Thank you for standing by, and welcome to the Glacier Bancorp third quarter earnings conference. I would now like to hand the conference over to your host, CEO of Glacier Bancorp, Randy Chesler. Please go ahead.
All right. Thank you, Lateef, and good morning, and thank you for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer, Don Chery, our Chief Administrative Officer, Angela Dose, our Chief Accounting Officer, Byron Pollan, our Treasurer, and Tom Dolan, our Chief Credit Administrator. We closed out the third quarter encouraged by our loan growth, which came on strong in the later part of the year. We think our company footprint covers some of the best growth markets in the country, and it's great to see those markets showing continued signs of increasing activity. Our people and our unique business model once again produced very strong results in all of our divisions across the West. I'll touch on some business highlights first and then provide some additional thoughts on the quarter.
The loan portfolio, excluding Paycheck Protection Program loans, had strong growth of $382 million, or 14% annualized. The loan portfolio grew $711 million, or 9% annualized from the beginning of the year. Core deposits continued to flow into our divisions, growing $742 million or 18% during the quarter, and growing $2.7 billion or 25% annualized from the beginning of the year. Net income for the first nine months of the year was $234 million, an increase of $50 million or 27% from the $185 million in the first nine months of the prior year. Pre-tax, pre-provision income was $285 million for the first nine months of the current year, an increase of $18 million or 7% compared to the $266 million in the prior year first nine months.
Net interest income, excluding PPP loans in the current quarter, was $154 million, an increase of $4.6 million or 3% from the prior quarter. Net interest income excluding PPP loans for the first nine months of the current year was $452 million, an increase $22.5 million or 5% over the same period in the prior year. Our efficiency ratio for the current quarter was 50.17%. Excluding PPP loans, the efficiency ratio was 53.59% compared to 53.53% in the prior quarter. Non-performing assets of $51.2 million as of current quarter end decreased $1.9 million or 4% from the prior quarter. NPA to assets ended the quarter at 24 basis points. Net charge-offs to average loans was 2 basis points for the current year- to- date period, compared to 3 basis points in the prior year same period. We declared a quarterly dividend of $0.32 a share.
The company has declared 146 consecutive quarterly dividends and has increased the dividend 48 times. We saw excellent loan growth in our markets with Wyoming, Arizona, and Idaho leading the growth across our eight-state footprint, with all markets growing a total of $382 million or 14% annualized, excluding PPP loans. We are pleased to see that almost all of the growth came from commercial real estate. New loan production for the quarter was strong with over $1.6 billion in new loans originated. We continue to deepen the relationship with the 3,000 new customers we picked up as part of round one PPP, with over $400 million in loans made to this group so far. We now have about $370 million of round one and two PPP loans still on the books out of a total of over $2 billion that we originated starting in 2020.
As I noted last quarter, we still have some growth headwinds with borrowers using excess liquidity to pay down loans and the increasing level of competition for new business. We continue to stick to our disciplined lending and risk management strategies and generally see most of the players in our markets still avoiding a race to the bottom on credit. We see price competition continuing to heat up for the best loans. That being said, we are very happy to enter the fourth quarter of the year with very good momentum and a very strong pipeline of new loans.
Considering all of this, our original target of 4%-6% full year growth for 2021, excluding PPP, is more likely to be closer to 8%-10% when we close out the year. Core deposit growth continues to be surprisingly strong across our footprint, driven by excess customer liquidity due to the unprecedented government stimulus, lack of spending due to the pandemic, and our success in establishing new deposit relationships. Core deposits increased $742 million at the end of the quarter and totaled over $17 billion. Most importantly, the core deposits have a cost of 6 basis points, down 1 basis point from the prior quarter and down 7 basis points from the quarter a year ago. Non-interest-bearing deposits increased $325 million or 5% over the last quarter and increased $1.2 billion or 21% from the prior year third quarter. Non-interest-bearing deposits are now 38% of core deposits.
Total debt securities of $8.5 billion increased $1.3 billion or 19% from the prior quarter and are up $4.2 billion or 97% from the prior year third quarter. We continue to purchase debt securities with the excess liquidity from the increase in core deposits and the SBA forgiveness of PPP loans. Debt securities represented 40% of total assets at the end of the quarter, compared to 35% last quarter and 30% at the end of 2020, and 24% a year ago. We will continue to fully invest excess deposits, buying highly liquid and high-quality investments with shorter duration, given current low but increasing rates, with the plan of putting these deposits to work as we continue to grow.
The company's net interest margin as a percentage of earning assets on a tax-equivalent basis for the current quarter was 3.39%, compared to 3.44% in the prior quarter and 3.92% in the prior year third quarter. The core net interest margin was 3.17%, compared to 3.33% in the prior quarter and 4.02% in the prior year third quarter. Earning asset yields have decreased from the combined impact of the significant increase in the amount of debt securities and the decrease in yields on both securities and core loans. The yield on debt securities ended the quarter at 1.62%. That's down 12 basis points from the prior quarter. Fueling the decline in the investment portfolio yield was the addition of over $1 billion of new debt securities in the quarter at a rate of around 1%.
The yield on the loan portfolio ended the quarter at 4.86%, down 16 basis points from the prior quarter. We added $1.6 billion in new core loan production with yields around 4.1%, which drove the total loan portfolio yield down. Given the interest rate environment, our focus continues to be on growing net interest income, which for the quarter increased $4.6 million less PPP. Non-interest income of $34.8 million declined about $700,000 or 2% from the prior quarter, due primarily to the reduced gain on sale from residential mortgages, which decreased $2.2 million or 14% from the prior quarter. The housing market and refinancings slowed down a bit across our footprint. Our biggest concern in the real estate business remains the supply of homes available for sale. The efficiency ratio was 50.17% in the current quarter, 49.92% in the prior quarter, and 48.05% in the prior year third quarter.
Excluding PPP, the ratio would have been 53.59% in the current quarter compared to 53.53% in the prior quarter and 50.51% in the third quarter a year ago. Intangible book value per share increased in the quarter from $18.74 to $19.11, or 2%. Our combination with Altabancorp is proceeding very well. We closed the transaction October first , a full month earlier than planned, as we received all regulatory approvals sooner than expected. I've been very impressed with the Alta team's focus on continuing to serve customers and growing the business. We continue to work closely with Alta on the planning for our core processing conversion in March of 2022. Alta has a very good technology platform, we are studying many products that may be a good fit for our other divisions. I've received a lot of questions about M&A since a number of the recent MOEs were announced.
While we see the MOE banks embracing a new strategy, we intend to stick to our disciplined approach on M&A that has proven to be successful for us. Our focus today is on Alta, and we want to make sure we fully complete our integration before we look for another transaction, given the strong EPS accretion that Alta will produce for Glacier. Remember, this transaction produces almost the same EPS as our last five transactions combined. The Glacier team accomplished a lot in the third quarter. While we are still dealing with COVID in many markets, the team achieved great results. The loan growth we experienced in the quarter was great to see, and we think we are very well positioned to close out 2021 strong and be well positioned to continue to grow in 2022. That ends my formal remarks.
I'd now like Lateef to open the line for any questions our analysts may have.
Thank you, as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeffrey Rulis of D.A. Davidson. Your question, please.
Yeah, good morning.
Morning, Jeff.
Just a few questions on Alta, focused on that. Maybe the first one for Tom. Just trying to get a sense for, as you get under the hood a bit more, the health of the portfolio, given that the bank had done some sort of pre-pandemic pruning, and just get a sense for, as you get your arms around that portfolio in detail, how the credit profile meshes with Glacier.
Sure, Jeff. The portfolio, we're very pleased with. The pruning they did pre-pandemic proved to be a successful strategy for them, and they've continued to show that through their asset quality metrics, which, as of today, at the end of the quarter, were 15 basis points NPAs and continue to show positive trends. What we've seen so far, we're very pleased with, and I think that was accomplished largely because our two credit cultures were very similar. Thus far, they've been able to fold in quite easy with Glacier.
Great. Kind of off that base, Randy, I think the idea at Alta was had done that pruning, and then they were turning to growth. Same question, I guess, as you engage with that team a bit more, kind of the growth potential of that platform, just to kind of give us an update of your latest thoughts.
Yeah. No, we've spent a lot of time in Utah. We all have with the team. They are doing a great job focusing on their customers, taking some of the products and services and bigger balance sheet that we offer and getting out to their customers. We've seen, against a backdrop of a market that's very strong, and we still believe a lot of those long-term growth trends that make Utah the number one growth market in the country and number one economy on a lot of fronts, they're incredibly well-positioned to take advantage of that. They've got a very good team in place in all the right markets. We've seen the results of that as we've brought them on board, and I think they're very well-positioned for 2022.
Great. Maybe a last one, a little more mechanical, maybe for Ron. Just on the expense front, if you've got a general idea of kind of the core base this quarter if we get out the merger cost. What do you think is settle in run rate on a quarterly basis with Alta, I guess, pre and post conversion? Thanks.
Yes. Jeff, this is Ron here. Excluding the merger related, our best estimate for the fourth quarter is $122 million-$125 million. That run rate will stay probably true for the first quarter and then in the next year and then the second quarter as we begin to really get into the cost savings that we modeled. That could come down. It just depends on how fast we're going to realize that. In the merger model, as we published, we said we could save 17.5% of their non-interest expense, and that would be over 2022. It all looks good.
Great. Thanks. I'll step back.
Thank you. Our next question comes from David Feaster of Raymond James. Please go ahead.
Hey, good morning, everybody.
Morning, David.
Morning.
I just wanted to start maybe on the fee income side. It was nice to see another strong quarter. Mortgage continues to outperform. I just wanted to get a sense of the trends that you're seeing in mortgage and maybe whether you'd expect to kind of track MBA forecasts, then just any updates on the mortgage outlook, just given the inclusion of Alta and some of the opportunities and capabilities that they bring to the table.
One of the very nice things about Alta is they have a very high-quality mortgage business led by a very capable team and leader. We think that, coupled with what I mentioned before and the strength of those markets, it's a great opportunity to do well. In terms of the future, MBA right now is forecasting about a 35% drop in origination volumes next year. We think we'll be maybe off closer to 25% versus this year. A good part of that is the lift we'll get from adding Alta onto our platform. Again, in a lot of our markets, we should benefit because we do well in purchase environments. We have strong market share. If there's any limiting factor, as I noted in my comments, it's just the supply of houses for sale.
We think it'll be another really good year for the mortgage business.
Our next question comes from the line of Brandon King of Truist Securities. Your line is open.
Hey, good morning.
Morning, Brandon.
Yes, I wanted to touch on the CRE growth. It was pretty strong in the quarter, and it seems like you gained momentum there. If you could just discuss what you're seeing there and the outlook going forward. You also mentioned the intense competition from competitors. Are you competing on price a little bit there to get some of that growth? Just wanted more color on that.
Sure, Brandon. This is Tom. The pipeline remains very solid. Obviously, given our markets, it's going to be centered in CRE . We were happy to see that growth in the third quarter. We definitely are seeing continued pressure on pricing, even more so in some of the larger metro markets. Some of the smaller markets where we have a controlling market share, we're able to hold pricing a little bit better, which is why I think on average, we're still seeing new production just slightly north of 4%. For A paper, which is obviously our focus, and once deals are north of seven figures, we're continuing to see some pretty strong pricing pressure there. We're certainly willing to compete there on that side for the right opportunity and the right relationship rather than compromising credit quality. We have not done that, nor will we do that.
I would say the outlook for the fourth quarter, given our pipeline and some of the tailwinds we have with some of the unfunded construction projects that we've booked, I think gives us a lot of momentum going into the fourth quarter.
Okay, thanks. Then on to excess liquidity management. I know deposit growth remains strong, and I know you're deploying most of that excess liquidity into securities book. Is there a certain level of cash to earning assets that you're trying to manage to based off the level of deposit growth that you're getting? Is there a certain level that you're managing to?
No. I think that we have a ballpark cash range that we maintain on the balance sheet for certain liquidity measures we have. That's what we would consider our baseline. That's to meet obligations and more for just business management. Other than that, it's a function of the ability to reinvest it and our read of the markets and how quickly we want to reinvest the cash that we are seeing come in.
Then also on that note, based off what you've seen recently, are you more confident in the strong growth in deposits, those excess cash balances staying on the books for customers?
Yes. We continue to see the deposits come in always a little more than we expect. Every quarter, we think it's going to slow down. At this point, we don't see a big catalyst that's going to drive those deposits out.
Okay. Thanks for answering my questions.
You're welcome.
Thank you. At this time, I'd like to turn the call back over to Randy Chesler for closing remarks. Actually, I'm sorry, sir. One moment. I believe we do have another question in queue. Tim Coffey of Janney, your line is open.
Thank you. Got it under the wire. Randy, can you kind of talk about the trends in business formation that you're seeing within your footprint? There's been a lot of growth in the population in your states. I'm wondering kind of what you're seeing in terms of business formation and what you're doing to attract some of those new businesses to the bank.
Sure. Yeah, I think we are just really starting to see that. We always knew that that would follow the in-migration. The people really started to come in first. We see two things developing now more clearly. One is businesses are relocating in, I'll talk about that in a second, and also we have businesses looking to expand to meet the bigger population base. We have two things really starting to happen, and we see the stress in the service around the footprint in terms of with more people added, just not enough service providers. That's unfolding. We're beginning to see that more with warehouse storage building as the first prong of that. I'd say the most active state in our eight-state footprint for new business relocating in is Arizona. We're getting a very good flow of business interested in going to Arizona from California.
That's probably our most active market, where we're really starting to see those trends develop.
As you start to see these trends progress further, do you think that could increase your annualized loan growth rate or just result in better credits in the portfolio or mix?
Well, we're always looking for good quality, so I think that's pretty consistent. It will certainly help with the growth rate, and we're starting the budgeting process, so it's a little early to tell what that growth rate will look like. I think you're already seeing real strong growth start to break out in this quarter. We're going to enter the fourth quarter with a lot of momentum. We'll see still a bit early through the budgeting process, though we'll know more at the end of this quarter, just what 2022 looks like. At this point, I'd say we're very optimistic about 2022.
Okay, great. Thanks. Those are my questions.
All right. You're welcome.
Hey, Keith.
Is there anyone else in the queue?
Yes, sir. Actually, we have a follow-up question from Jeffrey Rulis of D.A. Davidson. Your line is open, sir.
Thanks. Hey, Randy. Just had a couple housekeeping, maybe for Ron. Looking at the other expense line item, if we exclude merger expenses, that was up linked quarter by $2 million. Is any detail on what was in that line?
It really is a sundry amount of different accounts. There's nothing particular.
Got you. Ron, the tax rate ticked down a bit. Any thoughts about how you closed the year and maybe outlook for 2022 with Altabancorp on board?
Just on the tax expense, I think we'll end the year with a somewhere between 19% and 19.5%. It ticked down in this third quarter because of the pandemic. We're a pretty significant investor in Low-Income Housing Tax Credit in particular. When you have to amortize the equity, we were using projections from all of the different syndicators we work with. When the Schedule K-1s came in, we had to true it up. That's a one-time reduction, but clearly a benefit that showed up. 19.1% is where we are right now, and I think we'll finish a bit higher. You could even use 19%, 19.3%, somewhere in that range. For 2022, I would take that to as high as 20.5%, no higher than 21%.
The reason I have to give that range, we're looking to put on more tax credits once we were in the past the LOI and the merger agreement. I've been talking to syndicators about putting on more federal tax credits. Low-Income Housing, certainly, but we're also looking at increasing our New Markets Tax Credit and those reduced credits faster. Dependent upon when I can close those, when they're available, that's the reason for the fluctuation in the tax rate.
Thank you.
Mr. Chesler, the queue is clear. Standing by for your remarks.
All right. Thank you, Lateef. Well, we want to thank everybody for dialing into the call today. Wish you a great Friday and a great weekend. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.