30, 2019 and December 31, 2018.

	In Thousands
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2019
With no related allowance recorded:
Residential 1-4 family	$	1,090		1,464		—		1,116		97
Multifamily		—		—		—		—		—
Commercial real estate		1,186		1,186		—		752		13
Construction		—		—		—		173		—
Farmland		—		—		—		—		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	2,276	$	2,650		—	$	2,041	$	110
With related allowance recorded:
Residential 1-4 family	$	1,563		1,558		789		1,628		62
Multifamily		—		—		—		—		—
Commercial real estate		2,013		2,010		915		2,013		12
Construction		—		—		—		—		—
Farmland		—		—		—		—		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	3,576	$	3,568	$	1,704	$	3,641	$	74
Total
Residential 1-4 family	$	2,653		3,022		789		2,744		159
Multifamily		—		—		—		—		—
Commercial real estate		3,199		3,196		915		2,765		25
Construction		—		—		—		173		—
Farmland		—		—		—		—		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	5,852	$	6,218	$	1,704	$	5,682	$	184

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	In Thousands
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018
With no related allowance recorded:
Residential 1-4 family	$	1,196		1,795		—		1,862		42
Multifamily		—		—		—		—		—
Commercial real estate		317		316		—		320		16
Construction		690		686		—		822		42
Farmland		—		—		—		233		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	2,203		2,797		—		3,237		100
With related allowance recorded:
Residential 1-4 family	$	1,641		1,635		852		1,782		77
Multifamily		—		—		—		—		—
Commercial real estate		1,515		1,515		312		2,001		17
Construction		—		—		—		—		—
Farmland		—		—		—		—		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	3,156		3,150		1,164		3,783		94
Total:
Residential 1-4 family	$	2,837		3,430		852		3,644		119
Multifamily		—		—		—		—		—
Commercial real estate		1,832		1,831		312		2,321		33
Construction		690		686		—		822		42
Farmland		—		—		—		233		—
Second mortgages		—		—		—		—		—
Equity lines of credit		—		—		—		—		—
Commercial		—		—		—		—		—
Agricultural, installment and other		—		—		—		—		—
	$	5,359		5,947		1,164		7,020		194

Impaired loans also include loans that the Bank may elect to formally restructure due to the weakening credit status of a borrower such that the restructuring may facilitate a repayment plan that minimizes the potential losses that the Bank may otherwise incur. These loans are classified as impaired loans and, if on non-accruing status as of the date of restructuring, the loans are included in the nonperforming loan balances. Not included in nonperforming loans are loans that have been restructured that were performing as of the restructure date.

Troubled Debt Restructuring

The Bank’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring ("TDR"), where economic or other concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

The following table summarizes the carrying balances of TDRs at September 30, 2019 and December 31, 2018.

	September 30, 2019		December 31, 2018
	(In thousands)
Performing TDRs	$	1,222	$	1,676
Nonperforming TDRs		487		816
Total TDRS	$	1,709	$	2,492

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The following table outlines the amount of each troubled debt restructuring categorized by loan classification for the nine months ended September 30, 2019 and the nine months ended September 30, 2018 (in thousands, except for number of contracts):

	September 30, 2019						September 30, 2018
	Number of Contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, Net of Related Allowance		Number of Contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, Net of Related Allowance
Residential 1-4 family		—	$	—	$	—		3	$	49	$	49
Multifamily		—		—		—		—		—		—
Commercial real estate		1		109		16		—		—		—
Construction		—		—		—		—		—		—
Farmland		—		—		—		1		310		310
Second mortgages		—		—		—		—		—		—
Equity lines of credit		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Agricultural, installment and other		—		—		—		1		92		92
Total		1	$	109	$	16		5	$	451	$	451

As of September 30, 2019 and December 31, 2018 the Company had no loan relationships that had been previously classified as TDRs subsequently default within twelve months of restructuring. A default is defined as an occurrence which violates the terms of the receivable’s contract.

As of September 30, 2019 and December 31, 2018, the Company’s recorded investment in consumer mortgage loans in the process of foreclosure amounted to $1,033,000 and $200,000, respectively.

Potential problem loans, which include nonperforming loans, amounted to approximately $12.1 million at September 30, 2019 and $12.0 million at December 31, 2018. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, the Bank’s primary federal regulator, for loans classified as special mention, substandard, or doubtful.

The following summary presents the Bank's loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:

	•	Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

	•	Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

	•	Doubtful loans have all the characteristics of substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Bank considers all doubtful loans to be impaired and places such loans on nonaccrual status.

The following table is a summary of the Bank’s loan portfolio by risk rating at September 30, 2019 and December 31, 2018:

	(In Thousands)
	Residential 1-4 Family		Multifamily		Commercial Real Estate		Construction		Farmland		Second Mortgages		Equity Lines of Credit		Commercial		Agricultural, installment and other		Total
September 30, 2019
Credit Risk Profile by Internally Assigned Rating
Pass	$	460,933		106,072		742,404		409,802		20,259		10,899		69,501		90,428		67,371		1,977,669
Special Mention		3,397		—		—		640		105		175		—		—		127		4,444
Substandard		4,442		—		2,676		52		61		130		165		22		104		7,652
Doubtful		—		—		—		—		—		—		—		—		—		—
Total	$	468,772		106,072		745,080		410,494		20,425		11,204		69,666		90,450		67,602		1,989,765
December 31, 2018
Credit Risk Profile by Internally Assigned Rating
Pass	$	452,411		134,613		698,083		518,123		23,895		10,979		61,927		78,206		59,923		2,038,160
Special Mention		3,949		—		1,690		64		112		179		—		39		78		6,111
Substandard		4,332		—		1,282		58		64		39		86		—		67		5,928
Doubtful		—		—		—		—		—		—		—		—		—		—
Total	$	460,692		134,613		701,055		518,245		24,071		11,197		62,013		78,245		60,068		2,050,199

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Note 3. Debt and Equity Securities

Debt and equity securities have been classified in the consolidated balance sheet according to management’s intent. Debt and equity securities at September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30, 2019
	Securities Available-For-Sale
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. Government-sponsored enterprises (GSEs)	$	66,723	$	18	$	224	$	66,517
Mortgage-backed securities		276,383		1,254		1,084		276,553
Asset-backed securities		28,261		330		115		28,476
Obligations of states and political subdivisions		65,621		390		580		65,431
	$	436,988	$	1,992	$	2,003	$	436,977

	December 31, 2018
	Securities Available-For-Sale
	In Thousands
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. Government-sponsored enterprises (GSEs)	$	71,446	$	—	$	2,979	$	68,467
Mortgage-backed securities		152,375		9		4,874		147,510
Asset-backed securities		22,534		10		844		21,700
Obligations of states and political subdivisions		49,328		22		1,775		47,575
	$	295,683	$	41	$	10,472	$	285,252

There were no debt and equity securities classified as held-to-maturity at September 30, 2019 or December 31, 2018. During the year ended December 31, 2018, the Company sold securities classified as held-to-maturity with a book value of $4,843,000 for a loss of $79,000. Due to the sale, management determined the Company no longer had the intent to hold the remaining securities classified as held-to-maturity to their respective maturity dates and transferred the remaining book value of $22,800,000 to the available-for-sale classification.

Included in mortgage-backed securities are collateralized mortgage obligations totaling $48,932,000 (fair value of $49,404,000) and $11,564,000 (fair value of $11,295,000) at September 30, 2019 and December 31, 2018, respectively.

The amortized cost and estimated market value of debt securities at September 30, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-For-Sale
	In Thousands
	Amortized Cost		Estimated Market Value
Due in one year or less	$	—	$	—
Due after one year through five years		30,510		30,403
Due after five years through ten years		102,013		101,926
Due after ten years		304,465		304,648
	$	436,988	$	436,977

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The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2019 and December 31, 2018.

	In Thousands, Except Number of Securities
	Less than 12 Months						12 Months or More						Total
September 30, 2019	Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses
Available-for-Sale Securities:
GSEs	$	16,241	$	32		6	$	39,711	$	192		14	$	55,952	$	224
Mortgage-backed securities		71,622		249		30		70,931		835		58		142,553		1,084
Asset-backed securities		9,878		19		1		7,370		96		4		17,248		115
Obligations of states and political subdivisions		44,651		529		41		3,126		51		9		47,777		580
	$	142,392	$	829		78	$	121,138	$	1,174		85	$	263,530	$	2,003

	In Thousands, Except Number of Securities
	Less than 12 Months						12 Months or More						Total
December 31, 2018	Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses		Number of Securities Included		Fair Value		Unrealized Losses
Available-for-Sale Securities:
GSEs	$	—	$	—		—	$	68,467	$	2,979		28	$	68,467	$	2,979
Mortgage-backed securities		8,651		64		10		137,457		4,810		94		146,108		4,874
Asset-backed securities		—		—		—		20,597		844		14		20,597		844
Obligations of states and political subdivisions		4,064		26		6		39,841		1,749		94		43,905		1,775
	$	12,715	$	90		16	$	266,362	$	10,382		230	$	279,077	$	10,472

Unrealized losses on securities have not been recognized into income because the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2019, as the issuers’ securities are of high credit quality, management does not intend to sell the securities and it is not more likely than not that management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payment on the securities. The fair value is expected to recover as the securities approach maturity.

The carrying values of the Company’s investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that the Company will not recover the entire amortized cost bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future given the current economic environment.

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Note 4. Earnings Per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period, adjusted for stock splits. The computation of diluted earnings per share for the Company begins with the basic earnings per share and includes the effect of common shares contingently issuable from stock options.

The following is a summary of components comprising basic and diluted earnings per share (“EPS”) for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(Dollars in Thousands Except Share and Per Share Amounts)				(Dollars in Thousands Except Share and Per Share Amounts)
Basic EPS Computation:
Numerator – Earnings available to common stockholders	$	10,266	$	7,972	$	28,072	$	22,761
Denominator – Weighted average number of common shares outstanding		10,766,738		10,601,882		10,729,065		10,544,584
Basic earnings per common share		0.95	$	0.75		2.62	$	2.16
Diluted EPS Computation:
Numerator – Earnings available to common stockholders	$	10,266	$	7,972	$	28,072	$	22,761
Denominator – Weighted average number of common shares outstanding		10,766,738		10,601,882		10,729,065		10,544,584
Dilutive effect of stock options		20,014		9,884		17,065		6,952
Weighted average diluted common shares outstanding		10,786,752		10,611,766		10,746,130		10,551,536
Diluted earnings per common share		0.95	$	0.75		2.61	$	2.16

Note 5. Income Taxes

Accounting Standards Codification (“ASC”) 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods. As of September 30, 2019, the Company had no unrecognized tax benefits related to Federal or state income tax matters and does not anticipate any material increase or decrease in unrecognized tax benefits relative to any tax positions taken prior to September 30, 2019.

As of and for the nine months ended September 30, 2019, the Company has not accrued or recognized interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company and the Bank file consolidated U.S. Federal and State of Tennessee income tax returns. The Company is currently open to audit under the statute of limitations by the State of Tennessee for the years ended December 31, 2015 through 2018 and the IRS for the years ended December 31, 2016 through 2018.

Note 6. Commitments and Contingent Liabilities

In the normal course of business, the Bank has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Standby letters of credit are generally issued on behalf of an applicant (the Bank's customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated sooner due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from the Bank under certain prescribed circumstances. Subsequently, the Bank would then seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.

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The Bank follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash and cash equivalents, real estate and improvements, marketable securities, accounts receivable, inventory, equipment, and personal property.

The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, the Company’s maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

A summary of the Company’s total contractual amount for all off-balance sheet commitments at September 30, 2019 is as follows:

Commitments to extend credit		$	573,908,000
Standby letters of credit		$	77,372,000

The Bank originates residential mortgage loans, sells them to third-party purchasers, and does not retain the servicing rights. These loans are originated internally and are primarily to borrowers in the Company’s geographic market footprint. Traditionally these sales have been on a best efforts basis to investors that follow guidelines of conventional government sponsored entities ("GSE") and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs ("HUD/VA"). Generally, loans held for sale are underwritten by the Company, including HUD/VA loans. In the fourth quarter of 2018, the Bank began to participate in a mandatory delivery program that requires the Bank to deliver a particular volume of mortgage loans by agreed upon dates. A majority of the Bank’s secondary mortgage volume is delivered to the secondary market via mandatory delivery. The Bank does not realize any exposure delivery penalties as the mortgage department only bids loans post-closing to ensure that 100% of the loans are deliverable to the investors.

Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require the Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties or the loan had an early payoff or payment default, the Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan.

To date, repurchase activity pursuant to the terms of these representations and warranties has been insignificant and has resulted in insignificant losses to the Company.

Based on information currently available, management believes that the Bank does not have significant exposure to contingent losses that may arise relating to the representations and warranties that it has made in connection with its mortgage loan sales.

Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolution of these claims outstanding at September 30, 2019 will not have a material impact on the Company’s consolidated financial statements.

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Note 7. Fair Value Measurements

FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price (i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date). The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

Valuation Hierarchy

FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

	•	Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

	•	Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

	•	Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Assets

Securities available-for-sale — Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.

Impaired loans — A loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the valuation hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower’s underlying financial condition.

Other real estate owned — Other real estate owned (“OREO”) represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Substantially all of these amounts relate to construction and land development, other loans secured by land, and commercial real estate loans for which the Company believes it has adequate collateral. Upon foreclosure, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for loan losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.

Bank Owned Life Insurance — The cash surrender value of bank owned life insurance policies is carried at fair value. The Company uses financial information received from insurance carriers indicating the performance of the insurance policies and cash surrender values in determining the carrying value of life insurance. The Company reflects these assets within Level 3 of the valuation hierarchy due to the unobservable inputs included in the valuation of these items. The Company does not consider the fair values of these policies to be materially sensitive to changes in these unobservable inputs.

Mortgage loans held-for-sale — Mortgage loans held-for-sale are carried at fair value, and are classified within Level 2 of the valuation hierarchy. The fair value of mortgage loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.

Derivatives —The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

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The following tables present the financial instruments carried at fair value as of September 30, 2019 and December 31, 2018, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above):

	Assets and Liabilities Measured at Fair Value on a Recurring Basis
	(In Thousands)
	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
September 30, 2019
Investment securities available-for-sale:
U.S. Government sponsored enterprises	$	66,517		—		66,517		—
Mortgage-backed securities		276,553		—		276,553		—
Asset-backed securities		28,476		—		28,476		—
State and municipal securities		65,431		—		65,431		—
Total investment securities available-for-sale		436,977		—		436,977		—
Mortgage loans held for sale		10,783		—		10,783		—
Mortgage banking derivatives		513		—		513		—
Bank owned life insurance		31,560		—		—		31,560
Total assets	$	479,833		—		448,273		31,560

Mortgage banking derivatives	$	10		—		10		—
Total liabilities	$	10		—		10		—

December 31, 2018
Investment securities available-for-sale:
U.S. Government sponsored enterprises	$	68,467		—		68,467		—
Mortgage-backed securities		147,510		—		147,510		—
Asset-backed securities		21,700		—		21,700		—
State and municipal securities		47,575		—		47,575		—
Total investment securities available-for-sale		285,252		—		285,252		—
Mortgage loans held for sale		7,484		—		7,484		—
Mortgage banking derivatives		335		—		335		—
Bank owned life insurance		30,952		—		—		30,952
Total assets	$	324,023		—		293,071		30,952

Mortgage banking derivatives	$	88		—		88		—
Total liabilities	$	88		—		88		—

	Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
	(In Thousands)
	Total Carrying Value in the Consolidated Balance Sheet		Quoted Market Prices in an Active Market (Level 1)		Models with Significant Observable Market Parameters (Level 2)		Models with Significant Unobservable Market Parameters (Level 3)
September 30, 2019
Other real estate owned	$	845		—		—		845
Impaired loans, net (¹)		4,148		—		—		4,148
Total	$	4,993		—		—		4,993
December 31, 2018
Other real estate owned	$	1,357		—		—		1,357
Impaired loans, net (¹)		4,195		—		—		4,195
Total	$	5,552		—		—		5,552

⁽¹⁾	Amount is net of a valuation allowance of $1,704,000 at September 30, 2019* and $1,164,000 at December 31, 2018 as required by ASC 310, “Receivables.”*

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The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 2019 and December 31, 2018:

	Valuation Techniques (2)	Significant Unobservable Inputs	Range (Weighted Average)
Impaired loans	Appraisal	Estimated costs to sell	10%
Other real estate owned	Appraisal	Estimated costs to sell	10%

⁽²⁾	The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

In the case of its investment securities portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the nine months ended September 30, 2019, there were no transfers between Levels 1, 2 or 3.

The table below includes a rollforward of the balance sheet amounts for the nine months ended September 30, 2019 and 2018 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):

	*For the Nine Months Ended September 30,*
	*2019*				*2018*
	Other Assets		Other Liabilities		Other Assets		Other Liabilities
Fair value, January 1	$	30,952		—	$	29,475		—
Total realized gains included in income		608		—		627		—
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30		—		—		—		—
Purchases, issuances and settlements, net		—		—		637		—
Transfers out of Level 3		—		—		—		—
Fair value, September 30	$	31,560		—	$	30,739		—
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at September 30	$	608		—	$	627		—

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices or observable components are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2019 and December 31, 2018. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Held-to-maturity securities — Estimated fair values for investment securities are based on quoted market prices where available. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics.

Loans — The fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.

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Deposits and Federal Home Loan Bank borrowings — Fair values for deposits and Federal Home Loan Bank borrowings are estimated using discounted cash flow models, using current market interest rates offered on deposits with similar remaining maturities.

Restricted equity securities — It is not practical to determine the fair value of Federal Home Loan Bank or Federal Reserve Bank stock due to restrictions placed on its transferability.

Accrued interest receivable/payable — The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification based on the asset/liability with which they are associated.

Off-Balance Sheet Instruments — The fair values of the Company’s off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.

The following table presents the carrying amounts, estimated fair value and placement in the fair valuation hierarchy of the Company’s financial instruments at September 30, 2019 and December 31, 2018. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization.

	Carrying/ Notional		Estimated		Quote Market Prices in an Active Market		Models with Significant Observable Market Parameters		Models with Significant Unobservable Market Parameters
(in Thousands)	Amount		Fair Value (¹)		(Level 1)		(Level 2)		(Level 3)
September 30, 2019
Financial assets:
Cash and cash equivalents	$	214,759		214,759		214,759		—		—
Loans, net		1,954,980		1,956,245		—		—		1,956,245
Restricted equity securities		4,680		NA		NA		NA		NA
Accrued interest receivable		6,704		6,704		8		1,568		5,128
Financial liabilities:
Deposits		2,380,666		2,213,343		—		—		2,213,343
Federal Home Loan Bank borrowings		26,413		26,758		—		—		26,758
Accrued interest payable		4,153		4,153		—		—		4,153

December 31, 2018
Financial assets:
Cash and cash equivalents	$	99,191		99,191		99,191		—		—
Loans, net		2,016,005		2,017,272		—		—		2,017,272
Restricted equity securities		3,012		NA		NA		NA		NA
Accrued interest receivable		6,724		6,724		3		1,362		5,359
Financial liabilities:
Deposits		2,235,655		1,974,554		—		—		1,974,554
Accrued interest payable		3,132		3,132		—		—		3,132

⁽¹⁾	Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction.

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Note 8. Equity Incentive Plans

In April 1999, the stockholders of the Company approved the Wilson Bank Holding Company 1999 Stock Option Plan (the “1999 Stock Option Plan”). The Stock Option Plan provided for the granting of stock options, and authorized the issuance of common stock upon the exercise of such options, for up to 200,000 shares of common stock, to officers and other key employees of the Company and its subsidiary. Furthermore, the Company and its subsidiary could reserve additional shares for issuance under the 1999 Stock Option Plan as needed in order that the aggregate number of shares that may be issued during the term of the 1999 Stock Option Plan was equal to five percent (5%) of the shares of common stock then issued and outstanding. The 1999 Stock Option Plan terminated on April 13, 2009, and no additional awards may be issued under the 1999 Stock Option Plan. The awards granted under the 1999 Stock Option Plan prior to the plan's termination remained outstanding until exercised or otherwise terminated. As of September 30, 2019, the Company had no outstanding options under the 1999 Stock Option Plan.

In April 2009, the Company’s shareholders approved the Wilson Bank Holding Company 2009 Stock Option Plan (the “2009 Stock Option Plan”). The 2009 Stock Option Plan was effective as of April 14, 2009 and replaced the 1999 Stock Option Plan. Under the 2009 Stock Option Plan, awards could be in the form of options to acquire common stock of the Company. Subject to adjustment as provided by the terms of the 2009 Stock Option Plan, the maximum number of shares of common stock with respect to which awards could be granted under the 2009 Stock Option Plan was 100,000 shares. The 2009 Stock Option Plan terminated on April 13, 2019, and no additional awards may be issued under the 2009 Stock Option Plan. The awards granted under the 2009 Stock Option Plan prior to the plan's expiration will remain outstanding until exercised or otherwise terminated.

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As of September 30, 2019, the Company had outstanding 23,441 options under the 2009 Stock Option Plan with a weighted average exercise price of $32.10.

During the second quarter of 2016, the Company’s shareholders approved the Wilson Bank Holding Company 2016 Equity Incentive Plan, which authorizes awards of up to 750,000 shares of common stock. The 2016 Equity Incentive Plan was approved by the Board of Directors and effective as of January 25, 2016 and approved by the Company’s shareholders on April 12, 2016. On September 26, 2016, the Board of Directors approved an amendment and restatement of the 2016 Equity Incentive Plan (as amended and restated the “2016 Equity Incentive Plan”) to make clear that directors who are not also employees of the Company may be awarded stock appreciation rights. The primary purpose of the 2016 Equity Incentive Plan is to promote the interest of the Company and its shareholders by, among other things, (i) attracting and retaining key officers, employees and directors of, and consultants to, the Company and its subsidiaries and affiliates, (ii) motivating those individuals by means of performance-related incentives to achieve long-range performance goals, (iii) enabling such individuals to participate in the long-term growth and financial success of the Company, (iv) encouraging ownership of stock in the Company by such individuals, and (v) linking their compensation to the long-term interests of the Company and its shareholders. Except for certain limitations, awards can be in the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted shares and restricted share units, performance awards and other stock-based awards. As of September 30, 2019, the Company had 467,271 shares remaining available for issuance under the 2016 Equity Incentive Plan. As of September 30, 2019, the Company had outstanding 126,803 options with a weighted average exercise price of $41.69 and 132,131 cash-settled stock appreciation rights with a weighted average exercise price of $41.97 under the 2016 Equity Incentive Plan.

As of September 30, 2019, the Company had outstanding 150,244 stock options with a weighted average exercise price of $40.19 and 132,131 cash-settled stock appreciation rights each with a weighted average exercise price of $41.97.

The following table summarizes information about stock options and cash-settled SARs for the nine months ended September 30, 2019 and 2018:

	*September 30, 2019*				*September 30, 2018*
	*Shares*		*Weighted Average Exercise Price*		*Shares*		*Weighted Average Exercise Price*
Options and SARs outstanding at beginning of period		277,820	$	40.11		285,780	$	39.31
Granted		17,833		51.16		21,666		46.59
Exercised		13,278		35.51		20,672		37.37
Forfeited or expired		—		—		6,666		37.83
Outstanding at end of period		282,375	$	41.02		280,108	$	40.06
Options and SARs exercisable at September 30		126,201	$	39.88		88,673	$	38.90

As of September 30, 2019, there was $1,711,000 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the Company's equity incentive plans. The cost is expected to be recognized over a weighted-average period of 2.73 years.

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Note 9. Mortgage Banking Derivatives

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors under the Bank's mandatory delivery program are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. At September 30, 2019 and December 31, 2018, the Company had approximately $15,857,000 and $9,655,000, respectively, of interest rate lock commitments and approximately $16,750,000 and $11,750,000, respectively, of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by derivative assets of $513,000 and $335,000 and derivative liabilities of $10,000 and $88,000, respectively, at September 30, 2019 and December 31, 2018. Changes in the fair values of these mortgage-banking derivatives are included in net gains on sale of loans.

The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below (in thousands):

	*In Thousands*
	*September 30, 2019*		*September 30, 2018*
Forward contracts related to mortgage loans held for sale and interest rate contracts	$	78		—
Interest rate contracts for customers		178		—

The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of September 30, 2019 and December 31, 2018 (in thousands):

	*In Thousands*
	*September 30, 2019*					*December 31, 2018*
	*Notional Amount*		*Fair Value*			*Notional Amount*		*Fair Value*
Included in other assets (liabilities):
Interest rate contracts for customers	$	15,857		513			9,655		335
Forward contracts related to mortgage loans held-for-sale		16,750		(10	)		11,750		(88	)

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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 bank subsidiary. This discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for a more complete discussion of factors that impact the Company's liquidity, capital and results of operations.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") 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.

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. The words “expect,” “intend,” “should,” “may,” “could,” “believe,” “suspect,” “anticipate,” “seek,” “plan,” “estimate” and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical fact may also be considered forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and also include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for these losses, (ii) deterioration in the real estate market conditions in the Company’s market areas, (iii) the impact of increased competition with other financial institutions, including pricing pressures on loans and deposits, and the resulting impact on the Company's results, including as a result of compression to net yield on earning assets, (iv) the deterioration of the economy in the Company’s market areas, (v) fluctuations or differences in interest rates on earning assets and interest bearing liabilities from those that the Company is modeling or anticipating, including as a result of the Bank's inability to lower deposit rates with the speed and at the levels desired in connection with the declining short-term rate environment currently contemplated, or that affect the yield curve, (vi) the ability to grow and retain low-cost core deposits, (vii) significant downturns in the business of one or more large customers, (viii) the inability of the Company to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels, or regulatory requests or directives, (ix) changes in state or Federal regulations, policies, or legislation applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd Frank Wall Street Reform and Consumer Protection Act, (x) changes in capital levels and loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments, (xi) inadequate allowance for loan losses, (xii) the effectiveness of the Company’s activities in improving, resolving or liquidating lower quality assets, (xiii) results of regulatory examinations, (xiv) the vulnerability of the Company's network and online banking portals, and the systems of parties with whom the Company contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches, (xv) the possibility of additional increases to compliance costs or other operational expenses as a result of increased regulatory oversight, (xvi) loss of key personnel, and (xvii) adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, examinations or other legal and/or regulatory actions. 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.

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Critical Accounting Estimates

The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses have been critical to the determination of our financial position and results of operations. There have been no significant changes to our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Allowance for Loan Losses (“allowance”). Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, current and anticipated economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, is deemed to be uncollectible.

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan is less than the recorded investment in the loan, the Company recognizes 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. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, we also consider the results of our ongoing loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. We incorporate loan review results in the determination of whether or not it is probable that we will be able to collect all amounts due according to the contractual terms of a loan.

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As part of management’s quarterly assessment of the allowance, management divides the loan portfolio into twelve segments based on bank call reporting requirements. The allowance allocation begins with a process of estimating the probable losses in each of the twelve loan segments. The estimates for these loans are based on our historical loss data for that category over the last twenty quarters. Each segment is then analyzed such that an allocation of the allowance is estimated for each loan segment.

The estimated loan loss allocation for all twelve loan portfolio segments is then adjusted for several “environmental” factors. The allocation for environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies, increase in interest rates, or procedures and other influencing factors. These environmental factors are considered for each of the twelve loan segments and the allowance allocation, as determined by the processes noted above for each component, is increased or decreased through provision expense based on the incremental assessment of these various environmental factors.

We then test the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluates the result of the procedures performed, including the result of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety. The board of directors reviews and approves the assessment prior to the filing of quarterly and annual financial information.

Impairment of Goodwill and Intangible Assets. Long-lived assets, including purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Goodwill and intangible assets that have indefinite useful lives are evaluated for impairment annually and are evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. That annual assessment date for us is December 31. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. The Company first has the option to perform a qualitative assessment of goodwill to determine if impairment has occurred. Based upon the qualitative assessment, if the fair value of goodwill exceeds the carrying value, the evaluation of goodwill is complete. If the qualitative assessment indicates that impairment is present, the goodwill impairment analysis continues with a two-step test. The first step, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.

If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated potential impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill.

In January 2017, FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test. ASU 2017-04 will be effective for us on January 1, 2020, with early adoption permitted for interim or annual impairment tests beginning in 2017. See discussion of this ASU within Note 1. Summary of Significant Accounting Policies elsewhere in this Form 10-Q.

Other-than-temporary Impairment. A decline in the fair value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss and is deemed to be other-than temporary impairment. If a credit loss is identified, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not more-likely-than-not that the Company will be required to sell the security before maturity, then the security is not other-than-temporarily impaired and the shortfall is recorded as a component of equity.

Results of Operations

Net earnings increased $5,311,000, or 23.33%, to $28,072,000 for the nine months ended September 30, 2019 from $22,761,000 in the first nine months of 2018. Net earnings were $10,266,000 for the quarter ended September 30, 2019, an increase of $2,294,000, or 28.78%, from $7,972,000 for the three months ended September 2018 and an increase of $750,000, or 7.88%, over the quarter ended June 30, 2019. The increase in net earnings during the nine months ended September 30, 2019 as compared to the prior year comparable period was primarily due to an increase in net interest income, reflecting an increase in average interest earning asset balances and yields between the relevant periods, as well as an increase in non-interest income, partially offset by an increase in interest expense and non-interest expense. The increase in interest expense resulted from an increase in deposit rates along with an increase in balances, and the increase in non-interest expense resulted from the Company's continued growth. Income tax expense was also higher in the first nine months of 2019 when compared to the first nine months of 2018.

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Net Interest Income

The average balances, interest, and average rates of our assets and liabilities for the nine month and three month periods ended September 30, 2019 and September 30, 2018 are presented in the following table (dollars in thousands):

	Nine Months Ended								Nine Months Ended
	September 30, 2019								September 30, 2018
	Average Balance			Interest Rate			Income/ Expense		Average Balance			Interest Rate			Income/ Expense
Loans, net of unearned interest (2) (3)	$	2,026,406			5.28	%	$	79,020	$	1,866,443			5.01	%	$	69,522
Investment securities—taxable		335,524			2.56			6,428		291,676			2.12			4,630
Investment securities—tax exempt		35,429			2.02			535		42,793			2.64			846
Taxable equivalent adjustment (1)		—			0.53			142		—			0.71			225
Total tax-exempt investment securities		35,429			2.55			677		42,793			3.35			1,071
Total investment securities		370,953			2.56			7,105		334,469			2.28			5,701
Loans held for sale		8,512			3.61			230		5,337			3.36			134
Federal funds sold		10,872			2.10			171		3,702			1.44			40
Accounts with depository institutions		115,422			1.91			1,652		48,765			1.74			633
Restricted equity securities		4,092			4.70			144		3,012			5.99			135
Total earning assets		2,536,257			4.71			88,322		2,261,728			4.53			76,165
Cash and due from banks		10,054								20,453
Allowance for loan losses		(27,947	)							(24,933	)
Bank premises and equipment		58,283								57,455
Other assets		72,950								69,163
Total assets	$	2,649,597							$	2,383,866

	Nine Months Ended							Nine Months Ended
	September 30, 2019							September 30, 2018
	Average Balance		Interest Rate			Income/ Expense		Average Balance		Interest Rate			Income/ Expense
Deposits:
Negotiable order of withdrawal accounts	$	518,857		0.47	%	$	1,807	$	503,807		0.33	%	$	1,257
Money market demand accounts		740,923		0.85			4,699		660,265		0.45			2,211
Time Deposits		640,472		2.00			9,566		540,263		1.34			5,398
Other savings		136,145		0.63			639		140,265		0.50			526
Total interest-bearing deposits		2,036,397		1.10			16,711		1,844,600		0.68			9,392
Federal Home Loan Bank advances		20,456		2.68			410		—		—			—
Securities sold under repurchase agreements		—		—			—		1,457		1.47			16
Federal funds purchased		798		0.67			4		798		0.67			4
Total interest-bearing liabilities		2,057,651		1.11			17,125		1,846,855		0.68			9,412
Non-interest bearing deposits		264,520							249,047
Other liabilities		13,994							13,077
Stockholders’ equity		313,432							274,887
Total liabilities and stockholders’ equity	$	2,649,597						$	2,383,866
Net interest income, on a tax equivalent basis						$	71,197						$	66,753
Net yield on earning assets (4)				3.80	%						3.97	%
Net interest spread (5)				3.60	%						3.85	%

Notes:

(1) The tax equivalent adjustment has been computed using a 21% Federal tax rate.

(2) Yields on loans and total earning assets include the impact of State income tax credits related to incentive loans at below market rates and tax exempt loans to

municipalities.

(3) Loan fees of $5.8 million and $5.6 million are included in interest income in 2019 and 2018.

(4) Annualized net interest income on a tax equivalent basis divided by average interest-earning assets.

(5) Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities.

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	Three Months Ended								Three Months Ended
	September 30, 2019								September 30, 2018
	Average Balance			Interest Rate			Income/ Expense		Average Balance			Interest Rate			Income/ Expense
Loans, net of unearned interest (2) (3)	$	2,004,578			5.41	%	$	27,035	$	1,939,529			5.01	%	$	24,342
Investment securities—taxable		386,017			2.38			2,318		260,873			2.07			1,362
Investment securities—tax exempt		43,797			1.97			217		38,569			2.52			245
Taxable equivalent adjustment (1)		—			0.52			57		—			0.67			65
Total tax-exempt investment securities		43,797			2.49			274		38,569			3.19			310
Total investment securities		429,814			2.39			2,592		299,442			2.22			1,672
Loans held for sale		9,525			3.54			85		6,458			3.26			53
Federal funds sold		21,865			2.05			113		2,542			1.56			10
Accounts with depository institutions		110,373			1.86			517		54,375			1.57			215
Restricted equity securities		4,680			3.73			44		3,012			9.35			71
Total earning assets		2,580,835			4.72			30,386		2,305,358			4.56			26,363
Cash and due from banks		10,911								12,149
Allowance for loan losses		(28,260	)							(25,786	)
Bank premises and equipment		58,573								58,681
Other assets		71,760								70,977
Total assets	$	2,693,819							$	2,421,379

	Three Months Ended							Three Months Ended
	September 30, 2019							September 30, 2018
	Average Balance		Interest Rate			Income/ Expense		Average Balance		Interest Rate			Income/ Expense
Deposits:
Negotiable order of withdrawal accounts	$	527,077		0.47	%	$	619	$	507,719		0.38	%	$	483
Money market demand accounts		742,352		0.85			1,592		670,319		0.56			949
Time Deposits		640,845		2.09			3,371		552,584		1.45			2,024
Other savings		136,378		0.63			215		140,708		0.56			198
Total interest-bearing deposits		2,046,652		1.12			5,797		1,871,330		0.77			3,654
Federal Home Loan Bank advances		28,237		2.67			190		—		—			—
Federal funds purchased		2,369		0.67			4		1,184		0.67			2
Total interest-bearing liabilities		2,077,258		1.14			5,991		1,872,514		0.77			3,656
Non-interest bearing deposits		273,944							252,916
Other liabilities		17,568							14,464
Stockholders’ equity		325,049							281,485
Total liabilities and stockholders’ equity	$	2,693,819						$	2,421,379
Net interest income, on a tax equivalent basis						$	24,395						$	22,707
Net yield on earning assets (4)				3.80	%						3.93	%
Net interest spread (5)				3.58	%						3.79	%

Notes:

(1) The tax equivalent adjustment has been computed using a 21% Federal tax rate.

(2) Yields on loans and total earning assets include the impact of State income tax credits related to incentive loans at below market rates and tax exempt loans to

municipalities.

(3) Loan fees of $2.1 million and $1.7 million are included in interest income in 2019 and 2018.

(4) Annualized net interest income on a tax equivalent basis divided by average interest-earning assets.

(5) Average interest rate on interest-earning assets less average interest rate on interest-bearing liabilities.

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Net yield on earning assets for the nine months ended September 30, 2019 and 2018 was 3.80% and 3.97%, respectively, and 3.80% and 3.93% for the quarter ended September 30, 2019 and 2018, respectively. The decrease in net yield on earning assets was due to an increase in the rate paid on our interest-bearing liabilities that outpaced the increase in yield on earning assets, specifically loans and investment securities. The yield on loans increased during the three and nine months ended September 30, 2019 when compared to the comparable period in 2018 primarily as a result of increases in rates enacted by the Board of Governors of the Federal Reserve (Federal Reserve) in the last three quarters of 2018, slightly offset by the impact of decreases in rates enacted by the Federal Reserve since July 31, 2019. The increase in yield on securities was due to management's ability to invest in higher yielding securities as the overall rates in the market increased throughout 2018 before declining in the second half of 2019. The net interest spread was 3.60% and 3.85% for the nine months ended September 30, 2019 and September 30, 2018, respectively, and 3.58% and 3.79% for the quarter ended September 30, 2019 and 2018, respectively. The rate we pay on our deposits and other funding sources increased in the three and nine months ended September 30, 2019 when compared to the comparable periods in 2018, as we increased the rates on several of our deposit products in response to competitive pressures in our markets and increases in short-term rates throughout 2018. We also incurred additional funding costs related to the utilization of Federal Home Loan Bank borrowings and brokered deposits late in the first quarter of 2019 to increase our balance sheet liquidity. These borrowings are at a higher rate than our core deposits. On July 31, 2019 and September 18, 2019, the Board of Governors of the Federal Reserve decreased the benchmark federal funds rate by 0.25%. As a result, our net yield on earning assets will likely continue to decline during the remainder of 2019 as will our net interest spread as the impact of the declining rate environment will more quickly impact our earning assets than our interest-bearing liabilities, and competitive pressures in our markets may limit our ability to reduce the rates we pay on our interest bearing liabilities. Declining loan balances are also likely to negatively impact our net interest spread as the yields we earn on loans are typically higher than the yields we earn on investment securities and other interest-earning assets.

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. Reflecting loan growth, an increase in the yields earned on loans, investment securities, accounts with depository institutions, and federal funds sold, the Company’s total interest income, excluding tax equivalent adjustments relating to tax exempt securities and loans, increased $12,240,000 or 16.12%, during the nine months ended September 30, 2019 as compared to the same period in 2018. The increase in total interest income was $4,031,000, or 15.33%, for the quarter ended September 30, 2019 as compared to the quarter ended September 30, 2018. Interest income in the third quarter of 2019 increased $762,000, or 2.58%, over the second quarter in 2019. The increase in the three and nine months ended September 30, 2019 when compared to the three and nine months ended September 30, 2018 was primarily attributable to an overall increase in average loans, an increase in the yield on loans, and the resulting increase in the net interest and fees earned on loans, partially offset by an increase in interest expense. The ratio of average earning assets to total average assets was 95.7% for the nine months ended September 30, 2019 and 94.9% for the nine months ended September 30, 2018.

Interest expense increased $7,713,000, or 81.95%, for the nine months ended September 30, 2019 as compared to the same period in 2018, and increased $2,335,000, or 63.87%, for the three months ended September 30, 2019 as compared to the same period in 2018. Interest expense increased $68,000, or 1.15%, for the quarter ended September 30, 2019 over the second quarter of 2019. The increase for the three and nine months ended September 30, 2019 as compared to the prior year's comparable periods was primarily due to an increase in the rate and volume of average interest bearing deposits, reflecting the rising interest rate environment that we experienced throughout 2018 and the first half of 2019, competitive pressures in our markets, as well as the addition of interest expense related to the FHLB borrowings and brokered deposits. Interest expense was also impacted by our inability to quickly reprice deposits with the start of the downward rate environment.

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. The provision for loan losses for the nine months ended September 30, 2019 was $1,354,000, a decrease of $1,847,000 from the provision of $3,201,000 incurred in the first nine months of 2018. The provision for loan losses for the quarter ended September 30, 2019 was $167,000, down $921,000 from the provision of $1,088,000 incurred in the third quarter of 2018 and up $13,000 from the $154,000 incurred in the second quarter of 2019. The decrease in provision expense for the three and nine months ended September 30, 2019 from the comparable periods in 2018 is primarily attributable to a decrease in the volume of loans originated during the period and a decrease in the amount of net loans charged off. The provision for loan losses is based on past loan experience and other factors which, in management’s judgment, deserve current recognition in estimating loan losses. Such factors include changes in the amount and composition of the loan portfolio, review of specific problem loans, past due and nonperforming loans, change in lending staff, the recommendations of the Company’s regulators, and current economic conditions that may affect the borrowers’ ability to repay.

The Bank’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 a determination is made that the loan is uncollectible. The volume of net loans charged off for the first nine months of 2019 totaled approximately $143,000 compared to approximately $482,000 in net charge-offs during the first nine months of 2018. The volume of net loans charged off for the third quarter of 2019 totaled approximately $52,000 compared to approximately $198,000 in net charge-offs during the third quarter of 2018.

The allowance for loan losses (net of charge-offs and recoveries) was $28,385,000 at September 30, 2019, an increase of $1,211,000, or 4.46%, from $27,174,000 at December 31, 2018, and of $1,757,000, or 6.60%, from $26,628,000 at September 30, 2018. The allowance for loan losses was 1.43% of total loans outstanding at September 30, 2019, compared to 1.33% at December 31, 2018 and 1.35% at September 30, 2018. As a percentage of nonperforming loans at September 30, 2019, December 31, 2018, and September 30, 2018, the allowance for loan losses represented 579%, 667% and 456%, respectively. The internally classified loans as a percentage of the allowance for loan losses were 42.6% and 49.9%, respectively, at September 30, 2019 and 2018.

The level of the allowance and the amount of the provision involve evaluation of uncertainties and matters of judgment. The Company maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly by the Chief Financial Officer and provided to the Board of Directors to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analysis of historical performance, the level of non-performing and adversely rated loans, specific analysis of certain problem loans, loan activity since the previous assessment, reports prepared by the Company's independent Loan Review Department, consideration of current economic conditions and other pertinent information. The level of the allowance to net loans outstanding will vary depending on the overall results of this quarterly assessment. See the discussion above under “Critical Accounting Estimates” for more information. Management believes the allowance for loan losses at September 30, 2019 to be adequate, but if economic conditions deteriorate beyond management’s current expectations and additional charge-offs are incurred, the allowance for loan losses may require an increase through additional provision for loan losses expense which would negatively impact earnings.

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Non-Interest Income

The components of the Company’s non-interest income include service charges on deposit accounts, other fees and commissions, income on BOLI and annuity earnings, gain on sale of loans, gain (loss) on sale of other real estate, gain (loss) on sale of fixed assets, gain (loss) on sale of securities, and gain (loss) on sale of other assets. Total non-interest income for the nine months ended September 30, 2019 increased $2,768,000 or 15.02%, to $21,192,000 from $18,424,000 for the same period in 2018. Total non-interest income increased $1,063,000, or 16.27%, during the quarter ended September 30, 2019 compared to the third quarter of 2018 and there was an increase of $262,000, or 3.57%, over the second quarter of 2019. The Company’s non-interest income in the nine-month period ended September 30, 2019 increased from the comparable period in 2018 mainly due to an increase in gain on sale of loans, service charges on deposit accounts, other fees and commissions, and a decrease in the loss on sale of securities, partially offset by a decrease in income on BOLI and annuity contracts and an increase in the loss on sale of other real estate. The Company's non-interest income in the three-month period ended September 30, 2019 increased from the comparable period in 2018 mainly due to a decrease in the loss on sale of securities, an increase in the gain on sale of loans, an increase in other fees and commissions, and a decrease in the loss on sale of other real estate, partially offset by a decrease in service charges on deposit accounts, a decrease in income on BOLI and annuity contracts, and an increase in the loss on sale of other assets. Gain on sale of loans increased $1,820,000, or 54.97%, to $5,131,000 during the nine months ended September 30, 2019 compared to the same period in 2018, and $583,000, or 45.30%, to $1,870,000 during the three months ended September 30, 2019 compared to the same period in 2018. This is a result of a new capital markets execution process which consisted of transitioning to the mandatory delivery process from the best efforts delivery process and an increase in the volume of loan originations. The mandatory delivery process was implemented by the mortgage department in November 2018. Service charges on deposit accounts increased $133,000, or 2.67%, to $5,114,000 during the nine months ended September 30, 2019 compared to the same period in 2018, primarily resulting from an increase in the number of consumer checking accounts and an increase in the number of transactions as well as an increase in the per item fee for service charge on insufficient funds. Service charges on deposit accounts decreased $14,000, or 0.79%, to $1,756,000, for the three months ended September 30, 2019. Other fees and commissions increased $462,000, or 4.53%, to $10,660,000 during the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in debit card interchange fee income. Debit card interchange fee income increased due to an increase in the number and volume of debit card holders and transactions. Other fees and commissions increased $375,000, or 11.06%, to $3,765,000 during the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in debit card interchange fee income and total third party income due to new client acquisition. Loss on sale of securities decreased $382,000, or 58.77%,to $268,000 for the nine months ended September 30, 2019 compared to the same period in 2018, and decreased $120,000, or 151.90% resulting in a gain of $41,000 during the three months ended September 30, 2019 compared to the same period in 2018, due to current market conditions and management's corresponding decision to sell securities and reinvest the proceeds in higher yielding assets in 2018.

Non-Interest Expense

Non-interest expense consists primarily of employee costs, occupancy expenses, furniture and equipment expenses, advertising and public relations expenses, data processing expenses, ATM and interchange expenses, director’s fees, audit, legal and consulting fees, and other operating expenses. Total non-interest expense increased $2,922,000, or 5.72%, during the first nine months of 2019 compared to the same period in 2018 and increased $842,000, or 4.85%, for the quarter ended September 30, 2019 as compared to the same quarter in 2018. The increase in non-interest expense for the nine months ended September 30, 2019 when compared to the comparable period in 2018 is primarily attributable to an increase in salaries and employee benefits, furniture and equipment expenses, occupancy expenses, data processing expenses, ATM and interchange fees, audit, legal and consulting expenses and other operating expenses partially offset by a decrease in advertising. The increase in salaries and employee benefits is primarily attributable to an increase in the number of employees necessary to support the Company’s growth in operations and branch expansion. The increase in furniture and equipment expenses is primarily attributable to an increase in depreciation related to the opening of the operations building in Lebanon, Tennessee and Cool Springs office in Williamson County and an increase in the cost of maintenance and repairs. The increase in occupancy expense is similarly attributable to the opening of the operations center in the second quarter of 2018 and the lease expense associated with the opening of the new branch in Williamson County in the fourth quarter of 2018. The increase in data processing expenses is primarily attributable to an increase in computer maintenance and computer licenses due to the upgrade of our current systems as well as additional investments in computer software due to branch expansion, an increase in I.T. consulting expense, and an increase in computer home banking expense that resulted from the evolution of our new mobile application. This expense is now incurred on a per user basis as opposed to an overall flat fee. The increase in ATM and interchange fees is due to the addition of ATMs as branch expansion has occurred and increasing interchange fees associated with a higher volume of debit card transactions. The increase in audit, legal and consulting expenses reflects increased legal accruals associated with the Company's general operations as well as ongoing legal proceedings to which the Bank is a party. The increase in other operating expenses is primarily attributable to an increase in account servicing costs associated with an increase in the number of consumer checking accounts and brokerage accounts. The Company anticipates that salaries and employee benefits expense and occupancy expense will continue to increase as the Company's operations and facilities continue to grow.

Income Taxes

The Company’s income tax expense was $8,817,000 for the nine months ended September 30, 2019, an increase of $909,000 over the comparable period in 2018. Income tax expense was $3,290,000 for the quarter ended September 30, 2019, an increase of $544,000 over the same period in 2018. The percentage of income tax expense to net income before taxes was 23.90% and 25.78% for the nine months ended September 30, 2019 and September 30, 2018, respectively, and 24.27% and 25.62% for the quarters ended September 30, 2019 and 2018, respectively. The decrease in the percentage of income tax expense to earnings before taxes is primarily due to additional state tax credits that lowered our effective tax rate. Our effective tax rate represents our blended federal and state rate of 26.135% affected by the impact of anticipated favorable permanent differences between our book and taxable income such as bank-owned life insurance, income earned on tax-exempt securities and certain federal and state tax credits.

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Financial Condition

Balance Sheet Summary

The Company’s total assets increased $215,202,000, or 8.46%, to $2,758,884,000 at September 30, 2019 from $2,543,682,000 at December 31, 2018. Total assets increased $48,814,000, or 1.80%, at September 30, 2019 from June 30, 2019. Loans, net of allowance for loan losses, totaled $1,954,980,000 at September 30, 2019, a 3.03% decrease compared to $2,016,005,000 at December 31, 2018. Net loans decreased $37,863,000, or 1.90% from June 30, 2019 to September 30, 2019. In the first half of 2019 management made a strategic decision to begin focusing loan growth in the commercial and industrial and residential 1-4 family segments of our loan portfolio, which have historically grown at slower rates than the other segments of the portfolio. As a result, loan growth slowed in the first quarter and net loans decreased slightly in the second and third quarters of 2019, and loans are anticipated to grow at a slower rate than the 2018 comparable period for the fourth quarter of 2019. The decrease in loans from December 31, 2018 to September 30, 2019 also resulted from the payoff of several large loan relationships. We operate in a market area that is experiencing economic growth, which caused our commercial real estate, residential 1-4 family, and commercial and industrial portfolio to increase as of September 30, 2019, when compared to December 31, 2018. Commercial real estate loans increased 6.28% and 5.08%, respectively, from December 31, 2018 and September 30, 2018 to September 30, 2019, and comprised 37.45% of the Company’s loan portfolio at September 30, 2019, compared to 34.19% at December 31, 2018 and 35.90% at September 30, 2018. Residential 1-4 family loans increased 1.75% and 5.72%, respectively, from December 31, 2018 and September 30, 2018 to September 30, 2019, and comprised 23.56% of the Company’s loan portfolio at September 30, 2019, compared to 22.47% at December 31, 2018 and 22.45% at September 30, 2018. Commercial and industrial loans increased 15.60% and 76.57%, respectively, from December 31, 2018 and September 30, 2018 to September 30, 2019, and comprised 4.55% of the Company’s loan portfolio at September 30, 2019, compared to 3.82% at December 31, 2018 and 2.59% at September 30, 2018.The increase in commercial real estate loans is a result of an increase in demand for such loans in the overall economy and the Company’s markets. Construction and land development loans decreased 20.79% and 14.27%, respectively from December 31, 2018 and September 30, 2018 to September 30, 2019, and comprised 20.63% of the Company's loan portfolio at September 30, 2019, compared to 25.28% at December 31, 2018 and 24.25% at September 30, 2018. 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.

Securities increased $151,725,000, or 53.19%, to $436,977,000 at September 30, 2019 from $285,252,000 at December 31, 2018 and increased $13,185,000, or 3.11%, from June 30, 2019 due to management's strategy to improve the Company's balance sheet liquidity and as a result of increasing deposit balances coupled with declining loan balances. Management borrowed funds from the Federal Home Loan Bank of Cincinnati and utilized brokered deposits to purchase securities that could be pledged to secure public deposits as part of our strategy to improve our balance sheet liquidity and as a result of declining loan balances. The brokered deposits matured in the third quarter of 2019 and are no longer reflected on the balance sheet. The borrowings were laddered so that the cash flow from the securities could be used to repay the principal on the borrowings. The fair market value on securities has increased from December 31, 2018 to September 30, 2019 due to management's strategy of investing in higher yielding securities and the decrease in rates enacted by the Federal Reserve. The average yield, excluding tax equivalent adjustment, of the securities portfolio at September 30, 2019 was 2.57% with a weighted average life of 7.67 years, as compared to an average yield of 2.45% and a weighted average life of 6.50 years at December 31, 2018. The weighted average lives on mortgage-backed securities reflect the repayment rate used for book value calculations.

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held-to-maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. There were no debt and equity securities classified as held-to-maturity or trading securities at September 30, 2019 or December 31, 2018. During the year ended December 31, 2018, the Company sold securities classified as held-to-maturity with a book value of $4,843,000 for a loss of $79,000. Due to the sale, management determined the Company no longer had the intent to hold the remaining securities classified as held-to-maturity to their respective maturity dates and transferred the remaining book value of $22,800,000 to the available-for-sale classification.

Premises and equipment increased $241,000 or 0.41% from December 31, 2018 to September 30, 2019.

The increase in deposits and borrowings from the Federal Home Loan Bank as well in a decrease in loans caused deposits held at other banks to increase to $161,040,000 at September 30, 2019 from $80,215,000 at December 31, 2018.

Total liabilities increased by 8.14% to $2,430,993,000 at September 30, 2019 compared to $2,248,015,000 at December 31, 2018. Total liabilities increased $39,111,000, or 1.64%, at September 30, 2019 from the quarter ended June 30, 2019. The increase in total liabilities since December 31, 2018 was composed of a $145,011,000, or 6.49%, increase in total deposits, $26,413,000, or 100%, increase in Federal Home Loan Bank advances, and a $11,554,000, or 93.48%, increase in accrued interest and other liabilities. At September 30, 2019, our borrowing capacity with the Federal Home Loan Bank of Cincinnati totaled $261,572,000. The Bank pledges substantially all of its 1-4 family residential real estate loans to secure its borrowings from the Federal Home Loan Bank of Cincinnati. The increase in total deposits since December 31, 2018 was primarily attributable to management's strategic decision to grow market share through branch expansion that resulted in the opening of new accounts. The increase in Federal Home Loan Bank advances was due to management's decision to borrow funds to purchase pledgeable securities and improve the Company's liquidity position.The increase in accrued interest and other liabilities since December 31, 2018 was primarily attributable to an increase in employee bonus payable, lease payable, other taxes payable and escrow tax payable.

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Non Performing Assets

The following tables present the Company’s non-accrual loans and past due loans as of September 30, 2019 and December 31, 2018.

Loans on Nonaccrual Status

	In Thousands
	September 30,		December 31,
	2019		2018
Residential 1-4 family	$	949	$	948
Multifamily		—		—
Commercial real estate		2,568		1,102
Construction		—		—
Farmland		—		—
Second mortgages		—		—
Equity lines of credit		—		—
Commercial		—		—
Agricultural, installment and other		—		—
Total	$	3,517	$	2,050

Past Due Loans

	(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		Non Accrual and Greater Than 90 Days		Total Non Accrual and Past Due		Current		Total Loans		Recorded Investment Greater Than 90 Days Past Due and Accruing
September 30, 2019
Residential 1-4 family		1,968		1,264		1,671		4,903		463,869		468,772	$	722
Multifamily		—		—		—		—		106,072		106,072		—
Commercial real estate		437		—		2,568		3,005		742,075		745,080		—
Construction		1,743		189		1		1,933		408,561		410,494		1
Farmland		218		58		9		285		20,140		20,425		9
Second mortgages		11		100		—		111		11,093		11,204		—
Equity lines of credit		57		325		96		478		69,188		69,666		96
Commercial		96		—		—		96		90,354		90,450		—
Agricultural, installment and other		429		129		69		627		66,975		67,602		69
Total	$	4,959		2,065		4,414		11,438		1,978,327		1,989,765	$	897
December 31, 2018
Residential 1-4 family	$	3,258		1,092		1,868		6,218		454,474		460,692	$	920
Multifamily		—		—		—		—		134,613		134,613		—
Commercial real estate		312		109		1,174		1,595		699,460		701,055		72
Construction		1,567		26		32		1,625		516,620		518,245		32
Farmland		43		9		21		73		23,998		24,071		21
Second mortgages		333		—		—		333		10,864		11,197		—
Equity lines of credit		297		—		45		342		61,671		62,013		45
Commercial		93		—		24		117		78,128		78,245		24
Agricultural, installment and other		407		85		95		587		59,481		60,068		95
Total	$	6,310		1,321		3,259		10,890		2,039,309		2,050,199	$	1,209

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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. 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. Management has assessed the loans that are 90 days past due and determined that all are well-collateralized and in the process of collection, thus accrual of interest is appropriate.

Non-performing loans, which included non-accrual loans and loans 90 days past due, at September 30, 2019 totaled $4,414,000, an increase from $3,259,000 at December 31, 2018. The increase in non-performing loans during the nine months ended September 30, 2019 of $1,155,000 is due primarily to the addition of one large loan relationship placed on non-accrual status that was classified as non-performing at September 30, 2019. Management believes that it is probable that it will incur losses on its non-performing loans but believes that these losses should not exceed the amount in the allowance for loan losses already allocated to these loans, unless there is unanticipated deterioration of local real estate values.

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 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. 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 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.

At September 30, 2019 the Company had impaired loans of $ 5,852,000 up from $5,359,000 at December 31, 2018. The increase in impaired loans during the nine months ended September 30, 2019 as compared to December 31, 2018 is due to the addition of two impaired loan relationships, partially offset by the upgrade of one loan relationship no longer considered impaired. Overall, the Company’s market areas have seen continued strengthening in the residential real estate market in recent years while the commercial real estate market has remained steady. The allowance for loan losses related to collateral dependent impaired loans was measured based upon the estimated fair value of related collateral.

The Company’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic or other concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. The concessions typically result from the Company’s loss mitigation activities and could include reduction in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. Total TDRs decreased $ 783,000 to $ 1,709,000 from December 31, 2018 to September 30, 2019 due to the partial pay down of one large loan relationship that was classified as a TDR at December 31, 2018.

Loans are charged-off in the month when the determination is made that the loan is uncollectible. Net charge-offs for the nine months ended September 30, 2019 were $143,000 as compared to $482,000 in net charge-offs for the same period in 2018. Overall, the Bank has experienced minimal charge-offs during 2019. We expect charge-offs to remain modest during the remainder of 2019; however, changes in the local economy may negatively impact charge-offs in the future.

At September 30, 2019, our internally classified loans had increased $57,000, or 0.47%, to $12,096,000 from $12,039,000 at December 31, 2018 primarily due to the addition of one internally classified loan relationship. Classified loan balances have remained relatively consistent due to current favorable economic conditions. 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.

The largest categories of internally graded loans at September 30, 2019 were residential real estate mortgage loans and commercial real estate. Included within the residential real estate category are residential real estate construction and development loans, including loans to home builders and developers of land, as well as 1-4 family mortgage loans. Residential real estate loans, including construction and land development loans that are internally classified totaled $9,167,000 and $8,883,000 at September 30, 2019 and December 31, 2018, respectively. Commercial real estate loans that are internally classified totaled $2,676,000 and $2,972,000 at September 30, 2019 and December 31, 2018, respectively. These loans have been graded accordingly due to bankruptcies, inadequate cash flows and/or delinquencies. The $284,000 increase in internally graded residential real estate loans since December 31, 2018 was due to the downgrade of a few loans due to insufficient payment history. The $296,000 decrease in internally graded commercial real estate loans since December 31, 2018 was due to the payoff of one large loan relationship, partially offset by downgrade of one large internally classified loan relationship due to insufficient payment history. Overall, the Bank continues to experience a stabilization in internally graded loans as the cash flows from home builders, land developers, and commercial real estate borrowers have stabilized. Management does not anticipate losses on the internally classified residential real estate construction and development loans at September 30, 2019 to exceed the amount already allocated to loan losses.

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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, due from banks, interest bearing deposits and unpledged investment securities that will mature within one year. At September 30, 2019, the Company’s liquid assets totaled $451.0 million. Additionally, as of September 30, 2019, the Company had available approximately $93.3 million in unused federal funds lines of credit with regional banks and, subject to certain restrictions and collateral requirements, approximately $261.6 million of borrowing capacity with the Federal Home Loan Bank of Cincinnati to meet short term funding needs. The Company maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in net yield on earning assets under varying interest rate environments. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.

The Company’s primary source of liquidity is a stable core deposit base. In addition, short-term borrowings, loan payments and investment security maturities provide a secondary source. At September 30, 2019, the Company had a liability sensitive position (a negative gap). Liability sensitivity means that more of the Company’s liabilities are capable of re-pricing over certain time frames than its assets, and in a rising rate environment liability sensitivity could cause net yield on earning assets to experience compression which would negatively impact net interest income. The interest rates associated with these liabilities may not actually change over this period but are capable of changing. Liability sensitivity generally should lead to an expansion in net yield on earning assets in a declining rate environment, as we are currently experiencing, but for that to occur the Bank will need to reprice its deposits more quickly than it reprices rates it earns on loans. As discussed elsewhere herein, the Bank was not able to widen its net yield on earning assets in the period ended September 30, 2019, and does not anticipate that it will be able to do so for the remainder of 2019 because of competitive pressures in its markets.

The Company also uses simulation modeling to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. The Company's Asset Liability Committee meets quarterly to analyze the interest rate shock simulation. The interest rate shock simulation model is based on a number of assumptions. These assumptions include, but are not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows and balance sheet management strategies. We model instantaneous change in interest rates using a growth in the balance sheet as well as a flat balance sheet to understand the impact to earnings and capital. The Company also uses Economic Value of Equity (“EVE”) sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. The EVE is a longer term view of interest rate risk because it measures the present value of the future cash flows. Presented below is the estimated impact on the Bank’s net interest income and EVE as of September 30, 2019, assuming an immediate shift in interest rates:

	% Change from Base Case for Immediate Parallel Changes in Rates
	-200 BP(1)			-100 BP(1)			+100 BP			+200 BP			+300 BP
Net interest income		(9.45	)%		(3.33	)%		0.32	%		(0.01	)%		(0.74	)%
EVE		(19.88	)%		(7.28	)%		2.09	%		2.33	%		1.51	%

(1)	Currently, some short term interest rates are below the standard down rate scenarios (100, 200, 300 bps). The asset liability model does not calculate negative interest rates and will floor any index at 0.

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While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates. Moreover, since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.

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 analyzes the rate sensitivity position quarterly. Management focuses 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. 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. At September 30, 2019, securities totaling approximately $16,615,000 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 September 30, 2019, loans totaling approximately $704,435,000 either will become due or will be subject to rate adjustments within twelve months from that date.

As for liabilities, at September 30, 2019, certificates of deposit of $250,000 or greater totaling approximately $79,874,000 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 accounts and regular savings accounts. Management anticipates that there will be no significant withdrawals from these accounts in the future.

At September 30, 2019, the scheduled maturities of these advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):

Scheduled Maturities	Amount		Weighted Average Rates
2019		$ —	—%
2020		2,000	2.65
2021		3,000	2.67
2022		2,500	2.68
2023		2,625	2.68
Thereafter		16,288	2.67
		$ 26,413	2.67%

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.

Off Balance Sheet Arrangements

At September 30, 2019, we had unfunded loan commitments outstanding of $573,908,000 and outstanding standby letters of credit of $77,372,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate federal funds sold or securities available-for-sale or on a short-term basis to borrow and purchase federal funds from other financial institutions. Additionally, the Bank could sell participations in these or other loans to correspondent banks. As mentioned above, the Bank has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, investment security maturities and short-term borrowings.

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Capital Position and Dividends

At September 30, 2019, total stockholders’ equity was $327,891,000, or 11.88% of total assets, which compares with $295,667,000, or 11.62% of total assets, at December 31, 2018. The dollar increase in stockholders’ equity during the nine months ended September 30, 2019 results from the Company’s net income of $28,072,000, proceeds from the issuance of common stock related to exercise of stock options of $437,000, the net effect of a $10,420,000 unrealized gain on investment securities net of applicable income tax expense of $2,723,000, cash dividends declared of $11,725,000 of which $9,134,000 was reinvested under the Company’s dividend reinvestment plan, $265,000 related to stock option compensation, a $27,000 reclassification adjustment for the adoption of the new lease accounting standard, and the $1,629,000 repurchase of common stock from the Company's 401(k) plan. On June 11, 2019, the Company completed the repurchase of 31,774 shares of the Company’s common stock held in the Company’s 401(k) Plan for an aggregate purchase price of $1,629,000. These shares were repurchased following the Company’s decision to remove the Company’s common stock as an investment option under the 401(k) Plan to reduce the 401(k) Plan expense incurred by employees.

The Company and the Bank are subject to regulatory capital requirements administered by the FDIC, the Federal Reserve and the Tennessee Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and, in the case of the Bank, the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total, common equity, and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2019 and December 31, 2018, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2019, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Bank’s category. To be categorized as well capitalized as of September 30, 2019 and December 31, 2018, an institution must have maintained minimum total risk-based, Tier 1 risk-based, common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables and not be subject to a written agreement, order or directive to maintain a specific capital level.

	Actual					Minimum Capital Adequacy Requirement with Basel III Capital Conservation Buffer Phase -In Schedule					Minimum To Be Well Capitalized Under Applicable Regulatory Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
September 30, 2019
Total capital to risk weighted assets:
Consolidated	$	351,847		15.3	%	$	241,648		10.5	%	$	230,141		10.0	%
Wilson Bank		350,921		15.3			241,586		10.5			230,082		10.0
Tier 1 capital to risk weighted assets:
Consolidated		323,093		14.0			195,620		8.5			138,085		6.0
Wilson Bank		322,167		14.0			195,571		8.5			184,067		8.0
Common equity Tier 1 capital to risk weighted assets:
Consolidated		323,093		14.0			161,099		7.0			N/A		N/A
Wilson Bank		322,167		14.0			161,058		7.0			149,554		6.5
Tier 1 capital to average assets:
Consolidated		323,093		12.2			105,799		4.0			N/A		N/A
Wilson Bank		322,167		12.0			107,549		4.0			134,437		5.0

	*Actual*					Minimum Capital Adequacy Requirement with Basel III Capital Conservation Buffer Phase-In Schedule					Minimum To Be Well Capitalized Under Applicable Regulatory Provisions
	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*
	*(dollars in thousands)*
December 31, 2018
Total capital to risk weighted assets:
Consolidated	$	326,099		14.1	%	$	227,974		9.875	%	$	230,860		10.0	%
Wilson Bank		323,852		14.0			227,915		9.875			230,800		10.0
Tier 1 capital to risk weighted assets:
Consolidated		298,566		12.9			181,802		7.875			138,516		6.0
Wilson Bank		296,319		12.8			181,756		7.875			184,641		8.0
Common equity Tier 1 capital to risk weighted assets:
Consolidated		298,566		12.9			147,173		6.375			N/A		N/A
Wilson Bank		296,319		12.8			147,136		6.375			150,021		6.5
Tier 1 capital to average assets:
Consolidated		298,566		12.3			97,022		4.0			N/A		N/A
Wilson Bank		296,319		11.9			99,373		4.0			124,217		5.0

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In July 2013, the Federal banking regulators, in response to the statutory requirements of The Dodd-Frank Wall Street Reform and Consumer Protection Act, adopted new regulations implementing the Basel Capital Adequacy Accord (“Basel III”) and the related minimum capital ratios. The new capital requirements were effective January 1, 2015 and included a new “Common Equity Tier I Ratio”, which has stricter rules as to what qualifies as Common Equity Tier I Capital.

The guidelines under Basel III established a 2.5% capital conservation buffer requirement that was phased in over four years beginning January 1, 2016. The buffer is related to Risk Weighted Assets. In order to avoid limitations on capital distributions such as dividends and certain discretionary bonus payments to executive officers, a banking organization must maintain capital ratios above the minimum ratios including the buffer. The Basel III minimum requirements after giving effect to the buffer as of January 1, of each year presented are as follows:

	2016			2017			2018			2019
Common Equity Tier I Ratio		5.125	%		5.75	%		6.375	%		7.0	%
Tier I Capital to Risk Weighted Assets Ratio		6.625	%		7.25	%		7.875	%		8.5	%
Total Capital to Risk Weighted Assets Ratio		8.625	%		9.25	%		9.875	%		10.5	%

The requirements of Basel III also place more restrictions on the inclusion of deferred tax assets and capitalized mortgage servicing rights as a percentage of Tier I Capital. In addition, the risk weights assigned to certain assets such as past due loans and certain real estate loans have been increased.

The requirements of Basel III allowed banks and bank holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company and the Bank have opted out of this requirement.

In 2018, the U.S. Congress passed, and the President signed into law, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Growth Act”). The Growth Act, among other things, requires the federal banking agencies to issue regulations allowing community bank organizations with total assets of less than $10.0 billion in assets and limited amounts of certain assets and off-balance sheet exposures to access a simpler capital regime focused on a bank’s Tier 1 leverage capital levels rather than risk-based capital levels that are the focus of the capital rules issued under the Dodd-Frank Act implementing Basel III.

In October 2019, the federal banking agencies approved final rules under the Growth Act that exempt a qualifying community bank and its holding company that have community bank leverage ratios, calculated as Tier 1 capital over average total consolidated assets, of greater than 9 percent from the risk-based capital requirements of the capital rules issued under the Dodd-Frank Act. A qualifying community banking organization and its holding company that have chosen the proposed framework are not required to calculate the existing risk-based and leverage capital requirements. Such a bank would also be considered to have met the capital ratio requirements to be well capitalized for the agencies' prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent.

The Growth Act also raised the eligibility for the small bank holding company policy statement to $3 billion of assets from $1 billion.

The Company is still evaluating these new capital rules and has not yet made a determination regarding whether it will seek to take advantage of such rules.

Impact of Inflation

Although interest rates are significantly affected by inflation, the inflation rate is immaterial when reviewing the Company’s results of operations.

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 short-term 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, 2019.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, its Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Not applicable

Item 1A. RISK FACTORS

There were no material changes to the Company’s risk factors as previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None

(b) Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

(a) None

(b) Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable

Item 5. OTHER INFORMATION

None

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Item 6. EXHIBITS

31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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 8, 2019		/s/ Randall Clemons
		Randall Clemons
		President and Chief Executive Officer

DATE: November 8, 2019		/s/ Lisa Pominski
		Lisa Pominski
		Executive Vice President & Chief Financial Officer