Q3 2023 West Bancorporation Inc Earnings Call
Speaker 1: Hello, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the West Bank Corporation Inc Q3 Earnings Call.
Hello, My name is Chris and I'll be your conference operator today.
At this time I would like to welcome everyone to the West Bancorporation, Inc. Q3 earnings call.
Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
Speaker 1: If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. To withdraw your question.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Speaker 1: Thank you, Jane Funk, Chief Financial Officer. You may begin.
Thank you Jane Funk, our Chief Financial Officer, you may begin.
Speaker 2: Alright, thank you. We just want to welcome everybody today to our earnings call and thank you for your interest in our company. I'm Jane Kuntz, the CFO . I have with me Dave Nelson, our CEO , Harley Oleson, Chief Risk Officer, Brad Winterbottom, our Bank President, and Brad Peters, our Minnesota Group President.
Alright. Thank you I just want to welcome everybody today to our earnings call and thank you for your interest in our company I'm, saying the CFO I have with me, Dave Nelson, Our CEO, Harley Olafson, Chief Risk Officer, Brad Winterbottom Bank, President and Brad Peters, Our Minnesota Group President.
Speaker 2: During today's conference call, we may make projections for other forward-looking statements within the meeting of the Safe Harbor provisions of the Private Security Filigation Reform Act of 1995, regarding future events or future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please do the forward-looking statement disclosures in our 2023 Third Quarter Earnings release for more information about risks and uncertainties, which may affect them.
During today's conference call, we may make projections or other forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 regarding future events or future financial performance of the company.
Such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosures in our 2023 third quarter earnings release for more information about risks and uncertainties, which may affect us.
Speaker 2: The information we will provide today is accurate as of September 30th, 2023, and we undertake no duty to update the information.
The information we will provide today is accurate as of September 32023, and we undertake no duty to update the information and now I'll turn it over to Dave Nelson Our CEO. Thank you Jean and welcome everyone. Thank you for joining US today. We appreciate your interest in our company.
Speaker 3: And now I'll turn it over to Dave Nelson, our CEO . Thank you, Jane. And welcome everyone. Thank you for joining us today. We appreciate your interest in our company.
Speaker 3: Our third quarter went as we expected, and you'll hear more from others about our credit quality, our growth, and our margin.
Our third quarter went as we expected and you'll hear more from others about our credit quality, our growth and our margin.
Speaker 3: Our corp credit quality remains incredibly strong, but essentially no problem longs nor even any past new loans.
Our credit quality remains incredibly strong.
No problem loans or even any past due loans in <unk>.
Speaker 3: terms of growth, the Fed action appears to be working in terms of reducing demand for loan growth. But the communities we serve are doing fine.
Terms of growth the fed action appears to be working in terms of reducing demand for loan growth, but the communities. We serve are doing fine.
Speaker 3: Year-to-date long growth is about 4% and we have a good loan and deposit pipeline.
Year to date loan growth is about 4% and we have a good loan and deposit pipeline.
Our situation on margin is similar to others.
Speaker 3: Our situation on margin is similar to others. We have been paying up on deposits and perhaps we are now at or near the peak.
Have been paying up on deposits and perhaps we are now at or near the peak.
Speaker 3: During 2020 and 2021, when our industry was flooded with liquidity from the federal deficit spending, we used that liquidity to make loans and investments mostly based upon a five-year duration.
During 2020 in 2021.
And our industry was flooded with liquidity from the federal deficit spending we use that liquidity to make loans and investments mostly based upon a five year duration. Therefore, these assets will reprice to prevailing market rates during 2005 and 26 weeks.
Speaker 3: Therefore, these assets will reprice to prevailing market rates during 25 and 26.
Speaker 3: We expect our temporary margin compression to continue into 2024 and improve with increasing velocity during 2025 and 2016.
We expect our temporary margin compression to continue into 2024 and improve with increasing velocity during 2025 and 26.
We have declared a dividend of 25 per share for the payment date of November 20, <unk> to shareholders of record as of November eight.
Speaker 3: We have declared a dividend of 25 cents per share with a payment date of November 22nd to shareholders of record as of November 8th.
Speaker 3: I will now turn the call over to our chief risk officer, Mr. Harley Olison, for his come.
I will now turn the call over to our Chief risk Officer, Mr. Harley Olafson for his comments.
Speaker 4: Thanks Dave. As Dave mentioned earlier, predicality is very strong at West.
Thanks, Dave.
As Dave mentioned earlier credit quality is very strong at West Bay.
Speaker 4: Our watch list total 520
Our watch list totals 526000.
Speaker 4: $1,000 seems almost like we don't have one anymore. We have no past two loans at quarter end over 30 days.
<unk> dollars.
It seems almost like we don't have one anymore.
Have no past due loans at quarter end over 30 days.
Speaker 4: Quarterly we stress test our portfolio and have seen improving trends in total loan the value and that service
We stress test our portfolio and have seen improving trends in total loan to value and debt service coverage.
Speaker 4: We have looked closely at our office portfolio.
We have looked closely at our office portfolio.
Speaker 4: The total office portfolio was $185 million. The average loan to value was 69% and the debt service coverage of the non-order occupied office properties is 1.43.
Total office portfolio was $185 million, the average loan to value of 69% and the debt service coverage of the non owner occupied office property is 143.
Speaker 4: About half of our office portfolio consists of order occupied products.
About half of our office portfolio consists of owner occupied properties.
Speaker 4: The remainder of our commercial real estate portfolio is strong in season.
Remainder of our commercial real estate portfolio is strong in season.
Speaker 4: With rising rates there have not been a lot of significant new projects added to the portfolio.
With rising rates there have not been a lot of significant new projects added to the portfolio.
Speaker 4: Our continuing focus is to provide the best service to our customers that have a comprehensive relationship.
Our continuing focus is to provide the best service to our customers that have a comprehensive relationship with us.
Speaker 4: We are not providing financing to applicants that just want us to do a deal. Our bankers have been doing a good job capturing more of our customers total business.
We're not providing financing to applicants that just want us to do a deal.
Bankers have been doing a good job capturing more of our customers total business.
Speaker 4: The economy in our markets remains surprisingly resilient. We keep looking for cracks and areas.
The economy in our markets remains surprisingly resilient, we keep looking for cracks in areas of concern.
Speaker 4: With having to increase our deposit rates to maintain our customer base, we keep prospecting those relationships that add to both sides of the ballot.
With having to increase our deposit rates to maintain our customer base. We keep prospecting goes relationships would add both sides of the balance sheet.
Speaker 4: With that, I will turn it over to our bank president, Brad Wooder bottom.
With that I will turn it over to our bank President Brad Winterbottom.
Thanks, Charlie.
This is Ben stated, but I'll repeat for the first nine months of the year our loan portfolio grew approximately 4%.
Speaker 5: This has been stated, but I'll repeat, for the first nine months of the year, our loan portfolio grew approximately 4%, the 2.85 billion in outstanding.
285 billion in Outstandings.
Speaker 5: And that's where the quarter, our loan portfolio grew $43 million or $1.7.
And then for the quarter, our loan portfolio grew $43 million or one 7%.
Speaker 5: Our growth in the portfolio was, in part due to a customer acquisition that we financed and vertical construction draws on previously committed transactions.
Our growth in the portfolio was in part due to our customer acquisition that we financed and vertical construction draws on previously committed transactions.
Speaker 5: We have slightly over 175 million in unfunded commitments on vertical construction draws that should take place over the next 12 to 18 months.
We have slightly over $175 million in unfunded commitments on vertical construction draws that should take place over the next 12 to 18 months into.
Speaker 5: Honestly it is this time that you wouldn't have started pushing. It is a bit faster. We are in 250 business activities in all markets.
The interest rate environment is solid business activities in all markets.
Speaker 5: However, our pipeline is solid given the environment we are working and living in. Financial of our customers were made strong and we do not see the general weakening of our customers.
However, our pipeline is solid given the environment, we are working and living in.
<unk> of our customers remained strong and we do not see a general weakening of our customer base.
Speaker 5: The posit gathering and the posit maintaining remain important to us and we are working hard to do that.
Deposit gathering and deposit maintaining remains important to us and we are working hard to do that.
Speaker 5: We remain confident in our abilities to create and maintain positive relationships with our customers and the prospects we are pursuing.
We remain confident in our ability to create and maintain positive relationships with our customers and the prospects we are pursuing.
Speaker 4: that I will turn it over to Brad Peters. Thanks Brad. Good afternoon everyone. I'm going to provide a repup date on our progress in Minnesota.
With that I will turn it over to Brad theaters.
Thanks, Brad good afternoon, everyone.
I'll provide a brief update on our progress in Minnesota.
Speaker 3: We continue to navigate through a challenging environment due to the rapid rise.
We continue to navigate through a challenging environment due to the rapid rise in interest rates.
Speaker 3: Despite of those challenges, we are growing new business and enhancing existing relationships. Our focus...
Are those challenges, we are growing new business and enhancing.
<unk> relationships.
Our focus has been on C&I growth.
Speaker 3: We have been intentional in our calling efforts to draw a new deposit and Treasury management.
And we have been intentional in our calling efforts to drive new deposit and Treasury management business.
Speaker 3: You're also growing high value retail deposits by focusing on our business owners and their key employees.
We're also growing high value retail deposits by focusing on our business owners and their key employees.
Speaker 3: The Mankato Market will be opening their new building next month.
Mankato market will be opening their new building next month, we expect this new facility to be a great tool to continue to attract new relationships.
Speaker 3: I expect this new facility to be a great tool to continue to attract new relationships.
Speaker 3: The Otona Market has finalized plans for their new building and construction will begin later this fall. Those are the
China market has finalized plans for their new building and construction will begin later this fall.
Through the end of my comments I will now turn the call back over to Jane.
Thanks, Brad I'll make just a few comments about the financials and then we'll open it up for questions.
Speaker 2: Thanks, Brad. I'll make just a few comments about the financials and then we'll open it up for questions.
Speaker 2: Our net income was flat this quarter compared to the previous quarter. The third quarter income included a one-time swap fee of $431,000 recorded on a back-to-back swap transaction. We also recorded a $200,000 provision for credit loss as a result of loan growth.
Net income was flat this quarter compared to the previous quarter.
Third quarter income included a onetime fee of 431000 recorded on a back to back swap transaction. We also recorded a $200000 provision for credit loss as a result of loan growth.
Speaker 2: Net interest income declined $700,000 in the third quarter compared to the second quarter and our net interest margin declined from 2.02% in the second quarter to 1.91% in the third quarter. Along with the rest of the industry, we continue to see rate pressure on our deposit base, resulting in an increasing cost of deposit.
Net interest income declined $700000 in the third quarter compared to the second quarter and our net interest margin declined from two 2% in the second quarter to 191% in the third quarter, along with the rest of the industry. We continue to see rate pressure on our deposit base, resulting in increasing cost of deposits.
Speaker 2: The increase in interest costs continue to outpace the repricing of our loan and securities portfolios.
The increase in interest costs continue to outpace the repricing of our loan and securities portfolios are.
Speaker 2: Our deposit balances were lower as September 30th compared to June 30th 2023, partially due to the seasonality of public fund deposits. In October , our deposits have increased $120 million. Our core deposit base remains stable.
Our deposit balances were lower at September 30, compared to June 32023, partially due to the seasonality of public fund deposits in October our deposits have increased $120 million, our core deposit base remains stable.
Speaker 2: Those are the end of our prepared remarks and we'll now open it up to questions.
Those are the end of our prepared remarks, and we will now open it up to questions.
Speaker 1: Thank you. And as a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Again, that's star one to ask a question.
Thank you and as a reminder, if you would like to ask a question. Please press Star then one.
On your telephone keypad again, Thats star one to ask a question.
Our first question is from Andrew Liesch with Piper Sandler Your line is open.
Speaker 1: Our first question is from Andrew Leash with Piper Sandler. Your line is open.
Speaker 6: Hey, good afternoon everyone. Just want to touch space on margin here. Certainly it's trending lower, but the pace, the compression slowed. Do you think that that slowing will continue here and I recognize the amount of assets won't really reprise until 25? Like, where do you think the margin might look like you're from this?
Hey, good afternoon, everyone.
Just wanted to touch base on margin here, certainly its trending lower but the pace of compression slowed.
Do you think that that's slowing will continue here recognizing that the assets Werent really repriced until 'twenty five I guess, where do you think the margin might look like a year from now.
Speaker 2: Well, that's the million-dollar question, I think, for everybody. Margin, we will, we are expecting to continue to see some compression because we know, you know, across the industry there will continue to be pressure on the cost of deposits.
Hello.
Million dollar question I think for everybody.
Margin, we will we are expecting to continue to see some compression because we know.
Across the industry that will be continue to be pressure on the cost of deposits. So.
Speaker 2: So even if the Fed doesn't change rates, costs will continue to increase, but at what pace? It has slowed down, so that's a good sign. At what point it stops and starts to reverse is yet to be seen. So we expect to see margin, see additional pressure in the rest of this year and early next year.
Even if the fed doesn't change rates costs will continue to increase but at what pace. It has slowed down. So that's a good sign at what point it stops and starts to reverse is yet to be seen.
We expect a theme margin.
The additional pressure.
The rest of this year and early next year.
Speaker 5: I would also add, Andrew, that.
I would also add.
Andrew.
Speaker 5: I mentioned the $175 million in unfunded commitments on construction draws.
I mentioned, the $175 million in unfunded commitments on construction draws.
Speaker 5: The vast majority of those are floating rates, and so that actually will help the margin a little bit as those get advanced.
The vast majority of those are floating rates.
And so that actually will help the margin a little bit as those get advanced.
Speaker 6: Got it. Yeah, I guess turning towards loan growth. I mean, what's the timing on those draws? And if we look out maybe a year from now, is mid single digit growth appropriate? I've had some good construction gains this quarter, but how do you think loan growth overall is going to trend for the next year?
Got it.
I guess turning towards bond growth I mean, what's the timing on those draws and if we look out.
A year from now is mid single digit growth appropriate said some good construction gains this quarter, but how do you think loan growth overall is going to trend for the next year.
Well.
Our.
Speaker 5: We're not seeing as, certainly we're not seeing as many deals as we've had in the, let's say in the 22, 21 era, but.
We're not seeing as certainly we're not seeing as many deals as we had in the let's say in the 'twenty to 'twenty one era.
But.
Speaker 5: That's really hard to predict we've seen and we're aware of.
That's really hard to predict.
We've seen and we're aware of.
The five deals that total $22 million thats, probably going to pay off.
Speaker 5: five deals that total $22 million that's probably going to pay off.
Speaker 5: between now and the end of the year, but those construction draws.
Now in the end of the year, but those construction draws.
Speaker 5: You know, that's mostly going to be 12, 15 months, maybe 18. And that's probably even.
That's mostly going to be 12, 15 months, maybe 18.
And thats probably evenly spread.
Gotcha.
Speaker 6: All right, that's helpful. Then, I mean, Harley, as you mentioned, during your credit metrics have been excellent. You've been looking for where there might be cracks. Are you seeing anything out there? And the metrics are very strong.
Alright Thats helpful. Then Harley you mentioned during your credit metrics have been excellent and you've been looking for where there might be cracks are you seeing anything out there in the metrics are very strong.
Speaker 4: Well, the areas that we are watching carefully are like senior housing where you have assisted living or more care because the costs of that have gone up so high but we don't have very much of that to tell you the truth. We had one deal that we didn't love in that category that's actually going to pay off this next month.
Well the areas that we are watching carefully <unk> senior.
Housing, where you have assisted living here or.
More care because the costs of that.
Got it up so high but we don't have very much of that to tell you through we had one deal that we didn't love in that category, that's actually going to pay off the six months.
Speaker 4: So, that's an area of concern just because of the labor costs in that area. Our office portfolio, we don't have.
That's an area of concern just because of the labor costs in that area.
Our office portfolio, we don't have.
Speaker 4: Anything that would be called a metro downtown office, multi-tenant office that doesn't have strong long-term tenants in it.
Anything that would be called Metro downtown office, multi multi tenant office.
It doesn't have strong long term tenants.
So we keep looking and we do the stress on the portfolio.
Speaker 4: So we keep looking and we do the stress on the portfolio, and since there isn't a great deal of new...
Since there isn't a great deal of new.
Projects coming into the fold.
Speaker 4: Projects coming into the fold The old ones keep just paying down and the debt service coverage is Remains strong. So our CNI portfolio has been good. We've done some New business there and have some businesses that have made some acquisitions So that's all good business for us because it adds to both sides of the balance sheet
The old ones, Keith just paying down the debt service coverages.
Remains strong so our C&I portfolio has been good we've done some.
New business they're in.
We have some businesses that have made some acquisitions. So that's all good business for us because it adds to both sides of the balance sheet.
Speaker 4: Uh, I don't have a, I hate to say that I don't have a good answer for you, but I, we keep looking Andrew.
I don't have.
Hate to say that I don't have a good answer for you, but we keep looking Andrew.
Speaker 6: That's good and encouraging. And then just one push on run rate expenses here. They've got the operating costs have bounced around the last couple quarters. What's a good level to be forecasting out here going forward?
That's good.
And the encouraging.
And then just one question on <unk>.
Run rate expenses.
Cost of bounced around the last couple of quarters, I mean, what's a good level to be forecasting out here going forward.
Speaker 2: I would say probably this quarter was a pretty stable quarter.
I would say probably this quarter.
With a stable quarter.
Speaker 6: Got it. That covers all my questions. Thanks so much. I'll step back. Thanks, Andrew.
Got it.
That covers all my questions. Thanks, so much I'll step back thanks, Andrew.
Speaker 1: The next question is from Paul Deshaw, your line is open.
The next question is from Paul <unk>. Your line is open.
I have a question, but I missed what is the duration on the securities portfolio.
Speaker 7: I have a question for Ms. Funk. What is the duration on the securities portfolio? About six years. Six. Thank you.
Six years.
Thanks, Thank you.
Yes.
Again, Thats star one if you'd like to ask a question.
Speaker 1: It appears that we have no further questions. I'll turn it back over to Jane Funk for any closing remarks.
It appears that we have no further questions I'll turn it back over to Jane funk for any closing remarks.
Alright, we just want to thank everyone for joining US again today on this quarterly earnings call and we look forward to next quarter and talking to you in January Thank you.
Speaker 2: All right, we just want to thank everyone for joining us again today on this quarterly earnings call, and we look forward to next quarter and talking to you in January . Thank you.
Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
Okay.
[music].
Operator: Hello, my name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the West Bancorporation Inc. Q3 Erning School. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, please press star one again.
Jane Funk: Thank you, Jane Funk, Chief Financial Officer, you may begin. All right, thank you. We just want to welcome everybody today to our earnings call. And thank you for your interest in our company.
Jane Funk: I'm Jane Funk, the CSO.
Jane Funk: I have with me, Dave Nelson, our CEO, Harlee Olafson, Chief Risk Officer, Brad Winterbottom, our bank president, and Brad Peters, our Minnesota group president. During today's conference call, we may make projections for other forward-looking statements within the meeting of the safe harbor provisions of the private security litigation reform act of 1995, regarding future events or future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially.
Jane Funk: Please see the forward-looking statement disclosures in our 2023 third-quarter earnings release for more information about risks and uncertainties which may affect us. The information we will provide today is accurate as of September 30, 2023, and we undertake no duty to update the information.
David Nelson: And now I'll turn it over to Dave Nelson, our CEO. Thank you, Jane, and welcome everyone. Thank you for joining us today. We appreciate your interest in our company. Our third quarter went as we expected, and you'll hear more from others about our credit quality, our growth, and our margin. Our credit quality remains incredibly strong, with essentially no problem longs, nor even any past due loans. In terms of growth, the Fed action appears to be working in terms of reducing demand for loan growth, but the communities we serve are doing fine.
David Nelson: Year-to-date loan growth is about 4% and we have a good loan and deposit pipeline. Our situation on margin is similar to others. We have been paying up on deposits, and perhaps we are now at or near the peak. During 2020 and 2021, when our industry was flooded with liquidity from the federal deficit spending, we used that liquidity to make loans and investments mostly based upon a five-year duration. Therefore, these assets will reprise to prevailing market rates during 25 and 26. We expect our temporary margin compression to continue into 2024 and improve with increasing velocity during 2025 and 26.
David Nelson: We have declared a dividend of 25 cents per share, with a payment date of November 22nd to shareholders of record as of November 8th.
Harlee Olafson: I will now turn the call over to our chief risk officer, Mr. Harley Olison, for his comments. Thanks, Dave. As Dave mentioned earlier, credit quality is very strong at West Bank. Our watch list totals 520%. $26,000 seems almost like we don't have one anymore. We have no past two loans at quarter end over 30 days. Quarterly, we stress test our portfolio and have seen improving trends in total loan to value and debt service coverage.
Harlee Olafson: We have looked closely at our office portfolio. The total office portfolio is $185 million. The average loan to value is 69% and the debt service coverage of the non-owner occupied office properties is 1.43. About half of our office portfolio consists of owner occupied properties. The remainder of our commercial real estate portfolio is strong in season. With rising rates there have not been a lot of significant new projects added to the portfolio.
Harlee Olafson: Our continuing focus is to provide the best service to our customers that have a comprehensive relationship with us. We are not providing financing to applicants that just want us to do a deal. Our bankers have been doing a good job capturing more of our customers total business. The economy in our markets remains surprisingly resilient. We keep looking for cracks and areas of concern. With having to increase our deposit rates to maintain our customer base, we keep prospecting those relationships that add to both sides of the balance sheet.
Brad Winterbottom: With that, I will turn it over to our bank president, Brad Winterbottom. Thank you, Carly. This has been stated but I will repeat for the first nine months of the year our loan portfolio grew approximately 4% to 2.85 billion in outstanding. And then for the quarter, our loan portfolio grew $43 million or 1.7%. Our growth in the portfolio was in part due to a vertical construction draws on previously committed transactions. We have slightly over 175 million in unfunded commitments on vertical construction draws that should take place over the next 12 to 18 months.
Brad Winterbottom: The interest rate environment has slowed business activities in all markets. However, our pipeline is solid given the environment we are working and living in. Financials of our customers remain strong and we do not see the general weakening of our customer base. Deposit gathering and deposit maintaining remain important to us and we are working hard to do that.
Brad Winterbottom: We remain confident in our abilities to create and maintain positive relationships with our customers and the prospects we are pursuing.
Bradley Peters: With that, I will turn it over to Brad Peters. Thanks, Brad.
Bradley Peters: Good afternoon, everyone. I'm going to provide a brief update on our progress in Minnesota. We continue to navigate through a challenging environment due to the rapid rise and interest rates. Despite of those challenges, we are growing new business and enhancing the existing relationships. Our focus has been on C&I growth and we have been intentional in our calling efforts to draw a new deposit and treasury management business. We are also growing high value retail deposits by focusing on our business owners and their key employees.
Bradley Peters: The Mancadle market will be opening their new building next month. We expect this new facility to be a great tool to continue to attract new relationships. The Otona market has finalized plans for their new building and construction will begin later this fall.
Bradley Peters: Those are the end of my comments.
Jane Funk: I will now turn the call back over to James. Thanks Brad. I'll make just a few comments about the financials and then we'll open it up for questions. Our net income was flat this quarter compared to the previous quarter. The third quarter income included one-time swap fee of $431,000 recorded on a backed-backed swap transaction and we also recorded a $200,000 provision for credit loss as a result of long growth. Net interest income declined $700,000 in the third quarter compared to the second quarter and our net interest margin declined from 2.02 percent and the second quarter to 1.91 percent and the third quarter.
Jane Funk: Along with the rest of the industry we continue to see rate pressure on our deposit base resulting in an increasing cost to deposits. The increase in interest costs continue out to outpace the repricing of our loan and security portfolios. Our deposit balances were lower as September 30th compared to June 30th, 2023 partially due to the seasonality of public fund deposits and October our deposits have increased 120 million. Our core deposit base remains stable.
Jane Funk: Those are the end of our prepared remarks and we'll now open it up to questions. Thank you and as a reminder if you would like to ask a question please press star then one on your telephone. Keep that again that's star one to ask a question.
Andrew Liesch: Our first question is from Andrew Leish with Bipersandler.
David Nelson: Your good afternoon everyone. I just want to touch base on margin here and certainly it's trending lower but the pace of compression slowed. Do you think that that slowing will continue here and I'm recognizing that the assets weren't really repriced until 25. I guess where do you think the margin might look like a year from now? Well that's the million dollar question I think everybody. We are expecting to continue to see some compression because we know across the industry that will continue to be pressure on the cost of deposits.
David Nelson: So even if the said doesn't change rates cost will continue to increase but at what pace it has slowed down. So that's a good sign at what point it stops and starts to reverse is yet to be seen. So we expect to see margin the additional pressure in the rest of this year and early next year.
David Nelson: I would also add Andrew that I mentioned the $175 million in unfunded commitments on construction draws. The vast majority of those are floating rates and so that actually will help the margin a little better as low as the time.
David Nelson: Yeah, I guess turning towards bone growth. I mean, what's the timing on those draws and if we look out maybe a year from now is mid-single digit growth appropriate. I've said some good construction gains this quarter, but how do you think bone growth overall is going to trend for the next year? Well, I think our we're not seeing is certainly we're not seeing as many deals as we've had in the let's say in the 22-21 era, but that's really hard to predict.
David Nelson: We've seen and we're aware of five deals that total 22 million dollars that's probably going to pay off between now and the end of the year, but those construction draws you know that's mostly going to be 12, 15 months, maybe 18, and that's probably evenly spread. Gotcha. All right, that's helpful.
Harlee Olafson: Then I mean, Harlee, as you mentioned during your credit metrics have been excellent. You've been looking for where there might be cracks. Are you seeing anything out there? The metrics are very strong.
Harlee Olafson: Well, the areas that we are watching carefully are like senior housing where you have assisted living or more care because the costs of that have gone up so high, but we don't have very much of that to tell you the truth. We had one deal that we didn't love in that category that's actually going to pay off this next month. Bless an area of concern just because of the labor costs in that area.
Harlee Olafson: Our office portfolio, we don't have anything that would be called Metro downtown office, multi-tenant office that doesn't have strong long-term tenants in it. So we keep looking and we do the stress on the portfolio and since there isn't a great deal of new projects coming into the fold, the older ones keep just paying down on the debt service coverage as remains strong. So our CNI portfolio has been good. We've done some new business there and have some businesses that have made some acquisitions. So that's all good business for us because it adds to both sides of the balance sheet.
Harlee Olafson: I hate to say that I don't have a good answer for you, but we keep looking, Andrew. That's good. And encouraging.
Harlee Olafson: And then just one question on run rate expenses here. They've got pretty cost of bounce around the last couple quarters. What's the good level to be forecasting out here going forward?
Andrew Liesch: I would say probably this quarter was a pretty stable quarter. Got it. That covers all my questions. Thanks so much.
Andrew Liesch: I'll step back.
Paul D'Shaugh: The next question is from Paul D'Shaugh.
Harlee Olafson: Your line is open. I have a question for Ms. Stone. What is the duration on the securities portfolio? About six years. Six. Thank you.
Operator: Again, that's star one, if you'd like to ask a question.
Operator: It appears that we have no further questions.
Jane Funk: I'll turn it back over to Jane Funk for closing remarks. All right. We just want to thank everyone for joining us again today on this quarterly earnings call. And we look forward to next quarter until I can do in January. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You made out this connect.