Good morning and welcome to the South State Corporation Quarterly 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 will open the line for questions with the research analyst community. I will now turn the call over to Jim Mabry, South State Corporation, Executive Vice President in-charge of Investor Relations and M&A.

…contains forward-looking statements regarding our financial condition and results. Please refer to Slide 2 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 the call.

Good morning. We will begin the call with summary comments about the first quarter of 2018, also an update on the merger with Park Sterling and then provide further insight into our performance for the period. We're off to a strong start for 2018. Net income for the first quarter totaled $42.3 million or a $1.15 per diluted share. This represents a return on average assets and return on tangible equity of 1.19% and 14.69% respectively. Adjusting for merger-related expenses associated with the Park Sterling acquisition, earnings were $51.2 million or a $1.39 per share which represents a return on average assets and return on tangible equity of 1.44% and 17.60% respectively. I'm very pleased with our team's accomplishments this quarter, asset quality, expense control, deposit growth and continued progress with the integration of Park Sterling were performance highlights. We successfully completed the Park Sterling system conversions this past weekend and are excited to build upon this merger. Even with the focus on our conversion efforts and crossing 10 billion, we were able to experience growth in checking accounts and in one activity. The ability to attract talented bankers and new customers comes from a culture that is focused on the relationship approach to banking which has taken decades to build. Our Board declared a quarterly cash dividend of $0.34 per share, $0.01 higher than last quarter payable to shareholders of record as of May 11, 2018. I'll now turn the call over to John Pollok for more detail on the financial performance for the quarter.

Thank you, Robert. Let's start on Slide 4 and take a look at the increase in net interest income and net interest margin linked quarter. We benefited from a full quarters impact of Park Sterling as seen in the $16.7 million increase in net interest income to $129 million. Interest earning asset yields were up 16 basis and the cost of interest-bearing liabilities increased 12 basis points resulting in four basis points of expansion in our net interest margin. The yield on our non-acquired loan portfolio increased 10 basis points and on Slide 5, you can see that it represented about 53% of our interest earning assets. Our interest earning asset yield also benefited from a greater weighting of the acquired book. The full quarter impact of the Park Sterling merger resulted in the acquired loan portfolio representing over 32% interest earning assets during the first quarter compared to 25% in the fourth quarter. The yield on the acquired book declined linked quarter by 34 basis points to 6.23% but still contributed to a higher overall interest-earning asset yield due to the higher waiting. You can see the impact of purchase accounting accretion enhancing the contractual yield earned on our acquired loan portfolio, as well as the remaining discount to be accreted in future periods on Slide 6. Slide 7 shows a $4.4 million improvement in noninterest income as our legacy lines of business should strong performance and the peer was also positively impacted by full quarter of Park Sterling. Our adjusted efficiency ratio increased from 56.9% to 60.7% as shown on Slide 8. As a reminder, we have planned annual cost saves of $30 million in total, we have realized 40% of these cost saves through the first quarter. Our systems conversion was this past weekend and we expect to achieve remainder of the cost saves by the end of the third quarter. As you can tell from our muted loan growth, we continue to remix the Park Sterling loan portfolio as it is customary post merger. We are also focused on reducing certain non-core funding acquired in the transaction. This quarter also had the impact of $2.8 million in one-time in full incentives as a result of our strong 2017 performance and the Tax Reform Act. Slide 9 shows the great start to 2018 in earnings per share and Slide 10 shows the $0.44 growth in tangible book value during the quarter. This was a nice increase given the significant merger cost in the AOCI impact from lower investment values due to the higher rate environment. I will now turn the call over to Robert for some summary comments.

Thank you, John. We look forward to the rest of 2018. We have a unique franchise, great teams of people operating in fast growing markets with a strong culture makes our company unique. We are well positioned just behind the big banks to grow share. This bodes well for South State's continued success. This concludes our prepared remarks. So I would ask the operator to open the call for questions.

[Operator Instructions] The first question comes from Jennifer Demba of SunTrust. Please go ahead.

Just question on the loan remix in for Park Sterling, can you give us some details of how many loans ran - that you exited during the quarter and what you think you have left to do and how long that will take. And also second question, are you seeing - I know you've always seen opportunities to gain share from the bigger guys in your markets but are you seeing outsized opportunities from Wells these days? Thanks.

On the Park Sterling book, as you know its historically for us. We have a tendency to remix the loan book, look at the different asset classes. So we’ve done a few things, I think as I mentioned last quarter, we have now sold about $68 million worth of their shared national credit book, we are in the process of unwinding their builder finance book, it comes about $85 million in that book. And then as you know, we have a tendency to kind of look at the CRE book. So we’re in the process of evaluating that. We had our systems conversion this week end, so we just changed the size. So what happens this quarter is, as we go out and meet with all the individual customers we continue to kind of look at the book. So typically remixing for us, it takes six to 12 months to do that. So I don’t see that anything unusual compared to what we’ve done in the past.

So any disproportionate opportunities for wealth in terms of hiring or customer acquisition these days?

I’ll touch on it, just a couple of things before I touch on that let me just touch on the portfolio. I mean the underlying trends that we’re seeing in terms of loan volume obviously Q1 is very noisy but underlying trends are positive. If you kind of look market by market, we’re seeing pretty good growth really from our non-merger impacted markets this growth looks good. The pipeline Q1 to Q4 was up about 11% and I think we feel good about the segment this is coming from. So the consumer business has been strong, commercial operating companies has been very strong and makes up a significant part of our pipeline, and then on the CRE side, we got about a $1 billion in dry powder, Charlotte was obviously the most impacted from the merger. So Charlotte had a fairly flat quarter actually were down some as we remix some of that portfolio. But they have the most significant pipeline that we have in the company. So, overall feel like the underlying trends from a loan perspective are probably as good as they've been in a while. The switch gears on your other question. I think we've seen this for a while and I would in terms of talent from larger banks we've seen it for a while of course, Wells included. I think it's twofold. I think one is obviously disruption at Wells and other order institutions but also there's a change in our company and I think that may be impact and this is much is that disruption at the other companies. We have a stronger platform than we've ever had, especially in the Commercial Bank. Our treasury platform, our capital markets platform, and that's just bringing over a higher caliber banker from these larger banks and we just brought one from Wells this past quarter, who's a guy of our bankers had relationship with for a couple of decades, very well known a solid, solid banker in a few years ago we might not have had the platform to be able to track that talent and today we do. So, I think it's multi-faceted. I think there's unhappiness or dissatisfaction from some bankers and also some support people inside the larger organizations, and we've got a more robust platform that we've had in the past to be able to track them.

The next question is from Tyler Stafford of Stephens. Please go ahead.

I wanted to start on maybe just following up on Jennifer's Park Sterling remix question. Given that repositioning, do you still think you can hit that mid to high single digit pace for the back half of the year?

I think it depends - our view is we got to kind of get back to that number, is it the second half of the year, the beginning of the next year a little hard to tell. I will tell you kind in the second quarter. As Robert mentioned our pipelines are good. The growth looks good but I think it's still a little early to tell exactly when that happens.

I do think tower it is front-end loaded. The shared national credit $68 million, the builder finance goes around $80 million, all of that is not unwound at this point but it's certainly being unwound. And then our CRE concentration you saw our CRE capital declined and there are certain CRE segments that we're getting out and then we’re shifting banker focus away from more - park was just a heavier CRE bank, so that can take a little bit of time to do but the pipeline looks good. The underlying trends look good. It's just a little noisy right now but I think we feel good about the productivity side is the question is how quickly do we move some of the stuff out of the bank.

Tyler when you come off, when you're growing 60% I think it's just a natural time that where you're going to remix the book and so we have a heavy, heavy growth year last year with two acquisitions. So this is something we've done before clearly part of our strategy as we try to grow the core product.

That makes complete sense.

And just to add on to that is, we find it's better to do it right on the front end is decide, what are you going to be and what you not going to be in, what does the credit box look like, then everybody comes out of the gate kind of no one what's going to fit and what's not going to fit. And I think we've certainly gotten there quickly. There were a lot of similarities credit culture was between our two teams but we're trying to get it right on the front end and that creates a little bit of the front end loaded portion of the run off.

And just on the parks builder finance portfolio you mentioned that the $80 millions, are you existing that portfolio in its entirety or just more selectively calling the credit such you that you want out of the portfolio?

We’re winding that portfolio down. We do just to be clear, we do a lot of construction finance but it is for the end user. This was more of a speculative builder finance group and there weren't a lot of but I would consider deep relationships we would be one player amongst many with some of these larger builders than that's just not an area that where we want to deploy our capital. We think we can deploy it in and the mortgage space, the consumer space and the middle market space more effectively.

And then just on the deposit side of the house, can you help us parse out how much of the deposit cost increase was Park Sterling related from kind of the fourth quarter average versus just the normal market pricing you're seeing across the Legacy South State portfolio?

It's little hard to say. I think when you step back and you look at that side of the balance sheet for us is, one of the things that we wanted to focus on was kind of getting rid of the non-core funding. So FHLB advances some subs debt, some broker CDs. So our strategy has been to kind of go back into the market, get a little bit more aggressive on the deposit pricing and replace that. As you can tell in our deposit growth for the quarter, we were up nicely, but clearly wanted to be a little bit more aggressive because we wanted to replace that non-core finding. So now our loan to deposit ratio is back down to about 92%. So clearly makes it a little noisy trying to split it out that way when you're trying to replace that much non-core funding, but we clearly got a little more aggressive on the CD side. I think when you step back and you look at our non-interest DDA growth, we're growing core checking accounts in the bank, over 25% of our funding now is noninterest DDA. So our strategy was a little bit different because of the transaction, not just because rates were born up and it was a little more competitive. We want to replace that non-core funding.

Just to add on that, kind of a similar story to the loan growth it's just noisy but the underlying trends we feel really good about. So obviously, we remakes but noninterest DDA as John said, did grow 9%, but probably our strongest new account growth quarter we've ever had. So a lot of new account volume, I think a lot of that goes really two areas we picked up much more robust Treasury platform with Park Sterling. We have a significant pipeline on the Treasury side and our team is doing a really outstanding job there, that conversion took place this weekend and we’ll be migrating the South State customers to that platform between now and the end of the year but the new customer pipeline for that has been very robust. And then we've expanded our digital delivery. We had 20% year over year growth in our mobile deposit platform, and now 66% of our deposits are coming in digital format. So, we just see positive momentum underlying the overall deposit side of the bank.

One last thing if you go back to the third quarter of last year it kind of Park Sterling's last release and their cost of funds was almost 60 basis points. Tyler, I think about it big picture take that 60 basis points, get a full quarter now and you know we were up about 10. So we're pretty pleased with what we've been able to accomplish on that side, bringing in those cost of funds and ours only going up about 10.

I know that's a great point. You guys have clearly done a great job re-mixing both sides of the balance sheet so far. Thanks so much for taking my questions. That’s it for me.

The next question is from Katherine Miller of KBW. Please go ahead.

Can you talk about expenses a little bit and are you able to you give us an outlook for how expenses should trend next quarter, I guess we'll have $2.8 million bonus come out and probably some higher seasonality. And then the full impact of the cost savings. So is there a way, just kind of look at the puts and takes for what the expense run rate can move to over the next couple of quarters? Thanks.

Let me see if I can take a shot at that for you. When you look at Park, they had annualized expenses of about $86 million a year. We announced about $30 million in cost saves. We realized well of that. So we got about $18 million to go on an annualized basis. If you look at next quarter, we ought to be able to get we realize 40% now, we've got to be in that 60% range. But as we get to the end of the third quarter, we feel like we’ll realize about 100% of that.

And then anyway to quantify the seasonality of 1Q as well? I think you mentioned in the press release higher taxes and things like that?

I'm not sure I could totally give you that in dollars, but clearly you have the FICA taxes raises they go in that during that time. I think historically where we've been successful on the expense side is, when we can contain core expenses under that 3% growth rate. That's something that we focused on a lot. So I'd pipe you the color I would give you around as you think about looking at our expense growth rate over the last few years.

And then how about - back to the margin, how about on legacy loan yields, I think your non-acquired loan yields were up about 10 bps point quarter. Any commentary on asset beta and as rates continue to rise, how quickly you think you'll be able to move legacy loan yield higher or how much is increased competition offsetting some of that?

We we're excited to seizing our legacy loan yields now back in the first quarter and north of 4%. We're closing in as you can see our legacy book was up 10 basis points linked quarter. Park made us more asset sensitive, we kind of went from what I would say a book of about 60% fixed rate. Now, we're about 55% fixed rate. One of the great things about the churn you're seeing in our portfolio right, more asset sensitivity, didn't grow a lot of churn there. As Robert mentioned, the pipelines are full, so that clearly has a big impact on the margin. Our average loan amount still holding in there a little over $125,000, it’s what we've seen. So seeing some nice growth on what I'd say the small side, the mortgage business. We've shifted to more on balance sheet, so the 31s and 51 ARM business, we like a lot, we like seeing that now, but the rates there are a little bit better. So I think we feel pretty good about pricing. Is it competitive? Absolutely. Good loans are especially on the commercial side are extremely competitive. I think as Robert mentioned though now, we've got - we've just got more firepower. We have a robust capital markets area where we can go out and compete on some bigger deals, but not have to take all the interest rate risk. And then our new treasury platform, we just put that in. We have a number of customers that have tested that and we've got a fairly good list of prospects that I think we'll be able to bring over. Like when you think about betas in general, I think as you know we focus on core funding, when you're - when 81% funded by core deposits, we continue to focus on growing that non-interest DDA, your betas have just performed better. As I mentioned, I think in Howard’s question, it gets a little noisy when you're trying to kind of lean the non-core funding off the balance sheet, but beta wise, we know it's going to be more competitive out there, but I think when you look at that remix of the loan portfolio, where our yields were going, we feel good on the loan side that we'll be able to continue to drive our yields up.

[Operator Instructions] Our next question comes from Christopher Marinac of FIG Partners. Please go ahead.

John and Robert, could you tell us a little bit about the things you are avoiding within the loan portfolio whether that’s types of deal structure, just some sort of color?

Fundamentally, we just believe in relationships, so I think the dividing line for us primarily is relationship versus transaction and that doesn't always go perfectly down, one regulatory segment of credit or type, the way it structured, but if it's just a transaction, we tend to just not be interested. We find that we get the best returns when we've got a whole relationship and we’ve got good funding, so I’d say that the major dividing line is transactional businesses like Shared National Credits or like the Builder Finance Group, the international builders to take a piece, just to get credit outstanding, that’s just not really what we do. Shared National Credit’s really the same way. So I’d say that would be the ultimate dividing line. CRE has certainly been very high for a while. I would say the multifamily space, the hospitality space, certainly we’ve seen a lot of growth in those areas, especially in the markets that we’re in. So we don’t see any weaknesses occurring in those markets, but we certainly have seen in a lot of demand and so we’re careful there. And then we’ve seen some businesses that have economy has been well good and we’ve seen some that have leveraged up. So companies that have leverage step on their balance sheet are ones that we’re going to be a little bit more cautious about. So that’s a broad range, I think the big differentiator is relationship versus none. John, anything to add?

I think what I would add is, we want to be able to get the deposits to fund our banks. So if we, as Robert said, the transactions that don’t come with deposits is something we’re really not interested in. So we feel like the way this - the way the rates are moving is, you’ve got to be able to core fund your bank. If you look at wholesale funding prices today, and you consider those in some of the betas is, those things were moving at an extremely fast pace. So it gets back to really, can we round out relationship, can we be their bank? As Robert mentioned, for us to be the second or third partner in a relationship, that’s not really something we’re interested in. I think what we’re really excited about now and take that treasury platform and the higher, the quality of the hires that we’re getting in the middle market space. We feel like we can grow our balance sheet and we feel like we can fund it from a core perspective and then at the end of the day we got a lot of options left, right. We’ve got - we still have the ability to pull the trigger on the wholesale side if we needed it. But ultimately what we see today, it just seems like a dollar of earnings is valued whether the same, whether it’s coming from a transaction or core relationship and we just view that very differently today than it looks like it’s being out there with some people we’re dealing with.

And Chris, we’re trying to – we’ve been making sure that we’ve got the platform and the talent that can – to deliver to all sized companies. And you know just we expect to be the first call. And I don’t think it’s just commercial banking, I think we’re absolutely there in our mortgage area, we’re absolutely there in our consumer bank. Our well theory, it wasn’t there a few years ago, now they are clearly there today. So and our commercial bank has been in segments, but not all segments. And I think we’re moving our commercial bank into where we’re going to be the first call for these customers and that’s the position that we expect the company to be in.

This is great guys. Thank you for the background. John, just a quick follow-up. The original merger charge on Park Sterling that you gave us way back then, was that still a good figure today?

It feels like we’re going to come in a little bit lower than our original number, but we still got a couple of quarters today to go. So today looking at merger cost, it’s probably going to be about $20 million next quarter and about $5 million the quarter after that. But it feels like we’re probably a little under our original estimate.

There are no additional questions at this time. I will now turn the call back over to John Pollok.

Thanks everyone for your time today. We will be participating in the SunTrust Robinson Humphrey Financial Services Conference in New York beginning on May the 22nd. We look forward to reporting to you again soon.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.