In the third quarter, Cullen/Frost earned $95.1 million or $1.50 per share compared with earnings of $109.8 million or $1.73 per share reported in the same quarter of last year and $93.1 million or $1.47 per share in the second quarter of this year.
Overall, average loans in the third quarter were $18.1 billion, up by 25% from $14.5 billion in the third quarter of last year, which included the impact from PPP loans.
However, even excluding this impact, loans managed a 3.3% increase from a year earlier.
Average deposits in the third quarter were $32.9 billion, also up by 25% from the $26.4 billion in the third quarter of last year and the highest quarterly average deposits in our history.
For the first time, our total assets have surpassed $40 billion, up 41% in the last five years, and all of that representing organic growth.
But I'd like to point out that we were pleased to see our deposit market share in Houston has now moved up to #6, up from 10th place a year ago.
Our return on assets in the third quarter was just below 1% at 0.96%, and we were pleased to announce yesterday the action of our Board to increase our dividend for the 26th consecutive year.
We saw a reduction in credit cost expense to $20.3 million in the third quarter, down from $32 million in the second quarter of 2020.
This compared with $8 million in the third quarter of last year.
Net charge-offs for the third quarter were $10.2 million, down sharply from the $41 million in the second quarter and included no energy charge-offs.
Annualized net charge-offs for the third quarter were 22 basis points of average loans.
Nonperforming assets were $96.4 million at the end of the third quarter compared to $85.2 million at the end of the second quarter and $105 million at the end of the third quarter last year.
Overall delinquencies for accruing loans at the end of the third quarter were $133 million or 73 basis points of period-end loans.
In total, we granted 90-day deferrals to more than 2,500 borrowers for loans totaling $2.2 billion.
At the end of the third quarter, there were around 300 loans totaling $157 million in deferment or about 1%.
Total problem loans, which we define as risk grade 10 and higher, were $803 million at the end of the third quarter compared to $674 million at the end of the second quarter.
Energy-related problem loans were $203.5 million at the end of the third quarter compared to $176.8 million for the previous quarter and $87.2 million for the third quarter last year.
To put that in perspective, the year-end 2016 total problem energy loans totaled nearly $600 million.
Energy loans continued to decline as a percentage of our portfolio, falling to 9.1% of our non-PPP portfolio at the end of the third quarter.
As a reminder, the peak was 16% back in 2015.
The total of these portfolio segments, excluding PPP loans, represented $1.54 billion at the end of the third quarter, and our loan loss reserve for these segments was 3.37%.
New relationships are up by 38% compared with this time last year, largely because of our strong efforts and reputation for success in helping small businesses get PPP loans.
The dollar amount of new loan commitments booked through September is up by about 2% compared to the prior year.
Regarding new loan commitments booked, the balance between these relationships has stayed steady at 53% large and 47% core so far in 2020.
For instance, the percentage of deals lost to structure increased from 61% this time last year to 70% this year.
It was good to see that in this environment, our weighted current active loan pipeline in the third quarter was up 11% compared with the second quarter of this year.
Overall, net new customer growth for the third quarter was down 13% compared with the third quarter of 2019 for consumers.
Same-store sales, as measured by account openings, were down about 15.5% through the end of the third quarter when compared with the third quarter of 2019.
In the third quarter, 52% of our account openings came from our online channel, which includes our Frost Bank mobile app, and online account openings were 73% higher compared to the third quarter of 2019.
The consumer loan portfolio was $1.8 billion at the end of the third quarter, up by 6.7% compared to the third quarter of last year.
Our Houston expansion continues on pace, with five new financial centers opened in the third quarter for a total of 20 of the 25 planned new financial centers.
In that regard, I'll note that our executive team has committed to reduce our own salaries by 10% effective January one as well as reducing my team's bonus targets by 5% and mine by 10% for the coming year.
Our net interest margin percentage for the third quarter was 2.95%, down 18 basis points from the 3.13% reported last quarter.
The decrease primarily resulted from lower yields on loans, which had a negative impact of approximately 11 basis points on the net interest margin and a lower yield on securities, which had a three basis point negative impact, combined with an increase in the proportion of balances at the Fed as a percentage of earning assets, which had about a seven basis point negative impact on the NIM compared to the previous quarter.
The taxable equivalent loan yield for the third quarter was 3.73%, down 22 basis points from the previous quarter.
The decrease in yield was impacted by decreases in LIBOR during the quarter, as about 2/3 of our loan portfolio, excluding PPP, is made up of floating rate loans, and about 60% of our floating rate loans are tied to LIBOR.
During the third quarter, we extended the expected term of the PPP portfolio somewhat, which resulted in a yield on the PPP portfolio of 3.65% during the third quarter as compared to 4.13% in the second quarter.
The total investment portfolio averaged $12.7 billion during the third quarter, up about $180 million from the second quarter average of $12.5 billion.
The taxable equivalent yield on the investment portfolio was 3.44% in the third quarter, down nine basis points from the second quarter.
The yield on that portfolio, which averaged $4.2 billion during the quarter, was down 19 basis points from the second quarter to 2.21%, as a result of higher premium amortization associated with our agency MBS securities, given faster prepayment speeds and lower yields associated with recent purchases.
Our municipal portfolio averaged about $8.5 billion during the third quarter, flat with the second quarter, with a taxable equivalent yield of 4.08%, up one basis point from the prior quarter.
At the end of the third quarter, 78% of the municipal portfolio was pre-refunded or PSF insured.
The duration of the investment portfolio at the end of the third quarter was 4.5 years, up slightly from 4.4 years last quarter.
For the third quarter, I'll point out that the salaries line item includes about $4.5 million in reductions in salary expense associated with truing up our incentive plans based on current expectations of projected payouts for the year.
Looking at the full year 2020, our previous guidance on expenses was that adding back the deferred expenses related to PPP loans, we expected an annual expense growth of something around 6%.
Our current expectations would reduce that to something around the 3% range.


Our direct premiums earned growth of 15% in the third quarter was primarily driven by primary rate increases in Florida earning through the book.
We have now filed for more than 34% in primary rate increases in Florida over the past 18 months while simultaneously continuing to shape our underwriting risk with total policies in force relatively flat year-over-year.
These results were highlighted by a 16.4% annualized return on average equity in the quarter.
We ended the third quarter with total revenue down 7.8% to $287.3 million, driven primarily by the realized gain on investments of $53.8 million in the third quarter of the prior year versus a $4.3 million realized gain in the current quarter.
Direct premiums earned were up 15% for the quarter, led by primary rate increases in Florida and other states earning through the book as policies renew.
EPS for the quarter was $0.64 on a GAAP basis and $0.63 on a non-GAAP adjusted basis, driven by a combined ratio improvement of 36.1 points for the quarter to 98.6%.
The improvement was driven by a 30.9 point improvement in the net loss and LAE ratio from decreased weather events and lower prior year's reserve development, partially offset by current year strengthening and higher reinsurance costs impact on the ratio.
The expense ratio improved 3.7 points on a direct premiums earned basis due to continued focus on operating efficiencies, as Steve mentioned in his remarks.
On a net basis, the expense ratio improved 5.2 points for the quarter.
On our investment portfolio, we saw our net investment income decrease 38.6% to $2.8 million, and our realized gains decreased 92% to $4.3 million for the quarter.
In regards to capital deployment, during the quarter, the company repurchased approximately 101,000 shares at an aggregate cost of $1.4 million.
The company's current share repurchase authorization program has $17.8 million remaining as of September 30, 2021, and runs through November 3, 2022.
On July 19, 2021, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, which was paid on August 9, 2021, to shareholders of record as of the close of business on August 2, 2021.
We still expect a GAAP and non-GAAP adjusted earnings per share range of between $2.75 and $3 and a return on average equity of between 17% and 19%.


For the third quarter, we earned $84.4 million of total revenue, an increase of 27.6%; $37.3 million of total Field EBITDA, an increase of 45% with total Field EBITDA margins improving 530 basis points to 44.2%.
Adjusted consolidated EBITDA improved $10.4 million or 60.1% to $27.7 million.
And our industry-leading adjusted consolidated EBITDA margin improved 670 basis points to 32.8%.
Adjusted diluted earnings per share increased an impressive 82.1% to $0.51 in the quarter.
Year-to-date, total revenue has increased 17.9% to $239.4 million.
Total Field EBITDA has increased 24% to $100.6 million.
Total Field EBITDA margin increased 200 basis points to 42%.
Adjusted consolidated EBITDA increased 32.3% to $75.9 million.
Adjusted consolidated EBITDA margin increased 340 basis points to 31.7%.
And our adjusted diluted earnings per share increased 34% to $1.30 for the first nine months of the year.
Funeral Home same-store net revenue was up 3.3% September year-to-date while same-store Field EBITDA was up 9.6%, propelling the September year-to-date Funeral Home same-store margin from 38.4% to 40.7%, an increase of 230 basis points.
After finishing quarter two behind $1.9 million in Cemetery same-store operating net revenue, largely due to the cancellation of our annual Ching Ming event, we were able to closed the gap in quarter three to within 250,000 operating net revenue and bring our same-store margins from being behind $1.6 million in quarter two to being flat on a year-to-date basis.
In quarter three, we continue to see an increase in sales at our three new Cemetery acquisitions, increasing operating net revenue 28.7% from quarter two, improving margin of 35.4% in quarter two to 44.7% in quarter three, bringing the year-to-date margin to 38.1%.
In addition, we increased our number of funeral homes that offer live streaming from only 30 to now 125 in an effort to overcome restrictions and give our families, that don't feel safe attending a service in person, an opportunity to participate in the service virtually.
A vast majority of our same-store funeral homes had market share growth on a year-to-date basis and approximately 75% of those businesses had market share growth beyond COVID.
On a same-store basis, we saw an increase in our burial average of 3% in the third quarter versus the second quarter and an increase in cremation average of 6.4%.
The recurring annual income generated from our trust fund portfolio is currently $15.7 million, up from approximately $9.4 million prior to the execution of our strategy.
Initially, this 67% increase in recurring annual income will primarily benefit our recognized revenue through our cemetery perpetual care trust, while increasing the value of preneed funeral and cemetery trust contracts to be recognized over the long term.
For the third quarter, financial revenue increased 44.5% to $5.6 million, driven by a 111% increase in cemetery trust earnings.
Financial EBITDA increased 51.6% to $5.2 million and financial EBITDA margin increased 440 basis points to 93.8% compared to the third quarter of last year.
Next year, we expect financial revenue to be between $22 million and $23 million and financial EBITDA of approximately $21.5 million, an almost 50% increase from our financial EBITDA prior to the execution of our repositioning strategy.
Overhead increased $1.1 million while overhead as a percentage of revenue, the measure of our ability to leverage our overhead and support platform, fell to 11.8% in the third quarter.
Our managing partners and their teams are able to share in the local profits of their business with no overhead allocations when they achieve at least 50% of their annual standards for our Being The Best incentive program.
For the quarter, our adjusted free cash flow increased 120.3% to $27.6 million and our adjusted free cash flow margin expanded 1,370 basis points to 32.7%.
We were able to pay down $37.5 million in debt during this third quarter, equal to 7.4% of our debt outstanding at the beginning of the quarter.
This included the repurchase of $3.6 million of our 2.75% subordinated convertible notes in privately negotiated transactions.
For the year, we have paid down $63 million of debt, which is equal to 11.8% of our total debt outstanding post the close of Oakmont Memorial Park and Mortuary on January 3.
And we now expect our total debt outstanding to be approximately $460 million by the end of the year.
Our net debt to pro forma adjusted consolidated EBITDA fell to 4.8 times at the end of the quarter due to the accelerating growth in our adjusted consolidated EBITDA, combined with a large amount of debt reduction through the quarter.
We expect our leverage ratio to be approximately 4.5 times by year-end and below four times by year-end 2021.
During the third quarter, we divested six businesses for total proceeds of $7.3 million.
We currently expect to sell approximately 20 businesses or excess real estate for total proceeds of around $17 million and be substantially complete by the time we look to execute a refinancing transaction in the second quarter of next year.
Our debt repayment in the quarter was also helped by the receipt of a $7 million federal tax refund related to tax law changes made in the recently passed CARES Act.
We expect to receive an additional $1 million refund prior to the end of the year and we will be a full cash taxpayer again in 2021.
Our rapidly improving credit profile positions Carriage to execute a refinancing transaction of our existing 6.625% unsecured high-yield notes when they become callable on June one of next year.
We expect this transaction to reduce our interest cost by a minimum of 200 basis points, reduce our cash interest cost by a minimum of $8 million and add a minimum of $0.29 of earnings per share on an annual basis.
We are pleased and excited to announce the decision by our Board of Directors to increase our annual dividend by $0.05 to $0.40 per share.
This increase marks the second $0.05 increase in our dividend since the onset of the coronavirus crisis and should be viewed as an additional sign of confidence in our future performance.
At $0.40 per share, our annual dividend payments will be $7.2 million per year and represent approximately 10% of our projected 2022 adjusted free cash flow.
Beyond 2022, we will target a dividend policy of approximately 10% of our adjusted free cash flow and a 1% dividend yield on the market price of Carriage shares.
We expect to achieve important company performance milestones of over $100 million in adjusted consolidated EBITDA and industry-leading 32% adjusted consolidated EBITDA margin and earn over $60 million of adjusted free cash flow this year whereas we previously expected those milestones to be met in 2021 and 2022.
We also now expect to earn between $1.80 and $1.85 in adjusted diluted earnings per share this year, growing to between $2.15 and $2.25 in 2021 and growing further to $2.48 to $2.60 in 2022, when we have the full year effect of a lower cost capital structure.
For example, in explaining the financial impact of a proactive matter one of our attorneys has been working on for some time, he recently briefed me by saying, "Steve, that recovery is going to come in around $0.01 a share".
So he's referencing one year ago today, when we closed the day before the acquisition of Rest Haven, which was founded 50 years ago by Dewayne.
But I can truthfully say that in these last 12 months, my belief in Carriage as well as my admiration and respect for you and Shawn has grown.
It was founded 62 years ago by Mike's grandfather.

For the third quarter, we earned $84.4 million of total revenue, an increase of 27.6%; $37.3 million of total Field EBITDA, an increase of 45% with total Field EBITDA margins improving 530 basis points to 44.2%.
Adjusted diluted earnings per share increased an impressive 82.1% to $0.51 in the quarter.
Next year, we expect financial revenue to be between $22 million and $23 million and financial EBITDA of approximately $21.5 million, an almost 50% increase from our financial EBITDA prior to the execution of our repositioning strategy.


We commenced business operations more than 20 years ago, intent on protecting and serving our consumers in their most critical time in some of the most challenging coastal areas in the United States for natural disasters.
We entered this critical time in a position of strength with a debt-to-equity ratio of less than 2%.
We are off to a good start in 2020 with solid first quarter results, including an annualized return on average equity of 16.1% and progress on our reinsurance renewals for June 1.
In addition, we have accelerated the use of our virtual inspection software and trained an additional 100 employees on the application.
EPS for the quarter was $0.61 on a GAAP basis and $0.79 on a non-GAAP adjusted earnings per share basis.
Direct premiums written were up 15.7% for the quarter, led by strong direct premium growth of 19% in other states and 15% in Florida.
Net premiums earned were up 5.3% for the quarter, reflecting an increase in direct premiums earned offset by increased costs for reinsurance.
On the expense side, the combined ratio increased seven points for the quarter to 94.1%, driven primarily by increased losses in connection with the continued diversification in the company's underlying business to states outside of Florida, an increase in core loss pick for 2020, an increase in prior year adverse development, partially offset by a lower level of weather events in 2020 and a small reduction in the expense ratio.
Total services revenue increased 25.6% to $15.3 million for the quarter, driven primarily by commission revenue earned on ceded premiums.
On our investment portfolio, net investment income decreased 16.1% to $6.8 million for the quarter, primarily due to significantly lower yields on cash and short-term investments during the first quarter of 2020 when compared to the first quarter of 2019.
That said, we still ended the quarter with an overall unrealized gain in our fixed income portfolio of $15.4 million, which has further improved subsequent to the end of the first quarter.
To be clear, the impact COVID-19 had during the first quarter on debt and equity markets affected our book value per share by approximately $0.45, made up of approximately $0.27 related to the balance sheet-only impact from the decline in the amount of unrealized gains in our fixed income portfolio with the remainder being attributable to the effect of unrealized losses on our equity securities reflected in the P&L and consequently in retained earnings.
The credit rating on our fixed income securities was A plus at the end of the first quarter with a duration of 3.6 years, which we feel gives us a strong foundation to weather the current market conditions.
In regards to capital deployment, during the first quarter, the company repurchased approximately 312,000 of UVE shares at an aggregate cost of $6.6 million.
On April 16, 2020, the Board of Directors declared a quarterly cash dividend of $0.16 per share payable on May 21, 2020 to shareholders of record as of the close of business on May 14, 2020.
As of 3/31, Hurricanes Matthew and Florence, each were approaching single-digit open claims and are very near the end.
Hurricane Michael had approximately 200 open claims and continues to be booked at the same $360 million as year-end.
On Hurricane Irma, despite the fact that new claims continued to be reported throughout the first quarter, we still successfully reduced the remaining open claim countdown to below 600.
As we prepare for the 3-year statute of limitation for filing new Irma claims, we elected to add another $50 million of IBNR to this event.
This brings our booked ultimate to $1.45 billion at 3.31%.
As noted in our release, we have added an additional $1 million to accident year 2020 losses as we monitor these events.
As we disclosed during our year-end earnings call, with capacity already locked in via the Florida Hurricane Catastrophe Fund and multiyear deals, we stood at over 75% of our desired core first event reinsurance tower complete.
As of today, the percentage complete is approaching 90%, so we are well on our way.


All of our 34 plants around the world are operating and we are meeting our customers' needs.
Overall, we estimate that COVID-19 impacted our sales by about 4% in the first quarter.
We were also impacted by Boeing temporary halting the 737 MAX production, which impacted sales by approximately 1%.
These were the two main drivers of our volume decline in our pro forma comparisons.
This analysis continues to show that we took share in the marketplace as we estimate total organic volume growth due to net share gains was approximately 2% in the first quarter of this year versus the first quarter of last year.
Concerning gross margins, you may recall from our comments in the past that the combined gross margins of Quaker Houghton were expected to be about 1% lower than stand-alone Quaker.
In the first quarter comparison, you can see this difference is only 0.5 percentage point.
Our first quarter pro forma adjusted EBITDA grew 10% versus last year due to our integration savings, the impact of the Norman Hay acquisition last quarter, and the additional cost control measures we put in place to combat the global effect of COVID-19 on our volumes.
This event has been similar in many ways to what we went through in late 2008.
We stopped new hires, executive pay cuts were implemented, some positions were furloughed, and our planned capital expenditures have been cut by over 30%.
For 2020, our new estimate is $53 million of cost synergies achieved versus our previous estimate of $35 million.
And the total synergies that we estimate will be achieved by 2022 have been raised from $60 million to $75 million.
For example, our April revenues were down in the order of 30%.
We do anticipate that in the second half of the year, we will begin to see a gradual sequential improvement in business through the rest of the year.
However, we do not expect our business to return to the levels expected pre-COVID-19 by the end of the year.
Given how clouded the economic environment is to the COVID- 19, we will not be providing specific guidance at this time.
However, in order to try to give some direction for the remainder of the year, I can say that we're currently see that the second quarter's adjusted EBITDA could be down by nearly half of the first quarter's adjusted EBITDA.
For the full year, we expect our adjusted EBITDA to be more than $200 million.
And if we look forward to 2021 and 2022, I continue to be optimistic in our future, and I do expect us to achieve significant increases in our adjusted EBITDA, as we complete our integration cost synergies, continue to take share in the marketplace, and benefit from a projected gradual rebound in demand in our end markets over this period of time.
So please see Slides 6 and 7 and also the chart on Slide 8, while I review some highlights.
So, while our actual sales are up significantly to $378.6 million in Q1, this is due to the inclusion of Houghton and Norman Hay.
On a pro forma basis, as if Houghton was also in Q1 of 2019, net sales were down 3%, which reflects negative impacts from lower volumes and foreign exchange, partially offset by additional sales from Norman Hay.
Despite the challenges we faced in Q1, the Company generated good cash flow and adjusted EBITDA, which was up 10% on a pro forma basis and non-GAAP earnings per share of $1.38 was well above consensus of $1.
Gross margin of 35.4% for Q1 was down from 35.9% Q1 of last year, which is in line with our expectations and communication.
If Houghton was included in the prior year, we estimate that our prior year gross margin would have been approximately 1% lower.
In the table on Slide 8, you can see a reported operating loss of $12.4 million in the GAAP section but in non-GAAP operating income of $36 million in the middle section.
The main non-GAAP adjustments are combination and restructuring charges totaling about $10 million and a $38 million non-cash impairment charge in Q1 to reflect the writedown of our Houghton trademark indefinite-lived intangible assets to their estimated fair value.
These were recorded at fair value at close of the Combination on August 1, 2019 and tested for impairment during the fourth quarter of 2019.
However, given the recent changes in business conditions as a result of COVID-19, we determined that these assets needed to be tested again and confirm their carrying value exceeded their current estimated fair value by approximately $38 million.
In non-operating items, we reported a non-cash charge of $22.7 million for final settlement and termination of legacy Quaker's U.S. defined benefit pension plan, a process we previously disclosed.
Concurrent with this termination, the Company paid approximately $1.8 million, subject to final adjustment.
Our reported effective tax rate was a benefit of 31.1% in Q1 2020 versus an expense of 26.8% in Q1 of last year.
Adjusting for all one-time charges and benefits, we estimate our ETR would have been 22% this Q1 and 24% in Q1 last year.
We currently expect our full-year ETR, excluding all one-time charges and benefits, to be between 22% and 24%.
Our non-GAAP earnings per share of $1.38 is down from $1.41 in Q1 last year, due primarily to the additional shares issued in the Combination, partially offset by the inclusion of Houghton and Norman Hay.
Sequentially, non-GAAP earnings per share is up from $1.34 in Q4 of 2019, which included Houghton and Norman Hay and the additional shares.
On Slide 9, we show the trend in pro forma trailing 12 months adjusted EBITDA, which reached $239 million as of Q1, up from $234 million at the end of 2019.
This increase reflects the strong adjusted EBITDA performance in Q1 of $60 million, up 10% from pro forma Q1 last year of $55 million due to the inclusion of Norman Hay and the benefits of cost savings realized in the quarter from the Combination.
In fact, our reported net debt to adjusted EBITDA declined to 3.40 times from our year-end level of 3.47 times as a result of good cash flow and the cost savings mentioned earlier.
Our bank covenant ratio also improved from about 2.94 at year-end to 2.76 at the end of this quarter per the definitions in our borrowing agreement.
Our capital allocation decisions reflect these priorities, including an approximately 30% reduction in previously planned capex.
As you know, we have a very asset-light business model and we also expect a release of working capital at sales decline to generate good cash flow similar to the global crisis in 2008/2009.
Our cost of debt continues to benefit from declining interest rates and was estimated at approximately 2.4% at March 31 versus about 3% at year-end.
The increase in expected realized synergies this year from $35 million to $53 million in addition to the cost reduction actions we have taken to address the global crisis and our history of generating good cash flow in downturn all give us confidence in our ability to weather this storm.

We were also impacted by Boeing temporary halting the 737 MAX production, which impacted sales by approximately 1%.
These were the two main drivers of our volume decline in our pro forma comparisons.
Concerning gross margins, you may recall from our comments in the past that the combined gross margins of Quaker Houghton were expected to be about 1% lower than stand-alone Quaker.
And the total synergies that we estimate will be achieved by 2022 have been raised from $60 million to $75 million.
We do anticipate that in the second half of the year, we will begin to see a gradual sequential improvement in business through the rest of the year.
However, we do not expect our business to return to the levels expected pre-COVID-19 by the end of the year.
However, in order to try to give some direction for the remainder of the year, I can say that we're currently see that the second quarter's adjusted EBITDA could be down by nearly half of the first quarter's adjusted EBITDA.
For the full year, we expect our adjusted EBITDA to be more than $200 million.
And if we look forward to 2021 and 2022, I continue to be optimistic in our future, and I do expect us to achieve significant increases in our adjusted EBITDA, as we complete our integration cost synergies, continue to take share in the marketplace, and benefit from a projected gradual rebound in demand in our end markets over this period of time.
So, while our actual sales are up significantly to $378.6 million in Q1, this is due to the inclusion of Houghton and Norman Hay.
Despite the challenges we faced in Q1, the Company generated good cash flow and adjusted EBITDA, which was up 10% on a pro forma basis and non-GAAP earnings per share of $1.38 was well above consensus of $1.
If Houghton was included in the prior year, we estimate that our prior year gross margin would have been approximately 1% lower.
These were recorded at fair value at close of the Combination on August 1, 2019 and tested for impairment during the fourth quarter of 2019.
Our non-GAAP earnings per share of $1.38 is down from $1.41 in Q1 last year, due primarily to the additional shares issued in the Combination, partially offset by the inclusion of Houghton and Norman Hay.


This backdrop, coupled with active portfolio management, drove our strong performance to close out the year as we delivered an economic return of 5.1% for the quarter, ensuring a positive return for our shareholders for 2020 which is particularly notable given the historic disruption we all faced in March.
Our allocation to credit marginally increased to 22%, as we began the fourth quarter at the lower end of our range.
With respect to our residential credit business specifically, we found the unrated NPL and RPL securities sector attractive, as we discussed last quarter which drove much of the $400 million growth in our residential securities portfolio during the quarter.
Spreads on our non-agency securities purchased in the fourth quarter have rallied over 100 basis points, given the strength of the market to date this year.
Activity picked up in the fourth quarter as liquidity reentered the sector and we were able to grow our portfolio nearly 10% to $2.2 billion.
Of the nearly $400 million of gross activity in the quarter, 80% was first lien and included both new and existing borrowers.
As discussed on recent earnings calls, our targeted investment strategy continues to differentiate our portfolio relative to our peers, and our middle market lending group's disciplined credit focus has proven itself out through strong fundamentals with underlying borrower LTM EBITDA, increasing by 14% on average since initial close.
We continue to maintain an active dialogue with our borrowers and sponsors, and our watch list performance improved by 43% this quarter, underscoring the health of our portfolio.
While we were able to resume origination activity this past fall, volume did not offset the $108 million in pay downs, as well as, an opportunistic sale in our healthcare portfolio.
The $150 million sale price for a portion of our skilled nursing facilities which closed in the fourth quarter, resulted in an IRR of 35% for the portfolio and then nearly 2 times equity multiple.
It's not just the absolute low level of rates, but also the flat term structure of the repo curve which signals the persistence of an ample borrowing capacity and also affords us the ability to fund agency MBS out a year inside of a mere 20 basis points.
Proactive capital management remains a priority and we renewed our common stock repurchase program authorization following $209 million in repurchases in 2020.
We've reduced leverage in each quarter since the end of 2019 through last year and maintained leverage at 6.2 times quarter over quarter, the lowest we've had since the first quarter of 2017.
In fact, the loan-to-deposit ratio for the sector is the lowest we have seen in the past 50 years.
Looking at 2020 data, banks [Inaudible] set net bought over $1 trillion MBS in aggregate which was more than twice the available net agency supply last year.
Approximately, 86% of our pool portfolio consists of higher coupon quality specified pools which provides us with improved convexity and prepayment protection, while the remainder is mainly concentrated in seasoned pools, which are beginning to experience prepayment burnout.
The value of our asset selection is evidenced by the prepayment speeds on our portfolio of just under 25 CPR or roughly 10 CPRs slower than the MBS universe over the quarter.
To expand on that point, we observed from recent data that the primary secondary spread is narrowing despite more than 75% of the universe having greater than 50 basis points of refinancing incentive.
In addition, average time to refinance loans has steadily increased from 40 days this past spring to almost 60 days as of late.
To set the stage with some summary information, our book value per share was $8.92 for Q4, a 2.5% increase from Q3.
Book value increased on GAAP net income, partially offset by the aggregate common and preferred dividends of $344 million or $0.25 per share and other comprehensive loss of $215 million or $0.16 per share.
We generated core earnings per share, excluding PAA, of $0.30, a decrease of 6% or $0.02 per share from the prior quarter.
Our core earnings also represent 140% of our dividend and we saw back-to-back quarters of 13% plus of core ROE.
Combining our book value performance for the $0.22 common dividend we declared during Q4, our quarterly economic return was 5.1%.
We generated a full-year economic return of 1.76% and a total shareholder return of 2.43%.
Delving deeper into the GAAP results, we generated GAAP net income of $879 million or $0.60 per common share for Q4, down from $1 billion or $0.70 per common share in the prior quarter.
Additionally, we recorded higher gains on other derivatives, largely futures, offset by lower gains in fair value option loans and securities, and lower interest expense on lower average repo rate, down to 35 basis points from 44 basis points, and lower average repo balances down to $65.5 billion from $67.5 billion.
We recorded an immaterial increase in reserves, primarily associated with our commercial real estate business of $1.5 million on funded commitments during Q4, driven by an increase in specific reserves, partially offset by a decrease in the general CECL reserve.
Total reserves, net of charge-offs, now comprise 4.48% of our ACREG and MML loan portfolios as of December 31st, 2020, versus 4.56% as of the prior-quarter end.
First, consistent with my commentary around GAAP drivers, interest expense of $94 million was lower than $115 million in the prior quarter due to lower average repo rates and balances.
TBA dollar roll and CMBS coupon income of $99 million was lower than $114 million for the third quarter due to slightly more modest specialness in the fourth quarter.
We had increased expenses related to the net interest component of interest rate swaps of $67 million relative to $63 million in the prior quarter as the swap portfolio reset to lower market receive rates and two high strike receive swaps expired.
On the financing front, our all-in average cost of funds this quarter was 87 basis points versus 93 basis points in the preceding quarter.
The fourth quarter brought the full-year average cost of funds to 1.34% versus 2.25% in the prior year.
Our weighted average days to maturity are down, compared with the prior quarter at 64 days versus 72.
The portfolio generated 198 basis points of NIM, down from 205 basis points as of Q3, driven primarily by the decrease in average asset yields and reduced dollar roll income offset by the decline in the cost of funds that I mentioned a moment ago.
Having said that, we continue to see improvements in our efficiency ratios, being 1.27% of equity for the fourth quarter in comparison to 1.32% in Q3 of 2020 and 1.62% for the full year, compared to 1.84% for the prior year.
And I would reiterate the 1.6% to 1.75% opex target we disclosed last year as an appropriate benchmark.
And to wrap things up, Annaly ended the quarter with an excellent liquidity profile with $8.7 billion of unencumbered assets, consistent with prior quarters of $8.8 billion, including cash and unencumbered agency MBS of $6.3 billion.
The S&P 500 at 40 times earnings, high-yield credit, and the proximity of all-time tight spreads and the $81 billion of SPACs raised last year as liquidity has flowed further out the portfolio balance channel.
We are delivering a dividend yield of over 10%, in line with our historical average while the S&P 500 earnings yield of 2.5% is the lowest it's been in the past decade.

We generated core earnings per share, excluding PAA, of $0.30, a decrease of 6% or $0.02 per share from the prior quarter.
Delving deeper into the GAAP results, we generated GAAP net income of $879 million or $0.60 per common share for Q4, down from $1 billion or $0.70 per common share in the prior quarter.


Organic sales increased 3% with good underlying momentum and benefits from increased demand related to COVID-19.
Our third quarter net sales were $4.7 billion.
That's up 1% from year ago and includes a two-point drag from currency rates.
Volumes were up 2% and the combined impact of changes in net selling prices and product mix increased sales by 1%.
By segment, organic sales rose 10% in Consumer Tissue and 5% in Personal Care, but declined 15% in K-C Professional.
Third quarter adjusted gross margin was 36.2%, up 40 basis points year-on-year.
Adjusted gross profit increased 2%.
Combined savings from our FORCE and restructuring programs totaled $140 million, including continued strong productivity improvements.
Commodities were a benefit of $25 million in the quarter driven by pulp and other raw materials.
Between the lines spending was 18.9% of sales.
That's up 180 basis points and driven by a big step up in digital advertising.
All in all, for the fourth quarter-for the third quarter, sorry, adjusted operating profit was down 6% and operating margin was 17.2%, down 130 basis points versus year ago.
K-C Professional margins were down significantly, including an approximate 600 basis-point drag from fixed costs under absorption.
On the bottom-line, adjusted earnings per share were $1.72 in the quarter, compared to $1.84 in the year-ago period.
Cash provided by operations in the third quarter was $559 million compared to $886 million in the year-ago quarter.
Third quarter dividends and share repurchases totaled approximately $560 million.
And for the full year, we expect the total will be $2.15 billion.
On the top-line, we now expect organic sales growth of 5% compared to our prior target of 4% to 5%.
Through nine months, organic sales are up nearly 6% and we expect a solid fourth quarter.
All in all, we expect net sales will grow 2% to 3% this year.
On the bottom-line, our new outlook is for adjusted earnings per share of $7.50 to $7.65.
That represents year-on-year growth of 9% to 11%.
Our prior outlook was for adjusted earnings per share of $7.40 to $7.60.
Our 40,000 employees continue to do heroic work in this COVID environment.
As Maria mentioned, organic sales increased 3% in the quarter.
In North American consumer products, organics sales rose 8%.
Now within that Personal Care grew 6% driven by broad-based volume growth in baby and child care.
In North American consumer tissue, organic sales increased to 11% and that reflects strong demand due to the COVID-19 work from home environment and strong momentum on Kleenex facial tissue.
Turning to K-C Professional North America, organic sales declined 15%.
Sales were down about 35% in washroom products.
Moving to D&E markets, organic sales were up 2% that was driven by 7% growth in Personal Care.
Finally, in developed markets, organic sales were up 3% driven by strong growth in consumer tissue.
We're on track to grow or maintain share in approximately 60% of the 80 category/country combinations that we track.
And we continue to operate our business with a balanced and sustainable approach as we execute K-C strategy 2022.

Organic sales increased 3% with good underlying momentum and benefits from increased demand related to COVID-19.
Our third quarter net sales were $4.7 billion.
Volumes were up 2% and the combined impact of changes in net selling prices and product mix increased sales by 1%.
On the bottom-line, adjusted earnings per share were $1.72 in the quarter, compared to $1.84 in the year-ago period.
On the top-line, we now expect organic sales growth of 5% compared to our prior target of 4% to 5%.
All in all, we expect net sales will grow 2% to 3% this year.
On the bottom-line, our new outlook is for adjusted earnings per share of $7.50 to $7.65.
That represents year-on-year growth of 9% to 11%.
In North American consumer products, organics sales rose 8%.
And we continue to operate our business with a balanced and sustainable approach as we execute K-C strategy 2022.


We have focus and deliver on diversity within our Board and extended leadership team, which is now 50% and 43%, respectively.
We have launched aggressive 2030 and 2050 goals and improve our new product development process to address these goals.
And one of the things I am most proud of on behalf of our employees is granting $150 million in equity to our employees, which we believe is the largest employee equity grant ever provided by an industrial company.
Seepex is, by our estimation, the #2 global progressive cavity pump manufacturer, and it is a highly recognized brand as a premium player in the market that adds a new positive displacement pump technology to our portfolio.
With these two acquisitions, we're expecting to add approximately $3.8 billion to PST addressable market, which is an impressive 40% expansion.
And it was not until the owner became actively engaged, and we were in active negotiation that it was moved from 0% weighted revenue contribution to 50% and then 100% assigning.
At its current state, the funnel size remains approximately 5 times the size it was versus Q2 of 2020, with average revenue larger and velocity accelerating minutely.
And to be clear, this describes the funnel even after removing the 32 targets we passed on in the second quarter as well as our signed deals of Seepex and Maximus, and it also excludes SPX Flow.
Our $85 per share offer was pre-emptive, and fully accounted for SPX Flow's Investor Day plan, which is ahead of consensus estimates.
And we have sufficient cash on hand to execute on these opportunities with $4.7 billion in liquidity.
Total company orders and revenue increased year-over-year 48% and 25%, respectively, with strong double-digit organic orders growth across each segment.
And we are very pleased with the momentum we are seeing as organic orders in Q2 were up 9% and 6% on a quarter-to-date and year-to-date basis, respectively, as compared to 2019.
Our commitment to delivering $300 million in cost synergies attributable to the Ingersoll Rand Industrial segment acquisition remains intact as we continue to drive performance on productivity and synergy initiatives using IRX as the catalyst.
The company delivered second quarter adjusted EBITDA of $292 million, a year-over-year improvement of $75 million and adjusted EBITDA margin of 22.8%, a 160 basis point improvement year-over-year.
Free cash flow for the quarter was $136 million, yielding total liquidity of $4.7 billion at quarter end, up approximately $2 billion from Q1 as we received the gross proceeds from both divestitures in Q2.
This takes our net leverage to 0.2 times, a 1.7 times improvement from Q1.
For the total company, orders increased 40% and revenue increased 19%, both on an FX-adjusted basis.
Overall, we posted a strong book-to-bill of 1.14 for the quarter, an improvement from the prior year level of 0.96.
The company delivered $292 million of adjusted EBITDA, which was an increase of 34% versus prior year.
Finally, corporate costs came in at $38 million for the quarter, up year-over-year, primarily due to higher incentive compensation costs as well as targeted commercial growth investments in areas like demand generation and other targeted strategic investments.
Free cash flow for the quarter was $136 million on a continuing ops basis, driven by the strong operational performance across the business and ongoing prudent working capital management.
capex during the quarter totaled $12 million and free cash flow included $12 million of outflows related to the transaction.
In addition, free cash flow also included $36 million in cash tax payments related to the historical earnings profile of the HPS and SVT segments.
However, the $36 million represents our best quantification of the impact.
From a leverage perspective, we finished at 0.2 times, which is a 1.7 times improvement as compared to prior quarter, and this included the gross cash proceeds received from both the HPS and SVT divestitures.
We expect to pay the cash taxes for both divestitures later in 2021, and if you were to pro forma the Q2 leverage to account for these tax outflows, leverage would have been closer to 0.6 times.
On the right side of the page, you can see the breakdown of total company liquidity, which now stands at $4.7 billion based on approximately $3.7 billion of cash and nearly $1 billion of availability on our revolving credit facility.
Due to the funnel we have built that stands in excess of $350 million and strong execution, we are reaffirming our stated $300 million cost savings target.
To date, approximately $250 million of annualized synergies have already been executed or are in motion, which is slightly higher than 80% of the overall target.
As a reminder and consistent with previous guidance, we delivered approximately 40% of our $300 million target in 2020, which equaled approximately $115 million of savings.
In addition, we expect to deliver an incremental $100 million of savings in 2021, which would bring the cumulative total to approximately 70% at the end of this year.
We expect a cumulative 85% to 90% up to $300 million in savings by the end of 2022 with the balance coming in 2023.
Overall, organic orders were up 41% and revenue up 17%, leading to a book-to-bill of 1.15.
In addition, the team delivered strong adjusted EBITDA of 41% and adjusted EBITDA margin of 24.7%, up 250 basis points year-over-year, with incremental margin of 34%.
Starting with compressors, we saw orders up in the mid-40%.
A further breakdown into oil-free and oil-lubricated products shows that orders for both were up above 40%.
From a regional split for orders on compressors, in the Americas, North America performed strong at up low 40%, while Latin America was up in the mid-70%.
Mainland Europe was up low 50%, while India, Middle East, saw continued strong recovery with order rates up in excess of 100%.
Asia Pacific continues to perform well with orders up low 30% driven by low 30% growth in both China and high 20% across the rest of Asia Pacific.
In power tools and lifting, the total business was up high 50% in orders and so continued positive growth driven mainly by our enhanced e-commerce capabilities and improve execution on new product launches.
This new driver portfolio is 20% more energy-efficient and reduces greenhouse gas emissions by over 50%.
Moving to Slide 13 and the Precision and Science Technology segment, overall, organic orders were up 20% driven by, i.e., the Medical and Dosatron businesses, which serve lab, life science, water and animal health markets.
Revenue was up 12% (sic) [13%] organically, which is encouraging, as we have some tough comps due to COVID-related orders and revenue in Q2 2020 for the Medical business.
Additionally, the PST team delivered strong adjusted EBITDA of $71 million, which was up 20%.
Adjusted EBITDA margin was 30.7%, up 40 basis points year-over-year, with incremental margins of 33%.
We have line of sight to about $45 million in organic investments over the next five years to both build out our capacity and fund ongoing product development in the hydrogen refueling space, with approximately $10 million of this investment expected in the next 12 months.
Since our last call, we have seen our funnel grow 3 times to over $250 million in potential projects.
Given the comp performance in Q2 and continued strong outlook, we're increasing guidance for 2021.
This reflects approximately 250 to 300 basis point growth in organic growth for the total company as compared to prior guidance.
FX is expected to continue to be a low single-digit tailwind, and based on these revenue assumptions, we're increasing 2021 adjusted EBITDA guidance to $1.15 billion to $1.18 billion, which represents approximately a $30 million improvement from power guidance at the midpoint of the range.
We also highlight that these also includes the increased corporate cost of approximately $6 million per quarter for both Q3 and Q4 as compared to prior guidance, as mentioned on the right-hand side of the slide.
In terms of cash generation, we expect free cash flow to adjusted net income conversion to remain greater than or equal to 100%.
capex is expected to be approximately 1.5% of revenue.
And finally, we expect our adjusted tax rate for the year to be approximately 20%, and this does include a $35 million benefit due to a tax restructuring plan that was recently completed, that is reflected approximately 40% in the Q2 rate with the balance in the second half of the year.

Given the comp performance in Q2 and continued strong outlook, we're increasing guidance for 2021.
FX is expected to continue to be a low single-digit tailwind, and based on these revenue assumptions, we're increasing 2021 adjusted EBITDA guidance to $1.15 billion to $1.18 billion, which represents approximately a $30 million improvement from power guidance at the midpoint of the range.


In the first quarter, we generated record bottom-line results of 25.5 million of net income and $2.31 of diluted EPS.
Despite pressure from a combination of tax refunds and two stimulus payments in the quarter, our core small and large loan portfolio grew by $18 million, or 2%, over the prior-year period, and was down only $28 million, or 2.5%, quarter over quarter.
We originated $231 million of loans in the quarter, up 1% year over year and up 5% from the first quarter of 2019, with 29 million [Inaudible] originated loans derived from new growth initiatives.
The second round of $600 stimulus checks appeared to have been spent relatively quickly.
The third round of $1,400 stimulus checks led to a temporary period of higher loan payment activity along with some weakening of loan demand.
Our large loan portfolio actually grew sequentially in the first quarter by $4 million or 0.6% as the stimulus measures disproportionately impacted our higher-rate small loan portfolio.
Loan demand remained relatively soft in April due to the impact of the distribution of the remaining 20% of stimulus payments along with additional tax refunds.
Our net credit loss rate during the quarter was 7.7%, a 280 basis points improvement from the prior-year period.
And we ended the quarter with a record-low, 30-plus day delinquency rate of 4.3%, a 230 basis points improvement from the end of March of 2020.
As of April 30, our 30-plus day contractual delinquency rate further improved to approximately 3.7%.
Given our continued superior credit performance, we released $6.6 million in COVID-19 reserves in the first quarter and $3.8 million of additional reserves as a result of the seasonal runoff in the portfolio.
our 139.6 million allowance for credit losses as of March 30 first continues to compare quite favorably to our 30-plus day contracts of delinquency of 47.7 million.
Our allowance includes a 23.8 million reserve for additional credit losses associated with COVID-19.
To that end, we are happy to announce an increase of our quarterly dividend by 25% to $0.25 per share.
In addition, in May, we completed a $30 million stock repurchase program that began in the fourth quarter of 2020, having repurchase, in total, 951,841 shares at a weighted average price of $31.52 per share.
Our board of directors recently authorized a new $30 million stock repurchase program, which we plan to commence later this month.
Digitally sourced originations represented 33% of our total new borrower branch volume in the first quarter and 25% of all branch originations we bought remotely in March.
We plan to open 15 to 20 net new branches in 2021.
We also expect to enter up to two additional states by the end of 2021 and an additional four to six states over the next 18 months.
As of March 31, approximately 70% of our total portfolio had been originated since April 2020.
We generated net income of 25.5 million and diluted earnings per share of $2.31, resulting from our growth initiatives, stable operating expenses, lower funding costs, and strong credit.
As illustrated on Page 4, branch originations were comparable to prior year as we ended first quarter, originating 169.7 million of loans.
Meanwhile, we grew direct mail and digital origination by 9% year over year to 61.7 million.
Our total originations were 231.4 million, 1% higher on a year-over-year basis and 5% higher than the first quarter of 2019 despite two rounds of government stimulus payments in the first quarter.
Our new growth initiative [00:13:13.23] [Inaudible] 29 million of first quarter origination.
Page 5 displays our portfolio growth and mixed trends through March 31.
We closed the quarter with net finance receivables of 1.1 billion, up 3 million from the prior-year period as we continue to successfully execute on our new growth initiatives and marketing efforts.
Our core loan portfolio grew 18 million, or 1.7%, from the prior year and decreased only 2.5% from the end of the fourth quarter, in line with normal seasonal liquidation despite the two rounds of government stimulus.
Small loans decreased 8% quarter over quarter due to the disproportionate impact of the stimulus payments on this portfolio, while large loans grew slightly at 0.6% versus the fourth quarter of 2020.
On Page 6, we show our digitally sourced originations, which were 33% of our new borrower volume in the first quarter.
During the first quarter, large loans were 64% of our digitally sourced originations.
Turning to Page 7, total revenue grew 2% to 97.7 million.
Interest in field increased 10 basis points year over year, primarily due to improved credit performance across the portfolio as a result of the government stimulus, tightened underwriting during the pandemic, and our overall mix shift toward higher credit quality customers.
Sequentially, interest in field and total revenue yield decreased 80 and 90 basis points, respectively.
As of March 31, 65% of our portfolio were large loans and 81% of our portfolio had an APR at or below 36%.
In the second quarter, we expect total revenue yield to be approximately 30 basis points lower than the first quarter, and our interest in field to be approximately 20 basis points lower due to the impact that the third and largest stimulus payment is expected to have on our higher-yielding small loan portfolio.
Moving to Page 8, our net credit loss is 7.7% for the first quarter, a 280-basis-point improvement year over year, while delinquencies remain at historically low levels.
Net credit loss is roughly 80 basis points from the fourth quarter.
This is due to normal seasonal increases of NPLs in the first quarter, but the rate of increase of 80 basis points in frst quarter was below the 150 and 180 basis point seasonal increases that we experienced in 2020 and 2019, respectively.
As a result, we expect that our full-year net credit loss rate will be approximately 8%.
Our 30-plus day delinquency levels as of March 31 was a record 4.3%, a 230 basis point improvement from the prior year and 100 basis points lower than December 31.
At the end of April, we saw 30-plus day delinquencies dropped further to a record low of approximately 3.7%.
Turning to Page 10, we ended the fourth quarter with an allowance for credit losses of 150 million or 13.2% of net finance receivables.
During the first quarter of 2021, the allowance decreased by 10.4 million to 12.6% of net finance receivables.
The decrease in reserves, including the base reserve release of 3.8 million from portfolio liquidation and a COVID-19 reserve release of 6.6 million.
At the moment, the severity and the duration of our macro assumptions remain relatively consistent with our fourth-quarter model, including an assumption that the unemployment rate will be below 10% at the end of 2021.
Our 139.6 million allowance for credit losses as of March 31 continues to compare very favorably toward 30-plus day contractual delinquency of 47.7 million.
Looking to Page 11, G&A expenses for the first quarter of 2021 were 45.8 million, an improvement of 0.4 million or 0.9% from the prior-year period.
Our operating expense ratio was 16.3% in the first quarter of 2021 compared to 16.5% in the prior-year period.
On a sequential basis, our G&A expense rose 1 million, in line with our expectations due to lower deferred loan origination costs and fewer seasonal loan originations in the first quarter as compared to the fourth quarter.
Overall, we expect G&A expenses for the second quarter to be approximately 2.2 million higher than the first quarter.
Turning the Page 12, interest expense was 7.1 million in the first quarter of 2021 and 2.6% of our average net finance receivables.
This was a 100 basis point improvement year over year and 3 million, or 30%, lower than in the prior-year period.
The improved cost of funds was driven by lower interest rate environment, improved funding costs from our recent securitization transactions, and a favorable 785,000 mark-to-market increase in value this quarter on our interest rate cap.
We currently have 400 million of interest rate caps to protect us against rising rates on our variable priced funding, which as of the end of the first quarter, totaled 193 million.
We purchased 100 of additional interest rate caps in the first quarter to take advantage of the favorable rate environment.
We purchased a total of 300 million of interest rate caps since the beginning of the pandemic at a LIBOR strike price range of 25 to 50 basis points.
Looking ahead, normalizing for the hedge impact in the first quarter, we expect interest expense in the second quarter to be approximately 8.5 million.
Our effective tax rate during the first quarter was 24%, compared to a tax rate of 36% in the prior-year period.
For 2021, we expect an effective tax rate of approximately 25%.
Page 13 is a reminder of our strong funding profile.
Our first-quarter funded debt-to-equity ratio remained at a very conservative 2.7-1.
We continue to maintain a very strong balance sheet with low leverage and 140 million in loan loss reserves.
As of March 31, we had 573 million of unused capacity on our credit facilities and 207 million of available liquidity, consisting of unrestricted cash and immediate availability to draw down our credit facility.
Our total warehouse capacity has expanded by 175 million to 300 million, and the average term on the new warehouse is approximately 22, roughly a four-month extension from the prior facility.
As of April 30th, we had 758 million of unused capacity on our credit facilities, providing us with even more capacity to fund our operations, our ambitious growth plans, and our capital return program.
In the first quarter, the company repurchased 352,183 of its common stock at a weighted average price of $33.57 per share.
under the company's 30 million stock repurchase program.
The company completed the 30 million stock repurchase program in May, having repurchased in total 951,841 of its common stock at a weighted average price of $31.52 per share.
As Rob noted earlier, the company's board of directors has declared a dividend of $0.25 per common share for the second quarter of 2021.
The dividend is 25% higher than the prior quarters' dividend and will be paid on June 15, 2021, to shareholders of record as of the close of business on May 26, 2021.
In addition, as Rob mentioned earlier, we are pleased to announce that our board of directors has approved a new 30 million stock repurchase program.

In the first quarter, we generated record bottom-line results of 25.5 million of net income and $2.31 of diluted EPS.
We generated net income of 25.5 million and diluted earnings per share of $2.31, resulting from our growth initiatives, stable operating expenses, lower funding costs, and strong credit.
Turning to Page 7, total revenue grew 2% to 97.7 million.


In measured off-premise channels year-to-date through October 10, where our brand portfolio represents only 4.4 of the total industry volume, we've delivered more than 41% of the total industry volume growth, the highest by far of all brewers.
Four of our five major brands are growing depletions and gaining share in off-premise measured channels over the last 13 weeks.
This is the 10th time in the last 12 years that our most important customers have recognized us as the top supplier in our industry.
Hard seltzers are 11% of total beer dollars year-to-date, up from 9% during the same period in 2020.
And household penetration, frequency, and buy rate, all are increasing over the past 13 weeks.
Volume growth has slowed this year, but we continue to believe that hard seltzers can reach 15% to 20% of total beer dollars in the next five years.
Truly has generated 54% of all hard seltzer category growth so far in 2021, 2.3 times the next highest brand.
We've gained 23 share points against the Category Leader since January 2020.
We've led the category in innovation and brand building and outgrow beer category for 13 straight months.
We've created $1 billion dollar brand in only five years and we're confident we'll continue to grow it going forward.
Earlier in the year, we had expected the category to grow at over 70% and Truly to gain share.
Having said this, we've updated and evolved our own category growth model and believe the category could be flat to plus 10% growth in our most likely 2022 scenarios.
We are the number two player in Beyond Beer with a 26% share driven by the number one FMB and Twisted Tea, the strong number two hard seltzer in Truly and the number one hard cider in Angry Orchard.
It has grown 22% in the last 13 weeks and measured our premise channels.
Twisted Tea is the second fastest growing brand year to date among the top 25 in beer, while Truly remains number one in percentage and absolute volume growth.
As Twisted Tea expands its consumer base, we're launching a new Twisted Tea Light with only 109 calories.
We're also expanding our lineup of award winning Dogfish Head canned cocktails with new vodka and gin crush styles and we're launching a new tropical fruit extension for Angry Orchard in addition to adding an Angry Orchard Hard Core, an 8% ABV product.
As a result, we have taken $102.4 million third quarter charge related to direct costs of the hard seltzer slowdown consisting of inventory obsolescence and destruction -- and related destruction costs of $54.3 million; contract termination costs, primarily for excess third-party contract production of $35.4 million; and equipment impairments of $12.7 million.
In addition, the third quarter results include indirect costs resulting from the slowing hard seltzer category growth of $30.6 million.
These costs include negative absorption impacts at company-owned breweries and downtime charges at third-party breweries of $11.4 million; increased raw material sourcing and warehousing costs of $11.8 million; and distributor return provisions for out of code or damaged products of $5.4 million; and other costs of $2 million.
For the third quarter, we reported a net loss of $58.4 million, a decrease of $139.2 million from the third quarter of 2020.
Loss per diluted share was $4.76, a decrease of $11.27 per diluted share from the third quarter of 2020.
This decrease was due to the combined direct and indirect costs related to slowing hard seltzer category growth of $133 million or $7.73 per diluted share, net of the related tax benefit and high operating expenses, partially offset by increased net revenue.
Depletions for the quarter increased 11% from the prior year, reflecting increases in our Twisted Tea, Truly hard seltzer, Samuel Adams and Dogfish Head brands, partially offset by decreases in our Angry Orchard brand.
Shipment volume for the quarter was approximately 2.3 million barrels an 11.2% increase from the prior year, reflecting increase in our Twisted Tea, Samuel Adams and Angry Orchard brands, partially offset by decreases in our Truly hard seltzer and Dogfish Head brand.
Our third quarter gross margin of 30.7% decreased from 48.8% margin realized in the third quarter of 2020, primarily due to the $84.9 million direct and indirect volume adjustment costs as a result of slowing hard seltzer growth described and higher materials costs partially offset by price increases.
Advertising, promotional and selling expenses increased by $58.8 million or 54.4% from the third quarter of 2020, primarily due to increased brand investments of $37.6 million, mainly driven by a media production and local marketing costs, and increased freight to distributors of $21.2 million that was primarily due to higher rates and volumes.
Based on information of which we are currently aware, we're not targeting full-year 2021 earnings per diluted share of between $2 and $6.
This projection excludes the impact of ASU 2016-09 and is highly sensitive to changes in volume projections, particularly related to the hard seltzer category.
Full-year 2021 depletions growth is now estimated to be between 18% and 22%.
We project increases in revenue per barrel of between 2% and 3%.
Full-year 2021 gross margins are expected to be between 40% and 42%.
The gross margin impact related to the combined full-year direct and indirect costs of the hard seltzer slowdown is estimated at $132.6 million of which $95.8 million have been incurred in the first nine months and the remainder of $36.8 million estimated to be incurred in the fourth quarter.
Our full-year 2021 investments in advertising, promotional, and selling expenses are expected to increase between $80 million and $100 million.
We project increases in revenue per barrel of between 3% and 6%.
Full year 2022 to gross margins are expected to be between 45% and 48%.
We plan increased investment in advertising, promotion and selling expenses of between $10 million and $30 million for the full year 2022, not including any changes in freight costs for the shipment of products to our distributors.
We expected our cash balance of $86.5 million as of September 25, 2021 along with our future operating cash flow and unused line of credit of $150 million will be sufficient to fund future cash requirements.
For the past 20 years we've grown our revenue at over a 12% compounded annual growth rate and have increased total shareholder returns at a 20% compounded annual growth rate.
The Sam Adams brand is gaining share for the first time in several years, and Angry Orchard is number one in hard cider and maintaining close to a 50% market share.


While the economic impacts of the coronavirus pandemic were expansive, our business stood up to these challenges and we are in $799 million after-tax for the fourth quarter and over $1.1 billion for the full year.
While our revenues were down 4% year-over-year, our outstanding credit performance combined with the actions we took to reduce our funding costs and control our expenses, enabled us to exit the year with a 30% ROE in the fourth quarter.
While other issuers faced significant challenges with long hold times, there was no disruption to our outstanding service as we leveraged our digital capabilities and our 100% U.S.-based customer service.
We also took quick action at the onset of the pandemic to mitigate credit risk by tightening new account underwriting criteria, reducing promotional rate offers and pulling back on credit line increases, and we added $2.4 billion to reserves as the macroeconomic outlook deteriorated.
As expected, the tightening of our underwriting criteria combined with elevated payment rates impacted our loan growth and our total loans decreased 6% year-over-year.
Our digital bank operating model combined with disciplined expense management has historically generated industry-leading efficiency, but in 2020, we took additional action to control costs and delivered on our commitment to cut $400 million from planned expenses despite absorbing several one-time items that have occurred during the year.
Excluding the one-time items, expenses were down nearly 2% year-over-year.
Our PULSE debit business had a strong year with volume up 10% from 2019, reflecting the impact of stimulus funds and higher transaction sizes as debit became a critical way of procuring goods during the pandemic.
Our Discover proprietary network was down 2% for the year and exited the fourth quarter at plus 5%, in line with card sales volume.
Earlier this week, our Board of Directors approved a new $1.1 billion share repurchase plan and we may begin buybacks as soon as the first quarter, subject to the Federal Reserve's limitations.
We earned $799 million in net income or $2.59 per share.
These results included several one-time expenses, totaling $137 million.
Excluding these, earnings per share would have been $2.94.
In the fourth quarter, net interest income was down 2%, reflecting a 5% decline in average receivables and lower loan yield.
Non-interest income was 14% lower, driven by higher rewards costs from strong engagement in the 5% category this quarter, a one-time write-off of certain real estate facilities and lower loan fee income also contributed to the year-over-year decrease.
The provision for credit losses was $305 million lower than the prior year due to meaningful improvement in credit performance.
There was no change to reserve levels in the current quarter, whereas the prior year included an $85 million reserve build.
Operating expenses increased 8% year-over-year driven by one-time items related to software write-offs, charges for penalties and restitution, and costs of a voluntary early retirement program.
Excluding one-time items, expenses were down 4% from the prior year.
Total loans were down 6% from the prior year driven by a 7% decrease in card receivables.
In student loans, we had a strong peak origination season, increasing market share in leading to 7% loan growth.
Personal loans were down 7% as a result of actions we took early in the pandemic to minimize potential credit losses.
Net interest margin continued to improve, up 34 basis points from the prior year and 44 basis points from the prior quarter to 10.63%.
We cut our online savings rate another 10 basis points from the third quarter as we continue to actively manage funding costs lower.
Online savings rates, 12 month and 24-month CDs are all down to 50 basis points.
Average consumer deposits increased 18% from the prior year.
We continue to see steady demand for our consumer deposit products, which were up $1 billion from the prior quarter.
And our goal remains to have 70% to 80% of our funding from deposits.
As Roger noted, we delivered on our commitment to reduce planned expenses by at least $400 million during the year, and I'm pleased to say that we accomplished this goal despite several one-time expense items that occurred in 2020.
Total operating expenses in the fourth quarter increased $94 million or 8% from the prior year, driven completely by $137 million in one-time expense items.
Excluding these, operating expenses would have been down $43 million or 4% year-over-year.
Employee compensation was up $57 million or 13%, driven by a one-time item related to a voluntary early retirement program as well as staffing increases in technology and higher average salaries and benefits.
Marketing and business development expense was down $75 million or 32%.
Professional fees decreased $22 million or 10%, mainly driven by lower third-party recovery fees related to courts operating at limited capacity.
Once again, credit performance was very strong and total charge-offs below 2.4% and credit card net charge-offs nearly 2.6%.
The card net charge-off rate was 78 basis points lower than the prior year, while the net charge-off dollars were down $180 million or 28%.
Compared to the third quarter, net card charge-off rate declined 82 basis points.
The 30-plus delinquency rate was 55 basis points lower than last year and increased 16 basis points from the prior quarter.
Credit also remained strong in our private student loan portfolio with net charge-offs down 31 basis points year-over-year.
Excluding purchased loans, the 30-plus delinquency rate improved 40 basis points from the prior year and 9 basis points compared to the prior quarter.
In our personal loan portfolio, net charge-offs were down 147 basis points and the 30-plus delinquency rate was down 29 basis points year-over-year.
The primary assumptions in our economic model were a year-end 2021 unemployment rate of about 8% and GDP growth of about 2.7%.
Our Common Equity Tier-1 ratio increased 90 basis points sequentially to 13.1%, remaining above our 10.5% internal target and well above regulatory minimums.
We have continued to fund our quarterly dividend at $0.44 per share.
Regarding share repurchases, as Roger indicated, earlier this week, we received authorization from our Board of Directors to repurchase up to $1.1 billion of common stock.
Moving to Slide 12 and some perspectives on how to think about 2021.

While the economic impacts of the coronavirus pandemic were expansive, our business stood up to these challenges and we are in $799 million after-tax for the fourth quarter and over $1.1 billion for the full year.
Earlier this week, our Board of Directors approved a new $1.1 billion share repurchase plan and we may begin buybacks as soon as the first quarter, subject to the Federal Reserve's limitations.
We earned $799 million in net income or $2.59 per share.
In the fourth quarter, net interest income was down 2%, reflecting a 5% decline in average receivables and lower loan yield.
Total loans were down 6% from the prior year driven by a 7% decrease in card receivables.
Regarding share repurchases, as Roger indicated, earlier this week, we received authorization from our Board of Directors to repurchase up to $1.1 billion of common stock.
Moving to Slide 12 and some perspectives on how to think about 2021.


The addition of Barber-Nichols contributed $16.5 million in the quarter.
These two items made up approximately $10 million in lower revenue compared with last year.
We are pleased with our strategic expansion into the defense business evidence that with 58% of our quarterly revenue coming from this key market, while we await a recovery in the energy and petrochemical markets.
Orders increased to $31.4 million up from $20.9 million in Q1, orders were split evenly between the Graham manufacturing business and Barber-Nichols.
Our $233 million backlog is strong with 78% of its coming from the defense market.
I continue to be pleased with their performance through four months their business is at $20 million of revenue and $3 million of EBITDA.
Our expectation for the full year remain at 45 to $48 million of revenue and at an 11% EBITDA margin or $5.2 million.
So they are ahead of pace to hit the fiscal year expectations for the 10 months of the business that will be part of Graham in this fiscal year.
In the second quarter, we have to one-time items, we had a pre-tax gain of $1.9 million related to the earned out of the Barber-Nichols acquisition.
We also had a charge an offsetting charge of $798,000 related to the termination of our prior CEO.
The net of these two items $1.1 million, or approximately $882,000 after taxes are included in the reported results.
The acquisition are now which was for $7 million to $14 million payout based on fiscal 2024 results -- fiscal 2024 EBITDA results has been cancelled.
This had represented a 10% to 20% addition to the original $70.1 million acquisition price.
This earn-out have been valued using a Monte Carlo accounting purchase, Monte Carlo purchase price accounting analysis at $1.9 million.
For each year, the pool will allow for a range of at the low end $2 million, once the EBITDA threshold is met at a maximum of $4 million if the maximum EBITDA is achieved within the year.
Therefor across the three years, the maximum opportunity is $12 million.
Much of Slide 4 and 5 I have already discussed.
You will note, the GAAP and adjusted earnings per share are similar for Q2 along with the $1.1 million of one-time items that I mentioned earlier.
We also have adjusted out the purchase accounting amortization of $784,000 as well as $124,000 of acquisition related costs.
For the year-to-date results, the $9.6 million revenue gain came from $20 million of additional Barber-Nichols offset by the same items noted for the quarter earlier, namely last year having the benefit of a one-time material order and higher Chinese sub-contracting in the first half of the year.
We had a nice mix of orders in the second quarter, $12.5 million came from our defense customers almost $19 million from our commercial customers.
Space related orders were around $2 million and advanced energy orders were close to $2 million.
Of the $233 million backlog 78% or $182 million is in defense.
About one half the backlog is expected to convert to revenue in the next 12 months.
Our second quarter revenue in defense was $20 million, up $12.7 million from the first quarter where BNI contributed for one month.
Revenue remains unchanged in the $130 million to $140 million range.
As discussed by Jeff, we started slow in the first half with $54 million of revenue and we are ramping up each quarter.
BN is expected to contribute $45 million to $48 million for the year.
Our gross margin will be 17% to 18%, reflecting lower margin maybe work at Batavia with SG&A around 15% or 16% of revenue.
We have tightened adjusted EBITDA from $7 million to $9 million to $7 million to $8 million.
Capital expenditures remain unchanged at $3.5 million to $4 million.


We delivered earnings per share of $0.50 a share and a return on tangible common equity of over 18% on an adjusted basis, despite the near-term headwinds that the industry is facing with continued pressure on short-term rates and strong competition given growing levels of excess liquidity and muted loan demand.
We generated core net interest income growth of 1% with underlying loan growth of 1%, which was driven by a commercial loan growth of 2%.
We continue to see momentum in our commercial pipelines and the quarter ended with unfunded commitments up 5% to just over $19 billion.
Our net interest-bearing deposits declined 3 basis points -- our net interest deposit cost declined 3 basis points in the quarter.
It's also important to note that we're well positioned to benefit in a rising rate environment and ended the quarter with interest rate sensitivity profile of a 16% increase in net interest income and a 100-basis point shock across the yield curve.
And while we expected total fees to be down given relatively healthy levels of fixed income and mortgage banking fees last quarter, we also saw a return to more normalized levels in traditional banking fees, which were up 2% in the quarter with particular strength in wealth on strong annuity sales.
Credit quality continues to be excellent with improvement in the overall quality of the loan portfolio highlighted by net charge offs of only 2 basis points and a 47% decrease in loan balances on deferral in the quarter.
That, coupled with improving macroeconomic environment, drove another robust reserve release with a provision credit of $85 million in the quarter.
This was a 26% decrease in the provision benefit this quarter versus last quarter.
As our capital levels remain strong with a CET1 ratio of around 10.1%, we increased our capital return by nearly 60% in the quarter, repurchasing 9 million shares of common stock and ended the quarter with a tangible book value per share of $10.88.
Given some higher cost tied to integration of our platforms along with higher costs due to markets reopening, much of which is marketing, as well as the seasonality and the idiosyncratic items, our expenses were up 3% in the quarter.
Alongside our integration efforts, we continue to invest in technology and people to drive revenue synergies and expense efficiencies, and thus far we've identified approximately $35 million in revenue synergies tied to the merger.
We remain confident in our ability to deliver at least $200 million in net annualized savings by the fourth quarter of next year.
I'll briefly touch on slide 7 where we outline the notable items in the quarter which reduced our results by $51 million after-tax or $0.09 per share.
In addition to merger-related notable items of $44 million, we recorded $23 million of non-cash, pre-tax costs tied to retiring legacy IBERIABANK trust preferred securities in the quarter and expect to record an additional $3 million next quarter.
The redemptions will reduce interest expense by about $5 million annually with an expected payback of approximately five years.
We generated PPNR of $284 million as underlying improvement in core net interest income and traditional banking fees was masked by the impact of expected declines in net merger-related and PPP non net interest income along with lower fixed income and mortgage banking fees.
Adjusted expenses of $480 million moved higher largely reflecting idiosyncratic items tied to strategic investments and additional costs we incurred tied to markets reopening.
Given continued improvement in the macroenvironment, overall credit quality, and muted loan growth, we posted a credit to provision of $85 million, which was down from $115 million credit last quarter.
This reduction drove a $0.04 decline in EPS.
But overall, we continue to post healthy returns with an adjusted return on tangible common equity of 18.4% and 14% before the impact of the provision credit.
As Bryan mentioned, tangible book value per share came in at $10.88, up 1% as GAAP net income was largely offset by a $0.23 impact tied to the return of capital and a $0.07 decline tied to the mark-to-market on the security portfolio in OCI.
Moving to slide 9, net interest income was down $5 million linked quarter given the expected decrease tied to lower merger accretion and PPP portfolio balances, core net interest income was up 1% as the benefit of lower deposit cost, day count, commercial loan growth, and higher investment portfolio income was partially offset by continued declines in consumer loan balances and overall loan spread compression, given the continued reductions in LIBOR and the competitive landscape.
During the quarter, we ramped up our security purchases to put more excess cash to work and added around $400 million on a spot basis at a yield of around 1.5%.
As a result, our securities to interest-earning assets ended the quarter at 11%, up 1%.
Our current plan is to put a total of $1 billion of excess cash to work in securities by year-end, and we will continue to reevaluate opportunities to redeploy additional cash as we move forward.
Reported NIM was down 7 basis points linked quarter with core NIM down 8 basis points, driven by a 5 basis point impact tied to higher excess cash.
We ended the quarter with excess cash of $14 billion, up from $12.7 billion in the second quarter.
Core NIM was also lower given a 2 basis point reduction in interest recoveries on nonaccrual loans, as well as overall spread tightening with new origination spreads down around 15 basis points linked quarter, which collectively translated to about 3 basis points of pressure on the margin.
We also generated a 2 basis point benefit to the margin with further improvement in the deposit mix for the DDA and a decline in interest-bearing deposits.
Under this view, you can see that year-over-year, the metric is down about 10 basis points compared to the core margin, which is down about 40 basis points.
Headline fees were down around 7% in the quarter.
Fixed income average daily revenue came in at $1.3 million compared with $1.4 million last quarter.
Mortgage banking and title fees were down $4 million given continued spread tightening and our focus on driving more of our originations on balance sheet.
While overall originations were down 11% for the quarter, portfolio originations were up 5%.
The reduction in our other non-interest income was driven by an $11 million decrease in security gains tied to a legacy IBKC investment in the second quarter.
The new program was launched in late August at First Horizon, with the remainder of the change occurring following the system conversions in February for our IBERIABANK franchise.
Over time, we expect the changes to reduce our overall NSF overdraft fees in the range of $9 million to $10 million annually, with changes going into production in August for First Horizon and with the February conversion for the IBERIABANK clients.
Adjusted expenses totaled $480 million, up $15 million in the quarter, largely because of seasonality and some idiosyncratic costs related to strategic investments and additional costs related to markets reopening, which was slightly offset by $1 million tied to incremental merger cost saves.
Personnel expense decreased $4 million linked quarter with salaries and benefits stable as a $4 million FICA credit helped mitigate the impact of day count, seasonally higher medical cost, and labor supply constraints.
Incentives and commissions remained relatively stable as a $3 million increase from pandemic-related vacation carryover partially offset lower revenue base payouts in fixed income and mortgage.
Additionally, higher contractor cost tied to investments in new systems, largely in areas like treasury solutions and business banking online, as well as increased advertising spend given our reopening of markets, pushed outside services up $9 million.
And finally, other non-interest expense was up $11 million in the quarter driven by higher tax credit related contributions, a $2 million increase in fraud cost, and higher travel and entertainment costs also for markets reopening.
On slides 12 and 13, we cover our balance sheet profile.
Excluding PPP balances, which were down $1.8 billion in the quarter, average loans increased 1% in the quarter.
And as Bryan mentioned, this reflected commercial growth of 2%.
Our pricing strategies in the mortgage warehouse business helped deliver a 7% increase in balances with purchase volume up 3 percentage points linked quarter to 56%.
This is being somewhat offset by continued pressure in retail real estate secured refinancings, which drove a 1% decline in consumer loans, but we're reviewing opportunities to increase our recapture of these with refi opportunities.
On the liability side, we saw a continued inflow of deposits, driven by a $1.1 billion average increase in DDA, or 4%, which helped to further improve the mix of deposits.
And with interest-bearing deposit costs down 3.3 basis points to 17 basis points for the quarter, our total funding costs improved 2 basis points.
On slide 14 and 15 we provide information on the asset quality and reserves where we continue to see exceptional low levels of charge-offs in non-performing loans and our allowance coverage of loans is healthy at 1.45% and 1.65%, excluding loans to mortgage companies and the PPP portfolio.
Additionally, when you consider the unrecognized discount on acquired loans, our total loss absorption is roughly 2%, which is very strong.
Our CET1 ratio of 10.1%, down from 10.3% in the second quarter tied to the accelerated share repurchases in the quarter, loan growth, and higher unfunded commitments.
As Bryan mentioned, we returned $224 million in capital to common shareholders during the quarter, including $142 million, or 9 million shares of common stock repurchases.
We achieved $96 million in annualized run rate savings against our net target of $200 million.
Additionally, we continued making solid traction on revenue synergies and have thus far identified roughly $35 million of annualized revenue synergies that are tied to commercial loans and additional synergies tied to debt capital markets, mortgage, and private client wealth.
At period end, we had a total of $2 billion in PPP loans, including $600 million related to Round 1 and total PPP fees of $45 million.
We expect the vast majority of the Round 1 portfolio to be forgiven by the end of the year and that the Round 2 will largely be forgiven by the third quarter of next year.
And our outlook calls for charge-offs to be in the range of 5 to 15 basis points and that it's reasonable to see continued reserve outflows near term.
Finally, we expect our CET1 ratio to remain in the 9.5% to 10% range.

We delivered earnings per share of $0.50 a share and a return on tangible common equity of over 18% on an adjusted basis, despite the near-term headwinds that the industry is facing with continued pressure on short-term rates and strong competition given growing levels of excess liquidity and muted loan demand.
That, coupled with improving macroeconomic environment, drove another robust reserve release with a provision credit of $85 million in the quarter.
The redemptions will reduce interest expense by about $5 million annually with an expected payback of approximately five years.
Given continued improvement in the macroenvironment, overall credit quality, and muted loan growth, we posted a credit to provision of $85 million, which was down from $115 million credit last quarter.
The new program was launched in late August at First Horizon, with the remainder of the change occurring following the system conversions in February for our IBERIABANK franchise.
As Bryan mentioned, we returned $224 million in capital to common shareholders during the quarter, including $142 million, or 9 million shares of common stock repurchases.
We achieved $96 million in annualized run rate savings against our net target of $200 million.


Last year's results were $1.28 per share on net income of $66.3 million.
Although these results were below our internal expectations for the quarter due to the impact of extreme weather and timing, we remain confident in our ability to achieve our original guidance range of $3 to $3.30 per share.
As we highlighted earlier this year, a significant step forward in our commitment to sustainability as Minnesota Power's recently announced vision to deliver 100% carbon-free energy to customers by 2050.
Minnesota Power is the first Minnesota utility to provide 50% renewable energy to our customers.
This IRP outlines our plans to further transform Minnesota Power's energy supply to 70% renewable by 2030 and to be coal free and 80% lower carbon by 2035.
Formed just 10 years ago, ALLETE clean energy is now the second largest company in the ALLETE family, with 100% renewable generation, serving many utilities as well as some of the largest commercial and industrial customers in the country.
And as we shared with you in February, we're committed to achieving our 5% to 7% average annual earnings per share growth objective.
Today, ALLETE reported first-quarter 2021 earnings of $0.99 per share on net income of $51.8 million.
Earnings in 2020 were $1.28 per share on net income of $66.3 million.
The timing of income taxes and operating and maintenance expense in the first quarter of 2021 negatively impacted results compared to internal expectations by approximately $0.15 per share, which is expected to reverse during the remainder of the year.
In addition, net income in 2021 included an approximately $5 million or $0.10 per share negative impact related to ALLETE clean energy's Diamond Spring wind energy facility due to extreme winter weather in the Southwest United States in February 2021.
ALLETE's regulated operations segment, which includes Minnesota Power, Superior Water, Light and Power and the company's investment in the American Transmission Company recorded net income of $45 million compared to $57.5 million in the first quarter of 2020.
ALLETE clean energy recorded first-quarter 2021 net income of $7.4 million compared to $11.7 million in 2020.
Net income in 2021 included an approximately $5 million after-tax negative impact at ALLETE clean energy's Diamond Spring wind energy facility related to the extreme winter weather event and pricing volatility in the regional power market.
Megawatt hour generation was approximately 15% below our expectations for the quarter, resulting in lower revenue and production tax credits.
Timing of income taxes of approximately $2 million negatively impacted earnings in the first quarter, which is expected to reverse during the year.
Our corporate and other businesses, which includes BNI Energy and ALLETE properties recorded a net loss of $600,000 in 2021 compared to a net loss of $2.9 million in 2020.
Despite the negative impact due to the extreme winter weather conditions and lower-than-expected wind resources impacting ALLETE clean energy during the quarter, we remain confident in achieving our 2021 earnings guidance of $3 to $3.30 per share.
As I noted, total timing impacts in the first quarter of approximately $0.15 per share are expected to reverse throughout the year.
And we now expect production for Minnesota Power's taconite customers to be approximately 37 million to 38 million tons.
Our original 2021 guidance included a projection of Minnesota Power's industrial sales, which reflected a partial recovery from 2020 with anticipated production from our taconite customers of approximately 35 million tons.
Primarily driven by this positive development, we now anticipate that our regulated operations will be at the higher end of our guidance range of $2.30 to $2.50 per share.
And ALLETE clean energy and our corporate and other businesses are expected to be at the lower end of our original guidance of $0.70 to $0.80 per share, primarily due to the extreme winter weather event previously discussed.
As I've expressed since the beginning of this year, achieving ALLETE's growth objective of 5% to 7% over the long term remains a focus, and we are continuing to advance and execute upon strategies to ensure that happens.
Given the challenges of COVID and increasing investments and expenses incurred to support the clean energy transition, the company's return levels are at some of the lowest levels in decades at approximately 2% to 3% below the currently authorized level.
Also in the transmission arena, Minnesota Power is an active member of Grid North Partners, formally known as CapX2020, a group of 10 northern cooperatives, municipal power agencies and investor-owned utilities who on March 9, 2021, announced a renewed name and focus to develop and expand transmission capacity to maintain reliable energy delivery across the northern region of the country and identify collaborative solutions to meet the region's evolving energy needs.
As I stated last quarter, we are highly confident that with the expanded scale and suite of service offerings, we will be able to maintain very high levels of average annual earnings growth approaching 40% over the next 5 years.
This 92-megawatt project not only provides an opportunity to utilize our 80% safe harbor turbines, but also expands our customer base and presence in yet another geographic region of the country.
Our expanding capabilities, strong reputation and widening geographic footprint established over the past 10 years uniquely positions us to leverage these trends, helping solve customer needs and providing our investors with a rewarding value proposition as we go.
All of ALLETE's growth initiatives are well supported by a strong balance sheet, conservative capital structure at approximately 41% total debt and a growing base of operating cash flow already over $300 million annually.