WILSON BANK HOLDING CO (WBHC) stock intrinsic value fair value estimate & owner earnings analysis

Wilson Bank Holding Company owns Wilson Bank and Trust, a community bank based in Lebanon, Tennessee, about thirty miles east of Nashville, with branches spread across the fast-growing counties that ring the city. It is a plain deposit-and-loan business: it gathers $5.3 billion of local deposits and lends most of it back out as real-estate secured loans - homes, commercial property, and construction and land loans to builders and developers. It has no preferred stock, no subordinated debt and effectively no borrowed money; shareholders' equity was $582 million at the end of 2025, and its strictest regulatory capital ratio was 14.4%, well above the 6.5% needed to be considered well capitalized. The record is long and steady. Earnings per share rose from $2.49 in 2016 to $6.26 in 2025, with a profit in every year including the 2020 shutdown. Total assets grew from $2.2 billion to $5.9 billion over the same span, almost entirely by opening branches and winning local customers rather than buying other banks. 2025 was the best year in the record (net income $75.7 million, a 14.2% return on equity) because the bank's deposit costs fell faster than its loan yields. The first half of 2026 continued that, with earnings per share of $3.50 against $2.95 a year earlier. In June 2025 the bank sold its 51% stake in Encompass Home Lending, a small mortgage joint venture, so mortgage banking is no longer part of the business; its contribution was minor. Because this is a bank, interest paid on deposits is treated as an ordinary operating cost and the deposits are not subtracted as debt; the value of the shares is simply the value of the earnings left for owners. We did not use 2025 alone as the earnings level, because a single exceptional year of widening margins should not set the base. Instead we took the bank's typical return on equity over 2021-2025 (roughly 12.5%) and applied it to today's book value of about $48 a share, giving a normal earning power of about $6.05 a share - below 2025's $6.26 and below the 2026 run rate. Earnings growth in 2025 was 31%; the base case assumes only 7% in its first year. What each case assumes. The base case continues the bank's demonstrated branch-by-branch growth at 7% a year for five years, tapering to 4% by year ten - well below the 11.6% a year that assets actually grew over the last decade - with roughly 55% of earnings retained to fund that growth and the rest paid out. It also includes a moderate credit setback in years four and five costing about 1% of today's loan book (about $2.76 a share after tax). On those assumptions the shares are worth about $126. The bull case uses a normal earning power of $6.50 (closer to what the bank is earning now) and growth of 9% a year tapering to 6%, with a smaller credit setback, and comes to about $151. Nothing in either case relies on acquisitions, new markets or margins widening further. The bear case is built around a full credit cycle of the kind Middle Tennessee banks with heavy construction and land lending actually went through in 2008-2010. It starts from earning power of $5.19 a share (the 1.08% return on assets the bank earned in its weakest recent year, 2023), then over years two to four takes extra loan losses equal to 4.5% of today's $4.48 billion loan book - about $12.40 a share after tax - plus a 15% drop in pre-provision income while the cycle lasts. That wipes out earnings for three years, with a small loss in the worst year. Afterwards the bank earns a lower 1.0% on assets and does not grow at all. Even so, the bank's existing capital cushion of roughly $247 million above the well-capitalized line absorbs the losses without needing new shares, because it starts with no borrowed money and very strong capital. The bear case is worth about $69 a share, above the roughly $47 of tangible book value, because even after a severe cycle a bank funded with low-cost local deposits and no borrowings goes on earning around a 10% return on its capital - the deposit franchise is worth more than the capital alone. The risks we see in the filings: about $1.5 billion of deposits (roughly 29%) are above the FDIC insurance limit; the loan book is concentrated in real estate, including residential construction and land loans to builders; and credit quality has started to turn. Potential problem loans rose to $63.9 million (1.46% of loans) at the end of 2025 from $48.0 million, net charge-offs rose to $1.6 million from $0.5 million (still only 0.04% of loans), and the bank has raised its loan-loss reserve from $49.5 million to $57.8 million since the end of 2024. The share count also rises about 2% a year as shareholders reinvest dividends into new shares. The securities portfolio carried a $62 million after-tax unrealized loss at June 30, 2026; this is already reflected in book value. Margin of safety price. We are fairly sure of the earnings level: ten straight profitable years, a return on assets that has stayed between about 0.9% and 1.34%, and no reliance on borrowed money. The worst thing that could plausibly happen is a Nashville-area construction and land bust worse than 2008-2010 combined with a run on uninsured deposits; the bank's capital, liquidity and lack of borrowings mean it would very likely survive that without wiping out shareholders, but earnings could disappear for several years. The things we are most likely to be wrong about are the size of the next credit cycle and whether 2025's wide margins hold; if both go against us the shares are worth something like the bear case's $69. The biggest practical issue is not the business but the shares: they are not traded on an exchange and the company says there is no known active trading market, so the shares cannot be counted on to find a market at any particular price or time, and the price assumes a holding period of many years. Over that period, the business pays a dividend that was $2.25 a share in 2025 and grows book value by roughly 7% a year. A 20% annual return over five years requires the investment to grow about two-and-a-half times. From $40, about $13 of dividends over five years, and a bank with roughly $67 of book value and $8.50 of earnings per share by then, imply that return only if the shares can be realized at around the bear-case value - a modest price for a bank of this quality, which is what an illiquid, privately traded share requires. Above $40 the target depends on the shares trading at base-case value in a thin private market, which our estimate does not assume. Our margin of safety price is $40. The previous analysis valued the shares on a different basis and its figures are not comparable to these. The business itself changed in mixed ways since then: earnings kept rising strongly in 2026, while problem loans and the loan-loss reserve also kept rising.