Douglas Hultquist - President and CEO Todd Gipple - CFO.

Jeff Rulis - D.A. Davidson Nathan Race - Piper Jaffray Damon DelMonte - KBW Daniel Cardenas - Raymond James Brian Martin - FIG Partners.

Good morning and welcome to the QCR Holdings, Inc., Second Quarter 2018 Earnings Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Douglas Hultquist, President and CEO. Please go ahead..

Thank you, operator. Welcome, ladies and gentlemen and thank you for taking the time to join us today. I will start the call with a brief overview of the Springfield Bancshares merger that we completed earlier this month.

Then, I will provide some highlights of our second quarter and Todd Gipple will finish up with additional details on our financial results. As we have discussed on prior calls, one of our key strategic objectives is to participate as an acquirer in the consolidation occurring within our industry.

Our focus has been and remains on markets with similar characteristics, as our existing MSAs, those exhibiting favorable economic and demographic trends and where relationship based community banking is valued by clients.

In April, we entered into an agreement to merge with Springfield Bancshares, Inc., the holding company of Springfield First Community Bank, or SFC Bank, providing us entry into the attractive Springfield Missouri market.

On July 1, less than 75 days from the initial announcement, we closed the transaction and welcomed the clients, employees, and shareholders of SFC Bank into the QCR Holdings Family.

We are excited for them to join us as this merger fits well with our strategic growth plans by combining two high performing financial institutions who share similar values and approaches to client service and community involvement.

The team at SFC Bank values innovation, collaboration, and achievement, while focusing on exceptional client based relationships just as we do across our charters at QCR, Inc. And a large group of folks from SFC will be joining us at our retreat this week.

We believe that SFC Bank will continue to build upon its strong brand and grow its market share in the Springfield market. Not only will they benefit from increased scale, operational support, and improved funding, but we look forward to offering SFC Bank clients additional products and services that have been valued at our other charters.

I would like to thank all of our team members, both at QCR Holdings and SFC Bank for their hard work and dedication to closing this transaction in a seamless manner and in such a short period of time. Adding SFC Bank to the QCR Holdings family positions us to continue growing our franchise and create value for our shareholders in the years ahead.

Now to our second quarter results. We are generally pleased with our core operating performance. We reported another solid quarter of net income, driven by continued organic loan growth, strong fee income, improved credit quality and careful management of expenses. Second quarter net income was 10.4 million and diluted earnings per share was $0.73.

Core earnings, excluding acquisition related costs, were 10.9 million and core diluted EPS was $0.77, a modest increase from the first quarter where we recorded core earnings of 10.6 million and core diluted EPS of $0.75. On a year-over-year basis, our core earnings for the quarter were up 25%.

Our annualized organic loan growth was 7.8% during the second quarter, somewhat lower than the strong showing in the first quarter. However, when both quarters are combined, the first six months of 2018 produced an annualized growth rate of 10.1%, which is within our long term target of 10% to 12%.

Our loan growth for the quarter was driven by strong broad based demand for commercial and industrial loans, partially offset by loan payoffs.

While the competition for new loans continues to be high, we remain focused and disciplined in our origination and underwriting efforts and continue to grow loans organically by attracting clients that value our relationship based community banking model.

Our loan and lease growth was funded by an increase in core deposits, supplemented with short-term borrowings. Core deposits, which we define as total deposits, excluding brokered, increased by 62 million or 2% on a linked quarter basis. Brokered deposits declined by 43 million in the quarter.

Going forward, our goal remains funding all of our loan and lease growth with core deposit growth, but we don't want to turn down the opportunity to bring attractive and high quality loans on to the balance sheet, so we may choose to temporarily fund them with short term borrowings.

As the competition for deposits is also fierce and with the Federal Reserve’s plan to continue increasing the Fed funds rate, we, like the rest of the industry, are facing higher deposit costs, which puts pressure on our net interest margin. Todd will go into more detail on our NIM during his portion of the call.

We continue to be pleased with the performance of our non-interest income, which in the second quarter was 8.9 million compared to 8.5 million for the first quarter of 2018 for an annualized growth rate of 17.4%.

The increase was primarily driven by nearly 700,000 in higher swap fee income, partially offset by the lack of gains on the sale of government-guaranteed loans.

As we've mentioned on previous calls, our SBA loan production has been lower than its historical levels, as some of our competitors are originating these loans without the government guarantee, which is something that we won't do.

However, we remain focused on building our pipeline for USDA loans and hope to see increased activity in this area in the coming quarters. Wealth management revenue was 3.1 million for the quarter, essentially flat from the first quarter of 2018. For the first half of the year, wealth management revenue growth is nearly 20% year-over-year.

We're very pleased with this growth, as these fees helped drive our earnings growth and provide important diversification in our revenue mix without requiring additional capital.

We're excited to be expanding our wealth management business with the acquisition of the Bates Companies, one of the longest tenured financial planning firms in the Rockford, Illinois region.

We expect that the acquisition will close in the third quarter, and at that time, will add nearly 700 million of assets under management, along with a high quality and experienced group of investment professionals to our team at Rockford Bank & Trust.

Turning to our expenses, we maintain our focus on controlling non-interest expenses, which continues to enhance our profitability. Our non-interest expenses for the second quarter were right in line with our expectations.

To help support our recent and expected growth, we are bolstering our operational infrastructure and investing in additional staffing, both at the corporate level and at some of our charters. Some of the hires are opportunistic, as we are taking advantage of strong talent out in the marketplace as a result of ongoing industry consolidation.

As we have previously discussed, improving our ROAA is one of our long term goals for the company. So, we remain focused on making continued progress in this area. For the second quarter, our core ROAA was 1.08% on an annualized basis, up from 1.06% in the first quarter and 1.03% in the second quarter of ‘17.

Overall, we're encouraged by the progress we're making on the seven key initiatives that we have shared with you over the last three years.

We remain committed to the pursuit of these objectives, with the overriding goal of delivering consistent upper quartile peer performance, which we believe will ultimately translate into increased shareholder value. I will now turn the call over to Todd for further discussion on our second quarter results..

Thank you, Doug. As I review our second quarter financial results, I'm just going to focus on those items where some additional discussion is warranted. I’ll start with net interest margin, as there were some noise that impacted NIM this quarter, particularly with respect to our loan and lease yields.

Core net interest margins, stripping out the acquisition accounting net accretion for recent acquisitions, decreased by 10 basis points in Q2 to 3.46% versus 3.56% in the first quarter.

Excluding the acquisition accounting net accretion, our net interest income declined by 164,000 or 0.5% on a linked quarter basis, as we saw an increase in funding cost, driven by a combination of higher rates and a less favorable mix in the prior quarter.

This was partially offset by improved yields in our loan portfolio as well as higher average loan balances. Acquisition accounting net accretion was 545,000 in the second quarter versus 699,000 in the first quarter. Our reported average yield on loans for the second quarter increased by 5 basis points on a linked quarter basis to 4.69%.

Excluding acquisition accretion and loan fee amortization, the yield was actually 4.82% or an increase of 13 basis points. As Doug mentioned, the competition for new loans is strong, yet even in this market environment, we have been able to organically grow our loan portfolio, bringing on new loans at higher rates.

However, the flattening yield curve is impacting our fixed rate term loans, creating a bit of a headwind for improved yields. As Doug mentioned, our loan growth in the quarter was funded by core deposits and an increase in short term borrowings.

Our total deposits increased by 18 million in the quarter, which was driven by a nice growth in core deposits, offset by lower brokered deposits. Given the ongoing competition for deposits, growing our deposit base at the same pace with our loan growth remains a challenge.

We continue to focus on initiatives to organically grow our core deposits, including promoting our improved treasury management platform, which we believe will enable us to continue to increase commercial deposits.

Additionally, the total amount of our deposits that are highly sensitive to rate changes approximately matches the total amount of our floating rate loans, helping to cushion the impact of across the board pressure of increased funding cost. That being said, we do expect to see continued margin pressure.

Now, turning to our non-interest income results. We are pleased with the growth in our non-interest income during the quarter, which was largely driven by our swap fees. Our swap fee income and gains on the sale of government guaranteed loans totaled 3 million for the first half of the year, well ahead of our annualized expectation of 4 million.

As we've indicated in the past, variability in these items will occur from quarter to quarter. Our expectation is that in the second half of 2018, this fee income source will be in a range of 2 million to 2.5 million. As Doug mentioned, our wealth management fees grew by approximately 20% year-to-date.

Growing this part of our business by at least 10% per year on a net income basis remains one of our key strategic goals and we're very pleased to be exceeding this objective thus far in 2018. On the expense side, we remain focused on controlling expenses and improving our efficiency ratio.

Excluding acquisition related costs, our non-interest expenses were essentially flat compared to the first quarter and in line with our expectations. As Doug mentioned, we are adding to our back office staff to help us stay on pace with our growth. As a result, we do expect that our non-interest expenses will increase modestly in future quarters.

Our asset quality continues to be excellent. Our non-performing assets declined by 4.2 million from the first quarter, primarily due to the upgrade of one large credit that was removed from troubled debt restructure status and our net charge-offs remain at historical lows.

Our loan loss provision decreased on a linked quarter basis due to improved credit quality and a slower pace of loan growth. The last thing I wanted to mention is that our tax rate for the quarter came in at just over 15% and there were not any unusual items impacting it.

We still expect that our tax rate for the full year will be in the range of 15% to 16%. With that added color on our second quarter financial results, let’s open up the call for your questions. Operator, we are ready for our first question..

[Operator Instructions] And our first question will come from Jeff Rulis with D.A. Davidson..

A question on the -- I guess on the margin, more so on the funding side. I guess I would anticipate that the time deposit costs to increase, but that interest bearing was up quite a bit sequentially.

Is that you guys being proactive out in the market and knowing the need for deposits, maybe you could talk about, just sort of the interest bearing piece and the competition that you're seeing and would you anticipate sort of baked in that margin discussion further pressure on interest bearing front?.

Sure, Jeff. This is Todd. Great question. Thanks for being on the call today. I did think it would make sense to walk everybody through some of the moving parts here in Q2 and will -- in doing that, we’ll get to those increased interest bearing costs.

So our reported margin of 3.52, down 12 basis points from 3.64 in Q1, when you strip out the market value accretion impact, which was 6 basis points in Q2, 8 basis points in Q1, you get to a 3.46 without market value accretion for this quarter, and 3.56 in Q1.

That’s the 10 basis point decrease in margin that we talked about in the press release and in our comments. So what really drove that compression to your point would be the mix and the cost of our most rate sensitive funds, and we've been disclosing that in each of our quarters giving some information about that.

And so to really answer your question, Jeff, I will kind of walk you through the change quarter to quarter. At the end of March, we had 780 million of our funding that we called very rate sensitive at very high betas, and really have been performing that way.

That said, the betas that we’d experienced had been less than 100, probably 75 to 80 beta, even on those very rate sensitive funds.

That was really covered completely by our floating rate loans of close to 800 million, so we were at a little over 100% coverage on our rate sensitive funds with our floating rate loans and that really gave us an expectation for a fairly static margin for Q2.

What happened in Q2 and really impacted our margin is our rate sensitive funds increased by 104 million, went up to 884 million. More impactful than that though, our actual experience was 27 basis points in increased costs on those funds. So for the first time, those rate sensitive funds actually had a higher beta over 100 beta.

And at the same time, we did grow floating rate loans, but only grew those at 20 million. So our coverage of floating rate loans to those rate sensitive deposits decreased from 102% down to 92%. So in a nutshell, that is really what created the 10 basis points of contraction for the most part in Q2.

Now to your big question, yes, we have had to play some defense with respect to acquiring those deposits and maintaining those deposits. We believe that in Q2, there was a bit of an unloading effect, if you will, in terms of the beta being over 100. We really had some catching up to do on some of those accounts.

We don't expect the beta going forward to necessarily be over 100 on those. We still think it will be strong, but we're working really hard to manage down our reliance on those types of funds and to back fill with some less rate sensitive funding, but it is a very competitive marketplace with respect to deposits and deposit costs.

So sorry for the long winded answer to your short question, Jeff, but really wanted to provide a fair amount of color on that..

That's helpful. I appreciate it. Maybe just switching gears on the fee income, I guess, you're effectively applying 5 million to 5.5 million on the swap and government guaranteed for the full year. This can be a lumpy business and certainly you guys have reiterated that 4 million.

I just -- for the full year target generally, have you made some inroads to where in -- maybe the year out year, where you don't have visibility, would you think about increasing that or you talked about SBA being under pressure, but is the 4 just a conservative target.

Maybe I’m more asking about ‘19 since we seem to have some visibility in ’18, but, yeah, any comments on that 4 million bogey would be great?.

Certainly, Jeff. And that's exactly the right question. We are really pleased with that performance for the first half of the year. We were reluctant to imply that that was a run rate that could be annualized to the 6 million level.

But to your point, going forward, I think our expectations for that business on an annual basis might increase closer to the $5 million mark in ’19. The addition of the SFC team will really enhance that. We fully expect them to be adding to our non-interest income, in those areas going forward in ’19.

So we’ll have more color on that as we get closer to the end of the year for ’19, but I do think it's fair to say our expectations are above that 4 million mark, probably closer to 5. The last three years, we've been, I think, between 4 million and 4.8 million at a peak. We expect to eclipse that this year.

So we're likely to move up our expectations for ‘19..

The next question comes from Nathan Race with Piper Jaffray..

So just going back to your comments around the expense build, it sounds like you guys are kind of backfilling some office personnel and so forth with some [indiscernible]. So Todd, I was just wondering if you could help us just kind of quantify what your expectations are for expenses in both 3Q and 4Q.

And obviously, you have SFC come on line in the third quarter.

So just kind of talk us through the timing with the conversion and when you expect to achieve some cost saves with that transaction as well?.

Sure. So first what we've done here in Q2 with adds, of our 27 adds, 12 of those are really seasonal interns that we implement around the company, eleven of the adds were production based and those would be primarily in the Des Moines metro CSB and in Rockford, taking advantage of the market disruption.

We've added some tremendous talent in the Rockford market and we're very pleased about that. And then four of those 27 would be operational hires. We came in within the range of expectation for core non-interest expense at 25.8.

I would say we probably add about 200 to that with respect to some of these adds, some of them were budgeted, planned in our run rate, if you will, or replacement or enhancement. So a fairly modest build there. With respect to SFC, we would not anticipate much in the way of those cost saves until late in ’18, would be in the fourth quarter.

The conversion is currently planned for middle of ‘19. And as you might guess, a fair amount of the savings and benefits would then be derived mid-year ’19.

And we will be providing a fair amount of color on run rate and expectations on Springfield First once we get all the GAAP accounting done here for Q3 when we do at this call for Q3 results, we’ll provide some pretty clear insight as to run rate expectations there..

And perhaps changing gears a little bit, Doug, just curious to get your updated thoughts on acquisition prospects. We've heard some increased chatter of M&A opportunities in Iowa specifically.

So just curious, just given the increase that we've seen in your deposit costs this quarter, would you perhaps consider a deal for a less open based franchise in some markets that may provide some less rates of deposits and so forth..

Yeah. Certainly, Nate, if we could acquire a very strong right side of the balance sheet with low cost core deposits, I think that would be ideal and don't know that we'd go down market a whole lot for that. We're in the correspondent business and so that's a little disruptive if you're doing that. So we have to be very thoughtful in that regard.

Plus with our model, primarily banking on our managed businesses, wealth management, that type of thing, it really is helpful to be in markets of scale..

And our next question comes from Damon DelMonte with KBW..

So my first question, just talking a little bit about loan growth. I know a little bit slower this quarter, but for the first half, you’re at right around 10%.

Can you give us a little color on the expectation for the back half? Are you still comfortable with that 12% to 15% for the year?.

Damon, great question. We did actually have gross new loan production in Q2 greater than Q1. So we actually had a very good quarter of origination. Our payoffs and paydowns were 43 million higher in Q2. So the net number and the reduction in run rate really comes more from payoffs.

So we're very optimistic, have good pipelines, still expect to be towards the upper end of our 10% to 12% range. Feel very good about loan production and quality loan production in all of our markets. And certainly, again, Springfield, we would expect to add to that.

They grew loans at 11% for the first half of the year and pleasantly grew deposits at 27% for the first half of the year. So Springfield will certainly add to our organic growth pace..

And then with respect to the margin and the impact of Springfield coming on and the pressure that you're seeing on the funding costs, like, is there a way you could kind of frame a range of what your expectation is for the margin for next quarter, since that's -- there's a few moving parts there that might be tough for us to model out?.

Sure, Damon. And with that being so tough for you guys to model, we wanted to be as transparent as we could about that. Springfield First, their margin will add about a 1 to 2 basis points compression on a pro forma basis. Their model has exceptional asset quality, no NPAs, really not even any past dues.

So on a risk adjusted basis, their yields are very, very strong, but on a core NIM basis, maybe a little tighter than we're used to.

If you recall, when we announced the Springfield deal, we did talk about putting some of their cash on the balance sheet work and adding some of the Specialty Finance Group assets as we did in the case of CSB and the Des Moines Metro.

So we expect during the quarter, here, even in Q3, to really offset that 1 or 2 basis points of compression from Springfield and get to flat there.

In terms of the headwinds we have on deposit pricing and the fact that we're doing all we can on that side and trying to get every bit we can on the left side of the balance sheet, all said, we still expect a bit of compression here in Q3 to be a little more helpful to all of you and a little more transparent.

I would estimate that to be in the range of 3 to 5 basis points for Q3. We expect that to settle down in Q4 and be more of a static margin going forward. But Q3 will be a bit of a choppy quarter for us. We don't think we're going to see the type of pressure on deposit betas that we saw in Q2.

Again, my earlier comment there -- there was a bit of a catchup in Q2 on many of those funds. So that would really be the color that we could give at this point with Q3 and Q4..

And kind of along those lines, the CD costs went up by like a full 25 basis points quarter-over-quarter. I know you also got out of some brokered CDs – brokered deposits and got into CDs.

Were there like some sort of end market specials that you’re running, kind of above market rates to kind of grow the core CD accounts in the bank this quarter that maybe led to such a high increase in the funding cost..

Yes. We were doing a little bit of that. We're trying to be very careful to make sure that we don't impact marginal cost of funds on existing relationships, but with all the market disruption in Rockford, we saw some really good opportunity to move over retail checking accounts and their CD balances at the same time.

So we did run some specials in the Rockford market, in particular, to help us migrate over some very, very good core deposit customers. So primarily in that market, Damon..

And our next question is from Daniel Cardenas with Raymond James..

Just a couple of quick questions here. Looking at your reserve level, saw a little bit of a buildup on a sequential quarter basis, despite the fact that chargeoffs seem fairly manageable and your NPAs were relatively stable.

What do you attribute that buildup to?.

Well, Dan, actually our provision for the quarter was a bit under Q2 or -- I'm sorry, bit under Q1. So in Q2, it was a bit reduced. I don't know that we necessarily felt like we were building.

We certainly don't see anything in the portfolio that would give us pause as you pointed out, NPAs to total assets have dropped and just for a little added color there, on a pro forma basis, we'd get to about 57 basis points on assets with Springfield First, their pristine asset quality helps reduce that further.

So we'd be under 60 basis points on a pro forma basis. Not necessarily any building going on. We just -- we have a very, we believe, very strong credit culture. We like to stay on top of reserve levels and coverage ratios.

Our coverage ratio did of course jump a bit and maybe down, that's what you're pointing to, given the reduction in NPAs with that TDR moving off, it did jump our coverage ratio a little bit, but we're just really being very consistent and steady when it comes to provisioning..

And then I know it's still kind of early, but with SFC now in the fold, how has the positive loan runoff look the first couple of weeks with the transaction now in the organization? Is it below expectations, in line?.

Yeah. Really have experience none of that, Dan. And as a matter of fact, they were up here the last couple of days. We had a retreat and their board, their senior management team came up and things are going very well down there and we're just not seeing any runoff. It's been very well accepted..

And then maybe any color as to the goodwill that's going to be added with this transaction?.

Sure, Dan. We modeled and announced when we announced the transaction where we'd be on a pro forma basis. Our expectations remain right on top of that, would create roughly 50 million in additional intangibles. That includes the CDI, which we estimated at 1.5%.

And so our pro forma capital at June 30 accounting for Springfield First would take our total risk base to 10.8 from around 11.2 or 11.3, would take TCE from a little over 8 to a little under right at about 7.8.

And we are expecting, on a pro forma basis, to the end of the year be a bit over 11 on total risk based and a bit over 8 on TCE, close to 8.10. So we do agree to that fairly quickly in terms of the capital ratios.

And again as per our transaction announcement, we saw the dilution to tangible book value is very modest and we are earning that back in roughly three years..

[Operator Instructions] And our next question comes from Brian Martin with FIG Partners..

So just one question, back to margin. I don’t want to beat a dead horse, Todd.

So just the -- when you talked about maybe the pressure continuing a bit this quarter, I guess I’m talking on your book, not on the acquisition, but -- and then maybe settling down next quarter, I mean, if the deposit betas do settle down a little bit this quarter, I guess, what keeps the pressure going in this quarter, if you will, and then maybe expectations or hopes that it is stabilizing or a little bit less so last quarter.

Just trying to understand the nuance, is there still some carrythrough from this quarter and then I guess the full settling down is next quarter, is that what you're thinking? Just trying to understand the logic of why it still goes down a bit further and certainly in the context so I understand the funding pressures there..

So Brian, I totally understand your question. It is exactly the right one. And it really is what you mentioned. We are seeing here, early in Q3, a little bit of a carryover from that catchup. We think our reliance on some of these more rate sensitive funds will moderate a little later in the year.

We do have some plans in place to find more efficient, more cost effective ways to fund. We're working on that. We're reluctant to be too optimistic about how quickly that might take hold. So that really has much to do with the color on a little bit of the compression persisting here in Q3 and abating in Q4, really more about the timing..

And just kind of over the long haul, Todd, I mean, the core margin outlook, as you kind of settle into the new range, whatever that is, I mean will the expectation be that it's – you’re able to hold that as we continue to do this rate cycle or kind of see an upward trend, a downward trend, just how are you thinking about it longer-term once you get the acquisition and you continue to have the outlook for further rate increases?.

Sure, Brian. Great question. We do feel very good about, once we get Springfield First fully integrated in the company, they are a tremendous group of folks, great bankers in a very, very strong market. And so that does give us optimism about getting into ’19 and being able to hold on to the margin that we end up with in Q4.

If you go back and look at what happened at CSB, in the Des Moines market, with some of the additional balance sheet work and the great people there, we were able to enhance margin there fairly significantly and so we have good expectations that we're going to be able to do that in Springfield and that's going to help us hold on to the margin in ’19..

And maybe I missed it Todd, but just on the -- you talked about -- I think you mentioned on the call, in your remarks, the core loan yield. So maybe I'm just confused, if you guys had a 4.69 reported loan yield this quarter and the accretion on the margin added about 6 or 7 basis points. Maybe it adds 8 basis points on the loan yield.

I think you said the core loan yield went up 13 basis – it was 13 basis points higher at 4.82 versus the 4.69, is there something that was additive to, I guess, or am I missing that on why it was -- why the gap in the loan yield was different than it was on the margin pickup?.

No. Brian, I'm glad you asked the question. I kind of leave it to you to get me to talk about the FAS 91. What we're really talking about there is, we had a pretty significant shift in the amount of FAS 91 deferred loan expenses. And in our comments, we talk about it as fees, but we mention amortization.

So I hope that the inference would carry through that people would understand that's really deferred loan origination. We actually had a pretty significant jump in the amount of FAS 91 expense amortized against the loan portfolio.

In Q2, I mentioned that we had some pretty strong payoffs in Q2, a couple of those were some very large loans in our specialty finance group and they carry some fairly high origination cost and when those pay off, as you know, they get amortized off the loan book.

And so that actually had a very significant impact and about a 8 basis point impact going from 5 basis point improvement in loan yield to – actually, it was 13 when you strip out FAS 91.

So a long answer there, but Brian, you're right, getting down to the granular detail on that, it really was a couple of those payoffs, really accelerated the loan expense or fee amortization and that created or I should say masked some of the improvement on loan yield that we really had..

Yeah. Because I guess that’s [indiscernible] last quarter, you mentioned you were starting to see some better pricing on loans.

And kind of the real question was, are you continuing to see that, we’re getting better pricing on the loan -- on the new originations you're making?.

Yes. And we are, Brian. And again, that was one of the reasons we mentioned this impact, mentioned our ending yield being up 13 basis points. We do continue to see some upward move in new loan rates. We certainly would like to see those betas be higher on new loan rates.

Flat curve, as we mentioned in the opening comments is really curtailing that a bit, but we do continue to see some nice improvements there. We're close to an average of 5% on the new loan originations for the quarter. So it is higher than our core yield..

Your next question is a follow-up from Jeff Rulis with D.A. Davidson..

I had one more margin question. The 5 basis points of compression, give or take, just talking about in Q3. Is that a core discussion, because I wanted to clarify that? I guess if you would anticipate any additional accretion benefit with Springfield on board.

I wanted to -- could that potentially mitigate some of that pressure?.

Sure. Jeff, that's exactly the right question and that 3 to 5 is core. Without market value accretion, we certainly would expect some beneficial impact from the GAAP accounting on Springfield First. So we would expect some offset to that.

We've got roughly 3.7 million of accretable yield left at CSB and right around 3 million from the Guaranty acquisition, we would clearly expect to add to that with Springfield..

And then I would also -- wanted to circle back to that ROAA discussion, you guys, this had been a 1% goal a while back and you guys have sort of shot up to that and now have exceeded that.

I wanted to check just to see, again, this is maybe the conservative nature of the comments, but has that been revisited as far as exceeding that goal or internally are you -- have you increased where, where that could be hotter, where you sit at 108 today?.

Yeah. Certainly, that would be our goal, Jeff. And we're talking with the board about what are the right metrics for us, some combination of EPS growth and total growth and total shareholder value.

And so we really, three or four years ago, were focused on ROAA, but now, it probably needs to be a mix of all those factors and so we're working on what that's going to look like..

Okay.

So it’s safe to say you know with tax reform and all things afoot and your progress within the bank that that's got an upward bias of where you sit today?.

Correct. Sure, it does, Jeff..

And our next question is a follow-up from Daniel Cardenas with Raymond James..

Jeff asked me question. So thanks guys..

Always, Dan. Thank you for being on the call..

And at this time, I'm showing no further questions. I’d like to turn the conference back over to Doug Hultquist for any closing remarks..

Yeah. Certainly appreciate all of you taking the time today and doing your homework so quickly after the earnings release and we look forward to speaking with you soon and have a great day and a great weekend..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..