Charlotte M. Rasche - Executive Vice President, General Counsel, Senior Executive Vice President of Prosperity Bank and General Counsel of Prosperity Bank David Zalman - Chairman, Chief Executive Officer, President, Senior Chairman of the Board for Prosperity Bank, Chief Executive Officer of Prosperity Bank and President of Prosperity Bank David Hollaway - Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Chief Financial Officer of Prosperity Bank and Senior Vice President of Prosperity Bank H. E. Timanus - Vice Chairman, Chairman of Prosperity Bank and Chief Operating Officer of Prosperity Bank Chris A. Bagley - Chief Credit Officer

David Rochester - Deutsche Bank AG, Research Division John G. Pancari - Evercore Partners Inc., Research Division Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division Scott Valentin - FBR Capital Markets & Co., Research Division Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division Gary P. Tenner - D.A. Davidson & Co., Research Division Jon G. Arfstrom - RBC Capital Markets, LLC, Research Division Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, this call may be recorded. It's now my pleasure to turn the conference over to Ms. Charlotte Rasche. Please go ahead, ma'am.

Thank you. Good morning, ladies and gentlemen, and welcome to Prosperity Bancshare's Third Quarter 2013 Earnings Conference Call. This call is being broadcast live over the Internet at www.prosperitybankusa.com and will be available for replay at the same location for the next few weeks. I'm Charlotte Rasche, Executive Vice President and General Counsel of Prosperity Bancshares. And here with me today is David Zalman, Chairman and Chief Executive Officer; H.E. Tim Timanus Jr., Vice Chairman; David Hollaway, Chief Financial Officer; Randy Hester, Chief Lending Officer; and Chris Bagley, our Chief Credit Officer. David Zalman will lead off with a review of the highlights for the recent quarter and an update on our recently announced merger and acquisition activity. He will be followed by David Hollaway, who will review some of our recent financial statistics. And Tim Timanus will discuss our lending activities, including asset quality. 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, Keith. Or you may e-mail questions to investor.relations@prosperitybankusa.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 will send a copy to you. Before we begin, let me make the usual disclaimer. 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 and 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 the call over to David Zalman.

Thank you, Charlotte. I would like to welcome and thank everyone joining us for our third quarter earnings announcement. I'm very excited to announce such positive results for the third quarter of 2013. I am delighted to announce that Prosperity Bancshares will increase its quarterly dividend to $0.24 or $0.96 annually, which represents an increase of 11.6% from the $0.86 per share currently being paid. At Prosperity, we strive to continue to share our success with our shareholders and have the shareholders' interest in mind. Prosperity listed on the NASDAQ stock market in late 1998 and began to pay dividends in 1999 when we paid the first dividend of $0.10 per share annually. That was before any stock splits. As mentioned before, we are excited about our upcoming merger with First Victoria National Bank. We expect to close the transaction in November of this year and conduct the operational -- I'm sorry, conduct the operational integration in December. As of September 30, 2013, First Victoria National Bank, on a consolidated basis, reported total assets of $2,473,000,000, total loans of $1,648,000,000, and total deposits of $2,195,000,000. We are also very excited about our recently announced merger with F&M Bankcorporation. We expect to close this merger in the late first quarter of 2014 and conduct the operational integration in the second quarter of 2014. As of September 30, 2013, F&M, on a consolidated basis, had total assets of $2,470,000,000, total loans of $1,882,000,000, and total deposits of $2,257,000,000. With regard to earnings, we posted earnings of $55,278,000 for the 3 months ending September 30, 2013, and that's compared to $46,176,000 for the same period in 2012, which represents an increase of $9,102,000 or 19.7%. Our diluted earnings per share for the quarter ending September 30, 2013 came in at $0.91, compared to…

Thank you, David. Net interest income for the 3 months ended September 30, 2013, was $126.5 million, compared with $106.9 million for the same period in 2012, an increase of $19.6 million or 18.4%. This increase was primarily due to a 15.3% increase in average interest-earning assets. Noninterest income decreased $2.3 million or 9.5% to $21.5 million for the 3 months ended September 30, 2013, compared to $23.8 million for the same period in 2012. On a linked quarter basis, noninterest income decreased $3.8 million or 14.7%, and this decrease was primarily due to the impact of the Durbin Amendment on debit card income, which was down $2.7 million. Noninterest expense for the 3 months ended September 30, 2013, was $61.5 million, compared to $60.2 million for the same period in 2012, an increase of $1.3 million or 2.1%. This increase was primarily impacted by the expenses related to the Coppermark transaction, which closed on April 1, 2013. As mentioned earlier, the net interest margin on a tax equivalent basis, excluding the purchase accounting adjustments, improved on a linked quarter basis from 3.09% to 3.19%. The efficiency ratio was 41.6% for the 3 months ended September 30, 2013, compared to 46.1% for the same period last year and 42.5% for the 3 months ended June 30, 2013. And finally, the bond portfolio metrics at 9/30 showed a weighted average life of 4.4 years, effective duration of 4, projected annual cash flows of approximately $1.4 billion. With that, let me turn over the presentation to Tim Timanus for some detail on loans and asset quality. Tim?

Thanks, Dave. Our nonperforming assets at quarter end September 30, 2013, totaled $12,687,000, which is 20 basis points of loans and other real estate. This is compared to $14,864,000, or 24 basis points, at the end of the second quarter of this year. This represents a decrease of 15% in non-performing assets from June 30, 2013. The September 30, 2013, nonperforming asset total consists of $5,237,000 in loans, $18,000 in repossessed assets and $7,432,000 in other real estate. As of today, $1,362,000 of the September 30, 2013 nonperforming assets are under contract for sale. This represents 11% of the nonperforming assets at September 30, 2013, that are under contract for sale. There obviously can be no assurance, though, that any of these contracts will close. Net charge-offs for the 3 months ended September 30, 2013, were $288,000, compared to net charge-offs of $1,423,000 for the 3 months ended June 30, 2013. This is a decrease of 80%. $4,025,000 was added to the allowance for credit losses during the quarter ended June 30, 2013, compared to $2,550,000 for the second quarter of 2013. The average monthly new loan production for the quarter ended September 30, 2013, was $210 million, compared to $186 million for the quarter ended June 30, 2013. This average monthly new loan production for the third quarter of 2013 was a 13% increase on a linked quarter basis. Loans outstanding at September 30, 2013, were $6,183,000,000, compared to $6,172,000,000 at June 30, 2013. The September 30, 2013, loan total is made up of 46% fixed rate loans, 36% floating rate loans and 18% variable rate loans. I will now turn it over to Charlotte, who will coordinate your questions.

Thank you, Tim. At this time, we are prepared to answer your questions. Keith, can you assist us with questions?

[Operator Instructions] And we'll take our first question from Dave Robinson (sic) [Rochester] with Deutsche Bank.

Dave Rochester here. Can you just talk about the big jump in accretion this quarter, what drove that? Was it just more prepays? And how do you see that trending in 4Q with the deal closing this quarter?

I'll start off, Dave. This is David Zalman. Obviously, there's 2 components to the net interest margin increase. One is the accretion market value accounting from the loans. And other part of the equation is just our overall core net interest margin increase. I think -- I like to look at it more leaving the accounting accretion out of it because that's sometimes is out of our control in looking at our net interest margin on a core basis. Our net interest margin, on a core basis, increased I think primarily due to the securities income, probably less amortization and increasing the yield on that. And I think that's primarily the main thing. So...

Yes. I mean, a part of that, what you're seeing in the numbers of third quarter, is what we've said in previous conference calls. This number is going to tend to be lumpy because there's 2 categories to it, one, and we use kind of layman's terminology here, but what we call the FAS 91 or the accretable part tends to be a little more consistent, although that's based on cash flows coming off of those loans. But it's the 03 section of this group that is a hard call. Those in theory are loans that are "impaired" and it just depends what the final resolution is with those loans and the mark on those loans, what happens to them. And then that's where the lumpiness comes in. If we do a better job than what was anticipated 1 year or 2 ago, there could be some income coming back to us. If we do a worse job, there could actually be a loss coming to us. So what you saw on this past quarter, which is, I guess, and Chris or Randy can jump in, but I guess, because where the economy is and that these worked really hard at taking care of these assets. It was a positive this quarter. I mean, guys, any other color on that?

Well, I would just emphasize part of what you said that these loans that have purchase accounting marks have those marks because they are -- have a negative credit implications to them. So I think it would be a mistake to just assume that any of those marks are going to come back into income. Having said that, we're focused on trying to collect these loans at par. And historically, we've had reasonable success at that. But to make a projection going forward as to what the accretion would be, I think, is very difficult to do and probably not prudent.

Got you, I appreciate that. Just switching gears to the expense side. I would imagine you guys are probably already ready for this, but I was just wondering if there are any additional expenses that will be coming in, in 4Q just related to stress testing and whatnot?

Yes. I mean, I think not just fourth quarter. But I mean, as we look into the new year, with all the -- at the size that we are, there's additional regulation on us. And yes, specifically to stress testing and all that goes with it, there will be additional expenses. Can I give you a specific number? No. But absolutely, that's something we need to be aware of. Those expenses will go up. I mean, David, any other comment?

Yes. I think it's one of our biggest challenges that we have is the regulatory environment has 2 things: one, the size that we've grown to. I think there's a lot more eyes watching us, how you double in size from a year or so ago, I think, just from a regulatory standpoint. Then I think number two, once you go over $15 million then that throws you into another elite groups of banks, and I think that requires a lot more. So we're -- our in-house, our auditing, internal auditor in the past is -- we're looking at -- there's just -- there's a lot more emphasis from the regulatory standpoint on internal auditing, there's BSA, there's a lot more emphasis, so there's a lot more on modeling. I was -- a comment that we need some nuclear scientists working for us. But just to give you some idea, this is a year or so ago. We probably have at best, maybe 1.5 years ago, maybe 10 people a day or 12 people a day that I consider working directly for the government on a day-to-day basis, working mainly in compliance and BSA and stuff like that. Today we're probably looking, when it's all said and done, with the modeling and [indiscernible] and then we're probably more like 50 people a day. So that's how much that has increased quite frankly.

Got you. And so are you thinking maybe you get a little bit of expense growth in 4Q outside of the deal, of course, that's closing?

Yes, I think that's probably a good assumption, a little bit just because of what we're having to get done from an infrastructure perspective on all this.

Got you. And just one last one. Could you talk about where your blended loan production yield was for the quarter? I'm just trying to get a sense for how that compares to the book yield, just excluding the accretion portion.

Well, I'm not sure I understand the question when you say the blended yield.

Just the all-in loan production yields, wherever you guys booked this quarter.

What types of loans it came from? Is that the question?

I think he's asking, Tim, from all the loans that really came into the bank over the last quarter, including commercial, real estate, everything. What's your average yield, basically? Do we have that information?

No, we don't --

available here.

No, we don't have that.

We know what it is, but we don't have that with us, Dave, sorry.

And we'll take our next question from John Pancari with Evercore.

On that expense question on the regulatory costs, have you seen some of those costs come on board already? Or have you yet to really see that lift?

Yes, we've seen some of those costs come on board, and we'll see some more of those costs come on board in the fourth quarter and in 2014.

I mean we've really we've been seeing it for a year now.

Right, over the last 12 months, yes, absolutely.

Yes, yes.

Okay, all right. And then flipping over to the loan side, can you give us a little bit more color on the drivers of the C&I loan growth this quarter? It was pretty solid. Just want to get an idea of the types of loans you're seeing in markets.

Well, I think it is solid, number one. I don't think it's a blip. The economies in Texas and Oklahoma are decent. So while there are no guarantees, I would anticipate that, that demand would certainly stay probably equal to what it has been here over the last few months. The energy sector continues to be strong, and that spills over into real estate and other sectors. So it's really coming from all the various parts of the economy that we service. I mean, it's not any one particular area. We see a lot of retirement homes being done and things of that nature because of our aging population. We see a lot that's directly related to oil and gas exploration and a lot that's indirectly related. So it's really all of the above, I think.

Okay. But the weakness in the CRE side, was that more of the -- still paydowns of some of the acquired credit?

Yes, we had, as David mentioned, we had quite a few credits in Oklahoma, for example, that paid down that really had nothing -- those paydowns had nothing to do with the relationship between the bank and the borrowers. They were projects that sold and the new buyers either had their own financing or didn't require financing. That was a large part of what happened. David also mentioned that some of the projects reached a cash flow status and an NOI status that enabled them to go out to the marketplace to commercial lenders and get -- without recourse financing, which is something that we typically have been hesitant to do. So it's normal for us to see projects move out on that basis. So it's just part of business, obviously. Good loans get paid off sometimes.

And We'll go next to the line of Jefferson Harralson with KBW. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: I wanted to follow-up on the accretable yield question and on the impaired portfolio. You have $41 million sitting there, I guess, to run through earnings if the marks come out as expected. I guess, at what sale price relative to original loan value would they have to sell for, for that to be the right mark?

Chris, do you want to take the first shot?

Yes, I don't -- I'm questioning what your number is. The net balance of the other 3 marks, were you talking to purchased impaired credit? Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: Yes.

That -- there's an accretable yield that we'd earn on that net balance. The market component, I wouldn't predict any income accretion from it because those are impaired credits going in. So I mean, it's possible we'd get into them and sell them, it's possible, it's not. It would be hazardous to predict to how much it is and when it would occur.

But you can't predict what you would sell them for with -- I guess, with the markets. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: Right. So where are these loans marked currently? So if they sold for $0.30 on the $1, do you get gains, or they sell for $0.40 on the $1, do you get gains, they sell for a hundred...

If you'll recall, and just off the top of my head, I think it's about 50% all in. There's going to be different credits at different marks, but that 03 purchased impaired component, that bucket of loans, if I remember correctly, it's about a 50% all in mark. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: All right. And let's say, if it -- if 50%, so let's say you sold them all right now for $0.50 on the $1, would you get $41 million back into earnings over time or would you get $20 million?

No, we get nothing. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: You get nothing. So you have to sell for meaningfully better than wherever you have them marked to get any of that $41 million.

Correct. Correct.

Yes. You'd be selling them at book value, our current book value. So they're...

And that balance after the mark is the par. I mean, that's another way to look at it. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division: All right. And then last one. So this quarter, you did sell loans for $4 million over your book value.

Correct.

And we'll take our next question from Scott Valentin with FBR Capital Markets. Scott Valentin - FBR Capital Markets & Co., Research Division: Just a question on the securities yield, I know kind of what I call the core yield, I guess, x sum of the purchase adjustments, it was up about 8 basis points linked quarter, it's now 2 quarters in a row of improvement. I'm sure some of that is premium amortization, but are you actually seeing -- are you able to move the yield higher in the portfolio through new additions versus payoffs?

This is David Zalman, but I'll let David jump in on it. I think primarily, the improvement came from just less amortization on the portfolio that we have. In the past quarters, we would buy securities in advance of the paydowns, and so sometimes you'd see us borrowing as much as $700 million or $800 million from the Federal Home Loan Bank. We really haven't -- because of our loans increasing and interest rates going up, we haven't bought in advance lately, but probably buying today, the rate that we would get today would be some improvement over the yield that we have in the portfolio today, yes. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And just a follow-up on the core loan yield, down about 10 basis points linked quarter, I guess that's still reflects a competitive market. I assume the loans you're adding in the portfolio today are still below where the overall portfolio is.

Yes and yes.

Yes, I agree. That's 2 yesses.

I think it is just something that -- that's not -- I think you hit the nail on the head basically. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. And then one last final question. Your core organic growth was 10%, right, the core kind of Prosperity franchise. And I guess Coppermark, you explained the decline to kind of one-off type of transactions. But the other 2 franchises declined as well. And I know you talked about eventually gaining the stability maybe in the fourth quarter. Is that just normal kind of borrowers moving credits in time for the loan officers to gain traction under the new Prosperity kind of policies and procedures?

Well, I would say, first, you said that the others actually lost 2. I think American State Bank had $961 million this quarter compared to $967 million last quarter, so it's about $5 million or $6 million. Community National actually increased $1 million, and East Texas was down about $5 million -- it was $104 million compared to $111 million. So all in all, we didn't see a big deal. As I've said before in the past, usually when a bank joins us sometimes we lose as much as 10% to 20% of their deal in the first year. It takes about a year for them then to stabilize and get used to what we're doing and then grow the bank probably. The growth really doesn't start to probably about 2 years. Just -- if you want me to give you some color on the Coppermark deal, basically, we looked at it pretty thoroughly. Again, I won't go into too much detail, but we had a $7.1 million payoff on a hotel which was sold, another $4.1 million payoff on another hotel that was sold, a $14 million student housing project which was sold, a $4.1 million oil and gas credit was refinanced with a mezzanine lender, so -- a $6 million memory center was refinanced to nonrecourse. I don't think that we're losing those. It's good to know that we're not losing those to competition. I think they're either getting paid off or going to the secondary finance deal where they're not requiring as stringent as we are. But I think looking at -- going back to our legacy growth, I think it's -- we had great legacy growth. Again, I know it's hard for you guys when you see this because you're seeing all of these different numbers, and that's why we do try to break them out bank by bank. But I think when you look at the legacy growth and we get the other guys, I mean you're going to see it again. I mean, when you look at First Victoria and you look at F&M Bank as they come on, I mean, again, I think that in the first year, you could have anywhere from 10% to 20%, maybe 15%, just because the kind of loans that they may have that we may want or not want, you may see those gone. So I think, just as it's -- in our history, that's just "it is what it is," as I would say. But again, I think the good news about the Coppermark deal, we looked at it very thoroughly and, in general, all of them was because of properties sold or moved to another secondary lender really.

And David, I think it might also be important to emphasize, as I said in my comments earlier, our average monthly new loan production for the quarter was $210 million compared to $186 million at the last quarter. But I think it's also important to see the perspective of looking at that against the production for the calendar year 2012. We averaged, in 2012, $138 million a month. And that was really just 9 months ago. So we've gone from $138 million a month in average new loan production to $210,000. So the production's really been strong.

Right. And I would say also, again, these banks take up -- it takes a while for them to get used to our system. Now let's say the good news about Coppermark, I've seen them present quite a few new loans and they're moving a lot faster trying to build their loans back up in Oklahoma, too.

We'll take our next question from Brett Rabatin from Sterne Agee. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: I was hoping to get a little more color maybe around, just given where rates are today and F&M closing here next year, if you had any kind of second thoughts about their energy book and maybe you keep those loans and then just kind of what you're doing with rates where they are today, in the securities portfolio?

Okay. There was a couple of questions there, I think. One, you're asking about F&M and what we think about the loans in their portfolio. And then the second question was what? Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: David, just around given what's happening with the 10-year here and it coming down so much, just kind of what you're doing in the securities portfolio and maybe, I don't know, if you had sort of the cash flow perspective. I know you typically give that from a quarterly perspective in terms of what you have rolling off in the portfolio.

Right. Well, again, I think from a securities standpoint, in the past, we probably haven't bought any securities, probably in the last 2 months, really. Again, we were thinking that we saw interest rates go as high on the product that we buy as high as 3%. I don't know the 10-year over the last few days has dropped back around 2.5% or something like that. I think that over a shorter period of time, once all the euphoria gets -- goes through here, I think you will see that 10-year -- I think most people do think that 10-year will go up, maybe not this year as much, but probably next year, to over 3%. So we're pulling back on what we're buying. We're only buying as we need it instead of buying ahead like we used to. So we do think that we probably -- right now, we're not going to buy. I think that rates are a little bit low. I say that -- maybe they will go lower. But on the securities portfolio, we're probably holding until we absolutely do need it. I think the cash flow -- David, what do you see on the cash flow?

Up $1.4 billion right now annually.

About $1.4 billion annually is coming back off of the bond portfolio. With regard to the F&M question on their portfolio, as you all know, they have probably about $400 million in shared national credits and participations. And again, our bank, in the past, has not been a real big believer in shared national credits and participations. Having said that, I think that we're going to give it a realistic -- we're going to give a realistic attempt and look into, for example -- look at each and every loan, but my general overall feeling is that we'll probably be reduced, by some percentage, that part of their portfolio. I don't think it will all be gone, but I think there's some percentage. It's just our tolerance for the amount of risk is usually not as much as every everybody else's in the shared national credit and participation arena. I wouldn't say all of it, but there's some percentage, probably. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: Okay, that's great color. And then the other thing I was curious about was just the 13% increase in the average monthly production, the $210 million this quarter, is that a function of resi 1-4, C&I? Can you talk maybe about the increase and any thoughts around lending hires and how you're thinking about that?

I think it comes from all the sectors that we're active in. I don't think you can say that it results from any particular type of loan.

I think the only thing that went down was the CRE this quarter.

Yes. And it comes and goes like any other sector.

I don't know if you heard that, Brett, what Chris said, probably, the only thing that really went down this quarter was the CRE loans, really.

We have a very focused effort to get our loan officers out, calling and trying to bring in business, hopefully, good business needless to say. So I think it's a function of a decent economy and the fact that our people are just trying very hard.

I think [indiscernible]. Brett D. Rabatin - Sterne Agee & Leach Inc., Research Division: I'm sorry?

I was just thinking as -- from what I can tell you, sitting in loan committee, it seems like as the bank gets larger and larger, it looks like the more emphasis or it seems to be more loans moving into the C&I category than maybe, in the past, commercial real estate or one- to four-family, and the emphasis has kind of changed a little bit.

The larger loans, certainly.

That's right.

No question about that.

And we'll take our next question from Andy Stat [ph] with Merrion Capital Group.

Most of my questions have been answered. But just wondering, what caused the linked quarter increase in nonaccrual loans?

I don't -- what was the increase?

Nonaccrual loans?

Yes. You kind of caught us off guard. We're -- it's so small, we didn't...

It's probably up about 15%, something like that?

Yes. I think -- again, Randy is looking it up. But again, I think that...

Just lumpiness?

We sold so much ORE. There used to be more ORE than nonaccrual, I think. And again, it was so little, I don't know that we place a lot of emphasis in looking at that. Okay, so I see what you're talking about. Nonaccrual loans slipped from $4,295,000, to $4,954,000. So we're looking at, what, a $600,000...

Yes, I don't -- any loan that's a problem is certainly material. But the overall number is obviously not material to our results. So I don't think there's anything unusual about it, I guess, is the answer. I don't think it represents any weakness in the economy, or any particular weakness in our portfolio.

And we'll take the next question from Gary Tenner with D. A. Davidson. Gary P. Tenner - D.A. Davidson & Co., Research Division: Just one question regarding the provision increase this quarter. I mean, it's not a big number, but given the overall credit metrics, a little surprised to see it pop up a little bit. Is that just a function of the new loan production versus runoff of some loans that were marked and not reflected in the reserve previously?

Yes. I think all of those -- it's model-driven, and that's a methodology-driven number, there's a lot of moving parts in there. One, maybe a unique part to Prosperity Bank is you have this migration from acquired loans to non-acquired status as the accretion burns off, so some of that's -- that's a subcomponent, I think, that moved that number some.

And the next question comes from Jon Arfstrom with RBC Capital Markets.

A couple of questions. This is following up on Jefferson's question, we're going to split the atom on the impaired bucket again. Was this broad-based number of loans paying off or was it maybe 1 or 2 larger credits that you did well on?

It's 1 or 2 larger credits. There's not that many credits in that bucket. From a numbers perspective there, they tend to be larger credit.

Okay. And then, Dave Hollaway, I know that you may not be able to answer this question, but any idea on First Victoria and F&M, how large the impaired bucket might be?

That is a good question, Chris might jump in on here. But we've got our third-party looking at it on F&M way too early. First Vic we're just starting that. So yes, I mean it's a good question. We don't have the answer. Chris, do you have any color?

I think he's asking more -- are you asking more for the ratio of the impairment for the mark-to-market or the total dollars, basically? I mean, there's 2 categories that we -- I consider the 03 and then the 91. I know there's 2 different categories, but which one are you asking about, Jon?

I'm asking more about the 03. If you have the 91, we'll take it because it's -- they're, obviously, pretty important numbers.

We're in the process of doing that assessment as we speak. So just to give you some color as to what it looks like, we've looked at 90% of the portfolio in dollars. We've identified those credits that we think rise from the level of impaired status and we sit down and discuss in more detail and gather information from the First Vic team. And we turn that over to the third-party for the valuations. So we're just in that process. I can't really give you guidance on the number, other than to tell you that from a timing perspective, on transaction day, we'll start valuing all those credits.

I think it's safe to say, from a due diligence perspective, that we certainly have an idea of what the credits are. But it's really too early to put a number...

Give guidance on the marks or...

Right, it's just too early to put a number on it.

If it's any help, we're still -- I don't think that it's anything -- I don't think it would be anything unusual. First Victoria is a very good bank, a very clean bank, they're very similar to ours. I don't think that you're going to see some big number jump out there, if that helps any.

That's true.

Yes, that helps. And then maybe an obvious question, but I'm assuming on the 03 loans, it's the same approach that you would use in your regular credit workout?

You mean after it's marked, in terms of how we deal with the credit?

Yes.

Yes. Yes, we've -- those credits meet our definition of a watchlist credit, so we're looking at them quarterly, updating the cash flows, trying to remediate or resolve those credits as soon as possible.

Okay. And then I guess, Dave Hollaway, a question for you on Durbin. It looks like there's 1 more month of headwinds coming, is that correct?

When you say 1 more month...

In terms of the run rate. That was July 1, is that right?

Right, July 1. So it was impacting us for the quarter -- this past quarter.

Full quarter, okay. And then have you guys done anything different in an attempt to offset Durbin or is it just something where you absorb the fee hit and move on?

No, I mean -- yes, I mean that's a great question. We are doing multiple things trying to offset that, and I'll try to go through some of them as we talked about. We're trying -- as you noticed, we're trying to develop these new lines of business that -- and if you kind of go back in time, that are the American State Bank transaction already had a trust area as an example. Well, First Victoria coming up has a trust area. So we'll try to leverage that and increase that revenue stream. The American State Bank also had a -- they were beginning the process of a credit card product, which we're going to deleverage and, going forward, try to create more business there.

[indiscernible]

First Victoria coming up, they just visited with us. They have a -- Dave, you might help me here, but our wealth management private banking concept...

That's right.

To help offset some of this. So we're doing quite a few different things, ultimately, to try to offset this $10 million of annualized that we're losing from Durbin. And it's -- as you know, the Durbin's just a cliff thing. One day, you're at one number, the next day, it's dropped off the cliff. All these things that we're looking at from those fee revenue generation, that's going to take a little time. We've been working hard to try to get this up so we can see some legs on it when we get into 2014 and actually see some results. But I mean -- do you want to add some other color to it?

I would just put a big umbrella around it in saying that it isn't -- we are not happy that we lost $10 million to Wal-Mart. I mean, there's no question about it. We're -- actually, that's one of our primary focuses and I think that next year, we will recoup some of that money. We're looking at a number of different options to increase income and, as they said, in credit cards or ISO operation or wealth management with trust and a number of other things as well. So we're hoping that we will recoup some of that of that money.

I think that home mortgage effort is part of that, too.

Right.

That's right.

Okay. And then, Dave -- I may have missed this, Dave Hollaway, but did you give an estimate for what the nonrecurring merger charges might be for Q4?

We have not.

And that's all I'm going to get on that?

At this point, we don't have a good number to give you.

And we'll take our next question from Michael Granger with Tagean Capital.

Just wondering what the mark-to-market difference was on the held-to-maturity securities at 9/30? And then also, what was the low point for that number during the quarter, during the bond market selloff in the earlier part of the quarter?

I don't know that I'm understanding his question.

I guess there's two questions. One, what's the -- I guess, in this case, what's the unrealized gain or loss at 9/30 in the whole portfolio, that's the number one question.

Okay.

Number two would be, when the rates -- when everything is falling off the cliff, do we have a sense of what that unrealized number was, I guess, during the quarter.

I'll take the first one. I'll take the first part. At 9/30, and this is on the total portfolio, of course, but 99%, 98% of it's in HTM. But as of 9/30, the unrealized loss on the portfolio was about $40 million -- I want to say, just off the top of my head, that it's close, $45 million, $47 million. And then on the second question, I don't know if I have an answer for it, as to what it was during the selloff. I mean, do you remember?

I got the numbers here, our total held-to-maturity securities are $7.4 billion. Our available for sale is only $173 million. So very little of our money is in available for sale. I think before the rate started moving up so dramatically, we had, a couple of quarters ago, a $200 million gain in the portfolio. Today -- or I'm sorry, the September 30, we saw the $41 million loss in the portfolio, so those are the exact numbers.

Okay. Any sense of where -- kind of where it went to during that selloff or...

I don't have it off of the top of my head. No, I'm sorry.

[Operator Instructions] Our next question from Jennifer Demba with SunTrust Robinson Humphrey.

I'm sorry, I got cut off the call for a few minutes. Dave, I know you're going to take a break from acquisitions for a while, but I'm wondering if you could talk about your pipeline right now. And also, your results are a lot noisier than they probably ever been in the history of the company. And I'm just wondering how you -- if you could talk about how you think about managing the company through this purchase accounting phenomenon and looking at your strategy?

I think the first question was primarily where we're at in the pipeline. Your first statement, I think, is completely accurate. I think, first and foremost, we're really focused on now, it's going to be at least 6 months to a year, is really doing the operational, closing both First Victoria National Bank and the F&M Bank Corporation. And then secondly, the operational integration of those 2. So we definitely have our hands full with that, in addition to the regulatory burden that comes along with it of being the bigger banks. So those are our primary focus for the near term. Having said that, I think that we have, probably still today, a number -- we probably get 1 call a month and asking if we're interested in a bank or more. So the pipeline is full. Again, I don't know that we're focused on, in the immediate short term, to be looking at banks. I think one day, we'll be back there again. But right now, our focus is to put this together. Two, the numbers noisier. You can say that the numbers are noisier, I mean I think it's still really a plain vanilla bank basically. I mean, probably the only thing that makes it noisy is this mark-to-market accounting, or as I call it voodoo accounting. And I agree with you there. But I mean, basically, once you dive into it, I mean it's pretty simple to understand. I mean, I think that there's -- on one hand, I think [indiscernible] that you referred to as noisy that you had a bigger gain on the accretion because a loan got paid off that maybe we had marked less. On the other hand, it's probably noisier because, at the same time, the offsetting of that is, I think, is you had a bigger amount of money put into provisions for loan loss. So I think those 2 numbers offset each other. I think other numbers in the -- in what we're presenting this time, there's -- I mean, it is what it is, there's not a lot different there. I think those are the only 2 things that really -- and I agree, we don't necessarily agree with the voodoo accounting but it is what it is. I think, overall, we still run a very simple, uncomplicated bank, with not a bunch of derivatives or any derivatives at all, really.

And I might add, I think the strategy of dealing with it is pretty simple and pretty straightforward. I mean, we try to come up with a mark that's legitimate relative to the condition of the credit.

Right.

And that's the best we can do in that regard. And then once that's done, we try our best to collect, really, what the borrower owes the bank in full.

Yes.

Sometimes, we're successful.

Yes.

And sometimes we're not.

I think, again, it's -- the 91, as I refer to the 91, it's the mark put on the entire portfolio, except the impaired ones. I think that's pretty easy to understand. And that seems to run -- you can kind of monitor it, and it runs -- in some instances, it would be based on your average lives. It's the 03 that it is -- but again, I think if you look at our total 03 credits, what do we have in 03 credits, Chris, if you have something?

I think it's maybe $60 million or $70 million less.

Yes, I think $60 million to $70 million in 03 credits for the size of bank that we are at. I mean I know there will be some -- our hope is that we could collect all of it, but we may or may not, so we can't tell you what's going to come in. So -- but I don't think that it's a huge number, really.

Okay. One more, just a follow-up question. Previous question about offsets to the loss of revenue from the Durbin Amendment. Do you think, David, it realistically takes a few years to kind of recoup that with these other initiatives?

I would ask y'all to give us 2 years, but our goal is to do it in a year's period really.

And it appears we have no further questions at this time. I will now turn the program back over to our presenters for any closing remarks.

Thank you, Keith. Thank you, ladies and gentlemen. We appreciate you taking the time to participate in our call today. We appreciate the support that we get for our company, and we will continue to work on building shareholder value. Thank you.

This concludes today's program. We thank you for your participation. You may now disconnect at any time.