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October 28, 2021 4:23 pm

COPT Reports Third Quarter 2021 Results

COPT Reports Third Quarter 2021 Results

Raises Midpoint of Full Year Guidance Another 1-Cent, Implying 7.1% Growth in FFO per Share, as Adjusted for Comparability

Stronger 3Q Results Drive Higher Full-Year Expectations

Reported EPS of $0.24 in 3Q21;

3Q FFO per Share, as Adjusted for Comparability, of $0.57 was 1-Cent Above High-End of Guidance

Same-Property Cash NOI Increase of 4.8% in the Quarter;

Increasing Midpoint of Same-Property Cash NOI Guidance for the Year

Core Portfolio 93.5% Occupied & 94.8% Leased

1.8 Million SF of Active Developments are 94% Leased

Solid Leasing Activity

Total Leasing of 1.0 Million SF in the Quarter and 2.7 Million SF for First Nine Months of 2021

Included 215,000 SF and 420,000 SF of Vacancy Leasing, Respectively

Tenant Retention of 76% in the Quarter and 75% for the First Nine Months and Changes in Cash Rents In-Line with Expectations

1.2 Million SF of Development Leasing Accomplished To-Date Surpasses 2021 Goal

COLUMBIA, Md.–(BUSINESS WIRE)–
Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced results for the third quarter ended September 30, 2021.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “Our portfolio of office and data center properties that support priority missions at U.S. defense installations continues to produce strong results, and distinguishes us from other office companies. Demand for our Defense/IT Locations has driven 1.2 million square feet of development leasing to-date, which exceeds our 2021 goal. Vacancy leasing in the third quarter was a very strong 215,000 square feet–our best quarterly volume since the third quarter of 2019–and brought our total for the nine months to 420,000 square feet. Importantly, tenants are committing to lease term lengths that are at or above pre-pandemic levels. Our Development Leasing Pipeline and Activity Ratio remain robust, which leads us to expect customers to continue making long-term commitments to our Defense/IT Locations. Based on our outperformance this quarter, we are increasing the midpoint of full-year guidance for FFO per share, as adjusted for comparability, to $2.27, which is 8-cents above our original midpoint and represents 7.1% growth over 2020’s elevated results.”

Financial Highlights

3^rd Quarter Financial Results:

Diluted earnings (loss) per share (“EPS”) was $0.24 for the quarter ended September 30, 2021 compared to ($0.29) for the third quarter of 2020.
Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.56 for the third quarter of 2021 compared to $0.04 for third quarter 2020.
FFOPS, as adjusted for comparability, was $0.57 for the third quarter of 2021 compared to $0.54 for the third quarter of 2020.

Operating Performance Highlights

Operating Portfolio Summary:

At September 30, 2021, the Company’s core portfolio of 184 operating office and data center shell properties was 93.5% occupied and 94.8% leased.
During the quarter, the Company placed into service 466,000 square feet that were 100% leased.

Same-Property Performance:

At September 30, 2021, COPT’s same-property portfolio of 159 buildings was 92.2% occupied and 93.7% leased.
For the quarter ended September 30, 2021, the Company’s same-property cash NOI increased 4.8% over the prior year’s comparable period.

Leasing:

Total Square Feet Leased: For the quarter ended September 30, 2021, the Company leased 1.0 million square feet, including 553,000 square feet of renewals, 274,000 square feet in development projects, and 215,000 square feet of new leases on vacant space. For the nine months ended September 30, 2021, the Company executed 2.7 million square feet of leasing, including 1.4 million square feet of renewals, 915,000 square feet in development projects, and 420,000 square feet of vacancy leasing.
Renewal Rates: During the quarter and nine months ended September 30, 2021, the Company renewed 75.7% and 74.6%, respectively, of expiring square feet.
Rent Spreads & Average Escalations on Renewing Leases: For the quarter and nine months ended September 30, 2021, cash rents on renewed space decreased 0.6% and 0.3%, respectively. For the same time periods, annual escalations on renewing leases averaged 1.7% and 2.4%, respectively.
Lease Terms: In the third quarter of 2021, lease terms averaged 3.1 years on renewing leases, 9.3 years on new leasing of vacant space, and 17.0 years on development leasing. For the first nine months, lease terms averaged 3.8 years on renewing leases, 8.6 years on vacancy leasing, and 14.1 years on development leasing.
Post-Quarter Development Leasing: In October, the Company completed two build-to-suit leases totaling 263,000 square feet with a defense contractor at Redstone Gateway. Details of those leases can be found in a separate press release issued this same date.

Investment Activity Highlights

Development Pipeline: The Company’s development pipeline consists of 13 properties totaling 1.8 million square feet that are 94% leased. These projects have a total estimated cost of $585.7 million, of which $188.2 million has been incurred.

Balance Sheet and Capital Transaction Highlights

In August, the Company issued $400 million of 2.000% senior unsecured notes due 2029. The Company used net proceeds from this issuance to repay $100.0 million of its term loan facility due December 2022, retire the outstanding $89.0 million balance of a construction loan, and repay borrowings under its unsecured credit facility.
At September 30, 2021, the Company’s net debt to adjusted book ratio was 39.4% and its net debt to in-place adjusted EBITDA ratio was 6.3x. As of the same date, net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 5.9x. For the quarter ended September 30, 2021, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.8x.
At September 30, 2021, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 3.05% with a weighted average maturity of 5.7 years; additionally, 97.3% of the Company’s debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its third quarter 2021 conference call; the presentation can be viewed and downloaded from the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

2021 Guidance

Management is increasing its full-year guidance for EPS and FFOPS, per Nareit and as adjusted for comparability from the prior ranges of $0.72-$0.76, $1.73-$1.77, and $2.24-$2.28, respectively, to new ranges of $0.76-$0.78, $1.74-$1.76, and $2.26-$2.28, respectively. To account for the expected timing of repair and maintenance projects, management is lowering its prior guidance ranges for EPS and FFOPS (per Nareit and as adjusted for comparability) for the fourth quarter from $0.21-$0.23 and $0.56-$0.58, respectively, to $0.20-$0.22 and $0.55-$0.57, respectively. Reconciliations of projected EPS to projected FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Table 1: Reconciliation of EPS to FFOPS, per Nareit and	Quarter ending		Year ending
As Adjusted for Comparability	December 31, 2021		December 31, 2021
	Low	High	Low	High

EPS	$ 0.20	$ 0.22	$ 0.76	$ 0.78
Real estate-related depreciation and amortization	0.35	0.35	1.33	1.33
Gain on sales of real estate	–	–	(0.35)	(0.35)
FFOPS, Nareit definition	0.55	0.57	1.74	1.76
Loss on early extingusishment of debt	–	–	0.52	0.52

FFOPS, as adjusted for comparability	$ 0.55	$ 0.57	$ 2.26	$ 2.28

Conference Call Information

Management will discuss third quarter 2021 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date: Friday, October 29, 2021

Time: 12:00 p.m. Eastern Time

Telephone Number: (within the U.S.) 855-463-9057

Telephone Number: (outside the U.S.) 661-378-9894

Passcode: 9759656

The conference call will also be available via live webcast in the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Replay Information

A replay of the conference call will be immediately available via webcast on the Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, October 29, through 2:00 p.m. Eastern Time on Friday, November 12. To access the replay within the United States, please call 855-859-2056; to access it from outside the United States, please call 404-537-3406. In either case, use passcode 9759656.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company’s Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT

COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties. The majority of its portfolio is in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what it believes are growing, durable, priority missions (“Defense/IT Locations”). The Company also owns a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office Properties”). As of September 30, 2021, the Company derived 88% of its core portfolio annualized rental revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of the same date and including 19 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 184 office and data center shell properties encompassed 21.5 million square feet and was 94.8% leased; the Company also owned one wholesale data center with a capacity of 19.25 megawatts that was 86.7% leased.

Forward-Looking Information

This press release may contain “forward-looking” statements, as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on the Company’s current expectations, estimates and projections about future events and financial trends affecting the Company. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, the Company can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Category: Quarterly Results

Source: Corporate Office Properties Trust

Corporate Office Properties Trust Summary Financial Data (unaudited) (dollars and shares in thousands, except per share data)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues
Revenues from real estate operations	$	146,590	$	134,443	$	436,177	$	399,097
Construction contract and other service revenues	28,046		20,323		64,592		46,240
Total revenues	174,636		154,766		500,769		445,337
Operating expenses
Property operating expenses	57,190		51,552		168,780		151,755
Depreciation and amortization associated with real estate operations	36,611		35,332		111,487		101,540
Construction contract and other service expenses	27,089		19,220		61,964		44,052
Impairment losses	—		1,530		—		1,530
General and administrative expenses	7,269		5,558		20,624		17,372
Leasing expenses	2,073		1,909		6,346		5,739
Business development expenses and land carry costs	1,093		1,094		3,559		3,474
Total operating expenses	131,325		116,195		372,760		325,462
Interest expense	(15,720)		(17,152)		(49,181)		(50,789)
Interest and other income	1,818		1,746		5,911		5,233
Credit loss recoveries	326		1,465		1,040		161
Gain on sales of real estate	(32)		—		39,711		5
Loss on early extinguishment of debt	(1,159)		(3,237)		(59,553)		(3,237)
Loss on interest rate derivatives	—		(53,196)		—		(53,196)
Income (loss) before equity in income of unconsolidated entities and income taxes	28,544		(31,803)		65,937		18,052
Equity in income of unconsolidated entities	297		477		779		1,372
Income tax expense	(47)		(16)		(103)		(95)
Net income (loss)	28,794		(31,342)		66,613		19,329
Net (income) loss attributable to noncontrolling interests:
Common units in the Operating Partnership (“OP”)	(357)		386		(831)		(185)
Preferred units in the OP	—		(77)		—		(231)
Other consolidated entities	(1,336)		(812)		(2,949)		(3,207)
Net income (loss) attributable to COPT common shareholders	$	27,101	$	(31,845)	$	62,833	$	15,706

Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net income attributable to COPT common shareholders	$	27,101	$	(31,845)	$	62,833	$	15,706
Amount allocable to share-based compensation awards	(79)		(145)		(320)		(359)
Redeemable noncontrolling interests	(89)		—		(82)		—
Numerator for diluted EPS	$	26,933	$	(31,990)	$	62,431	$	15,347
Denominator:
Weighted average common shares – basic	111,985		111,811		111,949		111,778
Dilutive effect of share-based compensation awards	375		—		285		278
Dilutive effect of redeemable noncontrolling interests	138		—		130		—
Weighted average common shares – diluted	112,498		111,811		112,364		112,056
Diluted EPS	$	0.24	$	(0.29)	$	0.56	$	0.14

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands, except per share data)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	28,794	$	(31,342)	$	66,613	$	19,329
Real estate-related depreciation and amortization	36,611		35,332		111,487		101,540
Impairment losses on real estate	—		1,530		—		1,530
Gain on sales of real estate	32		—		(39,711)		(5)
Depreciation and amortization on unconsolidated real estate JVs	525		819		1,455		2,455
Funds from operations (“FFO”)	65,962		6,339		139,844		124,849
FFO allocable to other noncontrolling interests	(1,696)		(1,074)		(4,025)		(14,614)
Basic FFO allocable to share-based compensation awards	(313)		(119)		(663)		(449)
Noncontrolling interests – preferred units in the OP	—		(77)		—		(231)
Basic FFO available to common share and common unit holders (“Basic FFO”)	63,953		5,069		135,156		109,555
Redeemable noncontrolling interests	(68)		—		1		103
Diluted FFO adjustments allocable to share-based compensation awards	13		—		27		—
Diluted FFO available to common share and common unit holders (“Diluted FFO”)	63,898		5,069		135,184		109,658
Loss on early extinguishment of debt	1,159		3,237		59,553		3,237
Loss on interest rate derivatives	—		53,196		—		53,196
Demolition costs on redevelopment and nonrecurring improvements	129		11		431		63
Dilutive preferred units in the OP	—		77		—		231
FFO allocation to other noncontrolling interests resulting from capital event	—		—		—		11,090
Diluted FFO comparability adjustments for redeemable noncontrolling interests	—		34		—		—
Diluted FFO comparability adjustments allocable to share-based compensation awards	(7)		(139)		(300)		(307)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	65,179		61,485		194,868		177,168
Straight line rent adjustments and lease incentive amortization	(1,806)		(1,009)		(6,451)		662
Amortization of intangibles and other assets included in net operating income	41		(39)		122		(186)
Share-based compensation, net of amounts capitalized	2,048		1,727		5,961		4,754
Amortization of deferred financing costs	736		658		2,340		1,875
Amortization of net debt discounts, net of amounts capitalized	567		453		1,629		1,229
Replacement capital expenditures	(13,331)		(13,085)		(38,656)		(46,971)
Other diluted AFFO adjustments associated with real estate JVs	201		150		620		(6)
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)	$	53,635	$	50,340	$	160,433	$	138,525
Diluted FFO per share	$	0.56	$	0.04	$	1.19	$	0.97
Diluted FFO per share, as adjusted for comparability	$	0.57	$	0.54	$	1.71	$	1.56
Dividends/distributions per common share/unit	$	0.275	$	0.275	$	0.825	$	0.825

Corporate Office Properties Trust Summary Financial Data (unaudited) (Dollars and shares in thousands, except per share data)

	September 30, 2021			December 31, 2020
Balance Sheet Data
Properties, net of accumulated depreciation	$	3,607,122		$	3,562,549
Total assets	4,151,138			4,077,023
Debt, per balance sheet	2,159,732			2,086,918
Total liabilities	2,454,353			2,357,881
Redeemable noncontrolling interests	26,006			25,430
Equity	1,670,779			1,693,712
Net debt to adjusted book	39.4		%	39.1		%

Core Portfolio Data (as of period end) (1)
Number of operating properties	184			179
Total operational square feet (in thousands)	21,503			20,802
% Occupied	93.5		%	94.3		%
% Leased	94.8		%	95.0		%

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Payout ratios
Diluted FFO	48.8	%	613.6	%	69.2	%	85.1	%
Diluted FFO, as adjusted for comparability	47.8	%	50.7	%	48.0	%	52.8	%
Diluted AFFO	58.1	%	61.9	%	58.3	%	67.5	%
Adjusted EBITDA fixed charge coverage ratio	4.8	x	3.9	x	4.7	x	3.8	x
Net debt plus preferred equity to in-place adjusted EBITDA ratio (2)	6.3	x	6.8	x	N/A		N/A
Net debt adj. for fully-leased development plus pref. equity to in-place adj. EBITDA ratio (3)	5.9	x	6.4	x	N/A		N/A

Reconciliation of denominators for per share measures
Denominator for diluted EPS	112,498		111,811		112,364		112,056
Weighted average common units	1,262		1,240		1,257		1,235
Anti-dilutive EPS effect of share-based compensation awards	—		274		26		—
Redeemable noncontrolling interests	—		—		—		125
Denominator for diluted FFO per share	113,760		113,325		113,647		113,416
Redeemable noncontrolling interests	—		109		—		—
Dilutive convertible preferred units	—		176		—		176
Denominator for diluted FFO per share, as adjusted for comparability	113,760		113,610		113,647		113,592

Represents Defense/IT Locations and Regional Office properties.
Represents net debt plus the total liquidation preference of preferred equity as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).
Represents net debt less costs incurred on properties under development that were 100% leased as of period end plus the total liquidation preference of preferred equity divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Reconciliation of common share dividends to dividends and distributions for payout ratios
Common share dividends – unrestricted shares and deferred shares	$	30,813	$	30,763	$	92,429	$	92,278
Common unit distributions – unrestricted units	347		341		1,041		1,021
Common unit distributions – dilutive restricted units	6		—		19		—
Dividends and distributions for diluted FFO payout ratio	31,166		31,104		93,489		93,299
Distributions on dilutive preferred units	—		77		—		231
Dividends and distributions for other payout ratios	$	31,166	$	31,181	$	93,489	$	93,530

Reconciliation of GAAP net income (loss) to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA
Net income (loss)	$	28,794	$	(31,342)	$	66,613	$	19,329
Interest expense	15,720		17,152		49,181		50,789
Income tax expense	47		16		103		95
Real estate-related depreciation and amortization	36,611		35,332		111,487		101,540
Other depreciation and amortization	589		457		2,189		1,324
Impairment losses on real estate	—		1,530		—		1,530
Gain on sales of real estate	32		—		(39,711)		(5)
Adjustments from unconsolidated real estate JVs	763		1,274		2,167		3,814
EBITDAre	82,556		24,419		192,029		178,416
Loss on early extinguishment of debt	1,159		3,237		59,553		3,237
Loss on interest rate derivatives	—		53,196		—		53,196
Net loss (gain) on other investments	—		250		(63)		252
Credit loss recoveries	(326)		(1,465)		(1,040)		(161)
Business development expenses	473		414		1,605		1,630
Demolition costs on redevelopment and nonrecurring improvements	129		11		431		63
Adjusted EBITDA	83,991		80,062		$	252,515	$	236,633
Proforma net operating income adjustment for property changes within period	3,240		1,631
Change in collectability of deferred rental revenue	—		224
In-place adjusted EBITDA	$	87,231	$	81,917

Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA
Interest expense	$	15,720	$	17,152	$	49,181	$	50,789
Less: Amortization of deferred financing costs	(736)		(658)		(2,340)		(1,875)
Less: Amortization of net debt discounts, net of amounts capitalized	(567)		(453)		(1,629)		(1,229)
COPT’s share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs	236		444		706		1,327
Scheduled principal amortization	989		1,033		2,910		3,077
Capitalized interest	1,763		2,908		5,275		9,440
Preferred unit distributions	—		77		—		231
Denominator for fixed charge coverage-Adjusted EBITDA	$	17,405	$	20,503	$	54,103	$	61,760

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures
Tenant improvements and incentives	$	8,654	$	6,950	$	24,096	$	27,177
Building improvements	7,793		10,400		18,192		26,537
Leasing costs	2,939		1,934		6,873		6,918
Net (exclusions from) additions to tenant improvements and incentives	(1,523)		(943)		389		1,412
Excluded building improvements and leasing costs	(4,532)		(5,256)		(10,894)		(15,073)
Replacement capital expenditures	$	13,331	$	13,085	$	38,656	$	46,971

Same Properties cash NOI	$	77,219	$	73,697	$	227,312	$	224,024
Straight line rent adjustments and lease incentive amortization	(1,671)		(571)		(3,930)		(1,582)
Amortization of acquired above- and below-market rents	99		98		296		291
Amortization of intangibles and other assets to property operating expenses	—		(23)		—		(69)
Lease termination fees, net	853		455		3,309		693
Tenant funded landlord assets and lease incentives	191		342		810		690
Cash NOI adjustments in unconsolidated real estate JV	37		48		119		150
Same Properties NOI	$	76,728	$	74,046	$	227,916	$	224,197

	September 30, 2021		December 31, 2020
Reconciliation of total assets to adjusted book
Total assets	$	4,151,138	$	4,077,023
Accumulated depreciation	1,202,780		1,124,253
Accumulated depreciation included in assets held for sale	12,146		—
Accumulated amortization of real estate intangibles and deferred leasing costs	219,179		217,124
Accumulated amortization of real estate intangibles and deferred leasing costs included in assets held for sale	3,102		—
COPT’s share of liabilities of unconsolidated real estate JVs	27,498		26,710
COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JVs	3,161		1,489
Less: Property – operating lease liabilities	(29,630)		(30,746)
Less: Property – finance lease liabilities	(14)		(28)
Less: Cash and cash equivalents	(14,570)		(18,369)
Less: COPT’s share of cash of unconsolidated real estate JVs	(530)		(152)
Adjusted book	$	5,574,260	$	5,397,304

	September 30, 2021		December 31, 2020		September 30, 2020
Reconciliation of debt outstanding to net debt and net debt adjusted for fully-leased development plus preferred equity
Debt outstanding (excluding net debt discounts and deferred financing costs)	$	2,208,923	$	2,127,715	$	2,247,523
Less: Cash and cash equivalents	(14,570)		(18,369)		(11,458)
Less: COPT’s share of cash of unconsolidated real estate JVs	(530)		(152)		(538)
Net debt	$	2,193,823	$	2,109,194	$	2,235,527
Preferred equity	—		—		8,800
Net debt plus preferred equity	$	2,193,823	$	2,109,194	$	2,244,327
Costs incurred on fully-leased development properties	(119,981)		(114,532)		(149,201)
Net debt adjusted for fully-leased development plus preferred equity	$	2,073,842	$	1,994,662	$	2,095,126

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October 28, 2021 4:23 pm

AWS Announces General Availability of Babelfish for Amazon Aurora PostgreSQL

AWS Announces General Availability of Babelfish for Amazon Aurora PostgreSQL

New Amazon Aurora capability gives customers the ability to run applications written for Microsoft SQL Server directly on Amazon Aurora with little to no code changes

New open-source Babelfish for PostgreSQL makes it easier for more organizations to run Microsoft SQL Server on PostgreSQL under the permissive Apache 2.0 and PostgreSQL licenses

Factset, Tyler Technologies, and Q2 among customers using Babelfish for Aurora PostgreSQL

SEATTLE–(BUSINESS WIRE)–
Today, Amazon Web Services, Inc. (AWS), an Amazon.com, Inc. company (NASDAQ: AMZN), announced the general availability of Babelfish for Amazon Aurora PostgreSQL-Compatible Edition, a new capability that allows customers to run applications written for Microsoft SQL Server directly on Amazon Aurora with little to no code changes. Babelfish for Aurora PostgreSQL enables Amazon Aurora to understand commands from applications written for Microsoft SQL Server, making it easier for customers to migrate to Amazon Aurora. With Babelfish for Aurora PostgreSQL, customers simply migrate their data and configure their application to point to Amazon Aurora, reducing costs and simplifying operations by removing the dependency on Microsoft SQL Server. Also announced today, open-source Babelfish for PostgreSQL makes the same Microsoft SQL Server language capability in Babelfish for Aurora PostgreSQL available to any organization interested in running PostgreSQL, and the source code for Babelfish for PostgreSQL is available on GitHub under the permissive Apache 2.0 and PostgreSQL licenses for anyone who wants to extend it or use it for any purpose under the terms of the license. To get started with Babelfish for Aurora PostgreSQL, visit aws.amazon.com/rds/aurora/babelfish.

Constrained by commercial-grade database options that don’t offer the flexibility and database freedom of modern offerings, customers have long been unhappy with old-guard database providers. Commercial-grade databases offer high performance but are expensive, proprietary, and have high lock-in and punitive licensing terms that arbitrarily change. Many customers have moved to open-source database engines like PostgreSQL and MySQL because they want the performance of commercial-grade databases with the pricing and flexibility open-source engines provide. However, configuring open-source database engines to achieve high performance is time consuming and labor intensive. That’s why today more than 100,000 customers choose to run their database workloads on Amazon Aurora, a fully managed MySQL and PostgreSQL-compatible database that delivers the performance and availability of the highest-grade commercial databases at one tenth the cost. Today, customers use AWS Database Migration Service (AWS DMS) to migrate databases to the cloud and take advantage of high-performance open-source engines. However, once the initial database migration is complete, customers still need to migrate their application logic to run on PostgreSQL. Migrating application logic requires manual coding, is time consuming, and is often tied to proprietary database commands. Customers interested in adopting PostgreSQL and enjoying the benefits of running an open-source database engine on AWS want an easier way to migrate their Microsoft SQL Server applications to Amazon Aurora.

Babelfish for Aurora PostgreSQL is a new capability that makes it possible to run Microsoft SQL Server applications directly on Amazon Aurora with little to no code changes. Babelfish for Aurora PostgreSQL provides a new capability for Amazon Aurora that enables Amazon Aurora to understand commands from applications written for Microsoft SQL Server. With Babelfish for Aurora PostgreSQL, Amazon Aurora PostgreSQL now understands T-SQL, Microsoft SQL Server’s proprietary SQL dialect, and supports the same SQL syntax as Microsoft SQL Server, so customers no longer need to rewrite their applications’ database requests. Babelfish for Aurora PostgreSQL also understands TDS, Microsoft SQL Server’s network protocol, so customers can continue to use the existing Microsoft SQL Server database drivers that their applications rely on. As a result, customers can more easily move applications running on Microsoft SQL Server to Amazon Aurora, leading to faster, lower-risk, and more cost-effective database migrations. After customers migrate their data using AWS DMS, they simply update their application configuration to point to Amazon Aurora and start testing their application running on Amazon Aurora instead of Microsoft SQL Server. Once customers test their application, they can put it in production, no longer need Microsoft SQL Server, and can stop paying for the expensive, constrained licenses. Because Babelfish for Aurora PostgreSQL supports both Microsoft SQL Server and PostgreSQL, customers can migrate at their own speed and run their legacy Microsoft SQL Server code side by side with new functionality they build using PostgreSQL application programming interfaces (APIs).

“More and more customers have told us they want a fast, inexpensive, and low-risk way to break free from old-guard database vendors and their punitive licensing terms, high costs, and lack of innovation,” said Raju Gulabani, VP of Databases and Analytics at AWS. “Now, with Babelfish for Aurora PostgreSQL, anyone can quickly, easily, and cost effectively migrate their applications to Amazon Aurora, giving customers the best of both worlds—the performance and availability of the highest-grade commercial databases at a cost more commonly associated with open source.”

In addition to the Amazon Aurora offering, the source code for Babelfish for Aurora PostgreSQL is now available on GitHub under the permissive Apache 2.0 and PostgreSQL licenses for anyone to view. Organizations can use it for any purpose including distributing it, modifying it, and distributing modified versions of it under the terms of the licenses. In addition to the source code being available on GitHub, all Babelfish for PostgreSQL development is done openly on GitHub, so organizations can see what new features are being developed.

Babelfish for Aurora PostgreSQL is generally available today to customers running Amazon Aurora in US East (Ohio), US East (N. Virginia), US West (N. California), US West (Oregon), Africa (Cape Town), Asia Pacific (Hong Kong), Asia Pacific (Mumbai), Asia Pacific (Osaka), Asia Pacific (Seoul), Asia Pacific (Singapore), Asia Pacific (Sydney), Asia Pacific (Tokyo), Canada (Central), Europe (Frankfurt), Europe (Ireland), Europe (London), Europe (Milan), Europe (Paris), Europe (Stockholm), Middle East (Bahrain), and South America (São Paulo) with availability in additional AWS Regions coming soon.

FactSet creates flexible, open data and software solutions for tens of thousands of investment professionals around the world. “FactSet is excited about the launch of Babelfish for Aurora PostgreSQL,” said Demetry Zilberg, CTO at FactSet. “We are optimistic that Babelfish for Aurora PostgreSQL will materially accelerate the pace of our migration from commercial relational database platforms to PostgresSQL on Amazon Aurora, which is a key part of our Digital Foundation program for product-driven initiatives. With Babelfish for Aurora PostgreSQL, our teams can focus on revenue-generating product development rather than re-architecture.”

Presidio is a leading information technology (IT) services and solutions provider that helps customers connect IT of today to IT of tomorrow. “Presidio has helped numerous customers migrate their database operations to AWS using AWS DMS, Amazon Relational Database Service, and other AWS data offerings. However, giving clients the flexibility and freedom to choose their relational data store has always required deep, costly application refactoring,” said Sanjeev Pant, VP of Cloud Transformation at Presidio. “With Babelfish for Aurora PostgreSQL, we now have options to cut out expensive licensing and provide expansive choice of backend options to suit our clients’ needs on their journey to data and app modernization with a data-driven enterprise in mind. The reduction of time, cost, and risk to our projects, and those of our clients, is game changing.”

Tyler is the largest and most established provider of integrated software and technology services focused on the public sector. “We’ve been using Amazon Aurora to support new application development because of its high performance and scalability, and we are eager to migrate our large portfolio of existing applications to Amazon Aurora as well,” said Brian McGrath, Senior Vice President of Operations at Tyler Technologies. “Our development teams used Babelfish in preview to move one of our mission-critical applications to Amazon Aurora, and the migration required minimal changes in our SQL Server application code. We pointed the applications at Aurora, and it just worked. We are excited for the general availability launch of Babelfish, which will enable us to migrate the rest of our application portfolio to Aurora in a fraction of the time it might otherwise have taken.”

Q2 is a leading provider of secure, cloud-based digital solutions that transform how financial services providers engage with users. “We have tested an end-user application with minimal database changes for Babelfish, and we are pleased with the performance so far,” said Jordan Hager, Vice President of Hosting Architecture at Q2. “We estimate Babelfish’s capabilities will speed up our database migration to Amazon Aurora from SQL Server by 80% or more. The faster we move off SQL Server to Aurora, the sooner we dramatically lower our database licensing costs, increase developer productivity, and improve database performance. Needless to say, we are thrilled with the general availability launch of Babelfish.”

About Amazon Web Services

For over 15 years, Amazon Web Services has been the world’s most comprehensive and broadly adopted cloud offering. AWS has been continually expanding its services to support virtually any cloud workload, and it now has more than 200 fully featured services for compute, storage, databases, networking, analytics, machine learning and artificial intelligence (AI), Internet of Things (IoT), mobile, security, hybrid, virtual and augmented reality (VR and AR), media, and application development, deployment, and management from 81 Availability Zones within 25 geographic regions, with announced plans for 24 more Availability Zones and eight more AWS Regions in Australia, India, Indonesia, Israel, New Zealand, Spain, Switzerland, and the United Arab Emirates. Millions of customers—including the fastest-growing startups, largest enterprises, and leading government agencies—trust AWS to power their infrastructure, become more agile, and lower costs. To learn more about AWS, visit aws.amazon.com.

About Amazon

Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Amazon strives to be Earth’s Most Customer-Centric Company, Earth’s Best Employer, and Earth’s Safest Place to Work. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Career Choice, Fire tablets, Fire TV, Amazon Echo, Alexa, Just Walk Out technology, Amazon Studios, and The Climate Pledge are some of the things pioneered by Amazon. For more information, visit amazon.com/about and follow @AmazonNews.

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October 28, 2021 4:23 pm

SM Energy Reports Third Quarter 2021 Results: Cash Flow Beat And Production Outperformance

PR Newswire

DENVER, Oct. 28, 2021 /PRNewswire/ — SM Energy Company (the “Company”) (NYSE: SM) today announced operating and financial results for the third quarter 2021 and provided certain fourth quarter and updated full year 2021 guidance.

Third quarter 2021 highlights:

Production was 14.3 MMBoe (155.8 MBoe/d) and was 56% oil. Production volumes exceeded expectations, benefiting from higher base production, reduced flaring and the effect of larger fracture stimulations in the Midland Basin and the successful early completion of certain wells in South Texas. As a result, the Company is increasing guidance for 2021 production volumes to 49.5-50.0 MMBoe (135.6-137.0 MBoe/d).
Net income and Earnings per share were $85.6 million and $0.69 per diluted common share, respectively.
Capital expenditures reflected stable drilling and completion costs at approximately $520 per lateral foot. Capital expenditures of $180.1 million adjusted for decreased capital accruals of $20.1 million totaled $160.0 million.
Cash flows beat expectations due to higher-than-expected production volumes and realized prices. Net cash provided by operating activities of $328.1 million before net change in working capital of $(21.1) million totaled $307.0 million, up 66% year-over-year and up 44% sequentially. Free cash flow and Adjusted EBITDAX (non-GAAP measures defined and reconciled below) were $147.1 million and $346.7 million, respectively.
New Austin Chalk wells drilled at development spacing demonstrate consistent performance. Six wells drilled at spacing ranging between 675 and 1,000 feet had average 30-day peak IP rates of 2,000 Boe/d (3-stream) with 1,100 Bo/d oil, or 51-54% oil and 74-78% liquids.
Balance sheet strengthened and year-end 2022 leverage target met more than one year early. At quarter-end, net debt-to-Adjusted EBITDAX (non-GAAP measure defined and reconciled below) was less than 2 times, a target set for year-end 2022. As a result of a reduction in principal amount of long-term debt and a cash and cash equivalents balance at September 30, 2021, net debt (a non-GAAP measure defined and reconciled below) was reduced by $147.8 million during the quarter.
ESG disclosure for 2020 was completed in August with publication of the 2020 Sustainability Accounting Standards Board (SASB) report as well as tear sheets with updated metrics relevant to understanding the Company’s 2020 ESG performance.

Chief Executive Officer Herb Vogel comments: “Outstanding operational performance underscores a terrific quarter. The SM Energy team successfully completed six Austin Chalk wells at development spacing, delivered further improved well performance in the Midland Basin employing significantly larger completions in the majority of wells year-to-date, and solved a casing issue experienced last fall enabling five Austin Chalk wells to turn-in-line sooner than expected. This exceptional performance combined with continued strength in commodity prices generated strong free cash flow. We met our year-end 2022 leverage target during the quarter and will enter 2022 with substantial momentum toward generating a highly competitive free cash flow yield to market capitalization and reducing leverage to less than 1.5 times. On the ESG front, operations and IT have teamed up with a new effort to focus on evaluating and implementing emerging field technologies that will help the Company measure, monitor and decrease emissions. The team has already initiated a pilot project at Sweetie Peck with technology to provide continuous methane emissions detection.”

THIRD QUARTER OF 2021

PRODUCTION:

	Midland Basin	South Texas	Total
Oil (MBbl / MBbl/d)	7,228 / 78.6	830 / 9.0	8,058 / 87.6
Natural Gas (MMcf / MMcf/d)	15,525 / 168.8	13,576 / 147.6	29,101 / 316.3
NGLs (MBbl / MBbl/d)	3 / –	1,420 / 15.4	1,423 / 15.5
Total (MBoe / MBoe/d)	9,818 / 106.7	4,512 / 49.0	14,331 / 155.8
Note: Totals may not calculate due to rounding.

Production volumes were two-thirds from the Midland Basin and one-third from South Texas.
Total production volumes of 14.3 MMBoe (155.8 MBoe/d) were up 23% compared with the prior year period and up 15% sequentially. Production was 56% oil. The Company accelerated capital activity into the second and third quarters to take advantage of the prevailing cost structure and to optimize cash flow, resulting in strong sequential production growth.
Midland Basin production volumes exceeded expectations for the quarter, benefiting from higher base production, lower than expected flaring and the implementation of larger fracture stimulations initiated in the fall of 2020. The Company increased the proppant and fluid volumes applied to the majority of Midland Basin completions year-to-date, anticipating six-to-12 months to test the results. Proppant was increased from approximately 1800 pounds to 2800 pounds per foot.
South Texas production volumes benefited from turning-in-line five wells that had previously been deferred to 2022 as a result of casing issues. Following successful remediation, the need to redrill these wells was avoided. The wells were completed, with some having shorter effective lateral completion lengths than originally planned. Early production from these wells is indicating strong oil content of approximately 58-79%, and the wells have not reached 30-day peak IP rates.

REALIZED PRICES:

	Midland Basin	South Texas	Total (Pre/Post-hedge)
Oil ($/Bbl)	$69.33	$69.06	$69.30 / $50.17
Natural Gas ($/Mcf)	$6.19	$3.90	$5.12 / $3.89
NGLs ($/Bbl)	nm	$36.88	$36.87 / $20.22
Per Boe	$60.83	$36.02	$53.02 / $38.12

Note: Totals may not calculate due to rounding.

The average realized price before the effect of hedges was $53.02 per Boe and the average realized price after the effect of hedges was $38.12 per Boe.

Benchmark pricing for the quarter included NYMEX WTI at $70.56/Bbl, NYMEX Henry Hub natural gas at $4.01/MMBtu and Hart Composite NGLs at $40.39/Bbl.
The average realized price per Boe of $53.02 before the effect of hedges was up 118% compared with the prior year period and up 17% sequentially.
The effect of commodity derivative settlements was a loss of $14.90 per Boe, or $213.6 million.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying 3Q21 slide deck.

NET INCOME (LOSS), NET INCOME (LOSS) PER SHARE AND NET CASH PROVIDED BY OPERATING ACTIVITIES

Third quarter 2021 net income was $85.6 million, or $0.69 per diluted common share, compared with a net loss of $(98.3) million, or $(0.86) per diluted common share, for the same period in 2020. The current year period benefited from 46% higher oil production and a 118% increase in the realized price per Boe before the effects of hedges, leading to a 169% increase in revenue. Higher revenue in the current year period was partially offset by a $209.1 million net derivative loss, compared with a net derivative loss of $63.9 million in the prior year period and by a $41.0 million charge to other operating expense for various legal settlements. For the first nine months of 2021, net loss was $(388.7) million, or $(3.29) per diluted common share, compared with $(599.4) million, or $(5.28) per diluted common share, in the prior year period.

Third quarter 2021 net cash provided by operating activities of $328.1 million before net change in working capital of $(21.1) million totaled $307.0 million, which was up 66% from $184.8 million in the comparable prior year period. The increase in the third quarter 2021 reflected a 23% increase in production volumes and a 199% increase in the operating margin, before the effects of commodity derivative settlements, compared with the prior year period. This increase was partially offset by a $213.6 million derivative settlement loss in the current year period versus a $70.3 million derivative settlement gain in the prior year period. For the first nine months of 2021, net cash provided by operating activities of $730.1 million before net changes in working capital of $(52.2) million totaled $678.0 million, up 18% from the prior year period.

ADJUSTED EBITDAX, ADJUSTED NET INCOME (LOSS) AND NET DEBT-TO-ADJUSTED EBITDAX

The following paragraphs discuss non-GAAP measures including Adjusted EBITDAX, adjusted net income (loss), adjusted net income (loss) per diluted common share and net debt-to-Adjusted EBITDAX. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.

Third quarter 2021 Adjusted EBITDAX was $346.7 million, up 49% from the same period in 2020, and up 35% sequentially. The increase in Adjusted EBITDAX was primarily due to the increase in total production and higher operating margin, including the effect of derivative settlements. For the first nine months of 2021, Adjusted EBITDAX was $818.5 million, up 14% from the prior year period.

Third quarter 2021 adjusted net income was $91.5 million, or $0.74 per diluted common share, compared with adjusted net loss of $(5.5) million, or $(0.05) per diluted common share, for the same period in 2020. For the first nine months of 2021, adjusted net income was $86.7 million, or $0.73 per diluted common share, compared with an adjusted net loss of $(28.5) million, or $(0.25) per diluted common share, in the prior year period.

At September 30, 2021, net debt-to-Adjusted EBITDAX was 1.96 times, down from 2.35 times at June 30, 2021.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL EXPENDITURES

On September 30, 2021, the outstanding principal amount of the Company’s long-term debt was $2.14 billion and was comprised of $1.69 billion in unsecured senior notes, $446.7 million in secured senior notes, with zero drawn on the Company’s senior secured revolving credit facility.

Subsequent to September 30, 2021, the Company’s borrowing base and commitments under its senior secured revolving credit facility were reaffirmed by its lenders at $1.1 billion. At September 30, 2021, available liquidity was $1.13 billion including the revolving credit facility and a cash balance of $29.8 million. Net debt (non-GAAP measure defined and reconciled below) was reduced by $147.8 million during the quarter.

Third quarter 2021 capital expenditures of $180.1 million, adjusted for decreased capital accruals of $20.1 million, totaled $160.0 million. During the quarter, the Company drilled 14 net wells and completed 24 net wells in the Midland Basin and drilled 10 net wells and completed 11 net wells in South Texas. All of the South Texas completions were Austin Chalk wells. For the first nine months of 2021, capital expenditures of $550.3 million adjusted for change in capital accruals of $8.9 million totaled $559.2 million and the Company drilled 64 and completed 97 net wells, consistent with the full year plan. Full year capital expenditures adjusted for change in capital accruals is expected to range between $670-675 million and include approximately 80 net wells drilled and 110 net wells completed.

COMMODITY DERIVATIVES

As of October 22, 2021, commodity derivative positions for the fourth quarter include:

OIL: Approximately 70-75% of expected 4Q oil production is hedged to WTI at an average price of $41.70/Bbl.
Midland Basin oil differential: Approximately 60% of expected 4Q Midland Basin oil production is hedged to the local price point at a positive $0.71/Bbl basis.
NATURAL GAS: Approximately 80% of expected 4Q natural gas production is hedged (based on dry gas volumes). 12,412 BBtu is hedged to HSC at an average price of $2.41/MMBtu, and 7,627 BBtu is hedged to WAHA at an average price of $1.82/MMBtu.
NGL hedges are by individual product and include propane and normal butane swaps for the remainder of 2021.

As of October 22, 2021, commodity derivative positions for 2022, assuming comparable production volumes to 2021, would approximate (the Company expects to provide 2022 production guidance in February 2022):

OIL: Approximately 40% of expected 2022 oil production is hedged.
NATURAL GAS: Approximately 50% of expected 2022 natural gas production (based on dry gas volumes) is hedged.

A detailed schedule of these and other derivative positions are provided in the 3Q21 accompanying slide deck.

GUIDANCE

Full year 2021:

The production guidance range is increased and narrowed to 49.5-50.0 MMBoe, or 135.6-137.0 MBoe/d, with 54%-55% oil.
Capital expenditure guidance is narrowed to $670-675 million.
LOE per Boe is reduced to $4.50–$4.60.
Transportation per Boe is reduced to ~$2.75.
Ad valorem and production taxes per Boe are increased to correspond to higher commodity prices to $2.70–$2.75.
Exploration expense is reduced to ~$40 million.
DD&A expense per Boe is reduced to $15.00–$15.50.
G&A is updated to $100-110 million.

Fourth quarter 2021:

Production of 12.7-13.2 MMBoe or 138-143.5 MBoe/d. The production range reflects timing of new wells being turned-in-line.
Capital expenditures of $111-116 million.

SCHEDULE FOR THIRD QUARTER REPORTING

October 28, 2021 – After market close, the Company plans to issue its third quarter 2021 earnings release, a pre-recorded webcast discussion of the third quarter 2021 financial and operating results, and an associated presentation, all of which will be posted to the Company’s website at ir.sm-energy.com.

October 29, 2021 – Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time for the third quarter 2021 financial and operating results Q&A session. This discussion will be accessible via webcast (available live and for replay) on the Company’s website at ir.sm-energy.com or by telephone. In order to join the live conference call, please register at the link below for dial-in information.

Live Conference Call Registration: http://www.directeventreg.com/registration/event/4866809
Replay (conference ID 4866809) – Domestic toll free/International: 800-585-8367/416-621-4642

The call replay will be available approximately one hour after the call and until November 11, 2021.

UPCOMING CONFERENCE PARTICIPATION

November 17, 2021 – Gearing Up for the New Normal: A Virtual Best Ideas Conference by MKM Partners. President and Chief Executive Officer Herb Vogel will present at 2:30 p.m. Eastern time. This event will be webcast, accessible from the Company’s website, and available for replay for a limited period. An investor presentation for this event will be posted to the Company’s website.
November 30, 2021 – Bank of America Leveraged Finance Conference 2021 – Executive Vice President and Chief Financial Officer Wade Pursell will present at 1:30 p.m. Eastern time. This event will be webcast, accessible from the Company’s website, and available for replay for a limited period. An investor presentation for this event will be posted to the Company’s website.
December 1, 2021 – Cowen 2021 Energy Summit – Executive Vice President and Chief Financial Officer Wade Pursell will be meeting with investors. This event will not be webcast.
December 6, 2021 – Capital One Securities 16^th Annual Energy Conference – President and Chief Executive Officer Herb Vogel will present at 1:00 p.m. Central time. This event will be webcast, accessible from the Company’s website, and available for replay for a limited period.

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. The words “anticipate,” “assume,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “goal,” “generate,” “guidance,” “implied,” “intend,” “maintain,” “plan,” “project,” “objectives,” “outlook,” “sustainable,” “target,” “will” and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include, among other things, updated guidance for the full year and fourth quarter 2021, including capital expenditures, production volumes, operating costs, taxes, exploration expense, DD&A and general and administrative expenses; expected returns from recently drilled Austin Chalk wells; and plans to generate highly competitive free cash flow yield to market capitalization and reduce leverage to less than 1.5 times in 2022. These statements involve known and unknown risks, which may cause SM Energy’s actual results to differ materially from results expressed or implied by the forward-looking statements. Future results may be impacted by the risks discussed in the Risk Factors section of SM Energy’s most recent Annual Report on Form 10-K, as such risk factors may be updated from time to time in the Company’s other periodic reports filed with the Securities and Exchange Commission, specifically the 2020 Form 10-K. The forward-looking statements contained herein speak as of the date of this release. Although SM Energy may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so, except as required by securities laws.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and NGLs in the state of Texas. SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at www.sm-energy.com.

SM ENERGY INVESTOR CONTACTS

Jennifer Martin Samuels, [email protected], 303-864-2507
Jeremy Kline, [email protected], 303-863-4313

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Production Data
	For the Three Months Ended						Percent Change Between				For the Nine Months Ended				Percent Change Between Periods
	September 30,		June 30,		September 30,		3Q21 & 2Q21		3Q21 & 3Q20		September 30,		September 30,
	2021		2021		2020		3Q21 & 2Q21		3Q21 & 3Q20		2021			2020
Realized sales price (before the effects of derivative settlements):
Oil (per Bbl)	$	69.30	$	65.34	$	37.69	6	%	84	%	$	64.50	$	35.92	80	%
Gas (per Mcf)	$	5.12	$	3.34	$	1.90	53	%	169	%	$	4.24	$	1.59	167	%
NGLs (per Bbl)	$	36.87	$	28.41	$	14.07	30	%	162	%	$	31.19	$	12.81	143	%
Equivalent (per Boe)	$	53.02	$	45.28	$	24.28	17	%	118	%	$	47.43	$	22.92	107	%
Realized sales price (including the effects of derivative settlements):
Oil (per Bbl)	$	50.17	$	45.23	$	50.20	11	%	—	%	$	47.40	$	51.08	(7)	%
Gas (per Mcf)	$	3.89	$	2.87	$	1.94	35	%	101	%	$	3.09	$	1.80	71	%
NGLs (per Bbl)	$	20.22	$	19.19	$	14.35	5	%	41	%	$	18.75	$	14.58	29	%
Equivalent (per Boe)	$	38.12	$	32.50	$	30.33	17	%	26	%	$	34.38	$	31.06	11	%
Net production volumes: ⁽¹⁾
Oil (MMBbl)	8.1		6.7		5.5		21	%	46	%	20.2		17.2		17	%
Gas (Bcf)	29.1		26.5		26.1		10	%	12	%	77.1		78.6		(2)	%
NGLs (MMBbl)	1.4		1.3		1.8		7	%	(19)	%	3.8		4.8		(22)	%
MMBoe	14.3		12.4		11.6		15	%	23	%	36.8		35.2		5	%
Average net daily production: ⁽¹⁾
Oil (MBbls/d)	87.6		73.4		59.9		19	%	46	%	73.9		62.9		17	%
Gas (MMcf/d)	316.3		290.9		283.3		9	%	12	%	282.5		286.7		(1)	%
NGLs (MBbls/d)	15.5		14.6		19.2		6	%	(19)	%	13.9		17.7		(22)	%
MBoe/d	155.8		136.5		126.3		14	%	23	%	134.8		128.3		5	%
Per Boe data:
Realized price (before the effects of derivative settlements)	$	53.02	$	45.28	$	24.28	17	%	118	%	$	47.43	$	22.92	107	%
Lease operating expense	4.20		4.62		3.65		(9)	%	15	%	4.46		3.93		13	%
Transportation costs	2.41		3.01		3.11		(20)	%	(23)	%	2.75		3.11		(12)	%
Production taxes	2.49		2.03		1.04		23	%	139	%	2.18		0.94		132	%
Ad valorem tax expense	0.38		0.45		0.40		(16)	%	(5)	%	0.44		0.41		7	%
General and administrative ⁽²⁾	1.78		1.98		2.10		(10)	%	(15)	%	2.03		2.25		(10)	%
Operating margin (before the effects of derivative settlements)	41.76		33.19		13.98		26	%	199	%	35.57		12.28		190	%
Derivative settlement gain (loss)	(14.90)		(12.78)		6.05		(17)	%	(346)	%	(13.05)		8.14		(260)	%
Operating margin (including the effects of derivative settlements)	$	26.86	$	20.41	$	20.03	32	%	34	%	$	22.52	$	20.42	10	%
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	$	14.14	$	16.48	$	15.64	(14)	%	(10)	%	$	15.61	$	16.95	(8)	%

⁽¹⁾
Amounts and percentage changes may not calculate due to rounding.

⁽²⁾
Includes non-cash stock-based compensation expense per Boe of $0.25, $0.25, and $0.30 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively, and, $0.30 and $0.36 for the nine months ended September 30, 2021, and 2020, respectively.

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Balance Sheets
(in thousands, except share data)	September 30,		December 31,
ASSETS	2021		2020
Current assets:
Cash and cash equivalents	$	29,800	$	10
Accounts receivable	272,248		162,455
Derivative assets	24,514		31,203
Prepaid expenses and other	9,708		10,001
Total current assets	336,270		203,669
Property and equipment (successful efforts method):
Proved oil and gas properties	9,271,463		8,608,522
Accumulated depletion, depreciation, and amortization	(5,439,387)		(4,886,973)
Unproved oil and gas properties	654,513		714,602
Wells in progress	142,259		233,498
Other property and equipment, net of accumulated depreciation of $65,462 and $63,662, respectively	36,635		32,217
Total property and equipment, net	4,665,483		4,701,866
Noncurrent assets:
Derivative assets	6,096		23,150
Other noncurrent assets	54,111		47,746
Total noncurrent assets	60,207		70,896
Total assets	$	5,061,960	$	4,976,431
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	542,474	$	371,670
Derivative liabilities	552,044		200,189
Other current liabilities	9,049		11,880
Total current liabilities	1,103,567		583,739
Noncurrent liabilities:
Revolving credit facility	—		93,000
Senior Notes, net	2,077,630		2,121,319
Asset retirement obligations	85,514		83,325
Derivative liabilities	90,655		22,331
Other noncurrent liabilities	67,695		56,557
Total noncurrent liabilities	2,321,494		2,376,532
Stockholders’ equity:
Common stock, $0.01 par value – authorized: 200,000,000 shares; issued and outstanding: 121,473,790 and 114,742,304 shares, respectively	1,215		1,147
Additional paid-in capital	1,838,620		1,827,914
Retained earnings (deficit)	(190,367)		200,697
Accumulated other comprehensive loss	(12,569)		(13,598)
Total stockholders’ equity	1,636,899		2,016,160
Total liabilities and stockholders’ equity	$	5,061,960	$	4,976,431

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Statements of Operations
(in thousands, except per share data)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Operating revenues and other income:
Oil, gas, and NGL production revenue	$	759,813	$	282,012	$	1,745,547	$	806,035
Other operating income (loss)	426		(997)		22,387		346
Total operating revenues and other income	760,239		281,015		1,767,934		806,381
Operating expenses:
Oil, gas, and NGL production expense	135,745		95,257		362,131		295,254
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	202,701		181,708		574,375		596,053
Exploration ⁽¹⁾	8,709		8,547		26,746		29,683
Impairment	8,750		8,750		26,250		1,007,263
General and administrative ⁽¹⁾	25,530		24,452		74,883		79,126
Net derivative (gain) loss ⁽²⁾	209,146		63,871		924,183		(314,269)
Other operating expense, net	43,401		1,562		44,654		10,174
Total operating expenses	633,982		384,147		2,033,222		1,703,284
Income (loss) from operations	126,257		(103,132)		(265,288)		(896,903)
Interest expense	(40,861)		(41,519)		(120,268)		(123,385)
Gain (loss) on extinguishment of debt	5		25,070		(2,139)		264,546
Other non-operating income (expense), net	153		(1,680)		(1,071)		(2,359)
Income (loss) before income taxes	85,554		(121,261)		(388,766)		(758,101)
Income tax benefit	39		22,969		95		158,662
Net income (loss)	$	85,593	$	(98,292)	$	(388,671)	$	(599,439)

Basic weighted-average common shares outstanding	121,457		114,371		118,224		113,462
Diluted weighted-average common shares outstanding	123,851		114,371		118,224		113,462
Basic net income (loss) per common share	$	0.70	$	(0.86)	$	(3.29)	$	(5.28)
Diluted net income (loss) per common share	$	0.69	$	(0.86)	$	(3.29)	$	(5.28)
Dividends per common share	$	0.01	$	0.01	$	0.02	$	0.02

⁽¹⁾Non-cash stock-based compensation included in:
Exploration expense	$	908	$	665	$	3,004	$	2,713
General and administrative expense	3,590		3,499		11,187		12,724
Total non-cash stock-based compensation	$	4,498	$	4,164	$	14,191	$	15,437

⁽²⁾ The net derivative (gain) loss line item consists of the following:
Derivative settlement (gain) loss	$	213,555	$	(70,305)	$	480,262	$	(286,270)
(Gain) loss on fair value changes	(4,409)		134,176		443,921		(27,999)
Total net derivative (gain) loss	$	209,146	$	63,871	$	924,183	$	(314,269)

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data and dividends per share)

				Additional Paid-in Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balances, December 31, 2020	114,742,304	$	1,147	$	1,827,914	$	200,697	$	(13,598)	$	2,016,160
Net loss	—	—		—		(251,269)		—		(251,269)
Other comprehensive income	—	—		—		—		191		191
Cash dividends declared, $0.01 per share	—	—		—		(1,147)		—		(1,147)
Stock-based compensation expense	—	—		5,737		—		—		5,737
Balances, March 31, 2021	114,742,304	$	1,147	$	1,833,651	$	(51,719)	$	(13,407)	$	1,769,672
Net loss	—	—		—		(222,995)		—		(222,995)
Other comprehensive income	—	—		—		—		592		592
Cash dividends, $0.01 per share	—	—		—		(31)		—		(31)
Issuance of common stock under Employee Stock Purchase Plan	252,665	3		1,312		—		—		1,315
Stock-based compensation expense	57,795	1		3,955		—		—		3,956
Issuance of common stock through cashless exercise of Warrants	5,918,089	59		(59)		—		—		—
Balances, June 30, 2021	120,970,853	$	1,210	$	1,838,859	$	(274,745)	$	(12,815)	$	1,552,509
Net income	—	—		—		85,593		—		85,593
Other comprehensive income	—	—		—		—		246		246
Cash dividends declared, $0.01 per share	—	—		—		(1,215)		—		(1,215)
Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings	502,937	5		(4,737)						(4,732)
Stock-based compensation expense	—	—		4,498		—		—		4,498
Balances, September 30, 2021	121,473,790	$	1,215	$	1,838,620	$	(190,367)	$	(12,569)	$	1,636,899

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Statements of Stockholders’ Equity (Continued)
(in thousands, except share data and dividends per share)
				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock					Retained Earnings
	Shares	Amount				Retained Earnings
Balances, December 31, 2019	112,987,952	$	1,130	$	1,791,596	$	967,587	$	(11,319)	$	2,748,994
Net loss	—	—		—		(411,895)		—		(411,895)
Other comprehensive income	—	—		—		—		190		190
Cash dividends declared, $0.01 per share	—	—		—		(1,130)		—		(1,130)
Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings	730	—		(3)		—		—		(3)
Stock-based compensation expense	—	—		5,561		—		—		5,561
Balances, March 31, 2020	112,988,682	$	1,130	$	1,797,154	$	554,562	$	(11,129)	$	2,341,717
Net loss	—	—		—		(89,252)		—		(89,252)
Other comprehensive income	—	—		—		—		188		188
Issuance of common stock under Employee Stock Purchase Plan	297,013	3		944		—		—		947
Stock-based compensation expense	267,576	3		5,709		—		—		5,712
Issuance of Warrants	—	—		21,520		—		—		21,520
Balances, June 30, 2020	113,553,271	$	1,136	$	1,825,327	$	465,310	$	(10,941)	$	2,280,832
Net loss	—	—		—		(98,292)		—		(98,292)
Other comprehensive income	—	—		—		—		1,195		1,195
Cash dividends declared, $0.01 per share	—	—		—		(1,146)		—		(1,146)
Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings	1,019,529	10		(1,567)		—		—		(1,557)
Stock-based compensation expense	—	—		4,164		—		—		4,164
Other	—	—		(88)		—		—		(88)
Balances, September 30, 2020	114,572,800	$	1,146	$	1,827,836	$	365,872	$	(9,746)	$	2,185,108

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Statements of Cash Flows
(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Cash flows from operating activities:
Net income (loss)	$	85,593	$	(98,292)	$	(388,671)	$	(599,439)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	202,701		181,708		574,375		596,053
Impairment	8,750		8,750		26,250		1,007,263
Stock-based compensation expense	4,498		4,164		14,191		15,437
Net derivative (gain) loss	209,146		63,871		924,183		(314,269)
Derivative settlement gain (loss)	(213,555)		70,305		(480,262)		286,270
Amortization of debt discount and deferred financing costs	3,905		4,506		13,350		13,084
(Gain) loss on extinguishment of debt	(5)		(25,070)		2,139		(264,546)
Deferred income taxes	(68)		(22,796)		(282)		(159,064)
Other, net	6,076		(2,376)		(7,301)		(6,294)
Net change in working capital	21,078		16,843		52,170		(40,411)
Net cash provided by operating activities	328,119		201,613		730,142		534,084

Cash flows from investing activities:
Net proceeds from the sale of oil and gas properties	8,543		—		8,835		92
Capital expenditures	(180,088)		(109,568)		(550,265)		(419,777)
Acquisition of proved and unproved oil and gas properties	(3,250)		(7,075)		(3,321)		(7,075)
Net cash used in investing activities	(174,795)		(116,643)		(544,751)		(426,760)

Cash flows from financing activities:
Proceeds from revolving credit facility	705,500		324,500		1,649,500		1,165,500
Repayment of revolving credit facility	(758,000)		(339,500)		(1,742,500)		(1,110,000)
Net proceeds from Senior Notes	(812)		—		392,771		—
Cash paid to repurchase Senior Notes	(65,480)		(65,944)		(450,776)		(147,770)
Debt issuance costs related to 10.0% Senior Secured Notes due 2025	—		(2,395)		—		(12,886)
Net proceeds from sale of common stock	—		—		1,315		947
Dividends paid	—		—		(1,178)		(1,130)
Other, net	(4,732)		(1,631)		(4,733)		(1,985)
Net cash used in financing activities	(123,524)		(84,970)		(155,601)		(107,324)

Net change in cash, cash equivalents, and restricted cash	29,800		—		29,790		—
Cash, cash equivalents, and restricted cash at beginning of period	—		10		10		10
Cash, cash equivalents, and restricted cash at end of period	$	29,800	$	10	$	29,800	$	10

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Condensed Consolidated Statements of Cash Flows (Continued)
(in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Supplemental schedule of additional cash flow information and non-cash activities:
Operating activities:
Cash paid for interest, net of capitalized interest	$	(51,364)	$	(39,861)	$	(126,228)	$	(122,174)

Investing activities:
Increase (decrease) in capital expenditure accruals and other	$	(20,102)	$	11,491	$	8,885	$	(17,405)

Non-cash financing activities⁽¹⁾

⁽¹⁾ Please refer to Note 5 – Long-term Debt in Part I, Item I of the Company’s Form 10-Q for discussion of the debt transactions completed during the nine months ended September 30, 2021, and 2020.

DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY

The following non-GAAP measures are presented in addition to financial statements as the Company believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and compare investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others. A non-GAAP measure should not be considered in isolation or as a substitute for the most directly comparable GAAP measure or any other measure of a company’s financial or operating performance presented in accordance with GAAP. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure is presented below. These measures may not be comparable to similarly titled measures of other companies.

Adjusted EBITDAX

: Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is also important because we are subject to financial covenants under the Company’s Credit Agreement, a material source of liquidity for the Company, based on Adjusted EBITDAX ratios. Please reference the Company’s 2020 Form 10-K and the most recently filed Form 10-Q for discussion of the Credit Agreement and its covenants.

Adjusted net income (loss)

: Adjusted net income (loss) excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include non-cash and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, gains and losses on extinguishment of debt, and accruals for non-recurring matters.

Net Debt

: Net debt is calculated as the total principal amount of outstanding senior secured notes and senior unsecured notes plus amounts drawn on the revolving credit facility (also referred to as total funded debt) less cash and cash equivalents.

Free cash flow

: Free cash flow is calculated as net cash provided by operating activities before net change in working capital less capital expenditures before increase (decrease) in capital expenditure accruals and other.

Free cash flow yield to market capitalization

: Free cash flow yield to market capitalization is calculated as Free cash flow (defined above) divided by market capitalization.

Net debt-to-Adjusted EBITDAX

: Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above) for the trailing twelve-month period. A variation of this calculation is a financial covenant under the Company’s Credit Agreement.

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Adjusted EBITDAX Reconciliation ⁽¹⁾
(in thousands)

Reconciliation of net income (loss) (GAAP) and net cash provided by operating activities (GAAP) to Adjusted EBITDAX (non-GAAP)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss) (GAAP)	$	85,593	$	(98,292)	$	(388,671)	$	(599,439)
Interest expense	40,861		41,519		120,268		123,385
Income tax benefit	(39)		(22,969)		(95)		(158,662)
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	202,701		181,708		574,375		596,053
Exploration ⁽²⁾	7,801		7,882		23,742		26,970
Impairment	8,750		8,750		26,250		1,007,263
Stock-based compensation expense	4,498		4,164		14,191		15,437
Net derivative (gain) loss	209,146		63,871		924,183		(314,269)
Derivative settlement gain (loss)	(213,555)		70,305		(480,262)		286,270
(Gain) loss on extinguishment of debt	(5)		(25,070)		2,139		(264,546)
Other, net	905		615		2,407		1,560
Adjusted EBITDAX (non-GAAP)	$	346,656	$	232,483	$	818,527	$	720,022
Interest expense	(40,861)		(41,519)		(120,268)		(123,385)
Income tax benefit	39		22,969		95		158,662
Exploration ⁽²⁾	(7,801)		(7,882)		(23,742)		(26,970)
Amortization of debt discount and deferred financing costs	3,905		4,506		13,350		13,084
Deferred income taxes	(68)		(22,796)		(282)		(159,064)
Other, net	5,171		(2,991)		(9,708)		(7,854)
Net change in working capital	21,078		16,843		52,170		(40,411)
Net cash provided by operating activities (GAAP)	$	328,119	$	201,613	$	730,142	$	534,084

⁽¹⁾

See “Definitions of non-GAAP Measures as Calculated by the Company” above.

⁽²⁾

Stock-based compensation expense is a component of the exploration expense and general and administrative expense line items on the accompanying unaudited condensed consolidated statements of operations. Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the accompanying unaudited condensed consolidated statements of operations for the component of stock-based compensation expense recorded to exploration expense.

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Adjusted Net Income (Loss) Reconciliation ⁽¹⁾
(in thousands, except per share data)

Reconciliation of net income (loss) (GAAP) to adjusted net income (loss) (non-GAAP):	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss) (GAAP)	$	85,593	$	(98,292)	$	(388,671)	$	(599,439)
Net derivative (gain) loss	209,146		63,871		924,183		(314,269)
Derivative settlement gain (loss)	(213,555)		70,305		(480,262)		286,270
Impairment	8,750		8,750		26,250		1,007,263
(Gain) loss on extinguishment of debt	(5)		(25,070)		2,139		(264,546)
Other, net ⁽²⁾	1,525		615		3,108		1,676
Tax effect of adjustments ⁽³⁾	(1,272)		(25,708)		(103,166)		(155,457)
Valuation allowance on deferred tax assets	1,272		—		103,166		10,017
Adjusted net income (loss) (non-GAAP)	$	91,454	$	(5,529)	$	86,747	$	(28,485)

Diluted net income (loss) per common share (GAAP)	$	0.69	$	(0.86)	$	(3.29)	$	(5.28)
Net derivative (gain) loss	1.69		0.56		7.82		(2.77)
Derivative settlement gain (loss)	(1.72)		0.61		(4.06)		2.52
Impairment	0.07		0.08		0.22		8.88
(Gain) loss on extinguishment of debt	—		(0.22)		0.02		(2.33)
Other, net ⁽²⁾	0.01		0.01		0.02		0.02
Tax effect of adjustments ⁽³⁾	(0.01)		(0.23)		(0.87)		(1.38)
Valuation allowance on deferred tax assets	0.01		—		0.87		0.09
Adjusted net income (loss) per diluted common share (non-GAAP)	$	0.74	$	(0.05)	$	0.73	$	(0.25)

Basic weighted-average common shares outstanding	121,457		114,371		118,224		113,462
Diluted weighted-average common shares outstanding	123,851		114,371		118,224		113,462

Note: Amounts may not calculate due to rounding.

⁽¹⁾

See “Definitions of non-GAAP Measures as Calculated by the Company” above.

⁽²⁾

For all periods presented, other adjustments related to bad debt expense and impairments of materials inventory and other property. Additionally, for the nine months ended September 30, 2021, other adjustments include pension settlement expense, and for the nine months ended September 30, 2021, and 2020, other adjustments included (gain) loss on divestiture.

⁽³⁾

The tax effect of adjustments for each of the three and nine months ended September 30, 2021, and 2020, was calculated using a tax rate of 21.7%. This rate approximates the Company’s statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2021

Reconciliation of Total Long-Term Debt to Net Debt ⁽¹⁾
(in thousands)
	As of September 30, 2021
Principal amount of Senior Secured Notes ⁽²⁾	$	446,675
Principal amount of Senior Unsecured Notes ⁽²⁾	1,689,913
Revolving credit facility ⁽²⁾	—
Total funded debt	2,136,588
Less: Cash and cash equivalents	29,800
Net Debt	$	2,106,788

⁽¹⁾			See “Definitions of non-GAAP Measures as Calculated by the Company” above.
⁽²⁾			Amounts are from Note 5 – Long-term Debt in Part I, Item I of the Company’s Form 10-Q for the nine months ended September 30, 2021.

Free Cash Flow ⁽¹⁾
(in thousands)
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net cash provided by operating activities (GAAP)	$	328,119	$	201,613	$	730,142	$	534,084
Net change in working capital	(21,078)		(16,843)		(52,170)		40,411
Cash flow from operations before net change in working capital	307,041		184,770		677,972		574,495
Capital expenditures (GAAP)	180,088		109,568		550,265		419,777
Increase (decrease) in capital expenditure accruals and other	(20,102)		11,491		8,885		(17,405)
Capital expenditures before accruals and other	159,986		121,059		559,150		402,372
Free cash flow	$	147,055	$	63,711	$	118,822	$	172,123

⁽¹⁾

See “Definitions of non-GAAP Measures as Calculated by the Company” above.

View original content to download multimedia:https://www.prnewswire.com/news-releases/sm-energy-reports-third-quarter-2021-results-cash-flow-beat-and-production-outperformance-301411398.html

SOURCE SM Energy Company

October 28, 2021 4:23 pm

Crown Holdings, Inc. Declares Quarterly Dividend

PR Newswire

YARDLEY, Pa., Oct. 28, 2021 /PRNewswire/ — Crown Holdings, Inc. (NYSE: CCK) announced today that its Board of Directors declared a cash dividend of 20 cents per share payable November 26, 2021, to shareholders of record as of November 12, 2021.

About Crown Holdings, Inc.

Crown Holdings, Inc., through its subsidiaries, is a leading global supplier of rigid packaging products to consumer marketing companies, as well as transit and protective packaging products, equipment and services to a broad range of end markets. World headquarters are located in Yardley, Pennsylvania. For more information, visit www.crowncork.com.

For more information, contact:
Thomas A. Kelly, Senior Vice President and Chief Financial Officer, (215) 698-5341, or
Thomas T. Fischer, Vice President, Investor Relations and Corporate Affairs, (215) 552-3720

View original content:https://www.prnewswire.com/news-releases/crown-holdings-inc-declares-quarterly-dividend-301411435.html

SOURCE Crown Holdings, Inc.

October 28, 2021 4:23 pm

Arthur J. Gallagher & Co. Announces Third Quarter 2021 Financial Results

PR Newswire

ROLLING MEADOWS, Ill., Oct. 28, 2021 /PRNewswire/ — Arthur J. Gallagher & Co. (NYSE: AJG) today reported its financial results for the quarter ended September 30, 2021. Management will host a webcast conference call to discuss these results on Thursday, October 28, 2021 at 5:15 p.m. ET/4:15 p.m. CT. To listen to the call, and for printer-friendly formats of this release and the “Supplemental Quarterly Data” and “CFO Commentary,” which may also be referenced during the call, please visit ajg.com/IR. These documents contain both GAAP and non-GAAP measures. Investors and other users of this information should read carefully the section entitled “Information Regarding Non-GAAP Measures” beginning on page 10.

Summary of Financial Results – Third Quarter

		Revenues Before						Diluted Net Earnings
		Reimbursements		Net Earnings (Loss)		EBITDAC		(Loss) Per Share
Segment		3rd Q 21	3rd Q 20	3rd Q 21	3rd Q 20	3rd Q 21	3rd Q 20	3rd Q 21	3rd Q 20	Chg

		(in millions)		(in millions)		(in millions)

Brokerage, as reported		$ 1,499.7	$ 1,294.6	$ 253.6	$ 206.7	$ 481.2	$ 411.2	$ 1.20	$ 1.05
	Net gains on divestitures	(4.3)	(3.4)	(3.4)	(2.6)	(4.3)	(3.4)	(0.02)	(0.01)
	Acquisition integration	–	–	4.6	4.6	5.8	6.1	0.02	0.02
	Workforce and lease termination	–	–	3.3	9.2	3.9	12.0	0.01	0.05
	Acquisition related adjustments	–	–	22.5	18.5	5.8	5.7	0.11	0.09
	Levelized foreign currency
	translation	–	17.8	–	2.5	–	5.7	–	0.01

Brokerage, as adjusted *		1,495.4	1,309.0	280.6	238.9	492.4	437.3	1.32	1.21

Risk Management, as reported		248.0	202.7	22.0	18.8	43.7	38.2	0.10	0.09
	Net gains on divestitures	–	–	–	–	–	–	–	–
	Workforce and lease termination	–	–	4.0	0.9	4.5	1.1	0.02	0.01
	Acquisition related adjustments	–	–	(0.1)	(0.5)	0.1	–	–	–
	Levelized foreign currency
	translation	–	0.9	–	0.1	–	0.1	–	–

Risk Management, as adjusted *		248.0	203.6	25.9	19.3	48.3	39.4	0.12	0.10

Corporate, as reported		357.9	310.2	(37.0)	(37.7)	(51.5)	(37.8)	(0.24)	(0.24)
	Loss on extinguishment of debt	–	–	12.2	–	–	–	0.06	–
	Transaction-related costs	–	–	8.2	–	11.0	–	0.04	–
	Income tax related	–	–	4.9	5.5	–	–	0.03	0.02

Corporate, as adjusted *		357.9	310.2	(11.7)	(32.2)	(40.5)	(37.8)	(0.11)	(0.22)

Total Company, as reported		$ 2,105.6	$ 1,807.5	$ 238.6	$ 187.8	$ 473.4	$ 411.6	$ 1.06	$ 0.90	18%

Total Company, as adjusted *		$ 2,101.3	$ 1,822.8	$ 294.8	$ 226.0	$ 500.2	$ 438.9	$ 1.33	$ 1.09	22%

Total Brokerage & Risk
	Management, as reported	$ 1,747.7	$ 1,497.3	$ 275.6	$ 225.5	$ 524.9	$ 449.4	$ 1.30	$ 1.14	14%

Total Brokerage & Risk
	Management, as adjusted *	$ 1,743.4	$ 1,512.6	$ 306.5	$ 258.2	$ 540.7	$ 476.7	$ 1.44	$ 1.31	10%

For third quarter 2021, the pretax impact of the Brokerage segment adjustments totals $34.0 million, with a corresponding adjustment to the provision for income taxes of $7.0 million relating to these items. For third quarter 2021, the pretax impact of the Risk Management segment adjustments totals $5.3 million, with a corresponding adjustment to the provision for income taxes of $1.4 million relating to these items. The pretax impact of the Corporate segment adjustments totals $27.2 million, with a corresponding adjustment to the provision for income taxes of $1.9 million relating to these items and the U.K. tax item noted on pages 8 and 9. A detailed reconciliation of the 2021 and 2020 provision (benefit) for income taxes is shown on pages 14 and 15.

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“We delivered an excellent third quarter!” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “Our core brokerage and risk management segments combined to post 17% growth in revenue, of which 10% was organic revenue growth; net earnings growth of 22%; and adjusted EBITDAC growth of 13%. We completed 5 new tuck-in mergers and our purchase of Willis Towers Watson’s treaty reinsurance brokerage operations remains on track to close in fourth quarter 2021.

“Global P/C rates remain firm and improved economic activity is leading to additional insured exposure units, positive policy endorsements, and other favorable mid-term policy adjustments. Overall, the P/C premium increases we saw during the third quarter of 2021 were consistent with the first half of the year, and our benefits and HR consulting business saw higher covered lives and growing demand for special project work resulting from the improving employment situation.

“Our clients are healthy and focused on growth. Our team is engaged, energized and well positioned to assist clients and prospects as they navigate their growth challenges during a difficult insurance environment.”

Summary of Financial Results – Nine-Months Ended September 30,

		Revenues Before						Diluted Net Earnings
		Reimbursements		Net Earnings (Loss)		EBITDAC		(Loss) Per Share
Segment		9 Mths 21	9 Mths 20	9 Mths 21	9 Mths 20	9 Mths 21	9 Mths 20	9 Mths 21	9 Mths 20	Chg

		(in millions)		(in millions)		(in millions)

Brokerage, as reported		$ 4,500.1	$ 3,931.3	$ 845.6	$ 708.3	$ 1,539.6	$ 1,255.6	$ 4.09	$ 3.62
	Net gains on divestitures	(8.9)	(4.6)	(7.0)	(3.6)	(8.9)	(4.6)	(0.03)	(0.02)
	Acquisition integration	–	–	12.5	14.8	16.1	19.5	0.06	0.08
	Workforce and lease termination	–	–	11.9	25.7	13.2	33.5	0.06	0.13
	Acquisition related adjustments	–	–	52.3	24.7	19.6	14.4	0.25	0.13
	Levelized foreign currency
	translation	–	107.4	–	16.8	–	35.0	–	0.09

Brokerage, as adjusted *		4,491.2	4,034.1	915.3	786.7	1,579.6	1,353.4	4.43	4.03

Risk Management, as reported		713.3	605.3	64.9	47.8	131.1	101.7	0.31	0.25
	Net gains on divestitures	(0.1)	–	(0.1)	–	(0.1)	–	–	–
	Workforce and lease termination	–	–	5.0	4.8	5.8	6.4	0.03	0.02
	Acquisition related adjustments	–	–	2.0	0.4	0.3	–	0.01	–
	Levelized foreign currency
	translation	–	11.6	–	0.4	–	1.7	–	–

Risk Management, as adjusted *		713.2	616.9	71.8	53.4	137.1	109.8	0.35	0.27

Corporate, as reported		921.6	651.7	(76.4)	(51.1)	(145.0)	(95.8)	(0.52)	(0.39)
	Loss on extinguishment of debt	–	–	12.2	–	–	–	0.06	–
	Transaction-related costs	–	–	16.9	–	21.2	–	0.08	–
	Income tax related	–	–	24.2	5.5	–	–	0.11	0.03

Corporate, as adjusted *		921.6	651.7	(23.1)	(45.6)	(123.8)	(95.8)	(0.27)	(0.36)

Total Company, as reported		$ 6,135.0	$ 5,188.3	$ 834.1	$ 705.0	$ 1,525.7	$ 1,261.5	$ 3.88	$ 3.48	11%

Total Company, as adjusted *		$ 6,126.0	$ 5,302.7	$ 964.0	$ 794.5	$ 1,592.9	$ 1,367.4	$ 4.51	$ 3.94	14%

Total Brokerage & Risk
	Management, as reported	$ 5,213.4	$ 4,536.6	$ 910.5	$ 756.1	$ 1,670.7	$ 1,357.3	$ 4.40	$ 3.87	14%

Total Brokerage & Risk
	Management, as adjusted *	$ 5,204.4	$ 4,651.0	$ 987.1	$ 840.1	$ 1,716.7	$ 1,463.2	$ 4.78	$ 4.30	11%

For the nine-month period ended September 30, 2021, the pretax impact of the Brokerage segment adjustments totals $89.5 million, with a corresponding adjustment to the provision for income taxes of $19.8 million relating to these items. For the nine-month period ended September 30, 2021, the pretax impact of the Risk Management segment adjustments totals $9.2 million, with a corresponding adjustment to the provision for income taxes of $2.3 million relating to these items. The pretax impact of the Corporate segment adjustments totals $37.4 million, with a corresponding adjustment to the benefit for income taxes of $(15.9) million relating to these items and the U.K. tax item noted on pages 8 and 9. A detailed reconciliation of the 2021 and 2020 provision (benefit) for income taxes is shown on pages 14 and 15.

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Agreement to Acquire Willis Towers Watson Treaty Reinsurance Brokerage Operations

On August 13, 2021, we announced an agreement to acquire Willis Towers Watson treaty reinsurance brokerage operations for an initial gross consideration of $3.25 billion, and potential additional consideration of $750 million subject to certain third-year revenue targets. We intend to finance the transaction using cash on hand, including the $1.4 billion of net cash raised via the May 17, 2021 follow-on common stock offering and the $850 million of net cash borrowed via the May 20, 2021 30-year senior note issuance and short-term borrowings. The transaction is subject to customary regulatory approvals and is expected to close during the fourth quarter of 2021.

Impact of COVID-19 Pandemic Recovery

Relative to third quarter 2020, during the third quarter 2021:

Nearly all of our Brokerage segment operations’ revenues benefited from our clients’ improving business conditions which increases insured exposure units (i.e., insured values, payrolls, employees, miles driven, gross receipts, etc.) and covered lives,
Our Risk Management segment operations’ revenues benefited from our clients’ improving business conditions which increases new arising workers compensation and general liability claims, and
Our clean energy investments benefited from higher electricity production due to increased demand for electricity from improving business conditions.

If economic conditions continue to improve, we believe we may also see favorable revenue benefits in our Brokerage and Risk Management segments in the fourth quarter of 2021 relative to the same quarter in 2020. However, if the economic recovery slows, we could see less revenue benefits than we experienced in second and third quarter 2021.

During the second, third and fourth quarters of 2020 and first quarter 2021, we realized significant expense savings (totaling approximately $60 million to $75 million per quarter relative to the prior year same quarters, adjusted for pro forma full-quarter costs related to acquisitions) as a result of reduced travel, entertainment and advertising expenses, reduced costs from lower employee medical plan utilization, a reduction in workforce, wage controls, and reduced use of external consultants. During the second and third quarters of 2021, as we increased our business activities relative to second and third quarters of 2020, we saw modest increases in travel and entertainment, full restoration of advertising and more normalized usage of our employee medical plan, resumption of annual support-layer wage increases, increased use of external consultants, and an increase in incentive compensation. These incremental costs totaled approximately $15 million and $25 million in our Brokerage segment relative to second and third quarters of 2020, respectively. We believe we will see incrementally higher Brokerage segment costs again in fourth quarter 2021, relative to the same quarter in 2020, of approximately $30 million. However, if the pace of economic recovery accelerates, we could see expense increases greater than the estimate provided.

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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):

Organic Revenues (Non-GAAP)		3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Base Commissions and Fees
Commissions and fees, as reported		$ 1,370.0	$ 1,183.1	$ 4,102.1	$ 3,592.7
Less commissions and fees from acquisitions		(72.5)	–	(179.8)	–
Less divested operations		–	(3.2)	–	(10.6)
Levelized foreign currency translation		–	15.9	–	94.9

Organic base commissions and fees		$ 1,297.5	$ 1,195.8	$ 3,922.3	$ 3,677.0

Organic change in base commissions and fees		8.5%		6.7%

Supplemental Revenues
Supplemental revenues, as reported		$ 61.0	$ 54.7	$ 183.0	$ 164.0
Less supplemental revenues from acquisitions		(0.2)	–	(2.6)	–
Levelized foreign currency translation		–	1.1	–	5.2

Organic supplemental revenues		$ 60.8	$ 55.8	$ 180.4	$ 169.2

Organic change in supplemental revenues		9.0%		6.6%

Contingent Revenues
Contingent revenues, as reported		$ 43.7	$ 34.5	$ 150.3	$ 117.0
Less contingent revenues from acquisitions		(0.1)	–	(2.1)	–
Levelized foreign currency translation		–	0.2	–	1.6

Organic contingent revenues		$ 43.6	$ 34.7	$ 148.2	$ 118.6

Organic change in contingent revenues		25.7%		25.0%

Total reported commissions, fees, supplemental
revenues and contingent revenues		$ 1,474.7	$ 1,272.3	$ 4,435.4	$ 3,873.7
Less commissions, fees, supplemental revenues
and contingent revenues from acquisitions		(72.8)	–	(184.5)	–
Less divested operations and program repricing		–	(3.2)	–	(10.6)
Levelized foreign currency translation		–	17.2	–	101.7

Total organic commissions, fees, supplemental
revenues and contingent revenues		$ 1,401.9	$ 1,286.3	$ 4,250.9	$ 3,964.8

Total organic change	*	9.0%		7.2%


*	As reported last year, third quarter 2020 revenues were favorably impacted by the sale of a large life insurance pension funding product. Without this particular sale, total organic change would have been approximately 10% for third quarter 2021 and approximately 8% for the nine-month period ended September 30, 2021.

Acquisition Activity	3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Number of acquisitions closed *	5	5	17	17
Estimated annualized revenues acquired (in millions)	$ 16.1	$ 13.1	$ 139.9	$ 151.2


*	In the third quarter of 2021, Gallagher issued 185,000 shares of its common stock at the request of sellers and/or in connection with tax–free exchange acquisitions.


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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (continued) (dollars in millions):

Compensation Expense and Ratios		3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Compensation expense, as reported		$ 827.9	$ 729.5	$ 2,423.0	$ 2,154.7

Acquisition integration		(4.7)	(3.7)	(11.9)	(11.3)
Workforce and lease termination related charges		(2.0)	(10.7)	(9.3)	(29.6)
Acquisition related adjustments		(5.8)	(5.7)	(19.6)	(14.4)
Levelized foreign currency translation		–	11.0	–	59.1

Compensation expense, as adjusted		$ 815.4	$ 720.4	$ 2,382.2	$ 2,158.5

Reported compensation expense ratios using reported
revenues on pages 1 and 2	*	55.2%	56.4%	53.8%	54.8%
Adjusted compensation expense ratios using adjusted
revenues on pages 1 and 2	**	54.5%	55.0%	53.0%	53.5%


*	Reported third quarter 2021 compensation ratio was 1.2 pts lower than third quarter 2020. This ratio was primarily impacted by lower workforce termination charges in third quarter 2021 compared to third quarter 2020, as well as continued compensation savings in third quarter 2021 due to those 2020 workforce reduction actions. These savings were partially offset by resumption of merit wage increases in 2021.

**	Adjusted third quarter 2021 compensation ratio was 0.5 pts lower than third quarter 2020. This ratio was primarily impacted by continued compensation savings in third quarter 2021 due to workforce reduction actions implemented in 2020. These savings were partially offset by resumption of merit wage increases in 2021.

Operating Expense and Ratios		3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Operating expense, as reported		$ 190.6	$ 153.9	$ 537.5	$ 521.0

Acquisition integration		(1.1)	(2.4)	(4.2)	(8.2)
Workforce and lease termination related charges		(1.9)	(1.3)	(3.9)	(3.9)
Levelized foreign currency translation		–	1.1	–	13.3

Operating expense, as adjusted		$ 187.6	$ 151.3	$ 529.4	$ 522.2

Reported operating expense ratios using reported
revenues on pages 1 and 2	*	12.7%	11.9%	11.9%	13.3%
Adjusted operating expense ratios using adjusted
revenues on pages 1 and 2	*	12.6%	11.6%	11.8%	12.9%


*	Reported third quarter 2021 operating expense ratio was 0.8 pts higher than third quarter 2020. Adjusted third quarter 2021 operating expense ratio was 1.0 pts higher than third quarter 2020. These ratios were primarily impacted by modest incremental costs associated with the pandemic recovery as noted on page 3, partially offset by continued operating cost control measures.


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Brokerage Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (continued) (dollars in millions):

Net Earnings to Adjusted EBITDAC (Non-GAAP)	3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Net earnings, as reported	$ 253.6	$ 206.7	$ 845.6	$ 708.3
Provision for income taxes	80.9	69.7	268.9	226.7
Depreciation	21.8	18.3	65.0	53.7
Amortization	90.8	96.0	300.2	316.8
Change in estimated acquisition earnout payables	34.1	20.5	59.9	(49.9)

EBITDAC	481.2	411.2	1,539.6	1,255.6

Net gains on divestitures	(4.3)	(3.4)	(8.9)	(4.6)
Acquisition integration	5.8	6.1	16.1	19.5
Workforce and lease termination related charges	3.9	12.0	13.2	33.5
Acquisition related adjustments	5.8	5.7	19.6	14.4
Levelized foreign currency translation	–	5.7	–	35.0

EBITDAC, as adjusted	$ 492.4	$ 437.3	$ 1,579.6	$ 1,353.4

Net earnings margin, as reported using reported
revenues on pages 1 and 2	16.9%	16.0%	18.8%	18.0%
EBITDAC margin, as adjusted using adjusted
revenues on pages 1 and 2	32.9%	33.4%	35.2%	33.6%

Risk Management Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (dollars in millions):

Organic Revenues (Non-GAAP)	3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Fees	$ 245.9	$ 200.8	$ 703.2	$ 600.5
International performance bonus fees	2.0	1.8	9.8	4.2

Fees as reported	247.9	202.6	713.0	604.7

Less fees from acquisitions	(10.7)	–	(23.4)	–
Levelized foreign currency translation	–	0.9	–	11.6

Organic fees	$ 237.2	$ 203.5	$ 689.6	$ 616.3

Organic change in fees	16.6%		11.9%

Acquisition Activity	3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Number of acquisitions closed	–	–	2	–
Estimated annualized revenues acquired (in millions)	$ –	$ –	$ 50.0	$ –


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Risk Management Segment Reported GAAP to Adjusted Non-GAAP Reconciliations (continued) (dollars in millions):

Compensation Expense and Ratios		3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Compensation expense, as reported		$ 148.9	$ 128.6	$ 428.9	$ 385.6

Workforce and lease termination related charges		(0.7)	(1.0)	(1.5)	(6.2)
Acquisition related adjustments		(0.1)	–	(0.3)	–
Levelized foreign currency translation		–	0.6	–	8.1

Compensation expense, as adjusted		$ 148.1	$ 128.2	$ 427.1	$ 387.5

Reported compensation expense ratios using reported
revenues (before reimbursements) on pages 1 and 2	*	60.0%	63.4%	60.1%	63.7%

Adjusted compensation expense ratios using adjusted
revenues (before reimbursements) on pages 1 and 2	**	59.7%	63.0%	59.9%	62.8%


*	Reported third quarter 2021 compensation ratio was 3.4 pts lower than third quarter 2020. This ratio was primarily impacted by lower workforce termination charges in third quarter 2021 compared to third quarter 2020, as well as continued compensation savings in third quarter 2021 due to the 2020 workforce reduction actions. These savings were partially offset by resumption of annual merit wage increases in 2021.

**	Adjusted third quarter 2021 compensation ratio was 3.3 pts lower than third quarter 2020. This ratio was primarily impacted by continued compensation savings in third quarter 2021 due to the 2020 workforce reduction actions. These savings were partially offset by resumption of annual merit wage increases in 2021.

Operating Expense and Ratios		3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Operating expense, as reported		$ 55.4	$ 35.9	$ 153.3	$ 118.0

Workforce and lease termination related charges		(3.8)	(0.1)	(4.3)	(0.2)
Levelized foreign currency translation		–	0.2	–	1.8

Operating expense, as adjusted		$ 51.6	$ 36.0	$ 149.0	$ 119.6

Reported operating expense ratios using reported
revenues (before reimbursements) on pages 1 and 2	*	22.3%	17.7%	21.5%	19.5%

Adjusted operating expense ratios using reported
revenues (before reimbursements) on pages 1 and 2	**	20.8%	17.7%	20.9%	19.4%


*	Reported third quarter operating expense ratio was 4.6 pts higher than third quarter 2020. This ratio was primarily impacted by higher lease termination costs as we continue to optimize our real estate footprint as well as increased professional fees associated with revenue growth in certain products.

**	Adjusted third quarter 2021 operating ratio was 3.1 pts higher than third quarter 2020. This ratio was primarily impacted by increased professional fees associated with revenue growth in certain products.

Net Earnings to Adjusted EBITDAC (Non-GAAP)	3rd Q 2021	3rd Q 2020	9 Mths 2021	9 Mths 2020

Net earnings, as reported	$ 22.0	$ 18.8	$ 64.9	$ 47.8
Provision for income taxes	7.5	6.5	22.1	16.3
Depreciation	12.0	11.9	35.1	36.5
Amortization	2.1	1.4	5.9	4.4
Change in estimated acquisition earnout payables	0.1	(0.4)	3.1	(3.3)

EBITDAC	43.7	38.2	131.1	101.7

Net gains on divestitures	–	–	(0.1)	–
Workforce and lease termination related charges	4.5	1.1	5.8	6.4
Acquisition related adjustments	0.1	–	0.3	–
Levelized foreign currency translation	–	0.1	–	1.7

EBITDAC, as adjusted	$ 48.3	$ 39.4	$ 137.1	$ 109.8

Net earnings margin, as reported using reported
revenues (before reimbursements) on pages 1 and 2	8.9%	9.3%	9.1%	7.9%

EBITDAC margin, as adjusted using adjusted
revenues (before reimbursements) on pages 1 and 2	19.5%	19.4%	19.2%	17.8%


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Corporate Segment Reported GAAP Information (dollars in millions):

		2021			2020
			Net Earnings			Net Earnings
			(Loss)			(Loss)
		Income	Attributable to		Income	Attributable to
	Pretax	Tax	Controlling	Pretax	Tax	Controlling
3rd Quarter	Loss	Benefit	Interests	Loss	Benefit	Interests
Components of Corporate Segment, as reported

Interest and banking costs (2)	$ (77.3)	$ 19.3	$ (58.0)	$ (49.2)	$ 12.3	$ (36.9)
Clean energy related (1)	(37.8)	68.6	30.8	(35.1)	39.5	4.4
Acquisition costs (2)	(13.0)	2.5	(10.5)	(2.1)	0.2	(1.9)
Corporate (3) (4)	(16.8)	5.2	(11.6)	(16.1)	2.5	(13.6)

Reported 3rd quarter	(144.9)	95.6	(49.3)	(102.5)	54.5	(48.0)

Adjustments

Loss on extinguishment of debt (2)	16.2	(4.0)	12.2	–	–	–
Transaction-related costs (2)	11.0	(2.8)	8.2	–	–	–
Income tax related (3)	–	4.9	4.9	–	5.5	5.5

Components of Corporate Segment, as adjusted

Interest and banking costs	(61.1)	15.3	(45.8)	(49.2)	12.3	(36.9)
Clean energy related (1)	(37.8)	68.6	30.8	(35.1)	39.5	4.4
Acquisition costs	(2.0)	(0.3)	(2.3)	(2.1)	0.2	(1.9)
Corporate (4)	(16.8)	10.1	(6.7)	(16.1)	8.0	(8.1)

Adjusted 3rd quarter	$ (117.7)	$ 93.7	$ (24.0)	$ (102.5)	$ 60.0	$ (42.5)

Nine Months
Components of Corporate Segment, as reported

Interest and banking costs (2)	$ (183.7)	$ 45.9	$ (137.8)	$ (152.5)	$ 38.2	$ (114.3)
Clean energy related (1)	(94.7)	179.7	85.0	(81.9)	143.8	61.9
Acquisition costs (2)	(26.3)	4.2	(22.1)	(6.2)	0.6	(5.6)
Corporate (3) (4)	(65.8)	33.2	(32.6)	(46.6)	28.2	(18.4)

Reported nine months	(370.5)	263.0	(107.5)	(287.2)	210.8	(76.4)

Adjustments
Loss on extinguishment of debt (2)	16.2	(4.0)	12.2	–	–	–
Transaction-related costs (2)	21.2	(4.3)	16.9	–	–	–
Income tax related (3)	–	24.2	24.2	–	5.5	5.5

Components of Corporate Segment, as adjusted

Interest and banking costs	(167.5)	41.9	(125.6)	(152.5)	38.2	(114.3)
Clean energy related (1)	(94.7)	179.7	85.0	(81.9)	143.8	61.9
Acquisition costs	(5.1)	(0.1)	(5.2)	(6.2)	0.6	(5.6)
Corporate (4)	(65.8)	57.4	(8.4)	(46.6)	33.7	(12.9)

Adjusted nine months	$ (333.1)	$ 278.9	$ (54.2)	$ (287.2)	$ 216.3	$ (70.9)


(1)	Pretax loss for the third quarter is presented net of amounts attributable to noncontrolling interests of $12.3 million in 2021 and $10.3 million in 2020. Pretax losses for the nine-month periods ended September 30, are presented net of amounts attributable to noncontrolling interests of $31.1 million in 2021 and $25.3 million in 2020.

(2)	In third quarter 2021, Gallagher incurred transaction-related costs, which include legal, consulting, employee compensation and other professional fees associated with due diligence and pre-closing integration preparation for its (a) pending agreement to acquire Willis Towers Watson treaty reinsurance brokerage operations; and (b) the previous terminated agreement to acquire certain Willis Towers Watson reinsurance and other brokerage operations. In connection with (b), in third quarter 2021, Gallagher redeemed $650 million of 2031 Senior Notes and incurred a loss on early extinguishment of $16.2 million.


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(3)	In second quarter 2021, the U.K. government enacted tax legislation that increases the corporate income tax rate from 19% to 25% effective in 2023. Gallagher incurred additional income tax expense in the second quarter to adjust certain deferred income tax liabilities to the higher income tax rate. In third quarter 2021, Gallagher incurred additional U.K. income tax expense related to the non-deductibility of some acquisition related adjustments made in the quarter.

(4)	Corporate pretax loss includes a net unrealized foreign exchange remeasurement gain of $3.0 million in third quarter 2021 and a net unrealized foreign exchange remeasurement loss of $2.6 million in third quarter 2020. Corporate pretax loss includes a net unrealized foreign exchange remeasurement loss of $2.2 million in the nine-month period ended September 30, 2021 and a net unrealized foreign exchange remeasurement gain of $4.7 million in the nine-month period ended September 30, 2020.

Interest and banking costs and debt – At September 30, 2021, Gallagher had $850.0 million of borrowings from public debt, $4,448.0 million of borrowings from private placements and no short-term borrowings under its line of credit facility. In addition, Gallagher had $234.1 million outstanding under a revolving loan facility that provides funding for premium finance receivables, which are fully collateralized by the underlying premiums held by insurance carriers, and as such are excluded from our debt covenant computations.

Clean energy – Consists of the operating results related to our investments in clean coal production plants and royalty income from clean coal licenses related to Chem-Mod LLC. Additional information regarding these results is available in the “CFO Commentary” at ajg.com/IR.

Acquisition costs – Consists mostly of external professional fees and other due diligence costs related to acquisitions. On occasion, Gallagher enters into forward currency hedges for the purchase price of committed, but not yet funded, acquisitions with funding requirements in currencies other than the U.S. dollar. The gains or losses, if any, associated with these hedge transactions is also included.

Corporate – Consists of overhead allocations mostly related to corporate staff compensation, other corporate level activities, and net unrealized foreign exchange remeasurement. In addition, includes the tax expense related to partial taxation of foreign earnings, nondeductible executive compensation and entertainment expenses and the tax benefit from vesting of employee equity awards.

Income Taxes
Gallagher allocates the provision for income taxes to its Brokerage and Risk Management segments using the local country statutory rates. Gallagher’s consolidated effective tax rate for the quarters ended September 30, 2021 and 2020 was (3.1)% and 10.4%, respectively, which was lower than the statutory rate due to the production of IRC Section 45 clean energy tax credits. In third quarter 2020, Gallagher increased its estimated U.K. effective income tax rate from 17.5% to 19%. In second quarter 2021, the U.K. government enacted tax legislation that increases the corporate income tax rate from 19% to 25% effective in 2023. Gallagher incurred additional income tax expense in the second quarter to adjust certain deferred income tax liabilities to the higher income tax rate.

Webcast Conference Call
Gallagher will host a webcast conference call on Thursday, October 28, 2021 at 5:15 p.m. ET/4:15 p.m. CT. To listen to this call, please go to ajg.com/IR. The call will be available for replay at such website for at least 90 days.

About Arthur J. Gallagher & Co.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Rolling Meadows, Illinois, has operations in 57 countries and offers client-service capabilities in more than 150 countries around the world through a network of correspondent brokers and consultants.

Cautionary Information
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words “anticipates,” “believes,” “contemplates,” “see,” “should,” “could,” “will,” “estimates,” “expects,” “intends,” “plans” and variations thereof and similar expressions, are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding changes in our expenses in the next several quarters; the impact of the COVID-19 pandemic recovery; anticipated future results or performance of any segment or the Company as a whole; the premium rate environment and the state of insurance markets; and the economic environment.

Gallagher’s actual results may differ materially from those contemplated by the forward-looking statements. Readers are therefore cautioned against relying on any of the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in worldwide and national economic conditions, including the pace of economic recovery following COVID-19; our actual acquisition opportunities; or other factors like Brexit; trade wars or tariffs; political unrest in the U.S. or other countries around the world; changes in premium rates and in insurance markets generally; and changes in the insurance brokerage industry’s competitive landscape.

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In particular, the global spread of COVID-19 has created significant volatility and uncertainty and economic disruption that may impact our forward-looking statements. The extent to which the pandemic impacts our business, operations and financial results will depend on numerous evolving factors, many of which are not within our control and that we may not be able to accurately predict, including: its duration and scope; the effectiveness of vaccines, how quickly vaccines are distributed and administered, and our employees’ and the general population’s willingness to receive them; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including new laws that raise corporate tax rates; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services; our ability to sell and provide our services, including limitations on travel and difficulties of our clients and employees working from home and closure of their facilities; the ability of our clients to pay their insurance premiums which could impact our commission and fee revenues for our services; the nature and extent of possible claims that might impact the ability of underwriting enterprises to pay supplemental and contingent commissions; the decrease in new arising workers’ compensation and general liability claims; the long-term impact of closing our offices and our employees working from home; the impact of lost revenue on our employees’ variable and base compensation levels; the impact of reduced investments and postponements related to business modernization projects; the impact of furloughed or terminated employees; and the impact of reduced advertising and sponsorship investments.

Please refer to Gallagher’s filings with the SEC, including Item 1A, “Risk Factors,” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, its subsequently filed Quarterly Reports on Form 10-Q and the prospectus filed on May 17, 2021 for a more detailed discussion of these and other factors that could impact its forward-looking statements. The COVID-19 pandemic currently amplifies, and in the future could continue to amplify, the risks, uncertainties and assumptions, reflected in such risk factors. Any forward-looking statement made by Gallagher in this press release speaks only as of the date on which it is made. Except as required by applicable law, Gallagher does not undertake to update the information included herein or the corresponding earnings release posted on Gallagher’s website.

Information Regarding Non-GAAP Measures
In addition to reporting financial results in accordance with GAAP, this press release provides information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, diluted net earnings per share, as adjusted (adjusted EPS), adjusted revenue, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue. These measures are not in accordance with, or an alternative to, the GAAP information provided in this press release. Gallagher’s management believes that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to Gallagher’s results of operations and financial condition or because they provide investors with measures that our chief operating decision maker uses when reviewing the company’s performance. See further below for definitions and additional reasons each of these measures is useful to investors. Gallagher’s industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information provided by Gallagher should be used in addition to, but not as a substitute for, the GAAP information provided. As disclosed in its most recent Proxy Statement, Gallagher makes determinations regarding certain elements of executive officer incentive compensation, performance share awards and annual cash incentive awards, partly on the basis of measures related to adjusted EBITDAC.

Adjusted Non-GAAP presentation – Gallagher believes that the adjusted non-GAAP presentations of the current and prior period information presented in this earnings release provide stockholders and other interested persons with useful information regarding certain financial metrics of Gallagher that may assist such persons in analyzing Gallagher’s operating results as they develop a future earnings outlook for Gallagher. The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period. See pages 14 and 15 for a reconciliation of the adjustments made to income taxes.

Adjusted measures – Revenues (for the Brokerage segment), revenues before reimbursements (for the Risk Management segment), net earnings, compensation expense and operating expense, respectively, each adjusted to exclude the following, as applicable:

Net gains on divestitures, which are primarily net proceeds received related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure.
Acquisition integration costs, which include costs related to certain large acquisitions, outside the scope of the usual tuck-in strategy, not expected to occur on an ongoing basis in the future once Gallagher fully assimilates the applicable acquisition. These costs are typically associated with redundant workforce, extra lease space, duplicate services and external costs incurred to assimilate the acquisition with our IT related systems.
Transaction-related costs associated with due diligence and pre-closing integration preparation for its pending agreement to acquire the Willis Towers Watson treaty reinsurance brokerage operations and the previous terminated agreement to acquire certain Willis Towers Watson reinsurance and other brokerage operations.
Workforce related charges, which primarily include severance costs (either accrued or paid) related to employee terminations and other costs associated with redundant workforce.

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Lease termination related charges, which primarily include costs related to terminations of real estate leases and abandonment of leased space.
Acquisition related adjustments, which include change in estimated acquisition earnout payables adjustments, impairment charges and acquisition related compensation charges. For third quarter 2021, this adjustment also includes the impact of an acquisition valuation analysis and corresponding adjustments.
The impact of foreign currency translation, as applicable. The amounts excluded with respect to foreign currency translation are calculated by applying current year foreign exchange rates to the same periods in the prior year.
Income tax related, which represents the impact in second quarter 2021 of one-time income tax expense associated with the change in the U.K. effective income tax rate from 19% to 25% that is effective in 2023. It also includes the impact of additional U.K. income tax expense related to the non-deductibility of some acquisition related adjustments made in third quarter 2021.
Loss on extinguishment of debt represents costs incurred on the early redemption of the $650 million of 2031 Senior Notes, which included the redemption price premium, the unamortized discount amount on the debt issuance and the write-off of all the debt acquisition costs.

Adjusted ratios – Adjusted compensation expense and adjusted operating expense, respectively, each divided by adjusted revenues.

Non-GAAP Earnings Measures

EBITDAC
and EBITDAC margin – EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (for the Brokerage segment) and revenues before reimbursements (for the Risk Management segment). These measures for the Brokerage and Risk Management segments provide a meaningful representation of Gallagher’s operating performance for the overall business and provide a meaningful way to measure its financial performance on an ongoing basis.
Adjusted EBITDAC
and Adjusted EBITDAC Margin – Adjusted EBITDAC is EBITDAC adjusted to exclude net gains on divestitures, acquisition integration costs, workforce related charges, lease termination related charges, acquisition related adjustments and the period-over-period impact of foreign currency translation, as applicable and Adjusted EBITDAC margin is Adjusted EBITDAC divided by total adjusted revenues (defined above). These measures for the Brokerage and Risk Management segments provide a meaningful representation of Gallagher’s operating performance, and are also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.
Adjusted EPS and Adjusted Net Earnings – Adjusted net earnings have been adjusted to exclude the after-tax impact of net gains on divestitures, acquisition integration costs, the impact of foreign currency translation, workforce related charges, lease termination related charges, acquisition related adjustments and effective income tax rate impact, as applicable. Adjusted EPS is Adjusted Net Earnings divided by diluted weighted average shares outstanding. This measure provides a meaningful representation of Gallagher’s operating performance (and as such should not be used as a measure of Gallagher’s liquidity), and for the overall business is also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

Organic Revenues (a non-GAAP measure) – For the Brokerage segment, organic change in base commission and fee revenues, supplemental revenues and contingent revenues exclude the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented. These revenues are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of Gallagher in both the current and prior periods. In addition, organic change in base commission and fee revenues, supplemental revenues and contingent revenues excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability. For the Risk Management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions in each year presented. In addition, change in organic growth excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond. Gallagher has historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of its Brokerage and Risk Management segments. Gallagher also believes that using this non-GAAP measure allows readers of our financial statements to measure, analyze and compare the growth from its Brokerage and Risk Management segments in a meaningful and consistent manner.

Reconciliation of Non-GAAP Information Presented to GAAP Measures – This press release includes tabular reconciliations to the most comparable GAAP measures, as follows: for EBITDAC (on pages 12 and 13, for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on pages 1 and 2), for organic revenue measures (on pages 4 and 6, respectively, for the Brokerage and Risk Management segments), for adjusted compensation and operating expenses and adjusted EBITDAC margin (on pages 5, 6 and 7, respectively, for the Brokerage and Risk Management segments).

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Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC – 3rd Qtr Ended September 30,
(Unaudited – in millions except per share, percentage and workforce data)

	3rd Q Ended	3rd Q Ended	9 Mths Ended	9 Mths Ended
Brokerage Segment	Sept 30, 2021	Sept 30, 2020	Sept 30, 2021	Sept 30, 2020

Commissions	$ 1,016.2	$ 889.9	$ 3,118.7	$ 2,734.6
Fees	353.8	293.2	983.4	858.1
Supplemental revenues	61.0	54.7	183.0	164.0
Contingent revenues	43.7	34.5	150.3	117.0
Investment income and net gains on divestitures	25.0	22.3	64.7	57.6
Total revenues	1,499.7	1,294.6	4,500.1	3,931.3

Compensation	827.9	729.5	2,423.0	2,154.7
Operating	190.6	153.9	537.5	521.0
Depreciation	21.8	18.3	65.0	53.7
Amortization	90.8	96.0	300.2	316.8
Change in estimated acquisition earnout payables	34.1	20.5	59.9	(49.9)
Expenses	1,165.2	1,018.2	3,385.6	2,996.3

Earnings before income taxes	334.5	276.4	1,114.5	935.0
Provision for income taxes	80.9	69.7	268.9	226.7

Net earnings	253.6	206.7	845.6	708.3
Net earnings attributable to noncontrolling interests	1.2	0.9	5.6	3.1

Net earnings attributable to controlling interests	$ 252.4	$ 205.8	$ 840.0	$ 705.2

EBITDAC
Net earnings	$ 253.6	$ 206.7	$ 845.6	$ 708.3
Provision for income taxes	80.9	69.7	268.9	226.7
Depreciation	21.8	18.3	65.0	53.7
Amortization	90.8	96.0	300.2	316.8
Change in estimated acquisition earnout payables	34.1	20.5	59.9	(49.9)

EBITDAC	$ 481.2	$ 411.2	$ 1,539.6	$ 1,255.6


	3rd Q Ended	3rd Q Ended	9 Mths Ended	9 Mths Ended
Risk Management Segment	Sept 30, 2021	Sept 30, 2020	Sept 30, 2021	Sept 30, 2020

Fees	$ 247.9	$ 202.6	$ 713.0	$ 604.7
Investment income	0.1	0.1	0.3	0.6
Revenues before reimbursements	248.0	202.7	713.3	605.3
Reimbursements	32.6	41.6	101.7	111.7
Total revenues	280.6	244.3	815.0	717.0

Compensation	148.9	128.6	428.9	385.6
Operating	55.4	35.9	153.3	118.0
Reimbursements	32.6	41.6	101.7	111.7
Depreciation	12.0	11.9	35.1	36.5
Amortization	2.1	1.4	5.9	4.4
Change in estimated acquisition earnout payables	0.1	(0.4)	3.1	(3.3)
Expenses	251.1	219.0	728.0	652.9

Earnings before income taxes	29.5	25.3	87.0	64.1
Provision for income taxes	7.5	6.5	22.1	16.3

Net earnings	22.0	18.8	64.9	47.8
Net earnings attributable to noncontrolling interests	–	–	–	–

Net earnings attributable to controlling interests	$ 22.0	$ 18.8	$ 64.9	$ 47.8

EBITDAC
Net earnings	$ 22.0	$ 18.8	$ 64.9	$ 47.8
Provision for income taxes	7.5	6.5	22.1	16.3
Depreciation	12.0	11.9	35.1	36.5
Amortization	2.1	1.4	5.9	4.4
Change in estimated acquisition earnout payables	0.1	(0.4)	3.1	(3.3)

EBITDAC	$ 43.7	$ 38.2	$ 131.1	$ 101.7

See “Information Regarding Non-GAAP Measures” on page 10 of 15.

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Arthur J. Gallagher & Co.
Reported Statement of Earnings and EBITDAC – 3rd Qtr Ended September 30,
(Unaudited – in millions except share and per share data)

		3rd Q Ended	3rd Q Ended	9 Mths Ended	9 Mths Ended
Corporate Segment		Sept 30, 2021	Sept 30, 2020	Sept 30, 2021	Sept 30, 2020

Revenues from consolidated clean coal facilities		$ 337.3	$ 292.5	$ 865.7	$ 607.1
Royalty income from clean coal licenses		21.0	18.7	55.3	45.6
Loss from unconsolidated clean coal facilities		(0.7)	(0.4)	(1.8)	(0.6)
Other net revenues (losses)		0.3	(0.6)	2.4	(0.4)
	Total revenues	357.9	310.2	921.6	651.7

Cost of revenues from consolidated clean coal facilities		366.1	319.2	944.0	665.8
Compensation		23.7	15.4	61.3	45.0
Operating		19.6	13.4	61.3	36.7
Interest		60.3	48.1	164.6	148.6
Loss on extinguishment of debt		16.2	–	16.2	–
Depreciation		4.6	6.3	13.6	17.5
	Expenses	490.5	402.4	1,261.0	913.6

Loss before income taxes		(132.6)	(92.2)	(339.4)	(261.9)
Benefit for income taxes		(95.6)	(54.5)	(263.0)	(210.8)

Net loss		(37.0)	(37.7)	(76.4)	(51.1)
Net earnings attributable to noncontrolling interests		12.3	10.3	31.1	25.3

Net loss attributable to controlling interests		$ (49.3)	$ (48.0)	$ (107.5)	$ (76.4)

EBITDAC
Net loss		$ (37.0)	$ (37.7)	$ (76.4)	$ (51.1)
Benefit for income taxes		(95.6)	(54.5)	(263.0)	(210.8)
Interest		60.3	48.1	164.6	148.6
Loss on extinguishment of debt		16.2	–	16.2	–
Depreciation		4.6	6.3	13.6	17.5

EBITDAC		$ (51.5)	$ (37.8)	$ (145.0)	$ (95.8)


		3rd Q Ended	3rd Q Ended	9 Mths Ended	9 Mths Ended
Total Company		Sept 30, 2021	Sept 30, 2020	Sept 30, 2021	Sept 30, 2020

Commissions		$ 1,016.2	$ 889.9	$ 3,118.7	$ 2,734.6
Fees		601.7	495.8	1,696.4	1,462.8
Supplemental revenues		61.0	54.7	183.0	164.0
Contingent revenues		43.7	34.5	150.3	117.0
Investment income and net gains on divestitures		25.1	22.4	65.0	58.2
Revenues from clean coal activities		357.6	310.8	919.2	652.1
Other net revenues (losses) – Corporate		0.3	(0.6)	2.4	(0.4)
	Revenues before reimbursements	2,105.6	1,807.5	6,135.0	5,188.3
Reimbursements		32.6	41.6	101.7	111.7
	Total revenues	2,138.2	1,849.1	6,236.7	5,300.0

Compensation		1,000.5	873.5	2,913.2	2,585.3
Operating		265.6	203.2	752.1	675.7
Reimbursements		32.6	41.6	101.7	111.7
Cost of revenues from clean coal activities		366.1	319.2	944.0	665.8
Interest		60.3	48.1	164.6	148.6
Loss on extinguishment of debt		16.2	–	16.2	–
Depreciation		38.4	36.5	113.7	107.7
Amortization		92.9	97.4	306.1	321.2
Change in estimated acquisition earnout payables		34.2	20.1	63.0	(53.2)
	Expenses	1,906.8	1,639.6	5,374.6	4,562.8

Earnings before income taxes		231.4	209.5	862.1	737.2
Provision (benefit) for income taxes		(7.2)	21.7	28.0	32.2

Net earnings		238.6	187.8	834.1	705.0
Net earnings attributable to noncontrolling interests		13.5	11.2	36.7	28.4

Net earnings attributable to controlling interests		$ 225.1	$ 176.6	$ 797.4	$ 676.6

Diluted net earnings per share		$ 1.06	$ 0.90	$ 3.88	$ 3.48

Dividends declared per share		$ 0.48	$ 0.45	$ 1.44	$ 1.35

EBITDAC
Net earnings		$ 238.6	$ 187.8	$ 834.1	$ 705.0
Provision (benefit) for income taxes		(7.2)	21.7	28.0	32.2
Interest		60.3	48.1	164.6	148.6
Loss on extinguishment of debt		16.2	–	16.2	–
Depreciation		38.4	36.5	113.7	107.7
Amortization		92.9	97.4	306.1	321.2
Change in estimated acquisition earnout payables		34.2	20.1	63.0	(53.2)

EBITDAC		$ 473.4	$ 411.6	$ 1,525.7	$ 1,261.5

See “Information Regarding Non-GAAP Measures” on page 10 of 15.

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Arthur J. Gallagher & Co.
Consolidated Balance Sheet
(Unaudited – in millions except per share data)

	Sept 30, 2021	Dec 31, 2020

Cash and cash equivalents	$ 2,735.1	$ 664.6
Restricted cash	3,277.2	2,909.7
Premiums and fees receivable	7,756.5	6,436.0
Other current assets	1,369.5	1,113.9

Total current assets	15,138.3	11,124.2

Fixed assets – net	454.5	450.7
Deferred income taxes (includes tax credit carryforwards of $1,080.3 in 2021 and $998.0 in 2020)	1,171.4	1,085.8
Other noncurrent assets	854.8	769.9
Right-of-use assets	330.3	373.9
Goodwill	6,627.5	6,127.0
Amortizable intangible assets – net	2,339.0	2,399.9

Total assets	$ 26,915.8	$ 22,331.4

Premiums payable to underwriting enterprises	$ 9,161.7	$ 7,784.6
Accrued compensation and other current liabilities	1,536.9	1,596.2
Deferred revenue – current	527.1	475.6
Premium financing debt	234.1	203.6
Corporate related borrowings – current	200.0	75.0

Total current liabilities	11,659.8	10,135.0

Corporate related borrowings – noncurrent	5,072.4	4,266.0
Deferred revenue – noncurrent	61.1	65.7
Lease liabilities – noncurrent	281.4	320.9
Other noncurrent liabilities	1,371.0	1,311.1

Total liabilities	18,445.7	16,098.7

Stockholders’ equity:
Common stock – issued and outstanding	207.3	193.7
Capital in excess of par value	5,962.3	4,264.4
Retained earnings	2,873.8	2,371.7
Accumulated other comprehensive loss	(623.2)	(643.6)

Total controlling interests stockholders’ equity	8,420.2	6,186.2
Noncontrolling interests	49.9	46.5

Total stockholders’ equity	8,470.1	6,232.7

Total liabilities and stockholders’ equity	$ 26,915.8	$ 22,331.4

Arthur J. Gallagher & Co.
Other Information
(Unaudited – data is rounded where indicated)

				3rd Q Ended	3rd Q Ended	9 Mths Ended		9 Mths Ended
OTHER INFORMATION				Sept 30, 2021	Sept 30, 2020	Sept 30, 2021		Sept 30, 2020

Basic weighted average shares outstanding (000s)				206,988	191,913	200,975		190,369
Diluted weighted average shares outstanding (000s)				211,498	196,345	205,477		194,526

Number of common shares outstanding at end of period (000s)						207,278	*	192,322

Workforce at end of period (includes acquisitions):
	Brokerage					26,877		24,384
	Risk Management					7,108		6,308
	Total Company					35,911		32,010

* Gallagher completed a follow-on public offering of 10,350,000 shares of its common stock on May 17, 2021 and intends to use the net proceeds to fund a portion of the
acquisition of Willis Towers Watson treaty reinsurance brokerage operations.


Reconciliation of Non-GAAP Measures – Pre-tax Earnings and Diluted Net Earnings per Share (Unaudited)

(Unaudited – in millions except share and per share data)

						Net Earnings
		Earnings	Provision		Net Earnings	(Loss)		Diluted Net
		(Loss)	(Benefit)		Attributable to	Attributable to		Earnings
		Before Income	for Income	Net Earnings	Noncontrolling	Controlling		(Loss)
		Taxes	Taxes	(Loss)	Interests	Interests		per Share

3rd Q Ended September 30, 2021
Brokerage, as reported		$ 334.5	$ 80.9	$ 253.6	$ 1.2	$ 252.4		$ 1.20

Net gains on divestitures		(4.3)	(0.9)	(3.4)	–	(3.4)		(0.02)
Acquisition integration		5.8	1.2	4.6	–	4.6		0.02
Workforce and lease termination		4.2	0.9	3.3	–	3.3		0.01
Acquisition related adjustments		28.3	5.8	22.5	–	22.5		0.11

Brokerage, as adjusted		$ 368.5	$ 87.9	$ 280.6	$ 1.2	$ 279.4		$ 1.32

Risk Management, as reported		$ 29.5	$ 7.5	$ 22.0	$ –	$ 22.0		$ 0.10

Workforce and lease termination		5.4	1.4	4.0	–	4.0		0.02
Acquisition related adjustments		(0.1)	–	(0.1)	–	(0.1)		–

Risk Management, as adjusted		$ 34.8	$ 8.9	$ 25.9	$ –	$ 25.9		$ 0.12

Corporate, as reported		$ (132.6)	$ (95.6)	$ (37.0)	$ 12.3	$ (49.3)		$ (0.24)

Loss on extinguishment of debt		16.2	4.0	12.2	–	12.2		0.06
Transaction-related costs		11.0	2.8	8.2	–	8.2		0.04
Income tax related		–	(4.9)	4.9	–	4.9		0.03

Corporate, as adjusted		$ (105.4)	$ (93.7)	$ (11.7)	$ 12.3	$ (24.0)		$ (0.11)

See “Information Regarding Non-GAAP Measures” on page 10 of 15.

(14 of 15)


Reconciliation of Non-GAAP Measures – Pre-tax Earnings and Diluted Net Earnings per Share (Unaudited) – Continued

(Unaudited – in millions except share and per share data)

						Net Earnings
		Earnings	Provision		Net Earnings	(Loss)		Diluted Net
		(Loss)	(Benefit)		Attributable to	Attributable to		Earnings
		Before Income	for Income	Net Earnings	Noncontrolling	Controlling		(Loss)
		Taxes	Taxes	(Loss)	Interests	Interests		per Share

3rd Q Ended September 30, 2020
Brokerage, as reported		$ 276.4	$ 69.7	$ 206.7	$ 0.9	$ 205.8		$ 1.05

Net gains on divestitures		(3.4)	(0.8)	(2.6)	–	(2.6)		(0.01)
Acquisition integration		6.1	1.5	4.6	–	4.6		0.02
Workforce and lease termination		12.0	2.8	9.2	–	9.2		0.05
Acquisition related adjustments		24.2	5.7	18.5	–	18.5		0.09
Levelized foreign currency translation		3.3	0.8	2.5	–	2.5		0.01

Brokerage, as adjusted		$ 318.6	$ 79.7	$ 238.9	$ 0.9	$ 238.0		$ 1.21

Risk Management, as reported		$ 25.3	$ 6.5	$ 18.8	$ –	$ 18.8		$ 0.09

Workforce and lease termination		1.1	0.2	0.9	–	0.9		0.01
Acquisition related adjustments		(0.6)	(0.1)	(0.5)	–	(0.5)		–
Levelized foreign currency translation		0.1	–	0.1	–	0.1		–

Risk Management, as adjusted		$ 25.9	$ 6.6	$ 19.3	$ –	$ 19.3		$ 0.10

Corporate, as reported		$ (92.2)	$ (54.5)	$ (37.7)	$ 10.3	$ (48.0)		$ (0.24)

Income tax related		–	(5.5)	5.5	–	5.5		0.02

Corporate, as adjusted		$ (92.2)	$ (60.0)	$ (32.2)	$ 10.3	$ (42.5)		$ (0.22)

						Net Earnings
		Earnings	Provision		Net Earnings	(Loss)		Diluted Net
		(Loss)	(Benefit)		Attributable to	Attributable to		Earnings
		Before Income	for Income	Net Earnings	Noncontrolling	Controlling		(Loss)
		Taxes	Taxes	(Loss)	Interests	Interests		per Share

9 Mths Ended September 30, 2021
Brokerage, as reported		$ 1,114.5	$ 268.9	$ 845.6	$ 5.6	$ 840.0		$ 4.09

Net gains on divestitures		(8.9)	(1.9)	(7.0)	–	(7.0)		(0.03)
Acquisition integration		16.1	3.6	12.5	–	12.5		0.06
Workforce and lease termination		15.3	3.4	11.9	–	11.9		0.06
Acquisition related adjustments		67.0	14.7	52.3	–	52.3		0.25

Brokerage, as adjusted		$ 1,204.0	288.7	$ 915.3	$ 5.6	$ 909.7		$ 4.43

Risk Management, as reported		$ 87.0	$ 22.1	$ 64.9	$ –	$ 64.9		$ 0.31

Net gains on divestitures		(0.1)	–	(0.1)	–	(0.1)		–
Workforce and lease termination		6.7	1.7	5.0	–	5.0		0.03
Acquisition related adjustments		2.6	0.6	2.0	–	2.0		0.01

Risk Management, as adjusted		$ 96.2	$ 24.4	$ 71.8	$ –	$ 71.8		$ 0.35

Corporate, as reported		$ (339.4)	$ (263.0)	$ (76.4)	$ 31.1	$ (107.5)		$ (0.52)

Loss on extinguishment of debt		16.2	4.0	12.2	–	12.2		0.06
Transaction-related costs		21.2	4.3	16.9	–	16.9		0.08
Income tax related		–	(24.2)	24.2	–	24.2		0.11

Corporate, as adjusted		$ (302.0)	$ (278.9)	$ (23.1)	$ 31.1	$ (54.2)		$ (0.27)

						Net Earnings
		Earnings	Provision		Net Earnings	(Loss)		Diluted Net
		(Loss)	(Benefit)		Attributable to	Attributable to		Earnings
		Before Income	for Income	Net Earnings	Noncontrolling	Controlling		(Loss)
		Taxes	Taxes	(Loss)	Interests	Interests		per Share

9 Mths Ended September 30, 2020
Brokerage, as reported		$ 935.0	$ 226.7	$ 708.3	$ 3.1	$ 705.2		$ 3.62

Net gains on divestitures		(4.6)	(1.0)	(3.6)	–	(3.6)		(0.02)
Acquisition integration		19.5	4.7	14.8	–	14.8		0.08
Workforce and lease termination		33.5	7.8	25.7	–	25.7		0.13
Acquisition related adjustments		32.2	7.5	24.7	–	24.7		0.13
Levelized foreign currency translation		22.0	5.2	16.8	–	16.8		0.09

Brokerage, as adjusted		$ 1,037.6	$ 250.9	$ 786.7	$ 3.1	$ 783.6		$ 4.03

Risk Management, as reported		$ 64.1	$ 16.3	$ 47.8	$ –	$ 47.8		$ 0.25

Workforce and lease termination		6.4	1.6	4.8	–	4.8		0.02
Acquisition related adjustments		0.6	0.2	0.4	–	0.4		–
Levelized foreign currency translation		0.6	0.2	0.4	–	0.4		–

Risk Management, as adjusted		$ 71.7	$ 18.3	$ 53.4	$ –	$ 53.4		$ 0.27

Corporate, as reported		$ (261.9)	$ (210.8)	$ (51.1)	$ 25.3	$ (76.4)		$ (0.39)

Income tax related		–	(5.5)	5.5	–	5.5		0.03

Corporate, as adjusted		$ (261.9)	$ (216.3)	$ (45.6)	$ 25.3	$ (70.9)		$ (0.36)

See “Information Regarding Non-GAAP Measures” on page 10 of 15.

Contact:
Ray Iardella
Vice President – Investor Relations
630-285-3661 or [email protected]

(15 of 15)

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SOURCE Arthur J. Gallagher & Co.

October 28, 2021 4:23 pm

Preformed Line Products Announces Third Quarter And First Nine Months Of 2021 Financial Results

PR Newswire

CLEVELAND, Oct. 28, 2021 /PRNewswire/ — Preformed Line Products Company (NASDAQ: PLPC) today reported financial results for its third quarter ended September 30, 2021.

Net sales for the third quarter of 2021 were $135.4 million, an increase of 6.2%, compared to $127.5 million in the third quarter of 2020. Currency translation rates had a favorable impact on 2021 third quarter net sales of $2.0 million.

The Company posted net income for the third quarter of 2021 of $10.7 million, or $2.15 per diluted share, compared to $13.0 million, or $2.59 per diluted share, in the third quarter of 2020. Net income in the third quarter of 2021 was impacted by the decrease in gross profit due to the continued increase in raw material prices and transportation costs. PLP-USA announced a price increase effective June 1, 2021, but due to its elevated order backlog, the price increase had only a moderate effect in offsetting the increased costs incurred during the third quarter of 2021. Also contributing to the reduction of net income for the third quarter of 2021 was increased employee compensation expense and warranty expense. Currency translation rates had a favorable effect on net income of $0.2 million for the quarter ended September 30, 2021.

Net sales increased 11.0% to $386.0 million for the first nine months of 2021 compared to $347.9 million in the first nine months of 2020. Currency translation rates had a favorable impact of $10.0 million for the first nine months of 2021.

Net income for the nine months ended September 30, 2021 was $26.8 million, or $5.40 per diluted share, compared to $27.1 million, or $5.43 per diluted share, for the comparable period in 2020. Net income for the nine months ended September 30, 2021 benefited from the increase in margin from the higher sales base which more than offset the significant increases in raw material prices and transportation costs not yet mitigated by the announced price increase. In connection with the increase in business activity, increased selling, general and administrative, research and engineering expenses as well as warranty expense resulted in a net reduction of net income of $0.3 million for the first nine months of 2021 versus the same period in 2020. Currency translation rates had a favorable effect on net income of $0.5 million for the nine months ended September 30, 2021.

Rob Ruhlman, Chairman and Chief Executive Officer, said, “The inflation on raw material commodities as well as the significant increase in transportation costs have created additional challenges for us to navigate in 2021. Due to the significance and continuation of these inflationary increases, PLP-USA announced a second price increase effective October 15, 2021. While cost inflation has negatively affected our earnings, we expect both 2021 price increases will more substantially mitigate the earnings impact in Q4 2021 and beyond. That said, continued cost inflation may offset these gains and require further price adjustments. PLP-USA continues to lead the net sales increase driven by growth in the communications product family. Our geographic diversification continues to de-risk our business model during these challenging economic times including the headwinds seen in the Asia-Pacific region from the deferral of infrastructure projects due to COVID-19. While the extent to which COVID-19 will impact our future operations is unknown, we will continue to focus on the safety and well-being of our employees, their families, our customers and our valued suppliers while continuing to provide the high-quality products and services our customers expect.”

FORWARD-LOOKING STATEMENTS

This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the Company, including those statements regarding the Company’s and management’s beliefs and expectations concerning the Company’s future performance or anticipated financial results, among others. Except for historical information, the matters discussed in this release are forward-looking statements that involve risks and uncertainties which may cause results to differ materially from those set forth in those statements. Among other things, factors that could cause actual results to differ materially from those expressed in such forward-looking statements include the uncertainty in business conditions and economy due to COVID-19 including the severity and duration of business disruption caused by the pandemic, the strength of the economy and demand for the Company’s products and the mix of products sold, the relative degree of competitive and customer price pressure on the Company’s products, the cost, availability and quality of raw materials required for the manufacture of products, and the Company’s ability to continue to develop proprietary technology and maintain high quality products and customer service to meet or exceed new industry performance standards and individual customer expectations, and other factors described under the headings “Forward-Looking Statements” and “Risk Factors” in the Company’s 2020 Annual Report on Form 10-K filed with the SEC on March 5, 2021 and subsequent filings with the SEC. The Annual Report on Form 10-K and the Company’s other filings with the SEC can be found on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

ABOUT PLP

PLP protects the world’s most critical connections by creating stronger and more reliable networks. The company’s precision-engineered solutions are trusted by energy and communications providers worldwide to perform better and last longer. With locations in over 20 countries, PLP works as a united global corporation, delivering high-quality products and unparalleled service to customers around the world.

PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED OPERATIONS

(In thousands, except per share data)	Three Months Ended September 30		Nine Months Ended September 30
	2021	2020	2021	2020
Net sales	$ 135,380	$ 127,463	$ 385,971	$ 347,944
Cost of products sold	92,217	82,549	259,577	230,554
GROSS PROFIT	43,163	44,914	126,394	117,390

Costs and expenses
Selling	10,142	8,884	29,842	26,228
General and administrative	14,741	14,037	42,905	39,903
Research and engineering	4,861	4,541	14,235	12,950
Other operating expense – net	341	562	2,828	1,969
	30,085	28,024	89,810	81,050

OPERATING INCOME	13,078	16,890	36,584	36,340

Other income (expense)
Interest income	30	36	77	226
Interest expense	(559)	(504)	(1,479)	(1,932)
Other income – net	1,251	998	1,749	1,775
	722	530	347	69

INCOME BEFORE INCOME TAXES	13,800	17,420	36,931	36,409

Income taxes	3,097	4,458	10,161	9,306

NET INCOME	$ 10,703	$ 12,962	$ 26,770	$ 27,103

Less: Net loss (gain) attributable
to noncontrolling interests	5	(8)	(15)	30

NET INCOME ATTRIBUTABLE TO PREFORMED
LINE PRODUCTS COMPANY SHAREHOLDERS	$ 10,708	$ 12,954	$ 26,755	$ 27,133

AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING:
Basic	4,900	4,917	4,909	4,963
Diluted	4,975	5,011	4,950	4,998

EARNINGS PER SHARE OF COMMON STOCK
ATTRIBUTABLE TO PREFORMED LINE
PRODUCTS COMPANY SHAREHOLDERS:
Basic	$ 2.19	$ 2.63	$ 5.45	$ 5.47
Diluted	$ 2.15	$ 2.59	$ 5.40	$ 5.43

Cash dividends declared per share	$ 0.20	$ 0.20	$ 0.60	$ 0.60

PREFORMED LINE PRODUCTS COMPANY CONSOLIDATED BALANCE SHEETS

	September 30,	December 31,
(Thousands of dollars, except share and per share data)	2021	2020

ASSETS
Cash and cash equivalents	$ 38,326	$ 45,175
Accounts receivable, less allowances of $3,758 ($3,464 in 2020)	108,034	92,686
Inventories – net	108,603	97,537
Prepaids	13,050	17,660
Other current assets	3,390	3,256
TOTAL CURRENT ASSETS	271,403	256,314

Property, plant and equipment – net	148,097	125,965
Goodwill	28,695	29,508
Other intangibles – net	12,939	14,443
Deferred income taxes	8,948	10,863
Other assets	23,511	23,994

TOTAL ASSETS	$ 493,593	$ 461,087

LIABILITIES AND SHAREHOLDERS’ EQUITY

Trade accounts payable	$ 38,501	$ 31,646
Notes payable to banks	17,697	17,428
Current portion of long-term debt	3,114	5,216
Accrued compensation	21,933	14,736
Accrued expenses and other liabilities	33,111	34,748
TOTAL CURRENT LIABILITIES	114,356	103,774

Long-term debt, less current portion	42,424	33,333
Other noncurrent liabilities and deferred income taxes	28,017	31,911

SHAREHOLDERS’ EQUITY
Shareholders’ equity:
Common shares – $2 par value, 15,000,000 shares authorized,
4,899,945 and 4,902,233 issued and outstanding,
as of September 30, 2021 and December 31, 2020, respectively	13,171	13,028
Common shares issued to rabbi trust, 243,138 and 265,508 shares at
September 30, 2021 and December 31, 2020, respectively	(10,102)	(10,940)
Deferred Compensation Liability	10,102	10,940
Paid-in capital	46,956	43,134
Retained earnings	402,720	379,035
Treasury shares, at cost, 1,685,387 and 1,611,927 shares at
September 30, 2021 and December 31, 2020, respectively	(93,836)	(88,568)
Accumulated other comprehensive loss	(60,221)	(54,551)
TOTAL PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS’ EQUITY	308,790	292,078
Noncontrolling interest	6	(9)
TOTAL SHAREHOLDERS’ EQUITY	308,796	292,069
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 493,593	$ 461,087

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SOURCE Preformed Line Products

October 28, 2021 4:23 pm

Webcast Alert: BorgWarner 2021 Third Quarter Results Conference Call

PR Newswire

AUBURN HILLS, Mich., Oct. 28, 2021 /PRNewswire/ — BorgWarner Inc. (NYSE: BWA) announces the following Webcast:

What:	BorgWarner 2021 Third Quarter Results Conference Call
When:	November 3, 2021 @ 9:30am Eastern Time
Where:	http://www.borgwarner.com/en/Investors/default.aspx
How:	Live over the Internet — Simply log on to the web at the address above.

If you are unable to participate during the live webcast, the call will be archived at (http://www.borgwarner.com/en/Investors/default.aspx)

BorgWarner Inc. (NYSE: BWA) is a global product leader in delivering innovative and sustainable mobility solutions for the vehicle market. Building on its original equipment expertise, BorgWarner also brings market leading product and service solutions to the global aftermarket. With manufacturing and technical facilities in 96 locations in 23 countries, the company employs approximately 50,000 people worldwide. For more information, please visit borgwarner.com

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SOURCE BorgWarner

October 28, 2021 4:23 pm

Shore Bancshares Reports Third Quarter and Nine-Month Financial Results

PR Newswire

EASTON, Md., Oct. 28, 2021 /PRNewswire/ — Shore Bancshares, Inc. (NASDAQ – SHBI) (the “Company”) reported net income of $4.617 million or $0.39 per diluted common share for the third quarter of 2021, compared to net income of $4.031 million or $0.34 per diluted common share for the second quarter of 2021, and net income of $3.391 million or $0.27 per diluted common share for the third quarter of 2020. Net income for the first nine months of 2021 was $12.645 million or $1.08 per diluted common share, compared to net income for the first nine months of 2020 of $11.844 million or $0.95 per diluted common share. On March 3, 2021, the Company and Severn Bancorp, Inc. (“Severn“) announced that they had entered into a merger agreement pursuant to which Severn will be merged with and into the Company (the “Merger”). For the third quarter and the first nine months of 2021, the Company recorded $538 thousand and $915 thousand, respectively, in merger-related expenses and will continue to recognize additional merger-related expenses in future quarters as they are incurred. As previously reported, the Company has obtained all required regulatory approvals for the consummation of the Merger, the Company and Severn have received all required shareholder approvals and the Merger is presently expected to be consummated effective October 31, 2021.

When comparing net income for the third quarter of 2021 to the second quarter of 2021, net income increased $586 thousand, due to an increase in net interest income of $1.5 million and lower provision for credit losses of $360 thousand, which were partially offset by an increase in noninterest expense of $1.1 million. When comparing net income for the third quarter of 2021 to the third quarter of 2020, net income increased $1.2 million, primarily due to increases in net interest income of $2.3 million and noninterest income of $328 thousand, coupled with a decrease in the provision for credit losses of $1.2 million. These improvements to net income, were partially offset by an increase in almost all noninterest expense line items, adding $2.1 million in overall expenses.

“We are pleased to announce our third quarter earnings and our continuing growth trend in 2021.” said Lloyd L. “Scott” Beatty, Jr., President and Chief Executive Officer. “Excluding PPP lending, loan growth is up 9.2% for the first nine months of 2021, and loan demand is showing no signs of weakening. We continue to see growth among all lines of business, as well as deposits which continue to create excess liquidity and downward pressure on our net interest margin.”

“We are also pleased to have received the approval of our shareholders for our acquisition of Severn and the issuance of shares of our common stock to Severn’s shareholders in connection with our acquisition. Our teams have been working diligently on a successful transition with limited disruptions to operations. This acquisition is just one step to enhancing our franchise value, expand our markets and business lines and provide enhanced returns for our shareholders.”

Ongoing response to COVID-19

Employees
Many of our non-branch personnel have returned to our offices and continue to practice social distancing as the Company has implemented enhanced cleaning and disinfecting procedures across all locations. Due to vaccinations and low positivity rates for COVID within our markets, we have been able to resume in-person meetings at limited capacity. We continue to have some meetings through telephonic or video conferencing. We have resumed most of our business-related travel, public events, and meetings with outside parties. In addition, we have encouraged our employees to sign-up and receive the COVID vaccine in accordance with state and local guidelines.

Banking Locations
All our branch locations remain open, with normal hours of operation. The drive-thru locations have expanded their capabilities to accommodate an array of transactions for our customers. We notified our customers of our changes in operations as well as promoted the use of online and mobile banking.

Customers
We thank our customers for their commitment and understanding as we continue to find ways to serve them as safely and securely as possible.

Loan Deferrals
As of September 30, 2021, the Company had no COVID related loan deferrals.

Small Business Administration’s Paycheck Protection Program (“PPP”)
We remain a SBA preferred lender and actively participated in the first and second PPP programs. The first round of PPP lending resulted in 1,495 loans for $129.0 million, of which 1,447 loans have been forgiven or paid down in the amount of $125.9 million as of September 30, 2021. The second round of PPP lending, which began in 2021, resulted in 959 loans for $67.3 million, of which 597 loans have been forgiven or paid down in the amount of $28.9 million. As of September 30, 2021, the Company had 410 PPP loans totaling $41.5 million that were outstanding, inclusive of loans issued during both the first and second rounds of PPP.

Share Repurchases
At the present time, all share repurchases have been suspended due to the current status of our merger with Severn. Once the merger is consummated, the Company intends to resume its current share buyback program in which $546 thousand remains available. The Board of Directors and management will re-evaluate the need for an additional stock repurchase program once the current plan is exhausted or expires.

Dividends
We currently expect to maintain our quarterly cash dividends based on our strong capital position.

Balance Sheet Review
Total assets were $2.261 billion at September 30, 2021, a $327.5 million, or 16.9%, increase when compared to $1.933 billion at the end of 2020. This growth was due to increases in both investment securities held to maturity and interest-bearing deposits with other banks of $184.8 million and $122.2 million, respectively. These increases were funded by an increase in deposits of $317.4 million.

Total deposits increased $317.4 million, or 18.7%, when compared to December 31, 2020. The increase in total deposits consisted of increases in the following categories: savings and money market accounts of $193.1 million, interest checking accounts of $69.6 million, noninterest-bearing deposits of $45.8 million and other time deposits of $8.9 million. The significant movement within deposit accounts continues to be impacted by direct government stimulus payments to our customers, new account openings and municipal deposit inflows.

Total stockholders’ equity increased $6.6 million, or 3.4%, when compared to December 31, 2020. At September 30, 2021, the ratio of total equity to total assets was 8.92% and the ratio of total tangible equity to total tangible assets was 8.15%.

Total assets at September 30, 2021 increased $432.6 million, or 23.7%, when compared to total assets at September 30, 2020, primarily the result of increases in total investment securities of $195.7 million, cash and cash equivalents of $154.4 million and loan growth of $70.9 million. In addition, other assets increased $11.6 million, primarily the result of purchasing bank owned life insurance contracts in the first quarter of 2021.

Total deposits at September 30, 2021 increased $423.9 million, or 26.6%, when compared to September 30, 2020. The increase in total deposits included growth within savings and money market accounts of $220.9 million, interest-bearing checking accounts of $104.1 million, noninterest-bearing deposits of $89.6 million and other time deposits of $9.4 million.

Total stockholders’ equity increased $2.7 million, or 1.4%, when compared to September 30, 2020, primarily attributed to positive earnings, partially offset by stock buybacks in the third and fourth quarters of 2020 and unrealized losses on available-for-sale securities.

Review of Quarterly Financial Results
Net interest income was $15.6 million for the third quarter of 2021, compared to $14.1 million for the second quarter of 2021 and $13.3 million for the third quarter of 2020. The increase in net interest income when compared to the second quarter of 2021 was primarily due to increases in interest and fees on loans of $1.1 million and interest on taxable investment securities of $223 thousand, combined with a decrease in interest expense on interest-bearing deposits of $107 thousand. The improvement in interest and fees on loans was due to an increase in the average balance of loans of $42.6 million, or 2.9%, combined with an increase of 13bps in the average yield on loans. PPP loan forgiveness had a direct impact on the improved yield and increased fee income on total loans, due to the loans forgiven during the third quarter being replaced by higher yielding traditional loans and the automatic recognition of fees net of costs which had been previously deferred. The increase in interest on taxable investment securities was due to the continued purchase of held to maturity securities during the third quarter of 2021 and the improved yield on these securities of 5bps, which resulted in an increase in the average balance in taxable investment securities of $48.1 million, or 16.8%. Due to an excess liquidity position at the Bank, management continued to purchase these taxable investment securities as an alternative investment to low-yielding interest-bearing deposits with other banks. The decrease in interest expense on interest-bearing deposits was due to a 6bps decline on rates paid on these deposits, specifically time deposits that matured and renewed at lower rates than when they originated. The increase in net interest income when comparing the third quarter of 2021 to the third quarter of 2020 was the result of higher interest and fees on loans and income from investment securities, coupled with a decrease in interest expense. The increase in interest income on loans was driven by an increase of $80.6 million in the average volume of loans, which included PPP lending. The average balance of taxable investment securities increased $198.2 million, providing $588 thousand of additional income, despite a decrease in the average yield of 56bps. The decrease in interest expenses from the third quarter of 2020 was impacted by the decrease in the rates paid on interest-bearing deposits of 27bps, which reduced expense by $521 thousand, partially offset by the addition of subordinated debt in the third quarter of 2020 of $25.0 million, which resulted in $211 thousand of additional expense for the third quarter of 2021. The Company’s net interest margin increased to 2.99% for the third quarter of 2021 from 2.91% for the second quarter of 2021 and decreased from 3.17% for the third quarter of 2020. The increase in net interest margin in the third quarter of 2021 when compared to the second quarter of 2021, was primarily due to PPP loan forgiveness and higher average yields on taxable investment securities. The decrease in net interest margin when compared to the third quarter of 2020 was primarily due to excess liquidity, which has been partially invested in investment securities at lower yields. Absent excess liquidity of $200 million, we estimate our margin for the third quarter of 2021 would have been 3.31%.

The provision for credit losses was $290 thousand for the three months ended September 30, 2021. The comparable amounts were $650 thousand and $1.5 million for the three months ended June 30, 2021 and September 30, 2020, respectively. The ratio of the allowance for credit losses to period-end loans was 1.04% at September 30, 2021, compared to 1.02% at June 30, 2021 and 0.90% at September 30, 2020. Excluding PPP loans, these ratios were 1.07% at September 30, 2021, 1.09% at June 30, 2021 and 0.98% at September 30, 2020. The decreased percentage of the allowance to total loans, excluding PPP loans, as compared to June 30, 2021, was due to slightly reduced pandemic qualitative factors within the allowance model. The increased percentage of the allowance to total loans, excluding PPP loans, as compared to September 30, 2020, was primarily due to significant loan originations in segments which carry higher reserves and pandemic related allocations prior to the end of 2020, which as mentioned, were partially reduced during the quarter. The Company reported net recoveries of $147 thousand in the third quarter of 2021, compared to net recoveries of $125 thousand in the second quarter of 2021 and net recoveries of $187 thousand for the third quarter of 2020.

At September 30, 2021 and June 30, 2021, nonperforming assets were $4.4 million and $4.9 million, respectively. The balance of nonperforming assets decreased primarily due to a decrease in nonaccrual loans of $490 thousand, or 12.4%. Accruing troubled debt restructurings (“TDRs”) decreased $588 thousand, or 9.3%, over the same time period. Other real estate owned properties remained at $203 thousand for September 30, 2021 and June 30, 2021. When comparing September 30, 2021 to September 30, 2020, nonperforming assets decreased $4.0 million, or 47.4%, primarily due to decreases in nonaccrual loans of $3.5 million, or 50.4% and loans 90 days past due and still accruing of $625 thousand, or 45.5%. Accruing TDRs decreased $1.5 million, or 20.9%, and other real estate owned increased $165 thousand, or 434.2%, over the same time period. The ratio of nonperforming assets and accruing TDRs to total assets was 0.44%, 0.53% and 0.86% at September 30, 2021, June 30, 2021 and September 30, 2020, respectively. In addition, the ratio of accruing TDRs to total loans at September 30, 2021 was 0.38%, compared to 0.43% at June 30, 2021 and 0.51% at September 30, 2020.

Total noninterest income for the third quarter of 2021 increased $6 thousand, or less than 1%, when compared to the second quarter of 2021 and increased $328 thousand, or 12.7%, when compared to the third quarter of 2020. The increase compared to the second quarter of 2021 was primarily due to higher deposit related fees, which was almost entirely offset by the absence of a debit card incentive received in the second quarter of 2021. The increase in noninterest income compared to the third quarter of 2020 was among all lines of business, but predominately service charges on deposit accounts, trust and investment fee income and other debit card interchange fees.

Total noninterest expense for the third quarter of 2021 increased $1.1 million, or 9.7%, when compared to the second quarter of 2021 and increased $2.1 million, or 21.4%, when compared to the third quarter of 2020. The increase in noninterest expense when compared to the second quarter of 2021 was primarily due to increases in salaries and wages, employee related benefits and legal and professional fees partially offset by lower merger-related costs. The increase in salaries and wages was due to the absence of deferred costs for originating PPP loans which occurred in the second quarter of 2021, as well as additional accruals related to incentive payouts and bonuses for employees. The increase in employee benefits was the result of higher supplemental executive retirement plan costs in the third quarter of 2021 as compared to the second quarter of 2021. The increase in noninterest expenses when compared to the third quarter of 2020 was primarily driven by salaries and wages, employee benefits, furniture and fixtures, FDIC insurance premiums and merger-related expenses. As previously mentioned, salaries and wages were impacted by originations of PPP loans in 2020 as well as incentive accruals for 2021. FDIC insurance premiums increased due to a higher assessment base and renovations of a couple branches incurred higher furniture and fixtures which were below our capitalization limit.

Review of Nine-Month Financial Results
Net interest income for the first nine months of 2021 was $43.5 million, an increase of $4.7 million, or 12.0% when compared to the first nine months of 2020. The increase was due to higher total interest income of $3.6 million, specifically loans of $2.4 million and taxable investment securities of $1.3 million. Total interest expense decreased $1.1 million, due to the average rates paid on interest-bearing deposits which declined by 33bps, partially offset by the addition of subordinated debt in the third quarter of 2020 of $25 million, which increased interest expense by $827 thousand. The Company’s net interest margin decreased to 2.97% for the first nine-months of 2021, compared to 3.35% for the first nine-months of 2020. The primary factor impacting the net interest margin was the average yield on earnings assets which declined 55bps. Although the average yield on loans only declined 10bps, investment in taxable securities declined 66bps, while interest-bearing deposits with other banks declined 24bps. The Company believes this is a temporary liquidity issue as the Bank has experienced an increase of $423.9 million in deposits since September 30, 2020. The average cost of deposits has helped mitigate the declining net interest margin, due to lower average rates paid on core and time deposits and significant growth in noninterest-bearing deposits.

The provision for credit losses for the nine months ended September 30, 2021 and 2020 was $1.4 million and $2.9 million, respectively, while net recoveries were $272 thousand and net charge offs were $580 thousand, respectively. The decrease in provision for credit losses was the result of recoveries in 2021 compared to charge-offs in 2020 and increases in qualitative factors related to the pandemic in 2020. The ratio of allowance to total loans increased from 0.90% at September 30, 2020, to 1.04% at September 30, 2021. Excluding PPP loans, the ratio of the allowance for credit losses to period-end loans was 1.07% at September 30, 2021, higher than the 0.98% at September 30, 2020. The primary drivers for the increase in the percentage of allowance for credit losses to total loans were significant commercial real estate loan growth during 2021, as well as increases in pandemic related qualitative factors prior to the end of 2020. Management will continue to evaluate the adequacy of the allowance for credit losses as more economic data becomes available and as changes within the Company’s portfolio are known.

Total noninterest income for the nine months ended September 30, 2021 increased $667 thousand, or 8.7%, when compared to the same period in 2020. The increase in noninterest income primarily consisted of higher trust and investment fee income, deposit related fees and service charges on other bank services, partially offset by a gain on sale of securities of $347 thousand in 2020. The increase in deposit related fees and other bank service charges are mostly due to the local government-imposed shutdowns in 2020 and a return to a more normalized local economy and consumer demand for products and services in 2021.

Total noninterest expense for the nine months ended September 30, 2021 increased $5.5 million, or 19.6%, when compared to the same period in 2020. The increase was mainly the result of lower PPP loan originations, which resulted in lower deferred loan origination costs in salaries for all instances and wages, higher data processing costs and FDIC insurance premiums due to significant increases in new and existing deposit accounts and higher occupancy costs due a new branch lease in Ocean City, Maryland which will open in 2022. In addition, as previously mentioned, during the first nine months of 2021 the Company recorded merger-related expenses of $915 thousand due to the pending acquisition of Severn.

Shore Bancshares Information

Shore Bancshares is a financial holding company headquartered in Easton, Maryland and is the largest independent bank holding company located on Maryland’s Eastern Shore. It is the parent company of Shore United Bank. Shore Bancshares engages in trust and wealth management services through Wye Financial Partners, a division of Shore United Bank.

Additional information is available at www.shorebancshares.com.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experience additional resolution costs.

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

Shore Bancshares, Inc. Financial Highlights (Unaudited) (Dollars in thousands, except per share data)

	For the Three Months Ended								For the Nine Months Ended
	September 30,								September 30,
	2021			2020			Change		2021			2020			Change
PROFITABILITY FOR THE PERIOD
Net interest income	$	15,589		$	13,283		17.4	%	$	43,491		$	38,832		12.0	%
Provision for credit losses		290			1,500		(80.7)			1,365			2,850		(52.1)
Noninterest income		2,909			2,581		12.7			8,369			7,702		8.7
Noninterest expense		11,934			9,831		21.4			33,309			27,843		19.6
Income before income taxes		6,274			4,533		38.4			17,186			15,841		8.5
Income tax expense		1,657			1,142		45.1			4,541			3,997		13.6
Net income	$	4,617		$	3,391		36.2		$	12,645		$	11,844		6.8


Return on average assets		0.84	%		0.76	%	8	bp		0.81	%		0.96	%	(15)	bp
Return on average assets excluding merger expenses – Non-GAAP (2)		0.94			0.76		18			0.87			0.96		(9)
Return on average equity		9.12			6.71		241			8.53			7.99		54
Return on average tangible equity – Non-GAAP (1), (2)		11.12			7.63		349			10.15			9.09		106
Net interest margin		2.99			3.17		(18)			2.97			3.35		(38)
Efficiency ratio – GAAP		64.52			61.97		255			64.23			59.83		440
Efficiency ratio – Non-GAAP (1), (2)		60.92			61.05		(13)			61.66			59.26		240

PER SHARE DATA
Basic and diluted net income per common share	$	0.39		$	0.27		44.4	%	$	1.08		$	0.95		13.7	%

Dividends paid per common share	$	0.12		$	0.12		—		$	0.36		$	0.36		—
Book value per common share at period end		17.15			16.28		5.3
Tangible book value per common share at period end – Non-GAAP (1)		15.55			14.69		5.9
Market value at period end		17.73			10.98		61.5
Market range:
High		18.00			11.77		52.9			18.10			17.56		3.1
Low		16.35			9.14		78.9			12.99			7.63		70.2

AVERAGE BALANCE SHEET DATA
Loans	$	1,487,281		$	1,406,683		5.7	%	$	1,461,083		$	1,348,362		8.4	%
Investment securities		334,205			136,017		145.7			283,104			124,487		127.4
Earning assets		2,071,505			1,670,194		24.0			1,963,727			1,553,974		26.4
Assets		2,184,448			1,771,944		23.3			2,074,635			1,652,876		25.5
Deposits		1,943,225			1,548,072		25.5			1,836,748			1,434,515		28.0
Stockholders’ equity		200,881			201,079		(0.1)			198,087			198,095		(0.0)

CREDIT QUALITY DATA
Net (recoveries) charge-offs	$	(147)		$	(187)		21.4	%	$	(272)		$	580		(146.9)	%

Nonaccrual loans	$	3,457		$	6,966		(50.4)
Loans 90 days past due and still accruing		748			1,373		(45.5)
Other real estate owned		203			38		434.2
Total nonperforming assets		4,408			8,377		(47.4)
Accruing troubled debt restructurings (TDRs)		5,750			7,267		(20.9)
Total nonperforming assets and accruing TDRs	$	10,158		$	15,644		(35.1)


CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.92	%		10.88	%	(196)	bp
Period-end tangible equity to tangible assets – Non-GAAP (1)		8.15			9.92		(177)

Annualized net (recoveries) charge-offs to average loans		(0.04)			(0.05)		1			(0.02)	%		0.06	%	(8)	bp

Allowance for credit losses as a percent of:
Period-end loans (3)		1.04			0.90		14
Nonaccrual loans		449.09			183.42		266
Nonperforming assets		352.20			152.52		200
Accruing TDRs		270.00			175.82		94
Nonperforming assets and accruing TDRs		152.84			81.67		71

As a percent of total loans:
Nonaccrual loans		0.23			0.49		(26)
Accruing TDRs		0.38			0.51		(13)
Nonaccrual loans and accruing TDRs		0.62			1.00		(38)

As a percent of total loans+other real estate owned:
Nonperforming assets		0.29			0.59		(30)
Nonperforming assets and accruing TDRs		0.68			1.10		(42)

As a percent of total assets:
Nonaccrual loans		0.15			0.38		(23)
Nonperforming assets		0.19			0.46		(27)
Accruing TDRs		0.25			0.40		(15)
Nonperforming assets and accruing TDRs		0.44			0.86		(42)


(1)	See the reconciliation table that begins on page 15 of 16.
(2)	This ratio excludes merger related expenses (Non-GAAP).
(3)	As of September 30, 2021 and September 30, 2020, these ratios included PPP loans of $41.5 million and $126.7 million, respectively. Excluding these loans, the ratios were 1.07% and 0.98% for September 30, 2021 and September 30, 2020, respectively.

Shore Bancshares, Inc. Consolidated Balance Sheets (Unaudited) (In thousands, except per share data)

							September 30, 2021		September 30, 2021
		September 30,		December 31,	September 30,		compared to		compared to
	2021		2020		2020		December 31, 2020		September 30, 2020
ASSETS
Cash and due from banks	$	18,440	$	16,666	$	17,577	10.6	%	4.9	%
Interest-bearing deposits with other banks		292,412		170,251		138,885	71.8		110.5
Cash and cash equivalents		310,852		186,917		156,462	66.3		98.7

Investment securities available for sale (at fair value)		105,125		139,568		139,349	(24.7)		(24.6)
Investment securities held to maturity		250,501		65,706		20,174	281.2		1,141.7
Equity securities, at fair value		1,384		1,395		1,396	(0.8)		(0.9)
Restricted securities		3,189		3,626		3,626	(12.1)		(12.1)

Loans		1,494,897		1,454,256		1,423,965	2.8		5.0
Less: allowance for credit losses		(15,525)		(13,888)		(12,777)	11.8		(21.5)
Loans, net		1,479,372		1,440,368		1,411,188	2.7		4.8

Premises and equipment, net		27,011		24,924		24,679	8.4		9.4
Goodwill		17,518		17,518		17,518	—		—
Other intangible assets, net		1,365		1,719		1,844	(20.6)		(26.0)
Other real estate owned, net		203		—		38	—		434.2
Right of use assets, net		5,512		4,795		4,769	15.0		15.6
Other assets		58,742		46,779		47,129	25.6		24.6
Total assets	$	2,260,774	$	1,933,315	$	1,828,172	16.9		23.7

LIABILITIES
Noninterest-bearing deposits	$	554,902	$	509,091	$	465,304	9.0		19.3
Interest-bearing deposits		1,463,163		1,191,614		1,128,817	22.8		29.6
Total deposits		2,018,065		1,700,705		1,594,121	18.7		26.6

Securities sold under retail repurchase agreements		3,501		1,050		1,019	233.4		243.6
Subordinated debt		24,521		24,429		24,399	0.4		0.5
Total borrowings		28,022		25,479		25,418

Lease liabilities		5,686		4,874		4,840	16.7		17.5
Accrued expenses and other liabilities		7,394		7,238		4,912	2.2		50.5
Total liabilities		2,059,167		1,738,296		1,629,291	18.5		26.4

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Common stock, par value $0.01; authorized 35,000,000 shares		118		118		122	—		(3.3)
Additional paid in capital		51,641		52,167		58,090	(1.0)		(11.1)
Retained earnings		149,620		141,205		138,765	6.0		7.8
Accumulated other comprehensive income		228		1,529		1,904	(85.1)		(88.0)
Total stockholders’ equity		201,607		195,019		198,881	3.4		1.4
Total liabilities and stockholders’ equity	$	2,260,774	$	1,933,315	$	1,828,172	16.9		23.7

Period-end common shares outstanding		11,752		11,783		12,218	(0.3)		(3.8)
Book value per common share	$	17.15	$	16.55	$	16.28	3.6		5.3

Shore Bancshares, Inc. Consolidated Statements of Income (Unaudited) (In thousands, except per share data)


	For the Three Months Ended							For the Nine Months Ended
	September 30,						September 30,
	2021		2020		% Change		2021		2020		% Change
INTEREST INCOME
Interest and fees on loans	$	15,484	$	14,139	9.5	%	$	44,231	$	41,879	5.6	%
Interest on investment securities:
Taxable		1,318		730	80.5			3,343		2,087	60.2
Interest on deposits with other banks		97		33	193.9			199		216	(7.9)
Total interest income		16,899		14,902	13.4			47,773		44,182	8.1

INTEREST EXPENSE
Interest on deposits		949		1,470	(35.4)			3,189		5,085	(37.3)
Interest on short-term borrowings		2		1	100.0			5		4	25.0
Interest on long-term borrowings		359		148	142.6			1,088		261	—
Total interest expense		1,310		1,619	(19.1)			4,282		5,350	(20.0)

NET INTEREST INCOME		15,589		13,283	17.4			43,491		38,832	12.0
Provision for credit losses		290		1,500	(80.7)			1,365		2,850	(52.1)

NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		15,299		11,783	29.8			42,126		35,982	17.1

NONINTEREST INCOME
Service charges on deposit accounts		805		647	24.4			2,162		2,057	5.1
Trust and investment fee income		477		381	25.2			1,359		1,119	21.4
Gains on sales and calls of investment securities		2		—	—			2		347	—
Other noninterest income		1,625		1,553	4.6			4,846		4,179	16.0
Total noninterest income		2,909		2,581	12.7			8,369		7,702	8.7

NONINTEREST EXPENSE
Salaries and wages		5,091		4,143	22.9			13,495		10,569	27.7
Employee benefits		1,654		1,489	11.1			4,991		4,746	5.2
Occupancy expense		843		774	8.9			2,427		2,174	11.6
Furniture and equipment expense		449		294	52.7			1,168		858	36.1
Data processing		1,170		1,114	5.0			3,514		3,195	10.0
Directors’ fees		147		132	11.4			450		386	16.6
Amortization of intangible assets		107		125	(14.4)			353		407	(13.3)
FDIC insurance premium expense		245		132	85.6			653		347	88.2
Other real estate owned expenses, net		4		—	—			6		18	(66.7)
Legal and professional fees		428		447	(4.3)			1,592		1,634	(2.6)
Merger related expenses		538		—	—			915		—	—
Other noninterest expenses		1,258		1,181	6.5			3,745		3,509	6.7
Total noninterest expense		11,934		9,831	21.4			33,309		27,843	19.6

Income before income taxes		6,274		4,533	38.4			17,186		15,841	8.5
Income tax expense		1,657		1,142	45.1			4,541		3,997	13.6

NET INCOME	$	4,617	$	3,391	36.2		$	12,645	$	11,844	6.8

Weighted average shares outstanding – basic		11,752		12,483	(5.9)			11,750		12,506	(6.0)
Weighted average shares outstanding – diluted		11,752		12,483	(5.9)			11,750		12,509	(6.1)

Basic and diluted net income per common share	$	0.39	$	0.27	44.4		$	1.08	$	0.95	13.7

Dividends paid per common share		0.12		0.12	—			0.36		0.36	—

Shore Bancshares, Inc. Consolidated Average Balance Sheets (Unaudited) (Dollars in thousands)


	For the Three Months Ended								For the Nine Months Ended
	September 30,								September 30,
	2021				2020				2021				2020
	Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/
	balance		rate		balance		rate		balance		rate		balance		rate
Earning assets
Loans (1), (2), (3)	$	1,487,281	4.14	%	$	1,406,683	4.01	%	$	1,461,083	4.06	%	$	1,348,362	4.16	%
Investment securities
Taxable		334,205	1.58			136,017	2.14			283,104	1.58			124,487	2.24
Interest-bearing deposits		250,019	0.15			127,494	0.10			219,540	0.12			81,125	0.36
Total earning assets		2,071,505	3.24	%		1,670,194	3.56	%		1,963,727	3.26	%		1,553,974	3.81	%
Cash and due from banks		19,453				18,860				18,536				18,302
Other assets		108,989				94,755				107,174				91,642
Allowance for credit losses		(15,499)				(11,865)				(14,802)				(11,042)
Total assets	$	2,184,448			$	1,771,944			$	2,074,635			$	1,652,876


Interest-bearing liabilities
Demand deposits	$	462,950	0.14	%	$	370,922	0.19	%	$	435,678	0.14	%	$	318,083	0.30	%
Money market and savings deposits		644,330	0.18			442,322	0.21			591,959	0.18			426,570	0.29
Certificates of deposit $100,000 or more		136,059	0.71			127,983	1.68			134,080	1.00			129,319	1.78
Other time deposits		142,777	0.68			148,223	1.42			143,832	0.89			149,841	1.52
Interest-bearing deposits		1,386,116	0.27			1,089,450	0.54			1,305,549	0.33			1,023,813	0.66
Securities sold under retail repurchase
agreements and federal funds purchased		2,718	0.29			1,575	0.25			2,695	0.25			1,613	0.33
Advances from FHLB – long-term		—	—			—	—			—	—			5,255	2.87
Subordinated debt		24,504	5.81			9,859	5.97			24,474	5.94			3,310	5.97
Total interest-bearing liabilities		1,413,338	0.37	%		1,100,884	0.59	%		1,332,718	0.43	%		1,033,991	0.69	%
Noninterest-bearing deposits		557,109				458,622				531,199				410,702
Accrued expenses and other liabilities		13,120				11,359				12,631				10,088
Stockholders’ equity		200,881				201,079				198,087				198,095
Total liabilities and stockholders’ equity	$	2,184,448			$	1,771,944			$	2,074,635			$	1,652,876

Net interest spread			2.87	%			2.97	%			2.83	%			3.12	%
Net interest margin			2.99	%			3.17	%			2.97	%			3.35	%


(1)	All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.
(2)	Average loan balances include nonaccrual loans.
(3)	Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

Shore Bancshares, Inc. Financial Highlights By Quarter (Unaudited) (Dollars in thousands, except per share data)


	3rd Quarter			2nd Quarter			1st Quarter			4th Quarter			3rd Quarter			Q3 2021		Q3 2021
	2021			2021			2021			2020			2020			compared to		compared to
	Q3 2021			Q2 2021			Q1 2021			Q4 2020			Q3 2020			Q2 2021		Q3 2020
PROFITABILITY FOR THE PERIOD
Taxable-equivalent net interest income	$	15,623		$	14,141		$	13,836		$	13,799		$	13,317		10.5	%	17.3	%
Less: Taxable-equivalent adjustment		34			38			36			34			34		(10.5)		—
Net interest income		15,589			14,103			13,800			13,765			13,283		10.5		17.4
Provision for credit losses		290			650			425			1,050			1,500		(55.4)		(80.7)
Noninterest income		2,909			2,903			2,557			3,047			2,581		0.2		12.7
Noninterest expense		11,934			10,876			10,499			10,556			9,831		9.7		21.4
Income before income taxes		6,274			5,480			5,433			5,206			4,533		14.5		38.4
Income tax expense		1,657			1,449			1,435			1,320			1,142		14.4		45.1
Net income	$	4,617		$	4,031		$	3,998		$	3,886		$	3,391		14.5		36.2

Return on average assets		0.84	%		0.78	%		0.82	%		0.82	%		0.76	%	6	bp	8	bp
Return on average assets excluding merger expenses – Non-GAAP (2)		0.94			0.86			0.82			0.82			0.76		8		18
Return on average equity		9.12			8.19			8.28			7.82			6.71		93		241
Return on average tangible equity – Non-GAAP(1)		11.12			9.89			9.40			8.88			7.63		123		349
Net interest margin		2.99			2.91			3.00			3.08			3.17		8		(18)
Efficiency ratio – GAAP		64.52			63.95			64.19			62.79			61.97		57		255
Efficiency ratio – Non-GAAP (1), (2)		60.92			60.90			63.28			61.91			61.05		2		(13)

PER SHARE DATA
Basic and diluted net income per common share	$	0.39		$	0.34		$	0.34		$	0.32		$	0.27		14.7	%	44.4	%

Dividends paid per common share		0.12			0.12			0.12			0.12			0.12		—		—
Book value per common share at period end		17.15			16.91			16.69			16.55			16.28		1.4		5.3
Tangible book value per common share at period end – Non-GAAP (1)		15.55			15.29			15.06			14.92			14.69		1.7		5.9
Market value at period end		17.73			16.75			17.02			14.60			10.98		5.9		61.5
Market range:
High		18.00			18.01			18.10			15.12			11.77		(0.1)		52.9
Low		16.35			16.10			12.99			10.25			9.14		1.6		78.9

AVERAGE BALANCE SHEET DATA
Loans	$	1,487,281		$	1,444,684		$	1,450,883		$	1,430,013		$	1,406,683		2.9	%	5.7	%
Investment securities		334,205			286,121			227,816			179,801			136,017		16.8		145.7
Earning assets		2,071,505			1,949,509			1,867,930			1,780,854			1,670,194		6.3		24.0
Assets		2,184,448			2,061,214			1,975,951			1,880,449			1,771,944		6.0		23.3
Deposits		1,943,225			1,822,148			1,742,666			1,646,980			1,548,072		6.6		25.5
Stockholders’ equity		200,881			197,532			195,791			197,591			201,079		1.7		(0.1)

CREDIT QUALITY DATA
Net (recoveries) charge-offs	$	(147)		$	(125)		$	—		$	(61)		$	(187)		(17.6)	%	21.4	%

Nonaccrual loans	$	3,457		$	3,947		$	4,880		$	5,455		$	6,966		(12.4)		(50.4)
Loans 90 days past due and still accruing		748			752			1,188			804			1,373		(0.5)		(45.5)
Other real estate owned		203			203			205			—			38		—		434.2
Total nonperforming assets	$	4,408		$	4,902		$	6,273		$	6,259		$	8,377		(10.1)		(47.4)

Accruing troubled debt restructurings (TDRs)	$	5,750		$	6,338		$	6,456		$	6,997		$	7,267		(9.3)		(20.9)

Total nonperforming assets and accruing TDRs	$	10,158		$	11,240		$	12,729		$	13,256		$	15,644		(9.6)		(35.1)

CAPITAL AND CREDIT QUALITY RATIOS
Period-end equity to assets		8.92	%		9.37	%		9.61	%		10.09	%		10.88	%	(45)	bp	(196)	bp
Period-end tangible equity to tangible assets – Non-GAAP (1)		8.15			8.55			8.76			9.18			9.92		(40)		(177)

Annualized net (recoveries) charge-offs to average loans		(0.04)			(0.03)			—			(0.02)			(0.05)		(1)		1

Allowance for credit losses as a percent of:
Period-end loans (3)		1.04			1.02			0.98			0.95			0.90		2		14
Nonaccrual loans		449.09			382.27			293.30			254.59			183.42		6,682		266
Nonperforming assets		352.20			307.79			228.17			221.89			152.52		4,441		200
Accruing TDRs		270.00			238.06			221.70			198.49			175.82		3,194		94
Nonperforming assets and accruing TDRs		152.84			134.23			112.44			104.77			81.67		1,861		71

As a percent of total loans:
Nonaccrual loans		0.23			0.27			0.33			0.38			0.49		(4)		(26)
Accruing TDRs		0.38			0.43			0.44			0.48			0.51		(5)		(13)
Nonaccrual loans and accruing TDRs		0.62			0.70			0.78			0.86			1.00		(8)		(38)

As a percent of total loans+other real estate owned:
Nonperforming assets		0.29			0.33			0.43			0.43			0.59		(4)		(30)
Nonperforming assets and accruing TDRs		0.68			0.76			0.87			0.91			1.10		(8)		(42)

As a percent of total assets:
Nonaccrual loans		0.15			0.19			0.24			0.28			0.38		(4)		(23)
Nonperforming assets		0.19			0.23			0.31			0.32			0.46		(4)		(27)
Accruing TDRs		0.25			0.30			0.32			0.36			0.40		(5)		(15)
Nonperforming assets and accruing TDRs		0.44			0.53			0.63			0.68			0.86		(9)		(42)


(1)	See the reconciliation table that begins on page 15 of 16.
(2)	This ratio excludes merger related expenses (Non-GAAP).
(3)	Includes PPP loan balances for all periods shown. As of September 30, 2021, December 31, 2020, and September 30, 2020, these ratios included PPP loans of $41.5 million, $122.8 million and $126.7 million, respectively. Excluding these loans, the ratios were 1.07%, 1.04%, and 0.98% for September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

Shore Bancshares, Inc. Consolidated Statements of Income By Quarter (Unaudited) (In thousands, except per share data)


											Q3 2021		Q3 2021
											compared to		compared to
	Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020		Q2 2021		Q3 2020
INTEREST INCOME
Interest and fees on loans	$	15,484	$	14,381	$	14,366	$	14,541	$	14,139	7.7	%	9.5	%
Interest on investment securities:
Taxable		1,318		1,095		931		910		730	20.4		80.5
Interest on deposits with other banks		97		55		47		44		33	76.4		193.9
Total interest income		16,899		15,531		15,344		15,495		14,902	8.8		13.4

INTEREST EXPENSE
Interest on deposits		949		1,056		1,184		1,355		1,470	(10.1)		(35.4)
Interest on short-term borrowings		2		2		1		1		1	—		100.0
Interest on long-term borrowings		359		370		359		374		148	(3.0)		142.6
Total interest expense		1,310		1,428		1,544		1,730		1,619	(8.3)		(19.1)

NET INTEREST INCOME		15,589		14,103		13,800		13,765		13,283	10.5		17.4
Provision for credit losses		290		650		425		1,050		1,500	(55.4)		(80.7)

NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES		15,299		13,453		13,375		12,715		11,783	13.7		29.8

NONINTEREST INCOME
Service charges on deposit accounts		805		683		674		782		647	17.9		24.4
Trust and investment fee income		477		475		407		439		381	0.4		25.2
Gains on sales and calls of investment securities		2		—		—		—		—	—		—
Other noninterest income		1,625		1,745		1,476		1,826		1,553	(6.9)		4.6
Total noninterest income		2,909		2,903		2,557		3,047		2,581	0.2		12.7

NONINTEREST EXPENSE
Salaries and wages		5,091		4,262		4,142		4,366		4,143	19.5		22.9
Employee benefits		1,654		1,493		1,844		1,715		1,489	10.8		11.1
Occupancy expense		843		770		814		745		774	9.5		8.9
Furniture and equipment expense		449		412		307		366		294	9.0		52.7
Data processing		1,170		1,217		1,127		1,093		1,114	(3.9)		5.0
Directors’ fees		147		154		149		118		132	(4.5)		11.4
Amortization of intangible assets		107		120		126		126		125	(10.8)		(14.4)
FDIC insurance premium expense		245		223		185		138		132	9.9		85.6
Other real estate owned expenses, net		4		1		1		38		—	300.0		—
Legal and professional fees		428		648		516		662		447	(34.0)		(4.3)
Merger related expenses		538		377		—		—		—	42.7		—
Other noninterest expenses		1,258		1,199		1,288		1,189		1,181	4.9		6.5
Total noninterest expense		11,934		10,876		10,499		10,556		9,831	9.7		21.4

Income before income taxes		6,274		5,480		5,433		5,206		4,533	14.5		38.4
Income tax expense		1,657		1,449		1,435		1,320		1,142	14.4		45.1

NET INCOME	$	4,617	$	4,031	$	3,998	$	3,886	$	3,391	14.5		36.2

Weighted average shares outstanding – basic		11,752		11,752		11,745		12,004		12,483	—		(5.9)
Weighted average shares outstanding – diluted		11,752		11,754		11,747		12,005		12,483	(0.0)		(5.9)

Basic and diluted net income per common share	$	0.39	$	0.34	$	0.34	$	0.32	$	0.27	14.7		44.4

Dividends paid per common share		0.12		0.12		0.12		0.12		0.12	—		—

Shore Bancshares, Inc. Consolidated Average Balance Sheets By Quarter (Unaudited) (Dollars in thousands)


																					Average balance
																					Q3 2021		Q3 2021
																					compared to		compared to
	Q3 2021				Q2 2021				Q1 2021				Q4 2020				Q3 2020				Q2 2021		Q3 2020
	Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/		Average		Yield/
	balance		rate		balance		rate		balance		rate		balance		rate		balance		rate
Earning assets
Loans (1), (2), (3)	$	1,487,281	4.14	%	$	1,444,684	4.00	%	$	1,450,883	4.03	%	$	1,430,013	4.05	%	$	1,406,683	4.01	%	2.9	%	5.7	%
Investment securities
Taxable		334,205	1.58			286,121	1.53			227,816	1.63			179,801	2.02			136,017	2.14		16.8		145.7
Interest-bearing deposits		250,019	0.15			218,704	0.10			189,231	0.10			171,040	0.10			127,494	0.10		14.3		96.1
Total earning assets		2,071,505	3.24	%		1,949,509	3.20	%		1,867,930	3.34	%		1,780,854	3.47	%		1,670,194	3.56	%	6.3		24.0
Cash and due from banks		19,453				16,908				19,245				17,268				18,860			15.1		3.1
Other assets		108,989				109,457				103,010				95,684				94,755			(0.4)		15.0
Allowance for credit losses		(15,499)				(14,660)				(14,234)				(13,357)				(11,865)			5.7		30.6
Total assets	$	2,184,448			$	2,061,214			$	1,975,951			$	1,880,449			$	1,771,944			6.0		23.3

Interest-bearing liabilities
Demand deposits	$	462,950	0.14	%	$	405,473	0.13	%	$	438,340	0.14	%	$	420,582	0.18	%	$	370,922	0.19	%	14.2		24.8
Money market and savings deposits		644,330	0.18			605,202	0.17			510,881	0.18			459,237	0.20			442,322	0.21		6.5		45.7
Certificates of deposit $100,000 or more		136,059	0.71			135,376	1.04			130,745	1.26			128,642	1.45			127,983	1.68		0.5		6.3
Other time deposits		142,777	0.68			143,821	0.90			144,919	1.10			145,795	1.27			148,223	1.42		(0.7)		(3.7)
Interest-bearing deposits		1,386,116	0.27			1,289,872	0.33			1,224,885	0.39			1,154,256	0.47			1,089,450	0.54		7.5		27.2
Securities sold under retail repurchase agreements
and federal funds purchased		2,718	0.29			3,123	0.26			2,238	0.18			1,101	0.36			1,575	0.25		(13.0)		72.6
Subordinated debt		24,504	5.81			24,474	6.06			24,443	5.96			24,420	6.09			9,859	5.97		0.1		148.5
Total interest-bearing liabilities		1,413,338	0.37	%		1,317,469	0.43	%		1,251,566	0.50	%		1,179,777	0.58	%		1,100,884	0.59	%	7.3		28.4
Noninterest-bearing deposits		557,109				532,276				517,781				492,724				458,622			4.7		21.5
Accrued expenses and other liabilities		13,120				13,937				10,813				10,357				11,359			(5.9)		15.5
Stockholders’ equity		200,881				197,532				195,791				197,591				201,079			1.7		(0.1)
Total liabilities and stockholders’ equity	$	2,184,448			$	2,061,214			$	1,975,951			$	1,880,449			$	1,771,944			6.0		23.3

Net interest spread			2.87	%			2.77	%			2.84	%			2.89	%			2.97	%
Net interest margin			2.99	%			2.91	%			3.00	%			3.08	%			3.17	%


(1)	All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.
(2)	Average loan balances include nonaccrual loans.
(3)	Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

Shore Bancshares, Inc. Reconciliation of Generally Accepted Accounting Principles (GAAP) and Non-GAAP Measures (Unaudited) (In thousands, except per share data)


																YTD			YTD
	Q3 2021			Q2 2021			Q1 2021			Q4 2020			Q3 2020			9/30/2021			9/30/2020

The following reconciles return on average equity and return on average tangible equity (Note 1):

Net Income	$	4,617		$	4,031		$	3,998		$	3,886		$	3,391		$	12,645		$	11,844
Net Income – annualized (A)	$	18,317		$	16,168		$	16,214		$	15,460		$	13,490		$	16,906		$	15,821

Net income, excluding net amortization of intangible assets
and merger releated expenses	$	5,098		$	4,402		$	4,092		$	3,980		$	3,484		$	13,591		$	12,148
Net income, excluding net amortization of intangible assets – annualized (B)	$	20,226		$	17,656		$	16,595		$	15,833		$	13,860		$	18,171		$	16,227

Average stockholders’ equity (C)	$	200,881		$	197,532		$	195,791		$	197,591		$	201,079		$	198,087		$	198,095
Less: Average goodwill and other intangible assets		(18,942)			(19,053)			(19,178)			(19,304)			(19,430)			(19,057)			(19,564)
Average tangible equity (D)	$	181,939		$	178,479		$	176,613		$	178,287		$	181,649		$	179,030		$	178,531

Return on average equity (GAAP) (A)/(C)		9.12	%		8.19	%		8.28	%		7.82	%		6.71	%		8.53	%		7.99	%
Return on average tangible equity (Non-GAAP) (B)/(D)		11.12	%		9.89	%		9.40	%		8.88	%		7.63	%		10.15	%		9.09	%

The following reconciles GAAP efficiency ratio and non-GAAP efficiency ratio (Note 2):

Noninterest expense (E)	$	11,934		$	10,876		$	10,499		$	10,556		$	9,831		$	33,309		$	27,843
Less: Amortization of intangible assets		(107)			(120)			(126)			(126)			(125)			(353)			(407)
Merger Expenses		(538)			(377)			—			—			—			(915)			—
Adjusted noninterest expense (F)	$	11,289		$	10,379		$	10,373		$	10,430		$	9,706		$	32,041		$	27,436

Net interest income (G)		15,589			14,103			13,800			13,765			13,283			43,491			38,832
Add: Taxable-equivalent adjustment		34			38			36			34			34			108			107
Taxable-equivalent net interest income (H)	$	15,623		$	14,141		$	13,836		$	13,799		$	13,317		$	43,599		$	38,939

Noninterest income (I)	$	2,909		$	2,903		$	2,557		$	3,047		$	2,581		$	8,369			7,702
Less: Investment securities (gains)		(2)			—			—			—			—			(2)			(347)
Adjusted noninterest income (J)	$	2,907		$	2,903		$	2,557		$	3,047		$	2,581		$	8,367		$	7,355

Efficiency ratio (GAAP) (E)/(G)+(I)		64.52	%		63.95	%		64.19	%		62.79	%		61.97	%		64.23	%		59.83	%
Efficiency ratio (Non-GAAP) (F)/(H)+(J)		60.92	%		60.90	%		63.28	%		61.91	%		61.05	%		61.66	%		59.26	%

The following reconciles book value per common share and tangible book value per common share (Note 1):

Stockholders’ equity (L)	$	201,607		$	198,682		$	196,104		$	195,019		$	198,881
Less: Goodwill and other intangible assets		(18,883)			(18,991)			(19,111)			(19,237)			(19,362)
Tangible equity (M)	$	182,724		$	179,691		$	176,993		$	175,782		$	179,519

Shares outstanding (N)		11,752			11,752			11,752			11,783			12,218

Book value per common share (GAAP) (L)/(N)	$	17.15		$	16.91		$	16.69		$	16.55		$	16.28
Tangible book value per common share (Non-GAAP) (M)/(N)	$	15.55		$	15.29		$	15.06		$	14.92		$	14.69


The following reconciles equity to assets and tangible equity to tangible assets (Note 1):

Stockholders’ equity (O)	$	201,607		$	198,682		$	196,104		$	195,019		$	198,881
Less: Goodwill and other intangible assets		(18,883)			(18,991)			(19,111)			(19,237)			(19,362)
Tangible equity (P)	$	182,724		$	179,691		$	176,993		$	175,782		$	179,519

Assets (Q)	$	2,260,774		$	2,120,260		$	2,039,631		$	1,933,315		$	1,828,172
Less: Goodwill and other intangible assets		(18,883)			(18,991)			(19,111)			(19,237)			(19,362)
Tangible assets (R)	$	2,241,891		$	2,101,269		$	2,020,520		$	1,914,078		$	1,808,810

Period-end equity/assets (GAAP) (O)/(Q)		8.92	%		9.37	%		9.61	%		10.09	%		10.88	%
Period-end tangible equity/tangible assets (Non-GAAP) (P)/(R)		8.15	%		8.55	%		8.76	%		9.18	%		9.92	%

Note 1: Management believes that reporting tangible equity and tangible assets more closely approximates the adequacy of capital for regulatory purposes.

Note 2: Management believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling cash-based operating activities.

View original content to download multimedia:https://www.prnewswire.com/news-releases/shore-bancshares-reports-third-quarter-and-nine-month-financial-results-301411276.html

SOURCE Shore Bancshares, Inc.

October 28, 2021 4:22 pm

Olin Declares 380th Consecutive Quarterly Dividend

PR Newswire

CLAYTON, Mo., Oct. 28, 2021 /PRNewswire/ — Today, Olin Corporation’s (NYSE: OLN) Board of Directors declared a quarterly dividend of $0.20 on each share of Olin common stock. The dividend is payable on December 10, 2021 to shareholders of record at the close of business on November 10, 2021. This marks the company’s 380th consecutive quarterly dividend.

COMPANY DESCRIPTION

Olin Corporation is a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. The chemical products produced include chlorine and caustic soda, vinyls, epoxies, chlorinated organics, bleach and hydrochloric acid. Winchester’s principal manufacturing facilities produce and distribute sporting ammunition, law enforcement ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

Visit www.olin.com for more information on Olin.

2021-24

View original content to download multimedia:https://www.prnewswire.com/news-releases/olin-declares-380th-consecutive-quarterly-dividend-301411339.html

SOURCE Olin Corporation

October 28, 2021 4:22 pm

SB Financial Group Announces Third Quarter 2021 Results

PR Newswire

DEFIANCE, Ohio, Oct. 28, 2021 /PRNewswire/ — SB Financial Group, Inc. (NASDAQ: SBFG) (“SB Financial” or the “Company”), a diversified financial services company providing full-service community banking, mortgage banking, wealth management, private client and title insurance services today reported earnings for the third quarter and nine months ended September 30, 2021.

Third quarter 2021 highlights over prior-year third quarter include:

Net income of $4.1 million; diluted earnings per share (“EPS”) of $0.58 or a 15.9 percent decrease
Adjusted net income, excluding the impact of the Originated Mortgage Servicing Rights (“OMSR”) impairment of $250,000 was $3.9 million, with EPS of $0.56
Mortgage origination volume of $152.6 million, reflects a decrease of $47.5 million, or 23.8 percent

Third quarter 2021 highlights over the linked quarter include:

Net income up $342,000 with EPS increasing $0.06 or 11.5 percent
Loan growth excluding the impact of Paycheck Protection Program (“PPP”) was up $20.6 million or 10 percent annualized

Nine months ended September 30, 2021, highlights over prior-year nine months include:

Net income of $14.9 million and diluted EPS of $2.08, compared to $9.6 million, or $1.25 per share or a 66.4 percent increase
Adjusted net income, excluding the impact of OMSR activity and merger costs, was $12.7 million, down $227,000 or 1.8 percent with EPS of $1.76, up $0.09 or 5.4 percent

Third quarter 2021 trailing twelve-month highlights include:

Loans, excluding the impact of PPP loan balances from both years of $10.2 and $82.1 million, respectively, increased $32.6 million, or 4.1 percent from the prior year
Deposits grew by $97.7 million, or 9.6 percent to $1.11 billion at quarter end
Mortgage origination volume of $642.3 million; servicing portfolio of $1.34 billion, which is up $48.4 million, or 3.7 percent

Highlights	Three Months Ended			Nine Months Ended
($ in thousands, except per share & ratios)	Sep. 2021	Sep. 2020	% Change	Sep. 2021	Sep. 2020	% Change
Operating revenue	$ 16,673	$ 19,677	-15.3%	$ 52,914	$ 47,873	10.5%
Interest income	11,033	10,807	2.1%	31,901	32,046	-0.5%
Interest expense	1,009	1,548	-34.8%	3,095	5,367	-42.3%
Net interest income	10,024	9,259	8.3%	28,806	26,679	8.0%
Provision for loan losses	300	1,800	-83.3%	1,050	3,700	-71.6%
Noninterest income	6,649	10,418	-36.2%	24,108	21,194	13.7%
Noninterest expense	11,256	11,335	-0.7%	33,241	32,403	2.6%
Net income	4,103	5,250	-21.8%	14,945	9,586	55.9%
Earnings per diluted share	0.58	0.69	-15.9%	2.08	1.25	66.4%
Return on average assets	1.23%	1.73%	-28.9%	1.51%	1.12%	34.8%
Return on average equity	11.35%	15.01%	-24.4%	13.84%	9.74%	42.1%

Non-GAAP Measures
Adjusted net income	$ 3,907	$ 4,992	-21.7%	$ 12,690	$ 12,917	-1.8%
Adjusted diluted EPS	0.56	0.65	-13.8%	1.76	1.67	5.4%
Adjusted return on average assets	1.17%	1.64%	-28.7%	1.34%	1.41%	-5.0%
Adjusted pre-tax, pre-provision income	5,169	8,016	-35.5%	17,569	18,444	-4.7%

“The third quarter saw significant PPP forgiveness, which drove our EPS up nearly 12 percent from the linked quarter” said Mark A. Klein, Chairman, President, and CEO of SB Financial. “Loan growth net of PPP was up compared to the prior year quarter and we have now had positive loan growth, excluding PPP, in each of the last two quarters.”

RESULTS OF OPERATIONS

Consolidated Revenue

Total operating revenue, consisting of net interest income and noninterest income, was down 15.3 percent from the third quarter of 2020, but up 6.2 percent from the linked quarter.

Net interest income was up from the year-ago quarter by 8.3 percent, and up 9.5 percent from the linked quarter.
Net interest margin on a fully taxable equivalent basis (FTE) was down from the year-ago quarter by 20 basis points and flat to the linked quarter, as cash balances continued to be higher than normal, which was offset by higher PPP forgiveness.
Noninterest income was down 36 percent from the year ago quarter as mortgage volume and gain on sale yields trended lower. This compares to a two percent increase from the linked quarter.

Mortgage Loan Business

Mortgage loan originations for the third quarter of 2021 were $152.6 million, down $47.5 million, or 23.8 percent, from the year-ago quarter. Total sales of originated loans were $123.1 million, down $43.1 million, or 25.9 percent, from the year-ago quarter. For the first nine months of 2021, SB Financial had total volume of $473.8 million, of which $236.2 million (50 percent) was new purchase/construction lending, $118.5 million was external refinance (25 percent), and the remaining $119.1 million (25 percent) was internal refinance.

Net mortgage banking revenue, consisting of gains on the sale of mortgage loans and net loan servicing fees, was $4.1 million for the third quarter of 2021, compared to $7.9 million for the year-ago quarter. The mortgage servicing valuation adjustment for the third quarter of 2021 was a positive $248,000, compared to a positive adjustment of $326,000 for the third quarter of 2020. For the first nine months of 2021, the recapture of servicing rights was $2.9 million compared to impairment of $3.0 million for the prior year nine months. The aggregate servicing valuation impairment ended the quarter at $2.0 million. The servicing portfolio at September 30, 2021, was $1.34 billion, up $48.4 million, or 3.7 percent, from $1.29 billion at September 30, 2020.

Mr. Klein noted, “This quarter had relatively strong mortgage origination of $153 million, which while down 24 percent from the prior year, was down just seven percent from the linked quarter. We continue to be positive about our mortgage pipeline as construction and private client activity remain strong. We now have a total of 24 Mortgage Originators that represents an increase of four from the prior year which includes the addition of two originators in our Ft. Wayne growth market.”

Mortgage Banking
($ in thousands)	Sep. 2021	Jun. 2021	Mar. 2021	Dec. 2020	Sep. 2020
Mortgage originations	$ 152,623	$ 164,883	$ 155,836	$ 168,997	$ 200,158
Mortgage sales	123,083	119,064	136,708	143,151	166,201
Mortgage servicing portfolio	1,341,439	1,323,804	1,304,097	1,299,698	1,293,037
Mortgage servicing rights	11,194	10,678	10,490	7,759	8,535


Mortgage servicing revenue
Loan servicing fees	850	830	859	857	813
OMSR amortization	(943)	(948)	(1,187)	(1,283)	(1,308)
Net administrative fees	(93)	(118)	(328)	(426)	(495)
OMSR valuation adjustment	248	(99)	2,706	(611)	326
Net loan servicing fees	155	(217)	2,378	(1,037)	(169)
Gain on sale of mortgages	3,947	4,255	5,859	7,197	8,085
Mortgage banking revenue, net	$ 4,102	$ 4,038	$ 8,237	$ 6,160	$ 7,916

Noninterest Income and Noninterest Expense

SB Financial’s noninterest income for the quarter was down 36 percent from the prior year but up compared to the linked quarter by approximately two percent. The gain on sale mortgage loan yields were down 165 basis points from the prior year with the total dollars of sales down $43.1 million. Wealth management revenue was up over 14 percent from the prior year due to higher retention levels and growth in the equity sector. SB Financial’s Title Agency provided revenue in the quarter of $508,000.

For the third quarter of 2021, noninterest expense of $11.3 million was flat to the prior year and up slightly to the linked quarter. For the first nine months, noninterest expense of $33.2 million was up $838,000 or 2.6 percent compared to the prior year first nine months. Operating leverage for the nine months of 2021 compared to the prior year was positive with revenue growth of 10.5 percent exceeding expense growth of 2.6 percent by 4.1 times.

Noninterest Income / Noninterest Expense
($ in thousands, except ratios)	Sep. 2021	Jun. 2021	Mar. 2021	Dec. 2020	Sep. 2020
Noninterest Income (NII)	$ 6,649	$ 6,537	$ 10,922	$ 8,902	$ 10,418
NII / Total Revenue	39.9%	41.7%	53.2%	49.0%	52.9%
NII / Average Assets	2.0%	2.0%	3.4%	2.9%	3.4%
Total Revenue Growth	-15.3%	-10.3%	91.9%	24.7%	36.4%

Noninterest Expense (NIE)	$ 11,256	$ 11,076	$ 10,909	$ 10,684	$ 11,335
Efficiency Ratio	67.4%	70.5%	53.0%	58.8%	57.5%
NIE / Average Assets	3.4%	3.3%	3.4%	3.5%	3.7%
Net Noninterest Expense/Avg. Assets	-1.4%	-1.4%	0.0%	-0.6%	-0.3%
Total Expense Growth	-0.7%	-5.0%	16.0%	5.0%	19.3%
Operating Leverage	-21.5	-2.1	5.7	4.9	1.9

Balance Sheet

Total assets as of September 30, 2021, were $1.33 billion, up $111.5 million, or 9.2 percent, from the year ago quarter due to higher liquidity levels and PPP activity. Total shareholders’ equity as of September 30, 2021, was $144.3 million, up 2.1 percent from a year ago, and comprised 10.9 percent of total assets.

Total loans held for investment were $846.5 million at September 30, 2021, down $39.3 million, or 4.4 percent, from September 30, 2020. Excluding PPP activity from both years, loan balances were up $32.6 million, or 4.1 percent.

The investment portfolio of $254.1 million, including shares in the Federal Reserve Bank and Federal Home Loan Bank, represented 19.1 percent of assets at September 30, 2021, and was up 87.4 percent from the year-ago period. Deposit balances of $1.11 billion at September 30, 2021, increased by $97.6 million, or 9.6 percent, since September 30, 2020. Growth from the prior year included $58.7 million in checking and $38.9 million in savings and time deposit balances.

Mr. Klein continued, “Our lending teams were very busy in the quarter as we had solid loan growth for the second consecutive quarter and we assisted a number of clients in submitting PPP forgiveness applications. We also had two non-performing credits that paid off in the quarter, resulting in lower NPA balances and recapture of prior non-accrual interest. Our coverage of non-performing loans is now above 350 percent and we continue to have no loans on COVID deferral.”

Loan Balances
($ in thousands, except ratios)	Sep. 2021		Jun. 2021		Mar. 2021		Dec. 2020		Sep. 2020		Annual Growth
Commercial	$	138,085	$	149,998	$	179,157	$	203,256	$	216,667	$	(78,582)
% of Total	16.3%		17.6%		21.1%		23.3%		24.5%		-36.3%
Commercial RE	387,858		389,287		385,403		370,984		371,947		15,911
% of Total	45.8%		45.8%		45.4%		42.5%		42.0%		4.3%
Agriculture	57,374		50,895		48,405		55,251		57,420		(46)
% of Total	6.8%		6.0%		5.7%		6.3%		6.5%		-0.1%
Residential RE	207,571		203,294		176,998		182,076		178,393		29,178
% of Total	24.5%		23.9%		20.9%		20.9%		20.1%		16.4%
Consumer & Other	55,660		57,039		58,213		61,156		61,423		(5,763)
% of Total	6.6%		6.7%		6.9%		7.0%		6.9%		-9.4%
Total Loans	$	846,548	$	850,513	$	848,176	$	872,723	$	885,850	$	(39,302)
Total Growth Percentage											-4.4%


Deposit Balances
($ in thousands, except ratios)	Sep. 2021		Jun. 2021		Mar. 2021		Dec. 2020		Sep. 2020		Annual Growth
Non-Int DDA	$	258,857	$	240,572	$	273,026	$	251,649	$	225,003	$	33,854
% of Total	23.3%		22.0%		24.4%		24.0%		22.2%		15.0%
Interest DDA	189,130		187,023		191,593		176,785		164,248		24,882
% of Total	17.0%		17.1%		17.1%		16.9%		16.2%		15.1%
Savings	246,414		235,231		218,260		174,864		169,474		76,940
% of Total	22.2%		21.6%		19.5%		16.7%		16.7%		45.4%
Money Market	258,741		255,512		249,088		216,164		204,862		53,879
% of Total	23.3%		23.4%		22.2%		20.6%		20.2%		26.3%
Time Deposits	158,518		172,696		188,229		229,549		250,428		(91,910)
% of Total	14.3%		15.8%		16.8%		21.9%		24.7%		-36.7%
Total Deposits	$	1,111,660	$	1,091,034	$	1,120,196	$	1,049,011	$	1,014,015	$	97,645
Total Growth Percentage											9.6%

Asset Quality

SB Financial reported nonperforming assets of $5.6 million as of September 30, 2021, down $1.7 million or 23.1 percent from the year-ago quarter. The Company took $206,000 in net recoveries in the quarter. The coverage of problem loans by the loan loss allowance was at 351 percent at September 30, 2021, up from 164 percent at September 30, 2020.

Nonperforming Assets						Annual Change
($ in thousands, except ratios)	Sep. 2021	Jun. 2021	Mar. 2021	Dec. 2020	Sep. 2020	Annual Change
Commercial & Agriculture	$ 144	$ 375	$ 615	$ 902	$ 1,140	$ (996)
% of Total Com./Ag. loans	0.07%	0.19%	0.27%	0.35%	0.42%	-87.4%
Commercial RE	566	1,026	2,402	2,412	2,475	(1,909)
% of Total CRE loans	0.15%	0.26%	0.62%	0.65%	0.67%	-77.1%
Residential RE	2,056	1,751	2,138	2,704	2,481	(425)
% of Total Res. RE loans	0.99%	0.86%	1.21%	1.49%	1.39%	-17.1%
Consumer & Other	422	463	480	408	313	109
% of Total Con./Oth. loans	0.76%	0.81%	0.82%	0.67%	0.51%	34.8%
Total Nonaccruing Loans	3,188	3,615	5,635	6,426	6,409	(3,221)
% of Total loans	0.38%	0.43%	0.66%	0.74%	0.72%	-50.3%
Accruing Restructured Loans	805	758	794	810	789	16
Total Change (%)						2.0%
Total Nonaccruing & Restructured Loans	3,993	4,373	6,429	7,236	7,198	(3,205)
% of Total loans	0.47%	0.51%	0.76%	0.83%	0.81%	-44.5%
Foreclosed Assets	1,601	1,603	43	23	76	1,525
Total Change (%)						2006.6%
Total Nonperforming Assets	$ 5,594	$ 5,976	$ 6,472	$ 7,259	$ 7,274	$ (1,680)
% of Total assets	0.42%	0.46%	0.49%	0.58%	0.60%	-23.1%

Webcast and Conference Call

The Company will hold a related conference call and webcast on October 29, 2021, at 11:00 a.m. EDT. Interested parties may access the conference call by dialing 1-888-338-9469. The webcast can be accessed at ir.yourstatebank.com. An audio replay of the call will be available on the Company’s website.

About SB Financial Group

Headquartered in Defiance, Ohio, SB Financial is a diversified financial services holding company for the State Bank & Trust Company (State Bank) and SBFG Title, LLC dba Peak Title (Peak Title). State Bank provides a full range of financial services for consumers and small businesses, including wealth management, private client services, mortgage banking and commercial and agricultural lending, operating through a total of 23 offices; 22 in nine Ohio counties and one in Fort Wayne, Indiana, and 24 full-service ATMs. State Bank has five loan production offices located throughout the Tri-State region of Ohio, Indiana and Michigan. Peak Title provides title insurance and opinions throughout the Tri-State region. SB Financial’s common stock is listed on the NASDAQ Capital Market under the symbol “SBFG”.

In May 2021, SB Financial was named to the Keefe, Bruyette & Woods, Inc. “Bank Honor Roll” of superior performers as revealed in EPS increases for 10 consecutive years. The honor roll review determined that just 16 banks, including SB Financial, or 4% of the nearly 400 banks screened, qualified for inclusion.

Forward-Looking Statements

Certain statements within this document, which are not statements of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties and actual results may differ materially from those predicted by the forward-looking statements. These risks and uncertainties include, but are not limited to, the duration and scope of the COVID-19 outbreak in the United States and the market areas in which SB Financial and its subsidiaries operate, including the impact to the state and local economies of prolonged shelter in place orders and the pandemic generally, risks and uncertainties inherent in the national and regional banking industry, changes in economic conditions in the market areas in which SB Financial and its subsidiaries operate, changes in policies by regulatory agencies, changes in accounting standards and policies, changes in tax laws, fluctuations in interest rates, demand for loans in the market areas in SB Financial and its subsidiaries operate, increases in FDIC insurance premiums, changes in the competitive environment, losses of significant customers, geopolitical events, the loss of key personnel and other risks identified in SB Financial’s Annual Report on Form 10-K and documents subsequently filed by SB Financial with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made, and SB Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, except as required by law. All subsequent written and oral forward-looking statements attributable to SB Financial or any person acting on its behalf are qualified by these cautionary statements.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically pre-tax, pre-provision income, tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity, total interest income – FTE, net interest income – FTE and net interest margin – FTE are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. In addition, the Company excludes the non-GAAP items of OMSR impairment and merger related costs from net income to report an adjusted net income level. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Investor Contact Information:

Mark A. Klein

Chairman, President and
Chief Executive Officer
[email protected]

Anthony V. Cosentino

Executive Vice President and
Chief Financial Officer
[email protected]

		SB FINANCIAL GROUP, INC.
		CONSOLIDATED BALANCE SHEETS – (Unaudited)

				September	June	March	December	September
			($ in thousands)	2021	2021	2021	2020	2020

ASSETS
	Cash and due from banks			$ 138,015	$ 154,993	$ 206,036	$ 140,690	$ 94,641
	Interest bearing time deposits			2,651	2,906	3,562	5,823	8,956
	Available-for-sale securities			248,815	211,756	177,918	149,406	130,315
	Loans held for sale			10,335	8,731	8,689	7,234	13,943
	Loans, net of unearned income			846,548	850,513	848,176	872,723	885,850
	Allowance for loan losses			(13,812)	(13,306)	(13,326)	(12,574)	(11,793)
	Premises and equipment, net			23,874	24,343	23,233	23,557	23,785
	Federal Reserve and FHLB Stock, at cost			5,303	5,303	5,303	5,303	5,303
	Foreclosed assets held for sale, net			1,601	1,603	43	23	76
	Interest receivable			2,954	3,000	3,371	3,799	4,159
	Goodwill			22,091	22,091	22,091	22,091	22,091
	Cash value of life insurance			17,795	17,721	17,651	17,530	17,453
	Mortgage servicing rights			11,194	10,678	10,490	7,759	8,535
	Other assets			12,361	12,175	12,630	14,475	14,927

			Total assets	$ 1,329,725	$ 1,312,507	$ 1,325,867	$ 1,257,839	$ 1,218,241



LIABILITIES AND SHAREHOLDERS’ EQUITY
	Deposits
		Non interest bearing demand		$ 258,857	$ 240,572	$ 273,026	$ 251,649	$ 225,003
		Interest bearing demand		189,130	187,023	191,593	176,785	164,248
		Savings		246,414	235,231	218,260	174,864	169,474
		Money market		258,741	255,512	249,088	216,164	204,862
		Time deposits		158,518	172,696	188,229	229,549	250,428

			Total deposits	1,111,660	1,091,034	1,120,196	1,049,011	1,014,015

	Short-term borrowings			20,771	25,096	24,321	20,189	20,710
	Federal Home Loan Bank advances			5,500	5,500	8,000	8,000	8,000
	Trust preferred securities			10,310	10,310	10,310	10,310	10,310
	Subordinated debt net of issuance costs			19,534	19,522	–	–	–
	Interest payable			576	417	489	616	946
	Other liabilities			17,082	16,611	18,585	26,790	22,913

			Total liabilities	1,185,433	1,168,490	1,181,901	1,114,916	1,076,894

	Shareholders’ Equity
		Common stock		54,463	54,463	54,463	54,463	54,463
		Additional paid-in capital		14,875	14,906	14,755	14,845	14,782
		Retained earnings		97,183	93,851	90,883	84,578	80,012
		Accumulated other comprehensive income (loss)		(699)	499	(457)	2,210	2,221
		Treasury stock		(21,530)	(19,702)	(15,678)	(13,173)	(10,131)

			Total shareholders’ equity	144,292	144,017	143,966	142,923	141,347

			Total liabilities and shareholders’ equity	$ 1,329,725	$ 1,312,507	$ 1,325,867	$ 1,257,839	$ 1,218,241

SB FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME – (Unaudited)

($ in thousands, except per share & ratios)			At and for the Three Months Ended					Nine Months Ended

			September	June	March	December	September	September	September
Interest income			2021	2021	2021	2020	2020	2021	2020
	Loans
	Taxable		$ 9,948	$ 9,196	$ 9,926	$ 9,816	$ 10,179	$ 29,070	$ 29,919
	Tax exempt		52	47	48	54	47	147	185
	Securities
	Taxable		939	835	643	632	494	2,417	1,696
	Tax exempt		94	85	88	87	87	267	246

		Total interest income	11,033	10,163	10,705	10,589	10,807	31,901	32,046

Interest expense
	Deposits		709	818	962	1,218	1,423	2,489	4,852
	Repurchase agreements & other		12	12	11	10	12	35	60
	Federal Home Loan Bank advances		40	51	56	58	59	147	251
	Trust preferred securities		49	50	51	52	54	150	204
	Subordinated debt		199	75	–	–	–	274	–

		Total interest expense	1,009	1,006	1,080	1,338	1,548	3,095	5,367


Net interest income			10,024	9,157	9,625	9,251	9,259	28,806	26,679

	Provision for loan losses		300	–	750	800	1,800	1,050	3,700

Net interest income after provision
for loan losses			9,724	9,157	8,875	8,451	7,459	27,756	22,979

Noninterest income
	Wealth management fees		959	955	912	863	839	2,826	2,382
	Customer service fees		812	820	758	728	730	2,390	2,079
	Gain on sale of mtg. loans & OMSR		3,947	4,255	5,859	7,197	8,085	14,061	18,153
	Mortgage loan servicing fees, net		155	(217)	2,378	(1,037)	(169)	2,316	(4,101)
	Gain on sale of non-mortgage loans		52	45	17	123	119	114	330
	Title insurance revenue		508	532	521	522	517	1,561	1,391
	Gain (loss) on sale of assets		1	2	(2)	181	(52)	1	(178)
	Other		215	145	479	325	349	839	1,138

		Total noninterest income	6,649	6,537	10,922	8,902	10,418	24,108	21,194

Noninterest expense
	Salaries and employee benefits		6,689	6,881	6,620	6,556	6,995	20,190	18,841
	Net occupancy expense		714	748	740	782	736	2,202	2,109
	Equipment expense		872	778	732	818	888	2,382	2,368
	Data processing fees		671	653	534	633	586	1,858	2,422
	Professional fees		817	574	764	631	695	2,155	2,676
	Marketing expense		201	220	135	172	137	556	486
	Telephone and communication expense		140	139	154	156	142	433	379
	Postage and delivery expense		100	97	111	108	96	308	307
	State, local and other taxes		286	278	323	299	331	887	847
	Employee expense		186	161	153	103	155	500	432
	Other expenses		580	547	643	426	574	1,770	1,536

		Total noninterest expense	11,256	11,076	10,909	10,684	11,335	33,241	32,403


Income before income tax expense			5,117	4,618	8,888	6,669	6,542	18,623	11,770

	Income tax expense		1,014	857	1,807	1,311	1,292	3,678	2,184

Net income			$ 4,103	$ 3,761	$ 7,081	$ 5,358	$ 5,250	$ 14,945	$ 9,586

Common share data:
	Basic earnings per common share		$ 0.59	$ 0.53	$ 0.97	$ 0.71	$ 0.69	$ 2.09	$ 1.25

	Diluted earnings per common share		$ 0.58	$ 0.52	$ 0.97	$ 0.71	$ 0.69	$ 2.08	$ 1.25

Average shares outstanding (in thousands):
	Basic:		6,966	7,148	7,317	7,487	7,607	7,142	7,700
	Diluted:		7,017	7,200	7,335	7,487	7,607	7,167	7,700

SB FINANCIAL GROUP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS – (Unaudited)

($ in thousands, except per share & ratios)	At and for the Three Months Ended					Nine Months Ended

	September	June	March	December	September	September	September
SUMMARY OF OPERATIONS	2021	2021	2021	2020	2020	2021	2020

Net interest income	$ 10,024	$ 9,157	$ 9,625	$ 9,251	$ 9,259	$ 28,806	$ 26,679
Tax-equivalent adjustment	39	35	36	37	36	110	115
Tax-equivalent net interest income	10,063	9,192	9,661	9,288	9,295	28,916	26,794
Provision for loan loss	300	–	750	800	1,800	1,050	3,700
Noninterest income	6,649	6,537	10,922	8,902	10,418	24,108	21,194
Total operating revenue	16,673	15,694	20,547	18,153	19,677	52,914	47,873
Noninterest expense	11,256	11,076	10,909	10,684	11,335	33,241	32,403
Pre-tax pre-provision income	5,417	4,618	9,638	7,469	8,342	19,673	15,470
Pretax income	5,117	4,618	8,888	6,669	6,542	18,623	11,770
Net income	4,103	3,761	7,081	5,358	5,250	14,945	9,586

PER SHARE INFORMATION:
Basic earnings per share (EPS)	0.59	0.53	0.97	0.71	0.69	2.09	1.25
Diluted earnings per share	0.58	0.52	0.97	0.71	0.69	2.08	1.25
Common dividends	0.110	0.110	0.105	0.105	0.100	0.325	0.295
Book value per common share	20.83	20.50	19.88	19.39	18.73	20.83	18.73
Tangible book value per common share (TBV)	17.55	17.27	16.74	16.30	15.72	17.55	15.72
Market price per common share	18.18	18.50	18.26	18.28	13.49	18.18	13.49
Market price to TBV	103.6%	107.2%	109.1%	112.1%	85.8%	103.6%	85.8%
Market price to trailing 12 month EPS	6.5	6.4	6.4	9.3	8.0	6.5	8.0

PERFORMANCE RATIOS:
Return on average assets (ROAA)	1.23%	1.13%	2.21%	1.73%	1.73%	1.51%	1.12%
Pre-tax pre-provision ROAA	1.63%	1.39%	3.01%	2.41%	2.74%	2.12%	1.81%
Return on average equity	11.35%	10.42%	19.78%	15.05%	15.01%	13.84%	9.74%
Return on average tangible equity	13.47%	12.37%	23.52%	17.91%	17.93%	16.43%	11.48%
Efficiency ratio	67.40%	70.46%	53.01%	58.76%	57.48%	62.72%	67.63%
Earning asset yield	3.52%	3.25%	3.56%	3.66%	3.96%	3.44%	4.08%
Cost of interest bearing liabilities	0.44%	0.44%	0.50%	0.64%	0.75%	0.46%	0.91%
Net interest margin	3.20%	2.93%	3.20%	3.20%	3.39%	3.11%	3.39%
Tax equivalent effect	0.01%	0.01%	0.01%	0.01%	0.02%	0.01%	0.02%
Net interest margin, tax equivalent	3.21%	2.94%	3.21%	3.21%	3.41%	3.12%	3.41%
Non interest income/Average assets	1.99%	1.97%	3.41%	2.87%	3.42%	2.44%	2.48%
Non interest expense/Average assets	3.38%	3.33%	3.40%	3.45%	3.73%	3.37%	3.79%
Net noninterest expense/Average assets	-1.38%	-1.37%	0.00%	-0.58%	-0.31%	-0.93%	-1.31%

ASSET QUALITY RATIOS:
Gross charge-offs	24	26	52	57	32	102	686
Recoveries	230	6	54	39	11	290	24
Net charge-offs	(206)	20	(2)	18	21	(188)	662
Nonaccruing loans/Total loans	0.38%	0.43%	0.66%	0.74%	0.72%	0.38%	0.72%
Nonperforming loans/Total loans	0.47%	0.51%	0.76%	0.83%	0.81%	0.47%	0.81%
Nonperforming assets/Loans & OREO	0.66%	0.70%	0.76%	0.83%	0.82%	0.66%	0.82%
Nonperforming assets/Total assets	0.42%	0.46%	0.49%	0.58%	0.60%	0.42%	0.60%
Allowance for loan loss/Nonperforming loans	345.91%	304.28%	207.28%	173.77%	163.84%	345.91%	163.84%
Allowance for loan loss/Total loans	1.63%	1.56%	1.57%	1.44%	1.33%	1.63%	1.33%
Net loan charge-offs/Average loans (ann.)	(0.10%)	0.01%	(0.00%)	0.01%	0.01%	(0.03%)	0.10%
Loan loss provision/Net charge-offs	(145.63%)	0.00%	(37500.00%)	4444.44%	8571.43%	(558.51%)	558.91%

CAPITAL & LIQUIDITY RATIOS:
Loans/ Deposits	76.15%	77.95%	75.72%	83.19%	87.36%	76.15%	87.36%
Equity/ Assets	10.85%	10.97%	10.86%	11.36%	11.60%	10.85%	11.60%
Tangible equity/Tangible assets	9.30%	9.41%	9.30%	9.73%	9.92%	9.30%	9.92%
Common equity tier 1 ratio (Bank)	13.23%	13.11%	13.08%	12.91%	12.71%	13.51%	12.71%

END OF PERIOD BALANCES
Total assets	1,329,725	1,312,507	1,325,867	1,257,839	1,218,241	1,329,725	1,218,241
Total loans	846,548	850,513	848,176	872,723	885,850	846,548	885,850
Deposits	1,111,660	1,091,034	1,120,196	1,049,011	1,014,015	1,111,660	1,014,015
Stockholders equity	144,292	144,017	143,966	142,923	141,347	144,292	141,347
Goodwill and intangibles	22,692	22,710	22,728	22,745	22,813	22,692	22,813
Tangible equity	121,600	121,307	121,238	120,178	118,534	121,600	118,534
Mortgage servicing portfolio	1,341,439	1,323,804	1,304,097	1,299,698	1,293,037	1,341,439	1,293,037
Wealth/Brokerage assets under care	588,319	600,904	576,503	558,409	522,360	588,319	522,360
Total assets under care	3,259,483	3,237,215	3,206,467	3,115,946	3,033,638	3,259,483	3,033,638
Full-time equivalent employees	264	256	246	244	251	264	251
Period end common shares outstanding	6,927	7,026	7,242	7,372	7,545	6,927	7,545
Market capitalization (all)	125,935	129,984	132,239	134,760	101,782	125,935	101,782

AVERAGE BALANCES
Total assets	1,333,369	1,329,348	1,281,635	1,238,790	1,216,843	1,315,521	1,141,008
Total earning assets	1,253,722	1,251,213	1,203,284	1,156,718	1,090,386	1,236,227	1,047,846
Total loans	856,486	853,794	862,898	893,244	907,483	857,703	879,536
Deposits	1,109,491	1,115,186	1,073,641	1,031,649	1,007,679	1,099,892	936,805
Stockholders equity	144,565	144,315	143,167	142,418	139,908	144,020	131,156
Goodwill and intangibles	22,701	22,718	22,736	22,754	22,787	22,718	19,813
Tangible equity	121,864	121,597	120,431	119,664	117,121	121,302	111,343
Average basic shares outstanding	6,966	7,148	7,317	7,487	7,607	7,142	7,700
Average diluted shares outstanding	7,017	7,200	7,335	7,487	7,607	7,167	7,700

SB FINANCIAL GROUP, INC.
	Rate Volume Analysis – (Unaudited)
	At and for the Three and Nine Months Ended September 30, 2021 and 2020

	($ in thousands)	Three Months Ended Sep. 30, 2021			Three Months Ended Sep. 30, 2020
		Average		Average	Average		Average
Assets		Balance	Interest	Rate	Balance	Interest	Rate

	Taxable securities/cash	$ 388,800	$ 939	0.97%	$ 176,821	$ 494	1.12%
	Nontaxable securities	8,436	94	4.46%	6,082	87	5.72%
	Loans, net	856,486	10,000	4.67%	907,483	10,226	4.51%

	Total earning assets	1,253,722	11,033	3.52%	1,090,386	10,807	3.96%

	Cash and due from banks	6,975			53,532
	Allowance for loan losses	(13,475)			(10,448)
	Premises and equipment	25,820			23,968
	Other assets	60,327			59,405

	Total assets	$ 1,333,369			$ 1,216,843

Liabilities
	Savings, MMDA and interest bearing demand	$ 695,801	$ 441	0.25%	$ 531,913	$ 690	0.52%
	Time deposits	164,432	268	0.65%	254,381	733	1.15%
	Repurchase agreements & other	24,672	12	0.19%	23,811	12	0.20%
	Advances from Federal Home Loan Bank	5,500	40	2.91%	8,272	59	2.85%
	Trust preferred securities	10,310	49	1.90%	10,310	54	2.10%
	Subordinated debt	19,528	199	4.08%	–	–	0.00%

	Total interest bearing liabilities	920,243	1,009	0.44%	828,687	1,548	0.75%

	Non interest bearing demand	249,258	–		221,385	–

	Total funding	1,169,501		0.35%	1,050,072		0.59%

	Other liabilities	19,303			26,863

	Total liabilities	1,188,804			1,076,935

	Equity	144,565			139,908

	Total liabilities and equity	$ 1,333,369			$ 1,216,843

	Net interest income		$ 10,024			$ 9,259

	Net interest income as a percent of average interest-earning assets – GAAP measure			3.20%			3.40%

	Net interest income as a percent of average interest-earning assets – non GAAP			3.21%			3.41%
	– Computed on a fully tax equivalent (FTE) basis

		Nine Months Ended Sep. 30, 2021			Nine Months Ended Sep. 30, 2020
		Average		Average	Average		Average
Assets		Balance	Interest	Rate	Balance	Interest	Rate

	Taxable securities/cash	$ 370,743	$ 2,417	0.87%	$ 161,947	$ 1,696	1.40%
	Nontaxable securities	7,781	267	4.58%	6,363	246	5.15%
	Loans, net	857,703	29,217	4.54%	879,536	30,104	4.56%

	Total earning assets	1,236,227	31,901	3.44%	1,047,846	32,046	4.08%

	Cash and due from banks	7,554			28,040
	Allowance for loan losses	(13,297)			(9,560)
	Premises and equipment	24,442			23,855
	Other assets	60,595			50,827

	Total assets	$ 1,315,521			$ 1,141,008

Liabilities
	Savings, MMDA and interest bearing demand	$ 661,433	$ 1,413	0.28%	$ 483,156	$ 2,550	0.70%
	Time deposits	184,668	1,076	0.78%	253,398	2,302	1.21%
	Repurchase agreements & Other	24,139	35	0.19%	21,856	60	0.37%
	Advances from Federal Home Loan Bank	6,846	147	2.86%	16,263	251	2.06%
	Trust preferred securities	10,310	150	1.94%	10,310	204	2.64%
	Subordinated debt	9,811	274	3.72%	–	–	0.00%

	Total interest bearing liabilities	897,207	3,095	0.46%	784,983	5,367	0.91%

	Non interest bearing demand	253,791		0.36%	200,251		0.73%

	Total funding	1,150,998			985,234

	Other liabilities	20,503			24,618

	Total liabilities	1,171,501			1,009,852

	Equity	144,020			131,156

	Total liabilities and equity	$ 1,315,521			$ 1,141,008

	Net interest income		$ 28,806			$ 26,679

	Net interest income as a percent of average interest-earning assets – GAAP measure			3.11%			3.39%

	Net interest income as a percent of average interest-earning assets – non GAAP			3.12%			3.41%
	– Computed on a fully tax equivalent (FTE) basis

Non-GAAP reconciliation	Three Months Ended		Nine Months Ended

($ in thousands, except per share & ratios)	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020

Total Operating Revenue	$ 16,673	$ 19,677	$ 52,914	$ 47,873
Adjustment to (deduct)/add OMSR recapture/impairment*	(248)	(326)	(2,854)	2,974

Adjusted Total Operating Revenue	16,425	19,351	50,060	50,847


Total Operating Expense	$ 11,256	$ 11,335	$ 33,241	$ 32,403
Adjustment for merger expenses**	–	–	–	(1,241)

Adjusted Total Operating Expense	11,256	11,335	33,241	31,162


Income before Income Taxes	5,117	6,542	18,623	11,770
Adjustment for OMSR & merger expenses	(248)	(326)	(2,854)	4,215

Adjusted Income before Income Taxes	4,869	6,216	15,769	15,985


Provision for Income Taxes	1,014	1,292	3,678	2,184
Adjustment for OMSR & merger expenses***	(52)	(68)	(599)	885

Adjusted Provision for Income Taxes	962	1,224	3,079	3,070


Net Income	4,103	5,250	14,945	9,586
Adjustment for OMSR & merger expenses	(196)	(258)	(2,255)	3,330

Adjusted Net Income	3,907	4,992	12,690	12,917


Diluted Earnings per Share	0.58	0.69	2.08	1.25
Adjustment for OMSR & merger expenses	(0.03)	(0.04)	(0.31)	0.42

Adjusted Diluted Earnings per Share	$ 0.56	$ 0.65	$ 1.77	$ 1.67


Return on Average Assets	1.23%	1.73%	1.51%	1.12%
Adjustment for OMSR & merger expenses	-0.06%	-0.08%	-0.17%	0.29%

Adjusted Return on Average Assets	1.17%	1.64%	1.34%	1.41%

*valuation adjustment to the Company’s mortgage servicing rights

**transaction costs related to the Edon acquisition

***tax effect is calculated using a 21% statutory federal corporate income tax rate

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SOURCE SB Financial Group, Inc.