Good day, everyone, and welcome to the Prosperity Bank's First Quarter Earnings Call. [Operator Instructions] Please note, this call is recorded. It is now my pleasure to turn the conference over to Mr. Dan Rollins. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to Prosperity Bancshares' First Quarter 2012 Earnings Conference Call. This call is being broadcast live over the internet at prosperitybanktx.com and will be available for replay at the same location for the next few weeks. I'm Dan Rollins, President and Chief Operating Officer for Prosperity Bancshares, and here with me today is David Zalman, our Chairman and Chief Executive Officer; Tim Timanus, our Vice Chairman; and David Hollaway, our Chief Financial Officer. David Zalman will lead off with a review of the highlights of the most recent quarter. He'll be followed by David Hollaway, who will spend a few minutes reviewing some of our recent financial statistics. Tim Timanus will discuss our lending activities including asset quality. And I will provide an update on our recently announced and completed acquisitions. Finally, we will open the call for questions. During the call, interested parties may participate live by following the instructions that will be provided by our call moderator, Victoria [ph], or you may email questions to investor.relations@prosperitybanktx.com. I assume you have all received a copy of the earnings announcement we released earlier this morning. If not, please call Tracy Upwoods at (281) 269-7221, and she will fax a copy to you. Before we begin, let me make the usual disclaimers. Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws and as such, may involve known and unknown risk, uncertainties and other factors, which may cause the actual results, performance or achievements of Prosperity Bancshares to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause actual results to be materially different than those in the forward-looking statements can be found in Prosperity Bancshares' filings with the Securities and Exchange Commission, including Forms 10-Q, 10-K and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Let me turn our call over to David.

Thank you, Dan, and good morning. I would like to welcome and thank everyone for listening to our First Quarter 2012 Conference Call. Some of our successes this quarter include record quarterly earnings of $36.5 million in the first quarter and that's compared to $33.9 million for the same period in the prior year, an increase of $2.6 million or 7.7%. Our diluted earnings per share was $0.77 for the quarter of 2012, compared to $0.72 for the same period in the prior year, a 6.9% increase. Our Tier 1 leverage capital ratio increased to 7.68% from 6.97%, compared to the same period last year. Our tangible equity ratio is 6.65%, up from 6.03% one year ago, the spike have been much bigger in asset size today. Loans increased in the first quarter of 2012 by $109 million, which represents an 11.6% annualized increase when compared to the year-end 2011. Our nonperforming assets stand at 16 basis points of average earning assets, one of the lowest in the industry. We continue to see signs of stable loan quality. And our deposits increased $484 million or 24% on an annualized -- 24% annualized on a linked-quarter basis. Customers continue to bring in deposits despite the low rates we're offering. We continue to believe some of our deposits could evaporate once consumers have some certainty about the future of the economy. While we continue to experience net interest margin compression, our net interest income increased $2.8 million from the fourth quarter to $81.7 million. Although we have a declined net interest margin, we have been able to increase earnings, primarily due to an increase in earning assets along with our continued loan growth. Looking forward, we hope to offset this declining net interest margin by continuing to increase loans, keep our expenses…

Thank you, David. Net interest income for the 3 months ended March 31, 2012 was $81.8 million compared with $80.4 million for the same period in 2011, an increase of $1.4 million or 1.8%. The increase was primarily due to growth in average earning assets of $930 million or 11.3% from $8.21 billion at March 31, 2011, to $9.14 billion at March 31, 2012. The growth in the earning assets also impacted the net interest margin while also secretive to net interest income, it was diluted to the net interest margin. The net interest margin on a tax equivalent basis was 3.64% for the 3 months ended March 31, 2012, compared to 4.02% for the same period in 2011, and 3.82% for the 3 months ended December 31, 2011. Non-interest income increased $78,000 to $13.945 million for the 3 months ended March 31, 2012, compared to $13.867 million for the same period in 2011. Noninterest expense for the 3 months ended March 31, 2012 was $40.5 million compared with $41.7 million for the same period in 2011, a decrease of $1.2 million or 3%. The efficiency ratio was 42.2% for the 3 months ended March 31, 2012, compared to 44.3% for the same period last year, and up from 40.8% in the fourth quarter of 2011. Our loan portfolio metrics at 3/31 showed an average life and effective duration of 2.9 years and projected annual cash flows of approximately $1.6 billion. And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?

Thank you, Mr. Hollaway. The company's nonperforming assets at quarter end March 31, 2012 totaled $14,873,000, which is 0.38% of loans and other real estate. This is compared to $12,052,000 or 0.32% at December 31, 2011. This change represents an increase of 23% in nonperforming assets from December 31, 2011. The March 31, 2012 nonperforming asset total was made up of $7,142,000 in loans, $13,000 in repossessed assets and $7,718,000 in other real estate. As of today, $1,641,000 of the March 31, 2012 nonperforming assets are under contract for sale, but there can be no assurance that any of these contracts will actually close. Net charge-offs for the 3 months ended March 31, 2012 were $102,000, compared to net charge-offs of $2,069,000 for the 3 months ended December 31, 2011. This represents a decrease of 95%. $150,000 was added to the allowance for credit losses during the quarter ended March 31, 2012, as compared to $1,150,000 for the fourth quarter of 2011. The average monthly new loan production for the quarter ended March 31, 2012 was $106 million compared to $100 million for the fourth quarter ended December 31, 2011. Loans outstanding at March 31, 2012 were $3,875,000,000, compared to $3,766,000,000 at December 31, 2011. The March 31, 2012 loan total is made up of 43% fixed rate loans, 27% floating rate loans, and 30% variable rate loans. Dan, I'll now turn it over to you.

Thanks, Tim. As you all know, we completed the acquisition of Texas Bankers, Inc. on January 1, and we completed the operational integration during the first quarter. Gordon Muir and his group has joined our Central Texas team and they are actively involved in helping Prosperity Bank grow in the Austin area today. We completed our acquisition of The Bank of Arlington on the 1st of April, and we'll be working this weekend to convert their computer systems into ours. Next Monday morning, Bill Allen and his team in Arlington will be working at the newest Prosperity Bank-branded location, which further supports our efforts in the Dallas-Fort Worth Metroplex. Finally, we hope to close the acquisition of East Texas Financial Services in Tyler within the next few weeks. Dale Chapman and the bankers at First Bank significantly improved our visibility in East Texas. These 3 acquisitions together add approximately $300 million in assets and provide us with additional resources to continue to grow in those markets. As David mentioned, we're also excited to be working towards the previously announced merger with American State Financial Corporation. I've been in West Texas several times over the past several months and have been able to meet many of the American State officers and associates. I'm very excited about this merger. West Texas market is vibrant and a strong economy, and American State Bank is very active in the communities they serve. When the transaction is completed, hopefully early in third quarter, we will be able to provide our customers -- existing Prosperity Bank customers with some additional fee-based products such as Wealth Management. Deborah Carter [ph], Mike Epps and Tony Whitehead will continue to manage their 4 locations in West Texas. Gary Galbraith in Abilene, and Mike Marshall in Midland and Odessa will continue to manage their locations in their regions, and they will all become a part of our senior management team upon the completion of this merger. We believe the future is very bright for us in West Texas with these experienced bankers joining our team. As you have heard, we are very proud of our team and the effort they exhibit each day. Our loan and deposit growth plans are working and we believe we can continue to build shareholder value going forward. The recent recognition by Forbes and by JD Powers provide solid evidence that our team is performing very well. At this time, we are prepared to answer your questions. Victoria, can you assist us with questions?

[Operator Instructions] We'll move first for the side of John Pancari.

This Rahul on behalf of John today. I have a question regarding loans. Your loans were up 3% this quarter. Even excluding the loans acquired, it was up 2%. Where are you seeing the loan demand pick up? And can you us a sense of the pipeline and the utilization going into 2Q?

Are you asking geographically where or are you asking what type of loans were?

What type of loans, yes.

Again, Tim can jump in here. This is David. From what we can tell, I think that we're having -- it's broad, it's all over, I don't think that it's in one particular one. It's not just CRE, it's not just one floor. I think it's in proportion to what we have. Tim, do you have a feeling on it?

I agree with that. Our percentage in terms of categories of loans is not really changing, so the loan pipeline is falling into those historical percentages. For example, our commercial real estate lending typically runs 35% to 40% of our portfolio, and that's probably the percentage of deals that we're seeing, residential typically runs 25% to 30%, and that's probably typical of what we're seeing. So the loans are coming in to the historical buckets in a normal fashion, so I don't think there an effect.

The largest growth we're reporting in the first quarter was in the C&I category. But I think all of us are saying good growth both across the state and all the markets we serve and in all of the loan categories.

Okay. Then in terms of -- I know last quarter you mentioned that the paydown activity had -- it was at an elevated level. Do you see any moderation in the paydowns? And then would you still require a moderation in paydowns to get to your $1 billion loan growth target by yearend '13?

We are seeing some decrease in the paydowns on the loans. For example, all of 2011, the monthly average was $81 million, it's now at about $78 million. And as we said earlier, the loans booked are about at $106 million. So that difference is expanding a bit. If that holds true, that should be good news for loans staying on the books until the end of the year.

I would come at it from another side. When you look at our loan growth, Rahul, we're doing everything we can do to get there. We're producing more loans today and dollars of loans, more loans and number of loans than we've ever produced in the history of our company. We continue to add lenders. You'll start seeing we continue to add supports on the backside to support those lenders. And to reach that goal, we said at the very beginning, we need a couple of things to happen, loan paydowns would be a good one to slow down some. But we also need some economic tailwinds, and while the economy in Texas is doing very well and there's job growth, and there's earnings growth, and there's employment, income growth, there's still a lot of people that are sitting on the sidelines economic-wise and waiting to see what happens from the big picture with taxes in Washington. So I think we need some more economic tailwinds to get to our goal.

We'll move next to the side of Ken Zerbe.

So obviously, you've been on a tear with acquisitions. When you think about what you have coming down the pipe and what you're trying to integrate, each addressed your appetite for additional acquisitions from here. At what point does it just get -- your hands get too full to think about new deals in the near-term?

Ken, this is David. I'll start off. We've announced a number of acquisitions but truly, Bank of Texas, what was $60 million or $70 million in size and Bank Arlington is really small, $30 million or $40 million. We haven't completed the East Texas. Again, they're -- all of these banks are very small in size. If you add them all altogether, it's $300 million. And so those kind of deals are not hardcores at all. I always kid, I said we have a staff of people that we want a long time and they're like piranhas, if we don't start eating somebody, they'll eat our spend, keeping sales. So we were at nil with some of those deals. Having said that, the American Bank in Lubbock is a very clean bank and they're so much like us that we -- it is a bigger deal, it's $3 billion in size and there's definitely an operational integration and we don't want to make lies there. But the people that we have on the other side that we're merging with are very competent and very good, maybe almost as good as anybody that we've ever been with before, so they're very helpful. Having said that, because of the way they are and there's not a big cleanup, we think that if there's more opportunities, we can do them.

I think the timing is the issue here, Ken. All of these things take time to cook. You put things in the oven and you'll let them cook and there's work involved and there's multiple hurdles along the way that take a lot of time and effort. We just filed the S4, it was effective for us yesterday. And that's a huge project that took a lot of time off of our team and the American State team, that project is behind us, that sets the shareholder meeting date for early in June for their side, we're well past to the regulatory conversations. We -- in fact, we expected that we will have regulatory approval, hopefully within the next couple of weeks. So much of that now is out of the way and we're really left with what David just said, which is the operational integration piece and our teams have been actively working with each other, we've had people in West Texas, as I said, I'd been there, I can't remember how many times now, 3, 4 or 5, 6 times in the last couple of months. We've had lots of our folks up there. They're also -- we've had some of their folks down here. That process is well underway. If there was some huge transactions, well clearly, we'd need to kind of wait until this one was finished, to get integrated. But I think David is right. I think when you look at the way we line these things up, we've got the capacity to continue to talk to people.

Okay. All right. That helps. And then a small question on premium amortization, how much did that impact numbers this quarter?

Loan portfolio premium amortization.

Yes. We have talked about that last quarter. It came up a little bit because of larger bond portfolio. So it went up but that speed, if you come up from a speed perspective, it's pretty much the same as it was last quarter.

Got it. So if I remember right, last quarter, I think it reduced -- their premium amortization reduced NIM by about 10 basis points. You're saying that actually reduced NIM by more than 10 basis points this quarter?

Well, you got to get it to apples-to-apples, I haven't put it on paper, but I would tell you is that dollar amount that you're -- convert it back into dollars and then put it back on our first quarter, I don't know if it's quite 10 basis points. I don't want to commit to that, but I think you're on the right line of thinking.

We think it's similar to last quarter.

Yes, exactly.

Even though the numbers were higher, the bond portfolio is bigger so the impact is similar to last quarter.

I can't give an exact number, I wouldn't.

We'll move next to the site of Dave Rochester.

Just back on the loan discussion. Can you comment on just how the pipeline looks this quarter versus last quarter? Are you looking at a stronger pipe going into 2Q?

Dave, This is David Zalman again. I'll let Tim jump in but I think we're pretty excited from what we see. We see a pretty good pipeline. I don't have the exact numbers for you, but we -- things look good and we always sit at loan committee, I sit at loan committee every Thursday and it's really picking back up. So we're excited. We're excited from what we see.

I think that's right. I mean, we're obviously just sort of one month into this new quarter. So it's too early to say for sure. But based on what we're seeing today in April, the pipeline is good and if yesterday's loan committee meeting is any evidence, it's good, we had an all-day meeting basically and looked at many loans. So I don't see any deterioration right down the pipeline at all.

If you look backwards Dave, January is always a slow month. You come through December and believe it or not, a lot of people don't seem to work a whole lot during December. And in the loan business, it's a 30 to 45-day lead time to get things done. So January was relatively slow, February picked up and March was fantastic. So if we can hold the performance that we were running in March into the second quarter, then I think we feel pretty good about what's in the pipeline.

Sounds good. And on the deposit side, it looked like growth is very good there. You saw the cost is up a little bit for the interest-bearing demand. I was wondering if that were related to new products or promotions. And then maybe what's your outlook for growth going into...

I think it's more dollars moving within existing products. It's a seasonal number and there are some dollars that come in and out. I think it's important when you talk about the deposit side though, Dave, let's remind everybody, some of the deposit growth we experienced in the first quarter may have really been accredited to the fourth quarter. Remember, we were working very hard last quarter, or at the end of the fourth quarter, and we talked about it on our first quarter call. It was very important for us to stay under $10 billion in assets at the end of the year, and sort of stay out of the Durbin trap, and we did. So we experienced some deposit growth in the first quarter that we probably had tried to mute in the fourth quarter.

You have to say that our first quarter deposits generally increased because people are putting their money away for their federal income taxes and their property taxes that they have to pay. So we generally see a big increase historically in the first quarter, and then in the second quarter, you may even see a decrease.

Well, April is the worst month of the year for deposit. I don't know where that money goes in April. Maybe somewhere in Washington.

We don't have an exact number, but we think maybe $160 million to $200 million may have went to just from our customers paying taxes in April.

Got you. Okay. And then just last one, can you talk about the securities growth this quarter, which is pretty strong. I mean, what's your buying and the yields on that? And then what we should expect for balances going forward?

If you look at our balance sheet, you can see that our securities increased about $1 billion and that came from 2 places. The first place, we saw a huge increase or inflow of deposits that we took in around $400-and-something million. So a portion of that, it didn't into loans, actually went into securities. And then we also -- because of the Fed and the way their outlook is, they're pretty much committing that -- who knows, right or wrong, but they're pretty much committing that we won't see a whole lot of change in the next couple of years in interest rates. So what we have been doing is when we have such a big roll off of deposits every year, how much, Dave? $1 billion what?

You mean, cashless, overall, we have $1.6 billion.

$1.6 billion. So what we've started doing is that you saw -- when you see the 10-year get really weird, on a day we saw as the 10-year get up to around $2 billion last month or so and a couple months ago, we're starting to buy when the market is there and even though we might have.

Got up to $220 million.

But whatever it was, we started buying and taking advantage of the situation because we have so much of our portfolio that cash flows every year, where bond -- will be more opportunistic and that's what increases the bonds also.

We were in that same position, Dave, last year, in the second and third quarter. Basically, you're pre-funding the cash flow off the bond portfolio, 2 or 3 months out. At the end of the year, again, to stay under the $10 billion in assets, we eliminated all of that, kind of what I would call, prepurchases of future cash flow. And so we were in a very tight reduced balance sheet size at the end of the year. And in the first quarter, we basically put all that back on. So we're now basically 3 months out on the cash flow coming in and off the bond portfolio.

Yes. It's not something you want to do in a rising rate environment but when rates are pretty stable and we think they're pretty stable, it's a real advantage to us to be opportunistic in buying when the rates -- there are splits and flops in the market sometimes.

You specifically asked, David, what you purchased. And I think almost everything you purchase was purchased when the 10-year was like $220 million in the quarter.

That's right.

And what was it that you were buying?

Primarily saying, we don't change, we're playing vanilla, we're buying probably 10 to 15-year mortgage-backed securities basically, Fannie Mae and Freddie Mac. The average life on the 10-years that we buy usually run around 4 years and the 15-year usually has about 5.6-year average life. Our duration in our portfolio has increased from last time as Dave mentioned, we're up to about getting more normalized, it got so low. Today, we're probably around 2.9, and historically, we run 3 or better in our duration. So we're kind of -- the model hasn't changed really.

Great. And just looking forward, I guess the balance of the securities booked will vary a little bit just depending on the opportunities out there for you but you're not looking to grow that materially and sustain that growth going forward?

No. Our focus -- we're not trying to put carry trade or something like a lot of banks are doing. That's not our intention at all. Our intention is to really build the loan portfolio and to be opportunistic in this type of rate environment, buying ahead 2 or 3, 4 months sometimes.

If your question is are we trying to level up the balance sheet, the answer is no. I think we're in the same position today we were in, in the second quarter and third quarters last year, which is basically having a little bit of purchasing front of the cash flow coming off the bond portfolio. But looking forward, the size of the securities portfolio is going to be dependent upon the deposit inflows into the bank and whether or not we can deploy that money into the loan portfolio or not. Whatever the difference in those numbers are is what's going to end up in the securities portfolio. We don't target or manage to a balanced or a level in securities.

Move next to the side of Jennifer Demba.

Good morning, everyone. This is David Grayson in for Jennifer. First, I guess I wanted to start on the competitive environment. I know earlier this week, Frost showed some loan growth for the first time in a while. I just wanted to see if you could maybe provide some commentary on the competitive environment for loans in Texas at this point?

I'll start off, David. This is David Zalman. We do -- we are seeing our competition being more competitive. The banks, for a while there, you could almost dictate what you wanted, the terms and conditions that you wanted. But again, when we are in loan committee, things are becoming very competitive. I wouldn't say that there -- I wouldn't say we're at an irrational stage, or things are out of control, but we are -- but it is becoming more competitive. Tim, do you want to say something?

I think that's 100% correct. I think the competitive environment is heating up but it's not extreme by any means. I think the banks that we see out there, in terms of competition, are quite often offering some rates that we feel are certainly on the low side. Overall interest rates obviously are a factor there and most banks want loans just like we do. But a lot of these banks have had credit problems more so than we have. So they seem to be focused on the better credits not the middle level-type credits. So it is more competitive, but it's certainly not frenzied and it's something that we focus on weekly, if not daily.

It's also more competitive to larger than one size.

That's correct.

So remember, when you look at our balance sheet, while we're doing larger loans than we've ever done in the history of our bank, we're still playing in a smaller size or smaller bite-size for many of our regional peers. And if they're looking at $20 million, and $30 million and $40 million credits on a regular basis, the competition there is a lot higher than it is on our average ticket size.

Okay, great. And then one follow-up if I might. I know that this is a topic that's been discussed in past calls, I thought I'd touch on this here today. With the leverage ratio of about 7.7%, if earning asset growth keeps moving at the pace or somewhat similar pace to where it is now, what's your thoughts on addressing that leverage ratio? Are you comfortable where it's at? Or do you see a need to supplement maybe Tier 2 capital or something to kind of move -- I'm sorry not Tier 2 capital, Tier 1 capital to boost out a little bit?

This is David Zalman. The answer to that is no. I mean, our earnings are -- I don't want to say they're great or phenomenal, but we have very, very strong earnings. And you can see, if you compare our capital ratios, the leverage and its annual capital ratio from this year, where we're at today comparing to the last year at the same time, we grew the bank almost $1 billion in size and still increased capital ratios very strongly. So again, I think the growth that we have, I don't know that we'll see this kind of growth, I don't think that we'll see the kind of growth that we've had in this first quarter all year long.

It'd be nice.

It'd be pretty unusual [indiscernible] I think that's the analogy, I think balance sheet, I don't see that. But just having that, our earnings or cash this year is $3 or something a share is at $140-something million. Even if you take out our dividends, you can see that we retained a whole lot of capital. So we don't see that as being an issue.

I think we also have to look, David, at the quality of the balance sheet. So when you look at our balance sheet, give or take 50-50, government securities and loans and our asset quality, 16 bps of nonperformers on average assets, I don't think we're feeling any capital constraints of any kind.

Dave, if you run any numbers just to kind of see at yearend, where we would be based on our growth on our leverage ratios. I mean, well and above 7%. I mean, we don't see that being an issue really.

Yes. There's no capital constraints here.

Move next to the side of Scott Valentin.

Just a follow-up on just the earning asset growth. I think, for the quarter, earning assets averaged about $9.1 billion. In my last math, says you ended the quarter by about $9.5 billion. So you're off to -- I think you should benefit from stronger earning asset growth again. But the margin, I guess there'll be some spillover in March compression from securities growth in the first quarter into the second quarter?

I think that's a fair statement. When you look at where that's coming in, Scott. remember, we started the year depressed and then we grew deposits pretty quickly in January, and when David was actually buying some of those bonds, it was actually late January and then to February when the rate spiked up to the $220 million range there on the 10-year for a while. So I think you're right. I think you're saying that the average for the quarter was lower in the first quarter than it will be in the second quarter, which has the potential to be depressing on them. It's accretive to NII.

Yes, but your observation is good. I mean, the earning assets are a little higher than our average is, it's not as dramatic as with year-over-year. So yes, if all things being equal, again, we don't have a pristine crystal ball here but all things being equal, the same dynamics at play. We'll see some positive to net interest income and the margin itself, it will contract a little bit more. Again, based -- if you're looking at a 30-day deal, I don't know if we're going to have traction with 20 basis points a quarter. We can't make that prediction. But it'll affect it somewhat.

The bottom line is there's definitely a negative margin contraction in earning assets.

Okay, fair enough. And then just looking forward. As you guys ended the year with the American State deal pushing over $10 billion assets. When did the Durbin kick in? I appreciate the disclosure of the ATM and debit card fees?

That's a 12/31 look. So we passed the 12/31 look, 12/31/11. We will not pass the 12/31/12 look. So we would then be required to comply with all the Durbin rules on 7/1/13.

7/1/13. And expecting amount of probably a 40%, 50% haircut to this debit card, ATM fees, is that fair on the Durbin?

Yes, I mean, we've been looking at it on dollar basis. Again, we're starting to see really good growth in this area. But when we looked at this over the past few months, as we said on previous conference calls, in dollars, this is about a $5 million annualized pretax impact to us.

Having said that though, we still have options on our end to raise fees in certain areas. We can mitigate that to some degree too.

Not with Durbin fees but with other fees.

Okay. And then just kind of a big picture questions come up on the conference calls, but obviously, Houston market is very heavily energy dependent, natural gas prices are pretty low. Are you seeing any impact either in the portfolio in a macro perspective in the eastern market from low natural gas prices?

It's a good question because I've talked to a lot of people all the time, and I talk to the subcontractors in the oil business. And from what they're telling me is that there doesn't seem to be that big of a slowdown. We've had more growth in Texas probably than all the other states combined in employment. And basically, what we're seeing is people are just switching from drilling -- there's 2 things happening, people are switching from drilling for natural gas going back into oil. They're even telling me too, they're not going to quit drilling for natural gas because the leases would expire. So you're seeing a combination of things, we're still seeing a very, very vibrating economy. Not only in Houston, you're looking at the Eagle Ford Shale in South Texas and the Midland Odessa area is just really building too. So you've got -- Houston is where a lot of the international oil companies are. So what they're doing is they're going in international scale more than marketing this. Overall in this state, we're really seeing a lot of activity and a lot of production is still very, very active. And I would say the people in the service industry make more money in the loan business last year than they've had for a long, long time wherever, yes.

Yes. You're right, Scott. The gas prices are low, but most of those folks are shifting that effort from the gas to the liquids. When you look at job growth, the latest job growth numbers out for Texas, August 10 to August 11, which is pretty stable at this point. But natural resources extraction is the fastest growing sector out there for job growth across the state of Texas. Professional and business services is #2 and Healthcare Services is #3. The number at Texas showed pretty healthy job growth where many other states were not showing job growth last year. So while the economy, we think is coming along here pretty good. We continue to believe there's investors and business people out there that are still kind of sitting on their hands waiting to see some evidence of stability in the economy.

I mean, I think it's a good economy. We're having -- we're increasing employment, at the same time, we're not seeing a doubled [indiscernible] at same time. Sometimes when things get going very strong, you see in commercial real estate, everybody's building buildings and strip malls and housing going crazy. I think what we're seeing today is really a good growth. We're seeing an economic growth in a lot of different fields, oil and gas, the medical industry, you got Caterpillar that built a plant in Victoria, you got Apple that's bringing in 3,000 jobs in Austin. We have a well-rounded, I can keep going on and on, but we have real well-rounded economy and it's not only in one industry and it's not running hot, I think it's running on good growth.

The oil industry is running hot. I was in Midland a couple of weeks ago where West Texas crude is. Let me tell you, Midland is hot. There's a lot of activity in there.

It's hot. I think it's hot everywhere. But again, I grew up in the 80s and I remember what hot really was. I saw what everybody was wearing ostrich boots and wearing gold chains and Rolex. And I think most of the time -- I think the people, the customers out there, the contractors, the subcontractors, they realized that they can't go out and make long-term decisions 5 and 10 years from now than when they're borrowing, and most all of them realize that you don't want to look more than 2 and 3 years out at a time.

[Operator Instructions] We'll move next to the side of Bryce Rowe.

David, I wanted to just get a better feel for how you're reinvesting cash flows from the securities portfolio today? Obviously, the 10-year has spiked back down. I'm wondering if you'll continue to reinvest here or allow these cash flows to pay down the wholesale borrowings you've taken down?

No. You're right. Right now, we won't be buying in this position right here. We might -- what we're buying right now, what we're looking at is if there's smaller deals, maybe sometimes $10 million, $20 million, or $30 million, we see a lot of municipals wanting to finance and we're locking a number of prenegotiated deals with municipals. And so those are around $20 million or $30 million and we can sometime get a better rate. So we'll work on that. But as far as buying the 10-year right now, or the 15-year right here, we have plenty of -- we're purchasing right now. We can run the portfolio, we can run down for 2 months and we're still not going to be affected. We really like the position that we're in, being opportunistic and that's just the position that we're going to continue to do. We see, the only thing today, everybody in the world down, I think the 10-years is more like a $1.95 million and then a week from now, I think it'd be a 2 or 2.10, 2.20. That's why we're buying in advance and just being opportunistic.

That's exactly right. The position we're in and what David described earlier, Bryce, by prebuying for this future cash flow coming off, David specifically has been very opportunistic in where he's buying. When the market has spiked, we're taking advantage of that and you bought a lot within a pretty short period of time, and then we won't buy again until we have to or the market moves in the right direction.

Okay, that's good, that's good detail. And can you guys talk about just the nature of the wholesale borrowings you're putting on. Are those fairly short-term?

It's all overnight. It's all part of home loan bank overnight borrow, 100%.

What's the rate on that Dave?

It's 15 bps.

Or something like that.

We'll move next to the side of Jon Arfstrom.

Question for you on West Texas and just the loan-to-deposit ratio of American State. I'm just curious, do you feel like that geography can generate enough loan growth to keep pace with the rest of the franchise? Or is it -- you feel it's a little different approach?

If you look at it, Jon, basically, Lubbock and Abilene, you're not going to see a ton of loan growth in those 2 communities. Where you are seeing loan growth will be the Midland, Odessa area and we realized that, that's an area. And then realize they are their Chairmen. They realized we do have to be careful in living in that area. But you'll see growth. But there won't be growth like in other parts of the state in 2 of those are here. You might as well come into Midland, Odessa area.

The big economic drivers in Texas are Houston and Dallas, and to some extent, Austin and San Antonio. But Houston and Dallas is got to be where you're going to get the majority of loan growth over the long term. But just for lay all the cards on the table, they had better organic loan growth in the first quarter, they being American State than we do. They grew loans organically in the first quarter, a little over 10%.

And I would say, Jon, too, they're in Lubbock. But because of their size, they got customers in the metropolitan area at the same time. So I think that helps them.

But they'll come over and touch Dallas.

That's right.

Okay, that's helpful. Then I guess the other thing, just in terms of I know you're spending more time in loan committee than you probably have in years, but what changes in terms of credit authorization and how you authorize loans in terms of that West Texas market? Is it the same?

Yes. We'll fall that into our current program. What we've got today, we permit the area managers, have their authority levels and they'll fall into that. And then above that, we run through a concurrence group that runs up to $2.5 million. They're operating in a similar format today, and above $2.5 million, in our world, comes into the credit committee. So we see that they'll just fold into the existing program we've got and we'll continue to expand. That's a fully expandable or accordingly, we can grow that process fairly easily.

And Dan, I think it's important to emphasize that our perception is that these are confident, qualified decision-makers.

Oh, yes. The people are very good.

Right. And what we anticipate is that they will be teamed up with our people. For example, I'll be teamed with one of them. Randy Hester will be teamed with one of them. And we'll go down the road with essentially the same structure we have right now.

Tim, I don't know if you really catch this Jon, what Tim is saying. But Tim is already saying that they'll be on our concurrence committee too, annual committee, but they'll be seeing maybe loans in the Houston Dallas area as compared to whether they're at Lubbock, and our guys are maybe looking at the Lubbock. So everything gets a taste in the field for the company and everybody understands where we're headed.

Remember, we rotate our concurrence officers around the state, so that we have some fresh eyes on a regular basis on other parts of the state. And we'll do the same thing with these guys. But they'll certainly be bringing talent to the table to help us.

Showing no further questions in queue at this time, [Operator Instructions]. We'll move next to the side of Matt Olney.

I just want to circle back on some of those purchases of securities during the quarter. I think you gave some details as far as the size and duration. But can give us any more details as far as the kind of average yields and the timing during the quarter that you purchased those?

I can't give you the exact, they're not in front of me but you can lead loss when the yield, we were probably getting around $200 million to $220 million basically.

The 10-year was basically $220 million when you bought it early February, late January.

It was all America too.

Yes, it was on America too. Almost everything we bought, we probably bought $400 million or $500 million, it was worth it too.

Showing no further questions in queue at this time.

All right. Well, everyone, we really appreciate your participating with our call this morning. We appreciate your interest in our company, and we look forward to visiting with you as we're on the road over the next few months. Thank you very much.

This concludes today's call. You may disconnect at this time.