The Assumable Rate Conversion (“ARC”) Program

The Assumable

Rate Conversion

(“ARC”) Program

Your Fixed Rate Loan, Our Interest Rate Risk

Loan Structuring Strategies

Lender Training

Discussion Topics

• Why use ARC?

• Pricing and structuring

• Prepayment Provision- Positioning for borrower

value

• Applications and advantages

• How to get started

WHY DOES SOUTHSTATE BANK USE ARC?

Help Borrowers But

Protect The Bank

Differentiate From

Competitors

Provide Better

Service

Develop A

Relationship

Through ARC, lenders may offer long-term fixed rate loans while eliminating interest rate risk

to the bank, all without carrying a derivative. However, the benefits offer far more strategic

value than simply minimizing risk:

ARC

Program vs.

Swaps

Your Competitive

Advantage

ARC vs. Swaps

General:

Accounting:

Documentation:

Simplified Borrower Experience:

Fee Generation

Swap/Hedge Portability

Hedge for Unique Structures

Hedges for Forward-Starting

Structures

No Hedge Effectiveness Accounting

No Call Report Derivative Disclosure

No Derivative Capital Allocation

No Dodd-Frank Reporting

No ISDA Documentation for Bank

No ISDA Documentation for Borrower

ARC has all the same capabilities of any

swap program.

ARC eliminates all derivative accounting

headaches for banks.

ARC reduces the number of pages

required for documentation from 45

pages using swaps to four pages for

ARC.

ARC allows current loan settlement

invoicing instead of having borrowers

execute separate monthly swap

settlements.

ARC eliminates the requirement for loan

officers to explain a complex transaction.

ARC is easier to understand reducing

both sales friction and legal risk.

ü ü

Collateral Requirement:

No Independent Amount ($500k+)

No Additional Cash & Securities

A simplified platform for

borrowers and loan officers’ results

in more transactions booked.

PRICING

A+B=C

• Bank earns (floating) Floating Index (CME 1M SOFR, found here) + Your bank’s credit spread

• Borrower pays (fixed) Swap Rate (Provided at final closing by ARC) + Your bank’s credit spread

• Rates can be locked at closing, in advance, or via a forward rate lock.

• Indicative rates can be priced by using the “ARC Pricing Quote” daily email, online pricing app, or by

contacting the ARC desk.

“ARC Pricing Quote” Example

Amort.

Maturity

3yr

4yr

5yr

6yr

7yr

8yr

9yr

10yr

12yr

15yr

20yr

3yr

4.71%

5yr

4.51%

4.38%

4.34%

7yr

4.46%

4.28%

4.19%

4.13%

4.11%

10yr

4.43%

4.22%

4.11%

4.02%

3.98%

3.95%

3.94%

15yr

4.40%

4.19%

4.04%

3.96%

3.90%

3.87%

3.84%

3.83%

3.80%

3.81%

20yr

4.39%

4.16%

4.01%

3.93%

3.87%

3.82%

3.80%

3.79%

3.77%

3.78%

3.77%

25yr

4.39%

4.15%

4.00%

3.92%

3.85%

3.80%

3.78%

3.77%

3.76%

3.77%

3.74%

30yr

4.38%

4.15%

3.99%

3.90%

3.84%

3.79%

3.77%

3.75%

3.76%

3.73%

Your Bank will Earn

• Variable Index plus your credit spread

(e.g. 1M Term SOFR+ 4.00%)

• Your origination or document fees

• ARC Hedge Fee (up to 25 basis points of

the interest earned over the life of the

loan)

HEDGE FEE

• Your Hedge Fee will be realized at the inception of the loan without amortization and without clawback as the NPV of

your chosen hedge spread (max 25 bp) of interest over the life of the loan structure.

• Example- $10MM loan, 25 year am, 10-year term, 6% fixed rate to borrower, 25 basis point fee results in a hedge fee

generated to your bank of appx. $235k, or 2.35% of the loan amount up front.

• Hedge fee quotes for specific structures can be given indicatively by contacting the ARC desk. Fee calculator available

as well upon request.

Example Hedge Fee Calculation

• Realizing Hedge Fee income allows your bank greater

competitive flexibility in competing for deals.

• Hedge Fee income allows your bank to offer no cost

closings and target new market segments.

PREPAYMENT PROVISION- SYMMETRICAL YIELD MAITANENCE

1. Symmetrical Yield Maintenance follows a simple formula

based on: a) the term left in the loan, and b) the interest

rate movement from the time the hedge rate was

established at closing to a prepayment event.

2. The fee is the present value of the difference between the

starting and ending hedge rate, multiplied by the loan

amount for the remaining term of the loan.

3. The prepayment provision is invoked if the borrower

prepays or terminates the loan. The borrower collects a

fee if rates are higher, but pays a fee if rates are lower.

4. Indicative termination amounts can be quoted by

contacting the ARC desk and can be calculated using a

simple spreadsheet. The prepayment provision is defined

in the Rate Conversion Agreement, and a prepay scenario

table (like the one on this page) will be included in each

borrower presentation and in the signed ARC Agreement.

5. The prepayment provision aligns with the borrower’s view

on rates (if borrower believes rates will rise, the provision

is an advantage) and can align with borrowers business

outlook. Borrower is given an option on the term that best

suits their business needs.

Subject Loan: A $1,000,000 loan is structured as a 10 year final maturity with a 25 year

mortgage amortization, with a 5.770% fixed rate where the initial hedge rate is 3.770%.

Initi al Hedge Rate: 3.770%

Loa n Spread: 2.000%

All-in Fixed Rate: 5.770%

Remaining

Term -75 bps -50 bps -25 bps 0 bps +25 bps +50 bps +75 bps

10 years (58,461) (38,536) (19,053) - 18,632 36,853 54,673

9 years (53,117) (35,048) (17,344) - 16,993 33,643 49,956

8 years (47,221) (31,190) (15,451) - 15,170 30,063 44,686

7 years (41,317) (27,319) (13,548) - 13,329 26,444 39,347

6 years (35,394) (23,429) (11,632) - 11,468 22,776 33,925

5 years (29,462) (19,524) (9,704) - 9,588 19,063 28,425

4 years (23,511) (15,598) (7,761) - 7,686 15,298 22,836

3 years (17,589) (11,682) (5,820) - 5,777 11,510 17,202

2 years (11,691) (7,774) (3,877) - 3,858 7,696 11,514

1 years (5,829) (3,881) (1,938) - 1,933 3,860 5,782

Prepayment Hedge Rate vs. Initial Hedge Rate

If 3 years into the loan, the then current 7 year hedge rate is 25 bps

lower than the starting hedge rate and the borrower prepays the

entire l oan, the borrower wil l pa y $13,548. Partial prepayments

work similarly on a proportional basis. However, the borrower and

lender will have the option to apply the loan to a new project/

property and the repayment will not apply.

If 3 years into the loan, the then current 7 year

hedge rate is 25 bps higher than the starting

hedge rate and the borrower prepays the entire

loan, the borrower will receive $13,329. Partial

prepayments work similarly on a proportional

basis.

STRATEGIC APPLICATIONS – MAXIMIZE VALUE FOR BANK AND BORROWER

• Take Advantage of the Yield Cur ve

• Recognize a New Source of Fee Income

• Offer Construction-Through-Perm

• Offer what ISDA Swaps can’t:

§ Portability

§ Assumability/Assignability

§ Prepayment benefit

§ Blend and Extend

• Differentiate from the Competition

• Protect Existing Relationships

• Hedge Existing Loans

• Forward Rate Locks

ARC LOAN CLOSING PROCESS

1. Contact the ARC team early to request a borrower presentation

2. Email credit memo for formal ARC hedge approval (2 days)

3. Provide draft loan documents for ARC review (immediate)

4. ARC will send a draft Rate Conversion Agreement

5. Establish a signing appointment with borrower and notify ARC

6. Approximately 30 minutes prior to signing, ARC will email the final Rate

Conversion Agreement for execution

7. Immediately after signing, email all executed documents to the ARC team by

4:00PM ET

8. After borrower signing, ARC will send a Transaction Supplement to the ARC

Master Servicing Agreement for bank execution

How to get started with ARC

HOW WE HELP YOUR BANK SELL ARC

Resources available to your bank include, but are not limited to:

• Specialist support for current or prospective ARC deals- available to talk with borrowers in person or via phone.

• Marketing materials (Borrower Presentation and more)

• Accommodation of unique structures via ARC- pitch us your deal, we can help you help your borrower.

• Support for booked ARC loans- Specialists can facilitate ongoing and future needs for your borrower’s business

through our various ARC hedge options.

ARC is a relationship building product. Help your borrowers by taking advantage of unique market conditions and ARC’s

expansive product options to meet their needs and stand out against the competition!

For More Information,

ARC@southstatebank.com or Call 800-481-2443

Appendix- Cash Flow Diagram

Cash Flow Diagram

Credit Obligations Document Requirements

ARC Agreement –

Settlement Payment

Floating Rate Loan

Principal Payment

Borrower

Settlement

Payments

Hedge

Payments

Full Loan

Amount

Borrower

Community

Bank

Rate Conversion

Agreement

Loan

Documents

Servicing

Agreement

SouthState

Correspondent

SouthState

Correspondent

SouthState

Correspondent

Community

Bank

Community

Bank

Disclaimer

In addition to any specific risks discussed herein, there are other factors that may influence the performance of an interest rate hedge product.

Counterparty Risk – the risk that the counterparty will not perform pursuant to the contract terms. Borrowers should carefully assess counterparty risk when engaging in such a transaction as described herein.

Basis Risk – the risk that the floating rate interest payments made on the loan and the floating rate interest payments received on the hedge contract could be mismatched, specifically if the floating rate indices, spreads, and other terms are

not exact.

Amortization Risk – the risk of the potential mismatch between the outstanding principal amount of the loan and the outstanding notional amount of the hedge. Amortization mismatches could also result in termination of portions of the

hedge prior to maturity and under unfavorable conditions.

Termination Risk – the risk that the hedge could be terminated as a result of certain events including payment default or other defined events of default. A termination of a hedge may result in payment received by the borrower or owed to

the Bank depending on the market at the time of termination.

Prior to entering into any interest rate hedge transaction, recipients should determine, in consultation with their own legal, tax, regulatory, and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and

accounting characteristics and consequences of any transaction.

The information herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or instrument or to participate in any trading strategy. No representation or

warranty can be given with respect to the accuracy or completeness of the information herein, or that any future offer of securities, instruments or transactions will conform to the terms hereof. SouthState Bank and its affiliates disclaim all

liability relating to this information. SouthState Bank, its affiliates and others associated with it may have positions in, and may effect transactions in, securities and instruments mentioned herein.

The information herein may contain general, summary discussions of certain tax, regulatory, accounting and/or legal issues relevant to the proposed transaction. Any such discussion is necessarily generic and may not be applicable to, or

complete for, any particular recipients’ specific facts and circumstances. SouthState Bank is not offering and does not purport to offer tax, regulatory, accounting or legal advice and this information should not be relied upon as such. Prior

to entering into any proposed transaction, recipients should determine, in consultation with their own legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting

characteristics and consequences, of the transaction.

The projections or other estimates in these materials (if any), including estimates of returns or performance, are forward-looking statements based upon certain assumptions and are preliminary in nature. Any assumptions used in any such

projections or estimates that were provided by a recipient are noted herein. Actual results are difficult to predict and may depend upon events outside the recipient’s or SouthState Bank’s control. Actual events may differ from those

assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the analysis. Certain assumptions may have been made for

modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and SouthState Bank does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no

assurance that estimated returns or projections will be realized or that actual returns or performance results will not be materially different from those estimated herein. Any such estimated returns and projections should be viewed as

hypothetical. Recipients should conduct their own analysis, using such assumptions as they deem appropriate, and should fully consider other available information in making a decision regarding these securities, instruments or

transactions. Past performance is not necessarily indicative of future results. Price and availability are subject to change without notice.