What changed in this filing

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Item 1A. Risk Factors

2020-08-10 compared with 2020-05-07 · 115 added, 41 removed, 11 unchanged (93% of the section changed)

5 unchanged sentences

of Part I of the Company’s Annual Report on Form 10-K for the

year ended December 31, 2019.

year ended December 31, 2019 as supplemented by the risk factors included in “Item 1A.

Risk Factors”

of Part II of

the Company’s Quarterly Report on Form 10-Q for te quarter ended March 31, 2020.

The following information supplements our

2 unchanged sentences

of Part I of the Company’s Annual Report on Form

10-K for the year ended December 31, 2019.

We may be adversely affected by the world-wide coronavirus

(COVID-19) pandemic.

The coronavirus (COVID-19) outbreak may

have an adverse impact on certain of our customers directly or indirectly.

Entire industries within our loan and lease portfolio

such as motor coach, shuttle bus and auto rental have been impacted due to reduced demand related to quarantines and travel restrictions.

Other industries within our loan and lease portfolio or the communities we serve are likely to experience similar disruptions and

economic hardships as the current coronavirus pandemic persists.

In addition, such events could affect the stability of our deposit

base, lead to mass layoffs and furloughs which could impair the ability of borrowers to repay outstanding loans, impair the value

of collateral securing loans, result in lost revenue or cause us to incur additional expenses.

Additionally, the Federal Reserve has reduced

interest rates substantially in an attempt to boost consumer spending due to the coronavirus pandemic which could have a sustained

negative impact on our results of operations.

Congress has also passed a massive stimulus package (the “Coronavirus

Aid, Relief, and Economic Security Act”) intended to provide relief to consumers and small businesses however the effectiveness

of this package could be disrupted by operational challenges in successfully implementing all of its provisions in a timely manner

and could ultimately prove to be insufficient in scale.

Although we maintain contingency and disaster

recovery plans for pandemic outbreaks, we created a dedicated executive COVID-19 response team that is closely monitoring developments

and providing guidance for additional precautions and initiatives.

We have established separate teams within departments to help

ensure that infection will not spread across entire departments.

We are encouraging virtual meetings and conference calls in place

of in-person meetings, including our annual shareholder meeting which will be held virtually this year.

Employees with health conditions

putting them at higher risk of adverse effects from coronavirus infection are working remotely.

10-K for the year ended December 31, 2019 and in “Item 1A.

Risk Factors”

of Part II of the Company’s Quarterly

Report on Form 10-Q for the quarter ended March 31, 2020.

As a participating lender in the SBA

Paycheck Protection Program (“PPP”), State Bank is subject to additional risks of litigation from its customers or

other parties regarding State Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP

loan guaranties.

On March 27, 2020, President Trump signed

the CARES Act, which included a loan program administered through the SBA referred to as the PPP.

Under the PPP, small businesses

and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll

in the program, subject to numerous limitations and eligibility criteria.

State Bank has participated as a lender in the PPP.

PPP opened on April 3, 2020;

however, because of the short timeframe between the passing of the CARES Act and the opening of the

PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes State Bank to risks

relating to noncompliance with the PPP.

Since the opening of the PPP, several other

larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications

for the PPP and claims related to agent fees.

State Bank may be exposed to the risk of similar litigation, from both customers

and non-customers that approached State Bank regarding PPP loans, regarding its process and procedures used in processing applications

for the PPP, or litigation from agents with respect to agent fees.

If any such litigation is filed against State Bank and is not

resolved in a favorable manner, it may result in significant financial liability or adversely affect the Company’s reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage

caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

State Bank also has credit risk on PPP

loans if a determination is made by the SBA that there is a deficiency in the manner in which a PPP loan was originated, funded,

or serviced by State Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related

to the ambiguity in the laws, rules and guidance regarding the operation of the PPP.

In the event of a loss resulting from a default

on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded,

or serviced by State Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has

already paid under the guaranty, seek recovery of any loss related to the deficiency from State Bank.

Operational impacts from the COVID-19

pandemic could adversely affect our business, financial condition and results of operations.

In response to COVID-19, the Company has

modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations

as much as possible and to help reduce the risk of COVID-19 infecting entire departments.

Reduced workforces which may be caused

by, but not limited to, illness, quarantine, stay at home or other government mandates, or difficulties transitioning back to an

in office environment, could result in an adverse impact to the Company’s operations and financial performance.

with health conditions putting them at higher risk of adverse effects from COVID-19 are working remotely.

The Company is encouraging

virtual meetings and conference calls in place of in-person meetings, including the annual shareholders meeting which was held

via teleconference this year.

Additionally, travel has been restricted.

We are promoting social distancing, frequent hand washing and thorough disinfection of all surfaces.

Our banking center lobbies

have been closed except for advance appointments only.

Banking center drive-ups, ATMs and online/mobile banking services continue

Even with precautions, the continued spread

or prolonged impact of the coronavirus could negatively impact the availability of key personnel or significant numbers of our

staff, who are necessary to conduct our business.

Such a spread or outbreak could also impact the business and operations of third

party service providers who perform critical services for our business.

If the coronavirus spreads or the containment and mitigation

response is unsuccessful for a prolonged period of time, we could experience a material adverse effect on our business, financial

condition, and results of operations.

The Company is promoting social distancing, frequent hand

washing and thorough disinfection of all surfaces.

State Bank’s financial service location lobbies have been closed for periods

of time except for advance appointments only.

Branch drive-ups, call center, ATMs and online/mobile banking services continue to

operate and are the preferred option of service.

Even with the precautions undertaken, the continued spread or prolonged impact

of COVID-19 could negatively impact the availability of key personnel or significant numbers of the Company’s staff, who are necessary

to conduct the Company’s business.

Further, technology in employees’

homes may not be as robust as in the Company’s offices and could cause the networks, information systems, applications, and

other tools available to employees to be more limited or less reliable than in our offices.

The continuation of these work-from-home

measures also introduces additional operational risk, including increased cybersecurity risk.

These cybersecurity risks include

greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of the Company’s information technology

infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential

information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security

breach resulting in destruction or misuse of valuable information, and potential impairment of the Company’s ability to perform

critical functions, including wiring funds, all of which could expose the Company to risks of data or financial loss, litigation

and liability and could seriously disrupt operations and the operations of any impacted customers.

The Company also relies on many third parties

in business operations, including appraisers of real property collateral, vendors that supply essential services such as loan servicers,

providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and

local and federal government agencies, offices, and courthouses.

In light of the developing measures responding to the pandemic,

many of these entities may limit the availability and access of their services.

For example, loan originations could be delayed

due to the limited availability of real estate appraisers for the underlying collateral.

Loan closings could be delayed due to

reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for

title work, and mortgage and UCC filings in those counties.

If the third-party service providers continue to have limited capacities

for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect

the Company’s operations.

The Company may be exposed to increased interest rate risk

as a result of the COVID-19 pandemic.

The Company’s net interest income,

lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties

stemming from COVID-19.

In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from

0% to 0.25%, citing concerns about the impact of COVID-19 on markets and stress in the energy sector.

A prolonged period of extremely

volatile and unstable market conditions would likely increase the Company’s funding costs and negatively affect market risk

mitigation strategies.

Higher revenue volatility from changes in interest rates and spreads to benchmark indices could cause a

loss of future net interest income and a decrease in the fair market values of the Company’s assets.

Fluctuations in interest

rates will impact both the level of income and expense recorded on most of the Company’s assets and liabilities and the market

value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on the

Company’s net income, results of operations and financial condition.

Low rates increase the risk in the U.S.

of a negative

interest rate environment in which interest rates drop below zero, either broadly or for some types of instruments.

Such an occurrence

would likely further reduce the interest the Company earns on loans and other earning assets, while also likely requiring the Company

to pay to maintain its deposits with the Federal Reserve.

The Company’s systems may not be able to adequately handle a negative

interest rate environment and not all variable rate instruments are designed for such a circumstance.

The Company cannot predict

the nature or timing of future changes in monetary policies in response to the outbreak or the precise effects that they may have

on the Company’s activities and financial results.

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

What changed 10-Q

Item 1A. Risk Factors