Notice of Annual Meeting Proxy Statement 2016 Annual Report

Notice of Annual Meeting Proxy Statement 2016 Annual Report

1422 US Highway 421A Wilkesboro, North Carolina 28697 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of shareholders of Great State Bank will be held at 2:00 p.m. EDT on Monday, May 15, 2017, at the Holiday Inn Express located at 1700 Winkler Street, Wilkesboro, North Carolina. The purposes of the meeting are: 1. Election of Directors. To elect nine directors for one-year terms; 2. Ratification of Appointment of Independent Accountants. To vote on a proposal to ratify the appointment of Brown, Edwards & Company, L.L.P., as our independent accountants for 2017; and 3. Other Business. To transact any other business properly presented for action at the Annual Meeting. Our Board of Directors unanimously recommends that you vote "FOR" each of the nine nominees named in the enclosed proxy statement for election as directors, and "FOR" Proposal 2. At the Annual Meeting, you may cast one vote for each share of our common stock you held of record on April 7, 2017, which is the "Record Date" for the meeting. You are invited to attend the Annual Meeting in person. However, if you are the record holder of your shares of our common stock, we ask that you appoint the Proxies named in the enclosed proxy statement to vote your shares for you by signing, dating and returning the enclosed proxy card, or following the instructions in the proxy statement to appoint the Proxies by Internet. If your shares are held in "street name" by a broker or other nominee, the record holder of your shares must vote them for you, so you should follow your broker's or nominee's directions and give it instructions as to how you want it to vote your shares. Even if you plan to attend the Annual Meeting, voting by proxy will help us ensure that your shares are represented and that a quorum is present at the meeting. If you sign a proxy card or appoint the Proxies by Internet, you may later revoke your appointment or change your vote or attend the Annual Meeting and vote in person. This notice and the enclosed proxy statement and form of proxy card are being mailed to our shareholders on or about April 14, 2017. By Order of the Board of Directors C. Greg Edwards President and Chief Executive Officer YOUR VOTE IS IMPORTANT. WHETHER YOU OWN ONE SHARE OR MANY, YOUR PROMPT COOPERATION IN VOTING BY PROXY IS APPRECIATED.

TABLE OF CONTENTS QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING... 1 When and where is the Annual Meeting?... 1 What proposals will be voted on at the Annual Meeting?... 1 How does the Board of Directors recommend that I vote?... 1 Who is entitled to vote at the Annual Meeting?... 2 How many votes may I cast at the Annual Meeting?... 2 How can I vote at the Annual Meeting?... 2 Who will be soliciting proxies and who is paying solicitation expenses?... 3 How will proxies be voted at the Annual Meeting?... 3 What should I do now?... 4 Can I change my voting instructions after I mail my proxy card or appoint the Proxies by Internet?... 4 What is required in order to have a quorum for the Annual Meeting?... 5 What vote is required for election of directors and approval of Proposal 2?... 5 PROPOSAL 1: ELECTION OF DIRECTORS... 6 General... 6 Nominees... 6 Attendance by Directors at Meetings... 7 Communications with Our Board... 8 COMMITTEES OF OUR BOARD... 8 General... 8 Audit Committee... 8 Corporate Governance Committee... 9 EXECUTIVE OFFICERS... 10 EXECUTIVE COMPENSATION... 11 Summary... 11 Employment Agreements... 11 Stock Option Plan... 12 DIRECTOR COMPENSATION... 12 TRANSACTIONS WITH RELATED PERSONS... 13 BENEFICIAL OWNERSHIP OF OUR COMMON STOCK... 14 PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS... 15 NOMINATIONS FOR 2018 ANNUAL MEETING... 16 PAGE

1422 US Highway 421A P.O. Box 892 Wilkesboro, North Carolina 28697 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS This proxy statement is dated April 10, 2017, and is being furnished to our shareholders by our Board of Directors in connection with our solicitation of proxy appointments in the form of the enclosed proxy card for use at the 2017 Annual Meeting of our shareholders and at any adjournments of the meeting. In this proxy statement, except where the context indicates otherwise: l "you," "your" and similar terms refer to the shareholder receiving it; and l "we," "us," "our" and similar terms refer to Great State Bank. The following are some questions that you, as a shareholder, may have regarding the Annual Meeting, and brief answers to those questions. We urge you to carefully read the remainder of this proxy statement because the information in these questions and answers does not provide all of the information that will be important to you with respect to the Annual Meeting and proposals to be voted on at the meeting. QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING Q: When and where is the Annual Meeting? A: The Annual Meeting is scheduled to be held on Monday, May 15, 2017, at 2:00 p.m. EDT at the Holiday Inn Express located at 1700 Winkler Street, Wilkesboro, North Carolina. Q: What proposals will be voted on at the Annual Meeting? A: At the Annual Meeting, record holders of our common stock will: l elect nine directors for one-year terms (see "PROPOSAL 1: ELECTION OF DIRECTORS" on page 6); l vote on a proposal to ratify the appointment of Brown, Edwards & Company, L.L.P. as our independent accountants for 2017 (see "PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS" on page 15); and l transact any other business properly presented for action at the Annual Meeting. Q: How does the Board of Directors recommend that I vote? A: Our Board of Directors unanimously recommends that you vote "FOR" each of the nine nominees named in this proxy statement for election as directors, and "FOR" the ratification of the appointment of our independent accountants.

Q: Who is entitled to vote at the Annual Meeting? A: Our Board of Directors has set the close of business on April 7, 2017, as the "Record Date" to determine which shareholders are entitled to receive notice of and to vote at the Annual Meeting and how many shares they are entitled to vote. Our voting securities are the 948,710 shares of our common stock that were outstanding on the Record Date. You must have been a record holder of our stock on that date in order to vote in person or by proxy at the meeting. Q: How many votes may I cast at the Annual Meeting? A: You may cast one vote for each share of our common stock that you held of record on the Record Date on each director to be elected and on each other matter voted on by shareholders at the Annual Meeting. Votes may not be cumulated in the election of directors. Q: How can I vote at the Annual Meeting? A: Record Holders. If your shares of our common stock are held of record in your name, you can vote at the Annual Meeting in any of the following ways. You can attend the Annual Meeting and vote in person. You can mark your voting instructions on the proxy card enclosed with this proxy statement, and sign, date and return it in the enclosed preaddressed envelope, to appoint three of our officers, C. Greg Edwards, Larry J. Farthing, and Lillian S. Eldreth, or any substitutes appointed by them, individually and as a group, to act as your "Proxies" to vote your shares for you at the meeting, or you can appoint another person to vote your shares for you. You can appoint the Proxies to vote your shares for you by logging on to the Internet voting website https://www.iproxydirect.com/gstb. Have your enclosed proxy card in hand when you access the website. When you are prompted for your "Control ID" and "Request ID," enter those numbers which are printed on your proxy card, and then follow the instructions to instruct the Proxies how to vote. You may appoint the Proxies by Internet up until 11:59 p.m. EDT on May 14, 2017, which is the day before the Annual Meeting date. If you appoint the Proxies by Internet, you need not sign and return a proxy card. You will be appointing the Proxies to vote your shares on the same terms and with the same authority as if you marked, signed and returned a proxy card. Whether you return a proxy card or appoint the Proxies by Internet, the authority you will be giving the Proxies is described below and in the proxy card enclosed with this proxy statement. Shares Held in "Street Name." Only the record holders of shares of our common stock or their appointed proxies may vote those shares. As a result, if your shares are held for you in "street name" by a broker or other nominee (such as a bank or custodian), then: your broker or nominee (i.e., the record holder) must vote them for you, or appoint the Proxies to vote them for you, unless you make arrangements for your broker or nominee to assign its voting rights to you or for you to be recognized as the person entitled to vote your shares; and you will need to follow the directions your broker or nominee provides you and give it instructions as to how it should vote your shares by completing and returning to it the voting instruction sheet you received from your broker or nominee with this proxy statement, or by giving voting instructions electronically as directed by your broker or nominee. 2

Brokers and other such nominees typically have the discretionary authority to vote shares they hold for their customers on routine matters, such as proposals to ratify the appointment of independent accountants, when no instructions are received from beneficial owners of the shares. However, applicable rules generally prohibit brokers from voting their customers' shares on matters designated by the rules as "non-routine" unless the beneficial owners of the shares provide voting instructions. As a result, if your shares are held by a broker, it may not vote your shares at the Annual Meeting in the election of our directors unless you provide voting instructions. To ensure that your shares held by a broker are represented at the Annual Meeting and voted in the manner you desire, it is important that you instruct your broker as to how it should vote your shares. Q: Who will be soliciting proxies, and who is paying solicitation expenses? A: In addition to solicitation by mail, our directors, officers and employees may solicit proxy appointments, personally, or by telephone, electronic mail or other methods of communication, but they will not receive any compensation from us for doing so. We will pay all costs of our solicitation of proxy appointments for the Annual Meeting, including costs of preparing and mailing this proxy statement and expenses associated with Internet voting facilities. We are requesting banks, brokers, custodians and other nominees and fiduciaries to forward copies of our proxy solicitation materials to their principals and request their voting instructions, and we will reimburse those persons for their expenses in doing so. In connection with the solicitation of proxy appointments for the Annual Meeting, we have not authorized anyone to give you any information, or make any representation, that is not contained in this proxy statement. If anyone gives you any other information or makes any other representation, you should not rely on it as having been authorized by us. Q: How will proxies be voted at the Annual Meeting? A: If you sign a proxy card and return it so that we receive it before the Annual Meeting, or you appoint the Proxies by Internet, you will be appointing the Proxies to vote your shares for you, and they will vote, or abstain from voting, according to the instructions you give them. If you sign and return a proxy card, or appoint the Proxies by Internet, but do not give voting instructions on a matter to be voted on, then the Proxies will be authorized to vote your shares "FOR" in the case of the election of each of the nine nominees for Director named in Proposal 1 below, and "FOR" in the case of Proposal 2. If before the Annual Meeting, any nominee named in Proposal 1 becomes unable or unwilling to serve as a director for any reason, your proxy card or Internet voting instructions will give the Proxies discretion to vote your shares for a substitute nominee named by our Board of Directors. If no substitute nominee is named by our Board of Directors, then the number of directors to be elected at the Annual Meeting will be reduced accordingly. We are not aware of any other business that will be brought before the Annual Meeting, other than the election of directors and Proposal 2 described in this proxy statement. However, if any other matter is properly presented for action by our shareholders, your proxy card or Internet voting instructions will authorize the Proxies to vote your shares according to their best judgment. The Proxies also will be authorized to vote your shares according to their best judgment on matters incident to the conduct of the meeting, including motions to adjourn the meeting. 3

If you are the record holder of your shares and you do not return a proxy card or appoint the Proxies by Internet, the Proxies will not have authority to vote for you and your shares will not be represented or voted at the Annual Meeting unless you attend the meeting in person or validly appoint another person to vote your shares for you. Q: What should I do now? A: Even if you plan to attend the Annual Meeting, we ask that you mark your proxy card to indicate how your shares should be voted, sign and date it, and return it in the enclosed envelope, or follow the instructions above for appointing the Proxies by Internet, to ensure that your shares will be represented and voted at the meeting. Q: Can I change my voting instructions after I mail my proxy card or appoint the Proxies by Internet? A: Yes. Record Holders. If you are the record holder of your shares and you sign and return a proxy card or appoint the Proxies by Internet, and you later wish to change the voting instructions or revoke the authority you gave the Proxies, you can do so before the Annual Meeting by taking the appropriate action described below. To change the voting instructions you gave the Proxies, whether by returning a proxy card or appointing the Proxies by Internet, you can: sign a new proxy card dated after the date of your original proxy card, or after you appointed the Proxies by Internet, which contains your new voting instructions, and submit it to our proxy tabulator, Issuer Direct, 500 Perimeter Park Drive, Suite D, Morrisville, NC 27560, or deliver it to our Corporate Secretary at the Annual Meeting, so that your new proxy card is received before the voting takes place at the Annual Meeting; or before 11:59 p.m. EDT on May 14, 2017 (the day before the Annual Meeting), go to the same voting website (https://www.iproxydirect.com/gstb) that you used to appoint the Proxies by Internet, enter your "Control ID" and "Request ID" (printed on your enclosed proxy card), and then give your new voting instructions. You may obtain another proxy card by calling Issuer Direct at (919) 481-4000. Whether you return a proxy card or appoint the proxies by Internet, the Proxies will follow the last voting instructions received from you before the voting takes place at the Annual Meeting. To revoke your proxy card or your appointment of the Proxies by Internet, you can: = give Issuer Direct a written notice at the address listed above, which must be received before the voting takes place at the Annual Meeting, that you want to revoke your proxy card or Internet appointment; or = attend the Annual Meeting and either vote your shares in person or notify our Corporate Secretary at the meeting that you want to revoke your proxy card or Internet appointment. Simply attending the Annual Meeting alone, without voting in person or notifying our Corporate Secretary, will not revoke your proxy card or Internet appointment. Shares Held in "Street Name." If your shares are held in "street name" and you want to revoke or change voting instructions you have given to your broker or other nominee, you must contact your broker or nominee and follow its directions. 4

Q: What is required in order to have a quorum for the Annual Meeting? A: A quorum must be present for business to be conducted at the Annual Meeting. For all matters to be voted on at the meeting, a quorum will consist of shares representing a majority of votes entitled to be cast by holders of our common stock that may be voted at the meeting. Shares represented in person or by proxy at the meeting will be counted for the purpose of determining whether a quorum exists. Once a share is represented for any purpose at the meeting, it will be treated as present for quorum purposes for the remainder of the meeting and for any adjournments. If you return a valid proxy card, appoint the Proxies by Internet, or attend the meeting in person, your shares will be counted as present for purposes of determining whether there is a quorum, even if you abstain or instruct the Proxies to abstain from voting on one or more matters voted on. Broker "non-votes" also will be counted as present in determining whether there is a quorum. Broker "non-votes" will occur if your shares are held by a broker and are voted by the broker on one or more matters at the meeting but they are not voted by the broker on a "nonroutine" matter because you have not given the broker voting instructions on that matter. If your shares are represented at the meeting with respect to any matter voted on, they will be treated as present with respect to all matters voted on, even if they are not voted on all matters. Q: What vote is required for the election of directors and approval of Proposal 2? A: Our directors are elected by a plurality of the votes cast in elections. In the election of directors at the Annual Meeting, the nine nominees receiving the highest numbers of votes will be elected. For Proposal 2 to be approved, the number of votes cast in person and by proxy at the Annual Meeting in favor of the proposal must exceed the number of votes cast against it. So long as a quorum is present, abstentions and broker non-votes will have no effect in the voting for directors or on Proposal 2. 5

PROPOSAL 1: ELECTION OF DIRECTORS Our Board of Directors recommends that you vote "FOR" each of the nine nominees named below. General Nominees Our Bylaws provide that: = our Board of Directors will consist of the number of directors established by our Board, but, as required by North Carolina law, not less than five; and = our directors are elected each year at the Annual Meeting for terms of one year or until their deaths, resignations, retirements, removals or disqualifications, or until their successors have been duly elected and qualified. Our Board of Directors has set the number of our directors at nine for the year following the Annual Meeting and, based on the recommendation of our Corporate Governance Committee, it has nominated the nine current directors named in the table below for re-election as directors at the meeting. If before the Annual Meeting any nominee becomes unable or unwilling to serve as a director for any reason, the Board of Directors may name a substitute nominee. If the Board elects not to name a substitute nominee, the number of our directors may be reduced accordingly. The following table lists information about each nominee, including a description of his principal occupation and business experience. Name and Age Nolan G. Brown (3) (76) James M. Deal, Jr. (68) C. Greg Edwards (4) (59) Position(s) With Us (1) Year First Elected (2) Principal Occupation and Business Experience Director 2015 President and owner, Triad Group, Inc. (health care) (since 1977) Director 2008 Partner, Deal, Moseley & Smith, LLP (law firm) (since 1997) Director, President and Chief Executive Officer 2008 Our executive officer James C. Faw (57) Kenneth A. Hubbard (66) Director; Chairman of our Audit Committee 2008 Certified Public Accountant, Benson, Blevins and Associates, PLLC (accounting firm) (since 2003); Manager, Concorde Financial Resources, LLC (financial planning and investment advisory service) (since 2001); Member, Egret Flyers, LLC (aviation services management) (since 2011); previously, part-time Chief Financial Officer, Piedmont Aircraft Management, LLC (aviation services management) (2012-2016); previously, Executive Vice President, Wisco Diversified of America, Inc. (business management and consulting) (1989-2011); previously, Manager, CJ Partners, LLC (aviation services management) (2005-2011) Director 2008 Chairman and Chief Executive Officer, Hubbard Management, LLC (long-term nursing and extended-care facilities) (since 1996) 6

Name and Age Arnold N. Lakey (80) W. David McNeill (60) Frank A. Stewart (55) William C. Warden, Jr. (5) (64) Position(s) With Us (1) Chairman; Lead Independent Director; Chairman of our Executive Committee Year First Elected (2) Principal Occupation and Business Experience 2008 Retired; previously, Vice President - Credit, Lowe's Companies, Inc. (construction supply and home improvement retailer) (1956-1998) Vice Chairman 2008 President and Owner, Carolina Automotive Group, LLC (automobile dealership) (since 2003) Director; Chairman of our Corporate Governance Committee 2009 President, Premier Coatings East LLC (industrial grade paint and coatings) (since 2015); President, Stewart Realty (real estate holding company) (since 2005); President, Stewart Property Management (real property management) (since 2009); President, Providence Management and Investments (real estate management and investments) (since 2010); previously, President, Chief Executive Officer and Owner, Ultra Machine & Fabrication, Inc. (manufacturer of military equipment) (1989-2015) Director 2008 Retired; previously, Executive Vice President - Administration, Lowe's Companies, Inc. (construction supply and home improvement retailer) (1996-2003) (1) Listings of the members of certain committees of our Board are contained below under the heading "COMMITTEES OF OUR BOARD." (2) With the exception of Mr. Brown and Mr. Stewart, each person was a member of our organizational group prior to our incorporation and was first named as a director at the time we were incorporated during 2008. (3) Mr. Brown served as a director of Yadkin Financial Corporation, a publicly held company, from 2004 until 2014. (4) Mr. Edwards' employment agreement requires our Board to nominate him for election as a director each year during the term of the agreement. (5) Mr. Warden serves as a director of Bassett Furniture Industries, Inc., Bassett, VA, and he served as a director of Harris Teeter Supermarkets, Inc., Charlotte, NC, from 2008 until 2014, both of which are publicly-held companies. Our Board of Directors recommends that you vote "FOR" each of the nine nominees named above. The nine nominees receiving the highest numbers of votes will be elected. Attendance by Directors at Meetings Board of Director Meetings. Our Board met seven times during 2016, and eight of our nine current directors attended 75% or more of the aggregate number of meetings of the Board and of any committees on which he served. Annual Meetings. Attendance by our directors at Annual Meetings of our shareholders gives directors an opportunity to meet, talk with and hear the concerns of shareholders who attend those meetings, and it gives those shareholders access to our directors that they might not have at any other time. Our Board recognizes that our outside directors have their own business interests and are not our employees, and that it is not always possible for them to attend Annual Meetings. However, our Board believes that attendance by directors at our Annual Meetings is beneficial to us and to our shareholders. As a result, our directors are strongly encouraged to attend each Annual Meeting. Each of our nine current directors attended our last Annual Meeting, which was held during May 2016. 7

Communications with Our Board Our Board of Directors encourages our shareholders to communicate their concerns and other matters related to our business. You may address and mail your communications to: Great State Bank Attention: President P.O. Box 892 Wilkesboro, North Carolina 28697 You should indicate whether your communication is directed to the entire Board of Directors, to a particular committee of the Board or its Chairman, or to one or more individual directors. All communications will be reviewed by our President and, with the exception of communications he considers to be unrelated to our business, forwarded to the intended recipients. Copies of communications from a customer relating to a deposit, loan or other financial relationship or transaction also will be forwarded to the department or division that is most closely associated with the subject of the communication. General COMMITTEES OF OUR BOARD Our Board of Directors has two standing committees consisting of outside directors that assist the Board in oversight and governance matters. They are the Audit Committee and the Corporate Governance Committee, each of which operates under a written charter approved by our Board that sets out the Committee's composition, authority, duties and responsibilities. Our Board also has an Executive Committee, of which a majority of the members are independent directors. Under North Carolina banking law, our Board of Directors is required to have an executive committee which meets as often as required by the Board, but at least once during each month in which the full Board does not meet. Our Executive Committee ordinarily meets each month in which there is no regularly scheduled Board meeting and at other times as needs arise. Under our bylaws, the Committee is authorized to exercise all the powers of the Board in the management of our affairs when the Board is not in session, subject to certain statutory limitations and the ability of the full Board to limit the Committee's authority. The Committee met four times during 2016. The current members of each Committee are listed in the following table, and the function of and other information about the Audit Committee and the Corporate Governance Committee is described in the paragraphs below. Audit Committee Corporate Governance Committee Executive Committee James C. Faw Chairman Frank A. Stewart Chairman Arnold Lakey Chairman James M. Deal, Jr. Kenneth A. Hubbard Vice Chairman C. Greg Edwards W. David McNeill James M. Deal, Jr. William C. Warden, Jr. William C. Warden, Jr. Arnold N. Lakey W. David McNeill Nolan G. Brown Kenneth A. Hubbard Audit Committee Function. Our management is responsible for our financial reporting process, including our system of internal controls and disclosure controls and procedures, and for the preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America. Our independent accountants are responsible for auditing those financial statements. The Audit Committee oversees and reviews these processes. Under its charter, and among other things, our Audit Committee is responsible for: 8

= selecting our independent accountants and approving their compensation and the terms of their engagement; = approving services proposed to be provided by the independent accountants; and = monitoring and overseeing the quality and integrity of our accounting and financial reporting process and system of internal controls. The Committee reviews various reports from our independent accountants (including its annual report on our audited financial statements) and reports of examinations by our regulatory agencies, and it oversees our internal audit program. The Committee met four times during 2016. Corporate Governance Committee Under its charter, and among other duties and responsibilities assigned from time to time by the Board, the Corporate Governance Committee acts as our Board's nominations committee and compensation committee. The Committee met three times during 2016. Nominations Committee Functions. The Corporate Governance Committee functions as a nominations committee of our Board by identifying individuals who are qualified to become directors and recommending candidates to the Board for selection as nominees for election as directors at our Annual Meetings and for appointment to fill vacancies on the Board. The Committee will seek to identify and recommend individuals who have high personal and professional integrity, who demonstrate ability and judgment, and who, along with other members of the Board, will be effective in collectively serving the long-term interests of our shareholders. Candidates also must satisfy applicable requirements of state and federal banking regulators, and the Committee may develop other criteria or minimum qualifications for use in identifying and evaluating candidates. In identifying candidates to be recommended to the Board of Directors, the Committee will consider incumbent directors and candidates suggested by our management or other directors. The Committee also will consider candidates recommended by shareholders. The Committee has not used the services of a third-party search firm. The Corporate Governance Committee recommended to our Board of Directors that our nine current directors listed above under the caption "Nominees" be nominated for re-election for new terms of office. Compensation Committee Functions. The Corporate Governance Committee also functions as a compensation committee of our Board and reviews and provides overall guidance to the Board about our compensation and benefit programs. It makes recommendations to the Board regarding: = cash and other compensation paid or provided to our Chief Executive Officer and other executive officers; = adoption of or changes in compensation or benefit plans under which compensation or benefits are or will be paid or provided to those executive officers; and = cash and other compensation paid or provided to other officers and employees, either individually or in the aggregate, as the Board requests. After receiving the Committee's recommendations, the Board makes all final decisions regarding compensation matters. 9

EXECUTIVE OFFICERS We consider our officers listed below to be our executive officers. C. Greg Edwards, age 59, serves as our President and Chief Executive Officer. He was a member of our organizing group and was elected to his current position at the time we were incorporated and began operations during July 2008. He previously served as a senior loan officer for Northwestern National Bank (formerly Wilkes National Bank) from 1994 until that bank was acquired by Integrity Financial Corp. (the parent company of Catawba Valley Bank) in 2002. Following that transaction, he joined Bank of Granite in April 2003 where he served as Senior Vice President and County Executive in Wilkes County until he joined our organizing group in December 2006. Mr. Edwards has 38 years of commercial banking experience, primarily in northwestern North Carolina. Larry J. Farthing, age 69, serves as our Executive Vice President, Chief Operating Officer and Chief Financial Officer. He was a member of our organizing group and was elected to his current position at the time we were incorporated and began operations during July 2008. He previously was employed by Northwestern National Bank (formerly Wilkes National Bank) as Senior Vice President, with particular emphasis on lending, balance sheet management and funding, from 1992 until that bank was acquired by Integrity Financial Corp. (the parent company of Catawba Valley Bank) in 2002. Mr. Farthing then served as Regional President of Catawba Valley Bank with responsibility for the former Northwestern National Bank branches, and, following the acquisition of Integrity Financial Corp. by CommunityOne Bancorp (formerly FNB United Corp) in May 2006, he served as Market President, responsible for the overall performance of the former Northwestern National Bank s branches in Wilkes, Watauga, Ashe and Alexander Counties through October 2006. Mr. Farthing has 43 years of experience in all phases of commercial bank operations. Ronald S. Pearson, age 66, serves as our Executive Vice President and Chief Credit Officer and has been employed by us since September 2008, shortly after we were incorporated and began operations. He previously was employed by Southern National Bank in Wilkesboro, North Carolina, as a commercial lender from 1991 until that bank was merged with BB&T. He served as Vice President and City Executive for BB&T until 2002 when he joined Yadkin Valley Bank in North Wilkesboro, North Carolina, where he served as Senior Vice President until he was employed by us. Mr. Pearson has 45 years of commercial banking experience, primarily in credit administration and commercial lending. 10

Summary EXECUTIVE COMPENSATION The following table shows the cash and certain other compensation paid or provided to our named executive officers for 2016, 2015, and 2014. SUMMARY COMPENSATION TABLE Name and Principal Position (1) Year Salary Bonus C. Greg Edwards President and Chief Executive Officer Larry J. Farthing Executive Vice President, Chief Operating Officer and Chief Financial Officer Ronald S. Pearson Executive Vice President and Chief Credit Officer Non-Equity Incentive Plan Compensation (2) All Other Compensation (3) Total (2) 2016 $117,797 $-0- $ (2) $-0- $117,797 2015 107,362-0- -0- -0-107,362 2014 105,000-0- 10,000-0- 115,000 2016 107,119-0- (2) -0-107,119 2015 106,339-0- -0- -0-106,339 2014 103,999-0- 10,000-0- 113,999 2016 112,247-0- (2) -0-112,247 2015 107,604-0- -0- -0-107,604 2014 105,236-0- 10,000-0- 115,236 (1) Mr. Edwards was a member of our Board of Directors during all of 2016, and Mr. Farthing was a member of our Board of Directors during part of 2016, but they received no additional cash compensation for their service as directors. (2) Under our annual performance incentive bonus plan, our officers and other employees may earn additional cash compensation for each year based on the extent to which we achieve goals set for the year by our Board of Directors with respect to various measures of corporate financial performance. The Board expects to make awards for the year 2016 under this plan, but has not yet done so; therefore, the table does not reflect amounts that may be awarded under the plan, after the date of this proxy, for 2016. The Board of Directors made no awards under the plan for 2015. The amounts shown for 2014 were awarded by the Board of Directors in 2015 for the year 2014. (3) In addition to compensation paid in cash, from time to time our executive officers may receive various personal benefits. None of the named officers received personal benefits during any of the three years reported above for which our estimated aggregate incremental cost exceeded $10,000, and amounts of any such benefits are not included in the table. We also provide our officers with group life, health, medical and other insurance coverages that are generally available to all salaried employees, and the cost of that insurance is not included in the table. Employment Agreements for: Messrs. Edwards and Farthing are each employed by us under a written agreement that provides = a term of one year that, at the end of each day, is extended by one additional day unless either we or the officer give notice that the agreement will not be extended (with the result that, unless and until notice is given, the remaining term at all times is one year but, upon any such notice, the expiration date will no longer be extended); = annual base salary which is subject to review and periodic increase by our Board of Directors; = payment of dues for up to two non-profit civic or service clubs; and = the right to participate in bonus or incentive plans and other benefits made available to our executive officers. The agreements require these officers to reside in Wilkes County or a contiguous county, and within a 50-mile radius of North Wilkesboro, North Carolina. The agreements also require our Board to nominate the officers each year during the term of their employment for election by our shareholders as directors. Consistent with the Agreement, Mr. Edwards has been nominated for reelection as a director at the Annual Meeting. In 2016, Mr. Farthing announced his intention to retire in the near future and, as a result, declined to be nominated for re-election as a director. 11

Each of the officers may terminate his employment voluntarily upon 60 days written notice to us, but he would receive no further payment from us other than base salary earned through the effective date of termination. If either officer dies, becomes "disabled" or "retires," as those terms are defined in his agreement, we will be obligated to pay his base salary through the date of termination, as well as any bonus earned in the prior year but not yet paid. We may terminate either officer's employment at any time for "cause," as that term is defined in the agreement, and he will be entitled to payment of his base salary earned as of the effective date of such termination, but he will have no further rights under the agreement. We also may terminate either officer's employment at any time without "cause," but we would be obligated to continue to pay his base salary for a period of twelve months and any bonus earned in the prior year but not yet paid. If, within twelve months following a change in control of our Bank, we terminate either officer's employment without "cause," or if a "termination event" occurs (as that term is defined in the agreement) and he terminates his own employment after having given notice of the termination event, we will be obligated to pay him his base salary for twelve months and any bonus earned in the prior year but not yet paid, as well as premiums for insurance coverage for up to twelve months. We may elect to enforce a "covenant not to compete" contained in the agreement that would prohibit either officer from competing against us within a specified geographic area during a 24-month restriction period following any termination of his employment. Stock Option Plan In 2009, our shareholders approved, and we adopted, an Employee Stock Option Plan under which options to purchase shares of our common stock may be granted from time to time to our officers and employees. However, no stock options have yet been granted to any officers or employees under the plan. DIRECTOR COMPENSATION Each of our non-employee directors is paid a fee of $100 for attendance in person, or $50 for attendance by teleconference, at each meeting of the Board of Directors. Directors are not paid any fee for attendance at meetings of committees of the Board. Directors who also serve as our officers or employees do not receive any compensation for their service as directors. The following table summarizes the compensation paid to our non-employee directors for their services during 2016. Name 2016 DIRECTOR COMPENSATION Fees Earned or Paid in Cash Nolan G. Brown... $700 James M. Deal, Jr.... 500 James C. Faw... 650 Kenneth A. Hubbard... 700 Arnold N. Lakey... 600 W. David McNeill... 600 Frank A. Stewart... 500 William C. Warden, Jr.... 600 12

In consideration for the personal risk and liability that directors assumed as members of our organizational board and guarantors of loans obtained to pay our pre-opening organizational expenses, at the time we were incorporated and began operations we granted "stock purchase warrants" to each original member of our Board of Directors which entitle him or her to purchase from us, at any time within ten years from the date we were incorporated, 11,363 shares of our common stock at the same $11.00 per share purchase price for which our shares were sold to shareholders in our subscription offering before we commenced operations. In 2009, our shareholders approved, and we adopted, a Director Stock Option Plan under which options to purchase shares of our common stock may be granted from time to time to our directors. However, no stock options have yet been granted to any directors under the plan. TRANSACTIONS WITH RELATED PERSONS We have had, and expect to have in the future, banking transactions in the ordinary course of our business with certain of our current directors, nominees for director, executive officers, principal shareholders and other related persons. All loans included in those transactions during 2016 were made in the ordinary course of our business on substantially the same terms, including interest rates, repayment terms and collateral, as those prevailing at the time those loans were made for comparable transactions with persons not related to us, and those loans did not involve more than the normal risk of collectability or present other unfavorable features. During 2010, we acquired our Boone branch facility from another bank and assumed the lease on that property on the same terms under which the other bank leased the property. Current lease payments for the facility are $4,455 per month. The property is owned by Watauga Holdings, LLC. One-third of Watauga Holdings, LLC is owned by King Street Properties, LLC, which, in turn, is owned by one of our directors, James M. Deal, Jr., and his spouse. Mr. Deal also is an attorney and a partner with Deal, Moseley & Smith, LLP, which from time to time provides legal services to us. 13

BENEFICIAL OWNERSHIP OF OUR COMMON STOCK The following table describes the beneficial ownership of our common stock on the Record Date for the Annual Meeting by our current directors, nominees for election as directors and our executive officers whose compensation is disclosed in the Summary Compensation Table above, individually, and by all of our current directors and executive officers as a group. For purposes of the table, we consider a director or executive officer to "beneficially own" shares held in his name, or in the name of any other person entity, if the director or officer either directly, or indirectly through some agreement, arrangement, understanding or relationship, has or shares the right to vote or dispose of the shares, or to direct the voting or disposition of the shares. As a result, the same shares may be "beneficially owned" by more than one person. With the exception of Messrs. Stewart and Warden, who are listed in the table below, no person is known to us to beneficially own more than 5% of our common stock. Name of Beneficial Owner Shares Owned (1) Amount of Beneficial Ownership Stock Purchase Warrants (2) Total Beneficial Ownership (3) Percent of Class (4) Nolan G. Brown... 3,700-0- 3,700 0.39% James M. Deal, Jr.... 10,000 11,363 21,363 2.23% C. Greg Edwards... 13,250 11,363 24,613 2.56% Larry J. Farthing... 10,000 11,363 21,363 2.23% James C. Faw... 35,000 11,363 46,363 4.83% Kenneth A. Hubbard... 31,545 11,363 42,908 4.47% Arnold N. Lakey... 10,000 11,363 21,363 2.23% W. David McNeill... 17,500 11,363 28,863 3.01% Ronald S. Pearson... 1,000-0- 1,000 0.11% Frank A. Stewart... 94,000-0- 94,000 9.91% William C. Warden, Jr.... 37,000 11,363 48,363 5.04% All current directors and executive officers as a group (11 individuals)... 262,995 90,904 353,899 34.04% (1) Includes the numbers of shares each person holds individually, as well as shares held by, or jointly with, his or her family members or entities they may be considered to control. Except as otherwise noted, and to the best of our knowledge, each named individual exercises sole voting and/or investment power with respect to all listed shares. Certain of the named individuals may be considered to exercise shared voting and/or investment power with respect to certain of the listed shares held jointly, by family members or other persons, or corporations or other entities that they may be deemed to control as follows: Mr. Deal - 3,000 shares; Mr. Edwards - 250 shares; Mr. Farthing - 10,000 shares; Mr. Faw - 30,000 shares; Mr. Lakey - 10,000 shares; Mr. McNeill - 500 shares; Mr. Stewart - 94,000 shares; and all individuals included in the group - 147,750 shares. All shares listed for Mr. Warden are held by a limited liability company in which he is a managing member, and he disclaims ownership of the shares. We are not aware of any of the listed shares that have been pledged as security for loans. (2) Includes the number of shares of our common stock that could be purchased under stock purchase warrants. When we were incorporated and began operations in 2008, each original member of our Board of Directors received warrants to purchase 11,363 shares in consideration for the personal risk and liability they assumed as members of our organizational board and guarantors of loans we obtained to pay our pre-opening organizational expenses. (3) "Total Beneficial Ownership" includes the number of our outstanding shares with respect to which each individual may be considered to have sole or shared voting and/or investment power, plus the number of additional shares that each individual could purchase under stock purchase warrants. (4) Percentages are calculated based on 948,710 total outstanding shares plus, in the case of each named individual and the group, the number of additional shares that could be purchased by that individual, or by persons included in the group, upon the exercise of stock purchase warrants they hold. 14

PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS Our Board of Directors recommends that you vote "FOR" Proposal 2. Our Audit Committee has selected our current independent accounting firm, Brown, Edwards & Company, L.L.P., to serve as our independent accountants for 2017. The Audit Committee believes that Brown, Edwards & Company, L.L.P. is independent and that it is in our and our shareholders' best interests to retain Brown, Edwards & Company, L.L.P. as our independent accountants for 2017. Brown, Edwards & Company, L.L.P. has served as our independent accounts since 2010. Representatives of Brown, Edwards & Company, L.L.P. are expected to attend the Annual Meeting and be available to answer appropriate questions, and they will have the opportunity to make a statement if they desire to do so. The Committee's charter gives it the responsibility and authority to select and appoint our independent accountants and to approve their fees and terms of their engagement under which they provide services to us. Our shareholders are not required by our Bylaws or the law to ratify the Committee's selection. However, we will submit a proposal for shareholders to ratify the appointment of Brown, Edwards & Company, L.L.P. at the Annual Meeting to allow shareholders to be heard in that selection process. The outcome of voting on the proposal will not be binding on the Committee. If our shareholders do not ratify the Committee's selection, the Committee will reconsider its decision, but it could choose to reaffirm its appointment of Brown, Edwards & Company, L.L.P. If our shareholders ratify the Committee's selection, the Committee could, in its discretion, appoint different independent accountants during the year if it determines that such a change would be in our best interests. Our Board of Directors recommends that you vote "FOR" Proposal 2. To be approved, the votes cast in favor of Proposal 2 must exceed the votes cast against it. 15

NOMINATIONS FOR 2018 ANNUAL MEETING Under our Bylaws, at a meeting of our shareholders at which directors will be elected, nominations for election to our Board of Directors may be made by our Board itself or they may be made by a shareholder of record who is entitled to vote at the meeting if written notice of the shareholder's nomination has been delivered to our Corporate Secretary at our address listed below at least 60 days, but not more than 90 days, prior to the first anniversary of the date that notice of the preceding year's Annual Meeting was mailed to shareholders. If the date of the Annual Meeting is advanced by more than 30 days or delayed by more than 60 days from that anniversary date, notice by a shareholder must be so delivered no earlier than the 90th day prior to such Annual Meeting and not later than the close of business on the later of the 60th day prior to such Annual Meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The required notice of a nomination must include: (1) the name and address of the shareholder who intends to make the nomination, and the beneficial owner, if any, on whose behalf the nomination is made, and of the person or persons to be nominated; (2) the class and number of shares of stock of the Bank which are owned beneficially and of record by such shareholder and such beneficial owners, and a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person specified in the notice; (3) a description of all arrangements or understandings between the shareholder and each nominee and any other person (naming such person) pursuant to which the nomination is to be made by the shareholder; (4) a representation that each nominee satisfies all qualifications provided by our Bylaws or by applicable statute or regulation to serve as a director; (5) the written consent of the nominee to serve as a director if elected; and (6) all other information about each nominee proposed by such shareholder that would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if the nominee had been nominated by the Board of Directors (whether or not such rules apply). Only persons who are nominated in the manner described in our Bylaws are eligible to be elected as directors at meetings of our shareholders, and the Chair of a meeting of our shareholders may refuse to acknowledge a nomination not made in compliance with the procedures set out in our Bylaws. The notices described above should be mailed to: Great State Bank Attention: President P.O. Box 892 Wilkesboro, North Carolina 28697 16

FINANCIAL REPORT DECEMBER 31, 2016

C O N T E N T S Page PRESIDENTS LETTER... 3 INDEPENDENT AUDITOR S REPORT... 4 FINANCIAL STATEMENTS Balance sheets... 6 Statements of operations... 7 Statements of comprehensive income... 8 Statements of changes in stockholders equity... 9 Statements of cash flows... 10 NOTES TO THE FINANCIAL STATEMENTS... 11

April 3, 2017 To our Shareholders and Customers: We are pleased to present our operating results for 2016 which represents our eighth full year of operations since our opening on July 2, 2008. For the year ended, net income before taxes was $1,373,000 and net income after taxes was $892,000. This represented basic earnings per share of $1.45 before tax and $.94 after tax, respectively. After tax earnings increased over 71% from 2015 and represented a record year for earnings for our bank. One of the biggest drivers of our higher earnings was a $300,000 in pre-tax income from the sale of the guaranteed portion of a USDA loan. Although this was a one-time gain, we are looking at developing more business in the government guaranteed loan area as a way to improve and diversify future earnings. We finished the year ended with $118 million in total assets, up 13% from the amount reported as of December 31, 2015. Total deposits were up 12% to $104 million and total loans were up 14% to $82 million. The book value of our common stock was $12.38 per share at, up 7% from $11.53 per share at December 31, 2015. Below are some additional highlights: - Bauer Financial, an independent bank research firm, again awarded the bank a Five Star rating for superior performance and strength. - Our loan production offices in Yadkinville, Lenoir and Shelby, opened in 2015, 2014 and 2013, respectively, continue to exceed our expectations and are contributing to the loan growth and profitability of the bank. In November 2016, we received regulatory approval to convert the Yadkinville loan production office to a full service facility which we opened in February 2017. The office is headed by Andy Anderson, a banker in the Yadkin market for over 40 years, along with his experienced staff. In January 2017, the Board of Directors declared our fourth special cash dividend in the amount of $.07 per share. This dividend is payable April 15, 2017 to shareholders of record March 4, 2017. We have experienced double digit growth in loans and deposits each of the past two years. We have accomplished this while continuing to take a conservative approach to credit as indicated by our low level of problem assets. As one of the few remaining community banks in our market area, our growth is the result of the area s need for a locally owned and operated financial institution focused on serving the needs of our area. We invite you to stop by and visit us at any of our three full service locations at 1422 US Highway 421A in Wilkesboro, NC, at 189 Boone Heights Drive in Boone, NC, and our newest location at 516 Hawthorne Drive in Yadkinville, NC. You can also visit us on the worldwide web at www.greatstatebank.com. If you have not already done so, you can make a significant contribution to our success by moving your banking relationships to Great State Bank. In addition, please refer your friends, neighbors and business acquaintances to your bank so they also can discover the advantage of dealing with local, experienced bankers providing superior customer service. And, as always, we appreciate your investment and confidence in Great State Bank. Sincerely, Arnold Lakey, Chairman Greg Edwards, President & CEO

INDEPENDENT AUDITOR S REPORT To the Board of Directors and Stockholders Great State Bank Wilkesboro, North Carolina We have audited the accompanying financial statements of Great State Bank (the Bank ), which comprise the balance sheets as of and 2015, and the related statements of operations, comprehensive income, changes in stockholders equity, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Your Success is Our Focus 1715 Pratt Drive, Suite 2700 Blacksburg, VA 24060 540-443-3606 Fax: 540-443-3610 www.becpas.com