Note 4 — Mergers and Acquisitions

The following are business combinations which have occurred over the past two years:

Bank of America, N.A. (“BOA”) – August 21, 2015 – Branch acquisition which resulted in the purchase of 12 South Carolina branch locations and one Georgia branch location from BOA

Southeastern Bank Financial Corporation (“SBFC”) – January 3, 2017

Park Sterling Corporation Proposed Acquisition

On April 26, 2017, South State Corporation, (“SSB”) entered into an Agreement and Plan of Merger with Park Sterling Corporation, a North Carolina corporation ("PSTB), and a bank holding company headquartered in Charlotte, North Carolina. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, PSTB will merge with and into SSB, with SSB as the surviving corporation in the Merger. Immediately following the Merger, PSTB's wholly owned bank subsidiary, Park Sterling Bank ("PSB"), will merge with and into the Bank, with the Bank as the surviving entity in the bank merger. At March 31, 2017, PSTB reported $3.3 billion in total assets, $2.5 billion in loans and $2.5 billion in deposits. PSTB has over 50 full service branches in North Carolina, South Carolina, Georgia and Virginia that serve individuals and businesses.

Under the terms of the agreement, shareholders of Park Sterling Corporation will receive 0.14 shares of South State common stock for each share of Park Sterling common stock. The aggregate consideration, which includes “in the money” outstanding stock options (i.e., stock options for which the exercise price of the stock option is below the market price of the underlying stock), is valued at approximately $690.8 million, based on 53,112,726 shares of Park Sterling common stock outstanding as of March 31, 2017 and on South State’s April 26, 2017 closing stock price of $91.90.

The transaction is subject to regulatory approvals, the affirmative vote of both SSB’s and PSTB’s shareholders, and other customary closing conditions. The transaction is expected to close during the fourth quarter of 2017.

Southeastern Bank Financial Corporation Acquisition

On January 3, 2017, the Company acquired all of the outstanding common stock of SBFC, of Augusta, Georgia, the bank holding company for Georgia Bank & Trust Company of Augusta (“GB&T”), in a stock transaction. SBFC common shareholders received 0.7307 shares of the Company’s common stock in exchange for each share of SBFC stock resulting in the Company issuing 4,978,338 shares of its common stock. In total, the purchase price for SBFC was $435.1 million including the value of “in the money” outstanding stock options totaling $490,000.

The SBFC transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date.

The following table presents the assets acquired and liabilities assumed as of January 3, 2017 and their initial fair value estimates, as recorded by the Company on the acquisition date:


	As Recorded		Fair Value			As Recorded by
(Dollars in thousands)	by SBFC		Adjustments			the Company
Assets
Cash and cash equivalents	$	72,043	$	—		$	72,043
Investment securities		591,824		(1,770)	(a)		590,054
Loans held for sale		13,652		—			13,652
Loans, net of allowance and mark		1,060,618		(10,668)	(b)		1,049,950
Premises and equipment		25,419		(2,212)	(c)		23,207
Intangible assets		140		17,980	(d)		18,120
Other real estate owned and repossessed assets		580		(30)	(e)		550
Bank owned life insurance		44,513		—			44,513
Deferred tax asset		16,247		(687)	(f)		15,560
Other assets		7,545		(482)	(g)		7,063
Total assets	$	1,832,581	$	2,131		$	1,834,712

Liabilities
Deposits:
Noninterest-bearing	$	262,967	$	—		$	262,967
Interest-bearing		1,257,953		—			1,257,953
Total deposits		1,520,920		—			1,520,920
Federal funds purchased and securities sold under agreements to repurchase		1,014		—			1,014
Other borrowings		110,620		(1,120)	(h)		109,500
Other liabilities		19,980		5,553	(i)		25,533
Total liabilities		1,652,534		4,433			1,656,967
Net identifiable assets acquired over (under) liabilities assumed		180,047		(2,302)			177,745
Goodwill		—		257,370			257,370
Net assets acquired over liabilities assumed	$	180,047	$	255,068		$	435,115

Consideration:
South State Corporation common shares issued							4,978,338
Purchase price per share of the Company's common stock						$	87.30

Company common stock issued ($434,609) and cash exchanged for fractional shares ($16)						$	434,625
Cash paid for stock option redemptions							490
Fair value of total consideration transferred						$	435,115

Explanation of fair value adjustments

(a)—Adjustment reflects marking the securities portfolio to fair value as of the acquisition date.

(b)—Adjustment reflects the fair value adjustments of $30,749 based on the Company’s evaluation of the acquired loan portfolio and excludes the allowance for loan losses of $20,081 recorded by SBFC.

(c)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.

(d)—Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts that totaled $18,120.

(e)—Adjustment reflects the fair value adjustments to OREO and repossessed assets based on the Company’s evaluation of the acquired OREO and repossessed assets portfolio.

(f)—Adjustment to record deferred tax asset related to the fair value adjustments.

(g)—Adjustment reflects uncollectible portion of accrued interest receivable and loan fees receivable along with the write-off of certain prepaid expenses.

(h)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of other borrowings of Trust Preferred Securities with a discount of $2,149, netted with premium on certain FHLB advances of $1,029.

(i)—Adjustment reflects the fair value adjustments to employee benefit plans of $6,049 netted against an adjustment of other miscellaneous liabilities of $496.