DALLAS, Oct. 21, 2019 (GLOBE NEWSWIRE) — Veritex Holdings, Inc. (“Veritex” or the “Company”) (Nasdaq: VBTX), the holding company for Veritex Community Bank, today announced the results for the quarter ended September 30, 2019. The Company reported net income of $27.4 million, or $0.51 diluted earnings per share (“EPS”), compared to $26.9 million, or $0.49 diluted EPS, for the quarter ended June 30, 2019 and $8.9 million, or $0.36 diluted EPS, for the quarter ended September 30, 2018. Operating net income totaled $28.6 million, or $0.53 diluted operating EPS1, compared to $32.2 million, or $0.59 diluted operating EPS1, for the quarter ended June 30, 2019 and $10.4 million, or $0.42 diluted operating EPS1, for the quarter ended September 30, 2018.
C. Malcolm Holland, III, the Company’s Chairman and Chief Executive Officer said: “I am excited about the 3rd quarter and year-to-date financial results of Veritex. The quarterly earnings power of the Company has been consistent throughout the year. These results have been accomplished while integrating and converting Green Bank and now much of the execution risk is behind us. We are focused on rebuilding our growth momentum, maintaining our asset quality and returning our excess capital to our shareholders.”
Third Quarter 2019 Highlights:• Diluted EPS was $0.51 and diluted operating EPS1 was $0.53 for the third quarter of 2019, resulting in a 26.2% increase in diluted operating EPS compared to the third quarter of 2018;• Book value per common share was $23.02 and tangible book value per common share1 was $14.61 for the third quarter of 2019, reflecting operating net income, merger expenses, dividends and share repurchase activity;• Return on average assets was 1.36%, operating return on average assets1 was 1.42% and pre-tax, pre-provision operating return on average assets1 was 2.26% for the third quarter of 2019;• Efficiency ratio was 43.67% and operating efficiency ratio1 was 42.36% for the third quarter of 2019, reflecting three consecutive quarters of operating efficiency ratio1 below 44%;• Increased and extended previously announced stock buyback program. In the third quarter of 2019, Veritex repurchased 1,177,241 shares of its outstanding common stock under its stock buyback program for an aggregate of $29.0 million resulting in an aggregate of 2,349,103 shares as of September 30, 2019;• Declared quarterly cash dividend of $0.125 payable on November 21, 2019; and• Received American Banker’s “Best Banks to Work For” for the sixth consecutive year.Summary of Financial Data1 Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2 Annualized ratio.
Results of Operations for the Three Months Ended September 30, 2019Net Interest IncomeFor the three months ended September 30, 2019, net interest income before provision for loan losses was $70.9 million and net interest margin was 3.90% compared to $71.4 million and 4.00%, respectively, for the three months ended June 30, 2019. The $568 thousand decrease in net interest income was primarily due to a $1.0 million decrease in interest income on loans and a $894 thousand increase in interest expense on advances from the Federal Home Loan Bank (“FHLB”), and was partially offset by a $1.0 million decrease in interest expense on transaction and savings deposits. Net interest margin decreased 10 basis points from the three months ended June 30, 2019 primarily due to a decrease in yields earned on loan balances and an increase in the average rates paid on certificate and other time deposits, partially offset by a decrease in the average rate paid on interest-bearing demand and savings deposits during the three months ended September 30, 2019. As a result, the average cost of interest-bearing deposits was unchanged at 1.79% for the three months ended September 30, 2019 and June 30, 2019.Net interest income before provision for loan losses increased by $41.6 million from $29.3 million to $70.9 million and net interest margin decreased by 9 basis points from 3.99% to 3.90% for the three months ended September 30, 2019 as compared to the same period in 2018. The increase in net interest income before provision for loan losses was primarily driven by higher loan balances and interest income resulting from loans acquired from Green Bancorp, Inc. (“Green”) and organic loan growth during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. For the three months ended September 30, 2019, average loan balance increased by $3.3 billion compared to the three months ended September 30, 2018, which contributed to a $57.7 million increase in interest income. This was partially offset by an increase in the average rate paid on interest-bearing liabilities, which resulted in a $12.9 million increase in interest on deposit accounts. Net interest margin decreased 9 basis points from the three months ended September 30, 2018 primarily due to an increase in the average rate paid on interest-bearing liabilities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. As a result, the average cost of interest-bearing deposits increased to 1.79% for the three months ended September 30, 2019 from 1.59% for the three months ended September 30, 2018.
Noninterest IncomeNoninterest income for the three months ended September 30, 2019 was $8.4 million, an increase of $2.4 million, or 39.7%, compared to the three months ended June 30, 2019. The increase was primarily due to a $594 thousand increase in derivative income and a $245 thousand increase in service charges and fees on deposit accounts earned during the three months ended September 30, 2019. Further, the increase was due to a $642 thousand loss on sales of investment securities as a result of the Company’s repositioning strategy and a $434 thousand decrease in the value of investments in community development-oriented private equity funds used for Community Reinvestment Act purposes recorded for the three months ended June 30, 2019 with no corresponding loss or decrease in value for the three months ended September 30, 2019.Compared to the three months ended September 30, 2018, noninterest income for the three months ended September 30, 2019 grew by $6.0 million, or 250.1%. The increase was primarily due to a $2.9 million increase in service charges and fees on acquired deposit accounts resulting from our acquisition of Green deposit accounts and the associated income from these accounts, a $1.8 million increase in loan fees, a $723 thousand increase in the gain on sale of Small Business Administration loans and a $578 thousand increase in derivative income earned during the three months ended September 30, 2019.
Noninterest ExpenseNoninterest expense was $34.6 million for the three months ended September 30, 2019, compared to $39.9 million for the three months ended June 30, 2019, a decrease of $5.3 million, or 13.2%. The decrease was primarily driven by a $4.8 million decrease in merger and acquisition expenses related to our acquisition of Green, which were recorded in the second quarter of 2019. Merger and acquisition expenses recognized during the three months ended September 30, 2019 were primarily related to continued data processing expenses as a result of our system conversion, which was completed in the second quarter of 2019, conversion of our mobile banking platform and severance payments following our acquisition of Green.Compared to the three months ended September 30, 2018, noninterest expense for the three months ended September 30, 2019 increased by $16.4 million, or 89.8%. The increase was primarily driven by a $10.1 million increase in salaries and employee benefits due to the addition of new Green employees, and a $1.9 million, $1.6 million, $1.2 million and $857 thousand increase in amortization of intangibles, data processing and software expenses, occupancy and equipment expenses and professional fees, respectively, related to our acquisition of Green.
Financial ConditionTotal loans were $5.9 billion at September 30, 2019, a decrease of $41.1 million, or 0.7%, compared to June 30, 2019 due to normal loan activity and paydowns.Total deposits were $5.9 billion at September 30, 2019, a decrease of $287.2 million, or 4.7%, compared to June 30, 2019. The decrease was primarily the result of a decrease of $165.8 million in certificates and other time deposits, and decreases of $117.9 million and $3.5 million in interest-bearing accounts and noninterest-bearing demand deposits, respectively, due to normal course of business.
Asset QualityAllowance for loan losses as a percentage of loans held for investment, including mortgage warehouse, was 0.45%, 0.42% and 0.73% of total loans at September 30, 2019, June 30, 2019 and September 30, 2018, respectively. The allowance for loan losses as a percentage of total loans for each of the three quarters was determined by evaluating the qualitative factors around the nature, volume and mix of the loan portfolio. The increase in the allowance for loan losses as a percentage of loans held for investment from June 30, 2019 was primarily attributable to the general provision required from an increase of loans acquired from Green that were re-underwritten in the third quarter of 2019. Once an acquired loan undergoes new underwriting and meets the criteria for a new loan, any remaining fair value adjustments become interest income and the loan becomes fully subject to our allowance for loan loss methodology. The decrease in the allowance for loan losses as a percentage of loans held for investment from September 30, 2018 was attributable to our acquisition of Green, as acquired loans are recorded at fair value. Our allowance for loan losses and remaining purchase discount on acquired loans as a percentage of loans held for investment, including mortgage warehouse, was 1.44%, 1.77% and 1.28% of total loans at September 30, 2019, June 30, 2019 and September 30, 2018, respectively.We recorded a provision for loan losses for the three months ended September 30, 2019 of $9.7 million compared to $3.3 million and $3.1 million for the three months ended June 30, 2019 and September 30, 2018, respectively. The increase in the recorded provision for loan losses for the three months ended September 30, 2019 was primarily attributable to a $6.1 million charge-off related to a commercial loan relationship acquired from Sovereign Bancshares, Inc. in 2017. The acquired commercial loan relationship consists of a $7.8 million loan to an independent oil and gas exploration company that filed for bankruptcy protection in 2018 and recently entered into a sales process pursuant to Section 363 of the Bankruptcy Code. Additionally, the increase in the recorded provision for loan losses for the three months ended September 30, 2019 was caused by a $937 thousand increase in specific reserves on certain non-performing loans and an increase in acquired loans that were re-underwritten (as discussed above) during the three months ended September 30, 2019.Nonperforming assets totaled $17.0 million, or 0.21%, of total assets at September 30, 2019 compared to $43.3 million, or 0.54%, of total assets at June 30, 2019 and $26.1 million, or 0.80%, of total assets at September 30, 2018. The decrease of $26.3 million compared to June 30, 2019 was driven by a $11.9 million and $11.7 million decrease in originated accruing loans 90 days or more past due and acquired accruing loans 90 days or more past due, respectively, as well as $5.9 million decrease in acquired nonaccrual loans primarily driven by the $6.1 million charge-off discussed above. This decrease was partially offset by a $2.9 million increase in other real estate owned. For the quarter ended September 30, 2019, no purchased credit impaired loans were on non-accrual status.
Dividend InformationOn October 21, 2019, Veritex’s Board of Directors declared a quarterly cash dividend of $0.125 per share on its outstanding shares of common stock. The dividend will be paid on or after November 21, 2019 to stockholders of record as of the close of business on November 7, 2019.
Non-GAAP Financial MeasuresVeritex’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate its operating performance and provide information that is important to investors. However, non-GAAP financial measures are supplemental and should be viewed in addition to, and not as an alternative for, Veritex’s reported results prepared in accordance with GAAP. Specifically, Veritex reviews and reports tangible book value, tangible book value per common share, operating net income, tangible common equity to tangible assets, return on average tangible common equity, pre-tax, pre-provision operating earnings, pre-tax, pre-provision operating return on average assets, diluted operating earnings per share, operating return on average assets, operating return on average tangible common equity and operating efficiency ratio. Veritex has included in this earnings release information related to these non-GAAP financial measures for the applicable periods presented. Please refer to “Reconciliation of Non-GAAP Financial Measures” after the financial highlights at the end of this earnings release for a reconciliation of these non-GAAP financial measures.Business Combinations Measurement PeriodThe measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities for Green will end at the earlier of (i) twelve months from the date of the acquisition or (ii) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Provisional estimates have been recorded for the Green acquisition as independent valuations have not been finalized. The Company does not expect any significant differences from estimated values upon completion of the valuations.Conference CallThe Company will host an investor conference call to review the results on Tuesday, October 22, 2019 at 8:30 a.m. Central Time. Participants may pre-register for the call by visiting https://edge.media-server.com/mmc/p/9ewhfxdv and will receive a unique PIN, which can be used when dialing in for the call. This will allow attendees to enter the call immediately. Alternatively, participants may call toll-free at (877) 703-9880.The call and corresponding presentation slides will be webcast live on the home page of the Company’s website, https://veritexholdingsinc.gcs-web.com. An audio replay will be available one hour after the conclusion of the call at (855) 859-2056, Conference #3966936. This replay, as well as the webcast, will be available until October 29, 2019.About Veritex Holdings, Inc.Headquartered in Dallas, Texas, Veritex is a bank holding company that conducts banking activities through its wholly owned subsidiary, Veritex Community Bank, with locations throughout the Dallas-Fort Worth metroplex and in the Houston metropolitan area. Veritex Community Bank is a Texas state chartered bank regulated by the Texas Department of Banking and the Board of Governors of the Federal Reserve System. For more information, visit www.veritexbank.com.Media Contact:
LaVonda Renfro
972-349-6200
Investor Relations:
Susan Caudle
972-349-6132This earnings release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on various facts and derived utilizing assumptions, current expectations, estimates and projections and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, statements relating to the impact Veritex expects its acquisition of Green to have on its operations, financial condition and financial results and Veritex’s expectations about its ability to successfully integrate the combined businesses of Veritex and Green and the amount of cost savings and overall operational efficiencies Veritex expects to realize as a result of the acquisition of Green. The forward-looking statements in this earnings release also include statements about the expected payment date of Veritex’s quarterly cash dividend, Veritex’s future financial performance, business and growth strategy, projected plans and objectives, as well as other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact broader economic and industry trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing words. Further, certain factors that could affect future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, the possibility that the businesses of Veritex and Green will not be integrated successfully, that the cost savings and any synergies from the acquisition may not be fully realized or may take longer to realize than expected, disruption from the acquisition making it more difficult to maintain relationships with employees, customers or other parties with whom Veritex has (or Green had) business relationships, diversion of management time on integration-related issues, the reaction to the acquisition by Veritex’s and Green’s customers, employees and counterparties and other factors, many of which are beyond the control of Veritex. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Veritex’s Annual Report on Form 10-K for the year ended December 31, 2018 and any updates to those risk factors set forth in Veritex’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov. If one or more events related to these or other risks or uncertainties materialize, or if Veritex’s underlying assumptions prove to be incorrect, actual results may differ materially from what Veritex anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. Veritex does not undertake any obligation, and specifically declines any obligation, to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this earnings release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Veritex or persons acting on Veritex’s behalf may issue.
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(Unaudited)1Refer to the section titled “Reconciliation of Non-GAAP Financial Measures” after the financial highlights for a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures.
2Annualized ratio.
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands)
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands, except per share data)VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)1 Includes average outstanding balances of loans held for sale of $8,525, $8,140 and $1,091 for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 The Company historically reported dividend income in other noninterest income and has re-classed $102 of dividend income into other investments as of September 30, 2018 in order to align with industry peers for comparability purposes.
3 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
4 Net interest margin is equal to net interest income divided by average interest-earning assets.VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)1 Includes average outstanding balances of loans held for sale of $8,127 and $1,258 for the nine months ended September 30, 2019 and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 The Company historically reported dividend income in other noninterest income and has re-classed $427 of dividend income into other investments as of September 30, 2018 in order to align with industry peers for comparability purposes.
3 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
4 Net interest margin is equal to net interest income divided by average interest-earning assets.
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial HighlightsYield Trend 1Includes average outstanding balances of loans held for sale of $8,525, $8,140, $7,709, $1,019 and $1,091 for the three months ended September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018 and September 30, 2018, respectively, and average balances of loans held for investment, excluding mortgage warehouse.
2 Net interest rate spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
3 Net interest margin is equal to net interest income divided by average interest-earning assets.Supplemental Yield Trend
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)Loans Held for Investment (“LHI”) and Deposit Portfolio Composition1 Total LHI does not include deferred (costs) fees of ($134 thousand) at September 30, 2019, $321 thousand at June 30, 2019, $321 thousand at March 31, 2019, $15 thousand at December 31, 2018 and $16 thousand at September 30, 2018.
2 LHI and deposit portfolio composition exclude assets and liabilities held for sale as of March 31, 2019.
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Financial Highlights
(In thousands except percentages)Asset Quality1 The Company historically reported in the acquired nonaccrual loans line item in the table above only acquired purchased credit impaired (“PCI”) loans that were deemed to be on nonaccrual status subsequent to the respective acquisition date. The Company has reclassed $3,158, $5,040 and $2,485 for the three months ended June 30, 2019, March 31, 2019 and December 31, 2018, respectively, and $2,357 for the three and nine months ended September 30, 2018 of acquired non-PCI loans deemed to be on nonaccrual status subsequent to acquisition date from the originated nonaccrual line item into the acquired nonaccrual loans line item. As a result, both acquired PCI loans and acquired non-PCI loans are reflected in the acquired nonaccrual loans line item in order to align with industry peers for comparability purposes.
2 Accruing loans greater than 90 days past due exclude PCI loans greater than 90 days past due.
3 Remaining PD on acquired loans includes non-accretable and accretable purchase discount on purchased performing and purchased credit impaired loans for each quarter presented in the table.
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)We identify certain financial measures discussed in this earnings release as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States (“GAAP”), in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios calculated using exclusively either one or both of (i) financial measures calculated in accordance with GAAP and (ii) operating measures or other measures that are not non-GAAP financial measures.The non-GAAP financial measures that we present in this earnings release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we present in this earnings release may differ from that of other companies reporting measures with similar names. You should understand how such other financial institutions calculate their financial measures that appear to be similar or have similar names to the non-GAAP financial measures we have discussed in this earnings release when comparing such non-GAAP financial measures.Tangible Book Value Per Common Share. Tangible book value is a non-GAAP measure generally used by financial analysts and
investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity less goodwill and core deposit intangibles, net of accumulated amortization; and (b) tangible book value per common share as tangible common equity (as described in clause (a)) divided by number of common shares outstanding. For tangible book value per common share, the most directly comparable financial measure calculated in accordance with GAAP is book value per common share.We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and presents our tangible book value per common share compared with our book value per common share:
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)Tangible Common Equity to Tangible Assets. Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total stockholders’ equity, less goodwill and core deposit intangibles, net of accumulated amortization; (b) tangible assets as total assets less goodwill and core deposit intangibles, net of accumulated amortization; and (c) tangible common equity to tangible assets as tangible common equity (as described in clause (a)) divided by tangible assets (as described in clause (b)). For tangible common equity to tangible assets, the most directly comparable financial measure calculated in accordance with GAAP is total stockholders’ equity to total assets.We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, in each case, exclusive of changes in core deposit intangibles. Goodwill and other intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets.The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets and presents our tangible common equity to tangible assets:
VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)Return on Average Tangible Common Equity. Return on average tangible common equity is a non-GAAP measure generally used by financial analysts and investment bankers to evaluate financial institutions. We calculate: (a) return as net income available for common stockholders adjusted for amortization of core deposit intangibles as net income, plus amortization of core deposit intangibles, less tax benefit at the statutory rate; (b) average tangible common equity as total average stockholders’ equity less average goodwill and average core deposit intangibles, net of accumulated amortization; and (c) return (as described in clause (a)) divided by average tangible common equity (as described in clause (b)). For return on average tangible common equity, the most directly comparable financial measure calculated in accordance with GAAP is return on average equity.We believe that this measure is important to many investors in the marketplace who are interested in the return on common equity, exclusive of the impact of core deposit intangibles. Goodwill and core deposit intangibles have the effect of increasing total stockholders’ equity while not increasing our tangible common equity. This measure is particularly relevant to acquisitive institutions that may have higher balances in goodwill and core deposit intangibles than non-acquisitive institutions.The following table reconciles, as of the dates set forth below, average tangible common equity to average common equity and net income available for common stockholders adjusted for amortization of core deposit intangibles, net of taxes to net income and presents our return on average tangible common equity:VERITEX HOLDINGS, INC. AND SUBSIDIARY
Reconciliation of Non-GAAP Financial Measures
(Unaudited)Operating Net Income, Pre-tax, Pre-provision Operating Earnings and performance metrics calculated using Operating Earnings and Pre-tax, Pre-provision Operating Net Income, including Diluted Operating Earnings per Share, Operating Return on Average Assets, Pre-tax, Pre-Provision Operating Return on Average Assets, Operating Return on Average Tangible Common Equity and Operating Efficiency Ratio. Operating earnings and pre-tax, pre-provision operating earnings are non-GAAP measures used by management to evaluate the Company’s financial performance. We calculate (a) operating net income as net income plus loss on sale of securities available for sale, net, plus loss (gain) on sale of disposed branch assets, plus lease exit costs, net, plus branch closure expenses, plus one-time issuance of shares to all employees, plus merger and acquisition expenses, less tax impact of adjustments, plus re-measurement of deferred tax assets as a result of the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act, plus other merger and acquisition discrete tax items. We calculate (b) pre-tax, pre-provision operating earnings as operating earnings as described in clause (a) plus provision for income taxes, plus provision for loan losses. We calculate (c) diluted operating earnings per share as operating earnings as described in clause (a) divided by weighted average diluted shares outstanding. We calculate (d) operating return on average tangible common equity as operating earnings as described in clause (a) divided by total average tangible common equity (average stockholders’ equity less average goodwill and average core deposit intangibles, net of accumulated amortization.) We calculate (e) operating efficiency ratio as non interest expense plus adjustments to operating non interest expense divided by (i) non interest income plus adjustments to operating non interest income plus (ii) net interest income.We believe that these measures and the operating metrics calculated utilizing these measures are important to management and many investors in the marketplace who are interested in understanding the ongoing operating performance of the Company and provide meaningful comparisons to its peers.The following tables reconcile, as of the dates set forth below, operating net income and pre-tax, pre-provision operating earnings and related metrics:1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 and for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Lease exit costs, net for the nine months ended September 30, 2018 includes a $1.5 million consent fee and $240 thousand in professional services paid in January 2018 to separately assign and sublease two of our branch leases that we ceased using in 2017 offset by the reversal of the corresponding assigned lease cease-use liability totaling $669 thousand.
3 During the fourth quarter of 2018, we initiated a transaction cost study, which through December 31, 2018 resulted in $727 thousand of expenses paid that are non-deductible merger and acquisition expenses. As such, the $727 thousand of non-deductible expenses are reflected in the nine months ended September 30, 2018 tax impact of adjustments amounts reported. All other non-merger related adjustments to operating net income are taxed at the statutory rate.1 Loss on sale of disposed branch assets for the nine months ended September 30, 2019 and for the three months ended June 30, 2019 is included in merger and acquisition expense in the condensed consolidated statements of income.
2 Lease exit costs, net for the nine months ended September 30, 2018 includes a $1.5 million consent fee and $240 thousand in professional services paid in January 2018 to separately assign and sublease two of our branch leases that we ceased using in 2017 offset by the reversal of the corresponding assigned lease cease-use liability totaling $669 thousand.
3 Annualized ratio.
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