Market Overview

South State Corporation Reports Second Quarter 2017 Results and Quarterly Cash Dividend

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South State Corporation (NASDAQ:SSB) today released its unaudited
results of operations and other financial information for the
three-month and six-month period ended June 30, 2017. Highlights for the
second quarter of 2017 include the following:

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  • Net income was $31.8 million for the second quarter of 2017
    compared to $18.3 million for the first quarter of 2017, an increase
    of $13.6 million, or 74.2%, while adjusted net income (non-GAAP) was
    $34.6 million in the second quarter of 2017, up $1.2 million, or 3.7%
    increase, from the first quarter of 2017
    • Earnings per share (EPS) – diluted was $1.08 for the second
      quarter of 2017 compared to $0.63 for the first quarter of 2017,
      or a 71.4% increase;
    • Adjusted net income per share (non-GAAP) – diluted was $1.18 for
      the second quarter of 2017 and $1.15 for the first quarter of
      2017; and
    • Announced the signing of a definitive merger agreement with Park
      Sterling Corporation in April
  • Net loan growth for the second quarter of 2017 was $272.8 million,
    or 13.8% annualized
    • Non-acquired loan growth totaled approximately $396.4 million, or
      28.6%; and
    • Acquired loan runoff totaled $123.6 million
  • Performance ratios linked quarter
    • Return on average assets totaled 1.15% compared to 0.68%
    • Adjusted return on average assets (non-GAAP) was 1.25% for first
      and second quarter of 2017
    • Return on average tangible equity (non-GAAP) improved to 14.16%
      compared to 8.87%
    • Adjusted return on average tangible equity (non-GAAP) decreased to
      15.34% from 15.55%
    • Efficiency ratio was 62.8% down from 77.5%, due to higher merger
      costs of $21.0 million in the first quarter of 2017
    • Adjusted efficiency ratio (non-GAAP) was 59.7% down from 62.0%
      (excluding merger-related and conversion expenses and gains on
      securities sold)
  • Balance sheet and equity linked quarter
    • Cash and cash equivalents declined by $231.2 million as total
      loans continued to grow and deposits remained flat
    • Investment securities portfolio decreased by $41.7 million as
      maturities, calls and sales outpaced purchases during the quarter
    • Total deposits declined by $1.8 million with noninterest bearing
      deposits increasing by $36.0 million, and interest bearing
      deposits declining by $37.8 million
    • Shareholders' equity increased $25.6 million, with $22.2 million
      coming from quarterly earnings, net of the dividends paid to
      shareholders.
    • Equity to assets improved to 14.39% from 14.17% at March 31, 2017
    • Tangible equity to tangible assets (Non-GAAP) increased to 9.11%
      from 8.85%
  • Asset quality linked quarter
    • Nonperforming assets (NPAs) decreased by $4.3 million, or 11.2%,
      to $34.4 million
    • NPAs to total assets improved to 0.31% from 0.35% in the first
      quarter of 2017
    • Net charge offs on non-acquired loans were 0.05% annualized, or
      $756,000, compared to $628,000, or 0.05% annualized in the first
      quarter of 2017
    • Net charge offs on acquired non-credit impaired loans were 0.10%,
      or $429,000, compared to 0.08%, or $326,000 in the first quarter
      of 2017
    • Coverage ratio of ALLL on non-acquired non-performing loans
      improved to 297.4% from 295.0%

Quarterly Cash Dividend

The Board of Directors of South State Corporation has declared a
quarterly cash dividend on July 20, 2017, of $0.33 per share payable on
its common stock. This per share amount is the same as last quarter, and
$0.02 per share, or 6.5% higher than the dividend paid a year ago. The
dividend will be payable on August 18, 2017 to shareholders of record as
of August 11, 2017.

Second Quarter 2017 Financial Performance

    Three Months Ended     Six Months Ended
(Dollars in thousands, except per share data) June. 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30, June 30,
INCOME STATEMENT 2017 2017 2016 2016 2016 2017   2016
Interest income
Loans, including fees (8) $ 93,600 $ 91,752 $ 76,709 $ 77,344 $ 77,154 $ 185,352 $ 154,408

Investment securities, federal funds sold and securities purchased
under agreements to resell

  9,179     9,234     5,979     5,937     6,225     18,413     12,786  
Total interest income 102,779 100,986 82,688 83,281 83,379 203,765 167,194
Interest expense
Deposits 2,661 2,497 1,423 1,412 1,368 5,158 2,969

Federal funds purchased, securities sold under agreements to
repurchase, and other borrowings

  1,087     1,127     665     624     612     2,214     1,225  
Total interest expense   3,748     3,624     2,088     2,036     1,980     7,372     4,194  
Net interest income 99,031 97,362 80,600 81,245 81,399 196,393 163,000
Provision for loan losses   2,313     3,707     622     912     2,728     6,020     5,286  
Net interest income after provision for loan losses   96,718     93,655     79,978     80,333     78,671     190,373     157,714  
Noninterest income   37,574     36,435     32,831     35,340     32,118     74,009     62,160  
Pre-tax operating expense 82,232 83,699 70,400 72,482 72,280 165,931 143,352
Branch consolid./acquisition and merger expense   4,307     21,024     4,841     709     1,573     25,331     2,531  
Total noninterest expense   86,539     104,723     75,241     73,191     73,853     191,262     145,883  
Income before provision for income taxes 47,753 25,367 37,568 42,482 36,936 73,120 73,991
Provision for income taxes   15,930     7,103     13,391     14,387     12,420     23,033     24,981  
Net income $ 31,823   $ 18,264   $ 24,177   $ 28,095   $ 24,516   $ 50,087   $ 49,010  
 
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 31,823 $ 18,264 $ 24,177 $ 28,095 $ 24,516 $ 50,087 $ 49,010
Securities gains, net of tax (73 ) -- -- -- -- (73 ) (81 )
FDIC LSA early termination, net of tax -- -- -- -- 2,938 -- 2,938
Branch consolid./acquisition and merger expense   2,870     15,137     3,814     468     1,044     18,007     1,676  
Adjusted net income (non-GAAP) $ 34,620   $ 33,401   $ 27,991   $ 28,563   $ 28,498   $ 68,021   $ 53,543  
 
Basic earnings per common share $ 1.09 $ 0.63 $ 1.01 $ 1.17 $ 1.02 $ 1.72 $ 2.04
Diluted earnings per common share $ 1.08 $ 0.63 $ 1.00 $ 1.16 $ 1.01 $ 1.71 $ 2.02
Adjusted net income per common share - Basic (non-GAAP) (3) $ 1.19 $ 1.16 $ 1.16 $ 1.19 $ 1.19 $ 2.35 $ 2.23
Adjusted net income per common share - Diluted (non-GAAP) (3) $ 1.18 $ 1.15 $ 1.15 $ 1.18 $ 1.18 $ 2.33 $ 2.22
Dividends per common share $ 0.33 $ 0.33 $ 0.32 $ 0.31 $ 0.30 $ 0.66 $ 0.58
Basic weighted-average common shares outstanding 29,094,908 28,891,669 24,035,960 24,016,075 23,995,054 28,985,390 23,977,137
Diluted weighted-average common shares outstanding 29,364,916 29,158,523 24,287,496 24,278,294 24,237,457 29,252,321 24,204,812
Effective tax rate 33.36 % 28.00 % 35.64 % 33.87 % 33.63 % 31.50 % 33.76 %
 

The Company reported consolidated net income of $31.8 million, or $1.08
per diluted common share for the three-months ended June 30, 2017, a
$13.6 million increase from the first quarter of 2017. Interest income
was up $1.8 million mainly due to non-acquired (legacy) loan growth
during the quarter which increased interest income by $4.6 million. This
increase was offset by a decline in acquired loan interest income of
$2.8 million, which resulted from a decline in the acquired loan balance
during the quarter. Investment securities interest income decreased by
$244,000 due to the decline in the investment securities portfolio from
maturities, calls and sold securities. Interest expense increased by
$124,000 primarily in certificate and other time deposits. Our funding
cost was 22 basis points for the second quarter the same as first
quarter 2017. Compared to the second quarter of 2016, our cost of funds
increased by 7 basis points which is primarily the result of the
addition of Southeastern Bank Financial Corporation ("SBFC" or
"Southeastern") balance sheet where the cost of funds was slightly
higher than legacy South State's. The provision for loan losses
decreased $1.4 million compared to the first quarter of 2017. Valuation
allowance (impairment) related to acquired loans was $1.8 million lower
than first quarter of 2017, provision for loan losses related to
acquired non-credit impaired loans was higher by $103,000, and the
provision for loan losses on non-acquired loans was $339,000 higher than
last quarter primarily related to loan growth. Noninterest income
increased by $1.1 million primarily from recoveries of acquired loans
which increased by $639,000, and trust and investment services income
which increased by $511,000. Noninterest expense decreased by $18.2
million. The decline was primarily the result of $16.7 million reduction
in the merger and conversion cost and $1.3 million decline in salaries
and benefits compared to first quarter of 2017.

Income Tax Expense

During the quarter, our effective income tax rate increased to 33.36%
from 28.00% in the first quarter of 2017. This increase was primarily
related to: (1) much higher pretax net income due to lower
merger-related cost in the second quarter of 2017, and (2) reduced
excess tax benefit associated with vested or exercised stock awards
included in determination of the effective tax rate in the second
quarter than were in the first quarter of 2017. The year to date
effective income tax rate now totals 31.50%, and is expected to continue
to rise over the remainder of 2017.

"Performance was strong across all areas of South State, and we are
pleased with the second quarter and year-to-date results," said Robert
R. Hill, Jr., CEO of South State Corporation. "The merger and
integration of Southeastern continues to progress, and the contribution
from the Augusta and Aiken markets was meaningful during the quarter. We
are working closely with the team at Park Sterling Corporation and look
forward to combining the companies later this year."

Balance Sheet and Capital

    Ending Balance
June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
BALANCE SHEET 2017 2017 2016 2016 2016
Assets
Cash and cash equivalents $ 431,890   $ 663,126   $ 374,448   $ 507,517   $ 481,912  
Investment securities:
Securities held to maturity 4,166 6,095 6,094 6,851 7,921
Securities available for sale, at fair value 1,341,652 1,381,013 999,405 925,374 989,610
Other investments   13,076     13,501     9,482     9,482     9,529  
Total investment securities   1,358,894     1,400,609     1,014,981     941,707     1,007,060  
Loans held for sale   65,995     46,988     50,572     57,052     48,926  
Loans:
Acquired credit impaired 602,481 627,340 602,546 632,617 658,835
Acquired non-credit impaired 1,585,981 1,715,642 836,699 885,657 941,886
Non-acquired 5,992,393 5,564,307 5,241,041 5,008,113 4,816,875
Less allowance for non-acquired loan losses   (40,149 )   (38,449 )   (36,960 )   (37,319 )   (36,939 )
Loans, net   8,140,706     7,868,840     6,643,326     6,489,068     6,380,657  
Other real estate owned ("OREO") 14,430 20,007 18,316 22,211 22,427
Premises and equipment, net 201,539 203,505 183,510 179,450 177,950
Bank owned life insurance 150,476 149,562 104,148 103,427 102,815
Deferred tax asset 39,921 43,075 31,123 25,357 25,915
Mortgage servicing rights 29,930 30,063 29,037 23,064 22,350
Core deposit and other intangibles 52,966 55,461 39,848 41,738 43,629
Goodwill 595,817 595,711 338,340 338,340 338,340
Other assets   71,877     73,123     72,943     68,234     72,012  
Total assets $ 11,154,441   $ 11,150,070   $ 8,900,592   $ 8,797,165   $ 8,723,993  
 
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 2,635,147 $ 2,599,111 $ 2,199,046 $ 2,176,155 $ 2,117,246
Interest-bearing   6,396,507     6,434,327     5,135,377     5,071,251     5,046,680  
Total deposits   9,031,654     9,033,438     7,334,423     7,247,406     7,163,926  

Federal funds purchased and securities sold under agreements to
repurchase

334,018 352,431 313,773 305,268 341,064
Other borrowings 98,147 107,988 55,358 55,306 55,254
Other liabilities   85,137     76,313     62,450     65,053     59,406  
Total liabilities   9,548,956     9,570,170     7,766,004     7,673,033     7,619,650  
 
Shareholders' equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares -- -- -- -- --
Common stock - $2.50 par value; authorized 40,000,000 shares 73,148 73,077 60,576 60,523 60,488
Surplus 1,134,328

1,132,173

711,307 705,124 703,445
Retained earnings 401,706

379,534

370,916 354,490 333,900
Accumulated other comprehensive income (loss)   (3,697 )   (4,884 )   (8,211 )   3,995     6,510  
Total shareholders' equity   1,605,485     1,579,900     1,134,588     1,124,132     1,104,343  
Total liabilities and shareholders' equity $ 11,154,441   $ 11,150,070   $ 8,900,592   $ 8,797,165   $ 8,723,993  
 
Common shares issued and outstanding 29,259,264 29,230,734 24,230,392 24,209,122 24,195,226
 

At June 30, 2017, the Company's total assets were $11.2 billion, an
increase of $2.3 billion from December 31, 2016, and an increase of $2.4
billion from June 30, 2016. Total assets acquired from Southeastern,
including goodwill, totaled $2.1 billion in the first quarter of 2017.
During the second quarter of 2017, cash and cash equivalents and
securities both declined compared to the first quarter of 2017, as loan
growth was strong in most categories. Loans increased $272.8 million,
excluding the allowance for loan losses, or 13.8% annualized increase.
Investment securities decreased $41.7 million and cash and cash
equivalents declined by $231.2 million. Other real estate owned ("OREO")
declined by $5.6 million, as the company disposed of 33 properties
during the second quarter of 2017. Non-acquired loans increased by
$396.4 million, excluding renewed loans primarily from Southeastern of
$31.7 million. Acquired loans declined by $123.6 million, excluding
renewed loans primarily from Southeastern of $31.7 million. Total
deposits were down $1.8 million from March 31, 2017. Fed funds purchased
and securities sold under repurchase agreements decreased by $18.4
million during the second quarter to $334.0 million.

The Company's book value per common share increased to $54.87 per share
at June 30, 2017, compared to $46.82 at December 31, 2016, and $45.64 at
June 30, 2016. During the second quarter of 2017, capital increased
$25.6 million due to net income of $31.8 million offset by the common
stock dividend paid of $9.6 million. Accumulated other comprehensive
income ("AOCI") increased $1.2 million due primarily to the decrease in
unrealized losses (now to an unrealized gains) in the AFS securities
portfolio during the quarter of $1.0 million, net of tax. Tangible book
value ("TBV") per common share increased by $0.93 per share to $32.70 at
June 30, 2017, compared to $31.77 at March 31, 2017, and increased by
$2.84 per share, or 9.5%, from $29.86 at June 30, 2016. The quarterly
increase in the second quarter of 2017 was $0.93 per share in tangible
book value, and was the result of earnings per share, excluding
amortization of intangibles, of $1.14, offset by the dividend paid to
shareholders of $0.33 per share and the increase from AOCI of $0.04 per
share (primarily from the change in fair value of the available for sale
securities portfolio to a larger unrealized gain position during the
quarter). Issuances of restricted stock and stock option exercises
increased tangible book value by $0.08 per share during the second
quarter of 2017.

"During the second quarter of 2017, our efficiency ratio improved to
62.8% and our adjusted efficiency ratio dropped to 59.7%," said John C.
Pollok, COO and CFO. "Our tangible book value improved by $0.93 per
share to $32.70 primarily from an increase in equity totaling $25.6
million."

       
Three Months Ended Six Months Ended
June 30,     Mar. 31,     Dec. 31,     Sept. 30,     June 30, June 30,     June 30,
PERFORMANCE RATIOS 2017 2017 2016 2016 2016 2017 2016
Return on average assets (annualized) 1.15% 0.68% 1.08% 1.28% 1.13% 0.92% 1.14%
Adjusted return on average assets (annualized) (non-GAAP) (3) 1.25% 1.25% 1.26% 1.30% 1.32% 1.25% 1.25%
Return on average equity (annualized) 7.98% 4.74% 8.50% 10.00% 9.02% 6.39% 9.10%
Adjusted return on average equity (annualized) (non-GAAP) (3) 8.69% 8.67% 9.84% 10.17% 10.48% 8.68% 9.94%
Return on average tangible common equity (annualized) (non-GAAP) (7) 14.16% 8.87% 13.42% 15.86% 14.59% 11.56% 14.81%
Adjusted return on average tangible common equity (annualized)
(non-GAAP) (3) (7)
15.34% 15.55% 15.44% 16.11% 16.85% 15.44% 16.12%
Efficiency ratio (tax equivalent) 62.80% 77.51% 65.82% 62.30% 64.54% 70.07% 64.30%
Adjusted efficiency ratio (Non-GAAP) (9) 59.67% 61.95% 61.59% 61.70% 60.81% 60.79% 61.98%
Dividend payout ratio (2) 30.33% 52.82% 32.06% 26.71% 29.61% 38.53% 28.63%
Book value per common share $ 54.87 $ 54.05 $ 46.82 $ 46.43 $ 45.64
Tangible common equity per common share (non-GAAP) (7) $ 32.70 $ 31.77 $ 31.22 $ 30.73 $ 29.86
 
CAPITAL RATIOS
Equity-to-assets 14.39% 14.17% 12.75% 12.78% 12.66%
Tangible equity-to-tangible assets (non-GAAP) (7) 9.11% 8.85% 8.88% 8.84% 8.66%
Tier 1 common equity (6) 11.9% 11.9% 11.7% 11.5% 11.2%
Tier 1 leverage (6) 10.1% 10.0% 9.9% 9.7% 9.5%
Tier 1 risk-based capital (6) 12.8% 12.8% 12.4% 12.3% 12.0%
Total risk-based capital (6) 13.3% 13.3% 13.0% 12.9% 12.6%
 
OTHER DATA
Number of branches 129 129 118 119 120
Number of employees (full-time equivalent basis) 2,261 2,277 2,055 2,039 2,032
 

Asset Quality

    Ending Balance    
June 30,     Mar. 31,     Dec. 31,     Sept. 30,     June 30,    
(Dollars in thousands) 2017 2017 2016 2016 2016
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans $ 13,499 $ 13,035 $ 14,745 $ 15,010 $ 18,372
Non-acquired OREO and other nonperforming assets 4,633 5,705 3,998 6,614 6,862
Total non-acquired nonperforming assets 18,132 18,740 18,743 21,624 25,234
Acquired
Acquired nonperforming loans 5,793 4,950 4,834 4,633 4,438
Acquired OREO and other nonperforming assets 10,439 14,992 15,026 16,279 16,258
Total acquired nonperforming assets 16,232 19,942 19,860 20,912 20,696
Total nonperforming assets $ 34,364 $ 38,682 $ 38,603 $ 42,536 $ 45,930
 
Three Months Ended Six Months Ended
June 30, Mar. 31, Dec. 30, Sept. 30, June 30, June 30, June 30,
2017 2017 2016 2016 2016 2017 2016
ASSET QUALITY RATIOS:

Allowance for non-acquired loan losses as a percentage of
non-acquired loans (1)

0.67% 0.69% 0.71% 0.75% 0.77% 0.67% 0.77%

Allowance for non-acquired loan losses as a percentage of
non-acquired nonperforming loans

297.42%

294.97%

250.66% 248.63% 201.06% 297.42% 201.06%

Net charge-offs on non-acquired loans as a percentage of average
non-acquired loans (annualized) (1)

0.05% 0.05% 0.05% 0.03% 0.06% 0.05% 0.07%

Net charge-offs on acquired non-credit impaired loans as a
percentage of average acquired non-credit impaired loans
(annualized) (1)

0.10% 0.08% 0.06% 0.07% 0.07% 0.09% 0.08%

Total nonperforming assets as a percentage of total assets

0.31% 0.35% 0.43% 0.48% 0.53%
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1) 0.23% 0.23% 0.28% 0.30% 0.38%

Total nonperforming assets as a percentage of total non-acquired
loans and repossessed assets (1) (4)

0.30% 0.34% 0.36% 0.43% 0.52%

Total nonperforming assets as a percentage of total assets (5)

0.16% 0.17% 0.21% 0.25% 0.29%
 

During the second quarter of 2017, overall asset quality improved as
total nonperforming assets were $34.4 million, representing 0.31% of
total assets, which decreased from first quarter of 2017 mainly due to
the decline in OREO by $5.6 million. Compared to June 30, 2016, NPAs
have declined by $11.6 million, or 25.2%. During the second quarter of
2017, non-acquired NPAs, excluding acquired loans and acquired OREO,
were down $608,000 at $18.1 million. Non-acquired nonperforming loans
increased by $464,000, and non-acquired OREO and other assets
repossessed decreased $1.1 million. Non-acquired NPAs as a percentage of
total non-acquired loans and repossessed assets declined to 0.30%
compared to 0.34% at March 31, 2017.

During the second quarter, the Company reported $5.8 million in
nonperforming loans related to "acquired non-credit impaired loans."
This was an increase of $843,000 from the balance at March 31, 2017,
which was primarily the result of several small balance loans.
Additionally, acquired nonperforming OREO and other assets owned
decreased by $4.6 million from March 31, 2017 and declined by $5.8
million from June 30, 2016.

At June 30, 2017, the allowance for non-acquired loan losses was $40.1
million, or 0.67%, of non-acquired period-end loans down from 0.69% at
March 31, 2017. The current allowance for loan losses provides 2.97
times coverage of period-end non-acquired nonperforming loans, up from
2.95 times at March 31, 2017, and 2.01 times at June 30, 2016. Net
charge-offs within the non-acquired portfolio were $756,000, or 0.05%
annualized, in the second quarter of 2017 compared to $628,000 for the
first quarter of 2017, or 0.05% annualized. Second quarter 2016 net
charge-offs totaled $676,000, or 0.06% annualized. During the second
quarter of 2017, the provision for non-acquired loan losses totaled $2.5
million compared to $2.1 million in the first quarter of 2017, and $2.5
million in the second quarter of 2016. The increase in the non-acquired
provision for loan losses in the second quarter of 2017 resulted
primarily from non-acquired loan growth.

Net charge offs related to "acquired non-credit impaired loans" were
$429,000, or 0.10% annualized, and the Company recorded a provision for
loan losses, accordingly, during the second quarter of 2017. These
charge-offs increased from $326,000, or 0.08% annualized, in the first
quarter of 2017, and from $181,000, or 0.07% annualized in the second
quarter of 2016.

The Company recorded both impairment and releases within certain
acquired credit impaired loan pools during the second quarter of 2017.
The net positive impact, which reduced the valuation allowance, totaled
$572,000 compared to $1.2 million impairment in the first quarter of
2017. The impairment in the first quarter was primarily related to
impaired residential real estate loan pools and consumer mobile home
loan pools.

Total OREO decreased by $5.6 million during the second quarter of 2017
to $14.4 million at June 30, 2017. This decrease was the result of the
disposition of 33 properties of both acquired and non-acquired OREO.
Overall, OREO and troubled loan related costs decreased by $389,000
compared to the first quarter 2017, and increased by $879,000 compared
to the second quarter of 2016. The decrease in this expense from first
quarter of 2017 was primarily the result of fewer write downs. The
$879,000 increase from the second quarter of 2016 was primarily the
result of lower gains and higher losses on the assets sold comparatively.

Net Interest Income and Margin

    Three Months Ended
June 30, 2017   March 31, 2017   June 30, 2016
(Dollars in thousands) Average   Income/   Yield/ Average   Income/   Yield/ Average   Income/   Yield/
YIELD ANALYSIS Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-Earning Assets:
Federal funds sold, reverse repo, and time deposits $ 266,672 $ 762 1.15 % $ 244,992 $ 573 0.95 % $ 469,326 $ 756 0.65 %
Investment securities (taxable) 1,206,992 7,020 2.33 % 1,267,985 7,231 2.31 % 847,611 4,477 2.12 %
Investment securities (tax-exempt) 188,496 1,397 2.97 % 196,773 1,430 2.95 % 126,934 992 3.14 %
Loans held for sale 48,171 460 3.83 % 41,866 408 3.95 % 37,616 317 3.39 %
Loans   8,040,180   93,140 4.65 %   7,786,521   91,344 4.76 %   6,268,711   76,837 4.93 %
Total interest-earning assets 9,750,511 102,779 4.23 % 9,538,137 100,986 4.29 % 7,750,198 83,379 4.33 %
Noninterest-earning assets   1,321,170   1,338,186   946,308
Total Assets $ 11,071,681 $ 10,876,323 $ 8,696,506
 
Interest-Bearing Liabilities:
Transaction and money market accounts $ 3,951,515 $ 1,021 0.10 % $ 3,889,956 $ 983 0.10 % $ 3,319,119 $ 660 0.08 %
Savings deposits 1,379,719 526 0.15 % 1,350,168 504 0.15 % 770,582 116 0.06 %
Certificates and other time deposits 1,050,225 1,114 0.43 % 1,065,077 1,010 0.38 % 1,004,288 592 0.24 %
Federal funds purchased and repurchase agreements 329,256 240 0.29 % 359,564 240 0.27 % 324,105 137 0.17 %
Other borrowings   106,413   847 3.19 %   110,469   887 3.26 %   55,228   475 3.46 %
Total interest-bearing liabilities 6,817,128 3,748 0.22 % 6,775,234 3,624 0.22 % 5,473,322 1,980 0.15 %
Noninterest-bearing liabilities 2,655,961 2,539,495 2,129,976
Shareholders' equity   1,598,592   1,561,594   1,093,208
Total Non-IBL and shareholders' equity   4,254,553   4,101,089   3,223,184
Total liabilities and shareholders' equity $ 11,071,681 $ 10,876,323 $ 8,696,506
Net interest income and margin (NON-TAX EQUIV.) $ 99,031 4.07 % $ 97,362 4.14 % $ 81,399 4.22 %
Net interest margin (TAX EQUIVALENT) 4.13 % 4.20 % 4.27 %
 

Non-taxable equivalent net interest income was $99.0 million for the
second quarter of 2017, a $1.7 million increase from the first quarter
of 2017, resulting from the following:

  1. Average balance of non-acquired loans increased by approximately
    $374.1 million and resulted in non-acquired loan interest income of
    $55.4 million, a $4.6 million increase. The yield on total
    non-acquired loans was 3.85% up from 3.81% in the first quarter of
    2017. Acquired loan interest income declined by $2.8 million from the
    first quarter of 2017, to $37.8 million. The yield on acquired loans
    for the second quarter was 6.69% down from 6.90% in the first quarter,
    and the average balance declined by $120.4 million. The increase or
    decrease in the acquired loan yield going forward will be primarily
    dependent upon the level of loan pay downs and pay-offs each quarter
    for acquired noncredit impaired loans. Compared to the second quarter
    of 2016, the total loan portfolio yield declined from 4.93% down to
    4.65% in the second quarter of 2017 and from 4.76% in the first
    quarter of 2017; and
  2. Interest expense increased by $124,000 from the first quarter of 2017.
    This increase was within all categories of funding, except other
    borrowings where interest expense was down by $40,000. Total cost of
    funds on interest-bearing liabilities was 22 basis points, the same as
    the first quarter of 2017 and up 7 basis points from the second
    quarter of 2016. Interest expense was up $1.8 million in the second
    quarter of 2017 over the second quarter of 2016, due to the merger
    with SBFC in January of 2017, which added approximately $1.3 billion
    in average interest-bearing liabilities. Rates also increased within
    each category of interest-bearing liabilities, except for other
    borrowings, primarily due to the merger with SBFC. SBFC's cost of
    funds on deposits was higher than South State's. This was the main
    factor in the 7 basis point increase in interest-bearing liabilities
    to 22 basis points from second quarter of 2016. The decrease in the
    cost of other borrowings was mainly due to the addition of the low
    cost FHLB advances from the merger with SBFC.

Tax-equivalent net interest margin decreased 7 basis points from the
first quarter of 2017 and declined by 14 basis points from the second
quarter of 2016. The Company's average yield on interest-earning assets
declined by 6 basis points mainly due to the 21 basis point decrease in
yield on acquired loans, while the average rate on interest-bearing
liabilities was flat at 22 basis points in the second quarter of 2017
and increased by 7 basis points mainly due to the addition of higher
yielding deposits from the merger with SBFC. During the second quarter
of 2017, the Company's average total assets increased to $11.1 billion
from $10.9 billion at March 31, 2017 and from $8.7 billion at June 30,
2016. Average earning assets totaled $9.8 billion up $212.4 million
compared to the first quarter of 2017, and up $2.0 billion compared to
the second quarter of 2016. Average interest-bearing liabilities totaled
$6.8 billion for both the first and second quarter of 2017 up from $5.5
billion at the end of the second quarter of 2016. Average non-interest
bearing demand deposits increased by $110.8 million during the second
quarter of 2017, and by $503.9 million from June 30, 2016, due primarily
to the merger with SBFC. Including the impact of noninterest bearing
deposits, the Company's cost of funds was 16 basis points for both the
first and second quarter of 2017.

Noninterest Income and Expense

    Three Months Ended     Six Months Ended
June 30,     Mar. 31,     Dec. 31,     Sept. 30,     June 30, June 30,     June 30,
(Dollars in thousands) 2017 2017 2016 2016 2016 2017 2016
Noninterest income:
Fees on deposit accounts $ 22,155 $ 21,719 $ 20,457 $ 20,776 $ 21,539 $ 43,874 $ 41,663
Mortgage banking income 5,195 5,569 4,443 6,286 5,620 10,764 9,818
Trust and investment services income 6,452 5,941 5,191 4,877 4,911 12,393 9,697
Securities gains, net 110 -- -- -- -- 110 122
Amortization of FDIC indemnification asset -- -- -- -- (4,427 ) -- (5,901 )
Recoveries of fully charged off acquired loans 2,171 1,532 1,335 2,207 2,002 3,703 2,923
Other   1,491   1,674   1,405   1,194   2,473     3,165   3,838  
Total noninterest income $ 37,574 $ 36,435 $ 32,831 $ 35,340 $ 32,118   $ 74,009 $ 62,160  
 
Noninterest expense:
Salaries and employee benefits $ 47,580 $ 48,886 $ 40,722 $ 41,972 $ 40,537 $ 96,466 $ 81,969
Net occupancy expense 6,048 6,388 5,348 5,464 5,541 12,436 10,900
Information services expense 6,413 6,360 5,196 5,237 5,082 12,773 10,117
Furniture and equipment expense 3,877 3,794 3,246 3,234 3,072 7,671 5,923
Bankcard expense 2,886 2,770 2,864 2,940 3,040 5,656 5,919
OREO expense and loan related 1,753 2,142 1,574 2,085 874 3,895 2,648
Business development and staff related 1,958 2,070 1,609 1,698 2,035 4,028 3,741
Amortization of intangibles 2,495 2,507 1,890 1,891 1,892 5,002 3,795
Professional fees 1,599 1,773 2,039 1,758 1,576 3,372 2,906
Supplies, printing and postage expense 1,570 1,654 1,369 1,345 1,757 3,224 3,565
FDIC assessment and other regulatory charges 989 1,122 734 1,001 1,017 2,111 2,161
Advertising and marketing 989 559 799 790 858 1,548 1,502
Other operating expenses 4,075 3,674 3,010 3,067 4,999 7,749 8,206
Merger & branch consolidation expense   4,307   21,024   4,841   709   1,573     25,331   2,531  
Total noninterest expense $ 86,539 $ 104,723 $ 75,241 $ 73,191 $ 73,853   $ 191,262 $ 145,883  
 

Noninterest income improved in most categories during the second quarter
compared to the first quarter of 2017 by approximately $1.1 million to
$37.6 million. The increase was the result of the following:

  • Higher recoveries on acquired credit impaired loans of $639,000;
  • Higher fees on deposit accounts of $436,000 from higher bankcard
    services income of $586,000; offset by lower service charges from NSFs;
  • Higher income on trust and investment services of $511,000 from an
    increase in trust management fees and broker income;
  • Lower mortgage banking income of $374,000 from a decline in the fair
    value of mortgage servicing rights related to interest rates,
    partially offset by the related MSR hedge, and offset by income from
    the secondary market sales;
  • Lower other income of $183,000 due primarily to lower rental income
    from fewer other real estate owned.

Compared to the second quarter of 2016, noninterest income grew by $5.5
million due to the following:

  1. $4.4 million improvement with the elimination of the amortization of
    the FDIC indemnification asset as Loss Share Agreements (LSAs) were
    terminated in the second quarter of 2016,
  2. $169,000 improvement from recoveries on acquired loans,
  3. $1.5 million improvement in trust and investment services income due
    to an increase in business with the SBFC merger,
  4. $616,000 increase in fees on deposit accounts primarily from bankcard
    services income with more customers from the merger of SBFC, offset by
  5. $425,000 decline in mortgage banking income due to from lower MSR
    income, net of the effects of the hedge and lower income from the
    secondary market, and
  6. $982,000 reduction in other income due to the resolution of an
    acquired credit impaired loan, in the second quarter of 2016, totaling
    $1.2 million which was offset by the increase in cash surrender value
    of BOLI totaling $297,000, primarily from the addition of BOLI through
    the SBFC merger.

Noninterest expense was $86.5 million in the second quarter of 2017, a
decrease of $18.2 million from $104.7 million in the first quarter of
2017. The decrease was primarily from a decline in merger and conversion
related cost of $16.7 million and lower salary and employee benefits of
$1.3 million. During the first quarter of 2017, the company merged and
converted SBFC into South State resulting in $21.0 million in merger and
conversion related charges. In the second quarter of 2017 these costs
totaled only $4.3 million. Salary and employee benefits decreased due to
the following: (1) cost saves from personnel reductions associated with
the merger with SBFC, (2) lower payroll taxes, (3) lower cost associated
with self-funded medical plan, offset partially by (4) merit increases
which were effective April 1, 2017 and incentive compensation increases.
Advertising and marketing expense increased by $430,000 over first
quarter of 2017 due primarily to television ads.

Compared to the second quarter of 2016, noninterest expense was $12.7
million higher. The increase was primarily due to five categories of
expense: (1) merger-related and conversion cost increased $2.7 million,
(2) salaries and benefits increased $7.0 million due to employees from
SBFC and related benefits and incentives, (3) information services
increased $1.3 million due primarily to the branches added from SBFC
merger, (4) OREO and troubled asset expense of $879,000 from higher
losses related to write offs and sold properties, and (5) amortization
of intangibles increased $603,000, from additional core deposit
intangible from SBFC merger.

South State Corporation will hold a conference call today, July 21, 2017
at 10 a.m. Eastern Time, during which management will review earnings
and performance trends. Callers wishing to participate may call
toll-free by dialing 877-506-9272. The number for international
participants is 412-380-2004. The conference ID number is 10108025.
Participants can also listen to the live audio webcast through the
Investor Relations section of www.SouthStateBank.com.
A replay will be available beginning July 21st by 2:00 p.m. Eastern Time
until 9:00 a.m. on August 4th, 2017. To listen to the replay, dial
877-344-7529 or 412-317-0088. The passcode is 10108025.

South State Corporation is the largest bank holding company
headquartered in South Carolina.
Founded in 1933, the company's
primary subsidiary, South State Bank, has been serving the financial
needs of its local communities in 25 South Carolina counties, 15 Georgia
counties and 4 North Carolina counties for over 80 years.
The
bank also operates Minis & Co., Inc. and South State Advisory, both
registered investment advisors; and First Southeast Investor Services,
Inc., a limited purpose broker-dealer.
South State Corporation
has assets of approximately $11.2 billion and its stock is traded under
the symbol SSB on the NASDAQ Global Select Market. More information can
be found at
www.SouthStateBank.com.

Non-GAAP Measures

Statements included in this press release include non-GAAP measures and
should be read along with the accompanying tables which provide a
reconciliation of non-GAAP measures to GAAP measures. Management
believes that these non-GAAP measures provide additional useful
information which allows readers to evaluate the ongoing performance of
the Company. Non-GAAP measures should not be considered as an
alternative to any measure of performance or financial condition as
promulgated under GAAP, and investors should consider the company's
performance and financial condition as reported under GAAP and all other
relevant information when assessing the performance or financial
condition of the company. Non-GAAP measures have limitations as
analytical tools, and investors should not consider them in isolation or
as a substitute for analysis of the company's results or financial
condition as reported under GAAP.

See reconciliations on next page.

       
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30,     Mar.31,     Dec.31,     Sept. 30,     June 30, June 30,     June 30,
RECONCILIATION OF GAAP TO Non-GAAP 2017 2017 2016 2016 2016 2017 2016
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 31,823 $ 18,264 $ 24,177 $ 28,095 $ 24,516 $ 50,087 $ 49,010

Securities gains, net of tax

(73 ) -- -- -- -- (73 ) (81 )
FDIC LSA early termination, net of tax -- -- -- -- 2,938 -- 2,938
Merger and branch consolidation/acq. expense, net of tax   2,870     15,137     3,814     468     1,044     18,007     1,676  
Adjusted net income (non-GAAP) $ 34,620   $ 33,401   $ 27,991   $ 28,563   $ 28,498   $ 68,021   $ 53,543  
 
Adjusted net income per common share - Basic (3)
Earnings per common share - Basic (GAAP) $ 1.09 $ 0.63 $ 1.01 $ 1.17 $ 1.02 $ 1.72 $ 2.04
Effect to adjust for securities gains -- -- -- -- -- - --
Effect to adjust for FDIC LSA early termination -- -- -- -- 0.12 - 0.12
Effect to adjust for merger & branch consol./acq expenses   0.10     0.53     0.15     0.02     0.05     0.63     0.08  
Adjusted net income per common share - Basic (non-GAAP) $ 1.19   $ 1.16   $ 1.16   $ 1.19   $ 1.19   $ 2.35   $ 2.23  
 
Adjusted net income per common share - Diluted (3)
Earnings per common share - Diluted (GAAP) $ 1.08 $ 0.63 $ 1.00 $ 1.16 $ 1.01 $ 1.71 $ 2.02
Effect to adjust for securities gains -- -- -- -- -- -- --
Effect to adjust for FDIC LSA early termination -- -- -- -- 0.12 - 0.12
Effect to adjust for merger & branch consol./acq expenses   0.10     0.52     0.15     0.02     0.05     0.62     0.08  
Adjusted net income per common share - Diluted (non-GAAP) $ 1.18   $ 1.15   $ 1.15   $ 1.18   $ 1.18   $ 2.33   $ 2.22  
 
Adjusted Return of Average Assets (3)
Return on average assets (GAAP) 1.15 % 0.68 % 1.08 % 1.28 % 1.13 % 0.92 % 1.14 %
Effect to adjust for securities gains -- -- -- -- -- -- --
Effect to adjust for FDIC LSA early termination -- -- -- -- 0.14 % -- 0.07 %
Effect to adjust for merger & branch consol./acq expenses   0.10 %   0.57 %   0.18 %   0.02 %   0.05 %   0.33 %   0.04 %
Adjusted return on average assets (non-GAAP)   1.25 %   1.25 %   1.26 %   1.30 %   1.32 %   1.25 %   1.25 %
 
Adjusted Return of Average Equity (3)
Return on average equity (GAAP) 7.98 % 4.74 % 8.50 % 10.00 % 9.02 % 6.39 % 9.10 %
Effect to adjust for securities gains -0.02 % -- -- -- -- -0.01 % -0.02 %
Effect to adjust for FDIC LSA early termination -- -- -- -- 1.08 % -- 0.55 %
Effect to adjust for merger & branch consol./acq expenses   0.73 %   3.93 %   1.34 %   0.17 %   0.38 %   2.30 %   0.31 %
Adjusted return on average equity (non-GAAP)   8.69 %   8.67 %   9.84 %   10.17 %   10.48 %   8.68 %   9.94 %
 
Adjusted Return on Average Common Tangible Equity (3) (7)
Return on average common equity (GAAP) 7.98 % 4.74 % 8.50 % 10.00 % 9.02 % 6.39 % 9.10 %
Effect to adjust for securities gains -0.02 % -- -- -- -- -0.01 % -0.01 %
Effect to adjust for FDIC LSA early termination -- -- -- -- 1.08 % -- --
Effect to adjust for merger & branch consol./acq expenses 0.72 % 3.93 % 1.34 % 0.17 % 0.38 % 2.30 % 0.31 %
Effect to adjust for intangible assets   6.66 %   6.88 %   5.60 %   5.94 %   6.37 %   6.76 %   6.72 %
Adjusted return on average common tangible equity (non-GAAP)   15.34 %   15.55 %   15.44 %   16.11 %   16.85 %   15.44 %   16.12 %
Return on average common equity (GAAP)
Tangible Book Value Per Common Share (7)
Book value per common share (GAAP) $ 54.87 $ 54.05 $ 46.82 $ 46.43 $ 45.64
Effect to adjust for intangible assets   (22.17 )   (22.28 )   (15.60 )   (15.70 )   (15.78 )
Tangible book value per common share (non-GAAP) $ 32.70   $ 31.77   $ 31.22   $ 30.73   $ 29.86  
 
Tangible Equity-to-Tangible Assets (7)
Equity-to-assets (GAAP) 14.39 % 14.17 % 12.75 % 12.78 % 12.66 %
Effect to adjust for intangible assets   -5.28 %   -5.32 %   -3.87 %   -3.94 %   -4.00 %
Tangible equity-to-tangible assets (non-GAAP)   9.11 %   8.85 %   8.88 %   8.84 %   8.66 %
 
 
Footnotes to tables:
 
(1) Loan data excludes mortgage loans held for sale.
(2) The dividend payout ratio is calculated by dividing total dividends
paid during the period by the total net income for the same period.
(3)

Adjusted earnings, adjusted return on average assets, and adjusted
return on average equity are non-GAAP measures and exclude the
after-tax effect of gains on acquisitions, gains or losses on
sales of securities, OTTI, and merger and branch consolidation
related expense. Management believes that non-GAAP adjusted
measures provide additional useful information that allows readers
to evaluate the ongoing performance of the company. Non-GAAP
measures should not be considered as an alternative to any measure
of performance or financial condition as promulgated under GAAP,
and investors should consider the company's performance and
financial condition as reported under GAAP and all other relevant
information when assessing the performance or financial condition
of the company. Non-GAAP measures have limitations as analytical
tools, and investors should not consider them in isolation or as a
substitute for analysis of the company's results or financial
condition as reported under GAAP. Adjusted earnings and the
related adjusted return measures (non-GAAP) exclude the following
from net income (GAAP) on an after-tax basis: (a) pre-tax merger
and branch consolidation related expense of $4.3 million, $21.0
million, $4.8 million, $709,000, and $1.6 million, for the
quarters ended June 30, 2017, March 31, 2017, December 31, 2016,
September, 30, 2016, and June 30, 2016, respectively; (b)
securities gain of $110,000 for the quarter ended June 30, 2017
and (c) FDIC LSA Early Termination of $4.4 million for the quarter
ended June 30, 2016.

(4)

Repossessed assets include OREO and other nonperforming assets.

(5) Calculated by dividing total non-acquired NPAs by total assets.
(6) June 30, 2017 ratios are estimated and may be subject to change
pending the final filing of the FR Y-9C; all other periods are
presented as filed.
(7) The tangible measures are non-GAAP measures and exclude the effect
of period end or average balance of intangible assets. The tangible
returns on equity and common equity measures also add back the
after-tax amortization of intangibles to GAAP basis net income.
Management believes that these non-GAAP tangible measures provide
additional useful information, particularly since these measures are
widely used by industry analysts for companies with prior merger and
acquisition activities. Non-GAAP measures should not be considered
as an alternative to any measure of performance or financial
condition as promulgated under GAAP, and investors should consider
the company's performance and financial condition as reported under
GAAP and all other relevant information when assessing the
performance or financial condition of the company. Non-GAAP measures
have limitations as analytical tools, and investors should not
consider them in isolation or as a substitute for analysis of the
company's results or financial condition as reported under GAAP. The
sections titled "Reconciliation of Non-GAAP to GAAP" provide tables
that reconcile non-GAAP measures to GAAP.
(8) Includes noncash loan interest income related to the discount on
acquired performing loans of $3.3 million; $4.2 million; $943,000;
$1.1 million; and $1.2 million, respectively during the five
quarters above.
(9) Adjusted efficiency ratio is calculated by taking the noninterest
expense excluding branch consolidation cost and merger cost divided
by net interest income and noninterest income excluding securities
gains (losses), OTTI and FDIC early termination of the loss share
agreement, which occurred in the second quarter of 2016.
 

Cautionary Statement Regarding Forward Looking Statements

Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words "may," "will," "anticipate,"
"could," "should," "would," "believe," "contemplate," "expect,"
"estimate," "continue," "plan," "project" and "intend," as well as other
similar words and expressions of the future, are intended to identify
forward-looking statements. South State Corporation ("South
State
") and Park Sterling Corporation ("Park
Sterling
") caution readers that forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from anticipated results. Such risks and
uncertainties, include, among others, the following possibilities: the
occurrence of any event, change or other circumstances that could give
rise to the right of one or both of the parties to terminate the
definitive merger agreement between South State and Park Sterling; the
outcome of any legal proceedings that may be instituted against South
State or Park Sterling; the failure to obtain necessary regulatory
approvals (and the risk that such approvals may result in the imposition
of conditions that could adversely affect the combined company or the
expected benefits of the transaction), and shareholder approvals or to
satisfy any of the other conditions to the transaction on a timely basis
or at all; the possibility that the anticipated benefits of the
transaction are not realized when expected or at all, including as a
result of the impact of, or problems arising from, the integration of
the two companies or as a result of the strength of the economy and
competitive factors in the areas where South State and Park Sterling do
business; the possibility that the transaction may be more expensive to
complete than anticipated, including as a result of unexpected factors
or events; diversion of management's attention from ongoing business
operations and opportunities; potential adverse reactions or changes to
business or employee relationships, including those resulting from the
announcement or completion of the transaction; South State's ability to
complete the acquisition and integration of Park Sterling successfully;
credit risk associated with commercial real estate, commercial business
and construction lending; interest risk involving the effect of a change
in interest rates on both of South State's and Park Sterling's earnings
and the market value of the portfolio equity; liquidity risk affecting
each bank's ability to meet its obligations when they come due; price
risk focusing on changes in market factors that may affect the value of
traded instruments; transaction risk arising from problems with service
or product delivery; compliance risk involving risk to earnings or
capital resulting from violations of or nonconformance with laws, rules,
regulations, prescribed practices, or ethical standards; strategic risk
resulting from adverse business decisions or improper implementation of
business decisions; reputation risk that adversely affects earnings or
capital arising from negative public opinion; cybersecurity risk related
to the dependence of South State and Park Sterling on internal computer
systems and the technology of outside service providers, as well as the
potential impacts of third-party security breaches, which subjects each
company to potential business disruptions or financial losses resulting
from deliberate attacks or unintentional events; economic downturn risk
resulting from changes in the credit markets, greater than expected
noninterest expenses, excessive loan losses and other factors and the
implementation of federal spending cuts currently scheduled to go into
effect; and other factors that may affect future results of South State
and Park Sterling. Additional factors that could cause results to differ
materially from those described above can be found in South State's
Annual Report on Form 10-K for the year ended December 31, 2016, and in
its subsequent Quarterly Report on Form 10-Q, including for the quarter
ended March 31, 2017, which is on file with the Securities and Exchange
Commission (the "SEC") and available in the
"Investor Relations" section of South State's website, http://www.southstatebank.com,
under the heading "SEC Filings" and in other documents South State files
with the SEC, and in Park Sterling's Annual Report on Form 10-K for the
year ended December 31, 2016, and in its subsequent Quarterly Report on
Form 10-Q, including for the quarter ended March 31, 2017, which is on
file with the SEC and available on the "Investor Relations" page linked
to Park Sterling's website, http://www.parksterlingbank.com,
under the heading "Regulatory Filings" and in other documents Park
Sterling files with the SEC.

All forward-looking statements speak only as of the date they are made
and are based on information available at that time. Neither South State
nor Park Sterling assumes any obligation to update forward-looking
statements to reflect circumstances or events that occur after the date
the forward-looking statements were made or to reflect the occurrence of
unanticipated events except as required by federal securities laws. As
forward-looking statements involve significant risks and uncertainties,
caution should be exercised against placing undue reliance on such
statements.

IMPORTANT ADDITIONAL INFORMATION

In connection with the proposed transaction between South State and Park
Sterling, South State will file with the SEC a Registration Statement on
Form S-4 that will include a Joint Proxy Statement of South State and
Park Sterling and a Prospectus of South State, as well as other relevant
documents concerning the proposed transaction. The proposed transaction
involving South State and Park Sterling will be submitted to Park
Sterling's shareholders and South State's shareholders for their
consideration. This communication shall not constitute an offer to sell
or the solicitation of an offer to buy any securities nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of such jurisdiction.
Shareholders of South State and shareholders of Park Sterling are urged
to read the registration statement and the joint proxy
statement/prospectus regarding the transaction when it becomes available
and any other relevant documents filed with the SEC, as well as any
amendments or supplements to those documents, because they will contain
important information.

Shareholders will be able to obtain a free copy of the definitive joint
proxy statement/prospectus, as well as other filings containing
information about South State and Park Sterling, without charge, at the
SEC's website (http://www.sec.gov).
Copies of the joint proxy statement/prospectus and the filings with the
SEC that will be incorporated by reference in the joint proxy
statement/prospectus can also be obtained, without charge, by directing
a request to South State Corporation, 520 Gervais Street, Columbia,
South Carolina 29201, Attention: John C. Pollok, Senior Executive Vice
President, CFO and COO, (800) 277-2175 or to Park Sterling Corporation,
1043 E. Morehead Street, Suite 201, Charlotte, North Carolina 28204,
Attention: Donald K. Truslow, (704) 323-4292.

PARTICIPANTS IN THE SOLICITATION

South State, Park Sterling and certain of their respective directors,
executive officers and employees may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction.
Information regarding South State's directors and executive officers is
available in its definitive proxy statement, which was filed with the
SEC on March 6, 2017, and certain of its Current Reports on Form 8-K.
Information regarding Park Sterling's directors and executive officers
is available in its definitive proxy statement, which was filed with the
SEC on April 13, 2017, and certain of its Current Reports on Form 8-K.
Other information regarding the participants in the proxy solicitation
and a description of their direct and indirect interests, by security
holdings or otherwise, will be contained in the joint proxy
statement/prospectus and other relevant materials filed with the SEC.
Free copies of this document may be obtained as described in the
preceding paragraph.

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