Note 16 - Regulatory Matters and Restrictions on Dividends

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Restrictions on Dividends, Loans and Advances [Text Block]

(16) Regulatory Matters and Restrictions on Dividends

The Company and Wilson 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 Wilson Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Wilson 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 Wilson Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1 and common equity Tier 1 capital (each 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 December 31, 2019 and 2018, that the Company and Wilson Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2019, the most recent notification from the FDIC categorized Wilson 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 Wilson Bank’s category. To be categorized as well capitalized for purposes of prompt corrective action regulations as of December 31, 2019 and 2018, an institution must have maintained minimum capital ratios as set forth in the following tables and not have been subject to a written agreement, order or directive to maintain a higher capital level. The Company’s and Wilson Bank’s actual capital amounts and ratios as of December 31, 2019 and 2018, are presented in the following tables:

						Regulatory Minimum Capital Requirement					Regulatory Minimum To Be Well
	Actual					with Basel III Capital Conservation Buffer					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
December 31, 2019
Total capital to risk weighted assets:
Consolidated	$	360,645		15.0	%	$	253,215		10.5	%	$	241,157		10.0	%
Wilson Bank		359,576		14.9			252,675		10.5			240,643		10.0
Tier 1 capital to risk weighted assets:
Consolidated		331,485		13.7			204,984		8.5			144,694		6.0
Wilson Bank		330,416		13.7			204,547		8.5			192,515		8.0
Common equity Tier 1 capital to risk weighted assets:
Consolidated		331,485		13.7			168,810		7.0			N/A		N/A
Wilson Bank		330,416		13.7			168,451		7.0			156,418		6.5
Tier 1 capital to average assets:
Consolidated		331,485		12.4			106,565		4.0			N/A		N/A
Wilson Bank		330,416		11.9			110,764		4.0			138,454		5.0

						Regulatory Minimum Capital Requirement					Regulatory Minimum To Be Well
	Actual					with Basel III Capital Conservation Buffer					Capitalized
	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

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 beginning January 1, 2015. 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 1 Ratio		5.125	%		5.75	%		6.375	%		7.0	%
Tier 1 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 additional restrictions on the inclusion of deferred tax assets and capitalized mortgage servicing rights as a percentage of Tier 1 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 allow 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 Wilson 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.