UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

MARK ONE

FOR THE QUARTERLY PERIOD ENDED June 30, 2004

FROM _______________ TO _______________

Commission File Number 0-20402

WILSON BANK HOLDING COMPANY

623 West Main Street, Lebanon, TN 37087

(615) 444-2265

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x       NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

YES x       NO o

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: 4,430,591 shares at August 6, 2004

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WILSON BANK HOLDING COMPANY

Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(Unaudited)

See accompanying notes to consolidated financial statements (unaudited).

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Earnings

Three Months and Six Months Ended June 30, 2004 and 2003

(Unaudited)

See accompanying notes to consolidated financial statements (unaudited).

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Comprehensive Earnings

Three Months and Six Months Ended June 30, 2004 and 2003

(Unaudited)

See accompanying notes to consolidated financial statements (unaudited).

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2004 and 2003

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

See accompanying notes to consolidated financial statements (unaudited).

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WILSON BANK HOLDING COMPANY

Consolidated Statements of Cash Flows, Continued

Six Months Ended June 30, 2004 and 2003

Increase (Decrease) in Cash and Cash Equivalents

(Unaudited)

See accompanying notes to consolidated financial statements (unaudited).

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WILSON BANK HOLDING COMPANY

Notes to Consolidated Financial Statements

(Unaudited)

Basis of Presentation

The unaudited consolidated financial statements include the accounts of Wilson Bank Holding Company (the “Company”), its wholly-owned subsidiary, Wilson Bank and Trust, DeKalb Community Bank, a 50% owned subsidiary, and Community Bank of Smith County, a 50% owned subsidiary.

The accompanying consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the consolidated financial statements contain all adjustments and disclosures necessary to summarize fairly the financial position of the Company as of June 30, 2004 and December 31, 2003, the results of operations for the three months and six months ended June 30, 2004 and 2003, comprehensive earnings for the three months and six months ended June 30, 2004 and 2003 and changes in cash flows for the six months ended June 30, 2004 and 2003. All significant intercompany transactions have been eliminated. The interim consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements presented in the Company’s 2003 Annual Report to Stockholders. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.

Allowance for Loan Losses

Transactions in the allowance for loan losses were as follows:

Stock Split

The Company’s Board of Directors voted a 2 for 1 stock split for stockholders of record as of October 1, 2003 payable October 31, 2003. Each stockholder received one (1) additional share for each one (1) share owned with no allowance for fractional shares. Per share data included in these consolidated interim financial statements has been restated to give effect to the stock split.

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WILSON BANK HOLDING COMPANY

FORM 10-Q, CONTINUED

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

     The purpose of this discussion is to provide insight into the financial condition and results of operations of the Company and its subsidiaries. This discussion should be read in conjunction with the consolidated financial statements. Reference should also be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for a more complete discussion of factors that impact liquidity, capital and the results of operations.

Forward-Looking Statements

     This Form 10-Q contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

     In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. The words “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, increased competition with other financial institutions, lack of sustained growth in the Company’s market area, rapid fluctuations in interest rates, significant downturns in the business of one or more large customers, changes in the legislative and regulatory environment, inadequate allowance for loan losses and loss of key personnel. 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 and other important factors that could cause actual results to differ materially from those projected in forward-looking statements.

Critical Accounting Policies

     The accounting principles we follow and our methods of applying these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles to the determination of our allowance for loan losses (ALL) and the recognition of our deferred income tax assets, we have made judgments and estimates which have significantly impacted our financial position and results of operations.

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WILSON BANK HOLDING COMPANY

FORM 10-Q, CONTINUED

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

Allowance for Loan Losses

     Our management assesses the adequacy of the ALL prior to the end of each calendar quarter. This assessment includes procedures to estimate the ALL and test the adequacy and appropriateness of the resulting balance. The ALL consists of two portions (1) an allocated amount representative of specifically identified credit exposure and exposures readily predictable by historical or comparative experience; and (2) an unallocated amount representative of inherent loss which is not readily available. Even though the ALL is composed of two components, the entire allowance is available to absorb any credit losses.

     We establish the allocated amount separately for two different risk groups(1) unique loans(commercial loans, including those loans considered impaired); and (2) homogenous loans(generally consumer loans). We base the allocation for unique loans primarily on risk rating grades assigned to each of these loans as a result of our loan management and review processes. Each risk-rating grade is assigned an estimated loss ratio, which is determined based on the experience of management, discussions with banking regulators, historical and current economic conditions and our independent loan review process. We estimate losses on impaired loans based on estimated cash flows discounted at the loan’s original effective interest rate or the underlying collateral value. We also assign estimated loss ratios to our consumer portfolio. However, we base the estimated loss ratios for these homogenous loans on the category of consumer credit (e.g., automobile, residential mortgage, home equity) and not on the results of individual loan reviews.

     The unallocated amount is particularly subjective and does not lend itself to the exact mathematical calculation. We use the unallocated amount to absorb inherent losses which may exist as of the balance sheet date for such matters as changes in the local or national economy, the depth or experience of the lending staff, any concentrations of credit in any particular industry group, and new banking laws or regulations. After we assess applicable factors, we evaluate the aggregate unallocated amount based on our management’s experience.

     We then test the resulting ALL balance by comparing the balance in the allowance account to historical trends 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 ALL in its entirety. The loan review and the finance committee of our board of directors review the assessment prior to the filing of quarterly financial information.

Results of Operations

     Net earnings decreased 11.3% to $4,221,000 for the six months ended June 30, 2004 from $4,760,000 in the first six months of 2003. Net earnings were $2,415,000 for the quarter ended June 30, 2004, an increase of $15,000 or .6% from $2,400,000 for the three months ended June 30, 2003 and an increase of $609,000 or 33.7% over the quarter ended March 31, 2004. The decrease in net earnings during the six months ended June 30, 2004 was primarily due to a 55.8% decrease in gain on sale of loans as mortgage refinancings slowed and an increase of $705,000 or 67.0% in provision for possible loan losses as a result of the Company’s detailed evaluation of the loan portfolio of one of its 50% owned subsidiary’s loan officers.

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WILSON BANK HOLDING COMPANY

FORM 10-Q, CONTINUED

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

Net Interest Income

     Net interest income represents the amount by which interest earned on various interest-earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of the Company’s earnings. The Company’s total interest income, excluding tax equivalent adjustments relating to tax exempt securities, increased $1,071,000 or 4.7% during the six months ended June 30, 2004 as compared to the same period in 2003. The increase in total interest income was $847,000 or 7.5% for the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003. Interest income increased $385,000 or 3.3% over the first three months of 2004. The increase in the first six months of 2004 was primarily attributable to a minor increase in the interest rate environment and an increase in volume. The ratio of average earning assets to total average assets was 95.2% and 95.4% for the six months ended June 30, 2004 and June 30, 2003, respectively.

     Interest expense decreased $263,000 or 3.4% for the six months ended June 30, 2004 as compared to the same period in 2003. The decrease was $91,000 or 2.4% for the three months ended June 30, 2004 as compared to the same period in 2003. Interest expense increased $19,000 or .5% for the quarter ended June 30, 2004 over the first three months of 2004. The overall decrease in total interest expense for the first six months of 2004 was primarily attributable to a decrease in the rates paid on deposits when compared to the six months ended June 30, 2003.

     The foregoing resulted in an increase in net interest income, before the provision for possible loan losses, of $1,334,000 or 8.8% for the first six months of 2004 as compared to the same period in 2003. The increase was $938,000 or 12.5% for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 and an increase of $366,000 or 4.5% when compared to the first quarter of 2004.

Provision for Possible Loan Losses

     The provision for possible loan losses was $1,757,000 and $1,052,000 for the first six months of 2004 and 2003, respectively. The provision for loan losses during the three month periods ended June 30, 2004 and 2003 was $337,000 and $471,000, respectively. Subsequent to March 31, 2004, the Company performed a detailed evaluation of one of its 50% owned subsidiary’s loan officer’s portfolios. Based on this evaluation, it was determined that an additional provision should be made to the allowance for possible loan losses for the quarter ended March 31, 2004 in the amount of $808,000. The provision for possible loan losses is based on past loan experience and other factors which, in management’s judgment, deserve current recognition in estimating possible loan losses. Such factors include past loan loss experience, growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for loan losses to outstanding loans, and current economic conditions that may affect the borrower’s ability to repay. Management has in place a system designed for monitoring its loan portfolio in an effort to identify potential problem loans. The provision for possible loan losses raised the allowance for possible loan losses (net of charge offs and recoveries) to $8,758,000, an increase of 8.4% from $8,077,000 at December 31, 2003. The allowance for possible loan losses as a percentage of total outstanding loans was 1.3% at June 30, 2004 and 1.4% at December 31, 2003, respectively.

     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 bi-monthly by the Loan Review Officer 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 Loan Review Officer, consideration of

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WILSON BANK HOLDING COMPANY

FORM 10-Q, CONTINUED

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

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 bi-monthly assessment. The review is presented to the Finance Committee and subsequently approved by the Board of Directors. Management believes the allowance for possible loan losses at June 30, 2004 to be adequate.

Non-Interest Income

     The components of the Company’s non-interest income include service charges on deposit accounts, other fees and commissions and gain on sale of loans. Total non-interest income for the six months ended June 30, 2003 decreased 12.7% to $3,877,000 from $4,443,000 for the same period in 2003. The decrease was $401,000 or 16.6% during the quarter ended June 30, 2004 compared to the second quarter in 2003, and there was an increase of $165,000 or 8.9% over the first three months of 2004. The decrease for the first six months of 2004 was due primarily to a decrease in gain on sale of loans. Gain on sale of loans decreased $884,000 or 55.8% during the six months ended June 30, 2004 compared to the same period in 2003. Gain on sale of loans decreased $498,000 or 56.7% during the quarter ended June 30, 2004 compared to the same quarter in 2003. The gain on sale of loans decreased significantly as a result of a decrease in financing mortgages due to higher rates. Service charges on deposit accounts totaled $2,364,000 and $2,115,000 during the six months ended June 30, 2004 and 2003, respectively, an increase of $249,000 or 11.8% and $1,261,000 and $1,117,000 during the quarters ended June 30, 2004 and 2003, respectively, an increase of $144,000 or 12.9%.

     The Company’s non interest income is composed of several components, some of which vary significantly between quarterly periods. Service charges on deposit accounts and other non interest income generally reflect the registrant’s growth, while fees for origination of mortgage loans will often reflect stock and home mortgage market conditions and fluctuate more widely from period to period.

Non-Interest Expenses

     Non-interest expenses consist primarily of employee costs, occupancy expenses, furniture and equipment expenses, data processing expenses, director’s fees, loss on sale of other real estate, other operating expenses and minority interest in net earnings of subsidiaries. Total non-interest expenses increased $1,117,000 or 10.5% during the first six months of 2004 compared to the same period in 2003. The increases for the quarter ended June 30, 2004 were $820,000 or 15.3% as compared to the comparable quarter in 2003 and $677,000 or 12.3% as compared to the first three months of 2004. The increases in non-interest expenses are attributable primarily to increases in employee salaries and benefits associated with an increase in the number of employees necessary to support the Company’s operations. The number of employees increased to 298 at June 30, 2004 an increase from 266 at June 30, 2003. Increases in occupancy and furniture and equipment expenses were also due to the Company’s growth. Other operating expenses for the six months ended June 30, 2004 increased to $2,489,000 from $2,447,000 for the comparable period in 2003. Other operating expenses increased $103,000 or 9.0% during the quarter ended June 30, 2004 as compared to the same period in 2003. These expenses include Federal deposit insurance premiums, supplies and general operating costs which increased as a result of continued growth of the Company.

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WILSON BANK HOLDING COMPANY

FORM 10-Q, CONTINUED

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

Income Taxes

     The Company’s income tax expense was $2,668,000 for the six months ended June 30, 2004, a decrease of $515,000 over the comparable period in 2003. Income tax expense was $1,498,000 for the quarter ended June 30, 2004, a decrease of $164,000 over the same period in 2003. The percentage of income tax expense to net income before taxes was 38.7% and 40.1% for the six months ended June 30, 2004 and 2003, respectively and 38.3% and 40.9% for the quarters ended June 30, 2004 and 2003. The percentage of income tax expense to net income before taxes was 39.3% for the first three months of 2004. The effective tax rate exceeds the statutory tax rate as a result of permanent differences related to life insurance premiums.

Earnings Per Share

     The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share for the Company begins with the basic earnings per share plus 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 months and six months ended June 30, 2004 and 2003: