Earnings Call Transcript - INDB Q3 2022

Operator, Operator

Good day. And welcome to the INDB Independent Bank Corp. Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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, President and CEO

Thank you, everyone, for joining us today. I'm here with our Chief Financial Officer, Mark Ruggiero, and our Chief Operating Officer, Rob Cozzone. I want to highlight the strength of our franchise that was clearly evident in the third quarter. For our long-term investors, we've consistently focused on building core relationships rather than being transaction-driven. Regardless of the rate environment or liquidity situations, we've motivated our team to nurture existing relationships and form new ones. This has led to record growth in new core deposit accounts at both total and average per branch levels. Our core deposit franchise has always provided significant economic value, and as interest rates rise, we're seeing a positive effect on our net interest margin and net income. Our net income for the last quarter reached $71.9 million or $1.57 per share, surpassing both the previous quarter and last year's results. The returns this quarter were also strong, with a return on assets of 1.4% and a return on tangible common equity of 15.3%. While Mark will discuss the quarterly specifics shortly, it's worth noting that revenues drove our performance, increasing by 10% compared to the prior quarter. Our balance sheet management and asset sensitivity have well-positioned us to benefit from the higher rate environment, which is reflected in our improved net interest margin. Although loan levels remained flat this quarter due to paydowns and refinancings, we witnessed strong loan activity, with total loan closings exceeding $800 million in the third quarter, and an increase in commercial pipelines. Core deposits now comprise 88% of total deposits, showcasing significant growth in non-interest-bearing deposits, even as higher-priced deposits are on the decline. The importance of our robust core deposit franchise cannot be overstated. Fee revenues increased once again, buoyed by strong retail transaction activity. In investment management, our assets under administration remained steady, as high volumes of new money inflows helped offset declines in market valuations. We've continued to manage expenses effectively, with our operating efficiency metric falling below 50% this quarter. Credit quality remains healthy, with negligible net losses, reduced delinquencies, and stable non-performing levels in the third quarter. Our capital levels also remain comfortable, allowing our Board to approve a new stock repurchase program as included in our earnings release. Looking beyond this quarter, we are advancing our franchise on multiple fronts. Recently, we appointed Dawn Mugford as our Chief Risk Officer, who brings over two decades of experience in risk management. This is a vital step toward enhancing our enterprise risk management capabilities. We are also focused on bringing in experienced senior talent who are drawn to our business potential and operating culture, continuing through the third quarter with strategic hires in our commercial lending and investment management teams. These new team members will help us harness business opportunities in the former East Boston Savings Bank customer bases and markets. We've also started implementing Encino’s premier loan operating system, with online origination for small-business loans coming soon. Additionally, with the growing strength of the Rockland Trust brand, we've launched a new advertising campaign that emphasizes our success in providing credit, banking services, and guidance to local business owners. Regarding the economic outlook, it's evident that inflation keeps rising, even with the Federal Reserve raising rates at an unprecedented pace. Recent inflation data reveals widespread price increases, indicating strong momentum for further hikes. While consumer spending has plateaued, consumers remain resilient by utilizing their savings and credit options to maintain their spending levels. A slowdown in economic activity seems likely. This combination of rising inflation, a potential recession, and rapid Fed rate hikes creates uncertainty in the operational landscape. As in previous periods of volatility, we approach potential downside scenarios with caution and preparedness. We will continue to maintain discipline and avoid competitor practices that don’t align with our values, especially concerning credit. Flexibility is crucial, and we aim to stay agile. In the short term, we will benefit from rising rates due to our asset sensitivity and seek growth from our existing operations. Our commitment to building relationships, supported by our caring culture, has proven effective over the years. We believe that an excellent workplace translates to a great banking experience, leading to strong financial performance that allows us to reinvest in our team and clients. We have been recognized as a top employer by The Boston Globe for over ten years, while J.D. Power ranks us first in retail satisfaction in New England. These results reflect our disciplined and careful business management, which positions us favorably when facing economic downturns or crises. We emerged from the financial crisis with stronger capital and a more resilient customer base. If we face challenging economic conditions again, we are confident in our ability to differentiate ourselves. We possess the capital, solid core deposit franchise, competitive advantages, and skilled team to navigate any challenges ahead. I will now turn it over to Mark.

Mark Ruggiero, Chief Financial Officer

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 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. On the commercial side, despite very competitive pricing in the Northeast market, new commitment activity remained robust, with total balances decreasing due to continued elevated payoff activity within the commercial real estate category. Slide six provides 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. 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 reflect 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. 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. 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.

Operator, Operator

The first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon, Analyst

Hey. Good morning, guys. Happy Friday.

Chris Oddleifson, President and CEO

Happy Friday to you.

Mark Ruggiero, Chief Financial Officer

Hi, Mark.

Mark Fitzgibbon, Analyst

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 that you are not going to see more pressure than that? Are you not feeling it from your commercial customers today?

Mark Ruggiero, Chief Financial Officer

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. A 100-year focus on core operating accounts, primarily on the consumer side, results 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 see drops in our municipal deposits and 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 outside the norm across the majority of the deposit base and continue to stay focused on those deposits that are more rate-sensitive. That combination we believe will continue to land us in a spot that performs better than most of the industry.

Mark Fitzgibbon, Analyst

Great. And then, secondly, could you provide some insights on the fourth quarter margin, assuming rates move with the forward curve?

Mark Ruggiero, Chief Financial Officer

Yeah.

Mark Fitzgibbon, Analyst

Can you help us think about the magnitude of the margin change in Q4?

Mark Ruggiero, Chief Financial Officer

Yeah. So for the forward curve, certainly pricing in 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, Analyst

Okay, great. I'm curious about how you view tangible book value dilution with respect to your desire to repurchase stock at more than twice tangible. Are you concerned about that? Any thoughts would be appreciated.

Mark Ruggiero, Chief Financial Officer

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 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 would most likely not be comfortable with. I don’t want to suggest any dollar threshold or earn-back threshold publicly, but we take that into account. I think recognizing which price level we believe is appropriate for an earn-back will drive any decisions on executing that program going forward. This is just another lever for us to capitalize on, given our excess capital position and gives us flexibility to deploy that capital.

Mark Fitzgibbon, Analyst

Okay. Shifting gears to the credit side, there was a slight increase in commercial and industrial non-accruals this quarter, and other banks in your market experienced similar trends. I'm curious if you are noticing any specific areas or sectors that are facing challenges or that you have concerns about, even though your levels of delinquencies and non-performance are quite low.

Mark Ruggiero, Chief Financial Officer

No. Not necessarily, Mark. I think 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, and I think that reflects in our loan growth. We stick to very disciplined underwriting and pricing guidelines, but we are still feeling good about our credit and this one movement into NPA is not reflective of anything to a greater scale.

Mark Fitzgibbon, Analyst

What industry was it, Mark?

Mark Ruggiero, Chief Financial Officer

This is a manufacturing and distribution industry.

Mark Fitzgibbon, Analyst

Okay. And then, lastly, I was impressed 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, Chief Financial Officer

We've really begun to take advantage of new markets and have experienced some success. Although it's still early, the East Boston acquisition has opened up opportunities for us. We've made some key hires in this area who have quickly achieved great success. Our efforts are well diversified across our overall wealth management customer base, and there is significant momentum. We're very excited about the positive inflow they have generated.

Chris Oddleifson, President and CEO

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 business. As we buy new franchises, that just adds more markets to bring our services to. Especially in a market like East Boston Savings, they didn’t have any of these capabilities. So this is a brand-new capability, and we are showing success.

Mark Fitzgibbon, Analyst

Thank you.

Operator, Operator

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Laurie Hunsicker, Analyst

Yeah. Hi. Thanks, Chris and Mark. Good morning.

Chris Oddleifson, President and CEO

Good morning, Laurie.

Mark Ruggiero, Chief Financial Officer

Good morning.

Laurie Hunsicker, Analyst

I wondered if we could go back to the CRE loan that came through in the quarter. I think you mentioned it was $1.3 million in recovery to net interest income. Did I hear that correctly?

Mark Ruggiero, Chief Financial Officer

That’s right, Laurie. Yes.

Laurie Hunsicker, Analyst

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, Chief Financial Officer

That would be a core number. Regarding the $1.3 million, we show that in the table where we reconcile to the core margin. It's included in what we call the non-accrual impact. There’s a line item indicating that there was about $560,000 of an impact in the third quarter. This reflects the $1.3 million being backed out, offset by about $500,000 to $600,000 of reversal of interest on new non-performing loans. We always classify that as non-core, and the guidance I provided is based on a core basis.

Laurie Hunsicker, Analyst

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, Chief Financial Officer

I am going to let Rob speak to that.

Rob Cozzone, Chief Operating Officer

Good morning, Laurie.

Laurie Hunsicker, Analyst

Good morning.

Rob Cozzone, Chief Operating Officer

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 five 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 IMG professional. 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. That would not be in the city of Worcester; it would be in one of the surrounding towns.

Laurie Hunsicker, Analyst

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, President and CEO

Yeah. Laurie, earnings conference call would not be the same without you asking this question. So thank you for continuing the tradition. Our posture has not changed, which is we are here with our strong currency. When a bank board has decided, hey, we think we might want to jump onto INDB currencies for a variety of reasons, whether it be scale, investments in technology, or talent, a whole variety of reasons, we are here and willing to talk. I know this current rate environment would make for some interesting conversations, but the fundamentals of bringing banks together and building scale are still there, and we have to be careful not to get too distracted by how we think about accounting. So we, as usual, would welcome those conversations.

Laurie Hunsicker, Analyst

Thank you.

Operator, Operator

Our next question comes from Chris O'Connell with KBW. Please go ahead.

Chris O'Connell, Analyst

Good morning.

Chris Oddleifson, President and CEO

Hi, Chris.

Chris O'Connell, Analyst

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 it 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 are some lumpier larger loans remaining from the EBS fee book that you are not planning to retain as they come due? What those amounts would be?

Mark Ruggiero, Chief Financial Officer

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. 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. 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. 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, just 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 uncertainty around lease renewals upon termination of existing leases where lots of these buildings will end up with absorption. So we are cautious in that space. We are continuing to see opportunities on construction, multifamily, and 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 that were just at very early stages that we are starting to see developers possibly hitting the pause button and waiting 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, Analyst

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, Chief Financial Officer

Okay. I think that would be the hope, Chris. I mean I think the positive in all this is the rate environment will help, right? 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. I take a lot of comfort in that. The level and pace at which we have been seeing the attrition should definitely run-off slow down, and I think there’s probably a handful still out there that we think have a higher expectation of potentially still seeing attrition. But the pace will slow, and if we can stay aggressive in finding the right opportunities and continue to generate the new closings that we have in our approved pipeline, heading into the fourth quarter looks strong. That combination we hope gets us back to the positive as you suggest.

Chris O'Connell, Analyst

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, Chief Financial Officer

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 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. All those reasons suggest to us that we probably will not get too much more aggressive in deploying excess cash. 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, Analyst

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, Chief Financial Officer

Yeah. The average for the quarter 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%. 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, Analyst

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, Chief Financial Officer

Yeah. Right now we are still almost 2:1 consumer to business, and then we have a sizable municipal book, about $1.2 billion in municipal deposits. I don’t have the exact number, but it may be a little less than 2:1, but primarily consumer over our business base.

Chris O'Connell, Analyst

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, Chief Financial Officer

I think certainly the market will drive where overall AUM lands. 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 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, Analyst

Great. That’s all I had. Thank you.

Chris Oddleifson, President and CEO

Thank you.

Mark Ruggiero, Chief Financial Officer

Thank you.

Operator, 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, President and CEO

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, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.