IBTX - Independent Bank Group Inc. Reports Fourth Quarter Financial Results

MCKINNEY, Texas, Jan. 28, 2019 (GLOBE NEWSWIRE) -- Independent Bank Group, Inc. (NASDAQ: IBTX), the holding company for Independent Bank, today announced net income of $34.0 million, or $1.11 per diluted share, for the quarter ended December 31, 2018 compared to $19.2 million, or $0.68 per diluted share, for the quarter ended December 31, 2017 and $35.7 million, or $1.17 per diluted share, for the quarter ended September 30, 2018.

For the year ended December 31, 2018, the Company reported net income of $128.3 million, or $4.33 per diluted share, compared to $76.5 million, or $2.97 per diluted share, for the year ended December 31, 2017, a 68% increase.

For 2018, net income and earnings per share were positively impacted by the 14% reduction of the corporate U.S. statutory federal tax rate from 35% to 21% as a result of the enactment of the Tax Cuts and Jobs Act (TCJA), which became effective January 1, 2018.

Highlights

• Completed the Guaranty Bancorp acquisition as scheduled on January 1, 2019, on the terms and with the exchange ratio originally announced
• Focused efforts on integration of the Guaranty acquisition, emphasizing execution of cost saves coupled with a balanced investment in infrastructure and leveraging of Guaranty's personnel and systems
• Managed total assets to be less than $10 billion at December 31, 2018, delaying the impact of the Durbin amendment limitation on interchange fees until July 2020
• Solid earnings of $34.0 million, or $1.11 per diluted share and adjusted (non-GAAP) net income of $34.1 million, or $1.12 per diluted share
• Organic loan growth of 12% for 2018
• Continued strong asset quality with all credit metrics remaining at historically low levels
• Established a $75 million Share Repurchase Program and announced plans to increase the quarterly dividend to $0.25 per share in the first quarter 2019

“2018 was another great year for our company,” said Independent Bank Group Chairman and CEO David R. Brooks.  “We reported another year of record earnings, driven by strong loan growth and supported by continued excellent credit metrics.  These results allowed us to establish a share repurchase program and announce plans to increase our quarterly dividend, reflecting our continuing commitment to enhancing shareholder value.”  Brooks continued, “We are especially pleased to have completed the Guaranty acquisition on time and on the announced terms despite the market volatility seen in the fourth quarter.  Through the acquisition of this premier Colorado franchise, we have established a major presence in the Denver market. Our primary focus for 2019 will be to successfully execute on the integration of this acquisition.”

Fourth Quarter 2018 Operating Results

Net Interest Income

• Net interest income was $87.1 million for fourth quarter 2018 compared to $75.3 million for fourth quarter 2017 and $86.3 million for third quarter 2018.  The increase in net interest income from the previous year was primarily due to increased average earning assets resulting from organic growth and the acquisition of Integrity Bancshares, as well as overall higher interest rates due to a rising rate environment.  The increase from the linked quarter is primarily a result of organic loan growth. During the fourth quarter 2018, liquid assets were redeployed to loans and total growth was limited as part of plan to maintain assets below $10 billion.
• The average balance of total interest-earning assets grew by $1.2 billion and totaled $8.7 billion at December 31, 2018 compared to $7.5 billion at December 31, 2017 and was unchanged compared to September 30, 2018. The increase from the prior year was due primarily to organic growth as well as $718.9 million in earning assets acquired in the Integrity transaction.
• The yield on interest-earning assets was 5.15% for fourth quarter 2018 compared to 4.61% for fourth quarter 2017 and 4.99% for third quarter 2018.  The increase from the prior year and linked quarter was due primarily to higher rates on interest-earning assets due to continued increases in the Fed Funds rate during these periods. In addition, the increase was due to a shift in the earning asset mix from interest-bearing deposits to higher yielding loans and taxable securities.
• The cost of interest-bearing liabilities, including borrowings, was 1.64% for fourth quarter 2018 compared to 0.89% for fourth quarter 2017 and 1.47% for third quarter 2018.  The increases from the prior year and linked quarter were primarily due to higher rates offered on our deposits, primarily commercial money market accounts and certificates of deposit, resulting both from market competition and general increases in interest rates on deposit products tied to Fed Funds rates. In addition, rate increases on short-term FHLB advances and junior subordinated debt impacted interest expense.
• The net interest margin was 3.98% for fourth quarter 2018 compared to 3.97% for fourth quarter 2017 and 3.94% for third quarter 2018.  The adjusted (non-GAAP) net interest margin, which excludes purchased loan accretion, was 3.93% for fourth quarter 2018 compared to 3.84% for fourth quarter 2017 and 3.89% for third quarter 2018.  The increase in the net interest margin from the prior year and linked quarter was primarily due to the multiple increases in the Fed Funds target rate as well as earning assets shifting from cash to loans.

Noninterest Income

• Total noninterest income decreased $3.7 million compared to fourth quarter 2017 and decreased $2.9 million compared to third quarter 2018.
  
• The decrease from the prior year primarily reflects decreases of $3.0 million in gain on sale of nine Colorado branches and $1.0 million in gain on sale of repossessed assets, offset by an increase of $445 thousand in other noninterest income, primarily an increase in correspondent bank earnings credit of $359 thousand.
• The decrease from the linked quarter primarily reflects decreases of $1.7 million in mortgage banking revenue and $792 thousand in other noninterest income primarily resulting from decreases in merchant income of $184 thousand, swap dealer income of $125 thousand and acquired loan recoveries of $121 thousand. The bank recorded $1.6 million of income related to the mortgage hedging strategy in third quarter 2018 compared to $394 thousand in fourth quarter 2018.

Noninterest Expense

• Total noninterest expense increased $2.3 million compared to fourth quarter 2017 and decreased $807 thousand compared to third quarter 2018.
• The increase in expense compared to fourth quarter 2017 is due primarily to increases of $3.5 million in salaries and benefits, $811 thousand in occupancy expenses, $745 thousand in data processing, and $1.7 million in other noninterest expense, offset by a decrease of $4.2 million in acquisition expenses. The overall increase in salaries and benefits, occupancy and data processing from the prior year is reflective of additional headcount, branch locations and accounts acquired in the Integrity acquisition as well as organic growth during the year. The increase in other noninterest expense is primarily due to higher deposit- and loan-related expenses for the year over year period. Fourth quarter 2017 acquisition expenses were elevated due to professional fees and contract termination fees, conversion expenses and branch restructuring expenses incurred relating to the 2017 Carlile acquisition.
• The decrease from the linked quarter is primarily related to decreases of $1.2 million in acquisition expenses and $489 thousand in salaries and benefits, offset by an increase of $824 thousand in other noninterest expense. Acquisition expense was elevated in the linked quarter primarily due to professional fees and conversion-related expenses related to the Integrity transaction and professional fees related to the pending Guaranty transaction. Salaries and benefits expense was elevated in the linked quarter due to retention and conversion bonuses paid related to the Integrity acquisition. The increase in other noninterest expense is primarily due to increased FDIC insurance premiums of $333 thousand and higher deposit- and loan-related expenses.

Provision for Loan Losses

• Provision for loan loss was $2.9 million for fourth quarter 2018, an increase of $1.0 million compared to $1.9 million for fourth quarter 2017 and an increase of $1.4 million compared to $1.5 million for third quarter 2018. Provision expense is primarily reflective of organic loan growth as well as charge-offs or specific reserves taken during the respective period.
• The allowance for loan losses was $44.8 million, or 0.58% of total loans at December 31, 2018, compared to $39.4 million, or 0.62% of total loans at December 31, 2017, and compared to $42.2 million, or 0.56% of total loans, at September 30, 2018.  The dollar increases from prior periods are primarily due to additional general reserves for organic loan growth. In addition, the decrease in the allowance for loan losses as a percentage of loans from prior year reflects that loans acquired in the Integrity transaction were recorded at fair value without an allowance at acquisition date.

Income Taxes

• Federal income tax expense of $8.3 million was recorded for the quarter ended December 31, 2018, an effective rate of 19.6% compared to tax expense of $18.2 million and an effective rate of 48.7% for the quarter ended December 31, 2017 and tax expense of $9.1 million and an effective rate of 20.4% for the quarter ended September 30, 2018.  The lower tax rate in third and fourth quarter 2018 is primarily due to the reduction of the corporate U.S. statutory federal income tax rate from 35% to 21% as a result of the TCJA. The higher tax rate in fourth quarter 2017 was primarily due to a $5.5 million charge to remeasure deferred taxes as a result of the enactment of the TCJA.

Fourth Quarter 2018 Balance Sheet Highlights

Loans

• Total loans held for investment, net of mortgage warehouse purchase loans, were $7.7 billion at December 31, 2018 compared to $7.6 billion at September 30, 2018 and $6.3 billion at December 31, 2017.  Loans held for investment increased $163.4 million, or 2.2% for the quarter.  Loans held for investment increased $1.4 billion from December 31, 2017, or 22.3%, $651.8 million of which was acquired in the Integrity acquisition and $756.2 million of which was organic growth, or 12.0% for the year. Organic loan growth for the fourth quarter was 8.6% on an annualized basis.
• Average mortgage warehouse purchase loans were $120.9 million for the quarter ended December 31, 2018 compared to $136.1 million for the quarter ended September 30, 2018, representing a decrease of  $15.2 million, or 11.1% for the quarter, and compared to $159.2 million for the quarter ended December 31, 2017, a decrease of $38.3 million, or 24.1% year over year. The change from the linked quarter and prior year quarter is reflective of decreased mortgage loan market activity during the respective periods.
• Commercial real estate (CRE) loans were $4.1 billion at December 31, 2018 compared to $4.0 billion at September 30, 2018 and $3.4 billion at December 31, 2017, or 52.3%, 51.7% and 51.7% of total loans, respectively.

Asset Quality

• Total nonperforming assets increased to $16.9 million, or 0.17% of total assets at December 31, 2018, from $15.4 million, or 0.16% of total assets at September 30, 2018, and decreased from $22.7 million, or 0.26% of total assets at December 31, 2017.
• Total nonperforming loans increased to $12.6 million, or 0.16% of total loans at December 31, 2018, from $10.7 million, or 0.14% of total loans at September 30, 2018, and decreased from $15.4 million, or 0.24% of total loans at December 31, 2017.
• The net increase in nonperforming assets and nonperforming loans from the linked quarter is primarily due to the addition of two single-family interim construction loans totaling $3.6 million placed on nonaccrual status, offset by four nonaccrual loan payoffs totaling $1.4 million, as well as the disposition of $410 thousand of other real estate owned during the quarter.
• The decrease in nonperforming assets and nonperforming loans from the prior year is primarily due to a net decrease in nonaccrual loans of $2.2 million, and a $554 thousand troubled debt restructured loan payoff, as well as other real estate owned dispositions totaling $2.9 million for the year over year period.
• Charge-offs were 0.01% annualized in the fourth quarter 2018 compared to 0.14% annualized in the linked quarter and 0.02% annualized in the prior year quarter. Charge-offs were elevated in the linked quarter primarily due to a $2.5 million partial charge-off of an energy loan.

Deposits and Borrowings

• Total deposits were $7.7 billion at December 31, 2018 compared to $7.8 billion at September 30, 2018 and compared to $6.6 billion at December 31, 2017.  The increase in deposits from the prior year is primarily due to organic growth as well as $593 million in deposits acquired in the Integrity transaction. The decrease in deposits from the linked quarter is related to the strategy to maintain total assets below $10 billion at December 31, 2018.
• Total borrowings (other than junior subordinated debentures) were $427.3 million at December 31, 2018, a decrease of $54.9 million from September 30, 2018 and a decrease of $240.3 million from December 31, 2017.  The change in the linked quarter and prior year reflects the use of short-term FHLB advances as needed for liquidity and balance sheet management.

Capital

• Book value and tangible book value per common share (non-GAAP) increased to $52.50 and $27.44, respectively, at December 31, 2018 compared to $51.42 and $26.21, respectively, at September 30, 2018 and compared to $47.28 and $23.76, respectively, at December 31, 2017. The increase from prior year is due to the retention of earnings and the additional capital from the Integrity acquisition in second quarter 2018. The increase from the linked quarter is due to the retention of earnings.
• Independent Bank Group is well capitalized under regulatory guidelines. At December 31, 2018, our estimated common equity Tier 1 to risk-weighted assets, Tier 1 capital to average assets, Tier 1 capital to risk-weighted assets and total capital to risk-weighted asset ratios were 10.05%, 9.57%, 10.41% and 12.58%, respectively, compared to 9.83%, 9.20%, 10.20%, and 12.38%, respectively, at September 30, 2018.

Recent Acquisition

Effective January 1, 2019, the Company completed the acquisition of Guaranty Bancorp (GBNK) and its subsidiary, Guaranty Bank and Trust Company. The financial effect of the acquisition is not reflected in the foregoing description of earnings or the accompanying financial information.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the year ended December 31, 2018 on Form 10-K.  As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2018 and will adjust amounts preliminarily reported, if necessary.

About Independent Bank Group

Independent Bank Group, through its wholly owned subsidiary, Independent Bank, provides a wide range of relationship-driven commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. Independent Bank Group operates in four market regions located in the Dallas/Fort Worth, Austin and Houston, Texas and the Colorado Front Range areas.

Conference Call

A conference call covering Independent Bank Group’s fourth quarter earnings announcement will be held on Tuesday, January 29, 2019 at 8:30 a.m. (EDT) and can be accessed by the webcast link, http://edge.media-server.com/m6/p/3w4nqwqi, or by calling 1-877-303-7611 and by identifying the conference ID number 4765978.  The conference materials will also be available by accessing the Investor Relations page of our website, www.ibtx.com.  A recording of the conference call and the conference materials will be available from January 29, 2019 through February 5, 2019 on our website.

Forward-Looking Statements

The numbers as of and for the quarter ended December 31, 2018 are unaudited. From time to time, our comments and releases may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects,” “forecast,” “guidance,” “intends,” “targeted,” “continue,” “remain,” “should,” “may,” “plans,” “estimates,” “will,” “will continue,” “will remain,” variations on such words or phrases, or similar references to future occurrences or events in future periods; however, such words are not the exclusive means of identifying such statements.  Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of the Company or its management or Board of Directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements.  Forward-looking statements are based on the Company's current expectations and assumptions regarding its business, the economy, and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The Company's actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.  Many possible events or factors could affect our future financial results and performance and could cause such results or performance to differ materially from those expressed in forward looking statements.  These factors include, but are not limited to, the following: (1) the Company’s ability to sustain its current internal growth rate and total growth rate; (2) changes in geopolitical, business and economic events, occurrences and conditions, including changes in rates of inflation or deflation, nationally, regionally and in the Company’s target markets, particularly in Texas and Colorado; (3) worsening business and economic conditions nationally, regionally and in the Company’s target markets, particularly in Texas and Colorado, and the geographic areas in those states in which the Company operates; (4) the Company’s dependence on its management team and its ability to attract, motivate and retain qualified personnel; (5) the concentration of the Company’s business within its geographic areas of operation in Texas and Colorado; (6) changes in asset quality, including increases in default rates and loans and higher levels of nonperforming loans and loan charge-offs; (7) concentration of the loan portfolio of Independent Bank, before and after the completion of acquisitions of financial institutions, in commercial and residential real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate; (8) the ability of Independent Bank to make loans with acceptable net interest margins and levels of risk of repayment and to otherwise invest in assets at acceptable yields and presenting acceptable investment risks; (9) inaccuracy of the assumptions and estimates that the managements of Independent Bank and the financial institutions that it acquires make in establishing reserves for probable loan losses and other estimates; (10) lack of liquidity, including as a result of a reduction in the amount of sources of liquidity, that the Company currently has; (11) material increases or decreases in the amount of deposits held by Independent Bank or other financial institutions that the Company acquires and the cost of those deposits; (12) the Company’s access to the debt and equity markets and the overall cost of funding its operations; (13) regulatory requirements to maintain minimum capital levels or maintenance of capital at levels sufficient to support the Company’s anticipated growth; (14) changes in market interest rates that affect the pricing of the loans and deposits of each of Independent Bank and the financial institutions that the Company acquires and the net interest income of each of Independent Bank and the financial institutions that the Company acquires; (15) fluctuations in the market value and liquidity of the securities the Company holds for sale, including as a result of changes in market interest rates; (16) effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services; (17) the institution and outcome of, and costs associated with, litigation and other legal proceedings against one of more of the Company, Independent Bank and financial institutions that the Company acquires or to which any of such entities is subject; (18) the occurrence of market conditions adversely affecting the financial industry generally; (19) the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by the Company’s regulators, and changes in federal government policies; (20) changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board, or PCAOB, as the case may be; (21) governmental monetary and fiscal policies; (22) changes in the scope and cost of FDIC insurance and other coverage; (23) the effects of war or other conflicts, acts of terrorism (including cyber attacks) or other catastrophic events, including storms, droughts, tornadoes, hurricanes and flooding, that may affect general economic conditions; (24) the Company’s actual cost savings resulting from previous or future acquisitions are less than expected, it is unable to realize those cost savings as soon as expected, or it incurs additional or unexpected costs; (25) the Company’s revenues after previous or future acquisitions are less than expected; (26) the liquidity of, and changes in the amounts and sources of liquidity available to, the Company, before and after the acquisition of any financial institutions that the Company acquires; (27) deposit attrition, operating costs, customer loss and business disruption before and after the Company’s completed acquisitions, including, without limitation, difficulties in maintaining relationships with employees, may be greater than the Company expected; (28) the effects of the combination of the operations of financial institutions that the Company acquired in the recent past or may acquire in the future with the Company’s operations and the operations of Independent Bank, the effects of the integration of such operations being unsuccessful, and the effects of such integration being more difficult, time-consuming or costly than expected or not yielding the cost savings that the Company expects; (29) the impact of investments that the Company or Independent Bank may have made or may make and the changes in the value of those investments; (30) the quality of the assets of financial institutions and companies that the Company has acquired in the recent past or may acquire in the future being different than the Company determined or determine in its due diligence investigation in connection with the acquisition of such financial institutions and any inadequacy of loan loss reserves relating to, and exposure to unrecoverable losses on, loans acquired; (31) the Company’s ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain its growth, to expand its presence in its markets and to enter new markets; (32) technology-related changes are harder to make or are more expensive than expected; (33) attacks on the security of, and breaches of, the Company or Independent Bank’s digital information systems, the costs the Company or Independent Bank incur to provide security against such attacks and any costs and liability the Company or Independent Bank incurs in connection with any breach of those systems; (34) the potential impact of technology and “FinTech” entities on the banking industry generally; (35) our success at managing the risks involved in the foregoing items; and (36) the other factors that are described in the Company’s Annual Report on Form 10-K filed on February 27, 2018, under the heading “Risk Factors”, and other reports and statements filed by the Company with the SEC as well as those described in Guaranty Bancorp's Annual Report on Form 10-K filed on February 28, 2018, and other reports and statements filed by Guaranty Bancorp with the SEC.  Any forward-looking statement made by the Company in this release speaks only as of the date on which it is made.  Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them.  The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures.  These measures and ratios include “adjusted net income”, "adjusted earnings", “tangible book value”, “tangible book value per common share”, “adjusted efficiency ratio”, “tangible common equity to tangible assets”, “adjusted net interest margin”, "return on tangible equity", “adjusted return on average assets” and “adjusted return on average equity” and are supplemental measures that are not required by, or are not presented in accordance with, accounting principles generally accepted in the United States.  We consider the use of select non-GAAP financial measures and ratios to be useful for financial operational decision making and useful in evaluating period-to-period comparisons.  We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results.  We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

We believe that these measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however we acknowledge that our financial measures have a number of limitations relative to GAAP financial measures.  Certain non-GAAP financial measures exclude items of income, expenditures, expenses, assets, or liabilities, including provisions for loan losses and the effect of goodwill, core deposit intangibles and income from accretion on acquired loans arising from purchase accounting adjustments, that we believe cause certain aspects of our results of operations or financial condition to be not indicative of our primary operating results.  All of these items significantly impact our financial statements.  Additionally, the items that we exclude in our adjustments are not necessarily consistent with the items that our peers may exclude from their results of operations and key financial measures and therefore may limit the comparability of similarly named financial measures and ratios.  We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non- GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

A reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statements tables.

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Source: Independent Bank Group, Inc.

⁽¹⁾ Non-GAAP financial measure.  See reconciliation.
⁽²⁾ Non-GAAP financial measure.  Excludes income recognized on acquired loans of $967, $1,051, $954, $739 and $2,463, respectively.
⁽³⁾ Total number of shares includes participating shares (those with dividend rights).
⁽⁴⁾ Non-GAAP financial measure.  Excludes average balance of goodwill and net core deposit intangibles.
⁽⁵⁾ Nonperforming loans and assets excludes loans acquired with deteriorated credit quality
⁽⁶⁾ Excludes mortgage warehouse purchase loans.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
Three Months Ended December 31, 2018 and 2017
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

⁽¹⁾ Average loan balances include nonaccrual loans.
⁽²⁾ Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.
⁽³⁾ Yield and rates for the three month periods are annualized.
⁽⁴⁾ A tax-equivalent adjustment has been computed using a federal income tax rate of 21% and 35% for the three months ended December 31, 2018 and 2017, respectively.

Independent Bank Group, Inc. and Subsidiaries
Consolidated Average Balance Sheet Amounts, Interest Earned and Yield Analysis
For The Years Ended December 31, 2018 and 2017
(Dollars in thousands)
(Unaudited)

The analysis below shows average interest earning assets and interest bearing liabilities together with the average yield on the interest earning assets and the average cost of the interest bearing liabilities for the periods presented.

⁽¹⁾ Average loan balances include nonaccrual loans.
⁽²⁾ Net interest margins for the periods presented represent: (i) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (ii) average interest-earning assets for the period.
⁽³⁾ A tax-equivalent adjustment has been computed using a federal income tax rate of 21% and 35% for the years ended December 31, 2018 and 2017, respectively.

⁽¹⁾ Includes mortgage warehouse purchase loans of $170,290 and $164,694 at December 31, 2018 and 2017, respectively.
⁽²⁾ Includes loans held for sale at December 31, 2018 and 2017 of $32,727 and $39,202, respectively.

⁽¹⁾ Assumes an effective tax rate of 19.6%, 20.4%, 19.8%, 19.0% and 33.2% for the quarters ended December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018 and December 31, 2017, respectively. The quarter ended December 31, 2017 excludes $5,528 thousand charge to remeasure deferred taxes as a result of the enactment of the TCJA and $259 thousand of nondeductible tax expense.
⁽²⁾ Calculated using adjusted net income.
⁽³⁾ Excludes average balance of goodwill and net core deposit intangibles.
⁽⁴⁾ Acquisition expenses include $608 thousand, $912 thousand, $852 thousand, $429 thousand and $1,858 thousand, of compensation and bonus expenses in addition to $486 thousand, $1,682 thousand, $3,444 thousand, $545 thousand and $4,651 thousand of merger-related expenses for the quarters ended December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018 and December 31, 2017, respectively.