Good day, everyone, and welcome to today's program. [Operator Instructions] Please note this call is being recorded. It's now my pleasure to turn the conference over to Mr. Dan Rollins. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to Prosperity Bancshares Third 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 of Prosperity Bancshares, and with me today is David Zalman, Chairman and Chief Executive Officer; Tim Timanus, Vice Chairman; and David Hollaway, our Chief Financial Officer. David Zalman will lead off with a review of the highlights of the 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 activity, including asset quality. And I'll provide an update on our recently announced mergers and 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, Victor, or you may e-mail 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 Elkowitz at (281) 269-7221, and she'll be happy to fax a copy to you now. 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 risks, 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. Now, let me turn our call over to David.

Thank you, Dan. I would like to welcome and thank everyone for joining us for our third quarter earnings announcement. I'm very excited and proud to be able to announce such positive results for the third quarter of 2012, especially in a time when our industry is so challenged. We posted earnings of $47.2 million for the 3 months ending September 30, 2012, compared to $36.4 million for the same period in 2011, which represents an increase of $9.8 million or 27%. Our earnings per share, for the September 30, 2012 quarter, came in at $0.82 compared to $0.77 for the same period last year, an increase of 6.5%. While our earnings include adjustments related to our recent acquisition, the performance of our core bank remains strong. Our strong asset quality continues to be one of the core values of our bank, with our nonperforming asset ratio of only 11 basis points of average earning assets. Tim will provide additional information on the asset quality in a few minutes. Our allowance for loan losses is $50.9 million as of September 30, 2012, with the total nonperforming assets of $14.1 million for the same period, representing a healthy coverage ratio. Total loan growth was 35.9% or $1.3 billion over the past quarter -- I'm sorry, past year. Our organic loan growth was 4.4% over the same time period. During the third quarter, 2 of our larger long-time customers sold their businesses and therefore, paid off their debt to our bank. These 2 relationships represented approximately $45 million in paid off loans during the quarter. Another factor negatively impacting organic loan growth during the quarter was the operational integration of American State Bank. As part of our integration process, we sent over 250 bankers away from their regular jobs during conversion to…

Thank you, David. Net interest income For the 3 months ended September 30, 2012 was $106.9 million, compared with $82.5 million for the same period in 2011, an increase of $24.5 million or 29.5%. The increase was primarily due to a 49.7% increase in average earning assets during the same period. Noninterest income increased $9.2 million or 63.4% to $23.8 million for the 3 months ended September 30, 2012, compared to $14.6 million for the same period in 2011. The increase was primarily due to the American State Bank transaction and impacted multiple line items, as well as adding income from trust and mortgage origination departments. Noninterest expense for the 3 months ended September 30, 2012 was $60.2 million compared with $41.2 million for the same period in 2011, an increase of $19 million or 46.4%. Again, the numbers were impacted by the American State Bank transaction included onetime merger expenses of $5.4 million. The efficiency ratio was 46.1% for the 3 months ended September 30, 2012 compared to 42.4% for the same period last year, and 41.9% in the second quarter of 2012. Excluding the onetime merger expenses this quarter, the efficiency ratio would've been 41.9%. The bond portfolio metrics at 9 30 showed an average life of 2.69 years, effective duration of 2.66 years and a projected -- and projected annual cash flows of approximately $1.9 billion. And with that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?

Thank you, David. Our nonperforming assets at September 30, 2012 totaled $14,051,000, which is 28 basis points of loans and other real estate, as compared to $11,873,000 or 30 basis points at the end of the second quarter of this year. The $14,051,000 total represents an increase of 18% from June 30, 2012. The September 30, 2012 nonperforming asset total was made up of $5,195,000 in loans, $10,000 in repossessed assets and $8,846,000 in other real estate. As of today, $3,275,000 or 23% of the nonperforming assets at the end of the third quarter are under contract for sale. But as we consistently say each quarter, we can make no assurance that any of these contracts will close. Net charge-offs for the 3 months ended September 30, 2012 were $1,255,000, compared to net charge-offs of $1,860,000 for the 3 months ended June 30, 2012. $1,800,000 was added to the allowance for credit losses during the third quarter, compared to $600,000 during the second quarter of this year. The average monthly new loan production for the third quarter was $134 million, compared to $125 million during the second quarter of this year. This represents a 7% increase. Loans outstanding at September 30, 2012 were $5,079,000,000 compared to $3,950,000,000 at the end of the second quarter of this year. The September 30, 2012 loan total is made up of 45% fixed rate loans, 32% floating rate loans and 23% variable rate loans. I'll now turn it over to Dan Rollins.

Thank you, Tim. As you all know, we completed our merger with American State Financial Corporation or American State Bank on July 1, and we completed the operational integration late in the third quarter. W. R. Collier, Mike Epps and Tony Whitehead are our leaders in West Texas and they are actively involved in helping Prosperity to expand across Texas. We closed our fourth merger of the year with Community National Bank in Bellaire on October 1 and expect to complete the operational integration there before the end of this year. Finally, our pending merger with East Texas Financial Services in Tyler, Texas is working towards a closing early in 2013. These 5 transactions add approximately $3.7 billion in assets and provide us with additional resources to continue to grow across the state. As you have heard, we are 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. At this time, we are prepared to take your questions. Victor, can you assist us with this?

[Operator Instructions] And we'll take our first question from the side of John Pancari with Evercore Partners.

This is Rahul on behalf of John. I have a question regarding the loan.

We can't hear you, John.

We're not able to hear.

This is John on -- This is Rahul on behalf of John. I got a question on the loan yield. Excluding the loan discount accretion of around $11 million this quarter, the loan yields came in at 5.34, which was down 29 bps link quarter. I was just wondering if you could talk about that and give us a sense of the current loan pricing competition that you're seeing and where new loans are being priced at, rates on the CRE, single-family and C&I, that will be great.

Tim, you or I can take it. I think that what you're seeing in the market today is it's, I think you're seeing people continue just like on the home loans. I think you're seeing people continue to refinance. I don't know, some people may agree or disagree with me even in this room, but even though we're seeing refinancing, I don't know that ours is as strong as maybe a lot of other people are refinancing most of the loans that we have. We've set up for longer periods of terms and they have maybe some longer-term fixed-rates. So we're seeing it, I don't know that it may be as strong as you may see at other places. But, again, it's still very competitive. Tim, you want to?

It is still very competitive. Having said that, we try very hard not to price anything lower than prime, which is 3.25% right now. So the spread really is from that number up to maybe 5.5%, 5.75%. It's very difficult to get 6% or anything above that on any loans at this point in time.

I don't remember seeing 6% in a long time, if ever.

I don't know how to spell 6 anymore. So it is competitive and we don't see any reason that, that's going to change overnight.

Okay. All right. That's helpful. And then on the loan demand, if I basically take out the $1.1 billion that was added from the ASB deal, the organic loan growth was essentially flat this quarter at around $3.9 billion. Now, could you just discuss the status of the loan demand in your markets? In what areas you're seeing improving demand, and in what areas, just by loan type or by industry? And where you're seeing increased competition?

Loan demand, first of all, Texas is probably doing better than most other states. So we have an extremely good economy, especially as it pertains to the oil business down in South Texas, and we have a lot of other industries. But a lot of the other industries right now are still, either they have a lot of money on the sidelines, and again, I think they really want to see a lot of it maybe because of the political situation that we're in. I think before anybody's willing to pull the trigger, I think people are wanting to see a more clearer picture of what the economy's going to be like going forward. And having said that, you saw that our loan demand for this quarter was flat. Again, we don't like to make excuses, but I will say that probably a couple of our companies did so good that they got bought out, which reduced our loans in this one quarter. These 2 were approximately about $45 million in size, which would've made a difference. And again, the second variable is, if you've followed our company for a long time, we always know -- knew that when we're in the middle of mergers and acquisition, it's not as easy to grow the loan portfolio as it is when we're not. A year or so ago, when we -- a year or so ago when we were -- when we weren't doing the M&A, that it went a whole year before we did any M&A, you saw us getting close to double-digit increases in loans. But again, make no doubt about it. As you do the M&A, it does require people, and I think as we said in the press release, we had as many as 250 people. We had 250 people in the West Texas area during this period of time. So a lot of those factors come into play. Going forward, I think there will be more clarity. I think after the election, there will be more clarity, and I do think that you should see loans pick up again.

If you go back and you look at our loans production performance throughout this calendar year, it's something that we feel reasonably good about. The average production for the first quarter was $106 million. The average production for the second quarter was $125 million a month. And then, as I said earlier today, the average for this third quarter was $134 million. So it's been steadily growing. What we obviously don't have much of any control over is unanticipated paydowns and payoffs. And as David mentioned earlier in the call, we had approximately $45 million payoff during this third quarter than we were not anticipating. So loan demand is decent. I wouldn't call it great. I don't see anything that would make it deteriorate significantly, although I would say a lot of business people are watching this election very, very closely. And that's one of the reasons that they haven't moved forward with projects. And depending on what happens with this election, things could take a spurt up or could head down, and we'll just wait and see.

All right. And then just lastly, I know earlier you mentioned that when the payoffs essentially stabilize, Prosperity will see some solid loan growth going forward. And then last quarter, your paydown activity was around $108 million. And I think you just mentioned, it was $45 million this quarter, the average -- the monthly average.

No, that's not the number he was given.

No. The actual total paydown rate exceeded the loan production rate just barely. Based on indiscernible]. $45 million was just an example of 2 loans that were unanticipated that paid off.

But what were total paydowns? I think he didn't catch that.

It's about $135 million with deferred rate. So it was actually a little in excess of the production.

$134 million production, $135 million payoff.

That's correct. The production was at record high. But unfortunately, the burn rate was high also.

Record highs also.

That's 2 record highs. That's right. One good, one bad.

We'll take our next question from the side of Jefferson Harralson with KBW.

I was going to ask about the loan market. I think originally you're talking about doing just the reserve, basically, is the mark, which was about $24 million. The last time I had seen American State's reserve, and it looks like it's $104 million loan mark or about 8%. Can you just talk about kind of what's changed and what's the implications of that going forward?

Well, Harrison, in the fair value accounting in today's world, what we want and what we do are 2 different things. But in the fair value accounting, we're required to go out and get bids on both the securities and loans. And if you saw, that's why we did the chart of securities. Actually, they had probably about an $80 million or $90 million gain in the securities. We had to reduce the yield on the securities which actually reduced the goodwill, as you know, but it also reduced the yield going forward. On the loan side, we had to go out and get evaluation, which we hired independent people to go out and value the portfolio. And those are the numbers, I think, we came up with about $75 million in loans. $75 million, I used to call it SOP 91. I know there's a new name for it right now. And then together, $20 million or $30 million, was 03. So they broke it up into 2 categories. One -- the first category is the category that really goes against the whole bucket of loans that basically reduces -- as the loans pay down and having speed and renewals and stuff like that, the other portion of that is really directed toward just specific loans. So it's kind of it is what it is, and that's why we really wanted -- that's why we really wanted to do that charts in the press release, Jefferson. It's to show that if there wasn't this fair value accounting where you wouldn't have had to adjust the loans -- the securities or the loans, what would the earnings per share have been? And that's kind of why we wanted to show this. There wouldn't have been a whole bunch of change, but this is just something that we have to do.

All right. And on the -- it's a really nice expense quarter. How much of the -- your mission, 20% cost saving, you're expecting of American State's expenses, how much of that 20% do you think is in the numbers already? Or should we expect a lot of that to still come? How much is it from here, I guess, is the question?

Yes. This is Dave Hollaway. Again, you're spot on. When we come into it, we said, if we can cut 20% of their -- the expense base, but that's usually a target that we have. To give you an exact number of how much of that percentage is this past quarter and how much is coming, that's going to be kind of difficult. Obviously, this bank was well-run as we were, and they were working with us in this first quarter, so we're able to achieve some things now. But I would agree with you, there's -- there will be more cost savings to come, but to give you an exact number, I don't know if we can get you there.

Without the onetime cost, the efficiency ratio would've been 41:9 -- 42. How much lower can you drive that, Dave?

Yes. We've been talking about the acquisitions, specifically, again, there'll be some efficiencies there, but there's all kinds of other things going on. I mean, again, the bank itself and the things that are happening in terms of talking efficiency ratio. 42%, when you back up that onetime charge, I mean, that's kind of where we've had, in the last few quarters, we've been about 42%. So the question can be how much more could you drive that efficiency ratio down? I don't know that we will drive down materially more from here.

Are you making some investments on the American State side, too, that would offset any expense savings you expect to come there?

I think you're asking from a fee income perspective?

Either, either.

I mean, on that side, and that's something trying to point out in the numbers. Again, if you'd look at those numbers, notice, and we've mentioned this earlier, that the ASB brought some interesting initiatives with it from the fee side, particularly the trust area, what they call the home loan center, there's a few other things. Absolutely, we're going to try to leverage that to the rest of the bank, which would help -- which kind of works in conjunction with whatever we're doing in the expense side, and therefore, will impact that efficiency ratio. So absolutely on that side. I'm not sure I followed you on the expense.

I was asking that, you're saying that efficiency ratio can't go lower, yet we have some expressly -- some express cost savings are coming out. So I was wondering if there would be some other expenses that you're going to be adding on, just kind of putting into American State to invest in when there's a new product or branches or other things that make an impact for the bottom line.

Yes. I don't know that we'd be materially doing it on the ASB side, but maybe on the bank-wide side. To give you a very specific example, again, we've talked about all the new rules and regulations coming our way and that they're massive. That's going to require us to have some expense next year just on the bank generally. I mean, it's just -- it's intimidating, the amount of rules that are coming our way and we're going to have to bulk up our compliance area and things like that. So that's the kind of expense that I was referring.

We'll now go to the side of Brad Milsaps with Sandler O'Neill.

Just a follow-up on Jefferson's question on the expenses. It looked like American State averaged around $80 million in operating expenses kind of quarterly for the last few quarters, yet on a net basis, you guys were up about $12 million, sort of excluding the merger expense, OREO cost, CDI. I know you guys are some of the best in the business in extracting the cost savings, but even that seems really aggressive. And looking back at AFS, it looks like they preloaded a lot of expenses before the deal closed. So I was just curious, any additional color there? It would seem to me that a lot of expense savings ran, but it seems to me that you're indicating that there may be some more to get.

I'd come off of headcount. When you look at headcount, there are still were people that we're working through the integration piece that will continue to drop off. I think what you said is right, though. I think the folks at ASB did a great job of helping us eliminate some cost prior to the July 1 closing. So when you're trying to dial in and expense save off of what they have been doing in the past when they had already done some of the lifting for us before we got to July 1, part of what you're seeing from a run rate is the good job that they did on their side of the aisle before closing. And we both -- both David Hollaway and I are both sitting here telling you, there's still additional costs to come out just off of people and headcount.

Okay. And then more specifically, on the CDI number. Maybe up about 400,000 late quarter, maybe looking for maybe, a more substantial increase. Is that kind of the run rate going forward, about $2 million a quarter?

Yes. I mean, obviously, that's being impacted by the American State Bank transaction. But yes, and if you think about the CDI -- call it CDI, but think about it this way. $2 million a quarter is right, but as we're looking forward, that's includes all the banks we've acquired over the years, and the way that works on the CDI, remember, it's kind of a double declining balance concept, if you will. But if CDI tends to be higher in the earlier years, and then as time wears on, it's usually over 8 to 10 years, it starts to fall off. So if you're looking year-over-year, you can see how prior to the ASB deal, that quarter positive in tangible expense was trending downward. That just continues to be that way outside of the ASB transaction.

Sure. Sure. Yes, no, absolutely. And then, a final question, I appreciate the disclosure that you guys gave on the first accounting [ph]. If I just kind of look at the individual, sort of the 3 components. The one related to loan book and then the 2 on the securities portfolio. Is it fair to assume since the $2.7 million piece was related to a specific sale of securities that, that won't be the run rate going forward while the other 2 pieces will continue to accrete in overtime? And I was just kind of curious what you guys were assuming in terms of sort of the timing of how those would accrete in. Is it an 18, 24-month period, or something lesser or more than that?

I'll take first shot, and I'll give kind of the overview, the others can jump in. I mean, there's 3 pieces, obviously, moving in there. One, the first one -- the first issue is the loan accretion, what will that do over time. I'll let the other guys jump in on more specific detail on that. On the securities side, that is in the numbers. And the bigger question for those 2 line items is really the question of 2 things here. Going forward, what do we all believe the amortization from the prepayment, the cash flow coming back to us? What's the prepayments speed? What would the amortization do? Don't really have that crystal ball. I mean, if it stays where it is today, you can use those numbers. If it, again, if it trends down, better for us. So, yes, making the numbers, but it's all about prepayment assumptions and how that's going to impact that amortization, along with -- when you step back in this big picture, what are we doing in terms of growing our loan portfolio and soaking up some of this cash flow coming out of the bond portfolio instead of reinvesting it at today's rates and where we're at today versus where we're at, although I got to believe we're reaching kind of a baseline where the yield on portfolio and what we're reinvesting in is getting close. But I'll let [ph] Dave to jump in on the loan side of this equation.

I'd say on the loan side on the accretion part, again, this is something that we really hired out to an independent firm to come up with what this should be. And there was -- you saw there was $11 million in accretion for the quarter. I would say that going forward, that's probably, my gut feeling is that, that's high, is that probably, it's something more realistic, would be probably, we think, anywhere between $2 million to $2.5 million a month, which would be $6 million to $8 million a quarter in accretion. So and again, that's not -- that's including the American State Bank and all the other banks that we bought at the same time. So going forward, it was stronger this month, again. But again, a lot of that, the accretion, just like the bond portfolio, depends on the speed and the renewals. I think, the -- and again, I think you'll see that there's probably more accretion in the front end and it'll be a declining balance going further out until probably 4 years out.

But it's fair that -- it's fair to assume that the $2.7 million piece on the securities portfolio, that's not going to be there, right? Because that was a specific transaction. That went -- that -- from the securities that were sold. Correct?

That's correct. I mean, it's in the number. It's in there today and that will now just get washed as we go forward in reinvesting the cash coming off the portfolio going forward.

We'll now go to the side of Jennifer Demba with SunTrust Robinson Humphrey.

Two questions. One is, what are your feelings on the trajectory of the net interest margin over the next several quarters? You obviously have some purchased accounting impacts right now. But that's my first question. And two, I'm just wondering, David Zalman, what you're seeing now in the merger discussion arena right now?

Okay. Two big questions. The first question, I think, is what's on everybody's mind. You know, it's that net interest margin question, and I think a lot of people would ask the question, we're not like -- unlike anybody else, and can we increase loans enough to offset margin pressure? I guess, what I would say, the answer is yes, we could continue to increase loans. But like other banks, there's still margin pressure and we continue to focus on earnings -- on increasing earnings per share, both through the loan growth and the asset growth. But make no doubt that our goal is to continue to build earnings with the resources we have. So I guess in short, what I'm saying is, there will be continued margin pressure, maybe not as much as some of the other banks have, I think. We saw margin pressure starting probably 2 quarters ago where the other banks didn't see as much margin pressure. I would think that's probably because they've probably had more loans than we had, and so we took the brunt of the margin pressure earlier than anybody else. And so, I'd say that we probably won't see as much as -- there'll be -- there will still be margin pressure, but not as much as anybody else's. But again, we continue to focus on trying to increase earnings per share. We're not going to just -- we're not making a statement and saying, "Okay, net interest margin is going down, so things are going to go down." We continue to focus, and in order to do that, we'll have to build loans and we'll obviously have to continue buying banks and increasing our asset base.

So what you're saying, just to interject there, we need to focus on net interest income in addition to the net interest margin, because it's the dollars that drop to the bottom line.

I think that's the way an accountant would say it, yes. Okay. So #2, the second question is the M&A. The M&A is hot and furious, we think. Dave mentioned earlier, I think too, Tim, everybody else mentioned that the rules and regulations always need to be careful because I know they're listening on the other line, too, our regulators. But I would have to say that the world has really changed in the banking environment. When we have an exam right now where asset quality used to be first and foremost, and I think it probably still is for most banks. We spend very -- there is not quite enough time that's spent on the asset, I guess, maybe because of our asset quality. We may spend 2 or 3 weeks during the examination process. We've spent 5 months over the last year or so in fair lending -- on a Fair Lending Exam. Our compliance, bank security act and anti-money laundering exam took probably 3 months. But I can go on with some of our banks, obviously, and there's risk committees and risk management and everything else. Dave mentioned that we'll probably be hiring at least 5 more people in the regulatory piece that will create 25 people just that deal just with regulatory burdens. So having said that, and I'm telling you all these because I don't really see how smaller banks can really make it going forward, especially with the net interest margins and the spread on money. I think that you're going to continue to see -- I think you're going to continue to see a great deal of banks trying to merge and consolidate going forward. We're still looking at some, we're busy. Our first goal, however, is to really digest what we have first with American State Bank. It's a big deal for us, and we're really focusing on trying to get that done. But having said that, we're still looking at other deals, and I think that you're going to continue to see a major -- if things stay like they are right now, you'll continue to see a major consolidation in banking. And the question will be, is who can buy them? Who can they merge with? Because there's only a certain amount of buyers. And so, you have to ask the question, how will this all get consolidated?

We'll now go to the side of Scott Valentin with FBR Capital Markets.

Just with regard to loan originations. You mentioned that on a monthly basis, you're seeing kind of record originations. Can you maybe give a breakdown of what that activity is? Is it residential mortgage? Is it commercial real estate?

There's probably less commercial real estate right now than anything else. And what I'm referring to is, I guess, what I would describe as specialty projects. Owner-occupied real estate is still somewhat active with people that own businesses buying and building new facilities. But large commercial projects, either residential or commercial, either one, that doesn't seem to be very active right now. Everything else that we're involved in seemed to be steady. And I don't see much change in that going forward. One thing that we pick up with the American State Bank acquisition is the locations in the Permian Basin and the Abilene area in Texas. And those areas are more active in oil and gas than we are traditionally used to. So I think we'll probably going to see -- as long as those -- that sector remains healthy, and it certainly is healthy right now, we expect to see some additional production out of there. But other than that, I think it's business as usual for us.

Okay. And just with regard to the statement about net interest income, assuming if the loan portfolio stays relatively flat going forward, if payments remain high -- prepayments remain high, it implies growth in the securities book. I'm just wondering how you think about capital levels going forward? I mean, the Tier 1 leverage capital ratio is down, I guess, from the 7.7% at June 30, down to 6.9%. Just wondering how you think about where capital should be, given it's being kicked around by regulators.

I'll let Dave jump in, in just a minute, but again, from a capital standpoint, I know that Dave [ph], that we talked this in our last conference call, that they talked about Basel III. And I think we've done some projections going forward. And we seem to be fine, to be, again on our projection show us to be in good shape going forward, even under the Basel III going forward. Dave, you want to comment on that?

That's correct. I mean, [indiscernible] well capitalized, yes, I mean, we would meet that threshold. The examples they always use are adequately capitalized. But even under the new rules, for us even -- because if you think about the bond portfolio, it's all Fannie and Freddie. So I mean, that risk weighting is not changing. So you should be fine.

And again, you add the amount of earnings that we're earning going forward, it's huge compared -- even after the dividend that we pay, we're probably retaining 75% of our earnings. So it fills up pretty quick, almost 1% a year.

Okay. So you're not concerned about capital on the terms of growing the balance sheet to kind of other securities portfolio?

Not at all. Not at all.

[Operator Instructions] And we'll now go to Matt Olney with Stephens.

Going back to the M&A discussion, in 2013, your home state of Texas is going to have a small handful of mutual conversions that will reach their 3-year anniversary date, and there's speculation those guys could sell. I don't think Prosperity's been historically very active in terms of acquiring former conversions. How should we think about your appetite for this type of acquisition that has strong deposits, but just not very profitable.

Well, I'd put it like this. Never say never. But I think you hit the nail on the head. I mean, we're -- the deals that we look at, and it's not to say that we won't change at some point in time if it makes sense, because if it always makes sense and we can make a lot of money out of it, we'll always consider it. But we're really focused on teaming up with banks that have been around for a long time, that have a real good core deposit structure, not necessarily time money, but more transaction money, and that has a business -- a business with loans. Again, that doesn't mean that -- I noticed these -- some of these companies have worked very hard to convert their mutuals to banks and they're trying to -- and I think they're doing a good job. And maybe, as they convert more into a banking type of environment, we may be more interested in something like that. But right now, there's so much on our plate which is good, good banks that we have more than we can say grace over right now with just real core banks, really.

And it looks like we have a follow-up question from Jennifer Demba with SunTrust Robinson Humphrey.

Okay, 2 questions...

You can't ask, you already asked 2.

I would ask 2 more if you'll take it. So, American State. Given that revenue generation is so difficult for the industry right now, can you talk about what businesses that bank has been in or done better than Prosperity that you think you can particularly leverage?

Well, I think they've done better than us at quite a few things, quite frankly. First of all, they had a lot better service charge income than we did. We've looked at their service charges -- service charge income. Instead of changing them to us, we're adapting to more what they have than what we have. They have trust -- they have a trust department, and it's about $1 billion in size, and it makes good money. And I think going forward, if we can all get comfortable, we would like to expand their trust and wealth department into other areas, into Dallas, into Houston and our other parts of the state. They also have a mortgage banking department that we didn't have. And of course, mortgage banking right now is hot. And they do a real good job with it. It's just us trying to get our hands around it. Our bank has about $1 billion in portfolio, in one of our mortgage portfolios, home loans. And of course, you got to be real clear on -- real clear on the fair lending side. You how do we mix and not lose our 15-year product or our variable rate product to a mortgage company. So they had a lot of income right there. They have credit cards where we had not had credit cards, and so I think that again, this is going to take time. But, gosh, if we can get 5% or 10% of our customers to use the credit card system that they have, I think that can be a good chunk of change. They have a thing that's called ISO. Dan, you're going to have to help me with the ISO where they actually act as a sponsor of ATM machines for -- how many customers?

Oh, say, 35,000 or 40,000 ATM machines.

So one of the biggest in there. So I guess, I can go on and on, but this is a great company. And if we can keep everybody together and working together, I think we can really build something with it. I consider this a real great -- a great opportunity for us with them. They're really good people, everybody out there.

And the ATM business, that falls into other income?

Yes, that's where it is this quarter.

Okay. And how big is that per year?

Dave, do you have a number on that? I don't know, it was pulled out a number...

Big, meaning dollars?

How many dollars. She wants to know how many dollars and other income was in that category.

[indiscernible] I think it was $1 million [ph] to $2 million a year or something like that?

Per year. Not per quarter. Yes. And I think we're $1.5 million, give or take a year and we're growing.

Okay. And this question has been asked a lot during the call, so I'm going to try and take another crack at it. If my numbers are right, your current total expense run rate's around $60 million. Would you see that growing significantly over the next several quarters or staying relatively flat or down?

As close as I can give to you, probably relatively flat, a little bit one way or the other. But again, crystal ball today with all the moving parts, I think it's hard to make that call, to give you the real clarity that you need. But I mean, using maybe a flat run, for the next couple of quarters, maybe.

Or maybe down a little bit. I mean, I think what Dave is trying -- Dave is trying not to get everybody's expectations too high because there's -- it's easy that you can make a lot of assumptions, but everybody has to keep in mind, there's margin pressure. And so, we don't want to get anybody extremely excited because there's still margin pressure out there at the same time. So I think Dave is just trying to mitigate everybody to maybe look at it like it is, maybe on a flatter basis or a little bit better. Is that right, Dave?

[Operator Instructions] And it appears we have no further questions over the phone.

All right. Well, thank you all very much. We certainly appreciate everyone participating in our call. We look forward to visiting you as we're on the road in the next few months. Thank you very much for calling in.