Independent Bank Corp. (NASDAQ:INDB) Q3 2022 Earnings Conference Call October 21, 2022 10:00 AM ET
Company Participants
Chris Oddleifson – President and CEO
Mark Ruggiero – Chief Financial Officer
Rob Cozzone – Chief Operating Officer
Conference Call Participants
Mark Fitzgibbon – Piper Sandler
Laurie Hunsicker – Compass Point
Chris O’Connell – KBW
Operator
Good day. And welcome to the INDB Independent Bank Corp. Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements.
In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website.
I would now like to turn the conference over to Chris, President and CEO. Please go ahead.
Chris Oddleifson
Thank you, Dave, and good morning, everyone, and thanks everybody for joining us today. I am once again joined by Mark Ruggiero, our Chief Financial Officer; and Rob Cozzone, our Chief Operating Officer.
I’d like to begin by pointing out that the underlying strength of our franchise was on full display in the third quarter. For our long-term investors, you know that for years, we have emphasized building core relationships versus having a transactional business orientation. No matter what the rate environment or liquidity means, we have incented colleagues to expand existing relationships and build new ones.
As a result, we continue to generate record new core deposit accounts. This is occurring at both the absolute level and at the average per branch level. While our core deposit franchise has always been a source of tremendous economic value, with a rising interest rate environment, we are now seeing the impact in our NIM and net income.
Net income for this past quarter rose to $71.9 million or $1.57 per share, well above both prior quarter and prior year results. The returns in the quarter were quite strong as well with a return on assets of 1.4% and a return on tangible common of 15.3%.
Mark will be taking you through the quarterly details shortly, but highlights include, revenues were the major driver of performance, rising 10% over prior quarter levels. Our balance sheet management and asset sensitivity has positioned us quite well to capitalize on the rising rate environment as evidenced by the significant increase in net interest margin, and Mark will be expanding on this topic in his comments.
While loan levels were essentially flat this quarter due to paydowns and refinancings, we are still experiencing robust loan activity. Despite the slowing economy, total loan closings exceeded $800 million in the third quarter, while commercial pipelines were actually up this quarter.
Core deposits rose to 88% of total deposits, which included a healthy growth in non-interest-bearing deposits, while higher price deposits continue to attrite. The value of our powerful core franchise — core deposit franchise simply could not be understated.
Fee revenues rose once again this quarter and it was marked by strong retail transaction activity. Within investment management, our assets under administration levels held pretty constant as a continuing high volume of new money inflows has helped counter the reduction in market valuations.
Expense levels continue to be intelligently managed as our operating efficiency measure dipped below 50% this quarter. Credit quality remains in good shape with negligible net losses, lower delinquencies and stable non-performing levels experienced in the third quarter, and capital levels remained at comfortable levels, giving our Board the confidence to approve a new stock repurchase program as covered in our earnings release.
Beyond the quarter, we continue to advance the franchise on various fronts. For example, we recently appointed Dawn Mugford as our Chief Risk Officer. Dawn counts to us with over two decades of experience in risk management, audit and quality assurance. This is an important step in achieving our goal to deepen our enterprise risk management infrastructure.
We also continue to recruit experienced senior talent into our company who are attracted by both our business potential and operating culture. This continued in the third quarter of key hires into our commercial lending and investment management ranks. Such hire will also serve to help us capitalize on the new business opportunities that we see in the former East Boston Savings Bank customer bases and markets.
We have also recently begun deployment of Encino’s industry-leading loan operating system, with online origination capabilities for small business loans soon to follow.
And lastly, in line with the growing strength and recognition of the Rockland Trust brand, we have embarked on a new advertising campaign that highlights our success in providing credit, banking services and advice to local business owners.
Turning to the economic picture, I am sure you all have noticed that inflation continues to climb despite the Fed hiking rates at a blistering pace not seen in 40 years. In fact, the recent inflation report shows price increases are pretty broad-based and indicates ample momentum for further upward movement.
Consumer spending has flattened, but consumers remain resilient leaning on accumulated savings and tapping sources of credit to bolster spending. I think a cooling in the eco — economic activity does seem inevitable. This combination of a surging inflation, a looming potential recession and the unprecedented speed of Fed hikes does make for an uncertain operating environment. As in all such prior periods, we bring a healthy mix of caution and preparedness to potential downside scenarios.
As I have said before, we will remain disciplined and not engage in competitor practice not to our liking, especially on the credit side. Flexibility is key here, and we are focused on remaining nimble. And in the near-term, we will continue to benefit from the rising rates, owing to our asset sensitivity and we will also look to generate growth from existing operations.
What is constant is our intense focus on building relationships combined with our caring, respectful or relationship oriented culture that has served us well over these many years. We believe that a great place to work leads to a great place to Bank leads to solid financial performance and that allows us to invest in our colleagues and customers.
The Boston Globe has recognized us as a top place to work for over a decade. J.D. Power ranks us as number one in retail satisfaction in New England and the results speak for themselves. Our discipline and careful management of our business prepares us well when a weak economy or underlying crisis emergence — emerges.
I will end with the reminder that we emerged from the great financial crisis with stronger capital and a more robust customer base. If we enter more difficult economic waters, we believe we will continue to distinguish ourselves. We are confident we have the capital, core deposit franchise, competitively advantaged businesses, attractive markets and skilled colleagues to manage anything that comes our way.
And with that, I will turn it over to Mark.
Mark Ruggiero
Thanks, Chris. I will speak primarily to the earnings presentation deck that was included in our 8-K filing last night and is also available on our website in today’s investor portal. Jumping to slide four of that deck, 2022 third quarter GAAP net income rose to $71.9 million and diluted EPS was $1.57, reflecting 16% and 19% increases, respectively, from the prior quarter results.
As Chris said, this performance serves as a great example of our core franchise value and profitable balance sheet positioning, while remaining disciplined in this challenging environment.
The third quarter results produced a 1.43% return on assets, a 9.90% return on average common equity and 15.26% return on tangible common equity for the quarter, all up significantly from the prior quarter results. In addition, this slide also summarizes the main drivers of the quarter performance that Chris just covered.
Not reflected here, but worth noting, tangible book value per share dropped $0.75 to $39.56 as of September 30th, as a result of the repurchase of 443,000 shares during the quarter and additional other comprehensive losses offsetting the strong earnings in the quarter.
The repurchase activity completes the program announced earlier this year, and as noted in our announcement last night, another $120 million share repurchase program was authorized, providing additional flexibility in optimizing our capital position moving forward.
Turning now to the components of the quarter’s results, slide five provides a high-level summary of the loan portfolios for the quarter. As noted here, reported balances are relatively flat, and when excluding PPP activity, growth for the quarter was 1.3% on an annualized basis.
Similar to last quarter, the consumer portfolio has experienced strong growth. And on the commercial side, despite very competitive pricing in the Northeast market, new commitment activity remained robust, with total balances decreasing as a result of continued elevated payoff activity within the commercial real estate category.
Slide six provides some additional details around the loan activity for the quarter. As noted, new commercial commitments for the quarter were strong at $522 million, though, down slightly from the prior quarter.
While the approved pipeline of $383 million should suggest similar closing activity heading into Q4. In terms of commercial activity, we continue to see good opportunities across a number of asset types in diversified industries with a few highlighted on this page.
And what should be our last noteworthy impact from PPP, you can see the PPP balances pay down to $11 million as of September 30th, generating $400,000 of net fees recognized this quarter compared to $1.8 million in the prior quarter, with immaterial amounts left to be recognized going forward.
As noted on the right side of the slide, the consumer portfolios again yielded strong growth in balances, as approximately 90% of the quarter’s mortgage activity was retained in the portfolio, while solid home equity demand and increased line utilization led to overall growth in that category.
Moving to slide seven, again, echoing what Chris just stressed in his comments, deposit activity reflects the strong balance sheet position as we discussed last quarter, as overall decreases resulted from our ability to allow for the outflow of highly rate sensitive balances and time deposits, while staying focused on core relationships and operating accounts.
With core deposits comprising 88% of total deposits as of September 30th, the cost of deposits increased from 5 basis points to 15 basis points in the quarter, representing only a 5% cumulative deposit beta for the current rate cycle so far or slightly over 7% when isolated to interest-bearing deposits only. As an aside, both numbers are slightly higher when you are looking at Q3 Fed increases only.
With deposit pricing well in check, slide eight shows additional details over the reported margin, as well as a breakdown of volatile or non-recurring items to reconcile back to our core net interest margin.
Our overall asset sensitivity is clearly reflected in the results shown, with the core net interest margin results, which exclude net PPP fees, purchase accounting and other non-recurring items, increasing 36 basis points as compared to the prior quarter.
Also benefiting the margin, our decision to be patient in deploying excess liquidity has allowed for a measured build of higher yielding securities balances into a gradually improving market, while still benefiting from yield increases on meaningful cash balances. This strategy is anchored in our interest rate management approach summarized in the bottom right section of the slide.
Net of our hedging portfolio, which now totals $1.5 billion in notional, we anticipate 20% to 25% of our loan portfolio will immediately re-price with any future rate increases. And though, deposit rate increases will likely accelerate going forward, we are still very well positioned to benefit from future rate increases, while continuing to layer in protection to a down rate scenario.
Moving on to asset quality, slide nine provides some key metrics worth highlighting. Non-performing loans stayed consistent at $56 million. The activity for the quarter included the positive resolution of a $24 million commercial real estate loan payoff, which resulted in a $1.3 million recovery of previously deferred interest, which was offset by a new to non-performing $24 million C&I loan.
As a result of the commercial real estate non-performing payoff I just mentioned, total delinquencies dropped significantly to only 17 basis points of the portfolio, as the new to non-performing C&I loan is under a forbearance agreement and considered current and net charge-offs were essentially zero for the quarter.
In conjunction with the category shifts in non-performing assets in a relatively stable credit outlook, $3 million of provision for loan loss was recognized, slightly increasing the allowance for credit loss as a percentage of loans to 1.08%.
Shifting gears to non-interest items, slide 10 provides details on non-interest income results for the quarter, a few of which I will highlight. Deposit account interchange and ATM fees all increased nicely from the prior quarter. Regarding investment management income, strong net inflows helped offset market depreciation, as assets under administration dropped by only $65 million to $5.1 billion at September 30th.
The modest reduction combined with the usual seasonal decrease in tax preparation fees led to an overall investment management income decrease of approximately $900,000 for the quarter. The $267 million of gross new money noted on this slide is reflective of our sales force team experiencing great momentum in both the legacy and newly acquired markets and geographies.
And lastly, mortgage banking and loan level swap income continue to be challenged in this rising rate environment, as both of these income streams are impacted by our current position and ability to retain more fixed rate volume on the balance sheet as part of our strategy to protect against future down rate scenarios.
Turning to the next slide, total operating expenses of $92.7 million reflects a 2.4% increase from the prior quarter driven primarily by increased salaries and incentive compensation, as well as some larger non-recurring items such as elevated office equipment spend. And lastly, the tax rate for the quarter remained relatively consistent at 24.4%.
In conclusion and moving on to slide 12, I will finish with a few updates regarding 2022 fourth quarter guidance, as we will provide full year 2023 guidance next quarter. As we think about our year-to-date results and the relative uncertainty over the general economic environment, we anticipate relatively flat loan and core deposit balances over the fourth quarter, with some modest level of continued reductions in time deposits.
As I noted before, we feel very good about our overall balance sheet position and we will continue to stay disciplined in our pricing, always focused on growing core relationships on both the loan and deposit side of the ledger, commensurate with overall economic growth. As a byproduct of this disciplined approach, assuming no changes to overall economic conditions, we anticipate credit loss and provision levels to be well contained.
Regarding the net interest margin, without predicting the level of additional Fed Reserve rate hikes in Q4, we do anticipate further margin expansion in Q4, driven by the following assumptions; 100% cash balance betas; 20% to 25% loan betas net of our hedges and will also be applicable to the late September rate increase not yet reflected in the Q3 results, offset with a slight increase in the total deposit betas I referenced earlier to a 15% range.
Regarding non-interest items, total non-interest income could experience modest decreases driven primarily by seasonal declines in deposit and interchange income.
Regarding our overdraft program, we continue to work through expected program changes and anticipate an implementation date later in the year. As such, we will provide the dollar impact as part of our full year 2023 guidance next quarter.
Non-interest expenses are expected to increase in the low single-digit percentage range. And lastly, the tax rate for the fourth quarter should approximate 25%.
That concludes my comments. And with that, we will now open it up to questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Fitzgibbon
Hey. Good morning, guys. Happy Friday.
Chris Oddleifson
Happy Friday to you.
Mark Ruggiero
Hi, Mark.
Mark Fitzgibbon
Thank you. Mark, quick question, on your deposit betas assumption for the fourth quarter at 10% to 15%, it just strikes me as low given the speed with which rates have gone up here. What gives you so much confidence you are — that you are not going to see more pressure than that, are you not feeling it from your commercial customers today?
Mark Ruggiero
We certainly feel pressure, Mark. We feel it mostly in pockets and I think that’s the reason why we continue to stress just the value of our deposit franchise. 100-year focus on core operating accounts, primarily on the consumer side result in the majority of our deposit base being less rate sensitive.
So we certainly have pockets where we are feeling pressure. When you look at third quarter results, you look at drops in our municipal deposits, some larger commercial customers as well and that’s where we have been, and will continue to stay aggressive in deposit pricing.
But we think we really have a nice balance of not having to go to outside the norm across the majority of the deposit base and continue to stay focused on those deposits that are more rate sensitive and that combination we believe will continue to land us in a spot that performs better than most of the industry.
Mark Fitzgibbon
Great. And then, secondly, could you — I know you didn’t give specific guidance on the fourth quarter for the margin, but I guess, if you just assume rates move with the forward curve.
Mark Ruggiero
Yeah.
Mark Fitzgibbon
Can you help us think about the magnitude of the margin change in 4Q?
Mark Ruggiero
Yeah. So for the forward curve, certainly, pricing in now another 75 basis points in November and 50 basis points expected in December. If that comes to fruition, I think, you would see our margin increase to the tune of about 20 basis points to 25 basis points.
Mark Fitzgibbon
Okay. Great. And then on the buyback, I guess, I was curious how you think about tangible book value dilution from that given your appetite to repurchase stock at north of 2 times tangible. How are you — do — are you concerned about that, do you not worry about that, any thoughts there would be great.
Mark Ruggiero
Yeah. We certainly do worry about that. I think we have talked about this mentality last quarter as well and that is this program is in place to really be opportunistic if we do and see any pressure on our stock price.
I think the levels you just noted, Mark, at 2 times tangible. That typically leads to an earn-back period that we most likely would not be comfortable with. I don’t want to suggest any sort of dollar threshold or earn back threshold publicly, but we take that certainly into account.
And I think recognizing which price level we believe is appropriate for an earn back is going to drive any decisions on executing on that program going forward. But this is to have in place as just another lever for us to capitalize, given our excess capital position and just gives us flexibility to deploy that capital.
Mark Fitzgibbon
Okay. And then shifting gears on the credit front, you guys had a little uptick in C&I non-accruals this quarter and some other banks in your market have kind of seen the same thing on the C&I side. I guess, I was curious, are you seeing and I know your levels of delinquencies and non-performance are really low, but are you seeing any particular pockets of areas that are challenged or sectors that you are a little concerned about?
Mark Ruggiero
No. Not necessarily, Mark. I think we are — we have had a pretty similar message over the last couple of years and that is with our commercial portfolio, we often see very unique situations lead to individual credits degrading into non-performing.
So that’s exactly what happened here in the third quarter. This is a one-off unique situation. We don’t see it as being pervasive across the portfolio or an indication of any specific industries that we are concerned about.
We obviously are staying very cautious where, I think, that reflects in our loan growth. We stick to very disciplined underwriting and pricing guidelines, but we are still feeling knock on wood, good about our credit and this one movement into NPA is not reflective of anything to a greater scale.
Mark Fitzgibbon
What industry was it, Mark?
Mark Ruggiero
This is a manufacturer sort of slash [ph] distribution industry.
Mark Fitzgibbon
Okay. And then, lastly, I was — it was impressive that you had positive flows in the wealth management business in each of the last four quarters sort of bucking the market trend. Where is that coming from, is that high net worth, is that institutional or any other color around that would be great? Thank you.
Mark Ruggiero
Yeah. It’s been — it’s really, I mentioned, being able to capitalize on the new markets. So we have seen some success. It’s still early innings, but we have been able to see some opportunity as a result of the East Boston acquisition. We had some key hires in this space that have really just hit the ground running and have had really good success out of the gate and coming over to us.
So it’s a widespread, Mark. It’s well diversified across our kind of overall wealth management customer base. But they have a lot of great momentum and it’s something where we are very excited to see the level of positive inflow that they have been able to generate.
Chris Oddleifson
Yeah. I’d like to add something there. This is Chris. Really years ago we cracked the code in developing confidence among our branch colleagues and especially our commercial banking colleagues to make referrals of their prized customers into our wealth management business.
This is difficult to do and we have a culture here of doing that and that’s what’s really generating a lot of this fine. And as we buy new franchises, that just adds more markets to bring our services to. And especially in a market like East Boston Savings, like, they didn’t have any of these capabilities. So this is a brand-new capability and we are showing success.
Mark Fitzgibbon
Thank you.
Operator
Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.
Laurie Hunsicker
Yeah. Hi. Thanks, Chris and Mark. Good morning.
Chris Oddleifson
Good morning, Laurie.
Mark Ruggiero
Good morning.
Laurie Hunsicker
I wondered if we could go back to the CRE loan that carried in the quarter. I think you mentioned it was $1.3 million in recovery in to net interest income. Did I hear that correctly?
Mark Ruggiero
That’s right, Laurie. Yes.
Laurie Hunsicker
Okay. Okay. So about 3 basis points or so. So the guide that you just gave, Mark, on 20 basis points to 25 basis points, was that a headline guide or was that core excluding that or how are you thinking about that?
Mark Ruggiero
That would be — yeah. That would be a core number. And just back to that $1.3 million, Laurie, we do show that in the table where we reconcile to the core margin. That’s embedded in the, I think, it’s — we call it the non-accrual impact. There’s a line item there. You can see that was about $560,000, I think, of an impact in the third quarter.
So that’s reflective of $1.3 million being backed out, offset by about $500,000 to $600,000 of reversal of interest on the new to non-performing. So we always treat that as non-core and the guidance I gave is on a core basis.
Laurie Hunsicker
Okay. That’s perfect. That’s helpful. Can you update us on where you are with new branches in terms of the new branches what you have got under deposit and just new branch build, how you are thinking about that for the next year?
Mark Ruggiero
I am going to let Rob speak to that.
Rob Cozzone
Good morning, Laurie.
Laurie Hunsicker
Good morning.
Rob Cozzone
Good to hear from you. Our de novo plan in the Greater Worcester market now includes five branches, three in the city of Worcester, which we believe to be a sufficient complement to certainly serve the city in the near-term. We also have two branches in the suburbs of Worcester, one in Shrewsbury, one in Westborough, Westborough being our most recent opening.
Total deposits in those flag branches are about $65 million as of September 30th, which is down a little bit, not surprising given the rate environment, but our customer momentum continues to be quite strong.
So we are pleased with the customer expansion that’s happening there. In addition, on the lending side, we are doing quite well in commercial with a full team there, some treasury management folks, as well as an IMG professional.
So all in all, our expansion into Worcester is going well. We don’t have any new plans for branches on the docket at the moment. I suspect that we will budget for maybe one additional branch in 2023, but we haven’t finalized those plans. And that would not be in the city of Worcester, it would be in one of the surrounding towns.
Laurie Hunsicker
Okay. That’s great. All right. And then, I guess, Chris, last question for you. I know it’s not an optimal M&A environment at the moment, but you still have super strong currency. Can you just refresh us what you are thinking here with rising rates, how you are approaching M&A, are you all still considering it, just general thoughts would be helpful? Thanks.
Chris Oddleifson
Yeah. Laurie, earnings conference call would not be the same without you asking this question. So thank you for continuing the tradition. So our posture has not changed, which is, we are here with our strong currency.
When a Bank Board has decided, hey, listen, we think we might want to jump on to INDB currencies for a variety of reasons, whether it be scale, investments in technology, sort of talent, a whole variety of reasons. We are here and willing to talk.
And I know this current rate environment would make for some very interesting conversations, but the fundamentals of bringing Banks together and building scale are still there and we have to be careful not to sort of get too distracted by sort of how we think about accounting. So our — we — as usual, I would welcome those conversations.
Laurie Hunsicker
Thank you.
Operator
[Operator Instructions] Our next question comes from Chris O’Connell with KBW. Please go ahead.
Chris O’Connell
Good morning.
Chris Oddleifson
Hi, Chris.
Chris O’Connell
I just wanted to start off on the loan portfolio side. CRE has been under pressure year-to-date and based on the outlook for the fourth quarter, it sounds like could remain under a little bit of pressure here into the back end of the year. Just hoping to get an update as to what you are seeing in the CRE market, where you are being cautious and maybe if there is some lumpier larger loans remaining from the EBS fee book that you are not planning to retain as they come due, what that — what those amounts would be?
Mark Ruggiero
Yeah. I think your last point there, Chris, is a big driver of the experience we have had year-to-date. When we closed on East Boston, there was no secret. We were pretty transparent about expectations in seeing run-off in that book for a number of reasons and we are certainly seeing that, and unfortunately, we have seen some level of outflow in addition to what we were anticipating.
As you know, they typically had larger on-balance sheet holdings than we have historically underwritten. And when you have big deals like that, just a handful of payoffs, can certainly move the needle and we have continued to stay disciplined in terms of limiting our on-balance sheet exposures to individual credits.
So when you have payoffs, in some cases, at the $50 million, $60 million level, we are still staying fairly disciplined in holding in most cases only $35 million to $40 million of a new relationship. So that’s going to create some pressure on growing the portfolio, but we knew that, and we are comfortable with that result.
In terms of the outlook, there’s like any other Bank in this environment, we are cautious about certain asset classes. Certainly, office comes to mind, especially Downtown Boston office. There’s still levels of vacancy and then a number of facilities where I think there’s still uncertainty around lease renewals upon termination of existing leases where a lot of these buildings will end up with absorption. So we are cautious in that space.
We are continuing to see opportunities on construction, multifamily condo apartment developments. I think what we are finding is those projects that were already underway or had some level of P&S activity on them.
We are still seeing those P&S hold up and those projects are moving forward. It’s those projects where maybe it was just very early stages, we are starting to see developers possibly hitting the pause button and waiting through with the level of uncertainty.
So there’s a lot of moving pieces. It’s dynamic, as you can guess. But we are very much in the deal flow. We have great connections across a lot of the asset classes and I think it shows we continue to stay disciplined and selective about what fits our credit box.
Chris O’Connell
Got it. That’s helpful. And on the EBS fee kind of legacy book and as far as what you are seeing for the remaining lumpier larger credits coming due over the next quarter or two. I mean how many of those larger credits do you have left that are earmarked and does that put you into a position where even being relatively cautious on credit that you are kind of returning to net growth in that book next year?
Mark Ruggiero
Okay. I think that would be the whole, Chris. I mean I think the positive in all this is the rate environment will help, right? So what we have seen in most cases to-date is the opportunity for some of these larger deals to refinance out, believe it or not still at a lower rate.
That opportunity should certainly subside given where we are with current rates and continued further rate increases. So I take a lot of comfort in that. The level and the pace at which we have been seeing the attrition should definitely run-off — slow down.
I think there’s probably a handful still out there that we think have probably a higher expectation of potentially still seeing attrition. But the pace will slow and if we can stay aggressive, and finding the right opportunities and continue to generate the new closings that we have in our approved pipeline, heading into the fourth quarter is strong, that combination we hope gets us back to the positive as you suggest.
Chris O’Connell
Great. And on the liquidity deployment plans going forward, obviously, a good amount of cash deployed and increased in the securities portfolio this quarter. Is that the continued plan into the fourth quarter given the loan growth outlook and where is the right cash level that you guys want to get to longer term?
Mark Ruggiero
Yeah. I think it’s fair to say, Chris, I’d say, the pace at which we have grown the securities will certainly slow. We are being very careful about not taking for granted our liquidity. There’s certainly a lot of pressure on the deposit base. We feel very good about our deposits.
But I think it’s wise to ensure we can get — continue to have a handle over what will happen with deposit balances going forward. So we are currently sitting at an 85% loan-to-deposit ratio. These are very comfortable levels. We have historically operated in here, maybe a bit higher than that.
So I think all those reasons would suggest we probably will not get too much more aggressive in deploying excess cash. I think we are — it’s prudent to continue to repopulate the run-off we are seeing in the securities and we may grow very low single-digit percentage there, but we are going to be cautious with the deposit challenges.
Chris O’Connell
Got it. And for the securities that were invested in this quarter, I may have missed it, but what were the rates that those are coming on at?
Mark Ruggiero
Yeah. The average for the quarter believe it or not was about 3.8%. But as you can imagine, rates moved significantly throughout the quarter, so just to give perspective, the last security repurchased in late September was at a high 4% yield around 4.90%. So rates have moved up significantly. It is a very attractive market. So, spot yields now on security purchases are close to 5%.
Chris O’Connell
Great. And earlier you had mentioned on the deposit beta question, some lower betas within the overall retail deposit base, I was hoping you could give a breakdown as to the amount of retail versus commercial deposit composition?
Mark Ruggiero
Yeah. Right now we are still almost 2:1 consumer to business and then we have a sizable municipal book, as you know, about $1.2 billion in municipal deposits. But the — I don’t have the exact number, but it’s — it may be a little less than 2:1, but primarily consumer over our business base.
Chris O’Connell
That’s helpful. And then on the wealth management side, a good job keeping AUM relatively stable given the market moves with the new client inflow, based on the way you guys billed and the market movements so far late in the third quarter and into the fourth quarter. How do you see those fees coming in over the near-term in the fourth quarter?
Mark Ruggiero
I think, certainly, the market will drive where overall AUM lands. I think in terms of net flows, we still feel very optimistic heading into the fourth quarter. So all things being equal, if we are able to maintain AUM, I think, you will see a slight uptick.
I want to say, the overall average AUM was a bit higher for the third quarter compared to where we landed, so that may create a little bit of noise. But at the end of the day, we should see pretty consistent, hopefully, maybe modest uptick in overall wealth management income.
Chris O’Connell
Great. That’s all I had. Thank you.
Chris Oddleifson
Thank you.
Mark Ruggiero
Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Chris Oddleifson
Great. Thank you, Dave, and thank you everybody for joining us today. We look forward to talking with you again in January of 2023 regarding full year 2022 results. Have a good weekend. Bye.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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