Bank Directors Seminar, Coeur d'Alene, ID, September 15-17, 2019

The Board of Directors and management of The State Bank recognize the critical need for capital planning to ensure the Bank's ongoing safety and soundness. This Policy governs the Bank's internal processes to (1) assess its capital adequacy in relation to its overall risk and (2) plan for maintaining appropriate capital levels. Risk Identification and Evaluation In an effort to fully assess the short and longer term capital needs of the Bank, management shall annually update the Capital Risk Assessment attached as Exhibit A. Via this risk assessment process, management and the Board of Directors will, on an ongoing basis, tailor the Bank's capital plan to match its current risk environment. Internal Capital Adequacy Guidelines Dependent upon various risk factors (such as growth plans, access to capital, credit risk among others), a bank's capital needs will differ from other institutions and over various points in time. Future potential risks to net income and ultimately capital are quantified via the Risk Assessment process outlined in Exhibit A. The riskweighted, composite rating thereby derived shall determine the ratio targets that will apply to the Bank's capital until the next risk assessment is completed. The Target Capital Ratios applicable to risk ratings 1, 2, and 3 (as well as 12 CFR 6.4's adequately- and well-capitalized ratios) are detailed below.

Well- Capitalized Threshold

Adequately- Capitalized Threshold

Target Ratios given Composite Rating from most recent Risk Assessment Rating 1 Rating 2 Rating 3

Risk-Based Capital Ratio

8.00%

10.50%

10.50%

13.00%

16.00%

Tier 1 Risk-Based Capital Ratio

4.00%

6.00%

8.00%

10.00%

14.00%

Leverage Ratio

4.00%

5.00%

7.50%

8.00%

11.00%

Monitoring Capital Ratios and Addressing Shortfalls On a quarterly basis, management shall report the Bank's capital position and capital ratios to the Board of Directors.

If at any time any of the three ratios fall below the applicable target (given the composite risk rating calculated as of the most recent risk assessment date), a priority meeting of the Bank's Board of Directors and of the Holding Company's Board of Directors will be convened to formulate an action plan for a return to target capital levels.

Potential scenarios to be considered to further facilitate an increase in the Bank's capital ratios will include but not be limited to:

(1) holding company debt issuance,

(2) capital raising actions (injections by current shareholdings or sale of stock to new shareholders),

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