What changed in this filing

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Item 1. Business

2019-03-15 compared with 2018-03-15 · 140 added, 126 removed, 198 unchanged (57% of the section changed)

21 unchanged sentences

Revenue from loan interest and fees made up 50.7% of gross revenues in 2018, 48.3% in 2017 and 50.2% in 2016.

Loan demand has improved but increased competition that results in lower loan yields along with an increased investment portfolio have

caused this percentage to decline over the last three years.

Such lending activities include commercial, real estate, installment (direct and indirect) and credit card loans.

The Companys primary lending area is East Central and South

Mississippi, specifically Neshoba, Newton, Leake, Lamar, Forrest, Scott, Attala, Lauderdale, Oktibbeha, Rankin, Harrison, Jackson, Winston and Kemper counties and contiguous counties.

In 2008, the Company entered the southern Mississippi market with

the opening of a branch office in Hattiesburg, Mississippi, which is located in Lamar County.

In 2009, the Company opened a Loan Production Office (LPO) in Biloxi, Mississippi to serve the Mississippi Gulf Coast and in April 2014

converted this office to a full service branch and at the same time opened another branch in Biloxi.

In 2011, the Company opened a branch in

Flowood, Mississippi.

In December 2016, the Company opened a LPO in Oxford, Mississippi to offer commercial loans to the people in North Mississippi.

On a very limited basis, the Company extends out-of-area credit only to borrowers who are considered to be low risk, as defined within the Banks lending policy.

The Company is not dependent upon any single customer

or small group of customers, and it has no foreign operations.

The Companys market area is mainly rural, with

Hattiesburg, population 50,233, Biloxi, population 50,644, and Meridian, population 38,314, being the largest markets.

Loan demand has improved, loan yields are gradually increasing and the investment portfolio is decreasing, all of which has contributed to

this percentage increasing from 2017.

The increase in lending has been distributed among the Banks leading products, including commercial, real estate, installment (direct and indirect) and credit card loans.

The Companys primary lending

area is East Central and South Mississippi, specifically Neshoba, Newton, Leake, Lamar, Forrest, Scott, Attala, Lauderdale, Oktibbeha, Lafayette, Rankin, Harrison, Jackson, Winston and Kemper counties and contiguous counties.

In 2008, the Company

entered the southern Mississippi market with the opening of a branch office in Hattiesburg, Mississippi, which is located in Lamar County.

In 2009, the Company opened a Loan Production Office (LPO) in Biloxi, Mississippi to serve the

Mississippi Gulf Coast and in April 2014 converted this office to a full service branch and at the same time opened another branch in Biloxi.

In 2011, the Company opened a branch in Flowood, Mississippi.

In December 2016, the Company opened a LPO in

Oxford, Mississippi to offer commercial loans to the people in North Mississippi.

On a very limited basis, the Company extends out-of-area credit to borrowers who are

considered to be low risk, as defined within the Banks lending policy.

The Company is not dependent upon any single customer or small group of customers, and it has no foreign operations.

The Companys market area is mainly rural, with Hattiesburg, population

50,233, Biloxi, population 50,644, and Meridian, population 38,314, being the largest markets.

Agriculture and some light industry comprise a significant portion of the economy of this area.

The largest employer in the

Companys service area is the Mississippi Band of Choctaw Indians.

Its schools, manufacturing plants and main source of income, The Pearl River Resort (the Resort), generate a significant number of jobs in the area.

The Resort and

its related services employ approximately 2,400 people within the Companys market.

For more information regarding revenue from external customers for the last three fiscal years, attributed by geographic region, please refer to Item 7,

Managements Discussion and Analysis of Financial Condition and Results of Operations, which is included in the Companys Annual Report and attached as an exhibit hereto.

The largest employer in the Companys service area is

the Mississippi Band of Choctaw Indians.

Its schools, manufacturing plants and The Pearl River Resort (the Resort) generate a significant number of jobs in the area.

The Resort and its related services employ approximately 2,400 people

within the Companys market.

For more information regarding revenue from external customers for the last three fiscal years, attributed by geographic region, please refer to Item 7, Managements Discussion and Analysis of Financial

Condition and Results of Operations, which is included in the Companys Annual Report and attached as an exhibit hereto.

The Company has historically made, and intends to continue to make, most types of real estate loans, including, but not

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All loans in the Companys portfolio are subject to risk based on the state of both the local and national economy.

local economy has weathered the recent downturn in the national economy with a minimum effect on employment and production.

It is still uncertain how the weakness in the local, state and national economy will affect the Company in the future.

Through such products as its VISA Checkcard program, the 24 Hour Phone Teller and the Banks Internet site

(http://www.thecitizensbankphila.com), the Companys customers have easy and convenient access to their funds and account balances 24 hours a day, 7 days a week.

Additionally, the Internet site enables Bank customers to review their accounts in

detail, make transfers between their accounts and pay bills from anywhere in the world.

our footprint expands, the Companys portfolio risks are more closely aligned with the state economy.

The state economy remains strong with 2018 being one of the best in recent years.

The state economy is expected to slow down some but still

projected to see growth over the next couple of years.

The national economy remains strong but is seeing signs of slowing.

It is still uncertain how the slowing economies on the local, state and national levels will affect the Company in the future.

The Company continues to invest in technology as we understand it is necessary to compete in todays market.

Company has the technology for consumers to perform many of the routine, transaction-related items through its online and mobile platforms.

Additionally, the Company continues to build out a robust treasury management suite of products for business

banking such as remote deposit capture, ACH transactions and wire transfers.

The Company is evolving with the market to ensure we continue to offer a great customer experience that they have come to expect from the Company.

EXECUTIVE OFFICERS OF THE COMPANY

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in any unsafe or unsound practice or that violates certain laws, regulations, or conditions imposed in writing by the FRB.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, (Dodd- Frank

Act) made extensive changes in the regulation of financial institutions.

There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based, a number of

which still have not been implemented.

anticipated that these rules and enforcement by the Banks regulators will continue to evolve through regulatory amendments, informal interpretations, and enhanced enforcement in the future.

Congress and the President have announced proposed reforms and changes to the Dodd-Frank Act, and it is uncertain how the Dodd- Frank Act provisions may be modified or the ultimate impact any such modifications may have to our business operations.

Financial Reform.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, (Dodd-Frank Act) made extensive changes

in the regulation of financial institutions.

There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based, a number of which still have not been

It is anticipated that these rules and enforcement by the Banks regulators will continue to evolve through regulatory amendments, informal interpretations, and enhanced enforcement in the future.

Congress and the President have

announced proposed reforms and changes to the Dodd-Frank Act, and it is uncertain how the Dodd-Frank Act provisions may be modified or the ultimate impact any such modifications may have to our business operations.

In November 2017, a bipartisan group of U.S.

Senators, led by Senate Banking Committee Chairman, introduced the Economic

Growth, Regulatory Relief and Consumer Protection Act (the Economic Growth Act).

The Economic Growth Act, signed into law on May 24, 2018, provides relief from certain regulatory requirements under the Dodd-Frank Act.

Generally, the

Economic Growth Act addressed the following areas:

the threshold at which banks are classified as systemically important financial institutions (SIFIs), and therefore subject to stricter oversight;

targeted relief from Dodd-Frank Act requirements

for smaller banks;

capital formation;

mortgage lending;

student borrower debt and provisions addressing veterans, consumers and homeowners.

While we expect the Economic Growth Act to have an overall positive impact on our business going forward, we

continue to evaluate its impact on our business and that impact remains uncertain.

Capital Standards.

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federal banking agencies adopted final rules relevant to us:

(1) the Basel III regulatory capital reforms;

and (2) the standardized approach of Basel II for non-core

banks and bank holding companies, such as the Bank and the Company.

The capital framework under Basel III will replace the existing regulatory capital rules for all banks, savings associations and U.S.

bank holding companies with greater than

$500 million in total assets, and all savings and loan holding companies.

Beginning January 1, 2015, the Bank began

to comply with the Basel III rules, although the rules will not be fully phased-in until January 1, 2019.

Among other things, the final Basel III rules will impact regulatory capital ratios of banking

organizations in the following manner, when fully phased in:

(1) the Basel III regulatory capital

and (2) the standardized approach of Basel II for non-core banks and bank holding companies, such as the Bank and the Company.

capital framework under Basel III will replace the existing regulatory capital rules for all banks, savings associations and U.S.

bank holding companies with greater than $500 million in total assets, and all savings and loan holding companies.

Beginning January 1, 2015, the Bank began to comply with the Basel III rules, although the rules were not fully phased-in until January 1, 2019.

Among other things, the final Basel III rules impact regulatory capital ratios of banking organizations in the following manner:

Create a new requirement to maintain a ratio of common equity Tier 1 capital to total risk-weighted assets of

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Maintain the minimum total risk-based capital ratio at 8%.

In addition, the Basel III rules, when fully phased-in, will subject a banking

organization to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization did not maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of

its total risk-weighted assets.

The effect of the capital conservation buffer, when fully phased-in, will be to increase the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 risk-based capital ratio to 8.5% and the minimum total

risk-based capital ratio to 10.5% for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers.

The Basel III rules also changed the capital categories for insured depository institutions for purposes of prompt corrective

Under the rules, to be well capitalized, an insured depository institution must maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8%, a total risk-based capital ratio of at

least 10.0%, and a leverage capital ratio of at least 5%.

In addition, the Basel III rules established more conservative standards for including an instrument in regulatory capital and imposed certain deductions from and adjustments to the measure

of common equity Tier 1 capital.

Management believes that, as of December 31, 2017, the Company and the Bank would

meet all capital adequacy requirements under Basel III and the banking agencies proposals on a fully phased-in basis if such requirements were currently effective.

Management will continue to monitor

these and any future proposals submitted by the Companys and Banks regulators.

Prompt Corrective Action and Other

Enforcement Mechanisms.

The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended

(FDICIA) requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including, but not limited to, those that fall below one or more of the prescribed minimum capital

The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios:

In addition, the Basel III rules will subject a banking organization to certain limitations on capital distributions and

discretionary bonus payments to executive officers if the organization does not maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of its total risk-weighted assets.

The capital conservation buffer

increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 risk-based capital ratio to 8.5% and the minimum total risk-based capital ratio to 10.5% for banking organizations seeking to avoid the limitations on capital

distributions and discretionary bonus payments to executive officers.

The Basel III rules also changed the capital

categories for insured depository institutions for purposes of prompt corrective action.

Under the rules, to be well capitalized, an insured depository institution must maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a Tier 1

risk-based capital ratio of at least 8%, a total risk-based capital ratio of at least 10.0%, and a leverage capital ratio of at least 5%.

In addition, the Basel III rules established more conservative standards for including an instrument in

regulatory capital and imposed certain deductions from and adjustments to the measure of common equity Tier 1 capital.

Management believes that, as of December 31, 2018, the Company and the Bank met all capital adequacy requirements under

Management will continue to monitor these and any future proposals submitted by the Companys and Banks regulators.

Prompt Corrective Action and Other Enforcement Mechanisms.

The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended (FDICIA) requires each federal

banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including, but not limited to, those that fall below one or more of the prescribed minimum capital ratios.

The law requires each federal

banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios:

well capitalized;

adequately capitalized;

undercapitalized;

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FDIC Insurance Assessments.

The FDIC maintains the Deposit Insurance Fund (DIF) by assessing depository institutions an insurance

The amount each institution is assessed is based upon statutory factors that include the balance of insured deposits as well as the degree of risk the institution poses to the DIF.

The Dodd-Frank Act permanently raised the FDIC insurance

coverage limit per depositor to $250,000.

On May 20, 2016, the FDIC amended its rule to refine the deposit insurance assessment system for small insured depository institutions that have been federally insured for at least five years that

became effective on July 1, 2016.

The deposit insurance assessment system is mandated by the Dodd-Frank Act.

The rule, which applies to banks with less than $10 billion in assets, would take effect when the Deposit Insurance Fund reaches

1.15% of insured deposits.

FDIC released a statement confirming that as of second quarter of 2016, our DIF reserve ratio had reached 1.17%.

As a result, the calculation adopted in the final rule for Small Bank FDIC Assessments was reflected in the

third quarter of 2016 accruals.

The assessment rate schedule was also revised to a range of 3 to 30 basis points annually, and fully adjusted rates will range from 1.5 to 40 basis points annually.

The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor, through

the Deposit Insurance Fund (DIF) and safeguards the safety and soundness of the banking and thrift industries.

The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as

measured by regulatory capital ratios and other supervisory factors.

The FDICs deposit insurance premium assessment

is based on an institutions average consolidated total assets minus average tangible equity.

We are generally

unable to control the amount of premiums that we are required to pay for FDIC insurance.

At least semi-annually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required.

If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates,

the Bank may be required to pay higher FDIC insurance premiums.

Any future increases in FDIC insurance premiums may have a material and adverse effect on our earnings.

Other BHC Act Provisions.

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community to be served.

The BHC Act also prohibits a bank holding company, with certain exceptions, from

engaging in or from acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities.

The principal exception to this rule is for engaging in or

acquiring shares of a company whose activities are found by the FRB to be so closely related to banking or managing banks as to be a proper incident thereto.

In making such determinations, the FRB is required to consider whether the performance of

such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency of resources that outweigh the risks of possible

adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices.

prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is

specifically authorized by statute of the state in which the bank to be acquired is located.

The Company and the Bank are

subject to certain restrictions imposed by the Federal Reserve Act and the Federal Deposit Insurance Act on any extensions of credit to the Company or the Bank, on investments in the stock or other securities of the Company or the Bank, and on

taking such stock or other securities as collateral for loans of any borrower.

The BHC Act also prohibits a bank holding company, with certain exceptions, from engaging in or

from acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities.

The principal exception to this rule is for engaging in or acquiring shares of a

company whose activities are found by the FRB to be so closely related to banking or managing banks as to be a proper incident thereto.

In making such determinations, the FRB is required to consider whether the performance of such activities by a

bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency of resources that outweigh the risks of possible adverse effects such as

decreased or unfair competition, conflicts of interest or unsound banking practices.

The BHC Act prohibits the

acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically

authorized by statute of the state in which the bank to be acquired is located.

The Company and the Bank are subject to

certain restrictions imposed by the Federal Reserve Act and the Federal Deposit Insurance Act on any extensions of credit to the Company or the Bank, on investments in the stock or other securities of the Company or the Bank, and on taking such

stock or other securities as collateral for loans of any borrower.

The BHC Act was amended in 2000 by the

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The regulations promulgated under CRA emphasize an assessment of actual performance in meeting local credit needs, rather than of the procedures followed by a bank

to evaluate compliance with the CRA.

evaluate compliance with the CRA.

CRA compliance is also a factor in evaluations of proposed mergers, acquisitions and applications to open new branches or facilities.

Overall CRA compliance is rated across a four-point scale from

outstanding to substantial noncompliance. Different evaluation methods are used depending on the asset size of the bank.

Overall CRA compliance is

rated across a four-point scale from outstanding to substantial noncompliance. Different evaluation methods are used depending on the asset size of the bank.

The FDIC examined the Bank on July 12, 2016 for its performance under the CRA.

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requires publicly traded companies to give stockholders a non-binding vote on executive compensation at least every three years and on so-called golden

parachute payments in connection with approvals of mergers and acquisitions.

The Dodd-Frank Act also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a companys proxy materials.

Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion,

regardless of whether the company is publicly traded.

payments in connection with approvals of mergers and acquisitions.

The Dodd-Frank Act also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates

using a companys proxy materials.

assets in excess of $1.0 billion, regardless of whether the company is publicly traded.

The Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

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The Companys market consists principally of Neshoba, Newton, Leake, Lamar,

Forrest, Scott, Attala, Lafayette, Lauderdale, Oktibbeha, Rankin, Harrison, Jackson, Winston and Kemper and contiguous counties in Mississippi.

In 2008, the Company entered the southern Mississippi market with the opening of a branch office in

Hattiesburg, Mississippi, which is located in Lamar County, and in 2009, opened a loan production office in Biloxi, Mississippi, which in April 2014, was converted into a full service branch.

In 2011, the Company opened a branch in Flowood,

Forrest, Scott, Attala, Lafayette, Lauderdale, Oktibbeha, Lafayette, Rankin, Harrison, Jackson, Winston and Kemper and contiguous counties in Mississippi.

In 2008, the Company entered the southern Mississippi market with the opening of a branch

office in Hattiesburg, Mississippi, which is located in Lamar County, and in 2009, opened a loan production office in Biloxi, Mississippi, which in April 2014, was converted into a full service branch.

In 2011, the Company opened a branch in

Flowood, Mississippi.

In 2014, the Company established an additional branch in Biloxi to better serve the Gulf Coast.

In 2016, the Company entered North Mississippi with the establishment of a loan production office in Oxford, Mississippi.

competes with local, regional and national financial institutions in these counties and in surrounding counties in Mississippi in obtaining deposits, lending activities and providing many types of financial services.

The Company also competes with

larger regional banks for the business of companies located in the Companys market area.

All financial

institutions, including the Company, compete for customers deposits.

The Company also competes with savings and loan associations, credit unions, production credit associations, federal land banks, finance companies, personal loan companies,

money market funds and other non-depository financial intermediaries.

Company competes with local, regional and national financial institutions in these counties and in surrounding counties in Mississippi in obtaining deposits, lending activities and providing many types of financial services.

The Company also

competes with larger regional banks for the business of companies located in the Companys market area.

All financial institutions, including the Company, compete for customers

The Company also competes with savings and loan associations, credit unions, production credit associations, federal land banks, finance companies, personal loan companies, money market funds and other

non-depository financial intermediaries.

Many of these financial institutions have resources significantly greater than those of the Company.

In addition, new financial

intermediaries, such as money-market mutual funds and large retailers, are not subject to the same regulations and laws that govern the operation of traditional depository institutions.

The Company believes it benefits from a good reputation in the

community and from the significant length of time it has provided needed banking services to its customers.

Also, as a locally owned financial institution, the Company believes it is able to respond to the needs of the community with services

tailored to the particular demands of its customers.

In addition, financial intermediaries, such as money-market mutual

funds and large retailers, are not subject to the same regulations and laws that govern the operation of traditional depository institutions.

The Company believes it benefits from a good reputation in the community and from the significant length of

time it has provided needed banking services to its customers.

Also, as a locally owned financial institution, the Company believes it is able to respond to the needs of the community with services tailored to the particular demands of its

Furthermore, as a local institution, the Company believes it can provide such services faster than a larger institution not based in the Companys market area.

Changes in federal and state law have resulted in, and are expected to continue

to result in, increased competition.

The reductions in legal barriers to the acquisition of banks by out-of-state bank holding companies resulting from implementation of

the Dodd-Frank Act and other recent changes in banking laws and regulations are expected to continue to further stimulate competition in the markets in which the Company operates, although it is not possible to predict the extent or timing of such

increased competition.

Currently, there are approximately thirty different financial institutions in the Companys

market competing for the same customer base.

Changes in federal and state law have resulted in, and are expected to continue to result in, increased competition.

reductions in legal barriers to the acquisition of banks by out-of-state bank holding companies resulting from implementation of the Dodd-Frank Act and other banking

laws and regulations are expected to continue to further stimulate competition in the markets in which the Company operates, although it is not possible to predict the extent or timing of such increased competition.

Currently, there are approximately thirty different financial institutions in the Companys market competing for the same

customer base.

According to the FDICs Summary of Deposits that is collected as of June 30 each year, the Companys market share in its market area was approximately 5.48% at June 30, 2018.

Company competes in its market for loan and deposit products, along with many of the other services required by todays banking customer, on the basis of availability, quality and pricing.

The Company believes it is able to compete favorably in

its markets, in terms of both the rates the Company offers and the level of service that the Company provides to its customers.

The Company competes in its market for

loan and deposit products, along with many of the other services required by todays banking customer, on the basis of availability, quality and pricing.

The Company believes it is able to compete favorably in its markets, in terms of both the

rates the Company offers and the level of service that the Company provides to its customers.

AVAILABILITY OF INFORMATION

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The information contained on our website is not incorporated into this report.

Upon request, the Company will provide to any record holder or beneficial holder of its shares a copy of such reports

without charge.

Upon request, the Company will provide to any record holder or beneficial holder of its shares a copy of such reports without

Requests should be made to Robert T.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business