Good morning, and welcome to the South State Corporation Second Quarter Earnings Conference Call. Today's call is being recorded and all participants will be in listen-only mode for the first part of the call. Later, we'll open the line for questions. I will now turn the call over to Ms. Donna Pullen, South State Bank Senior Vice President.

Thank you for calling in today to the South State Corporation earnings conference call. Before we begin, I want to remind our listeners that our discussion contains some forward-looking statements regarding both our financial conditions and financial results. We have included slides for this call that outline our results and our general comments this morning. Let me first refer you to slide number two for cautions regarding forward-looking statements and discussion regarding the use of non-GAAP measures. I would now like to introduce Robert Hill, our Chief Executive Officer, who will begin our call.

Good morning. I'll begin our call today with a few summary comments about our second quarter. John Pollok, our Chief Financial Officer and Chief Operating Officer will then provide some details on the operating I'll then wrap up our prepared comments with a update on our conversion and integration efforts and then we will conclude the call with a Q&A session with the research analyst community. A year ago, we closed our merger with First Financial and we shifted our strategic focused from mergers to enhancing our foundation, rebranding our South Banks improving our financial performance and preparing for the future. The results from the second quarter certainly begin to reveal the financial success of this focus and the combined strength of the banks that have merged together the past two years. We achieved record operating earnings of 22.2 million during the quarter or $0.92 per share, which represents a 19.5% increase from a year ago. This quarter was highlighted by continued asset quality improvement low charge-off levels, improved expense management and significant organic growth. These improvements led to an operating return on average assets of 1.12% and an operating return on tangible equity of 16.6%. Net income totaled 17.9 million for the quarter or $0.74 per share which was impacted by merger and branding expenses totaling $0.18 per diluted share. Asset quality also improved this quarter with a 2.1 million decline in non-acquired non-performing loans and a 10.4 million decrease in OREO. These reductions are leading to a lower credit cost. The second quarter was certainly [higher] growth. Our pipeline has continued to be strong and we are pleased with the quality and quantity of our growth. On the loans side we achieved net loan growth of over $60 million as non-acquired loan growth outpaced the run off of…

Thank you, Robert. On slide number five, I will draw your attention to the linked quarter change in our interest earning asset composition. During the quarter, our total interest earning assets increased by $62.7 million with the most significant changes occurring within the loan portfolio. We had net loan growth this quarter of $63.5 million as the pace of acquired loan runoff slowed and the non-acquired loan growth accelerated. A good portion of the loan growth occurred during the latter part of the quarter and therefore is not fully reflected in our average balances. Period end non-acquired loan balances were over a $113 million more than the average balance for the quarter. On slide number six, we show you the movement in the net interest margin over the three full quarters since the first federal merger. On a linked quarter basis, the net interest margin declined by 24 basis points to 4.75%, driven primarily by a decline in the yield on earning assets of 26 basis points with only a small reduction in the cost of interest bearing liabilities. This decline was a result of a drop in the yield on the non-acquired portfolio of 7 basis points and a drop in the yield of 23 basis points on the acquired portfolio. A change in the mix of the loan portfolio also contributed to the decline. The acquired loan portfolio which is the higher yield than the non-acquired portfolio represented 44% of our loan portfolio during the second quarter compared to 47% during the first quarter. The gold colored bars on slide number six represent the net interest margin adjusted for the effect of the amortization of the FDIC indemnification asset. This blended margin declined 15 basis points as the amortization expense declined linked quarter. This amortization expense which is…

Thank you John. The Board of Directors has declared a quarterly cash dividend of $0.21 per share which represents a $0.01 increase from last quarter. Our teams have been working together as one for almost a year and this is evidenced by our production improvements this quarter, but the efficiencies of operating as one brand and one system should further strengthen our performance and our franchise. That concludes our prepared remarks. And so I would ask the operator to open the call for questions.

Thank you sir. We will now open the line for questions. (Operator Instructions). The first question we have comes from Jennifer Demba of SunTrust Robinson Humphrey. Please go ahead.

Thank you. Good morning. Just a question Robert on the non-acquired loan growth lot of it came in construction development. Can you give us some color there and can you give us some a sense of geographically where all the loan growth came from?

Hey Jennifer. Construction specifically, it was up $52 million for the quarter so we had good loan growth there, about half of that really is residential, so it’s going to turnout fairly quickly we also have some construction obviously on the commercial side, we had a couple of larger commercial construction progress that really closed probably over the last couple of quarters and begin to fund up. But I’d say overall Jennifer, my comments on the growth would be fairly really what drove it really diversity first in terms of the types of business we had. Construction was up 16%, the consumer real estate up on the 6%, CNI 6%; and in consumer non real estate was up almost 16%. So by the first clue we see in a while, where really each of our areas had pretty nice growth. Geographically what we are seeing is kind of a similar story, everybody helped every region of the company really helped this quarter to hit the kind of organic growth we had. But specifically the Greenville, the Greater Greenville MSA. We had $36 million in growth in the Greenville MSA. In the Georgia, we had 28 million come out of Georgia, Colombia 20 million, Charlotte 15 million. And then the Charleston market, which we talked about on the last quarter and the team really starting to come together, they had $23 million for the quarter. and even some of the markets that had kind of labored early in the recession was Myrtle Beach, Hilton Head. We began to see them come back and really had pretty strong quarters themselves. So everybody contributed. Greenville was certainly the overall leader, but Georgia had a big impact as to Charleston, Colombia and Charlotte.

And can I ask a follow up on, you said on the call and in the release you made some hires during the quarter, can you give us some color there?

Yeah. We picked up a number of new people. We have hired some new bankers in the Charleston market, we have hired a number of new Charlotte -- a number of new mortgage bankers as well. So and then we have added some people on the IT side. So I would say it’s nothing kind of out of the normal for us. We typically on a quarterly basis add 5 to 10 new producers and say we are still in that same pace.

Okay thank you.

(Operator Instructions). Next we have Chris Marinac of FIG Partners.

Thanks good morning. Rob or John just want to ask about the small decline we saw on the accretion income, is that something that it will be a permanent change here or do you think we will see some variability in the coming quarters?

Chris hi this is John. Good morning I think as we have always said we are going to have some volatility, as I mentioned in my comments we are getting ready to do our first recast of the First Financial portfolio next quarter. So we have been very pleased with the performance there. So there is still some potential that we could see some increases as you know as we have stated in the past. We still continue to have fairly high credit marks on our portfolios. We continue to see credit improvement throughout those, but I think the main thing is volatility. As we finish recast in the third quarter we’ll have one month impact there and then I think as we reach the fourth quarter after having a full quarter of the recast from First Financial you ought to be able to get some stability in the margin and hopefully see the direction a little clear.

Okay, great. And then I guess my follow up just had to do with operating expenses. Will this run rate that we see coming up in third quarter sort of be the new run rate with everything else kind of build off of any growth in the future. I am just kind of trying to understand what our natural growth rate of expenses should be beyond Q3 after the changes are behind?

Well we have got as you think about this quarter, obviously we just did the conversion so we don’t have all the cost saves in. So I think as we said all along your goal was to get to $9.5 million in expense saves on a quarterly basis pre-tax, we are a little bit over half way there. This coming in the third quarter, we think we would almost get another $2 million and then in the fourth quarter, we would get the rest of that. We got eight branch closures, they all do not happen that conversion week and they are spread through August. So we have got eight more offices to close. And then obviously we've been running two operating systems and we're in the process of obviously switching over to the new system and turning of the old systems. So we'll see some more cost saves there Chris.

Okay. Now just a follow-up there John was it any national expense growth in '15, just kind of comparing full year '15 with kind of run rate that didn't place at the end of December?

Yes, Chris, I'm not sure yet. We'll get into our forecasting process as we get into the fourth quarter and take a look at that where we take it look at everything, but not sure exactly what that would be in '15 yet.

Okay, great. Thanks for the color.

Next we have Peyton Green of Sterne Agee.

Yes, good morning. I just wondering maybe if you can talk about on linked quarter basis in the period loans, but acquired portfolio was down about a 133 million and the acquired was up about a 195. And I was just curious how much of the acquired went into the non-acquired?

Peyton this is John not really any. I think as we've talked in this past this First Federal with its thrift tradition in the past obviously did a lot of residential. But we really didn't see a whole lot of transfer at all over, it was really all new production in this quarter. One of the things that we're very focused on is to make sure from a duration standpoint on the loan side that loans maybe traditionally that were held in the loan portfolio of First Federal we are taking those and refinancing those into the secondary market, but really didn't see much churn coming out. I think probably the biggest place you could see it is as Robert mentioned earlier is we did a lot of construction this quarter. So a lot of people building new homes, primary homes and secondary homes. And so we saw a little bit of churn out from the lot loan portfolio into the construction book.

Okay. And then just to clarify how much of the expense saves you feel you had recognized in the second quarter out of the 9.5?

We are a little over 50% of that. And as I mentioned we've got about 2 million to get in the third quarter and then about 2.3 million to get in the fourth quarter.

Okay. And then Robert, I mean you mentioned last quarter that you felt good about the potential for an increase in loans production how do you feel now after seeing such a good quarter, does that draw down the pipeline or is the pipeline really quite good?

No, the pipeline I would say continues to be about at the same level that it was in the first quarter. A lot of the business though that we did, a lot of the growth you will see taking at the average balances were less in our period imbalances and a lot of that reason is a lot of this was close to June. So I don’t know the exact timing of the pipeline, but it still feels about the same it did in the first quarter. But I will -- but I'll also say it's I think the volume of business from what we closed in June is probably going to seem to have a lag effect in terms of July. So I think may be August, September we'll see if it picks backup and see what close it's been. So don’t expect to have a big July but may be into the third quarter we'll be kind of back on pace with the second quarter.

And Peyton, this is John. I’d add, our teams are very focused on the conversations; they were doing a lot of -- internally a lot of things, changing out mortgage platform, just a lot of stuff that we’re internally focused on. But obviously we want to make sure we got all those basis covered before you get all that behind us before, increase the production again.

Sure. And I guess Robert, how are you seeing customer behavior change or not change, whether you’re seeing any improvement out there?

I think we continue to see improvement; we have over the last year. I think the biggest thing that we’ve seen that’s been different has really the business customer. And we’ve seen consumer real-estate, mortgage activity, construction really over the last year continue to improve, really on the consumer side the refinancing way is pretty much over almost all our volume really now is almost new construction and new purchase. So, we’ve seen that building over the last year but the commercial side, you saw your commercial borrower just kind of continue to sit on the sidelines and now we’re still seeing it, we’re seeing a lot of activity there, a lot more demand picking up on the commercial side. It seems to be the confidence level has grown and then we’ve got some changes in our market with business models at some banks or integrations of others and that’s creating some opportunities as well.

Okay. And then last question, I mean you’ve mentioned John and Robert that you’ve been very internally focused with making sure that the conversion with the integration went correct. Do you feel like people are now coming to work with a different frame of mind or do you think there is still a little bit of lag in that?

Well we just did the integration, what we saved in part is the big the core conversion was just a little over week ago. So I’d say we’re still kind of in the throes of it and working through it. I think the integration has gone very well but we’re at the point right now where we’re just kind of executing the plan we’ve been building for the last year and that’s going to take another four to six weeks before it really settles out.

Okay, great. Thank you for taking my questions.

Next we have Blair Brantley of BB&T. Blair Brantley - BB&T: Good morning, guys. I just want to talk about your excess cash you have on the balance sheet and kind of what’s your plans around there, I know we talked about some different ideas last quarter, just maybe an update there?

Yes Blair, hi. This is John. I think that as we’ve said all along is long-term we feel like we can grow the loan portfolio. Obviously we had a quarter this year that we weren’t expecting. I think as we'd mentioned, we felt like we continue to shrink some this year and we still could. So we don't want to go out and take a lot of duration risk with it in the investment portfolio. I think as you can see with our balance sheet, our investment portfolio is about 12% of our earning assets or about 10% of assets. So I think we’re going to continue to work and try to win the money out. Blair Brantley - BB&T: Anymore thoughts on turning back some of the troughs and everything we talked about last quarter?

I think so, I think as you can see in the build in our tangible book value, the build in our capital ratios as we get to the latter half of the year, I do believe that something that we will continue to focus on. I think long-term as we've always said is, we want to be more of a common funded bank from a common equity standpoint. But yes, it’s something that we're definitely going to consideration as we get later in the year. Blair Brantley - BB&T: Okay. And then flipping to mortgage, can you give us the production numbers this quarter versus last?

In terms of mortgage, when you look at it today is in our current pipeline, today is a little over 200 million. we’ve got, if you look at the second quarter, we had over 300 million in volume, it was over 1,200 loans. We were very pleased with the mix with over 73% of the volume being purchased business and only 27% refi and the majority of it came through our retail channel. Blair Brantley - BB&T: Okay. And have you shifted more to selling direct completely now or are you still doing best efforts or...

That’s correct. We have really shifted our model to sell direct; obviously that’s going to have a nice impact on our mortgage servicing assets but yes, we are settling all of our fixed rate paper direct now. Blair Brantley - BB&T: Okay, thank you very much.

Thanks Blair.

Next we have William Wallace of Raymond James.

Good morning guys.

Good morning.

In your press release you talk a little bit about the yield on the loans and the non-acquired portfolio and the pressure you are seeing there. I am wondering if you could talk a little bit about the pricing environment, if there is any difference between markets and how you guys are combating that.

Wally, this is Robert. We have seen continued increase, competitive pricing mostly just people going out further on the yield curve but we continue to stay relatively short. Our new loan yield is still north of four and nicely north of four. So we have been able to continue to grow the loan outstanding and still get what we feel like is acceptable returns for the risk that we are taking but obviously the metropolitan markets are the ones where the competition gets more fierce and then for larger projects you are also seeing just people take more during risk. So I think from an interest rate standpoint, you are seeing a fairly tight range. I think from a duration perspective though you are seeing that people really reach out 10, 15 years. And so we have been very selective with our duration and feel really good about the yields that we continue to be able to produce.

You guys haven’t know, maybe the average duration and on the news ones you are booking on the commercial real estate portfolio?

Well, I don’t off hand, I can get you that information and get back to you, I feel I’ve got a pretty good reaction of what it would be, but let us make sure we got the right answer and get back to you on it.

Okay, and when you guys are staying, you are staying, staying for strong, you are not going out 7, 10, 15 years on commercial real estate?

I will say that, we have done none, we have done very few selective transactions but the majority of the business that were doing five years or less, the vast majority of the business that we are doing five years or less.

Okay, that is helpful.

I mean, I am not saying that if we had a long term customer, we are going to protect that relationship that we wouldn’t take a spot here and there but the majority of what we are doing is really what we have always done five years or less, we are looking investing fair amount closely. We continue to be assets sensitive, obviously very core funded. I think similar philosophy what we have taken the investment portfolio, we stayed very short their on a duration risk, we have given up some yield to get that, and we are doing some of that same approach in terms of the loan portfolio.

As Robert mentioned earlier, we were able to grow our construction portfolio fairly significantly, and the duration on that is fairly short on the residential side and what we found in the past as you know these times where construction picks up and we focus on primary homes and secondary homes, and you know that is such a great feeder system to the mortgage line of business.

In that commercial real estate portfolio too is, I can think a very few really of any examples for we've gone and extended maturities on the commercial real-estate projects. Our philosophy has always been either as John said on the construction side to get it construction and the flip it out the permanent market on the commercial side as we do in many firms. So we're typically not in these projects eight to 15 years.

Okay. And then switching gears a little bit John can you remind us may be how we can think about the accretion on the FDIC indemnification asset as the various different agreements that you have expire, I assume may be you change give us an idea for the timing of some of the exploration of the larger agreements?

Sure, well we have a number of deals. Keith that we came through the first financial merger that expired this quarter. So we're done with that one is really our next big piece is our CBT which we did in Georgia that's in the first quarter of '15. Then our next deal is in '16 we have two in '16 then you have to get out to '17 on the non-single family. Then we have a number of single family (inaudible) agreements and those get out to 2020 and 2021.

Okay. And so when I look at the big drop in the negative accretion in this quarter was that related to the cape fear expiring?

No, we had a couple of pieces to that. So the net decrease was a little over $24 million so far. So 5.8 million of that was the negative accretion. We had almost 11 million in claims and then we had about $7.5 million adjustment on the that was offset by lower credit margin.

Okay thanks John I appreciate that helps.

(Operator Instructions). Well at this time, there appeared to be no further questions. At this time I would also like to turn the floor back over to Mr. John Pollok. Sir?

Thanks to everyone joining us today, we look forward to reporting to you again next quarter. Thanks again.

And we thank you sir and to the rest of the management team for your time today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you and have a great day everyone.