Prompt:
Human: They are based on management's assumptions, which may or may not occur.
In addition, some of our comments today reference non-GAAP adjusted measures.
We expect to file our 10-K later today.
As mentioned, this teleconference is being recorded and will be available on our website following the call.
Please note these calls are designed for the financial community.
Well, years come and go but 2020, as we all know, was unforgettable.
The pandemic affected many aspects of our daily lives, and I'm proud of the way our employees pulled together to provide our customers with superior service.
We successfully navigated a number of challenges while still achieving our key financial and operational goals.
We reported net income from continuing operations of $2.30 per share for 2020.
That's driven by solid performance at the gas utility and a strong contribution from our new platform of water utilities.
On the gas operations front, our field crews successfully handled everything from wildfires to restoring service in several towns over Christmas to navigating COVID, social unrest, etc.
Just a few weeks ago, our employees in the natural gas system once again rose to the occasion and provided a reliable service through an extreme weather event.
Our storage facilities and overall hedge positions worked to mitigate the amount of gas purchased on the spot market and helped to minimize the impact to our customers' bills.
This was incredibly important as prices, as everybody knows, spiked across the country from the widespread cold snap.
Our balance sheet remains strong with ample liquidity.
In 2020, we also executed on one of the largest capital programs in the Company's history aimed at supporting reliability.
We continue to operate one of the most modern and tightest systems in the nation, a system that has no cast iron and no bare steel.
In 2020, we invested over $270 million in our natural gas infrastructure.
From an economic perspective, 2020 was truly unprecedented.
Prior to the pandemic, we had a very fundamentally sound sustainable growing economy with record low unemployment both nationally and in our service territories.
We continue to see economic recovery and steady growth in several important areas.
Portland's unemployment right now is 6.1% in December, actually, essentially matching the national rate that's down from a 14.9% high in April.
Single-family housing activity remains strong.
In the Portland metro region, home sales were at 8.3% from 2019, with price growth of about 12%.
And new single-family permits issued last year were up 4% compared to 2019 levels.
At Northwest Natural, we continue to see good customer growth.
New construction plus conversions translated in connecting over 13,000 meters during the last 12 months ended December 31.
Our overall customer growth rate as a result was 1.5% for the same period, based on this strong single-family home construction, partially offset by the loss of some commercial customers due to the pandemic.
The rollout of vaccines is expected to ease pandemic related restrictions and allow businesses to reopen.
Still, we know these are difficult times for some customers and we've worked very closely with commissions, staff and stakeholders to determine the best way to return to normal business practices.
We've agreed to timelines for resuming collection processes and continue to evaluate the parties what makes sense for customers given the economic conditions, while also providing financial assistance and payment plans to vulnerable customers.
Enhancing the system includes a bill forgiveness program and working with the Oregon Legislature to provide additional funding for bill relief.
Through a variety of programs and agencies, we've provided over $4 million to over 10,000 households to pay their bills and stay warm during the last heating season.
We also donated about $1 million to nonprofits in our communities and initiated a special COVID-19 employee giving campaign.
For Oregon, previously approved new rates took effect on November 1 last year.
Gas bills continue to remain low.
Our customers are paying about 40% less today for their bills than they did 15 years ago.
In addition, in June, we passed back a record $17 million in storage bill credits to Oregon gas customers.
Safety, reliability and affordability make natural gas a preferred fuel source.
Eight out of 10 homeowners in our service territory prefer natural gas according to a study conducted in December 2020.
There's a strong recognition that natural gas is affordable, efficient and preferable to electricity for heating and cooking.
In fact, over 80% of respondents said they would pay $50,000 more for a home that has gas amenities over an all-electric home.
Customers also showed their appreciation by ranking Northwest Natural second in the West among large utilities in the 2020 JD Power's residential customer satisfaction survey.
And then finally, our Board approved the dividend increase in the fourth quarter back in 2020, the 65th consecutive year of annual dividend increases.
We are proud to provide the return to shareholders and be one of only three companies on the NYSE with that long record.
I will begin by discussing the financial impacts of COVID-19 and the highlights of the fourth quarter and full year 2020 results and then conclude with guidance for 2021.
In 2020, our utility commissions approved COVID deferrals and term sheets that outlined the types of revenues and costs that may be recovered.
These include PPE, bad debt expense, financing costs associated with additional liquidity and certain loss revenues.
Direct expense reductions such as lower travel and meals and entertainment are to be netted against the deferral.
Prudency review and recovery of the deferral accounts will be determined in future proceedings.
While our business model is resilient, we are experiencing some financial impacts related to the pandemic.
Through December 31, we incurred an estimated $10 million pre-tax of incremental costs and lower revenues due to the effects of COVID-19.
Of this, $4.8 million were deferred to regulatory accounts.
In addition, $1.3 million of late fee revenue that has not been charged to customers since the suspension of normal collection processes will be recognized in a future period when we begin to recover the foregone fees through rates.
The remaining $3.8 million that cannot be recovered through rates are primarily due to lower natural gas utility margin from customers that stopped service and slightly lower usage from customers that are not decoupled.
In order to further mitigate the financial effects of the pandemic, we initiated temporary cost savings measures which provided approximately $3.5 million of savings in 2020.
In summary, the total P&L impact of COVID in 2020 was $1.6 million.
Turning to our detailed financial results.
Note, I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%.
Also note that year-to-date earnings per share comparisons reflect the successful issuance of 1.4 million shares in June 2019 as we raised equity to fund investment in our gas and water utilities.
As a reminder, Northwest Natural's earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating season.
For the quarter, we reported net income from continuing operations of $45.8 million or $1.50 per share compared to $38.3 million or $1.26 per share for the same period in 2019.
The gas utility posted an increase of $0.19 per share related to new rates in Oregon beginning November 1, 2020, offset in part by higher depreciation and general tax expense and the impacts of COVID-19.
Contribution from our other businesses increased $0.05 per share from the water assets we acquired in Washington and Texas and lower expenses at the holding company.
Utility margin in the gas distribution segment increased $11.5 million from the benefit of new rates in Oregon and customer growth, partly offset by the effects of COVID-19.
Utility O&M decreased $500,000 in the quarter, reflecting cost savings efforts.
I am proud of our employees whose hard work and commitment allowed us to accomplish this while still providing exceptional service.
Depreciation expense and general taxes increased $2.9 million related to the ongoing investment in our system.
For the full year 2020, we reported net income from continuing operations of $70.3 million or $2.30 per share compared to net income of $65.3 million or $2.19 per share for 2019.
2019 results included a regulatory disallowance of $0.22 per share related to an Oregon Commission order on tax reform and pension expense.
Excluding that disallowance on an adjusted non-GAAP basis, earnings per share from continuing operations was $2.41 for 2019.
The $0.11 per share decline is largely due to year-over-year growth in expenses, the effects of COVID and the positive effects of weather and pipeline constraints on 2019 results.
In the gas distribution segment, utility margin increased $11.3 million.
Higher customer rates in Oregon and Washington, customer growth and revenues from the Northwest expansion project contributed an additional $21.5 million.
This was offset by lower entitlement and curtailment fees related to pipeline constraints in 2019 and warmer weather in the first quarter of 2020 compared to 2019, which collectively reduced margin by $4.5 million.
Utility margin also declined $1 million due to lower revenues from late fees as we suspended normal collection processes.
The remaining $5.2 million decline in utility margin is a result of the 2019 Oregon order.
With the exception of the first quarter pension disallowance, this order has no impact on net income as offsetting adjustments were recognized through expenses and income taxes, as I'll describe in a moment.
Utility O&M and other expenses declined $5.4 million.
This decrease is associated with the Oregon order which resulted in $14 million of additional expense in the first quarter of 2019, as discussed previously.
This was offset by a $6 million increase in underlying O&M related to higher compensation costs, contractor and professional service expenses as well as moving costs.
This was partially offset by the management driven cost savings measures I described earlier.
Pension expenses, included in other expense, increased $2.8 million.
However, this expense is now recovered in rates.
Over the last several years, we have invested in our gas system at historically high levels.
As a result, depreciation expense and general taxes increased $10.2 million.
Finally, utility segment tax expense in 2019 included a $5.9 million benefit related to the implementation of the Oregon order, with no significant resulting effect on net income.
Net income from our other businesses increased $2.2 million from higher earnings from the wastewater, water and wastewater utilities and lower expenses at our holding companies, partially offset by lower asset management revenues.
A note on capex.
We invested $294 million into the business, with $273 million of gas utility capital expenditures and $38 million for water acquisitions.
Our balance sheet remains strong with ample liquidity.
With regards to the ongoing effects of COVID-19, approximately 97% of our commercial and industrial customers are current with their bills.
Nonetheless, we have seen some commercial customers go out of business and shut off their meters as they have been negatively impacted.
We will continue to monitor -- closely monitor usage levels and commercial customer losses.
We will also continue to be disciplined regarding cost management in an effort to mitigate these circumstances.
Moving on to 2021 financial guidance.
Gas utility capital expenditures for the year are expected to be in the $280 million to $320 million range, including significant projects related to system reinforcement, resource center renovations across our service territory and technology upgrades.
The Company initiated 2021 earnings guidance today in the range of $2.40 to $2.60 per share.
Guidance assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant changes in laws, legislation or regulations.
While the past year held challenges, our focus remains the same: providing superior customer service, maximizing returns from our strong and growing regulated natural gas utility and diversifying our business by investing in the water sector.
We made progress on that last front with the sale of two investments that were no longer central to our strategy.
In August, we sold our interest in the Trail West pipeline project, and in December we completed the sale of the Gill Ranch storage facility in California.
Proceeds from the sales are expected to be reinvested in our gas and water businesses.
This past year reinforced our decision to build a water and wastewater utility platform and highlighted the value we bring and can create in this sector.
Our water and wastewater utilities experienced organic customer growth of almost 3%, 2.8% to be exact, over the 12 months ended December 31, 2020.
We also completed infrastructure improvements and filed our first water utility general rate case.
Although COVID temporary slowed acquisition -- temporarily closed acquisition activity -- slowed -- excuse me, temporarily slowed acquisition activity, we were still able to add a water and wastewater utility in Washington to our portfolio and made our first acquisition in Texas.
And we continued to make smaller acquisitions within our existing footprint while pursuing new expansion opportunities.
I remain -- I continue to remain very excited about the investment potential in this business.
Another key pillar of our strategy is aggressively pursuing a renewable future and working to decarbonize our gas utility system.
Before I take you through our approach, it's important to remember our starting point.
Northwest Natural serves about 74% of the residential square footage in our service territory and meets 90% of our space and water heat customers' energy needs on our coldest days, yet the emissions associated with that use accounts for only 6% of Oregon's total greenhouse gas emissions.
In the Northwest, the gas and electric system have concurrent peaks in the winter.
The gas system delivers about twice as much energy during the peak than the electric system, with even more capacity available.
This advantage positions us well to help drive decarbonization in the region in a way that ensures reliability and affordability.
And, as we have seen in recent weeks, one can never underestimate how important reliability is during the winter.
Let me walk you through three components of our vision of carbon neutrality by 2050.
First, we intend to continue to pursue aggressive energy efficiency to lower energy usage.
In the past 40 years, the number of residential natural gas customers in the US has grown by almost 90%, but demand has remained flat, which is a testament to the industry and how well they foster continued efficiency.
Our residential customers today use half of the amount of natural gas that they used in 1970 despite consistent growth in the average size of homes and more clients as per home.
Second, we're striving to integrate renewable natural gas from a variety of waste streams into our system.
The technical potential of RNG supply in Oregon alone is estimated to be nearly 50 billion cubic feet, about the same amount as all of the residential gas throughput in our state.
Nationally, early estimates show about 14 trillion cubic feet of technical potential or about 88% of all throughput.
Clearly, there's vast technical potential.
Now we need to collectively focus on getting as much as we can to market economically.
We also see the potential for hydrogen being added to the pipeline.
We believe there are three applications for -- of hydrogen from the power to gas process, blended, methanated and dedicated hydrogen systems.
We also envision the possibility of blue hydrogen, made from natural gas and paired with carbon capture, utilization and storage as playing a role in the US gas system.
And we're watching Europe, Canada and Australia efforts -- Australia's efforts in this area.
In 2019, Northwest Natural sent a technical team to Europe to meet with government agencies, think tanks and gas companies.
And we learned a lot about new technologies, projects and policy.
It was clear Europe was many years ahead of the US and they're thinking about the gas networks system and the role of green molecules in the energy transition that we're all going to go through.
Once [Phonetic] they realize gas infrastructure, which is already in place, is a huge advantage, and one great example of this is storage.
The natural gas infrastructure is built to provide long duration energy storage that doesn't degrade.
It can store RNG and methanated renewable hydrogen today in existing facilities.
And when we think about decarbonization strategies across the energy sector, the fact that the infrastructure already exists and has significant cost advantages is incredibly important in my opinion.
For example, Northwest Natural has 20 billion cubic feet of underground storage today.
That's equivalent to storing about 6 million megawatt hours of renewables.
In today's cost, that would be about a $2 trillion lithium battery.
And this is where policy is key to helping us leverage our existing infrastructure in new ways and accelerate our region's decarbonization efforts.
In Oregon, we have Senate Bill 98, the first of its kind renewable natural gas legislation that sets 30-year targets for gas utilities to procure R&D and renewable hydrogen for customers.
We just announced our first RNG investment under the bill and are actively working on more.
Northwest Natural has started hydrogen blending testing in our training facility, and we're working with Eugene Water And Electric Board in Oregon to propose a project that would include methanated hydrogen for our system.
We're excited about these early steps and are committed to pushing for solutions that include system resilience as part of the energy transition.
Now, more than ever, it's clear to us how critical our gas infrastructure is to furthering our collective climate goals, while also ensuring energy system diversification and reliability for the communities we serve.
 Assistant:

Chosen response:
q4 earnings per share $1.50 from continuing operations.
initiated 2021 earnings guidance in range of $2.40 to $2.60 per share.
nw natural capital expenditures for 2021 are expected to be in range of $280 million to $320 million.


Prompt:
Human: They are based on management's assumptions, which may or may not occur.
We expect to file our 10-Q -- or 10-K, excuse me, later today.
This teleconference is being recorded and will be available on our website following the call.
Please note, these calls are designed for the financial community.
2021 was a year of success for our company, and we continue to build on our fundamental strengths in our gas and water utilities group, and we launched a competitive renewable natural gas business.
For 2021, we reported net income of $2.56 per share, which is an 11% increase compared to net income from continuing operations of $2.30 per share in 2020.
New rates in Oregon drove results for the natural gas utility, along with solid customer growth, and we saw higher revenues at our interstate storage business.
This financial growth is a product of multiyear efforts, a keen focus on our long-term plan and proof that consistent progress yields positive results.
We also see positive momentum in our local Portland Metro Area economy.
Unemployment rates in this area declined to 3.9% in December 2021, compared to 7.3% a year ago.
And single-family housing activity remains very strong.
Home sales were up 10% during 2021 compared to 2020, with the average sales price up 16%.
And new single-family permits issued were up 12% with multifamily permits up 37% in Oregon this past year compared to the prior period.
Construction and development remained robust in our region.
This translated into over 11,000 new customers connecting to our gas system during 2021 for a growth rate of 1.5%.
Our water and wastewater utilities also continued to grow.
Strong residential housing construction, primarily in Idaho and Texas, translated into a 3% organic customer growth rate.
We also closed four acquisitions in 2021.
Most notably, we acquired a stake in the largest privately held water company here in Oregon.
The combination of organic growth and acquisitions increased our water utility connections by nearly 30% last year.
Now a few comments on gas facility.
On November 1, new rates for gas utility customers went into effect for the current heating season.
That included the impact of the general rate case we concluded in the State of Washington.
Despite these increases, our customers continued to pay nearly 30% less for their natural gas today than they did 15 years ago.
And this reflects the decline in commodity costs, energy efficiency efforts and prudent expense management, along with smart investments in gas storage assets that continue to reap benefits for customers.
The result, natural gas continues to maintain its competitive position of fuel of choice.
Added to its performance benefits, natural gas enjoys up to a 60% price advantage over an electric or oil formats for the typical home we serve.
And our customers are central to our success at Northwest Natural.
That's why I'm thrilled Northwest Natural ranked second best among large natural gas utilities in the J.D. Power Residential Customer Satisfaction Study.
This continues a nearly 20-year legacy of outstanding results.
I'm proud of all of our employees who make this exceptional service happen every day.
And as you know, growth is not always linear, and in certain years, the focus will be on initiatives that set stage for future growth.
2022 for us is such a year.
To that end, 2021 and 2022 include robust capex plans related to crucial spend for safety and reliability, technology system upgrades and cybersecurity investments.
To recover these long-planned project costs, we took the necessary step at the end of 2021 and filed in the rate case.
The request includes a revenue requirement increase of $73.5 million based on a 50-50 cap structure and ROE of 9.5% and a cost of capital of about 6.7%.
We filed an increase in average rate base of $294 million since the last rate case.
The Oregon Commission and stakeholders have 10 months to review the case, and we expect new rates to be effective November 1.
At the same time, we continue to make progress under the Landmark Oregon Senate Bill 98 Legislation, which supports renewable energy procurement and investment by natural gas utilities.
I'm happy to report we signed an agreement with Archaea to procure RNG on behalf of our customers in the fourth quarter of 2021.
Northwest Natural also recently committed -- excuse me, completed commissioning the first of four RNG projects with Tyson Foods and BioCarbN.
Construction on our second facility began this month with commissioning slated for early 2023.
To date, we signed agreements with options to purchase or develop RNG on behalf of our customers, totaling about 3% of Northwest Natural's current annual sales volume in Oregon.
I am very proud of the progress we've made in less than two years.
To put it in perspective, today, wind and solar account for about 11% of our total nation's electricity supply after decades of investment.
We intend to continue to take these critical steps to source more and more of our supply for renewables, knowing that our customers want a decarbonate system and a clean energy future.
A new survey conducted by an independent leading opinion search -- research firm showed that 77% of Oregon and Southwest Washington voters want access to all forms of energy, renewable energy, hydro, wind, solar and renewable natural gas for a balanced low-carbon future.
In fact, 78% of voters value the natural gas system for its critical role in lowering emissions with both affordability and reliability and, of course, resiliency as top priorities.
And nearly 80% of owners support local government's efforts to encourage the use of natural gas.
Creating value across all of our businesses allowed our board of directors to increase our dividend for the 66th consecutive year.
Our annual dividend -- indicated dividend rate is now $1.93 per share.
We are very proud to provide returns to our shareholders and be one of only three companies on the NYSE with this record.
I will begin by discussing the highlights of the fourth quarter and full year 2021 results and conclude with guidance for 2022.
I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%.
As a reminder, Northwest Natural's earnings are seasonal with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.
For the quarter, we reported net income of $40.5 million or $1.32 per share, compared to net income of $45.8 million or $1.50 from continuing operations for the same period in 2020.
The decrease in net income over last year was driven by results of our gas utility, which posted a $0.15 per share decline in earnings.
The other businesses posted a $0.03 per share decrease in earnings, driven by higher business development costs.
Lower earnings at the gas utility were primarily related to higher operations and maintenance and depreciation expenses, partially offset by new rates in Oregon and Washington.
Utility margin in the gas distribution segment increased $4.5 million as a result of the new rates and customer growth.
Utility O&M increased $5.7 million, reflecting higher levels of expense for payroll and benefits, contractor and professional services and information technology upgrades.
Utility and depreciation and general taxes increased $1.6 million due to higher property, plant and equipment as we continue to invest in our system.
For the full year 2021, we reported net income of $78.7 million or $2.56 per share, compared to net income from continuing operations of $70.3 million or $2.30 per share for 2020.
This $0.26 per share increase was driven by both the gas utility, which contributed an additional $0.16; and our other businesses that contributed an additional $0.10 per share.
Higher earnings at the gas utility were primarily related to new rates in Oregon and Washington, along with customer growth.
Utility margin increased $30.7 million as higher customer rates and customer growth contributed $30.9 million.
This was partially offset by a loss from the gas cost incentive sharing mechanism as we purchased higher-priced gas during the February '21 cold weather event.
Utility O&M increased $14.2 million, driven by higher employee compensation and benefit costs, lease expenses for our new operations and headquarters building and higher costs related to information technology system upgrades.
Depreciation and general taxes increased $9 million.
Net income from our other businesses increased $3 million, largely due to higher asset management revenues from the cold weather event in February.
For 2021, cash provided by operating activities was $160 million, an increase of $15 million compared to last year.
We invested $300 million into the business, most of which was for the gas utility capital expenditures.
Our balance sheet remains strong with ample liquidity.
Moving on to 2022 financial guidance.
Gas utility capital expenditures for the year are expected to be in the $310 million to $350 million range, including significant projects related to system reinforcement and technology upgrades.
These capital investments, coupled with higher forecasted expenses from technology and payroll, supported our decision to file the Oregon rate case with rates effective in November of this year.
Consistent with these business drivers, the company initiated 2022 earnings guidance today for net income in the range of $2.45 to $2.65 per share.
Guidance assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant changes in loss legislation or regulations.
We continue to see solid long-term growth in our natural gas and water utilities.
And as discussed last quarter, we've launched our competitive renewable natural gas business.
As a result, we are now targeting a long-term earnings-per-share growth rate of 4% to 6% from 2022 to 2027.
This past year, we made significant progress on our business strategy.
Our focus moving forward is clear: maximizing returns from our strong and growing regulated gas utility and positioning our business for incremental long-term growth by investing in water utilities and the competitive renewable natural gas business.
We'll keep our focus on the future, making sound investments today to ensure sustainable growth for tomorrow.
And to that end, we released our Destination Zero scenario report for the gas facility in November last year.
This report illustrates different possible scenarios to transform into a provider of carbon-neutral energy by 2050.
Kim Heiting, our senior vice president of operation, will touch on the details of this work in a minute.
But central to it is our belief that diversified energy system is more affordable, more reliable and importantly, more resilient.
Events in Texas and California are stark reminders of why two energy systems are better than one.
The electric and gas systems depend on each other to serve our communities, and each system provides different benefits.
In fact, by their nature, each system complements the other and hedges against certain risks, with wires above ground delivering renewable electrons and pipes below ground delivering renewable molecules.
This diversification helps us effectively meet different energy needs and will be even more important going forward as climate change and the potential for more severe weather post new risk.
With that, let me turn it to Kim to give a little bit more details on Destination Zero analysis.
Our Destination Zero analysis is the next evolution for us and built off our 2016 carbon savings goal for our customers' use, and the 2019 study we commissioned with the Environmental Consultant E3, Paris Climate Accord reduction targets by 2050.
Since then, we've continued to build on our internal carbon-modeling capabilities and evaluate new developments that allow us to evolve our thinking about the possibilities for our system.
In this new work, we evaluated multiple scenarios with technologies that exist today, some of which are further along the development path in Europe, but all of which are considered viable tools that we are either actively pursuing or evaluating now.
The three scenarios we modeled use both supply and demand side levers designed to achieve carbon neutrality for the emissions associated with our sales customers' energy use and future customer growth.
All of them use varying levels of renewable natural gas, clean hydrogen, synthetic gas and enhanced energy efficiency, including gas heat pumps and hybrid heating systems, as well as a conservative level of offsets and carbon capture.
We use different assumptions to tackle these components to stress test our ability to achieve carbon neutrality under different conditions and views of future technology adoption and availability of renewable supply.
We believe the most likely scenario will be a combination of activities that make usage more efficient and also reduce the carbon intensity of the energy we deliver.
And of course, all scenarios rely on the adoption of supportive policies over time to lower costs for technology innovations like renewable or clean hydrogen.
Driving that policy support is a focus of Northwest Natural and our industry going forward.
While our analysis and modeling continues to evolve as we progress through this transition, our view of the future remains consistent, which is a transformed gas system distributing renewable molecules, enabling our region's ability to achieve its ambitious climate goal in a reliable, resilient and more affordable way.
I'm very proud of our team and their efforts.
And under Kim's leadership, we're in a great place there.
I believe this is one of the first in-depth decarbonization scenario reports by gas utility, and it's a critical planning tool that helps us continue to make progress.
In addition to moving our gas utility toward a renewable future, last year, we also launched a competitive renewable natural gas strategy and formed a new non-regulated subsidiary, Northwest Natural Renewables.
By forming this new organization, we are committed to leading the energy transition and providing renewable natural gas to the utility, commercial, industrial and transportation sectors.
We're focused on providing cost-effective solutions to help these sectors decarbonize using existing waste streams and renewable energy resources.
As you know, we're in the beginning of a historic energy system transformation, and we're confident the demand for renewable fuels is going to continue to grow.
We project the substantial increase in renewable natural gas demand to meet voluntary and compliance-driven targets instituted by states and utilities.
We see promising investment potential in RNG and believe we're well-positioned to help fulfill this need as it aligns with our core competencies and is a natural extension of our sustainability efforts.
We're also an attractive counterparty for developers and feedstock owners seeking a reliable, long-term strategic partner.
Most RNG projects are sized right for us to effectively transact and to provide meaningful growth and cash flow.
And as you know, we've already taken our first steps with a 20-year RNG supply agreement and a total of $50 million investment.
I'm excited to announce that as of the end of January, Mike Kotyk joined our team to lead our competitive RNG efforts.
Mike brings more than 25 years of experience in this sector, and I know we're ready and resourced to pursue these opportunities.
In conclusion, we intend to remain disciplined and focused as we assess other RNG investments to support the energy transition and provide additional earnings and cash flow growth for the company.
Turning to our water utility business.
Since announcing our initial transaction four years ago, we solidified our water strategy and increased the number of customers we serve fivefold through nearly 20 acquisitions across four states.
And we're not stopping there.
Last year, we signed purchase agreements that will more than double our total number of connections.
And most notably, we signed our largest acquisition today to acquire Far West Water and wastewater utilities in Yuma, Arizona, which serves approximately 25,000 customers.
I'm pleased to expand into our fifth state and in a region that is fast growing.
The acquisition, subject to regulatory approval, is expected to close in the fourth quarter of this year and be accretive to earnings per share after its full -- first full year of operations.
Just this month, we also announced additional agreements to acquire two water utilities near our existing systems in Texas.
And central to the water utility business is strong and collaborative relationship with regulators, and we've been pleased with their support to consolidate this fragmented industry with final approval of acquisitions and recovery for prudent investments for safety and reliability.
We remain excited about the investment potential for this business, and we look forward to more announcements soon.
So in conclusion, your company is financially strong, and I'm pleased the opportunities in the renewables and water sectors have allowed us to increase our long-term earnings-per-share growth rate of 4% to 6%.
We intend to continue working on your behalf to pursue sustainable growth.
 Assistant:

Chosen response: q4 earnings per share $2.56.


Prompt:
Human: Joining me remotely, again, this will probably be our last remote one, we'll see, hopefully, our last one, is Susan Kreh, our chief financial officer; Molly VandenHeuvel, our chief operating officer; Jessica Moskowitz, vice president and general manager of the consumer products division; Fred Kao, our vice president of global sales for Amlan International; Laura Scheland, general counsel; and Leslie Garber, our manager of investor relations.
And, Leslie, if you would walk us through our safe harbor, please.
Actual results in those periods may materially differ.
We ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in Oil-Dri stock.
And we certainly can explain what's going on with the margin pressure and really rampant cost increases in my career as president, which started in 1995, I haven't seen this since Hurricane Katrina back in August of 2005 when natural gas went through the roof.
So I think we're seeing it everywhere.
Supply chains are being squeezed.
Materials are being -- demand is exceeding supply, i.e., prices are going up.
And so we are obviously working very hard to get increases to offset these.
But, you know, fell woefully short in the quarter.
And that's why you saw the top line look fine, but gross profit and bottom line are not fine.
Well, let me jump right in.
For the third quarter of fiscal year 2021, Oil-Dri delivered net sales of 76.3 million, which was on par with our record third quarter in fiscal 2020.
Staying with net sales, I would remind you that our third quarter compares to a unique third quarter in the prior year, where we experienced very high sales in our cat litter products that were driven by consumer-pantry loading as the pandemic began to close down many businesses, schools, ball fields, etc.
And consumers stocked up on cat litter, toilet paper, and other essential goods in anticipation of potential supply chain disruptions.
On the positive side, during the quarter, our industrial and sports businesses began to rebound from the pandemic as businesses in ball fields that had been shut down as a result of the pandemic began reopening.
In addition, we experienced steady growth of our agricultural and our animal health products.
The third-quarter net sales in our business-to-business products group decreased 1% from the prior year to 26.3 million.
The higher demand of agricultural and animal health products that I mentioned earlier was offset by decreases in co-packaging, of course, cat litter, a result of the prior year's pantry loading, as well as decrease in bleaching clay sales.
Agricultural product revenues rose 7% in the third quarter compared to the last year, primarily resulting from increased sales to our existing customers.
Sales of animal feed additives increased 3% in the quarter versus the prior year, driven by higher demand within Asia and Latin America that was partially offset by lower revenues in China.
This decreased demand within China was really primarily due to the shift in timing of the Chinese New Year when many businesses temporarily shut down in observance of the holiday.
That occurred during the second quarter in fiscal year 2020, but in the third quarter of fiscal year 2021, making the quarter comparison a little bit differ.
Third-quarter sales of our bleaching clay and fluids purification products declined by 3% from the prior year due to the timing of orders, improved crop conditions that require less material for purification, and the negative impact for the pandemic as many edible oil manufacturing plants have delayed plant tests or have unused product on-hand due to lower production.
The pandemic has also negatively affected our sales of our Ultra-Clear products, which are used for jet fuel processing.
Now switching to our retail and wholesale products group.
Third-quarter net sales reached a record of 50 million, a 1% increase over the strong quarter in the prior year.
A 20% increase in our sales from our industrial and sports products drove much of this growth as commercial businesses are recovering since the pandemic and many sports fields have reopened.
Although we continue to experience the positive impact of increased pet adoption resulting from COVID-19 and the overall macro trend of higher spending on pet, net sales of cat litter decreased in the third quarter compared to the prior year, which, as I mentioned earlier, benefited from the unprecedented pantry loading during the early stages of pandemic.
Now switching to costs.
Our third-quarter gross profit of 16.5 million was approximately 4.9 million lower than the third quarter of fiscal 2020.
This decline can be attributed to a 14% increase in cost of goods sold per manufactured tons driven by higher freight, packaging, materials, natural gas, and nonfuel manufacturing costs.
Domestic trucking supply constraints and elevated fuel costs resulted in a 28% increase in freight costs for manufactured tons compared to the same period last year.
A 19% increase in packaging costs for manufactured tons due to higher resin prices also contributed to the reduction in margin.
Natural gas and material costs for manufactured tons increased by 11% and 9% respectively in the third quarter over the prior year.
Dan mentioned, we certainly did experience some market-based increases in costs, and to offset these significant cost increases, the general managers of our businesses have been implementing and continue to evaluate price increases, many of which are effective as of May 1, which will result in us seeing the impact during our fiscal fourth quarter.
Further, some of those price increases required 90-days notice to our customers and costs continued to rise since those increases were set.
Therefore, we continue to evaluate the needs for further price increases, particularly in our consumer business that is significantly impacted by increases in freight and resin-based packaging costs.
Shifting to total selling, general, and administrative expenses for the third quarter.
They were approximately 1.1 million lower than the prior year, representing a 7% in decrease.
Increased advertising and marketing expenditures were offset by reduced travel, reduced bad debt expense, and a lower estimated annual incentive bonus for fiscal year 2021 compared to fiscal year 2020.
Our effective tax rate in the quarter is worthy of mention.
During the third quarter, it was a negative 1%, compared to 17% in the same period in the prior year.
This reduction reflects not only a decrease in our expected annual taxable income as we have a better line of sight to the impact of cost increases versus price increase on our fiscal year ending July 31, 2021.
It also includes certain employment-related tax credits of which we were able to take advantage during the quarter.
In addition, we were able to claim a new tax deduction for foreign-derived income, which further reduced the effective tax rate for the third quarter.
Net income attributable to Oil-Dri was 2.2 million in the third quarter, compared to 4.6 million during the third quarter of fiscal 2020, resulting from the impact primarily of the increased costs we discussed earlier.
And for the same reasons, our earnings per diluted common share of $0.32, compares to $0.65 in the third quarter of the prior year.
All that said, our financial position remains strong as is reflected in our balance sheet.
We ended the quarter with cash and cash equivalents of 30 million and have very little debt, equating to a debt of total capital ratio of about 6%.
One of the primary uses of our cash flow is to fund our trade working capital.
Taking a year-to-date perspective here, during the first nine months of fiscal 2021, our accounts receivable increased 3.9 million, reflecting our sales growth, as well as a shift in our customer mix, which includes an increase of sales to foreign customers who tend to have longer term.
Our income taxes shifted from a 2.6 million payable balance included in accounts payable as of July 31, 2020, to a prepaid balance of 2.3 million as of April 30, 2021, representing a use of cash of 4.9 million during the first nine months of fiscal 2021.
The decrease in accrued expenses of 4.1 million for the nine months ending April 30 was primarily driven by a reduction in the incentive bonus accrual.
During the year, we used our cash in line with our plan to fund capital investments in our business, including those required for growth and those required to drive cost reductions in addition to normal repair and replacement capital.
We also used cash to opportunistically repurchase stock to help offset dilution that occurs as shares of our restricted stock less.
Year to date, we have repurchased approximately 82,000 shares of our common stock for $2.9 million.
In conclusion, Oil-Dri remains in a strong financial position with low leverage and is well-positioned to capitalize on the strategic investment opportunities that may become available.
And at this time, I would like to open up the Q&A so we can cover the issues that are most important to our investors.
So let's open up the Q&A line.
 Assistant:

Chosen response:
q3 sales $76.3 million.
qtrly earnings per common share $0.32.


Prompt:
Human: The company delivered another fantastic quarter, with better-than-expected results, another record-setting bond deal, an excellent achievement in all areas of leasing.
Third quarter FFO is adjusted for comparability of $0.57, outperformed the high end of guidance by $0.01, and represented the sixth time in the past seven quarters that we outperformed expectations.
We also exceeded our guidance for two of the last three quarters.
For the third time this year, we're increasing the midpoint of our full year guidance for FFO per share as adjusted.
The $2.27 midpoint of updated 2021 guidance is $0.08 above our original midpoint and represents an increase of 7.1% over 2020 results.
We completed another record bond financing in the quarter.
In August, we issued $400 million of senior unsecured notes with a 2% coupon, which tied as the second lowest coupon ever issued among office REITs.
Our growth strategy targets owning and developing specialized office and data center shells in mission-critical Defense/IT locations, and this strategy continues to deliver excellent results.
In the quarter, we achieved a total of one million square foot of leasing, which included extremely strong vacancy leasing of 215,000 square feet.
This vacancy leasing volume represented the highest achievement in two years, and was 67% above the trailing eight-quarter average volume.
Vacancy leasing also included a 68,000 square foot lease with the United States government for two floors at 310 NBP.
In the quarter, we also completed 274,000 square feet of development leasing, all at Defense/IT locations, including a full building lease with the US government.
Lastly, we renewed 553,000 square feet, delivering a 76% retention rate at lease economics that were consistent with our expectations.
Leasing for the nine months indicates our fundamentals continue to strengthen, with customers making long-term commitments to new space.
We completed 2.7 million square feet of total leasing, which included 420,000 square feet of vacancy leasing at an average lease term of 8.6 years.
We completed 1.4 million square feet of renewals, achieving a 75% retention rate.
And we executed 915,000 square feet of development leasing with an average initial term of 14.1 years.
After the quarter, we leased another 263,000 square feet, bringing our total development leasing for the year to just under 1.2 million square feet with an average lease term of 13.4 years.
As a result of this transaction, our active developments totaled 1.8 million square feet that are 94% leased.
Development leasing to date exceeds our 2021 goal by 18% and represents the fourth consecutive year we've achieved over one million square feet of development leasing.
Our excellent leasing performance continues to translate into impressive operating results.
Including the impact of assets sold to fund development, for the nine-month period, NOI from real estate operations increased 7%, FFO per share as adjusted for comparability grew 10%, and AFFO is up 16% from one year ago.
Our unique Defense/IT portfolio, strong balance sheet and reliable low-risk development program continue to generate high-quality FFO per share and cash flow growth that are extremely durable because demand is driven by defense spending and national security requirements rather than traditional office fundamentals.
As important, demand in our Defense/IT locations is not impacted by work from home and other trends that may affect office demand in the future.
We continue to have a strong set of leasing and development opportunities before us and the balance sheet to seize upon them.
With that, I'll hand the call over to Todd.
Continued strong demand in our markets has driven outstanding lease achievement this year.
Third quarter vacancy leasing was exceptionally strong at 215,000 square feet, representing 18% of our available space at the beginning of the quarter.
To put this achievement in perspective, since defense spending began rebounding in 2016, our quarterly vacancy leasing has averaged 132,000 square feet.
There were two major transactions from the quarter worth highlighting, the first of which was a 68,000 square foot lease with the US government at 310 NBP, leaving two floors to lease to bring that building to 100%.
The customer continues to indicate their intent to lease the remaining space, but because the government is operating under a continuing resolution, we now project lease execution during 2022.
The second major vacancy lease was for 63,000 square feet at 6740 Alexander Bell Drive in Columbia Gateway.
The new tenant is consolidating multiple offices, and executed a 16.5-year lease for the entire building with lease commencement expected in July 2022.
Although we had intended to redevelop this asset, we backfilled the full building in just four months and accordingly have moved it back into our same property pool.
For the nine months, our 420,000 square feet of vacancy leasing represented 114% of the trailing five-year average through nine months, and was the second highest nine-month volume in the past five years.
Our current leasing activity ratio is 101%, and since the start of the second quarter has averaged 90%, underpinning much of the third quarter's vacancy leasing success and our expectation for strong lease achievements continuing into the fourth quarter.
During the third quarter, we renewed 553,000 square feet, translating into a 76% tenant retention rate.
Cash rents on renewals rolled down 0.6%, and GAAP rents grew 1%.
Excluding an 89,000 square foot renewal where the tenant was rolling off a 10-year lease that had escalated above market, cash and GAAP rents increased 1% and 5%, respectively, in the quarter.
For the nine-month period, we completed 1.4 million square feet of renewals with a 75% retention rate, cash rents rolling down 0.3%, with annual escalations averaging 2.4% and average initial lease terms of 3.8 years.
Excluding the two Boeing buildings and Redstone Gateway that are still on one-year renewals, the lease term for the nine months averaged 4.7 years.
We continue to advance negotiations to renew the 11.25 megawatt user at DC-six.
The customer's process remains slow and methodical, and we are confident they will renew.
Given we cannot control their pace, we are not putting a time frame on its completion.
The tenant's original lease remains in effect and they continue to pay their escalated rent.
During the quarter, we executed 274,000 square feet of development leasing at Redstone Gateway.
The largest transaction was a 205,000 square foot full building lease with the U.S. government.
Lease commencement is scheduled for early 2024.
This development represents our second building in the secured campus, which, upon completion of this project, will total 460,000 square feet.
The remaining 69,000 square feet of development leasing was with two defense contractors who leased space at 8,000 Ride Out Road.
That development was started because of the contractor demand we are tracking, and is now 88% leased.
We are working to close a lease for the remaining 12,000 square feet.
Earlier this month, we executed leases with Northrop Grumman for two build-to-suit office buildings along right out road at Redstone Gateway.
The 2-building campus totals 263,000 square feet of highly visible Class A office space with one of the world's largest defense contractors, just outside Redstone Arsenal's main gate.
We are on track for lease commencement in the second half of next year.
Once the active projects under development at Redstone Gateway are placed into service, the park will total 2.2 million square feet, making it our second largest concentration of Defense/IT assets, and equal to slightly more than half the size of the National Business Park.
The Northrop leases brought our year-to-date development leasing total to nearly 1.2 million square feet, making 2021 the tenth straight year we have exceeded our development leasing goal.
Based on the 1.5 million square feet of opportunities we are tracking in our development leasing pipeline, we expect continued strong development leasing.
Lastly, in the first nine months, we placed 709,000 square feet of developments into service that were 89% leased.
We expect to place another 74,000 square feet into service in the fourth quarter bringing our total for the year to roughly 800,000 square feet.
Third quarter FFO per share as adjusted for comparability of $0.57 exceeded the midpoint of guidance by $0.02 driven by $0.01 of deferred R&M projects and $0.01 of other outperformance.
We expect to complete the deferred R&M projects in the fourth quarter, which will impact same-property cash NOI and FFO per share.
Incorporating this change, we are adjusting the midpoint of our fourth quarter guidance to a new range of $0.55 to $0.57.
The timing of R&M projects drove 165 basis points of outperformance in same-property cash NOI, which increased 4.8% in the quarter.
Given the year-to-date results, we are increasing our full year guidance for same-property cash NOI growth again from a prior range that was flat to up 1% to a new range that is up 50 to 100 basis points.
At the 75 basis point midpoint, our revised full year guidance for same-property cash NOI growth is 175 basis points above the midpoint of our original guidance.
We are also narrowing our full year guidance for same-property occupancy from the prior range of 90% to 92% to a new range of 90% to 91.5%.
Our revised guidance continues to incorporate the 20 basis point negative impact of joint venturing fully occupied, wholly owned data center shells to raise equity in the fourth quarter, and has been adjusted to include the 40 basis point negative impact of placing 6740 Alexander Bell Drive back into service, back to the same property pool.
In August, we issued $400 million of long 7-year senior unsecured notes priced at 2% and used the proceeds to retire floating rate debt.
Specifically, we prepaid $100 million of our 2022 term loan, retired the $89 million construction loan at 2100 L Street and paid down amounts on our line of credit with the remainder.
The August deal was more than five times oversubscribed and priced at 105 basis points over the seven-year treasury, which was 25 to 30 basis points below initial price talk.
The 2% coupon ranks as the lowest among office REITs for seven-year paper and ties as the second lowest overall face rate of any duration among office REITs.
Our credit spreads compare favorably to peers who are rated one notch higher by the rating agencies.
Clearly, fixed income investors appreciate the durability of our cash flow, the high quality credit of our tenants and their in-office work requirements.
Also of note, since September of 2020, we have issued $1.4 billion of senior notes with an average term of over eight years, and use the proceeds to retire debt carrying an average term of 1.8 years.
Lastly, incorporating the items addressed earlier, we are increasing our full year guidance from a previously elevated range of $2.24 to $2.28 to a new range of $2.26 to $2.28.
At the midpoint, our updated guidance range implies 7.1% growth over 2020 results and is $0.08 higher than the midpoint of our original guidance.
It is important to note that placing several development projects into service earlier than originally planned, drove nearly $0.02 of this year's outperformance, and pulling that NOI forward into 2021 tempers 2022 growth by approximately 1%.
With that, I'll hand the call back to Steve.
I'll close the call with a recap of our key message points.
Our company's investment strategy is supported by the defense economy, which is funded by the United States defense budget and aligned with priority national security needs of the United States.
The US defense budget has been well funded since fiscal year 2016 and has bipartisan support for continued growth to address the increasingly risky global threat environment.
Our portfolio office usage levels remains very high as high security defense work cannot be performed from remote locations.
Our defense tenants are not experiencing diminished office usage, significant contractions or seeking short-term lease extensions.
Rather, they continue to require densely configured office space to accommodate mission growth.
And as our results continued evidence, they are making long-term commitments to our Defense/IT locations.
The likes of our development, vacancy and renewal leases remain at or above pre-pandemic levels, demonstrating our tenants' commitment to working in their offices for the long term, and their confidence in the outlook for the defense industry.
Our company has exceeded its business plan throughout the pandemic era.
And this year, we're experiencing further strengthening of business fundamentals and achievement suggesting continued strength and performance in coming years.
Clearly, our strategy of investing in a priority defense, mission locations and creating value through new low-risk development at these locations is very different from other office companies and continues to deliver high-quality FFO per share and cash flow growth regardless of the broader economic trends.
 Assistant:

Chosen response:
q3 adjusted ffo per share $0.57.
same-property cash noi increase of 4.8% in quarter.
increasing midpoint of same-property cash noi guidance for year.
sees q4 ffops, nareit definition of $0.55-$0.57.


Prompt:
Human: Please turn to Page 3.
Like other banks, we faced a number of COVID-19 related challenges during the second quarter.
But for us at OFG, the pandemic also followed the earthquakes we experienced in January and occurred while we were in the process of integrating the Scotiabank acquisition.
Certainly, no small challenge.
But by acting quickly and with foresight, we produced excellent results for our customers, communities and people, and continue to help them build better financial futures.
In March, governments in Puerto Rico and US Virgin Islands shut down businesses and personal activities.
Restrictions were eased in late May.
But recent spikes in new cases have forced Puerto Rico to reduce some of the flexibility.
The Federal Reserve Bank cut rates 150 basis points in March, following the 75 basis points reduction in the second half of 2019.
Our commitment and preparation enabled us to successfully manage these challenges facil, rapido, hecho; easy, fast, done, as we say at OFG.
All our branches operated safely throughout the quarter, enhanced by our technology platform.
Our full-service ATMs and ITMs, mobile app, and online bill paying tools facilitated routine transactions in a contactless manner.
Online and mobile appointment scheduling helped make COVID safe customer meetings possible at branches.
We deployed a 100% digital client-friendly application and funds disbursement process for PPP loans.
About half of our team members are still working remote.
We also implemented extensive new safety protocols for our customers and people on site.
And we continued to offer new benefits for our people such as free COVID on-site testing and daily online health check-ins, as well as incentives.
The results speak for themselves.
We provided high levels of customer service, safety and knowledge throughout all channels.
Loan production in the second quarter totaled more than $500 million.
Customer deposits increased $760 million.
Our online loan deferral tool and call centers processed relief for more than 44,000 retail customers.
We reduced higher-cost wholesale funding, maintained a strong level of net interest margin and continued to build liquidity and capital.
And we secured $100,000 in Federal Home Loan Bank of New York grants to support local non-profit and small businesses in Puerto Rico and the US Virgin Islands.
Please turn to Page 4.
We have continued to see strong technology utilization trends among both our retail and business customers since the beginning of the year and, in particular, since March.
Online bill enrollment -- bill pay enrollments were up 12% as of March and 24% as of June.
Mobile banking users jumped 17% by the end of the second quarter from the beginning of the first.
The number of remote deposit capture users are up 68% from the end of March.
In another area of success for us, during the second quarter, we scheduled more than 18,000 COVID safe appointments with our customers through our online and mobile tool.
We are very pleased with this -- to see these trends.
Technology is a core part of our overall corporate strategy.
We continue to look into new ways and innovative ways to use it to help our customers.
Please turn to Page 5.
Looking at our SBA PPP program, we continue to exceed our market share in Puerto Rico.
We generated a total of $286 million in new loans.
This enabled us to help more than 4,000 small businesses save more than 50,000 jobs.
It also enabled us to attract new accounts in this strategically important customer base.
And we were able to distribute these funds electronically within five days of application approval.
This is a great example of our ability to act quickly in response to changing conditions to the benefit of both existing and new customers and the communities we serve.
Let's talk about our results on Page 6.
We reported earnings per share of $0.39, and $0.37 on a non-GAAP basis.
Total core revenues were $128 million.
Most of that was due to a large increase in interest earning assets, chiefly loans and cash.
This was partially offset by a decline in yield due to significantly lower rates on cash and lower yields on variable rate commercial loans.
In addition, we have lower investment security balances.
As a result, we generated net interest income of $105 million with a net interest margin of 4.78%.
Banking and wealth management revenues totaled $23 million.
Non-interest expenses were $86 million, primarily due to the addition of the Scotiabank acquisition.
Second quarter results included several items.
$9.5 million in revenues from Scotia Bank interest recoveries and bargain purchase gain.
We added $5 million in provision for the pandemic.
And within non-interest expenses, we had a $5 million in merger and restructuring charges and COVID-related operating costs.
Please turn to Page 7.
The effects of these results is that we're building tangible book value, and our return on asset and return on equity continued to improve sequentially from the fourth quarter.
Please turn to Page 8 for operational highlights.
Average loan balances increased 52% year-over-year and 2% quarter-over-quarter.
Average core deposits, excluding brokered, increased 76% year-over-year and 5% quarter-over-quarter.
Loan generation was strong.
Increased production from PPP and other commercial loans was partially offset by reduced production in our retail categories, primarily due to the economic shutdown.
We ended the quarter with good momentum and good pipelines in the mortgages and auto businesses.
Loan yield at 6.97% continued to hold up well despite the recent Federal Reserve cuts.
The cost of core deposits declined 4% -- 4 basis points year-over-year.
Net interest margin declined to 4.78%.
Please turn to Page 9 to review credit quality.
The net charge-off and non-performing loan rate declined year-over-year and quarter-over-quarter, reflecting loan paydowns and the effects of deferrals.
Provision for credit losses of $18 million was level with last year.
I'd like to note the year-ago provision included an extra $9 million related to loans transferred to held for sale.
Please turn to Page 10 to review our loan deferrals.
After disruptions in economic condition caused by COVID-19, we offered several loan payment deferral programs ranging from one to four months.
As I've mentioned, we've enhanced this effort by quickly developing unique and first-to-market digital tools to help consumers apply for forbearance on an individual basis.
Our online loan deferral tool and call centers processed relief for more than 44,000 retail customers.
In total, we have about $1.4 billion or 32% of our retail loans on deferral.
The pace of retail requests is significantly slow.
In addition, we have about $685 million or 26% of our commercial loans on deferral.
Please turn to Page 11.
The allowance for loan and lease losses of $233 million increased $70 million year-over-year.
And we have almost doubled the level of reserves from December 31, 2019.
Compared to March 31, 2020, the allowance increased $2 million.
Excluding SBA guaranteed PPP loans, second quarter 2020 allowance was 3.49% of loans, 8 basis points higher than the first quarter.
Please turn to Page 12.
We are in a strong capital position.
Our CET capital ratio, as you see on that slide, of 12.03% is up 112 basis points since last year.
Please turn to Page 13.
While we still face much uncertainty regarding COVID and the economy, we are in a strong financial position, ready to help our customers during these trying times.
Once we get through this, Puerto Rico stands to benefit significantly from COVID stimulus and still unspent and undistributed Maria and earthquake-related stimulus programs.
At OFG, we believe our results and our history demonstrate our ability to quickly respond and adapt to changing economic environments.
During the second quarter, we continued to build momentum in our core businesses and developed a good pipeline of new loans.
From a liquidity, capital and balance sheet point of view, we are well positioned both financially and strategically.
Our agenda going forward is clear.
We plan to continue integrating the former Scotiabank operations and finish by the end of this year.
At the same time, we must achieve the full benefits of the acquisition by the end of 2021.
We also plan to continue to invest in the future to further simplify our operations and enhance our ability to serve customers.
And ultimately, we intend to continue to play a significant role in the recovery in Puerto Rico and the US Virgin Islands.
Crises bring out the best in people to help others.
Our people demonstrate that with purpose every single day.
Operator, please open the call for the Q&A session.
 Assistant:

Chosen response:
compname reports q2 earnings per share $0.39.
q2 earnings per share $0.39.
qtrly total core revenues were $128.2 million compared to $$99.2 million in 2q19.
expect to complete integration of scotiabank operations as planned by end of year.


Prompt:
Human: Also during the course of today's call, we will discuss certain non-GAAP measures in talking about Omnicom's performance.
We will begin the call with an overview of our business from John, then Phil will review our financial results for the quarter.
We're very pleased to report that in the third quarter, we continued our year-over-year double-digit growth in our key financial performance metrics, led by a very robust top line.
The top line results were broad-based across our agencies, geographies and disciplines.
Our growth was especially strong in CRM Precision at 24%.
Our CRM Precision Group is helping clients on their MarTech transformation, digital and e-commerce communications and direct-to-consumer marketing.
The group has played a key role in many of our recent new business wins where, overall, we continued our very strong momentum in Q3.
Broadly, across our group, growth was driven by improved economic conditions.
Omnicom's suite of services and capabilities are positioning us to be extremely competitive in the marketplace to: reimagine and strengthen our clients' brands, seamlessly connect them with their customers across their marketing journey, transform their marketing technology platforms and innovate in e-commerce and new media channels.
Our revenue performance flowed through to our operating profit in bottom line.
Our EBIT margins for the third quarter were 15.8%, which exceeded our 2020 margins and significantly outpaced the comparable period in 2019.
Net income and earnings per share for the quarter grew by more than 13% versus 2020 and were also significantly above our 2019 results.
As we head into the fourth quarter, we are well positioned competitively and expect to benefit as economic growth continues to improve globally and from ongoing cost management.
We currently expect our full year organic growth to be approximately 9% and our full year EBIT margin to exceed our year-to-date margin for the nine months ended September 30, 2021 of 15.1%.
Going forward, we remain focused on our key strategic initiatives, which is centered around our talent, dedication to creativity and building on our already strong capabilities in precision marketing and MarTech consulting, e-commerce, digital and performance media and predictive data-driven insights.
In the third quarter, we made progress across these strategic initiatives as we announced three acquisitions.
Omnicom Media Group acquired Jump 450 Media, a performance marketing agency.
The company leverages algorithmic scaling strategies, rapid creative testing and data analytics to optimize digital media spend and drive customer acquisition.
Jump 450 will form the foundation for a dedicated performance media platform and business operation within OMG.
Its focus on e-commerce and pure performance marketing will strengthen and add a distinct set of capabilities to OMG's existing performance media offerings.
Also in late September, we announced the acquisition of two German-based companies: antoni and OSK.
antoni is one of the most innovative and creative agencies in Europe and was born with data and digital capabilities at its core.
antoni's creative leadership and depth of talent will significantly strengthen our capabilities in Europe and around the globe.
OSK has been in the top-10 of PR and comms agencies in Germany since 2008 and is the undisputed number-one for automotive.
It provides a broad portfolio of services at the intersection of PR and social media and excels in the convergence of technology, mobility and communications.
Our ability to bring together the brightest talent and data-driven consumer insights from across our organization to deliver holistic and integrated brand experiences is proving to be highly successful in our new business opportunities as well as in servicing our existing clients.
Following on the heels of Philips naming Omnicom their global integrated service partner for creative and media communications, in the third quarter, Mercedes-Benz appointed Omnicom its global marketing communications partner.
One of the world's most iconic brands, Mercedes-Benz is today the leading luxury automotive experience company.
TMX, a dedicated team from across our groups, will bring together the best-in-class talent and capabilities across Mercedes-Benz' customer journey with expertise in media and CRM, brand and performance creator, web personalization and content automation, public relations and events as well as paid and organic social.
And just last week, we won the Chanel media business globally, adding another iconic global brand.
As in all our significant wins as well as for our existing clients, our teams are able to showcase our creativity, better analysis and predictive insights and technology capabilities to deliver connected, personalized and seamless brand experiences for their respective customers at all touch points of the consumer journey.
One key differentiator for Omnicom in servicing our clients is our cohesive culture that binds us together.
It's a culture of creativity, flexibility and caring that are common values shared across our group.
I often hear from clients that a deciding factor in their decision to hire Omnicom is that our people who bring distinct specialized skills to them, know and respect one another and genuinely collaborate.
Our ability to integrate services from across our marketing disciplines is underpinned by Omni, our open operating system that orchestrates better outcomes.
Omni is built for collaboration, acting as a conductor between different specialists using a single processing workflow from insights to execution.
It empowers our people and our clients to make better and faster decisions, maximizing efficiency and ROI.
Omni also provides better intelligence by orchestrating first-, second- and third-party data sets to present a single comprehensive view of consumers.
Our teams can then develop insights to create, plan and deliver the most impactful messages, content and communications to them at each stage of that consumer journey.
Omni is a unique and powerful tool for us, and we now have over 40,000 Omnicom colleagues provisioned on the platform in over 60 countries.
Hundreds of our clients, including all of our top-20, utilized Omni.
Moreover, the open-source system enables our practice areas like commerce, health and PR to customize Omni with different data sources for their clients.
For example, Omnicom Health Group created a custom offering called Omni Health.
Since rolling it out in April of this year, OHG has leveraged the platform to play a key role in expanding the group's omnichannel offering with new and existing clients, including AstraZeneca and Janssen, XARELTO, to name a few.
In summary, even during the pandemic, we accelerated the strength of our services, capabilities and organization to deliver better outcomes for our clients and win new business.
Our offering is powerful and differentiated.
We have best-in-class talent and creativity using best-in-class operating systems and technologies.
It's a formula that will continue to win for us.
Throughout one of the most difficult times in recent history, our people have shown ingenuity, resilience and strength.
We continue to spend and invest in training and development programs for all of our people from basic skills training all the way through the advanced programs of Omnicom University.
We recently expanded the curriculum for our DE&I and OPEN2.0 strategies.
As the pandemic continues to present a substantial health risk, the well-being of our colleagues remains our top priority.
We are ensuring we have a safe work environment and are offering a variety of programs for managers and individuals to support their wellness, resilience and health at work.
I recently traveled to several of our U.S. and European offices and have met with many colleagues and clients who are happy to be back in the office.
We are looking at many alternatives to provide our people a safe return back to the office.
For example, this week, we're testing a private transportation service for New York City-based colleagues.
In the months ahead, we look forward to welcoming more of our staff back with a continuing priority on their safety and flexibility.
It is truly our world-class talent and our dedication to creativity and innovative solutions that drive real business outcomes for our clients.
A key recent proof point reflecting the quality of our talent is Omnicom being named the Most Effective Holding Company in the U.S. by the 2020 [Technical Issues] report.
Overall, we're extremely pleased with the third quarter.
I'm proud to see that our strategic focus and the decisions we made throughout the pandemic are now leading to positive results.
Our results once again reflect Omnicom's ability to adapt and respond to the changes in the market and deliver through economic cycles.
While the impact of the pandemic continues to be felt across the globe, that impact has continued to moderate significantly as evidenced by our continued growth in the third quarter.
Slide 3 shows our third quarter improvement across our income statement, where our revenue growth and expense control drove an 8% increase in operating profit.
Our effective tax rate for the third quarter was 24.1%, down from our estimated effective rate for 2021 of between 26.5% and 27%.
This was primarily due to the favorable settlement of uncertain tax positions in certain jurisdictions, the impact of which was approximately $10 million.
These items positively impacted net income and diluted earnings per share, which was $1.65, up $0.20 or 13.8% versus Q3 of last year and up $0.33 versus the third quarter of 2019.
So our growth continues on this important metric as well.
And finally, our $0.70 quarterly dividend, which was raised back in February, is 7.7% higher than last year.
Let's now flip to Slide 4 and look at the quarter in more detail, beginning with revenues.
Our total revenue growth was 7.1%.
Organic growth for the quarter was 11.5% or $367 million, which represents a significant improvement compared to Q3 of 2020 when the pandemic drove an organic revenue decline of 11.7%.
The impact of foreign exchange rates increased our revenue by 1.6% in the quarter as the dollar continued to weaken against most of our larger currencies compared to the prior year.
If FX rates stay where they were on October 15, we expect foreign exchange to decrease our reported revenue by approximately 1% for the fourth quarter and increase our reported revenue by 2% for the full year.
The impact on revenue from net acquisitions and dispositions decreased revenue by 5.9%.
Based on transactions that have been completed through September 30, 2021, our estimate is the net impact of our acquisition and disposition activity for the balance of the year will decrease reported revenue by approximately 7% in the fourth quarter and by approximately 4% for the full year.
While we will continue our process of evaluating our portfolio of businesses as part of our strategic planning, as John has said regarding dispositions, we are substantially complete.
Advertising, our largest discipline at 53% of our total revenues, posted 8.6% organic growth with very strong performance from both our creative agencies and our media agencies.
Please note that reported Advertising growth is down 0.4%, due primarily to the disposition of ICON in Q2 of 2021.
Our agencies focused on direct, digital and marketing transformation consulting services in our precision marketing discipline also posted strong organic growth at 24.3%.
With the exception of the second quarter of 2020, this discipline has been a consistent grower for some time and has become a larger portion of our business each quarter.
CRM Commerce and Brand Consulting was up 18%, with our branding agencies leading the discipline's performance.
CRM Experiential was up 50%.
This business declined far more than our other disciplines in the third quarter of last year during the pandemic and has not yet recovered to pre-pandemic levels due to various global restrictions.
However, this remains an important area for our clients, and we look forward to further growth as global economies continue lifting social distancing restrictions.
CRM Execution & Support was up 8.3%, reflecting a recovery in client spend compared to the prior year in our field marketing businesses, while our research businesses continued to lag.
PR was up 10.5%.
We have a positive outlook for the discipline, especially within our global agencies, as clients adjust to the new post pandemic realities.
And finally, our Healthcare discipline was up 6.6% organically.
Healthcare was the only one of our service disciplines that had positive organic growth during the depths of the pandemic and continue to perform well.
Flipping to Slide 6, our revenue by region.
The key takeaway is that all of our geographies again posted solid organic growth.
This growth was driven by virtually every discipline within each region.
Outside the U.S., where total organic growth was 16%.
Double-digit growth in each region was led by Germany, the U.K., Canada and Australia.
Our advertising, media and PR agencies performed well with double-digit growth, and our precision marketing agencies were sizable contributors and also posted strong double-digit growth.
In addition, experiential growth outside the U.S. was over 100% in total.
In the U.S., we generated 7.7% organic growth, which was boosted by strong double-digit growth in our precision marketing and PR disciplines as well as solid growth at our healthcare agencies.
The last revenue view I'd like to share with you is by industry sector on Slide 7.
The change in mix by sector in the portfolio was small on a year-to-date basis when compared to last year.
In summary, our revenue performance was very strong across the board on both a reported and organic basis and when analyzed by discipline, geography or industry sector.
To make the analysis more relevant, we have also included a supplemental slide in the appendix that shows the 2021 amounts presented in constant dollars.
Beginning with our largest category, salary and service costs.
These costs increased by 7.6% in total, and they tend to fluctuate with the change in revenue.
We would also note that Q3 2020 salary and service cost amounts were reduced by reimbursements received from government programs of $68.7 million.
As we continue to look forward, we expect a healthy advertising and marketing spending outlook, and strong demand from our clients will necessitate an increase in staffing.
The tight labor market will create challenges in the near term that we are confident our management teams will overcome.
Moving down the P&L.
Third-party service costs, which fluctuate with changes in revenue, decreased 6.9% during the quarter due to our net disposition activity, primarily related to the disposition of ICON and partially offset by the organic growth in revenue as well as the effects of foreign currency exchange rate changes.
Occupancy and other costs, which are not directly linked to changes in revenue, were up 4.5% year-on-year or 2.9% when excluding foreign exchange rate translation impacts.
As expected, these good results continue to reflect our efforts to reduce infrastructure costs and also benefited from a decrease in general office expenses as the majority of our staff continue to work remotely in Q3.
SG&A expense levels were up 5.3% on a year-over-year basis or 4.2% when excluding foreign exchange rate translation impacts.
We are beginning to see a return of travel and certain other addressable spend costs as pandemic-related government restrictions ease.
However, based on our use of technology during the pandemic, we're developing practices, particularly with respect to travel, that we expect will allow us to continue to retain some of the benefits we achieved in reducing addressable spend during the pandemic.
Overall, we expect that the increase in addressable spend for the balance of the year will be mitigated in part by the benefits we will continue to achieve from a hybrid and agile workforce.
As we think about our future expense levels, we certainly expect that some areas will increase in line with our business as activity picks up and life returns to normal.
But at the same time, we will also continue to evaluate ways to improve efficiently throughout the organization by continuing to focus on real estate portfolio management, back-office services, procurement and IT services.
With the strong revenue growth we discussed earlier, coupled with good expense control, you can see a notable improvement in our operating profit on a year-over-year basis at the bottom of the slide, up 8% for the quarter and 60.1% year-to-date.
Growing our operating profit dollars remains one of our most important areas of focus.
This strong growth in operating profit was also accompanied by improved margins, which you can see on Slide 9.
For the third quarter, our operating profit margin was 15.8% as expressed in terms of our reported total revenues.
We continue to see operating margin improvement year-over-year, resulting from the proactive management of our discretionary addressable spend cost categories, including a reduction in travel and related costs, reductions in certain costs of operating our offices given the continued remote work environment, as well as benefits from some of the repositioning actions taken back in the second quarter of 2020.
Lastly, on this slide, our reported EBITDA for the quarter was $560.3 million, up 7.4% for the quarter and 56.3% year-to-date.
EBITDA margins also remained strong for the quarter and have expanded nicely year-to-date compared to last year, and we expect this strong performance to continue through the rest of this year.
Let's now turn to our cash flow performance on Slide 10, where you can see that in the first nine months of 2021, we generated $1.2 billion of free cash flow excluding changes in working capital, a $114 million or 10% increase versus the same period last year.
There were no material year-over-year changes for capex or acquisitions as we continue to conservatively manage our cash.
While stock repurchases are down relative to pre-pandemic periods due to curtailment during the pandemic, we resumed our activity during the second and third quarters of this year, and we expect to continue in Q4 and beyond.
You should not expect a change in our historical approach to capital allocation and the use of our free cash flow in the future.
We will continue to pay an attractive dividend.
We have indicated that we increased our focus on acquisition opportunities and are in the process of closing on several acquisitions.
Importantly, our acquisition strategy is focusing on the faster-growing disciplines in our portfolio and driving future organic growth for the company.
And we will use the balance of our free cash flow to repurchase our stock.
Our strong cash generation again enhanced our credit and liquidity, which you can see summarized on Slide 11.
Our total debt was down about $500 million since this time last year as we eliminated the extra liquidity we added early on in the pandemic.
We did this through the early retirement in Q2 of $1.25 billion of our 3.65% senior notes, which were due next year, partially replaced with the issuance of $800 million of 2.6% 10-year notes due in 2031.
As you can see in the slide, our maturities are well laddered with nothing due until late 2024 as we delevered to pre-pandemic levels.
As for our debt ratios, due to our overall operating improvement versus Q3 of 2020 and our recent refinancing activity, we've reduced our total debt-to-EBITDA ratio to 2.2 times and our net debt-to-EBITDA ratio to 0.4 times.
Both metrics increased substantially over the 2020 levels.
While these are just two points in time, it's important to remember our long-term track record of providing solid returns to shareholders through business execution and the resulting consistent allocation of capital to dividends, strategic acquisitions and share repurchases.
 Assistant:

Chosen response:
q3 earnings per share $1.65.
operating margin for q3 of 2021 increased to 15.8% compared to 15.6% for q3 of 2020.
qtrly increase in revenue from organic growth of 11.5%.
global economic conditions may continue to be volatile as long as covid-19 remains which could negatively impact clients' spending plans.
organic growth in third quarter of 2021 compared to the third quarter of 2020 increased across all of co's fundamental disciplines.
expect global economic performance of businesses to vary by geography and discipline until covid19 impact on global economy subsides.