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QCR Holdings (NASDAQ:QCRH)
Q2 2018 Earnings Conference Call
Jul. 20, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the QCR Holdings, Inc. second-quarter 2018 earnings call and webcast. [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.

Douglas Hultquist -- President and Chief Executive Officer

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. And the 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 recorded 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 onto 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 are 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, we'll 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 noninterest expenses, which continues to enhance our profitability. Our noninterest 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've previously discussed, improving 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 are encouraged by the progress we are 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.

Todd Gipple -- Chief Financial Officer

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 was some noise that impacted NIM this quarter, particularly with respect to our loan and lease yields. Core net interest margin, 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 costs 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 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 costs.

That being said, we do expect to see continued margin pressure. Now turning to our noninterest income results. We are pleased with the growth in our noninterest 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 are 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 the acquisition-related costs, our noninterest 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 noninterest expenses will increase modestly in future quarters.

Our asset quality continues to be excellent. Our nonperforming 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 want 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. 

Questions and Answers:

Operator

[Operator instructions] Our first question will come from Jeff Rulis with D.A. Davidson. Please go ahead.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Thanks. Good morning. A question on the, I guess, on the margin, more so on the funding side. I guess, I would anticipate 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 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 the interest-bearing front?

Todd Gipple -- Chief Financial Officer

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 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, 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'll 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, that had 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, what 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 have 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 backfill 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.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

No, that's helpful. I appreciate it. Maybe just switching gears. On the fee income, I guess, you're effectively implying $5 million to $5.5 million on the swap and government-guaranteed for the full year.

This could be a lumpy business and, certainly, you guys have reiterated that $4 million. I just -- for the full year target, generally, have you [Inaudible] some inroads to where in the -- 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 million just a conservative target? Maybe I'm more asking about '19 since we seem to have some visibility in '18. But yes, just any comments on that $4 million bogey would be great.

Todd Gipple -- Chief Financial Officer

Certainly, Jeff, and that's exactly the right question. We are really, 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 noninterest 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 million.

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.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Great. Thank you.

Todd Gipple -- Chief Financial Officer

Thanks, Jeff.

Operator

The next question comes from Nathan Race with Piper Jaffray. Please go ahead.

Nathan Race -- Piper Jaffray -- Analyst

Hey, guys, good morning.

Todd Gipple -- Chief Financial Officer

Good morning, Nate.

Douglas Hultquist -- President and Chief Executive Officer

Hi, Nate.

Nathan Race -- Piper Jaffray -- Analyst

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, which is some charters and also on the quad cities. In particular. So, Todd, I was just wondering if you can help us just kind of quantify what your expectations are for expenses in both 3Q and 4Q? And obviously, you have SFC come online 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.

Todd Gipple -- Chief Financial Officer

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. 11 of the adds were production-based, and those would be primarily in the Des Moines metro with 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 noninterest expense at $25.8 million. I would say we'd probably add about 200 to that with respect to some of these adds.

Some of them were budgeted, planned in a run rate, if you will, for 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 midyear '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 have this call for Q3 results, we'll provide some pretty clear insight as to run-rate expectations there.

Nathan Race -- Piper Jaffray -- Analyst

OK, that's really helpful. Thanks, Todd. 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 I was curious, just given the increase that we've seen in your deposit costs this quarter, would you perhaps consider a deal for a less urban-based franchise in some markets that may provide some less rate-sensitive deposits and so forth?

Douglas Hultquist -- President and Chief Executive Officer

Yes. 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, all our managed businesses, wealth management, that type of thing, it really is helpful to be in markets of scale.

Nathan Race -- Piper Jaffray -- Analyst

Understood. I appreciate all the color, guys.

Todd Gipple -- Chief Financial Officer

Thanks, Nate.

Douglas Hultquist -- President and Chief Executive Officer

Thanks, Nate.

Operator

And our next question comes from Damon DelMonte with KBW. Please go ahead.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Hey, good morning guys. How is it going today?

Todd Gipple -- Chief Financial Officer

Good.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Great. 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 are 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?

Todd Gipple -- Chief Financial Officer

Yes, Damon, a 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 toward 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.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Gotcha. OK, that's helpful. 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. Those two moving parts there might be tough for us to model out.

Todd Gipple -- Chief Financial Officer

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 to work and adding some of the Specialty Finance Group assets as we did in the case of CSB in 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 a 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, in my earlier comment, 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.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

OK, that's very helpful. 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 and brokered deposits and guidance of 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?

Todd Gipple -- Chief Financial Officer

Yes. So 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 to 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.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Gotcha. OK. That's all. You're very helpful.

Thank you very much, guys.

Todd Gipple -- Chief Financial Officer

Thank you, Damon.

Douglas Hultquist -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Daniel Cardenas with Raymond James. Please go ahead.

Daniel Cardenas -- Raymond James -- Analyst

Good morning, guys.

Todd Gipple -- Chief Financial Officer

Good morning, Dan.

Douglas Hultquist -- President and Chief Executive Officer

Hi, Dan.

Daniel Cardenas -- Raymond James -- Analyst

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 debt charge-offs seemed fairly manageable and your NPAs were relatively stable. What was -- what do you attribute that buildup to?

Todd Gipple -- Chief Financial Officer

Well, Dan, actually, our provision for the quarter was a bit under Q2 -- or I'm sorry, a 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, the 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. Maybe Dan, 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.

Daniel Cardenas -- Raymond James -- Analyst

OK, good. Fair enough. And then I know it's still kind of early, but with SFC now in the fold, how has deposit and loan runoff looked the first couple of weeks with the transaction now in the organization? Is it below expectations, is in line?

Douglas Hultquist -- President and Chief Executive Officer

Yes, really have experienced 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.

Daniel Cardenas -- Raymond James -- Analyst

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

Todd Gipple -- Chief Financial Officer

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. It 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-based 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 a 10%. So we do accrete that back fairly quickly in terms of the capital ratios.

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

Daniel Cardenas -- Raymond James -- Analyst

Perfect. Great. Thanks, guys.

Todd Gipple -- Chief Financial Officer

Thanks, Dan.

Douglas Hultquist -- President and Chief Executive Officer

Thanks a lot, Dan.

Operator

[Operator instructions] Our next question comes from Brian Martin with FIG Partners. Please go ahead.

Brian Martin -- FIG Partners -- Analyst

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, and I guess I'm talking on your book, not on the acquisition book. 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 this quarter, if you will? And then maybe expectations or hopes that it'd stabilize or a little bit less so last quarter.

Just trying to understand the nuance. Is there still some carry-through from this quarter? And then, I guess, a full settling down this next quarter? Is that what you're thinking? I'm just trying to understand the logic of why it still goes down a bit further and certainly on the context so I understand the funding pressures there. So...

Todd Gipple -- Chief Financial Officer

Brian, I totally understand your question, and 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 catch-up. 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.

Brian Martin -- FIG Partners -- Analyst

OK, fair enough. And just kind of over the long haul, Todd, I mean, the core margin outlook, as you've kind of settled into the new range, whatever that is, I mean, would the expectation be that you're able to hold that as we continue through 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?

Todd Gipple -- Chief Financial Officer

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 onto 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 margin in '19.

Brian Martin -- FIG Partners -- Analyst

Gotcha, OK. 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 is different than it was on the margin pickup?

Todd Gipple -- Chief Financial Officer

No, Brian. I'm glad you asked the question. I'd kind of leave it to you to get me to talk about 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 talked about it as fees, but we mentioned 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 costs. 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 an 8 basis point impact, going from a 5 basis point improvement in loan yield to, actually, it was 13 when you strip out FAS 91. So 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 loan expense or fee amortization. And that created -- or I should say, masked some of the improvement on loan yield that we really had.

Brian Martin -- FIG Partners -- Analyst

Yes. Because I guess, that's what I was asking. Last quarter, you mentioned you were starting to see some better pricing on loans and sounded like the real question was, are you seeing the -- are you continuing to see that getting better pricing on the new originations you're making?

Todd Gipple -- Chief Financial Officer

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. And a 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 are close to an average of 5% on the new loan originations for the quarter, so it is higher than our core yield.

Brian Martin -- FIG Partners -- Analyst

Yes. OK. Cool. I appreciate the color, Todd.

It's helpful.

Todd Gipple -- Chief Financial Officer

Great. Thank you, Brian, for the great questions.

Operator

Our next question is a follow-up from Jeff Rulis with D.A. Davidson. Please go ahead.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Thanks. I had one more margin question. The 5 basis points of compression, give or take, that you're 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.

Todd Gipple -- Chief Financial Officer

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.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Thanks. 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 that could be higher, where you sit at 1.08% today?

Douglas Hultquist -- President and Chief Executive Officer

Yes. 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.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

OK. But safe to say, 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?

Douglas Hultquist -- President and Chief Executive Officer

Correct.

Todd Gipple -- Chief Financial Officer

Sure. It sure does, Jeff.

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Thank you.

Operator

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

Daniel Cardenas -- Raymond James -- Analyst

Jeff asked my question. So thanks, guys.

Todd Gipple -- Chief Financial Officer

Thank you for being on the call.

Operator

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

Douglas Hultquist -- President and Chief Executive Officer

Yes. 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.

Operator

[Operator signoff]

Duration: 44 minutes

Call Participants:

Douglas Hultquist -- President and Chief Executive Officer

Todd Gipple -- Chief Financial Officer

Jeff Rulis -- D.A. Davidson & Co. -- Analyst

Nathan Race -- Piper Jaffray -- Analyst

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

Brian Martin -- FIG Partners -- Analyst

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