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Item 1A. Risk Factors

2021-03-12 compared with 2020-03-13 · 221 added, 428 removed, 84 unchanged (89% of the section changed)

RISK FACTORS.

In addition to the other information contained in or incorporated by reference into this report and the exhibits hereto, the following risk

factors should be considered carefully in evaluating the Companys business.

The risks disclosed below, either alone or in combination, could materially adversely affect the business, prospects, financial condition or results of operations of

the Company and/or the Bank.

In addition to the other information contained in or incorporated by reference into this report and the exhibits hereto, the following risk factors should be considered carefully in evaluating the Company’s business.

The risks disclosed below, either alone or in combination, could materially adversely affect the business, prospects, financial condition or results of operations of the Company and/or the Bank.

Additional risks not presently known to the Company, or that the Company currently deems immaterial, may also adversely affect the Company’s business, financial condition or results of operations.

1 unchanged sentence

The Company is subject to interest rate risk.

One of the most important aspects of managements efforts to sustain long-term profitability for the Company is the

management of interest rate risk.

One of the most important aspects of management’s efforts to sustain long-term profitability for the Company is the management of interest rate risk.

Management’s goal is to maximize net interest income within acceptable levels of interest-rate risk and liquidity.

The Companys assets and liabilities are principally financial in nature and the resulting earnings thereon are subject

to significant variability due to the timing and extent to which the Company can reprice the yields on interest-earning assets and the costs of interest bearing liabilities as a result of changes in market interest rates.

Interest rates in the

financial markets affect the Companys decisions on pricing its assets and liabilities, which impacts net interest income, an

important cash flow stream for the Company.

The Company’s assets and liabilities are principally financial in nature and the resulting earnings thereon are subject to significant variability due to the timing and extent to which the Company can reprice the yields on interest-earning assets and the costs of interest bearing liabilities as a result of changes in market interest rates.

Interest rates in the financial markets affect the Company’s decisions on pricing its assets and liabilities, which impacts net interest income, an important cash flow stream for the Company.

As a result, a substantial part of the Company’s risk-management activities is devoted to managing interest-rate risk.

Currently, the Company does

not have any significant risks related to foreign currency exchange, commodities or equity risk exposures.

Companys earnings and cash flows are largely dependent upon the net interest income of the Company.

Net interest income is the difference between interest earned on assets, such as loans and securities, and the cost of interest-bearing

liabilities, such as deposits and borrowed funds.

Interest rates are highly sensitive to many factors that are beyond the Companys control, including general economic conditions and policies of various governmental and regulatory agencies and,

in particular, the FRB.

such changes could also affect (i) the Companys ability to originate loans and obtain deposits, which could reduce the amount of fee income generated;

Currently, the Company does not have any significant risks related to foreign currency exchange, commodities or equity risk exposures.

The Company’s earnings and cash flows are largely dependent upon the net interest income of the Company.

Net interest income is the difference between interest earned on assets, such as loans and securities, and the cost of interest-bearing liabilities, such as deposits and borrowed funds.

Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB.

Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest the Company pays on deposits and borrowings, but such changes could also affect (i) the Company’s ability to originate loans and obtain deposits, which could reduce the amount of fee income generated;

(ii) the fair value of the Company’s financial assets and liabilities;

(iii) the average duration of the Companys mortgage-backed securities portfolio.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the

Companys net interest income could be adversely affected, which in turn could negatively affect its earnings.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the

interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and

liability management strategies to reduce the potential effects of changes in interest rates on the results of operations of the Company, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on

the Companys financial condition and results of operations.

For the reasons set forth above, an increase in interest rates generally as a result of such a credit rating downgrade could adversely affect out net interest income levels, thereby

resulting in reduced earnings, and reduce loan demand.

Volatility in interest rates may also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as United States Government and

Agency securities and other investment vehicles, including mutual funds, which generally pay higher rates of return than financial institutions because of the absence of federal insurance premiums and reserve requirements.

Disintermediation could

also result in material adverse effects on the Companys financial condition and results of operations.

of the policies and procedures used to identify, assess and manage certain interest rate risk is set forth in Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

and (iii) the average duration of the Company’s mortgage-backed securities portfolio.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income could be adversely affected, which in turn could negatively affect its earnings.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the results of operations of the Company, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations.

For the reasons set forth above, an increase in interest rates generally as a result of such a credit rating downgrade could adversely affect our net interest income levels, thereby resulting in reduced earnings, and reduce loan demand.

Volatility in interest rates may also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as United States Government and Agency securities and other investment vehicles, including mutual funds, which generally pay higher rates of return than financial institutions because of the absence of federal insurance premiums and reserve requirements.

Disintermediation could also result in material adverse effects on the Company’s financial condition and results of operations.

A discussion of the policies and procedures used to identify, assess and manage certain interest rate risk is set forth in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”

The Company is subject to lending risk.

There are inherent risks associated with the Company’s lending activities.

These risks include, among other things, the

impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates as well as those across the United States.

Increases in interest rates or weakening economic conditions could adversely impact the

ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.

December 31, 2019, approximately 73.1% of the Companys loan portfolio consisted of commercial, construction and commercial real estate loans.

These types of loans are generally viewed as having more risk of default than residential real

estate loans or consumer loans due primarily to the large amounts loaned to individual borrowers.

Because the loan portfolio contains a

significant number of commercial, construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase

in non-performing loans.

An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible loan

losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Companys financial condition and results of operations.

These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates as well as those across the United States.

Increases in interest rates or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.

As of December 31, 2020, approximately 79.1% of the Company’s loan portfolio consisted of commercial, construction and commercial real estate loans.

These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans due primarily to the large amounts loaned to individual borrowers.

Because the loan portfolio contains a significant number of commercial, construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing

An increase in non-performing

loans could result in a net loss of earnings from these loans, an increase in the provision for possible loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.

Delays in the Company’s ability to foreclose on delinquent mortgage loans may negatively impact our business.

Because the Bank originates loans secured by real estate, the Bank may have to foreclose on the collateral property to protect

its investment and may thereafter own and operate such property, in which case the Company is exposed to the risks inherent in the ownership of real estate.

The amount realized after a default is dependent upon factors outside of the Companys

control, including, but not limited to:

general or local economic conditions;

environmental cleanup liability;

neighborhood values;

interest rates;

real estate tax rates;

operating expenses of the mortgaged properties;

supply of and demand for rental units or properties;

ability to obtain and maintain adequate occupancy of the properties;

governmental rules, regulations and fiscal policies;

natural disasters.

Certain expenses associated with the ownership of real estate, principally real estate taxes, insurance, and maintenance

costs, may adversely affect the net proceeds received from the real estate, if any.

The ability to mitigate the losses on defaulted loans depends upon the ability to promptly foreclose upon the collateral after an appropriate cure period.

in the foreclosure process adversely affects us by increasing the expenses related to carrying such real estate and exposes us to losses as a result of potential additional declines in the value of such collateral.

As a result, the increased cost of

owning and operating such real estate may exceed the rental income earned from the real estate (if any), the Company may have to advance additional funds to protect our investment or the Company may be required to dispose of the real estate at a

As business necessitates, the Company forecloses on and takes title to real estate serving as collateral for loans.

The amount of other real estate held by the Company may increase in the future as a result of, among other things, business combinations, increased uncertainties in the housing market or increased levels of credit stress in residential real estate loan portfolios.

Increased other real estate balances could lead to greater expenses as the Company incurs costs to manage, maintain and dispose of real properties as well as to remediate any environmental cleanup costs incurred in connection with any contamination discovered on real property on which the Company has foreclosed and to which the Company has taken title.

As a result, the Company’s earnings could be negatively affected by various expenses associated with other real estate owned, including personnel costs, insurance and taxes, completion and repair costs, valuation adjustments and other expenses associated with real property ownership, as well as by the funding costs associated with other real estate assets.

The expenses associated with holding a significant amount of other real estate could have a material adverse effect on the Company’s financial condition or results of operations.

The allowance for possible loan losses may be insufficient.

Although the Company tries to maintain diversification within its loan portfolio in order to minimize the effect of economic

conditions within a particular industry, management also maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, to absorb probable credit losses inherent in the entire loan

Although the Company tries to maintain diversification within its loan portfolio in order to minimize the effect of economic conditions within a particular industry, management also maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, to absorb probable credit losses inherent in the entire loan portfolio.

The appropriate level of the allowance is based on management’s quarterly analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment.

other considerations in establishing the allowance for loan losses, management considers economic conditions reflected within industry segments, the unemployment rate in the Companys markets, loan segmentation and historical losses that are

inherent in the loan portfolio.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current

credit risks and future trends, all of which may undergo material changes.

Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and

outside of the Companys control, may require an increase in the allowance for loan losses.

In addition, bank

regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

In addition, if

charge-offs in future periods exceed the allowance for loan losses, the Company will need additional provisions to increase the allowance for loan losses.

Any increases in the allowance for loan losses will result in a decrease in net income and,

possibly, capital, and may have a material adverse effect on the Companys financial condition and results of operations.

A discussion of the policies and procedures related to managements process for determining the appropriate level of

the allowance for loan losses is set forth in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.

The Company depends on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, the Company often relies on information furnished by or

on behalf of customers and counterparties, including financial statements, credit reports and other financial information.

The Company may also rely on representations of those customers, counterparties or other third parties, such as independent

auditors, as to the accuracy and completeness of that information.

Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on the Companys business and, in

turn, its financial condition and results of operations.

Among other considerations in establishing the allowance for loan losses, management considers economic conditions reflected within industry segments, the unemployment rate in the Company’s markets, loan segmentation and historical losses that are inherent in the loan portfolio.

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for loan losses.

In addition, bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

In addition, if charge-offs in future periods exceed the allowance for loan losses, the Company will need additional provisions to increase the allowance for loan losses.

Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operations.

A discussion of the policies and procedures related to management’s process for determining the appropriate level of the allowance for loan losses is set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company is subject to environmental liability risk associated with lending activities.

A significant portion of the loan portfolio is secured by real property.

During the ordinary course of business,

the Company may foreclose on and take title to properties securing certain loans.

During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans.

In doing so, there is a risk that hazardous or toxic substances could be found on these properties.

If hazardous or toxic substances are found, the Company may be

liable for remediation costs, as well as for personal injury and property damage.

Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected propertys value or limit the ability of the

Company to use or sell the affected property.

If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage.

Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the ability of the Company to use or sell the affected property.

In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability.

Although management

has policies and procedures to perform an environmental review during the loan application process and also before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.

Although management has policies and procedures to perform an environmental review during the loan application process and also before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.

The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.

The Company is subject to risk from adverse economic conditions.

Our operations and profitability are impacted by general business and economic conditions in the State of Mississippi, and the

United States.

These conditions include recession, short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry

and finance, and the strength of the U.S.

economy and the local economies in which we operate, all of which are beyond our control.

A deterioration in economic conditions could result in an increase in loan delinquencies and nonperforming assets,

decreases in loan collateral values and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.

The FRB has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve,

and currently is transitioning from many years of easing to what may be a new period of tightening.

years, the FRB has begun to gradually unwind the remaining domestic monetary policy initiatives as the economy continues to recover.

During 2019, the FRB lowered the target federal funds rate by 25 bps in August, September and October, bringing the

current range to 1.50 to 1.75 percent.

This development, along with the U.S.

governments credit and deficit concerns and international economic considerations, could cause interest rates and borrowing costs to rise, which may negatively

impact our ability to access the debt markets on favorable terms.

Other significant monetary strategies could be implemented in the future including, in particular, so-called tightening strategies.

strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.

Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular

importance to us and other banks.

Risks associated with interest rates and the yield curve are discussed in this Item 1A under the caption The Company is subject to interest rate risk. Such strategies also can affect the United States.

and world-wide financial systems in ways that may be difficult to predict.

The profitability of the Company depends significantly on economic

conditions in the State of Mississippi.

The Companys success depends primarily on the general economic

conditions of the State of Mississippi and the specific local markets in which it operates.

Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers

primarily in East Central and South Mississippi.

The local economic conditions in this area have a significant impact on the demand for the Companys products and services, as well as the ability of its customers to repay loans, the value of

the collateral securing loans and the stability of its deposit funding sources.

The Company is subject to extensive government regulation and

Our business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19

pandemic has created disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, capital and results of operations.

We cannot predict the extent to which the pandemic will continue to cause such adverse effects.

The extent of any continued or future adverse effects will depend on future developments, which are highly uncertain and outside our control, including the scope and duration of the COVID-19

pandemic and its impact on our employees, clients, customers, counterparties and service providers, as well as other market participants.

Circumstances brought about by the pandemic persist, including worsened economic conditions, increased market volatility, ratings downgrades, credit deterioration and defaults, reductions in the targeted federal funds rate, and increased spending on business continuity efforts, which may require that we reduce costs and investments in other areas.

If the pandemic continues for a more extended period or worsens, we may face additional circumstances such as significant draws on credit lines by our customers.

We are offering assistance to support customers experiencing financial hardships related to the pandemic.

If such measures are not effective in mitigating the effects of the pandemic on borrowers, we may experience higher rates of default and increased credit losses in the future.

We may also have to provide additional assistance or otherwise experience higher rates of default and increased credit losses.

Further, we have approximately $29,523 in PPP loans as of year-end

These efforts may affect our revenue and results of operations and make our results more difficult to forecast as the PPP forgiveness process has begun and the timing and amount of forgiveness to which our borrowers will be entitled is unpredictable.

In addition, the PPP and other government programs in which we may participate are complex and our participation may lead to governmental and regulatory scrutiny, negative publicity and damage to our reputation.

Certain industries where the Company has credit exposure, including commercial real estate, 1

have experienced, and in some cases are continuing to experience, significant operational challenges as a result of the COVID-19

These operational challenges could result in our commercial lending clients making higher than usual draws on outstanding lines of credit, which may negatively affect our liquidity.

The effects of the COVID-19

pandemic may also cause our commercial customers to be unable to pay their loans as they come due or decrease the value of collateral, which we expect would cause significant increases in our credit losses.

Other negative effects of the pandemic that may impact our business, financial condition, liquidity, capital and results of operations cannot be predicted at this time, but it is likely that such adverse effects will continue until the COVID-19

pandemic subsides and the U.S.

economy fully recovers.

pandemic may also have the effect of heightening many of the other risks described in this section of our Annual Report on Form 10-K,

including, without limitation, risks related to cybersecurity attacks.

Until the COVID-19

pandemic subsides, we expect increased credit losses and a decrease in certain sources of fee income.

The FRB has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve to help stimulate the economy due to the COVID-19

pandemic has significantly affected the financial markets and has resulted in a number of actions by the Federal Reserve Bank (“FRB”).

Market interest rates have declined significantly.

On March 3, 2020, the ten-year

Treasury yield fell below 1.00% for the first time, and the FRB reduced the target federal funds rate by 50 basis points to a range of 1.00% to 1.25%.

On March 15, 2020, the FRB further reduced the target federal funds rate by 100 basis points to a range of 0.00% to 0.25% and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19

The FRB reduced the interest that it pays on excess reserves from 1.60% to 1.10% on March 3, 2020, and then to 0.10% on March 15, 2020.

FRB strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.

Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks.

Risks associated

We would anticipate to see any heavily impacted industries by the pandemic in which the Bank has material credit exposure, including any retail, hospitality, and oil and gas industries, etc.

with interest rates and the yield curve are discussed in this Item 1A under the caption “The Company is subject to interest rate risk.” Such strategies also can affect the United States and world-wide financial systems in ways that may be difficult to predict.

The profitability of the Company depends significantly on economic conditions in the State of Mississippi.

The Company’s success depends primarily on the general economic conditions of the State of Mississippi and the specific local markets in which it operates.

Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers primarily in East Central and South Mississippi.

The local economic conditions in this area have a significant impact on the demand for the Company’s products and services, as well as the ability of its customers to repay loans, the value of the collateral securing loans and the stability of its deposit funding sources.

The Company is subject to extensive government regulation and supervision.

The Company and the Bank are subject to extensive federal and state regulation and supervision.

Banking regulations are primarily intended to protect depositors funds, federal deposit insurance funds and the banking system as a whole, and not the economic or other interests of shareholders.

These regulations affect the Companys and

the Banks lending practices, capital structure, investment practices, dividend policy and growth, among other things.

Changes to statutes,

regulations or regulatory policies, including changes in interpretation or implementation of the foregoing, could affect the Company or the Bank in substantial and unpredictable ways.

changes could subject the Company to additional costs, limit the types of financial services and products it may offer or increase the ability of non-banks to offer competing financial services and products,

among other things.

Under regulatory capital adequacy guidelines and other regulatory requirements, the Company and the

Bank must meet guidelines that include quantitative measures of assets, liabilities and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and

other factors.

If the Company fails to meet these minimum capital guidelines and other regulatory requirements, its financial condition would be materially and adversely affected.

The Companys failure to maintain the status of well

capitalized under its regulatory framework could affect the confidence of its customers in the Company, thus compromising the Companys competitive position.

In addition, failure to maintain the status of well capitalized

under the Companys regulatory framework or well managed under regulatory examination procedures could compromise the Companys status as a bank holding company and related eligibility for a streamlined review process for

acquisition proposals.

The Company is also subject to laws, regulations and standards relating to corporate governance

and public disclosure, including the Sarbanes Act, the Dodd Frank Act and SEC regulations.

These laws, regulations and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over

time as guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

The Company is

committed to maintaining high standards of corporate governance and public disclosure.

As a result, the Companys efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in,

increased expenses and a diversion of management time and attention.

Failure to comply with laws, regulations or policies

could also result in sanctions by regulatory agencies and/or civil money penalties, which could have a material adverse effect on the Companys business, prospects, financial condition and results of operations.

While the Company has policies

and procedures designed to prevent any such violations, it cannot assure that such violations will be prevented.

The information under the heading Supervision and Regulation in Item 1, Business, and Note 16, Regulatory

Matters to the Consolidated Financial Statements of the Company in Item 8, Financial Statements and Supplementary Data, provides more information regarding the regulatory environment in which the Company and the Bank operate

including descriptions of the laws, regulations or policies applicable to us.

Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders.

These regulations and supervisory guidance affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.

Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes.

Changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation or statutes, regulations, policies and supervisory guidance, could affect the Company in substantial and unpredictable ways.

Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of nonbanks to offer competing financial services and products, among other things.

Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, civil money penalties, other sanctions by regulatory agencies and/or reputational damage.

In this regard, government authorities, including bank regulatory agencies, continue to pursue enforcement agendas with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures.

Any of the foregoing could have a material adverse effect on the Company’s financial condition or results of operations.

We are subject to claims and litigation.

From time to time, customers and others make claims and take legal action pertaining to our performance of our

responsibilities.

financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services.

Any financial liability or reputation damage could have a material adverse

effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

The Company operates in a highly competitive industry and market area.

The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which

are larger and have more financial resources.

Such competitors primarily include national, regional and community banks within the various markets in which the Company operates.

The Company also faces competition from many other types of financial

institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries.

The information under the heading Competition in Item 1,

Business, provides more information regarding the competitive conditions in the Companys markets.

Companys industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.

Banks, securities firms and insurance companies can merge under the umbrella of a financial

holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.

Also, technology has lowered barriers to entry and made it possible

for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Many of the Companys competitors have fewer regulatory constraints

and may have lower cost structures.

Additionally, many of the Companys competitors have substantially greater resources than the Company, including higher total assets and capitalization, greater access to capital markets and a broader

offering of financial services.

The Companys ability to compete successfully depends on a number of factors,

including, among other things:

the ability to develop, maintain and build upon long-term customer relationships based on top quality service,

high ethical standards and safe, sound assets.

the ability to expand the Companys market position.

the scope, relevance and pricing of products and services offered to meet customer needs and demands.

the rate at which the Company introduces new products and services relative to its competitors.

customer satisfaction with the Companys and the Banks level of service.

industry and general economic trends.

Failure to perform in any of these areas could significantly weaken the Companys competitive position, which could

adversely affect its growth and profitability, which, in turn, could have a material adverse effect on the Companys financial condition and results of operations.

We are subject to a variety of operational risks, including the risk of fraud or theft by employees, which

may adversely affect our business and results of operations.

We are exposed to many types of operational risks,

including liquidity risk, credit risk, market risk, interest rate risk, legal and compliance risk, strategic risk, information security risk, and reputational risk.

We are also reliant upon our employees, and our operations are subject to the risk

of fraud, theft or malfeasance by our employees.

We have established processes and procedures intended to identify, measure, monitor, report and analyze these risks, however, there are inherent limitations to our risk management strategies as there

may exist, or develop in the future, risks that we have not appropriately anticipated, monitored or identified.

If our risk management framework proves ineffective, we could suffer unexpected losses, we may have to expend resources detecting and

correcting the failure in our systems and we may be subject to potential claims from third parties and government agencies.

From time to time, customers and others make claims and take legal action pertaining to our performance of our responsibilities.

Whether customer claims and legal action related to our performance of our responsibilities are founded or unfounded, or if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services.

Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

We are subject to a variety of operational risks, including the risk of fraud or theft by employees, which may adversely affect our business and results of operations.

We are exposed to many types of operational risks, including liquidity risk, credit risk, market risk, interest rate risk, legal and compliance risk, strategic risk, information security risk, and reputational risk.

We are also reliant upon our employees, and our operations are subject to the risk of fraud, theft or malfeasance by our employees.

We have established processes and procedures intended to identify, measure, monitor, report and analyze these risks, however, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated, monitored or identified.

If our risk management framework proves ineffective, we could suffer unexpected losses, we may have to expend resources detecting and correcting the failure in our systems and we may be subject to potential claims from third parties and government agencies.

We may also suffer severe reputational damage.

Any of these consequences could adversely affect our business, financial

condition or results of operations.

In particular, the unauthorized disclosure, misappropriation, mishandling or misuse of personal, non-public, confidential or proprietary information of customers could

result in significant regulatory consequences, reputational damage and financial loss.

Our risk management policies and procedures may not be fully

effective in identifying or mitigating risk exposure in all market environments or against all types of risk, including employee misconduct.

Any of these consequences could adversely affect our business, financial condition or results of operations.

In particular, the unauthorized disclosure, misappropriation, mishandling or misuse of personal, non-public,

confidential or proprietary information of customers could result in significant regulatory consequences, reputational damage and financial loss.

Our risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure in all market environments or against all types of risk, including employee misconduct.

We have devoted significant resources to develop our risk management policies and procedures and will continue to do so.

Nonetheless, our policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

Many of our methods of managing risk and exposures are

based upon our use of observed historical market behavior or statistics based on historical models.

During periods of market volatility or due to unforeseen events, the historically derived correlations upon which these methods are based may not be

Many of our methods of managing risk and exposures are based upon our use of observed historical market behavior or statistics based on historical models.

During periods of market volatility or due to unforeseen events, the historically derived correlations upon which these methods are based may not be valid.

As a result, these methods may not predict future exposures accurately, which could be significantly greater than what our models indicate.

This could cause us to incur investment losses or cause our hedging and other risk management

strategies to be ineffective.

Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that are publicly available or otherwise accessible to us, which may not always

be accurate, complete, up-to-date or properly evaluated.

Moreover, we are subject to the risks of errors and misconduct by our employees and advisors, such as fraud, non-compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential information.

These risks are difficult to detect in advance and deter, and could harm

our business, results of operations or financial condition.

Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and

these policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

Insurance and other traditional risk-shifting tools may be held by or available to us in order to

manage certain exposures, but they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.

This could cause us to incur investment losses or cause our hedging and other risk management strategies to be ineffective.

or properly evaluated.

Moreover, we are subject to the risks of errors and misconduct by our employees and advisors, such as fraud, non-compliance

with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential information.

These risks are difficult to detect in advance and deter, and could harm our business, results of operations or financial condition.

Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

Insurance and other traditional risk-shifting tools may be held by or available to us in order to manage certain exposures, but they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.

The Company may be subject to more stringent capital and liquidity requirements which would adversely affect its net income and future growth.

The Dodd-Frank Act applies the same leverage and risk-based capital requirements that apply to insured depository

institutions to most bank holding companies, which, among other things, will change the way in which hybrid securities, such as trust preferred securities, are treated for purposes of determining a bank holding companys regulatory capital.

2011, the federal banking agencies

published a final rule regarding minimum leverage and risk-based capital requirements for banks and bank holding companies consistent with the requirements of Section 171 of the Dodd-Frank

The Dodd-Frank Act applies the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, which, among other things, will change the way in which hybrid securities, such as trust preferred securities, are treated for purposes of determining a bank holding company’s regulatory capital.

In 2011, the federal banking agencies published a final rule regarding minimum leverage and risk-based capital requirements for banks and bank holding companies consistent with the requirements of Section 171 of the Dodd-Frank Act.

For a more detailed description of the minimum capital requirements see “Supervision and Regulation – Capital Standards”.

The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding

companies and their respective subsidiaries by the appropriate regulatory agency.

These requirements, and any other new regulations, could adversely affect the Companys ability to pay dividends, or could require the Company to reduce business

levels or to raise capital, including in ways that may adversely affect the Companys results of operations or financial condition.

In addition, in 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking

Supervision, announced agreement on the calibration and phase-in arrangements for a strengthened set of capital requirements, known as Basel III.

In 2013, regulators adopted enhancements to United States.

capital standards based on Basel III.

These requirements, and any other new regulations, could adversely affect the Company’s ability to pay dividends, or could require the Company to reduce business levels or to raise capital, including in ways that may adversely affect the Company’s results of operations or financial condition.

In addition, in 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on the calibration and phase-in

arrangements for a strengthened set of capital requirements, known as Basel III.

In 2013, regulators adopted enhancements to United States capital standards based on Basel III.

The revised standards create a new emphasis on Tier 1 common equity, modify eligibility criteria for regulatory capital instruments, and modify the methodology for calculating risk-weighted assets.

standards require the following:

The revised standards require the following:

Tier 1 Common Equity.

For all supervised financial institutions, including the Company and the Bank,

the ratio of Tier 1 common equity to risk-weighted assets (Tier 1 Common Equity Capital ratio) must be at least 4.5%.

For all supervised financial institutions, including the Company and the Bank, the ratio of Tier 1 common equity to risk-weighted assets (“Tier 1 Common Equity Capital ratio”) must be at least 4.5%.

To be “well capitalized” the Tier 1 Common Equity Capital ratio must be at least 6.5%.

conservation buffer of an additional 2.5% above the minimum 4.5% (or 7% overall) is not maintained, special restrictions would apply to capital distributions, such as dividends and stock repurchases, and on certain compensatory bonuses.

common equity capital consists of core components of Tier 1 capital:

If a capital conservation buffer of an additional 2.5% above the minimum 4.5% (or 7% overall) is not maintained, special restrictions would apply to capital distributions, such as dividends and stock repurchases, and on certain compensatory bonuses.

Tier 1 common equity capital consists of core components of Tier 1 capital:

common stock plus retained earnings net of goodwill, other intangible assets, and certain other required deduction items.

Tier 1 Capital Ratio.

For all banking organizations, including the Bank, the ratio of Tier 1 capital to

risk-weighted assets must be at least 6%.

For all banking organizations, including the Bank, the ratio of Tier 1 capital to risk-weighted assets must be at least 6%.

The threshold is raised from the prior 4%, and the risk-weighting method is changed as mentioned above.

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Total Capital Ratio.

For all supervised financial institutions, including the Company and the Bank, the

ratio of total capital to risk-weighted assets must be at least 8%.

For all supervised financial institutions, including the Company and the Bank, the ratio of total capital to risk-weighted assets must be at least 8%.

Although this threshold is unchanged from prior requirements, as mentioned above the method for risk-weighting assets has been changed.

As a result of that method change, many banks

could have experienced a reduction in this ratio if the change had been effective immediately when the rules were adopted.

As a result of that method change, many banks could have experienced a reduction in this ratio if the change had been effective immediately when the rules were adopted.

Leverage Ratio – Base.

For all banking organizations, including the Bank, the leverage ratio must

be at least 4%.

For all banking organizations, including the Bank, the leverage ratio must be at least 4%.

To be “well capitalized” the leverage ratio must be at least 5%.

Leverage Ratio – Supplemental.

For the largest internationally active banking organizations, not

including the Bank, a minimum supplementary leverage ratio must be maintained that takes into account certain off-balance sheet exposures.

The revised standards took effect on January 1, 2015 for the Company and the

The capital conservation buffer requirement is subject to a phase-in period.

For the largest internationally active banking organizations, not including the Bank, a minimum supplementary leverage ratio must be maintained that takes into account certain off-balance

sheet exposures.

The revised standards took effect on January 1, 2015 for the Company and the Bank.

The capital conservation buffer requirement is subject to a phase-in

Future increases in minimum capital requirements could adversely affect the Company’s net income.

Furthermore, the

Companys failure to comply with the minimum capital requirements could result in regulators taking formal or informal actions against the Company which could restrict future growth or operations.

Negative perceptions or publicity could damage our reputation among existing and potential customers, investors, employees and advisors.

Our reputation is one of our most important assets.

Our ability to attract and retain customers, investors, employees and

advisors is highly dependent upon external perceptions of our company.

Damage to our reputation could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to

deliver minimum standards of service and quality, compliance failures, any perceived or actual weakness in our financial strength or liquidity, technological, cybersecurity, or other security breaches resulting in improper disclosure of client or

employee personal information, unethical behavior and the misconduct of our employees, advisors and counterparties.

Negative perceptions or publicity regarding these matters could damage our reputation among existing and potential customers,

investors, employees and advisors.

Adverse developments with respect to our industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us.

In addition, the SEC

and other federal and state regulators have increased their scrutiny of potential conflicts of interest.

It is possible that potential or perceived conflicts could give rise to litigation or enforcement actions.

It is possible also that the

regulatory scrutiny of, and litigation in connection with, conflicts of interest will make our clients less willing to enter into transactions in which such a conflict may occur and will adversely affect our businesses.

Furthermore, the Company’s failure to comply with the minimum capital requirements could result in regulators taking formal or informal actions against the Company which could restrict future growth or operations.

The Company may be required to pay significantly higher FDIC premiums in the future.

The FDIC insures deposits at FDIC insured financial institutions, including the Bank.

The FDIC charges the insured financial

institutions premiums to maintain the Deposit Insurance Fund at an adequate level.

The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund at an adequate level.

The FDIC may increase these rates and impose additional special assessments in the future, which could have a material adverse effect on future earnings.

The Company’s controls and procedures may fail or be circumvented.

Management regularly reviews and updates the Companys internal control over financial reporting, disclosure controls and

procedures and corporate governance policies and procedures.

Any system of controls, however well designed and operated, has inherent limitations, including the possibility that a control can be circumvented or overridden, and misstatements due to

error or fraud may occur and not be detected.

Management regularly reviews and updates the Company’s internal control over financial reporting, disclosure controls and procedures and corporate governance policies and procedures.

Any system of controls, however well designed and operated, has inherent limitations, including the possibility that a control can be circumvented or overridden, and misstatements due to error or fraud may occur and not be detected.

Also, because of changes in conditions, internal control effectiveness may vary over time.

Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to

the Companys adherence to financial reporting, disclosure and corporate governance policies and procedures.

Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to the Company’s adherence to financial reporting, disclosure and corporate governance policies and procedures.

The Company may be adversely affected by the soundness of other financial institutions.

Financial institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.

The Company has

exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients.

The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients.

Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client.

In addition, the Companys credit risk may be exacerbated when the collateral held by the Company cannot be realized or is

liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Company.

In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Company.

Any such losses could have a material adverse effect on the Company’s financial condition and results of operations.

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The Company contracts with a number of third party vendors to support its infrastructure.

Many of these vendors are large

national companies who are dominant in their area of expertise and would be difficult to quickly replace.

Failures of certain vendors to provide services could adversely affect the Companys ability to deliver products and services to its

customers, disrupting its business and causing it to incur significant expense.

Many of these vendors are large national companies who are dominant in their area of expertise and would be difficult to quickly replace.

Failures of certain vendors to provide services could adversely affect the Company’s ability to deliver products and services to its customers, disrupting its business and causing it to incur significant expense.

External vendors also present information security risks.

than anticipated growth in new branches and new product and service offerings could result in reduced income.

Company has placed a strategic emphasis on expanding its branch network and product offerings.

Executing this strategy carries risks of slower than anticipated growth both in new branches and new products.

New branches and products require a

significant investment of both financial and personnel resources.

Lower than expected loan and deposit growth in new investments can decrease anticipated revenues and net income generated by those investments and opening new branches and introducing

new products could result in more additional expenses than anticipated and divert resources from current core operations.

The Company is

substantially dependent on dividends from the Bank for its revenues.

The Company is a separate and distinct legal

entity from the Bank, and it receives substantially all of its revenue from dividends from the Bank.

The Company is substantially dependent on dividends from the Bank for its revenues.

The Company is a separate and distinct legal entity from the Bank, and it receives substantially all of its revenue from dividends from the Bank.

These dividends are the principal source of funds to pay dividends on its common stock and interest and principal on debt.

Various federal and state

laws and regulations limit the amount of dividends that the Bank may pay to the Company.

Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Company.

In the event the Bank is unable to pay dividends to the Company, it may not be able to pay obligations or pay dividends on the Company’s common stock.

inability to receive dividends from the Bank could have a material adverse effect on the Companys business, prospects, financial condition and results of operations.

The information under the heading Supervision and Regulation in

Item 1, Business, provides a discussion about the restrictions governing the Banks ability to transfer funds to the Company.

The inability to receive dividends from the Bank could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.

The information under the heading “Supervision and Regulation” in Item 1, “Business,” provides a discussion about the restrictions governing the Bank’s ability to transfer funds to the Company.

Potential acquisitions may disrupt the Company’s business and dilute shareholder value.

From time-to-time, the Company evaluates merger

and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions.

As a result, merger or acquisition discussions and, in some cases, negotiations may take place, and future

mergers or acquisitions involving cash, debt or equity securities may occur at any time.

From time-to-time,

the Company evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions.

As a result, merger or acquisition discussions and, in some cases, negotiations may take place, and future mergers or acquisitions involving cash, debt or equity securities may occur at any time.

Acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions, including, among other things:

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potential changes in banking or tax laws or regulations that may affect the target company.

In addition, acquisitions typically involve the payment of a premium over book and market values, and,

therefore, some dilution of the Companys tangible book value and net income per common share may occur in connection with any future transaction.

Furthermore, failure to realize the expected revenue increases, cost savings, increases in

geographic or product presence, or other projected benefits from an acquisition could have a material adverse effect on the Companys business, prospects, financial condition and results of operations.

The Company may not be able to attract and retain skilled people.

The Companys success depends in part on its ability to retain key executives and to attract and retain additional

qualified personnel who have experience both in sophisticated banking matters and in operating a bank of the Companys size.

Competition for such personnel is strong in the banking industry, and the Company may not be successful in attracting

or retaining the personnel it requires.

The unexpected loss of one or more of the Companys key personnel could have a material adverse impact on its business because of their skills, knowledge of the Companys markets, years of industry

experience and the difficulty of promptly finding qualified replacements.

The Company expects to effectively compete in this area by offering financial packages that are competitive within the industry.

In addition, acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction.

Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, or other projected benefits from an acquisition could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.

The Company’s information systems may experience an interruption or breach in security.

Evolving technologies and the need to protect against and

react to cybersecurity risks and electronic fraud requires significant resources.

The Company relies heavily on

communications and information systems to conduct its business.

Evolving technologies and the need to protect against and react to cybersecurity risks and electronic fraud requires significant resources.

The Company relies heavily on communications and information systems to conduct its business.

Furthermore, the Bank provides its customers the ability to bank online.

The secure transmission of confidential information over the internet is a critical element of online banking.

The Company needs to invest in information technology to keep pace with technology changes, and while the Company invests amounts it believes will be adequate, it may fail to invest adequate amounts such that the efficiency of information technology

systems fails to meet operational needs.

transmission of confidential information over the Internet is a critical element of online banking.

Any failure, interruption or breach in security of these systems could result in failures or disruptions in its customer relationship management, general ledger, deposit, loan and other systems.

Company has policies and procedures designed to prevent or limit the effect of the failure, interruption

or security breach of the Companys information systems, there can be no assurance that any such failures, interruptions or security breaches will be prevented, and if they occur, that they

will be adequately addressed.

While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of the Company’s information systems, there can be no assurance that any such failures, interruptions or security breaches will be prevented, and if they occur, that they will be adequately addressed.

Additionally, to the extent the Company relies on third party vendors to perform or assist operational functions, the challenge of managing the associated risks becomes more difficult.

The occurrence of any failures,

interruptions or security breaches of the Companys information systems could damage its reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose it to civil litigation and possible

financial liability, any of which could have a material adverse effect on the financial condition and results of operations of the Company.

Company continually encounters technological change.

The Companys industry is continually undergoing rapid

technological change with frequent introductions of new technology-driven products and services.

The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage its reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose it to civil litigation and possible financial liability, any of which could have a material adverse effect on the financial condition and results of operations of the Company.

The operational functions of business counterparties may experience similar disruptions that could adversely impact us and over which the Company may have limited or no control.

Over the course of the past few years, companies such as major retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information, and other financial data of tens of millions of the retailers’ customers.

Retailer incursions affect cards issued and deposit accounts maintained by many banks, including the Bank.

Although the Bank systems are not breached in retailer incursions, these events can cause the Bank to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Bank and its customers.

Other possible points of incursion or disruption not within the Bank’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (“cloud”) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.

The Company continually encounters technological change and we may not have the resources to implement new technology.

The Company’s industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.

The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs.

The Companys

future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Companys

The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations.

Many of the Company’s competitors have substantially greater resources to invest in technological improvements.

The Company may not be able to effectively implement new technology-driven products and services or be successful in

marketing these products and services to its customers.

Failure to successfully keep pace with technological change affecting the Companys industry could have a material adverse impact on its business and, in turn, the Companys financial

condition and results of operations.

The operational functions of business counterparties may experience similar disruptions that could adversely

impact us and over which the Company may have limited or no control.

Over the course of the past few years,

companies such as major retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information, and other financial data of tens of millions of the retailers

Retailer incursions affect cards issued and deposit accounts maintained by many banks, including the Bank.

Although the Bank systems are not breached in retailer incursions, these events can cause the Bank to reissue a significant number

of cards and take other costly steps to avoid significant theft loss to the Bank and its customers.

Other possible points of incursion or disruption not within the Banks control include internet service providers, electronic mail portal

providers, social media portals, distant-server (cloud) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.

The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.

Failure to successfully keep pace with technological change affecting the Company’s industry could have a material adverse impact on its business and, in turn, the Company’s financial condition and results of operations.

Consumers may decide not to use banks to complete their financial transactions.

While the Company continually attempts to use technology to offer new products and services, at the same time, technology and

other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods.

For example, consumers can now maintain funds in brokerage accounts, mutual funds or use electronic payment

methods such as Apple Pay or PayPal, that would have historically been held as bank deposits.

While the Company continually attempts to use technology to offer new products and services, at the same time, technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods.

For example, consumers can now maintain funds in brokerage accounts, mutual funds or use electronic payment methods such as Apple Pay or PayPal, that would have historically been held as bank deposits.

Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks.

The process of eliminating

banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The loss of these revenue streams and the lower cost deposits

as a source of funds could have a material adverse effect on the Companys financial condition and results of operations.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly

impact the Companys business.

The Bank has branches along the coast of Mississippi that are subject to risks

from hurricanes from time to time.

Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on the ability of the Company to conduct business.

Such events could affect the

stability of the Companys deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue or cause the Company to incur

additional expenses.

The occurrence of any such event could have a material adverse effect on the Companys business, prospects, financial condition and results of operations.

The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations.

The Company is subject to accounting estimate risks.

The preparation of the Companys consolidated financial statements in conformity with generally accepted accounting

principles requires management to make significant estimates that affect the financial statements.

The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires management to make significant estimates that affect the financial statements.

The Company’s most critical estimate is the level of the allowance for credit losses.

However, other estimates occasionally become highly

significant, especially in volatile situations such as litigation and other loss contingency matters.

However, other estimates occasionally become highly significant, especially in volatile situations such as litigation and other loss contingency matters.

Estimates are made at specific points in time;

as actual events unfold, estimates are adjusted accordingly.

Due to the inherent nature of these

estimates, it is possible that, at some time in the future, the Company may significantly increase the allowance for credit losses or sustain credit losses that are significantly higher than the provided allowance, or the Company may make some other

adjustment that will differ materially from the estimates that the Company makes today.

Expense Control could have an effect on the Companys

Expenses and other costs directly affect the Companys earnings.

The Companys ability

to successfully manage expenses is important to its long-term profitability.

Many factors can influence the amount of the Companys expenses, as well as how quickly they grow.

As the Companys businesses change or expand, additional

expenses can arise from asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things.

The Company manages expense growth and risk through a variety of means, including actual versus budget

management, imposition of expense authorization, and procurement coordination and processes.

Due to the inherent nature of these estimates, it is possible that, at some time in the future, the Company may significantly increase the allowance for credit losses or sustain credit losses that are significantly higher than the provided allowance, or the Company may make some other adjustment that will differ materially from the estimates that the Company makes today.

Risks Associated With the Company’s Common Stock

The trading volume in the Company’s common stock is less than that of other larger bank holding companies.

The Company’s common stock is listed for trading on NASDAQ Global Market.

The average daily trading volume in the Company’s common stock is low, generally less than that of many of its competitors and other larger bank holding companies.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time.

This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control.

Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales, could cause volatility in the price of the Company’s common stock.

Issuing additional shares of our common stock to acquire other banks, bank holding companies, financial holding companies and/or insurance agencies may result in dilution for existing shareholders and may adversely affect the market price of our stock.

We may issue, in the future, shares of our common stock to acquire additional banks, bank holding companies, and other businesses related to the financial services industry that may complement our organizational structure.

Resales of substantial amounts of common stock in the

public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities.

We may be required to pay an acquisition premium above the fair market value of acquired assets for acquisitions.

Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock.

The Company’s Articles of Incorporation and Bylaws, as well as certain banking laws, may have an anti-takeover effect.

Provisions of the Company’s Articles of Incorporation and Bylaws, which are exhibits to this Annual Report on Form 10-K,

and the federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire the Company, even if doing so would be perceived to be beneficial to the Company’s shareholders.

The combination of these provisions impedes a non-negotiated

merger or other business combination, which, in turn, could adversely affect the market price of the Company’s common stock.

General Risk Factors

The Company is subject to risk from adverse economic conditions.

Our operations and profitability are impacted by general business and economic conditions in the State of Mississippi, and the United States.

economy and the local economies in which we operate, all of which are beyond our control.

A deterioration in economic conditions could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.

Negative perceptions or publicity could damage our reputation among existing and potential customers, investors, employees and advisors.

Our reputation is one of our most important assets.

Our ability to attract and retain customers, investors, employees and advisors is highly dependent upon external perceptions of our company.

Damage to our reputation could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, compliance failures, any perceived or actual weakness in our financial strength or liquidity, technological, cybersecurity, or other security breaches resulting in improper disclosure of client or employee personal information, unethical behavior and the misconduct of our employees, advisors and counterparties.

Negative perceptions or publicity regarding these matters could damage our reputation among existing and potential customers, investors, employees and advisors.

Adverse developments with respect to our industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us.

In addition, the SEC and other federal and state regulators have increased their scrutiny of potential conflicts of interest.

It is possible that potential or perceived conflicts could give rise to litigation or enforcement actions.

It is possible also that the regulatory scrutiny of, and litigation in connection with, conflicts of interest will make our clients less willing to enter into transactions in which such a conflict may occur and will adversely affect our businesses.

The Company may not be able to attract and retain skilled people.

The Company’s success depends in part on its ability to retain key executives and to attract and retain additional qualified personnel who have experience both in sophisticated banking matters and in operating a bank of the Company’s size.

Competition for such personnel is strong in the banking industry, and the Company may not be successful in attracting or retaining the personnel it requires.

The unexpected loss of one or more of the Company’s key personnel could have a material adverse impact on its business because of their skills, knowledge of the Company’s markets, years of industry experience and the difficulty of promptly finding qualified replacements.

The Company expects to effectively compete in this area by offering financial packages that are competitive within the industry.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact the Company’s business.

The Bank has branches along the coast of Mississippi that are subject to risks from hurricanes from time to time.

Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on the ability of the Company to conduct business.

Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue or cause the Company to incur additional expenses.

The occurrence of any such event could have a material adverse effect on the Company’s business, prospects, financial condition and results of operations.

The Company’s stock price can be volatile.

Stock price volatility may make it more difficult for you to sell your common stock when you want and at prices you find

Stock price volatility may make it more difficult for you to sell your common stock when you want and at prices you find attractive.

The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things:

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recommendations by securities analysts;

operating and stock price performance of other companies that investors deem comparable to the Company;

news reports relating to trends, concerns and other issues in the banking and financial services industry;

operating and stock performance of other companies that to be peers;

perceptions in the marketplace regarding the Company or its competitors;

new technology used, or services offered, by competitors;

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital

commitments by or involving the Company or its competitors;

significant acquisitions or business combinations involving the Company or its competitors;

failure to integrate acquisitions or realize anticipated benefits from acquisitions;

changes in government regulations;

geopolitical conditions such as acts or threats of terrorism or military conflicts.

Additionally, general market fluctuations, industry factors and general economic and political conditions and events, such as

economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause the Companys stock price to decrease regardless of operating results.

The trading volume in the Companys common stock is less than that of other larger bank holding companies.

The Companys common stock is listed for trading on NASDAQ Global Market.

The average daily trading volume in the

Companys common stock is low, generally less than that of many of its competitors and other larger bank holding companies.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence

in the marketplace of willing buyers and sellers of the Companys common stock at any given time.

This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control.

Given the lower trading volume of the Companys common stock, significant sales of the Companys common stock, or the expectation of these sales, could cause volatility in the price of the Companys common stock.

An investment in the Companys common stock is not an insured deposit.

The Companys common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any deposit

insurance fund or by any other public or private entity.

Investment in the Companys common stock is inherently risky for the reasons described in this Risk Factors section and elsewhere in this report and is subject to the same

market forces that affect the price of common stock in any company.

As a result, if you acquire the Companys common stock, you may lose some or all of your investment.

Issuing additional shares of our common stock to acquire other banks, bank holding companies, financial holding companies and/or insurance agencies may

result in dilution for existing shareholders and may adversely affect the market price of our stock.

We may issue,

in the future, shares of our common stock to acquire additional banks, bank holding companies, and other businesses related to the financial services industry that may complement our organizational structure.

Resales of substantial amounts of common

public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity

We may be required to pay an acquisition premium above the fair market value of acquired assets for acquisitions.

Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect

the prevailing market price of our common stock.

We may issue debt or equity securities or securities convertible into equity securities, any of

which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured

or secured by all or up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or

securities convertible into or exchangeable for equity securities.

In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive a distribution of our available assets before distributions to the holders

of our common stock.

Because any decision to incur debt or issue securities in future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future

offerings and debt financings.

Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

The Companys Articles of Incorporation and Bylaws, as well as certain banking laws, may have an anti-takeover effect.

Provisions of the Companys Articles of Incorporation and Bylaws, which are exhibits to this Annual Report on Form 10-K, and the federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire the Company, even if doing so would be perceived to be beneficial to the

Companys shareholders.

The combination of these provisions impedes a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Companys

common stock.

volatility affecting the financial markets in general.

General market fluctuations, the potential for breakdowns on electronic trading or other platforms for executing securities transactions, industry factors and general economic and political conditions could cause the Company’s stock price to decrease regardless of operating results.

UNRESOLVED STAFF COMMENTS.

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What changed 10-K

Item 1A. Risk Factors