Prompt:
Human: While we are making those statements in good faith, we do not have any guarantee about the results we will achieve.
Descriptions of the risk factors are included in the documents we filed with the SEC.
Also, we will be discussing some non-GAAP financial measures.
References to adjusted items, including organic net sales refer to measures that exclude items management believes impact the comparability for the period referenced.
Today, Dave and I will discuss our results for the quarter, our updated outlook for the remainder of the year and why we believe that Conagra continues to be well-positioned for the future.
Slide 5 lays out our key messages for today.
First, as everyone is aware, the external environment is incredibly dynamic right now, and we see many of these challenges persisting.
But despite the complex operating situation, the ongoing dedication, resilience and agility of our team enabled us to deliver solid Q1 results on the back of strong sales.
We continue to benefit from our proven approach to brand building and the breadth of investments we're making to increase consumer demand.
These efforts drive brand health, which is evidenced by the continued strength of our sales, share and repeat rates across the portfolio.
As a result, we believe our brands are well-positioned to continue managing through the current inflationary challenges and support ongoing inflation-justified pricing actions.
Looking ahead, we're reaffirming our earnings per share outlook for the year.
However, we now see a slightly different path to achieving that EPS.
We expect inflation to be higher than originally forecasted but we also see continued strength in consumer demand even above our original expectations.
We believe that consumer demand, coupled with additional pricing and cost-saving actions, will enable us to deliver adjusted diluted earnings per share of about $2.50.
So with that as the backdrop, let's jump right in.
We know that our long-term performance is a function of the caliber and engagement of our team, and that has never been more true than today.
I'm extremely proud of the team's resilience and agility in adapting to the dynamic environment we're currently experiencing.
As a result of our team's continued hard work and dedication, we've been able to successfully execute through sustained elevated demand and challenging supply conditions.
First, as we've already mentioned, consumer demand has remained at higher levels than we expected due to macro forces, as well as the unique position of our portfolio.
This is a great problem to have, but it increases the demands on our supply chain at a time when the industry is navigating labor shortages, material supply issues and transportation cost and congestion challenges.
Taken together, these factors created an upper control limit on the amount of product we could produce and ship in Q1.
If we had the capacity to meet all of the demand, our numbers would likely have been even more impressive.
However, our ability to deliver solid results amid this dynamic environment is a testament to our team's ongoing commitment to executing the Conagra Way playbook each and every day.
The Conagra Way playbook to portfolio modernization remains our North Star in any operating environment.
Regardless of the external factors that may influence short-term demand and supply dynamics in any given quarter, we define long-term success as creating meaningful and lasting connections between consumers and our brands.
We believe that our playbook is the most effective framework for delivering on that objective.
Those of you who have followed us for a while will recall that our modern approach to brand building is more comprehensive than legacy industry practices.
Instead of anchoring our brand building predominantly in broadcast advertising that pushes new messages on old products, we anchor our investments and our efforts first in developing new modern and superior items.
Then once we've created these more modern and provocative products, we invest to drive the physical availability of those items in-store and online.
And finally, our investments to drive meaningful one-to-one communication to the right consumers at the right time, at the right place, enable us to remain salient and relevant.
This comprehensive approach and unwavering commitment to modernizing and premiumizing our portfolio continues to pay off and enables us to better manage our brands within any environment.
And as you can see on Slide 8, our team delivered solid results during the first quarter.
As you know, our year-over-year growth rates were impacted by the elevated demand we experienced during the first quarter of fiscal 2021 when we were still in the early months of the pandemic.
As you can see, on a two-year CAGR basis, organic net sales for the first quarter increased 7% and adjusted earnings per share grew by nearly 8%.
Importantly, our solid performance in the first quarter was broad-based.
Just take a look at Slide 9.
Total Conagra weighted dollar share grew 0.8 points on a two-year basis in the quarter with share gains in each of our domestic retail domains: frozen, snacks and staples.
Innovation remained a key to our success across the portfolio in Q1.
Slide 10 highlights the impact of our disciplined approach to delivering new products and modernizing our portfolio.
During the first quarter, our innovation outperformed the strong results we delivered in the year-ago period.
This reflects not only the quality of the products launched, but also our efforts to support those launches with investments and capabilities that deliver deeper, more meaningful consumer connections.
And as you can see, our innovation rose to the top of the pack in several key categories, including snacks, sweet treats, frozen vegetables and frozen meals.
Our performance is a clear testament to the innovation and marketing engine at Conagra, and we believe the solid reputation we've built with customers and consumers.
In addition to developing superior products, we also remain focused on physical availability during the first quarter through both brick-and-mortar and online.
Slide 11 demonstrates how our ongoing investments in e-commerce continued to yield strong results.
Once again, we delivered quarterly growth in our $1 billion e-commerce business, both against our peers and as a percentage of our overall retail sales.
We outpaced the entire total edible category in terms of e-commerce retail sales growth during the first quarter, just as we did throughout fiscal 2021.
E-commerce sales now represent more than 9% of our total retail sales, more than double what they were just two years ago.
As we mentioned earlier, our solid top-line performance during the first quarter was driven by strong demand, robust brand-building investments and inflation-justified pricing actions.
Slide 12 details the extent of our pricing actions to date.
A few key points to keep in mind.
First, we began implementing actions on some of our domestic retail products in the fourth quarter of fiscal 2021 in response to the inflation we began to experience last fiscal year.
The majority of our domestic retail pricing actions, however, just started to hit the market at the end of Q1 in response to the inflation we spoke to you about on our Q4 earnings call in July.
As a result, the benefit in the quarter is less than what we expect to see going forward.
You can see this playing out in the consumption data from the last four weeks, all of which are part of our fiscal second quarter.
During this period, our on-shelf prices rose across all three domestic retail domains.
Looking ahead, our original plans for the year included additional inflation-justified pricing in future periods.
Given the heightened inflationary environment, however, we now expect to take incremental actions beyond those original plans.
Many of these actions have already been communicated to our customers and the benefits will be weighted toward the second half of the fiscal year.
We'll keep you apprised, but it's important that we stress that our pricing actions are not a blunt instrument.
We take a fact-based approach to pricing within the portfolio.
We use a data-driven approach to elasticities and thoughtfully execute actions to align with customer windows.
As we look ahead, we remain confident in the fiscal 2022 earnings per share guidance we outlined on the fourth-quarter call, but we now expect to take a different path to achieving that guidance.
As mentioned, we now expect inflation to be higher than originally forecasted.
However, we believe that the combination of continued strength in consumer demand, incremental inflation-justified pricing and additional cost savings actions will enable us to offset the impact of that inflation.
I'd like to briefly unpack these factors, starting with the update to our inflation expectations.
As you can see on Slide 14, we currently expect gross inflation to be approximately 11% for fiscal 2022, compared to the approximately 9% we anticipated at the time of our fourth-quarter call.
The bulk of the incremental inflation can be attributed to continued increases in the cost of proteins, edible fats and oils, grains and steel cans since our Q4 call.
I want to emphasize that this is our best current estimate of gross inflation for the full year and does not account for the impact of supply chain productivity improvements or hedging.
Dave will provide more color on inflation and the various levers we're able to pull to help offset its impact.
Even in the face of this acutely inflationary environment, we remain squarely focused on continuing to invest in our brands and capturing the strong consumer demand.
And we're pleased to share that the consumer demand we experienced during the first quarter exceeded our prior expectations.
As you can see on Slide 15, our total company retail sales on a two-year CAGR basis were up nearly 7% in the first quarter with strong growth across our frozen, snacks and staples domains.
And when you peel back the onion further you find even more evidence to underscore the durable strength of our top-line performance.
The chart on the left side of Slide 16 demonstrates that we continue to grow our household penetration during the first quarter, building upon the significant new consumer acquisition we've achieved over the past year and a half.
But what I believe is even more encouraging is the chart on the right.
We didn't just acquire new consumers, we kept them.
The data shows growth in repeat rates that demonstrates our new consumers discovered the incredible products and tremendous value proposition of our portfolio.
We're proud that our products are resonating with consumers and that those shoppers keep coming back for more.
Importantly, our performance on these metrics, household penetration and repeat rates has not only been strong in the absolute but relative to the competition as well.
We're also encouraged by the elasticity of demand for our portfolio, which has been better than previously expected.
Slide 17 demonstrates that our pricing actions to date have had limited impact on demand.
As I mentioned, most of our pricing actions taken to date began to appear on shelf at the end of Q1.
And you can see how that dynamic is being reflected in the data for September, which is part of our second quarter.
We continue to be cautiously optimistic that our elasticities will remain favorable as the full array of pricing enters the market.
As evidenced by our strong penetration and repeat rates, a growing number of consumers have clearly discovered the convenience and value that our retail portfolio provides.
Taken together, the net result of these factors I just detailed is the reaffirmation of our earnings per share guidance and margin and a few updates on how we expect to get there.
We're increasing our organic net sales guidance to be approximately plus 1%, up from approximately flat at the time of our Q4 call.
We are reaffirming our adjusted operating margin guidance to remain at approximately 16%.
We're updating our gross inflation guidance to about 11%, and we are reaffirming our adjusted earnings per share guidance of approximately $2.50.
This includes enduring trends that predate the COVID-19 pandemic and new consumer behaviors adopted over the past 18 months.
As a reminder, we have a proven track record of successfully attracting millennial and Gen Z consumers at a higher rate than our categories as a whole.
By attracting younger consumers now we create the groundwork for future growth.
Not only do these younger generations offer the opportunity to drive lifetime value, they're larger than the Gen X generation that immediately preceded them.
Historically, younger adults have eaten at home less than older generations.
The meaningful shift toward at-home eating tends to happen during the family formation years.
In particular, we know that annual frozen category spend per buyer increases in households with young kids, and it increases further as the kids grow up.
Importantly, almost half of millennials have yet to begin having kids, and we fully expect their consumption of Conagra products will grow along with the growth of their families.
Another enduring trend is the growth of snacking, which has long been the fastest-growing occasion in food and shows no signs of slowing down.
We have a very strong $2 billion ready-to-eat snacks business that spans multiple subcategories where we either have the fastest-growing brand, the largest brand or both.
The COVID-19 pandemic has only served to accelerate these existing trends and create additional long-term growth drivers.
One of the primary drivers for more at-home eating is the shifting workplace dynamics that are meaningfully changing weekday eating behavior.
This includes both the contracting workforce and the rise of remote work.
As more people work from home or exit the workforce, the more likely these people are to eat at home, particularly on weekdays.
Importantly, some aspects of remote workforce adoption are expected to be permanent.
The way we work is changing and that's driving changes in consumer eating habits as well.
More time at home also means more time devoted to preparing meals.
Younger consumers are acquiring new skills and developing new food habits at a formative age.
The behavioral science tells us that when people learn to cook at an early age, they continue to cook at elevated levels as they get older, and consumers of all ages are rediscovering their kitchens and cooking more at home.
Across all these long-term tailwinds, we believe our portfolio is uniquely positioned to meet the needs of today's consumers.
Our frozen portfolio offers hyper convenient meals and sides perfect for the quick work lunch or family dinner.
Our snacks and sweet treats portfolio caters to those looking to experience bold, anytime flavors at home while enjoying time with friends and family.
And our staples portfolio offers the simple cooking aids and meal enhancers that both experienced and first-time cooks are seeking.
In summary, Conagra's portfolio has delivered against the recent behavioral shift better than the competition.
And as we move beyond the pandemic and millennials and Gen Z-ers continue to age, we believe that our brands are well-positioned to become an even more regular part of their routines.
I'll start by going over some highlights from the quarter shown on Slide 21.
As a reminder, our year-over-year comparisons reflect the lapping of extremely strong demand for at-home food consumption during the early months of the pandemic.
For that reason, we are also including two-year comparisons for a number of important metrics to provide helpful context regarding the underlying health of our business.
We are pleased with the overall results of the first quarter, which, as Sean discussed, reflected our ability to successfully navigate the current dynamic environment.
Organic net sales declined by 0.4%, compared to a year ago and increased 7% on a two-year CAGR.
Adjusted gross profit and adjusted operating profit both decreased year over year but were flat on a two-year basis, demonstrating our ability to offset the double-digit inflation experienced in the business during the quarter.
I also want to highlight the increase in our advertising and promotional spend on both a one- and two-year basis.
These investments reflect our continued commitment to building and maintaining strong brands.
Turning to Slide 22.
I'd like to spend a few minutes discussing our net sales for the quarter.
On an organic net-sales basis, the 0.4% decrease during the quarter was driven by a 2% decline in volume from lapping last year's elevated demand.
This decline was almost entirely offset by favorable brand mix and the pricing actions we've taken to date in response to the inflationary environment.
There are two items I want to call out on price/mix.
First, as a reminder, the majority of our domestic retail pricing actions just started to hit shelves at the end of Q1.
So the benefit in the quarter was limited compared to the benefits we expect to receive over the course of fiscal '22.
Second, our 1.6% benefit from price/mix laps a 70-basis-point benefit in the prior-year period that was associated with the true-up of fiscal '20 fourth-quarter trade expense accrual.
Without that item, the current quarter's price mix benefit would have been plus 2.3%.
Divestitures resulted in a 110-basis-point decline in net sales during the quarter, and foreign exchange provided a 50-basis-point benefit.
Together, these factors drove a 1% decline in total Conagra net sales for the quarter compared to a year ago.
Slide 23 shows our net sales summary by segment, both on a year-over-year and a two-year compounded basis.
As you can see, we've had strong two-year compounded net sales growth in each of our three retail segments with a slight decline in our food service segment.
Net sales for the entire company have increased 7% on a two-year CAGR basis.
Our two-year annual sales growth rate for the domestic retail segments is tracking closely with the retail consumption growth achieved over the same period.
Turning to adjusted operating margin.
Slide 24 details the puts and takes of our first-quarter results.
First-quarter inflation was 16.6%, driving our adjusted gross margin decline of 530 basis points compared to a year ago.
We delivered 550 points of benefit from our margin lever actions in the quarter, inflation-justified pricing, supply chain realized productivity, cost synergies associated with the Pinnacle Foods acquisition and lower pandemic-related expenses.
However, these benefits were more than offset by the very significant inflation.
Note that the 16.6% inflation shown on the slide represents gross market inflation for Q1 and does not include hedging or sourcing benefits.
We capture hedging as part of our realized productivity.
For the first quarter, our net inflation inclusive of hedging was high single digits.
Our Q1 adjusted operating margin was also impacted by year-over-year changes to A&P and adjusted SG&A.
As I previously mentioned, we continue to increase our investments in A&P in the quarter.
The adjusted operating profit and margin by segment for the quarter are shown on Slide 25.
As a reminder, we expect our first quarter this fiscal year to benefit the least from our inflation-justified pricing actions.
It's also worth highlighting again that our adjusted operating profit is flat on a two-year basis.
Over a two-year period, we have completely offset double-digit inflation while also increasing investment in the business.
As you can see on Slide 26, our Q1 adjusted earnings per share of $0.50 was heavily impacted by inflation, as well as by a slightly higher tax rate.
These headwinds were partially offset by strong performance from our Ardent Mills joint venture, lower net interest expense and a slightly lower average diluted share count due to our share repurchases during the quarter.
Turning to Slide 27.
We ended the quarter with a net debt-to-EBITDA ratio of four times, which was in line with our expectations and reflects the seasonality of the business.
Our cash flow from operations and free cash flow were also both in line with our expectations for the quarter.
Our capex increased year over year as we remain focused on continued capacity investments to maximize physical availability of our products.
We also continued to return capital to shareholders during the first quarter.
We repurchased approximately $50 million of common stock and paid approximately $132 million in cash dividends.
As a reminder, the board of directors approved a 14% increase to our annual dividend in July.
We paid our first dividend at the increased quarterly rate of $0.3125 per share or $1.25 per share on an annualized basis shortly after the conclusion of Q1.
As we have already detailed today, we continue to experience cost of goods sold inflation at a level that is both significant and in excess of the level projected at the time of our Q4 fiscal '21 earnings call.
We now expect gross cost of goods sold inflation to be approximately 11% for fiscal '22.
We previously expected gross inflation of approximately 9%.
This heightened inflationary pressure is coming from increases across many inputs, particularly proteins, edible fats and oils, grains and metal-based packaging.
We are also seeing increasing costs in transportation given marketplace dynamics.
We have strong plans in place to mitigate the impact of this inflation.
First, we will leverage sourcing and hedging.
Given our sourcing and hedging positions, we only expect two-thirds of the 200-basis-point increase in gross inflation to impact the fiscal '22 P&L.
Regarding quarterly flow, we expect about half of the net impact from this heightened inflation to hit in the fourth quarter.
We expect the other half to impact Q2 and Q3 about equally.
As a reminder, the benefit of hedging actions is classified as realized productivity in our schedules.
In addition to hedging and sourcing, we expect to have a number of drivers to help offset inflation in fiscal '22.
As Sean already detailed, these drivers include higher-than-expected consumer demand, lower-than-expected elasticities of demand and incremental inflation-justified pricing beyond our original plan.
As Sean noted, the benefits of our incremental pricing actions will be weighted toward the second half of the fiscal year.
We are also taking additional actions to enhance supply chain productivity through the balance of fiscal '22.
And as always, we will maintain a disciplined approach to cost control, which continues to be a hallmark of our culture.
We now have additional cost savings actions planned beyond what was included as part of our initial guidance for the year.
In summary, we intend to leverage our full range of margin drivers to offset the impact of inflation.
We expect to realize the benefits from these drivers as the year progresses with the benefits weighted toward the second half of the year.
We continue to expect margins to improve sequentially over the remainder of fiscal '22.
We remain confident in our original adjusted earnings per share guidance of approximately $2.50 for the year, but the path to achieve that guidance has changed.
We now expect organic net sales growth of approximately 1% compared to our prior expectations of approximately flat growth.
Also, we expect our adjusted operating margin to continue to be approximately 16% but sees some modest compression versus our original forecast.
We expect the increase in dollar profit from higher net sales together with incremental cost savings to offset the incremental net inflation dollars.
As I explained on last quarter's call, this guidance is our best estimate of how we will perform in fiscal '22.
But our ultimate performance will be highly dependent on multiple factors, including: first, how consumers purchase food as food service establishments continue to reopen and people return to in-office work and in-person school; second, the level of inflation we ultimately experience; third, the elasticity of demand impact as consumers respond to higher prices; and finally, the ability of our end-to-end supply chain to continue to operate effectively as the pandemic continues to evolve.
Before turning it over to the operator for Q&A, I want to reiterate Sean's comments regarding our confidence in the resiliency of our business.
Our ability to deliver solid results amid such a dynamic environment reflects the continued dedication of our team, as well as the strength of our brands and the Conagra Way playbook.
That concludes my remarks.
 Assistant:

Chosen response:
q1 adjusted earnings per share $0.50.
reaffirming its fiscal 2022 adjusted earnings per share guidance and updating its expected path to achieving that guidance.
continues to experience elevated cost of goods sold inflation, rate of which continued to increase during q1 of fiscal 2022.
continues to expect margins to improve sequentially over remainder of year.
fy2022 organic net sales growth is expected to be approximately +1% versus prior guidance of approximately flat.


Prompt:
Human: This quarter was certainly different than the last, less -- day-to-day and sometimes minute-to-minute -- focused on COVID, PPP, loan deferrals and the Steuben acquisition, and we seem to have settled into a reasonably effective operating cadence.
Operating earnings for the quarter were a bit better than we might have expected, given the yield curve and the muted product demand.
But our nonbanking businesses had a strong quarter.
In fact, year-to-date are up 4% on the topline and over 6% on the bottom line, so a very solid performance for those businesses.
The quarter was also very good for mortgage banking, credit, deposit growth, consumer deposit fees and the Steuben acquisition was also very additive to our performance.
The only real negative in the quarter, notwithstanding the litigation accrual that Joe will discuss further, was credit demand, excluding mortgage lending.
The total loan book was off about 1%, with slight declines in every business.
The mortgage business was quite strong, we sold over $100 million of lower rate, conforming production in the secondary market, where premiums are -- at the present moment -- very generous.
So, overall, we're satisfied with the quarter and with current operating trends, given the environment.
As we head into the last quarter of the year and into 2021, we will continue to be mindful and focused on the potential headwinds, including credit, the economic environment and interest rates.
Despite the forward headwinds, we think we're in pretty good shape to capitalize on opportunities that, we expect, lie ahead.
As Mark noted, the earnings results for the third quarter of 2020 were very solid, especially in light of the economic challenges and industry headwinds we faced throughout the year.
The company recorded $0.79 in fully diluted GAAP earnings per share for the third quarter, excluding $0.04 per share for litigation reserve expense, net of tax effect and $0.02 per share for acquisition-related expenses, net of tax effect.
Fully diluted operating earnings per share were $0.85 for the quarter.
These results were $0.01 per share higher than the third quarter of 2019, fully diluted operating earnings per share of $0.84 and $0.09 higher than the linked second quarter 2020, fully diluted operating earnings per share of $0.76.
The company's adjusted pre-tax pre-provision net revenue per share of $1.10 was consistent with the third quarter of 2019 and $0.02 per share higher than the linked second quarter results.
I will next touch on the company's balance sheet, before providing additional details on the company's earnings performance for the quarter.
The company closed the third quarter of 2020 with total assets of $13.85 billion.
This was up $401.1 million or 3% from the end of the linked second quarter and up $2.25 billion or 19.4% from the year earlier.
Similarly, average interest earning assets for the third quarter of 2020 of $11.96 billion were up $852.5 million or 7.7% from the linked second quarter of 2020, and up $2.15 billion or 21.9% from one year prior.
The very large increase in total assets and average interest earning assets over the prior 12 months was driven by the second quarter 2020 acquisition of Steuben Trust Corporation and large inflows of government stimulus-related funding in PPP originations.
Ending loans at September 30th, 2020 were $7.46 billion, up $605.5 million, or 8.8% from one year prior, due to the Steuben acquisition and the origination of $507.4 million of PPP loans.
Ending loans were down $69.4 million or 0.9% from the end of the linked second quarter, due to a decline in business activities in the company's markets due to the COVID-19 pandemic.
The company's average total deposits were up $823 million or 8.1% on a linked quarter basis, and up $2 billion or 22.6% over the third quarter of 2019.
A significant portion of these funds were invested in overnight federal funds sold, which increased average cash equivalents in the quarter to $1.3 billion, up $635.1 million or 95.4% higher than the third quarter of 2019 and $478 million or 58.1% higher than the linked second quarter balances.
The company's capital reserves and liquidity profile remains strong in the third quarter.
The company's net tangible equity to net tangible assets ratio was 9.92% at September 30th, 2020.
This was down from 10.08% at the end of the second quarter, but up from 9.68% one year prior.
The company's Tier 1 leverage ratio was 10.21% at the end of the third quarter, which remained over two times the well capitalized regulatory standard of 5%.
The company has an abundance of liquidity resources and is extremely well positioned to fund future loan growth.
The company's funding base is largely comprised of low-cost core deposits.
At September 30th, 2020, checking and savings account balances represented 71.3% of the company's total deposit base.
The combination of the company's cash and cash equivalents, borrowing availability at the Federal Reserve Bank, borrowing capacity at the Federal Home Loan Bank and unpledged available-for-sale investment securities portfolio, provided the company with over $4.8 billion of immediately available sources of liquidity.
The company recorded total revenues of $152.6 million in the third quarter of 2020, an increase of $4.3 million or 2.9% from the prior year's third quarter.
The increase in total revenues between the periods was driven by increases in net interest income, banking-related noninterest revenues and noninterest revenues derived from our financial services businesses.
Net interest income was up $1.7 million or 1.9% between comparable annual quarters, driven by a $2.15 billion or 21.9% increase in average assets between the periods, offset in part by a 61-basis point decrease in net interest margin.
The company's fully taxable equivalent net interest margin was 3.12% in the third quarter of 2020 as compared to 3.73% in the third quarter of 2019.
A precipitous drop in market interest rates and significant increases and change in the composition of earning assets between the periods, including a $635.1 million increase in average cash equivalents, negatively impacted the company's net interest margin.
Noninterest banking revenues were up $1.2 million or 6.9% from $17.9 million in the third quarter of 2019 to $19.1 million in the third quarter of 2020.
This was driven by a $4 million increase in mortgage banking revenue, offset in part by a $2.8 million decrease in deposit service and other banking fees.
Employee benefit services revenues were up $0.8 million or 3.4% from $24.3 million in the third quarter of 2019 to $25.2 million in the third quarter of 2020, driven by increases in plan administration and recordkeeping revenues and employee benefit trust revenues.
Wealth management, insurance services revenues were also up $0.5 million or 3.6% between comparable annual quarters.
Similarly, total revenues were up $7.7 million or 5.3% on a linked quarter basis, due to a $1 million or 1.1% increase in net interest income, a $4.8 million or 33.4% increase in banking noninterest revenues and a $2 million or 5.1% increase in revenues from our financial services businesses.
The substantial increase in banking noninterest revenues was driven by a $2.5 million increase in mortgage banking income due to an increase in secondary market mortgage sales activities, a $2.3 million increase in deposit service and other banking fees, as deposit transaction activity levels rebounded in the third quarter.
The company recorded $1.9 million in the provision for credit losses during the third quarter of 2020.
This amount was significantly less than the amounts recorded in the prior two quarters of 2020, and only a $100,000 greater than the amount recorded in the third quarter of 2019.
The decrease in the provision for credit losses during the third quarter as compared to the prior two quarters was due to improving economic conditions, modest levels of delinquent nonperforming loans, a decrease in loans outstanding, low levels of net charge-offs and a large decrease in the number and amount of the company's loan balances subject to borrow forbearance.
The company recorded loan net charge-offs of $1.3 million or 7 basis points annualized during the third quarter of 2020.
Comparatively, loan net-charge offs in the third quarter of 2019 were $1.6 million or 10 basis points annualized.
On a year-to-date basis, the company recorded net charge-offs of $3.7 million or 7 basis points annualized.
This compares to $5.4 million or 11 basis points annualized for the nine-month period ended September 30th, 2019.
Exclusive of $0.8 million of acquisition-related expenses and $3 million of litigation reserve charges, the company recorded $93.2 million of operating expenses in the third quarter of 2020.
This compares to $90.9 million in operating expenses recorded in the third quarter of 2019, exclusive of $6.1 million of acquisition-related expenses and $87.5 million in operating expenses in the linked second quarter of 2020, exclusive of $3.4 million of acquisition-related expenses.
Although the company continued to experience reduced levels of business activities during the third quarter of 2020 due to the ongoing COVID-19 pandemic, the resumption of certain marketing and business development activities and incremental costs associated with operating a larger organization, as a result of the acquisition of Steuben in the second quarter of 2020, resulted in a $2.3 million or 2.6% net year-over-year increase in operating expenses between the comparable third quarters.
The $5.7 million or 6.5% increase in operating expenses between the third quarter of 2020 and the linked second quarter was driven by a $2.6 million or 4.7% increase in salaries and employee benefits, $1.3 million or 11.7% increase in data processing and communications expense, a $0.4 million or 3.9% increase in occupancy and equipment expense and a $1.4 million or 16.4% increase in other expenses.
The effective tax rate for the third quarter of 2020 was 20.3%, consistent with the linked second quarter.
During the third quarter, the company grew $3 million or $0.04 per fully diluted share, net of tax effect, in litigation reserves related to a class action suit brought against the company for its deposit account overdraft disclosures.
The company anticipates that it will execute a settlement agreement with the plaintiff on the matter in the fourth quarter.
The agreement will be subject to the final approval of the court, and the company does not anticipate that additional reserves will be approved for this matter in future periods.
From a credit risk and lending perspective, the company continues to closely monitor the activities of its COVID-19-impacted borrowers and develop loss mitigation strategies on a case-by-case basis, including but not limited to the extension of forbearance arrangements.
At September 30th, 2020, 216 borrowers representing $193 million or 2.6% of loans outstanding were active under COVID-related forbearance.
As of last week, the outstanding loan balances under active forbearance dropped below $125 million.
Although these trends are favorable, the company anticipates that the number of delinquent nonperforming loans will increase over the coming quarters.
At September 30th, 2020, nonperforming loans increased to 43 basis points or 0.43% of total loans outstanding.
This compares to 0.42% of total loans outstanding at the end of the third quarter of 2019 and 0.36% at the end of the linked second quarter of 2020.
Total delinquent loans, which includes nonperforming loans and loans 30 or more days delinquent, to total loans outstanding was 0.79% at the end of the third quarter of 2020.
This compares to 0.85% at the end of the third quarter of 2019 and 0.72% at the end of the linked quarter -- second quarter of 2020.
The company's allowance for credit losses increased from $64.4 million or 0.86% of total loans outstanding at June 30th to $65 million or 0.87% of total loans outstanding at September 30th.
The allowance for credit losses at September 30th represented over 10 times the company's trailing 12 months of net charge-offs.
Operationally, we will continue to adapt to the changing market conditions.
We remain very focused on asset quality and credit loss mitigation.
We anticipate assisting the substantial majority of the company's PPP borrowers with forgiveness request in the fourth quarter of 2020 and throughout 2021.
The eligibility of the borrower's forgiveness request and the SBA's ability to provide loan forgiveness in a timely manner is uncertain at this time.
For these reasons, it is uncertain as to the timing in which the company's remaining $11.3 million of net deferred PPPs will be recognized through the income statement.
Loan demand may also be impaired by weak economic conditions.
We are also uncertain as to whether or not the high levels of deposit liabilities will be retained, spent down or increased by further additional stimulus.
Since the ultimate effect that the COVID-19 pandemic will have on the company's credit loss remains uncertain, a decrease in the provision for credit losses during the third quarter should not be interpreted as a trend or utilized to forecast provision in future quarters.
Although the credit metrics that management historically utilized to determine expected loan losses remains subdued in the third quarter, the company anticipates increases in delinquency and nonperforming loan balances in future quarters, that it is unlikely that all COVID-affected borrowers will resume full payment of contractual amounts upon the expiration of the forbearance agreements.
Although we have begun to deploy portions of our cash equivalent balances into investment securities to increase interest income on a going forward basis and provide a hedge against the sustained low interest rate environment and anticipate recognizing the substantial majority of deferred PPP's over the next several quarters, we also expect net interest margin pressures to persist and remain well below our historical levels.
Fortunately, the company's diversified noninterest revenue streams, which represent approximately 38% of the company's total year-to-date revenues, remain strong and are anticipated to mitigate some of the margin compression.
In addition, the company's management team is actively developing and implementing various earnings improvement initiatives, including potential revenue enhancements and cost-reduction measures intended to favorably impact future earnings.
The company's dividend capacity remained strong.
Accordingly, the company expects to continue to pay a quarterly dividend, consistent with past practices.
Undoubtedly, the COVID-19 crisis has changed the near-term outlook for society in general, as well as expectations around economic conditions.
With this said, we will continue to support our stakeholders in a thoughtful, disciplined and compassionate manner.
I believe the company is well prepared to curb the impacts.
 Assistant:

Chosen response:
compname reports q3 earnings per share of $0.79.
q3 gaap earnings per share $0.79.
q3 revenue $152.6 million versus refinitiv ibes estimate of $150 million.
community bank system - qtrly operating diluted earnings per share (non-gaap) of $0.85.
community bank system- covid-19 expected to continue to impact co's financial results.


Prompt:
Human: Many factors could cause future results to differ materially.
A more detailed description of such factors can be found in the filings with the Securities and Exchange Commission.
Joining us for today's call are Jerry Grisko, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer.
We experienced growth in total revenue, same unit revenue, earnings per share and adjusted EBITDA for the first quarter of 2021.
These results provide important momentum for the remainder of the year.
Our results demonstrate the fundamental attributes of our business model that I've emphasized throughout the past year.
These characteristics continue to enable our positive performance during both favorable and less favorable business conditions.
These attributes include the proportion, representing approximately 70% of our revenue that comes from essential and recurring services, including our tax services, insurance services, payroll services and a host of others that our clients rely on us to provide regardless of business conditions.
Our high client retention rates, our broad geographic footprint, the diversity of our client base in terms of industry and size of business, our strong and consistent cash flow and the substantial amount of variable expenses in our business.
We continue to capitalize on the stability that our business model affords.
Throughout the last year and into the first quarter of 2021, we have watched how these attributes provided us an opportunity for growth regardless of economic environment.
In addition, we continue to be extremely vigilant in managing our overall expenses and discretionary spending.
Practices we focused on at the start of the pandemic and carried into the first quarter of this year.
As recovery continues, and we return to some level of normalcy, these expenses will begin to return as well, albeit at somewhat reduced levels compared to 2019.
Now I will turn to the performance of our two primary practice groups.
Within our Financial Services group, we continue to experience very strong demand for our core services, including many of the compliance-related services that are weighted more heavily toward the first quarter of each year.
This year, the IRS tax filing deadline was extended to May 15, so a portion of our tax compliance revenue work will extend beyond the traditional mid-April time frame.
Within our Discretionary and Project-Based businesses, we continue to experience increasing demand for our litigation support business and are seeing returning interest in our private equity advisory services and our valuation services.
Further, we anticipated that some project-based and discretionary work that was put on hold or delayed last year would carry over into 2021, and we are seeing that now, especially for our services that touch M&A transactions.
While it is still too early to tell if this trend will continue throughout the year, all signs are positive and we remain encouraged based on the general level of optimism we are hearing from our clients and the external signs of economic recovery.
Also, important to note, the passage of the most recent COVID relief bill and stimulus package, like those passed in 2020, present new considerations for businesses and translates to more opportunities for us to deepen our client relationships and offer support when our clients need it most.
We continue to be active in our outreach and engagement of our clients to help supporting accessing these new and expanded opportunities.
Our government healthcare consulting business ended 2020 strong and started this year with tailwinds as delayed contracts resumed, and we find our clients have largely adjusted to working with us using virtual tools.
We are also seeing new projects move forward, including increasing interest in our services related to managed care, which means additional opportunities for this business.
Turning to our Benefits and Insurance group.
We started the year strong and are seeing a continuation of the positive trends that we experienced in the second half of last year in our employee benefits business, the core of our property and casualty business, and the advisory services provided within our retirement plan services businesses.
Client retention is also up for these same services so far in 2021.
From a consolidated viewpoint, we continue to experience some softness in the portion of our Payroll business that generally serves smaller businesses, including a number in the food services industry.
To put this in context, the total revenue from this segment of our payroll clients represents less than 4% of CBIZ' total revenues.
One additional area I want to highlight is our investment in producers.
Our ability to track, retain and develop our producers is essential to accelerate organic growth, and I am pleased to report that our overall number of producers is up at the start of 2021, and we continue to make progress in this area.
The new producers we brought on in recent years continue to outperform our projections.
And as a result, we are continuing to add new producers and to expand this program to other areas of our business.
In summary, we are pleased to start 2021 in a position of financial strength with a strong balance sheet, low debt and ready access to capital.
With total revenue growing by 8.4% in the first quarter, revenue growth from acquired businesses accounted for 4.8% of that growth, with same unit growth up by 3.6%.
After facing uncertainty in 2020 coming into this year, we were unclear how the year-over-year comparison to 2020 would unfold in the first quarter.
The core business has continued the steady performance that we saw through much of last year.
And as expected, the advisory and transaction-oriented business services that were more vulnerable to the conditions encountered last year have largely stabilized, and we are positioned to record growth this year.
Our Financial Services group recorded total revenue growth of 8.1%, with same unit revenue growth of 4.5%.
With no industry concentration within our core services clients, the diverse set of clients we serve lend stability to this business.
The acquisitions we closed last year are performing extremely well, with the only soft comparison being the private equity focused advisory business where the first quarter this year compares with a strong first quarter a year ago.
We currently have a full pipeline of prospective work within this group and we expect to report growth for the full year.
Continuing to work under remote conditions, our government healthcare consulting business had a strong first quarter.
Turning to the benefits and insurance group, total revenue grew by 9.6%, with same unit revenue growth of 1.6% in the first quarter this year.
Some of the transactional-based businesses, such as payroll services, are soft in comparison with first quarter a year ago.
But after reporting a same unit revenue decline of 3% for the full year last year, the 1.6% first quarter same unit revenue growth within benefits insurance this year is noteworthy.
As Jerry commented, our investment in additional producers that has occurred in recent years is resulting in stronger pipelines of new business.
We are continuing to invest in bringing additional producers onboard to further enhance growth prospects.
When coupled with strong client retention, we are well positioned for growth.
As Jerry discussed, we remain vigilant in managing our expenses, which include for example, lower levels of expense for travel and entertainment that given the constraints caused by the pandemic are directly tied to our remote work.
Also, as a reminder, in the first quarter a year ago, we recorded an additional $2 million of bad debt expense.
And so with the improvement in client receivables we are seeing, bad debt expense was lower this year.
We are pleased to report 390 basis point margin expansion on pre-tax income, leading to a 39.4% increase in earnings per share, up to $0.92 per share this year compared with $0.66 in the first quarter a year ago.
As we progress through this year, we intend to resource some level of discretionary spending, and that may challenge the year-over-year comparisons in the second quarter and for the balance of the year.
For example, our investment in our national marketing media campaign was paused throughout 2020, but this is now under way in the second quarter.
Also, last year, as we pointed out in our quarterly calls, benefits and healthcare costs were lower as many medical procedures were delayed or deferred.
After experiencing lower trends in this cost in the second, third and fourth quarters of 2020, benefits and healthcare costs were again lower in the first quarter this year.
This expense is hard to predict in the near term, but we expect a more normal level of expense over the balance of this year.
So bear in mind, this trend may create some volatility to margin as we progress through the balance of this year.
This impacts our reported gross margin, which was 27.1% on an adjusted basis this year compared to 22.6% a year ago.
And operating margin on an adjusted basis was 22.4% compared with 18.2% a year ago.
As a reminder, there is no impact to pre-tax income.
Cash flow has continued to be strong, with days sales outstanding on receivables improving from 94 days a year ago to 91 days this year.
Seasonally, CBIZ typically uses cash in the first quarter each year as receivables build in connection with our busy season revenue.
At March 31 this year, the balance outstanding on our $400 million unsecured credit facility was $162 million compared with $108 million outstanding at December 31, 2020.
This leaves approximately $230 million of unused capacity at March 31.
So we have plenty of dry powder to address strategic acquisition opportunities as well as continue with share repurchases.
In the first quarter, we used approximately $32.7 million to repurchase approximately 1.1 million shares.
Since the end of the quarter through April 27, we have purchased approximately 270,000 additional shares under a 10b program for a total of approximately 1.4 million shares repurchased this year to date.
As a result of this repurchase activity, we expect a fully diluted weighted average share count for 2021 within a range of 54 million to 54.5 million shares, which represents a slight reduction in our full year expectation compared with guidance earlier this year, and we will provide further updates as we progress through the year.
Of course, strategic acquisitions continue to be the top priority as we deploy capital.
With over $200 million of unused capacity, we have the flexibility to be aggressive in pursuing potential acquisitions.
Last year, we closed seven acquisitions, and we announced an 8th acquisition effective on January one this year.
Collectively, these acquisitions are expected to contribute approximately $48 million of annualized revenue, and we will see these transactions contribute to revenue growth throughout this year.
In the first quarter, we used $3.7 million for acquisitions, including earn-out payments on acquisitions closed in previous years.
Future earn-out payments are estimated at approximately $11.8 million for the balance of this year, $16.1 million next year in 2022, approximately $9.7 million in 2023, approximately $13.5 million in 2024, and $800,000 in 2025.
Jerry will comment further on the recently announced acquisition, which is effective on May 1.
And to be clear, the numbers I just referenced do not include the impact of this new acquisition.
Beyond the acquisition we announced today, we continue to have a full pipeline of potential acquisitions.
Capital spending in the first quarter was $1.1 million.
Last year, capital spending for the full year was $11.7 million.
And for 2021, we continue to estimate capital spending at approximately $12 million to $15 million for the full year.
Adjusted EBITDA grew by 28.5% to $73.3 million reported in the first quarter this year, up from $57 million a year ago.
The margin expansion on adjusted EBITDA was 370 basis points to 24.3% of revenue this year compared with 20.6% a year ago.
The effective tax rate in the first quarter was 24.1%, and we continue to project an effective tax rate for the full year of approximately 25%.
Of course, as a reminder, the effective tax rate can be impacted either up or down by a number of factors that can be unpredictable, and we are not speculating on the impact of potential legislative changes in the tax rate that may occur.
First, in regards to M&A, we started 2021 with the strongest M&A pipeline we've had in many years.
Already this year, we've completed one acquisition within our core accounting and tax practice and another within our retirement plan services business.
I mentioned the acquisition of Middle Market Advisory Group during our last call.
M&A provides tax, compliance and consulting services to middle market companies and family groups in a number of attractive industries and is located in Denver, Colorado.
This acquisition complements our rapidly growing Denver based practice.
I'm also pleased to announce the acquisition of Wright Retirement Services, a provider of third-party administrative services to retirement plan clients across the country.
Located in Valdosta, Georgia, Wright Retirement services has a long-standing relationship with CBIZ as a client, and we are excited by the opportunity to offer their clients a broader array of services.
This week we signed definitive documents to acquire the non-attest assets and business of Bernston Porter, a Bellevue, Washington based accounting firm.
As you know, for a number of years we've talked about identifying partners and completing acquisitions in attractive and growing markets.
The Pacific Northwest has been high on our list.
To enter a market like this, we wanted to do it with a partner that brought the size, scope and client base that would serve as a platform and be a catalyst for growth in that region.
And as always, we prioritize cultural fit, alignment of values and strong leadership as essential for future success.
Over the years, we've evaluated a number of opportunities in the greater Seattle Metropolitan market, and that process led us to Bernston Porter.
Founded in 1985 by Bob Bernston and Greg Porter, over time Bernston Porter grew to be one of the top 10 CPA firms in the Puget Sound region.
Bernston Porter's team, under the leadership of President Mary Actor, brings with it an outstanding reputation for exceptional client service, a commitment to the growth and development of their team members, and service to the communities where they work and live, all qualities that align with CBIZ' core values and beliefs.
The effective date for this acquisition is May 1, but we wanted to do announce it today as all conditions to closing have been satisfied.
M&A continues to be a key component of CBIZ' growth strategy and will be a top priority for us in 2021 and beyond, especially as we see increasing interest in CBIZ as a potential partner.
Our performance over the last year on the backdrop of the pandemic demonstrates the value and stability of our business model.
We also continue to emphasize our unique position in the market, given the breadth and depth of our expertise and services and our strong and steady cash flow.
Our access to capital allows us to continue to make investments in the business that many of our competitors simply cannot afford.
We know that these messages resonate with firms in each of our various businesses, and we are eager to explore these opportunities.
I would now like to turn to our revised guidance.
As a result of our strong performance in the first quarter and the acquisition of Bernston Porter effective on May 1, we are revising upward our previously announced guidance.
Our revised guidance is to grow revenue between 8% to 10% and earnings per share within a range of 12% to 15% for the full year of 2021 compared to the full year of 2020.
While there is still uncertainty as we navigate this next phase of the pandemic, our guidance assumes that recovery will continue and that business conditions will remain the same or improve throughout the remainder of the year.
With this revision and guidance and the announcement of the acquisition, I want to point out that Bernston Porter is a traditional accounting firm that recognizes a disproportionate amount of its revenue in the first half of the year due to the timing of tax deadlines in the busy season.
Given the seasonal nature of this business, the earnings impact of this acquisition will be more fully realized in 2022 and beyond.
 Assistant:

Chosen response:
q1 earnings per share $0.92 from continuing operations.
sees fy revenue up 8 to 10 percent.
q1 revenue rose 8.4 percent to $300.7 million.
for 2021 co expects to grow fully diluted earnings per share within a range of 12% to 15% over prior year.


Prompt:
Human: In addition, today's call includes discussions of certain non-GAAP financial measures.
Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company's website at crowncastle.com.
As you saw from our second quarter results and increased full year outlook, we continue to generate significant growth in cash flows and dividends from the deployment of 5G in the U.S.
We are experiencing the highest level of tower activity in our history, resulting in a year of outsized growth as we now anticipate 12% growth in AFFO per share for full year 2021, meaningfully above our long-term annual target of 7% to 8%.
Our current 7% to 8% growth target was established in 2017 when we expanded our fiber and small cell strategy through the completion of our largest acquisition.
This 7% to 8% growth target was an increase of 100 basis points from our prior target since we expected a diverse portfolio to increase our ability to consistently drive long-term growth.
Since that time, the strategy has worked better than expected as we have grown our dividend per share at a compounded annual growth rate of 9%, with some years being driven by outsized growth in our fiber and small cell business like last year, and other years like this one being driven by higher growth in our tower business.
This record level of activity is tied to the existing wireless carriers increasing their spend to add more equipment to tower sites and DISH starting to build a new nationwide 5G network from scratch.
We expect this elevated level of activity to continue beyond this year and support future growth on our towers.
While driving strong growth in our tower business this year, the initial focus by our customers on towers has also led to some delays in our small cell deployment, shifting the timing of when we expect to complete the nearly 30,000 small cells contractually committed in our backlog.
When combined with zoning and permitting challenges as well as the previously disclosed Sprint cancellation, we now expect to deploy approximately 5,000 small cells in each of this year and next year with the remaining nearly $20,000 from our current backlog completed beyond 2022.
This delay has not impacted our view of long-term attractiveness of small cells since the fundamental need for small cells continues and the unit economics remain in line with our expectation.
With more than 50,000 small cells on air, we have already seen how important small cells are as a key tool used by the carriers to add network capacity by reusing their spectrum over shorter and shorter distances.
We believe small cells will be an even more important tool going forward as the nature of wireless networks requires continued cell site densification to meet the increasing demand for data, especially as 5G networks are deployed.
As a result, we believe these timing factors will not alter our long-term returns on our investments or our ability to deliver on our growth objectives.
One of the core principles of our strategy is to focus on the U.S. market because we believe it is the best market for communications infrastructure ownership, with the most attractive growth profile and the lowest risk.
With that view in mind, we've invested nearly $40 billion in shared infrastructure assets that we believe are mission-critical for today's wireless networks and sit in front of what is expected to be a massive decade-long investment by our customers to deploy 5G in the U.S. As you can see on slide four, our tower and fiber investments are at two different stages of development and maturity.
Our tower investment began more than 20 years ago at an approximately 3% yield, when we built and acquired assets that we could share across multiple customers.
By providing a lower cost to each customer, we have leased up those assets over the years and generated compelling returns for our shareholders.
As we have proven out the value proposition for our customers over time, our tower assets now generate a yield on invested capital of 11% with meaningful capacity to support additional growth.
As we realize the wireless network architecture would need to evolve with 4G, requiring a network of cell sites that would be much denser and closer to end users, we expanded our shared infrastructure offering beyond towers, establishing the industry-leading small cell business in the U.S. It's encouraging that the business is already generating a current yield on invested capital of more than 7%, given the relative immaturity of these investments.
To provide additional visibility into how our investments are progressing, we've updated our analysis of the cohort of five markets we introduced a year ago.
Looking at a collective view of how these five markets have performed over the last year on slide five, growth from both small cells and fiber solutions has contributed to an incremental yield of 7% on the approximately $200 million of incremental net capital investment.
Adjusted for the timing impacts associated with the large in-process small cell project, where capital investment has occurred in advance of the corresponding revenue and cash flows, the incremental yield is approximately 8%.
This incremental yield resulted in a modest decline in the combined cash yield from 9.2% a year ago to 9% currently.
This is in line with our expectations as we have invested in new small cells at a 6% to 7% initial yield that we expect to grow over time as we lease up those assets to additional customers.
During the last year in these markets, we have added more than 500 route miles of new high-capacity fiber to support the deployment of approximately 2,000 small cells.
Importantly, approximately 40% of the small cells deployed were co-located on existing fiber with the balance representing new anchor builds in attractive areas of these markets where we expect to capture future small cell and fiber solutions demand.
Generally speaking, we would expect markets that have a longer average investment life to have higher returns than those with less mature assets.
This is true because we have more time to add customers to existing assets, which is consistent with our historical experience with towers, where we have, on average, added about one tenant -- one new tenant every 10 years.
Similar to our experience with the movements in yield and tower investments over time, as we showed back on page four, sometimes the steady climb of yields on legacy investment is less obvious as we invest in less mature assets that bring down the overall market yield.
This is certainly true of some of the cohort.
Very much related to the average life of the investment is the density of small cells per route mile of fiber since, as in the tower business, the co-location of additional nodes on existing fiber is what drives the yields up over time.
Consequently, we typically see a higher percentage of nodes co-located on existing fiber as the density of nodes increases.
On the third characteristic, we believe the markets with both small cells and fiber solutions will ultimately have higher yields than those with only one of the two revenue streams.
With this setup as a backdrop, I want to share a few observations that I think are important to highlight as we assess this data set on page six.
Looking across the markets, you can see the longer average investment lives tend to correspond to higher yield.
Denver has the least mature capital base and the lowest market yield, while Orlando has one of the most mature capital bases and the highest yields.
In addition, the higher density of nodes per mile, which is generally correlated with the longer investment life and higher percentage of co-located nodes generates higher market yield.
The financial benefit associated with co-locating nodes is apparent when looking at the incremental yield in Los Angeles and Phoenix.
In the last year, about half of the small cells deployed across those two markets were co-located on existing fiber, resulting in a strong incremental yield.
Meanwhile, Denver does not fit neatly into this framework, featuring the highest node density but the lowest yield.
Part of the explanation is that Denver is a market where we spent more than we originally budgeted on our initial build activity, which weighed down the starting yield.
Importantly, during the last 12 months, we achieved strong yields on incremental invested capital in Denver, increasing the market yield by 70 basis points.
This is consistent with our experience more broadly in the small cell business as co-located nodes on existing fiber come at high incremental yields, driving attractive returns over time.
And finally, looking at the financial benefit of having both small cells and fiber solutions leveraging the same asset base, you can see the markets with a meaningful contribution from both offerings are generally performing better.
The best example to point to here is Philadelphia, where despite having a less mature capital base and lower node density than Phoenix, it is generating a similar yield on invested capital of nearly 10% due primarily to the higher contribution from fiber solutions.
Our experience in Philadelphia also highlights another important point when assessing the performance of a portfolio of assets.
Similar to what we've seen throughout our long history of towers, when you zoom in on a particular set of assets and focus on a short time period, the picture may not always be perfect.
Over the last year, the market yield in Philadelphia has contracted by 60 basis points due to a combination of a lack of small cell activity as this was not a priority market for our customers and more muted growth from fiber solutions.
Despite this, Philadelphia is still generating a very attractive yield on invested capital, and we believe our dense fiber footprint in this top market is positioned well to capture future small cell and fiber solutions growth.
In summary, the combined performance of this cohort of market provides another point of validation for our strategy, with small cells and fiber solutions growth contributing to attractive incremental yields while we continue to make discretionary investments in new assets that will expand the long-term growth opportunity.
Turning back now to our overall strategy.
As has been obvious to all of us over the last 18 months, connectivity is vital to our economy and how we live and interact with one another.
Our strategy is to provide profitable solutions to connect communities and people to each other.
Our business is also inherently sustainable.
Our shared infrastructure solutions limit the proliferation of infrastructure and minimize the use of natural resources.
Our solutions help address societal challenges like the digital divide in underserved communities by advancing access to education and technology.
As you've seen in our last two sustainability reports, we've enhanced our focus on ESG, which we believe will drive increased revenue opportunities from things like smart cities and broadband for all and lower operating costs in areas like tower lighting, electric vehicles and interest savings, which Dan will discuss in just a minute.
Importantly, none of this is possible without a team at Crown Castle that embraces diversity and inclusion, ensuring that our employees and our business partners are empowered to help us serve our customers, connect our communities and build the future of communications infrastructure in the U.S. So to wrap up, we expect to deliver outsized AFFO per share growth of 12% this year as we capitalize on the highest tower activity levels in our history with our customers deploying 5G at scale.
We expect this elevated level of tower activity to continue beyond this year.
Our diversified strategy of towers and small cells has driven higher growth than expected as we have grown our dividend at a compounded annual growth rate of 9% since we expanded our strategy in 2017.
And looking forward, I believe our strategy to offer a combination of towers, small cells and fiber solutions, which are all critical components needed to develop 5G will extend our opportunity to deliver dividend per share growth of 7% to 8% per year.
And when I consider the durability of the underlying demand trends we see in the U.S. that provides significant visibility into the future growth for our business, I believe Crown Castle stands out as a unique investment that we believe will generate compelling returns over time.
As Jay mentioned, 2021 is shaping up to be a great year of growth for Crown Castle as our customers deploy 5G nationwide.
The elevated tower activity drove strong second quarter financial results and another increase to our full year outlook, which now includes an expected 12% growth in AFFO per share.
Turning to second quarter results on slide seven.
Site rental revenue increased 8%, including 5.3% growth in organic contribution to site rental revenue.
This growth included 8.6% growth from new leasing activity and contracted escalators net of 3.3% from nonrenewal.
The higher activity levels also drove a $40 million increase in contribution from services when compared to second quarter 2020, leading to 15% growth in adjusted EBITDA and 18% growth in AFFO per share.
Turning to slide four.
With the strong second quarter and continued momentum, we have again increased our full year outlook, highlighted by a $30 million increase to adjusted EBITDA and a $20 million increase to AFFO.
The higher activity in towers drove the majority of these changes to our outlook including an additional $15 million in straight-line revenue, a $45 million increase to the expected contribution from services and $15 million of additional labor costs.
The lower expected volume of small cells deployed this year that Jay discussed earlier results in a $10 million reduction in organic contribution to site rental revenue, which translates to a 20 basis point reduction in the expected full year growth in consolidated organic contribution to site rental revenue to 5.7%.
Our expectations for the contribution to full year growth from towers and fiber solutions remains unchanged at approximately 6% for towers and 3% for fiber solutions, with small cell growth now expected to be approximately 10% compared to our previous outlook of approximately 13% growth.
Moving to investment activities.
During the second quarter, capital expenditures totaled $308 million, including $19 million of sustaining expenditures, $60 million of discretionary capital expenditures for our tower segment and $223 million of discretionary capital expenditures for our fiber segment.
Our full year expectation for capital expenditures has reduced to $1.3 billion from our prior expectation of $1.5 billion, primarily attributed to the reduction in small cells we expect to deploy this year.
Turning to our balance sheet.
We exited the second quarter with a net debt-to-EBITDA ratio of approximately five times, which is in line with our target leverage.
Consistent with our overall focus on delivering the highest risk-adjusted return for shareholders, we have methodically reduced risk across our balance sheet over the last five years by reducing our exposure to variable rate debt in extending the maturity profile of our borrowings to better align the duration of our assets and liabilities.
Specifically, since our first investment-grade bond offering in early 2016, we have increased the weighted average maturity from just over five years to nearly 10 years, increased our mix of fixed rate debt from just under 70% to more than 90% and reduced our weighted average borrowing rate from 3.8% to 3.2%.
Consistent with that focus, we issued $750 million of 10-year senior unsecured notes in June at 2.5% to refinance outstanding notes maturing in 2022 and to repay outstanding borrowings on our commercial paper program.
Additionally, in June, we amended our existing credit facility, extending the maturity date to June 2026 and incorporating sustainability targets that resulted in lower interest rates in the facility as we achieve specified sustainability metrics over the next five years.
We believe this was the first time sustainability targets had been incorporated in a credit facility for tower company.
Adding quantifiable sustainability metrics to our inherently sustainable business model that Jay outlined earlier highlights our commitment to delivering value to all our stakeholders.
Stepping back and to wrap things up, we are excited about the record levels of tower activity as our customers deploy 5G at scale.
We are capitalizing on those positive fundamentals and expect to deliver a great year of growth with AFFO now expected to grow 12% for the full year 2021, meaningfully above our long-term annual target of 7% to 8%.
Our diverse portfolio of assets and customer solutions has performed better than expected since we meaningfully augmented our fiber footprint with a large acquisition in 2017 as we have grown our dividend per share at a compound annual growth rate of 9% over that time.
Importantly, in some years like last year, our fiber and small cell business has driven that outperformance, while in other years like this one, our tower business is the driver.
We continue to invest in new assets that we believe will allow us to grow our dividend per share at 7% to 8% per year going forward.
This growth provides a very attractive total return opportunity when combined with our current approximately 3% dividend yield, and we believe our investments in new assets will extend this opportunity into the future.
With that, Cody, I'd like to open the call to questions.
 Assistant:

Chosen response: qtrly site rental revenues grew 8%, or $106 million, from q2 2020 to q2 2021.


Prompt:
Human: In the first quarter, Cullen/Frost earned $113.9 million or $1.77 a share compared with earnings of $47.2 million or $0.75 a share reported in the same quarter last year and $88.3 million or $1.38 a share in the fourth quarter of 2020.
In a very challenging economic environment, our team not only continued to execute on our strategies, but also achieved some extraordinary accomplishments that I'll discuss in detail as we go through the call.
Economic impacts of the pandemic continue to affect loan demand.
Overall, average loans in the first quarter were $17.7 billion, an increase of 18% compared with $15 billion in the first quarter of last year.
But excluding PPP loans first quarter average loans of $14.9 billion represented a decline of just over 1% compared to the first quarter of 2020.
Average deposits in the first quarter were $35.4 billion and they were an increase of 30% compared to $27.4 billion in the first quarter of last year.
Obviously, macroeconomic factors over the past year have impacted our deposit growth but it's also been our experience over our history that our frost that we're safe haven for customers and times of uncertainty.
Our return on average assets and average common equity in the first quarter were 1.09% and 11.13%, respectively.
We did not record a credit loss expense related to loans in the first quarter after recording a credit loss expense of $13.3 million in the fourth quarter.
Our asset quality outlook is stable and experienced a meaningful improvement during the first quarter.
In general, problem assets are declining in number and new problems have dropped significantly and are at pre-pandemic levels.
Net charge-offs for the first quarter dropped sharply to $1.9 million from $13.6 million in the fourth quarter.
Annualized net charge-offs, for the first quarter, were just 4 basis points of average loans.
Nonperforming assets were $51.7 million at the end of the first quarter, down 17% from the $62.3 million at the end of the fourth quarter.
And a year ago, nonperformers stood at $67.5 million.
Overall, delinquencies for accruing loans at the end of the first quarter were $106 million or 59 basis points of period-end loans at stable when compared to the end of 2020 and comparable to what we have experienced in the past several years.
Of the $2.2 billion in 90-day deferrals granted to borrowers that we've discussed on previous calls, only about $11 million remain in deferment at the end of the first quarter.
Total problem loans, which we define as risk grade 10 and higher were $774 million at the end of the first quarter compared with $812 million at the end of the fourth quarter.
Energy-related problem loans continued to decline and were $108.6 million at the end of the first quarter compared to $133.5 million for the previous quarter.
To put that in perspective, total problem energy loans peaked at nearly $600 million early in 2016.
In general, energy loans continued to decline as a percentage of our portfolio falling to 7.5% of our non-PPP portfolio at the end of the first quarter.
As a reminder, that figure was 8.2% at the end of the fourth quarter and the peak was 16% back in 2015.
We continue to work hard to rationalize our company's exposure to the energy segment to appropriate levels.
Overall, we find that credit quality is improving.
When the pandemic started last year, we assembled teams to analyze the non-energy portfolio segments that we considered the most at risk which included restaurants, hotels, entertainment, sports and retail.
The total of these portfolio segments, excluding PPP loans, represented just $1.6 billion at the end of the first quarter.
And our loan loss reserve for these segments was 4.9%.
The credit quality of individual credits in these segments is mostly stable or better compared to the end of the fourth quarter, and the outlook is improving although macroeconomic trends impacting some segments will take time to fully digest.
The Hotel segment, where we have $286 million outstanding remains our most at risk category.
However, we believe our exposure to any significant loss is minimal.
I'm very proud of our team's ability to build relationships with new customers in challenging times.
Particularly when so much effort was put into helping existing small business customers get PPP loans.
During the first quarter, we added 55% more new commercial relationships than we did in the first quarter of last year.
A good portion of those mentioned PPP is the reason they came to frost, but even more of them we're just from the continued hard work by our bankers and the level of service that we provide.
New loan commitments booked during the first quarter, excluding PPP loans, were down by 16% compared to the first quarter of 2020, which was before the economic impact of the pandemic had been felt.
So this comparison clearly shows the impact of the pandemic on loan demand.
Regarding new loan commitments booked, the balance between these relationships was nearly even with 49% larger and 51% core at the end of the first quarter.
We will continue to keep this balance in mind.
In total, the percentage of deals lost to structure was 70%, and it was fairly consistent with the 73% we saw this time last year.
However, keep in mind, we believe that's a high number, and it illustrates the competition out there through underwriting.
Our weighted current active loan pipeline in the first quarter was up about 1% compared with the end of the fourth quarter.
So though modest, it was good to see some improvement.
Consumer banking also continues to see outstanding growth.
Overall, our net new consumer customer growth rate for the first quarter was up 255% compared to the first quarter of 2020, 255%.
Same-store sales, as measured by account openings were up by 18% and through the end of the first quarter when compared to the first quarter of 2020, and up a non-annualized 11% on a linked-quarter basis.
In the first quarter, 36% of our account openings came from our online channels, including our Frost mobile app.
We believe this compares very well to the industry.
Online account openings were 35% higher when compared to the first quarter of 2020.
Consumer loan portfolio was $1.8 billion at the end of the first quarter, up by 1.4% compared to the first quarter of last year.
We're nearing the completion of our previously announced Houston expansion.
We opened the 23rd of the planned 25 new financial centers in April, and the remaining two will be opened in the coming weeks.
Overall, the new financial centers are exceeding our expectations.
This is one of the extraordinary accomplishments that I mentioned earlier.
Our team's performance of keeping the momentum going in Houston despite the pandemic and all the work we put into PPP is a true credit to our outstanding staff.
Now let me share with you where we stand with the expansion as of March for the 22 locations we had opened at that time and it excludes PPP loans.
Our numbers of new households were 144% of target and represent over 8,700 new individuals and businesses.
Our loan volumes were 212% of target and represented $263 million in outstandings.
Let's look at the mix of this portfolio.
About 85% represent commercial credits with about 15% consumer.
They represent just under half C&I loans, about 1/4 investor real estate, 15% consumer and around 10% nonprofit in public finance.
Finally, with only three loans over $10 million, over 80% are core loans.
Now let's look at deposits.
At $343 million, they represent 114% of target.
They represent about two-third commercial and one-third consumer.
We've seen increasing momentum over the last year when we were about 68% of our target.
What I hope this demonstrates and what's important to understand is that the character of the business we are generating through the expansion is very consistent with the overall company.
It's just what we do.
And you can see that its profitability will be driven by small and midsized businesses.
I'm extremely proud of what our organization has been able to do in Houston, and I believe you should be, too.
We've built a platform that will add to shareholder value for years to come.
And that's why I'm happy to share that we will be taking the lessons and skills we've learned in the Houston market to a very similar opportunity we have before us in Dallas early next year with 25 new locations over a 30-month period.
This will put us on a path to triple our number of locations in that dynamic market over that time.
Turning now to PPP.
Our team was ready to respond when SBA reopened the application process in January.
To date, we've taken in about 12,400 new loan applications in the second round of PPP with over $1.3 billion funded.
Combined with our total from the first round last year, we funded more than 31,000 loans or $4.6 billion, just amazing.
We've also been working hard to help those borrowers get loans forgiven.
We've invited all of the round one borrowers to apply for forgiveness, and we've submitted 70% of those loan balances to the SBA, and we've received forgiveness on about 50% already.
Because this process is vital to our borrowers, we're doing all the work in-house with frost bankers.
We haven't outsourced any of these efforts.
We're excited to announce that on April 15, we've launched a new feature for our consumer customers called $100 overdraft grace.
This feature is an investment in our organic growth strategy.
And at the same time, we believe it will make a difference in our customers' lives.
It clearly sets us apart from both traditional bank competitors and neo banks.
As a result, we expect it to further increase the rate of new customer growth and our already growing consumer bank.
Also this month, we received some good news from third-party organizations that assess our customer service.
The Greenwich Excellence awards or frost has had the highest scores for superior service, advice and performance to small business and middle market banking clients for four consecutive years.
Let us know that our already high overall satisfaction and Net Promoter scores went up even higher over 2020, while many of our competitors saw declines.
And I'm very pleased to let you know that J.D. Power and Associates, just this week announced at Frost once again received the highest ranking in customer satisfaction in Texas in the retail banking satisfaction study.
That's the 12th consecutive year we've had the highest scores in Texas.
When you put it all together, the solid financial results, the healthy numbers in deposits and loans, all the new relationships, the goodwill from our PPP efforts, the Houston expansion and the customer service accolades it shows that when we care about customers and work to be a force for good and their everyday lives will be rewarded.
And I don't just mean rewarded in a financial sense.
I mean the sense that people recognize that we're doing something important and we're doing it better than just about anyone else.
2020 was a tough year in 2021, hasn't been easy so far, but things are looking up.
And that's due to everything that our employees have been doing for our company and our customers in these difficult times, and I'm very optimistic about our outlook.
I appreciate all their hard work.
And I'm proud of them, and I'm proud to be at frost.
Looking first at our net interest margin.
Our net interest margin percentage for the first quarter was 2.72%, down 10 basis points from the 2.82% reported last quarter.
The decrease was impacted by a higher proportion of earning assets being invested in lower-yielding balances at the Fed in the first quarter as compared to the fourth quarter, partially offset by the positive impact of the PPP loan portfolio.
Interest-bearing deposits at the Fed earning 10 basis points averaged $9.9 billion or 25% of our earning assets in the first quarter, up from $7.7 billion or 20% of earning assets in the prior quarter.
Excluding the impact of PPP loans, our net interest margin percentage would have been 2.59% in the first quarter, down from an adjusted 2.75% for the fourth quarter.
The taxable equivalent loan yield for the first quarter was 3.87%, up 13 basis points from the previous quarter.
Excluding the impact of PPP loans, the taxable equivalent loan yield would have been 3.77%, basically flat with the prior quarter.
Average loan volumes in the first quarter of 17.7 billion were down 260 million from the fourth quarter average of 17.9 billion.
Excluding PPP loans, average loans in the first quarter were down about 184 million, or 1.2% from the fourth quarter, with about three quarters of that decrease related to energy loans.
To add some additional color on our PPP loans, as Phil mentioned, we funded over 1.3 billion of round two PPP loans during the first quarter.
This was offset by approximately 580 million and forgiveness payments during the quarter on round one loan, bringing our total round one forgiveness payments to approximately 1.4 billion.
At the end of the first quarter we had approximately 73 million in net deferred fees remaining to be recognized with about one third of this related to round one loans.
With respect to round two loans given the smaller dollar size of the loans and changes in the forgiveness process, we expect this portfolio to have a shorter average life and the round one portfolio.
As a result, we currently expect about 90% of the remaining net defer fees to be recognized this year.
Looking at our investment portfolio, the total investment portfolio averaged 12.2 billion during the first quarter, down about 335 million from the fourth quarter average of 12.6 billion.
The taxable equivalent yield on the investment portfolio was 3.41% in the first quarter, flat with the fourth quarter.
The yield on the taxable portfolio, which averaged 4 billion was 2.06% down 6 basis points from the fourth quarter as a result of higher premium amortization associated with our agency mortgage backed security given faster prepayment speed, and to a lesser extent, lower yields associated with recent purchases.
Our municipal portfolio averaged about 8.2 billion during the first quarter, down 154 million from the fourth quarter with a taxable equivalent yield of 4.09% flat with the prior quarter.
At the end of the first quarter 78% of the municipal portfolio was pre-refunded, or PSF insured.
Investment purchases during the first quarter were approximately 500 million and consistent about 200 million each in treasuries and mortgage backed securities respectively with the remainder being municipal.
Our current projections only assumed that we make investment purchases of about 1.4 billion for the year, which will help us to offset a portion of our maturities and expected prepayments and calls.
Regarding non-interest expense looking at the full year 2021, we currently expect an annual expense growth of something around the 3.5% to 4% range from our 2020 total reported non-interest expenses.
And regarding the estimates for full year 2021 earnings, given our first quarter results, in our assumption of similar to improving credit metrics to those we saw in the first quarter.
We currently believe that the current mean of analysts' estimates of $5.42 is too low.
 Assistant:

Chosen response: q1 earnings per share $1.77.