Cuộc họp báo cáo kết quả kinh doanh Q3 2026 của Independent Bank Corp. (INDB): Lợi nhuận kỷ lục và NIM cốt lõi ổn định

Nội dung chính

• Independent Bank Corp. đã báo cáo lợi nhuận ròng đạt mức kỷ lục 89,7 triệu USD trong quý 3/2026 và EPS pha loãng đạt 1,90 USD, trong đó EPS tăng 12% so với quý trước.
• Biên lãi thuần (NIM) báo cáo đã tăng 4 điểm cơ bản so với quý trước lên 3,89%, trong khi NIM lõi đã điều chỉnh vẫn ổn định ở mức 3,76% bất chấp sự cạnh tranh huy động tiền gửi gay gắt.
• Tổng dư nợ cho vay tăng 158 triệu USD, tương đương mức tăng trưởng gần 3,5% tính theo năm. Danh mục cho vay thương mại đã được phê duyệt đạt 574 triệu USD vào ngày 30/9, tăng từ mức 510 triệu USD vào ngày 30/6.
• Tiền gửi không kỳ hạn tăng hơn 230 triệu USD, tương ứng với mức tăng trưởng 5,4% tính theo năm. Tổng chi phí tiền gửi tăng 6 điểm cơ bản lên 1,42%.
• Chất lượng tài sản nhìn chung duy trì ổn định, nhưng tổng tài sản nợ xấu tăng lên 126,2 triệu USD, tương đương 0,5% tổng tài sản, chủ yếu do một khoản vay bất động sản văn phòng trị giá 22,4 triệu USD bị chuyển sang trạng thái dừng dồn tích lãi.
• Ban lãnh đạo dự kiến thu nhập lãi thuần quý 4 sẽ tăng nhẹ. Nếu Cục Dự trữ Liên bang (Fed) không có thêm hành động nào, NIM báo cáo dự kiến sẽ ở mức trên 3,9% một chút.

Dữ liệu tài chính cốt lõi

Kinh doanh và Kết quả Vận hành

Cho vay thương mại và công nghiệp (C&I) tăng 61 triệu USD, không bao gồm 11,5 triệu USD sụt giảm từ hoạt động tài trợ kho xe của đại lý đã rút lui hoàn toàn. Điều này tương ứng với mức tăng trưởng khoảng 5% tính theo năm. Ban lãnh đạo cho biết khoảng 40 triệu USD vốn tài trợ C&I dự kiến trong quý 3 đã được chuyển sang đầu tháng 10.

Dư nợ cho vay bất động sản thương mại (CRE) và xây dựng tăng 31 triệu USD, nhờ vào giải ngân theo tiến độ xây dựng và số khoản tất toán ít hơn. Ngân hàng đã giải ngân 202 triệu USD cho các khoản vay CRE mới dựa trên quan hệ khách hàng, trong khi các khoản tất toán và trả bớt nợ giảm 27% so với quý 2.

Cho vay tiêu dùng dẫn đầu là vay trả góp bằng giá trị nhà (home equity), tăng khoảng 12% tính theo năm. Hoạt động thế chấp nhà ở vẫn bị hạn chế do lãi suất dài hạn cao hơn, với nhu cầu thế chấp bao gồm khoảng 80% vay mua nhà và 20% tái tài trợ.

Tiền gửi trung bình tăng hơn 630 triệu USD trên các phân khúc cá nhân, doanh nghiệp và chính quyền địa phương. Số dư của chính quyền địa phương vào cuối kỳ giảm do yếu tố mùa vụ thông thường, trong khi số dư của doanh nghiệp và cá nhân ghi nhận mức tăng trưởng.

Ngân hàng đã hoàn trả khoản vay 100 triệu USD đáo hạn từ FHLB và giảm 100 triệu USD hạn mức tín dụng 125 triệu USD của công ty mẹ. Ngân hàng cũng hoàn tất một khoản vay có kỳ hạn mới trị giá 125 triệu USD, thời hạn 3 năm cho công ty mẹ với lãi suất bằng SOFR 1 tháng cộng 170 điểm cơ bản.

Ban lãnh đạo đã hoãn việc chuyển đổi hệ thống lõi theo kế hoạch từ tháng 10/2026 sang tháng 2/2027 để có thêm thời gian kiểm thử và giảm rủi ro thực thi cũng như gián đoạn dịch vụ khách hàng. Quý 3 đã bao gồm 2,2 triệu USD chi phí liên quan, nâng tổng chi phí từ đầu năm đến nay lên 5,5 triệu USD.

Dự báo của ban lãnh đạo

Đối với quý 4/2026, ban lãnh đạo đã đưa ra triển vọng như sau:

• Cho vay C&I dự kiến sẽ tăng trưởng ở mức giữa một chữ số tính theo năm.
• Dư nợ CRE và xây dựng dự kiến sẽ tăng ở mức thấp một chữ số tính theo năm.
• Dư nợ vay home equity dự kiến sẽ tăng ở mức cao một chữ số tính theo năm.
• Cho vay thế chấp nhà ở dự kiến sẽ đi ngang hoặc tăng ở mức thấp một chữ số tính theo năm.
• Tiền gửi cuối kỳ dự kiến sẽ nhìn chung đi ngang hoặc tăng ở mức thấp một chữ số tính theo năm, phản ánh các yếu tố mùa vụ.
• Thu nhập lãi thuần dự kiến sẽ tăng nhẹ so với quý 3.
• Nếu Fed không có thêm hành động nào, NIM báo cáo dự kiến sẽ ở mức trên 3,9% một chút, bao gồm lợi ích ước tính khoảng 10 điểm cơ bản từ phân bổ tăng giá khoản vay. Một đợt tăng lãi suất khác của Fed có thể làm giảm triển vọng đó một vài điểm cơ bản.
• Thu nhập từ phí dịch vụ dự kiến sẽ tăng ở mức thấp một chữ số.
• Chi phí hoạt động, không bao gồm chi phí chuyển đổi hệ thống, dự kiến sẽ tăng nhẹ so với quý 3. Công ty dự kiến chi phí chuyển đổi một lần sẽ từ 1 triệu USD đến 1,5 triệu USD trong quý 4.
• Thuế suất dự kiến sẽ nhìn chung không đổi so với mức 23,3% của quý 3.

Nhìn xa hơn, ban lãnh đạo cho biết việc tái ấn định lãi suất chứng khoán và khoản vay có thể tạo đà hướng tới mức NIM 4% vào cuối năm 2027. Dòng tiền từ chứng khoán dự kiến đạt hơn 500 triệu USD trong 4 đến 5 quý tới, trong đó các chứng khoán đáo hạn đạt tỷ suất lợi suất khoảng 2,5% so với các đợt mua gần đây gần 6%.

Ban lãnh đạo cũng tái khẳng định kỳ vọng hoàn trả ít nhất 100% lợi nhuận cho cổ đông thông qua cổ tức cổ phần phổ thông và mua lại cổ phiếu, đồng thời duy trì sự linh hoạt dựa trên các điều kiện vốn và nguồn vốn.

Rủi ro và các lĩnh vực cần theo dõi

Tài sản nợ xấu tăng chủ yếu do một khoản vay bất động sản văn phòng địa phương trị giá 22,4 triệu USD bị chủ động chuyển sang trạng thái dừng dồn tích lãi. Bất động sản này đang đối mặt với việc người thuê dự kiến chuyển đi, và bên bảo trợ đang nghiên cứu chuyển đổi sang sử dụng làm nhà ở nhiều gia đình. Ngân hàng đã trích lập khoản dự phòng cụ thể 6,5 triệu USD cho khoản vay này.

Khoảng 60 triệu USD trong tổng số 62 triệu USD dư nợ cho vay văn phòng có vấn đề của ngân hàng tập trung vào 3 khoản tín dụng: khoản vay văn phòng dừng dồn tích lãi mới, một khoản tín dụng hợp vốn quốc gia khoảng 22 triệu USD và một khoản vay 17,7 triệu USD. Dự phòng cụ thể cho mảng văn phòng vượt quá 14 triệu USD, không bao gồm 8 triệu USD đã xóa nợ trước đó đối với khoản tín dụng hợp vốn quốc gia.

Ban lãnh đạo dự kiến khoảng 17 triệu USD trong số các khoản dự phòng cụ thể hiện có cho mảng thương mại sẽ dẫn đến việc xóa nợ trong vài quý tới. Tuy nhiên, họ cho biết hầu hết giá trị tổn thất liên quan đã được ghi nhận thông qua trích lập dự phòng.

Lãi suất cao hơn có thể tiếp tục gây áp lực lên chi phí tiền gửi, hoạt động ngân hàng thế chấp và hiệu quả kinh tế của các dự án CRE. Ban lãnh đạo cũng lưu ý rằng các đợt tăng lãi suất kéo dài có thể làm suy yếu nhu cầu CRE và dẫn đến chi phí dự phòng cao hơn nếu các chỉ số định giá bất động sản suy giảm.

Các điểm chính trong phần Hỏi & Đáp với chuyên gia phân tích

• Triển vọng biên lãi thuần: Ban lãnh đạo cho biết hệ số bê-ta tiền gửi không phải chứng chỉ tiền gửi (non-CD) đang ở mức khoảng 25% đến 30%, bao gồm cả tiền gửi thanh toán. Khoảng 25% danh mục cho vay gắn với lãi suất ngắn hạn, điều này nhìn chung sẽ bù đắp chi phí nguồn vốn non-CD cao hơn sau các đợt tăng lãi suất tiếp theo. Việc tái ấn định lãi suất CD có thể tạo ra áp lực gia tăng nhẹ.
• Tái ấn định lãi suất danh mục hiện hữu: Ngân hàng dự kiến khoảng 1,5 tỷ đến 2 tỷ USD danh mục cho vay được tái ấn định lãi suất hoặc tạo dòng tiền hàng năm. Các khoản vay thương mại lãi suất cố định cũ có tỷ suất lợi suất khoảng 5% đang được thay thế bằng các khoản vay mới với mức trung bình khoảng 6,5% trong quý 3.
• Chuyển đổi danh mục cho vay thương mại chờ phê duyệt: Ban lãnh đạo cho biết danh mục chờ phê duyệt ở mức nhỉnh hơn 500 triệu USD đã tạo ra khoảng 400 triệu USD giải ngân. Với các khoản trả bớt nợ và phân bổ nợ chuẩn hóa gần 300 triệu USD, danh mục chờ phê duyệt hiện tại có thể hỗ trợ mức tăng trưởng ròng khoảng 100 triệu USD, mặc dù các cam kết không lập tức chuyển thành dư nợ thực tế.
• Xử lý nợ mảng văn phòng: Ban lãnh đạo dự kiến khoản tín dụng hợp vốn quốc gia khoảng 22 triệu USD có khả năng chuyển lại trạng thái dồn tích lãi trong quý 1/2027. Một khoản vay văn phòng bị phân loại nợ xấu khác có khoản dự phòng 6 triệu USD đang được chào bán, với khả năng xử lý xong vào đầu năm 2027.
• Kỷ luật chi phí: Ban lãnh đạo không đưa ra dự báo chi phí cho cả năm 2027 nhưng cho biết họ có ý định hạn chế mức tăng chi phí tổng thể bằng cách bù đắp các khoản đầu tư cho công nghệ, AI và thù lao bằng việc kiểm soát chặt chẽ hơn các khoản chi tiêu không bắt buộc.
• Trì hoãn chuyển đổi hệ thống: Chi phí chuyển đổi bổ sung chủ yếu phản ánh chi phí tư vấn từ bên thứ ba thay vì chi phí vận hành hệ thống song song. Ban lãnh đạo dự kiến chi phí vận hành duy trì của nền tảng đã nâng cấp sẽ tương tự như chi phí hiện tại.

Toàn văn Biên bản cuộc họp Báo cáo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Hello, everyone. Thank you for joining us, and welcome to the Independent Bank Corp. Third Quarter 2026 Earnings Call. [Operator Instructions] 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. Finally, please note that this event is being recorded. I would now like to turn the call over to Jeff Tengel, CEO. Please go ahead.

Jeffrey Tengel

Thank you. Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. We are pleased with our third quarter results. We generated solid loan and deposit growth maintain the core net interest margin despite heightened deposit competition continue to aggressively buy back stock, managed our expenses tightly and had very modest net charge-off activity. Our deposit franchise continued to differentiate itself producing over $230 million of non-time deposits, representing [ 5.4% ] annualized growth. While up 6 basis points from last quarter, our 142 cost of deposits remains industry-leading.

These results were achieved in a very competitive environment with growing expectations that the Fed will continue to move rates higher. On the lending front, we generated total loan growth of $158 million or nearly 3.5% annualized. We experienced growth across a number of asset classes, including C&I, commercial real estate, home equity and residential mortgage. Excluding the impact of the $11.5 million runoff from our dealer floorplan business, which has been fully exited, our C&I loans rose by $61 million or a healthy 5% on an annualized basis.

While C&I growth was not as robust as in the second quarter, we have a very healthy pipeline heading into the fourth quarter and had several loan closings slip into October. Commercial real estate, including construction loans, grew by $31 million during the quarter, primarily reflecting increased construction draw activity and a reduced level of payoffs. We funded $202 million in new relationship-based commercial real estate loans in the third quarter. Loan payoffs and paydowns were down 27% from the second quarter, and our CRE concentration now stands at $278.

On September 30, our approved commercial loan pipeline totaled $574 million, up from $510 million on June 30. Our loan pipeline has benefited from strong origination equity, new hires across several business segments and a pivot by the legacy Enterprise Bank relationship managers from defense to offense. Despite the competitive loan and deposit environment, the third quarter saw stability in our adjusted NIM. This reflects the favorable repricing of loan and bond cash flows as well as pricing discipline across both our loan and deposit portfolios. Mark will elaborate on our NIM during his comments.

As the environment continues to shift, we recognize the best use of our capital is to build deep profitable customer relationships and not grow our balance sheet at thin risk-adjusted spreads. This means we will continue to support our customers, be competitive for the right deals and grow prudently. We also continue to maintain a proactive posture in returning excess capital to shareholders. Capital management will remain a key priority for the balance of the year. Regarding asset quality, while we continue to see movement in and out of our nonperforming loans and criticized and classified loan buckets, the levels are consistent with our historical credit performance. Our net charge-offs were just 2 basis points for the third quarter and have averaged just 6 basis points over the last 5 quarters.

Our loan loss provision represented 14 basis points of average loans in the third quarter and has averaged 12 basis points over the last 5 quarters, excluding the impact of the Enterprise acquisition. Over the last 20 years, our loan loss provision and net charge-offs have had an average of 21 basis points and 16 basis points of average loans, respectively. The economic landscape continues to be challenged by higher interest rates, inflationary concerns the Iran war, tariffs, among other things. Importantly, however, we have not seen any degradation of credit from these pressures. We have seen a few instances where higher rates have resulted in business owners pausing planned spending and/or projects, particularly in the commercial real estate space.

Excluding nonrecurring core systems conversion costs, expenses were down compared to the second quarter. We remain vigilant regarding our expense levels as we've stated in the past, given the investments we have made in people and technology over the past few years, we believe we have the scale to continue to grow without significant additions to our expense base. Of note, we have elected to move the timing of our planned systems upgrade from October to February to allow for additional preparation and ensure a smooth well-managed implementation. The revised time line provides additional flexibility to complete the necessary testing and readiness activities while minimizing potential disruption to our operations and customers.

We believe this measured approach positions us for a successful implementation and does not change our overall objectives for the upgrade, which include enhanced operational efficiencies and additional product capability. I continue to tell the team, you only get 1 chance to do this well and minimize customer impact. So we are laser-focused on getting it done right. We've started to beta test some early AI applications, the first use cases will be internally oriented and will not have any customer impact. As I have mentioned in the past, this will allow us to develop muscle memory and gain confidence in our ability to execute before we take on bigger, more impactful applications.

Beginning in November, we will consolidate our corporate headquarters into a single location at 1 technology place in Rockland Mass, bringing nearly 400 employees together from 5 separate office buildings. In addition to the operational efficiencies, we expect this move to foster greater collaboration, strengthen teamwork and further enhance our corporate culture. Our strategy remains straightforward, drive organic growth through new and existing relationships, maintain disciplined underwriting, generate positive operating leverage and deploy our strong capital position to create long-term shareholder value.

I want to thank all of the Rockland Trust employees for their tremendous efforts on a daily basis. Every measure of our success is a direct result of their commitment. On that note, I will turn it over to Mark.

Mark Ruggiero

Thanks, Jeff. To summarize the quarter results, 2026 third quarter net income was $89.7 million and diluted EPS was $1.90, representing a 12% increase over prior quarter EPS results. The quarter results reflect record earnings and EPS for the bank and showcase our continued growth and overall profitability. Return on assets for the quarter was 1.42%, and return on average tangible common equity was 15.4%. Both metrics are already meeting profitability targets we set for the fourth quarter of this year. Though our eyes are set on continuing to improve profitability from these levels, there are a lot of moving pieces, and as such, we will provide full year 2027 guidance with our fourth quarter results. A key driver of the third quarter earnings increase was the overall increase in net interest income.

With a strong rebound in overall deposit balances, including an increase in average deposits of over $630 million, the overall average balance sheet grew nicely with higher cash, securities and loan growth, fueling a $15 million increase in interest income versus the prior quarter. Countering the growth in interest income, total cost of deposits increased 6 basis points for the quarter. The net interest margin for the quarter of 3.89% increased 4 basis points from the prior quarter as a result of increased purchase accounting benefit, while the adjusted core margin, excluding purchase accounting and other noncore items, was flat at 3.76%.

The average deposit increase that I just referenced was driven by growth across all segments, consumer business and municipal. However, due to typical seasonality, the quarter end balances reflected solid growth in the Business and Consumer segments, while municipal balances were down quarter-over-quarter. It's no secret that deposit rate competition is very high. Our approach remains steadfast, be competitive, grow prudently and reward strong customer relationships. On the loan side, as Jeff alluded to, we are seeing really good progress in a very competitive environment. As we discussed last quarter, the improved pipelines and anticipated closing activity led to a modest increase in total CRE and construction balances, while C&I grew at a 4% annualized rate.

We did anticipate a slightly higher growth result in C&I. However, the activity remains very strong with approximately $40 million of anticipated Q3 fundings that got pushed into the first couple of weeks of October. On the consumer side, with long-term rates pushing up higher, home equity demand was very strong with approximately 12% annualized growth for the quarter, while residential mortgage activity remains challenged.

Shifting gears a bit towards capital management. During the third quarter, we repurchased $57.4 million in capital, executing on our long-term goal of prudently returning excess capital to shareholders. As of September 30, our CET1 ratio sits at 12.7%, and our tangible capital ratio was at 9.4%. We do recognize the higher interest rate environment has already put some pressure on other comprehensive income within the capital stack. However, our strong overall capital and liquidity levels combined with a close monitoring of both our available-for-sale and held-to-maturity securities portfolios will continue to afford us the flexibility to stay aggressive with our buyback activity.

Rounding out the overall financial position update on the borrowing side, we paid off a maturing $100 million FHLB borrowing and we paid down $100 million of our $125 million holding company line of credit with the remaining $25 million balance converting into a term debt structure. In addition, we executed on a new $125 million holding company 3-year term loan with pricing at 1 month SOFR plus 170 basis points.

I'll switch gears now to asset quality, and we'll highlight the following notable items for the third quarter. Total nonperforming assets increased to $126.2 million or 0.5% of total assets. The increase is primarily driven by 1 office loan currently in workout status. This 1 loan has a newly established $6.5 million specific reserve. That reserve, along with some smaller moving pieces within the allowance model drove a $6.5 million provision for loan loss for the quarter. Total criticized and classified loans remained relatively stable at 3.9% of total commercial loans. And while net charge-offs for the quarter remained low at only 2 basis points annualized.

We remind folks that we have approximately $17 million of established specific reserves in the commercial book that we do anticipate will be charged off over the next couple of quarters. And lastly, the uptick in delinquencies is driven primarily by both the new to nonperforming loan as well as previously impaired workout loans reaching maturity dates. Moving now to noninterest items. Fee income of $41.2 million was down approximately 3% from the prior quarter. While deposit interchange and ATM fees all experienced increases, overall wealth management income decreased due primarily to elevated tax prep fees in the second quarter, while the higher interest rate environment softened demand in saleable mortgage banking and loan level swap activity.

On the expense side, the quarterly results reflect prudent expense management across all major categories. I'll highlight a few unique items in looking at quarter-over-quarter changes. First, within salaries and benefits, the third quarter results included a $1 million benefit relating to the fair valuation of life insurance split dollar benefits. The FDIC assessment expense decreased as a result of improved ratings driving a lower premium, and that does include an approximate $400,000 retroactive adjustment.

Within other noninterest expense, the prior quarter expense included approximately $900,000 of expense associated with annual director equity grants with minimal related expense in the third quarter. And as an update on our core inversion project, we incurred approximately $2.2 million of expenses associated with the project in the quarter, bringing the year-to-date total to $5.5 million. With the shift, as Jeff mentioned now to a 2027 Q1 conversion date, we anticipate an additional $1.5 million to $2 million of onetime expenses to be incurred over the next couple of quarters with the majority of that to be incurred in the fourth quarter.

And lastly, as expected, the tax rate stayed relatively consistent at 23.3%. With that, I'll now finish up by providing fourth quarter 2026 guidance. Regarding loan growth, we estimate [ Korean ] construction to increase at a low single-digit annualized percentage while for C&I, we anticipate a mid-single-digit annualized percentage increase. Regarding consumer real estate balances, we anticipate home equity to remain strong with high single-digit percentage annualized growth while mortgage balances are anticipated to stay relatively flat or low single-digit percentage increase.

For deposits, we also anticipate some level of seasonality impacting period-end balances with point-in-time deposits likely staying relatively flat to a low single-digit annualized growth rate. And as more and more variables come into play regarding net interest income, we think it is appropriate to also guide net interest income dollars in addition to the margin. Regarding net interest income, we anticipate a modest increase versus third quarter results. As a reminder, the third quarter benefited from the slightly elevated loan accretion and large seasonal increases in deposits that drove a big increase in average earning assets for the third quarter.

Regarding the margin, if we assume no further Federal Reserve action, we would anticipate the reported margin to land slightly north of 3.9% for the fourth quarter, and a reminder that does include an estimated 10 basis point benefit from loan accretion. If the Fed increases again in the fourth quarter with no major changes on the longer end of the curve, we would anticipate a couple of basis points reduction as a result. Our fee income is anticipated to grow in the low single-digit percentage range. And on the expense side, we anticipate operating expenses, which excludes system conversion costs to be up slightly over third quarter operating expenses.

And as I just mentioned, we anticipate approximately $1 million to $1.5 million of onetime expense related to the core conversion in the quarter. Lastly, we anticipate no material changes to the tax rate. And that concludes my comments. And with that, we will now open it up for questions.

Operator

[Operator Instructions] Our first question is from the line of Feddie Strickland from Hovde Group.

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Feddie Strickland

Jeff and Mark, I just start on the credit side. Can you provide any more detail on the office credit that entered nonaccrual this quarter, geography type and just expectations for the workout process there?

Mark Ruggiero

Sure. It's a local office loan. Basically, another single tenant that is looking to leave and is planned to vacate. So it will essentially convert into a [indiscernible] office building. We're working with the sponsor. There is a potential plan to convert that facility to multifamily. That's early stages in terms of that process. So right now, we thought it was appropriate to look at an appraisal and evaluation as an empty office building as well as a potential increased value as a multifamily conversion, and we reserve down to the average of those balances, which is the $6.5 million reserve.

Jeffrey Tengel

The other thing I would add is the sponsor has a history of supporting their projects. And so they've been supporting this one. We proactively put it on nonperforming status, and they're looking for a partner to help them with the transition to a multifamily property. So it will probably take a little while for it to work itself out, but we do feel like there's some -- a little bit of optimism based on the sponsorship.

Mark Ruggiero

That's a good point. So it had been performing up until September 30, just given the loss exposure and the likely resolution we thought it was appropriate to put it on discretionary nonaccrual.

Feddie Strickland

Got it. And just more broadly, I think you've got about $17 million or so classified office coming due in the fourth quarter. Can you just give us a high level of kind of how you think about those they come due?

Mark Ruggiero

Yes. The good news there, Feddie, I guess, that's 1 loan. So -- and just a reminder, that is 1 that actually went to nonaccrual last quarter. We also have a $6 million reserve on that loan already established. So it's being marketed for sale. We've seen some early interest. So we're hopeful for an early 2027 resolution on that, but that's 1 loan with a $6 million reserve on it.

Feddie Strickland

Got it. If I can just squeeze in 1 more on loan growth. I like you've had some pretty solid momentum on the loan side, a good pipeline building there. How should we think about the time line for that getting deployed? And can you remind us on typical seasonality?

Jeffrey Tengel

Yes. The C&I loan growth, I think, is not very seasonal, in part because a lot of the growth has been new client acquisition. And so that hasn't been very seasonal side. My expectations on the C&I side is we're going to continue to see kind of that mid-single-digit growth that we just talked about through the fourth quarter and into '27. The commercial real estate portfolio is a little bit different. Obviously, we grew a little bit this quarter, in part because of the construction loan draws and the lack of pay downs.

If you recall, we had outsized paydowns in the second quarter, which really muted our loan growth in that asset class. We did not see the same elevated level of payoffs in the third quarter. And while rising interest rates make -- can make it a challenge for new projects, it also makes it more difficult to refinance into a lower rate. So we think the payoffs as we go forward, hopefully will stay at a historical level, and we won't see the elevated payoffs we saw in the second quarter. I don't know, Mark, if you want to comment on the consumer portfolio.

Mark Ruggiero

Yes. Similar to the third quarter results, I would expect you'll see home equity demand continue to stay pretty strong. And for the same reason, Jeff just talked about so that some of the CRE dynamics, certainly, the higher interest rates is challenging, salable mortgage volume. A lot of what we're seeing now is it's basically 80% purchase, 20% refi. And most of that purchase, if there's an adjustable rate demand, we will portfolio that. So you may see a little bit of portfolio growth, but I would expect mortgage banking income to stay challenged.

Operator

Your next question is from the line of Justin Crowley from Piper Sandler.

Justin Crowley

Wanted to start off on the NIM. Mark, do you have a detail on just how the margin progressed through the quarter, where that ended the period? And then maybe just also the spot cost of deposits, if you have it?

Mark Ruggiero

Sure. So we did see a gradual increase into September. I will caveat, so the spot NIM for September was $381 million. But you'll start to see a little bit of noise there because the securities portfolio will print at a meaningfully higher yield as you see a little bit more of that OCI unrealized loss in that number. We can certainly going forward, think about maybe giving that yield also on kind of an adjusted book basis. But for now, you'll see a little bit of elevated yields in the securities book just because of that loss piece embedded in it.

And we did a better job of shifting some of that excess cash into the securities portfolio. So just the mix of earning assets got better as the quarter progressed. So that drove a bit of a lift in the margin over probably where July was where we saw probably the biggest impact on the cost of deposits hitting the NIM. So if I think through to the fourth quarter, spot cost of deposits for September was 1.44%, 1.44%. So I would expect to see a bit more deposit cost pressure heading into the fourth quarter. What you're not seeing in the third quarter margin results is the front end of the curve, index-based loans getting the benefit on loan yields. So we'll see a little bit of acceleration in loan yields out of the gate. We'll still have the repricing benefit in both loans and securities.

So I do expect earning asset -- the asset yields to improve nicely. I'll expect deposit costs to go up a little bit. But I do think we'll be able to increase the adjusted core margin by a few basis points here. Does that make sense? There's a lot of moving pieces there. Hopefully, I gave a little bit of color on each component.

Justin Crowley

Yes. No, that's super helpful. I appreciate that. I guess like any early read on how you think that margin could behave as we get into next year with maybe a couple of more hikes on the table? And maybe just more thematically as I know you'll get into formal outlook from January, but you've got that constant debate between defending NIM or tolerating some pressure to grow NII. So just kind of curious how you're thinking about that moving forward.

Mark Ruggiero

Yes. I know in a number of conversations over the last quarter or 2, we've been asked is there a realistic expectation for a 4% NIM. I think the answer there is still, yes, particularly because of that back book repricing benefit with rates continuing to inch up a bit higher. You're seeing really strong lift in the securities yields with over $500 million of cash flow expected over the next 4 to 5 quarters. That alone can drive upwards of 7 basis points of expansion in the margin.

So assuming we can equalize any Fed action with loan yields and deposit costs, that back book repricing would still drive some pretty good margin expansion over the next 4 or 5 quarters. So I do think there is a path to end of '27 looking at a 4% margin.

Justin Crowley

Okay. Got it. And then if I could just squeeze maybe one last one. Just on the buyback, you've got at least the optics of OCI moving against you, but what's the overall thinking there? And could you look to get even more active just given how the stock and really the whole group traded over the past couple of months?

Mark Ruggiero

It's a fair question. I would reaffirm certainly, that expectation of 100% of profits being returned via common dividend and buyback is still the expectation. Right now, I don't know if we'll get much more aggressive than that. I've always talked about just balancing the funding of that and continuing to fund through bank profits is important. But we certainly have the capacity, I think, in the appetite to do a little bit more. But I'd say a minimum level of 100% of profits, inclusive of the dividend.

Operator

Your next question comes from the line of Laurie Hunsicker from Seaport Research Partners.

Laura Havener Hunsicker

Just wanted to circle back to credit here. I know the jump the nonperformers, it looks like, as you said, was all August, but I just wanted to get the actual dollar amount. Was that a $22 million loan then or do to have a better number?

Mark Ruggiero

Yes. Sorry, we didn't make that clear. It is a $22 million loan, $22.4 million.

Laura Havener Hunsicker

$22.4 million. Okay, great. And then obviously -- so if I'm just looking at the breakdown of the $62 million in nonperformers, office nonperformers. So $22.4 million is the new nonperformer, you still have that $22 million SNC? Or is there a better balance on that one?

Mark Ruggiero

Yes, that's paid down a little bit, Laurie. That's basically $22 million even now, $21.9 million, $22 million, right around there.

Laura Havener Hunsicker

Okay. And is there still a thought that, that 1 might come current in the fourth quarter or what you mean?

Mark Ruggiero

I think it will be January of 2027, if I understand sort of the PR 18 month -- sorry, 6-month performance period. So I think it's going to be a Q1 event. But yes, it is still on track returning to accrual.

Laura Havener Hunsicker

That's great. Okay. And then the $17 million that you have in Life Sciences nonperformers, is that your only nonperformer in Life Sciences?

Mark Ruggiero

Yes. It's about a $100 million portfolio, and I'm pretty certain that's the only nonperformer. And just a reminder on that one, Laurie, we also have a [indiscernible] reserve on that. That's the other $17 million with our lodge reserve.

Laura Havener Hunsicker

Okay. Okay. Great. And any thoughts on when we might see movement on that one?

Mark Ruggiero

Yes. I'm hoping if we could get that resolved by calendar year, that would be great, it could spill over into the first quarter. That's a little of my prepared comments. Just a reminder, between the new nonperformer in this loan, there's $12 million plus of reserves. There's another $1.6 million on another office property that is a much longer, I think it's a 2030 maturity date. But there is a little over $14 million in reserves, $2 million of which we hope to reserve -- I mean, to resolve in the next couple of quarters. So we will -- you will see those charge-offs come through when they get resolved. But as I mentioned, the good news is the loss has been taken for the most part. So it should not result in much more needed provision levels.

Jeffrey Tengel

Yes. Laurie, we -- because we have a lot of conversations going on now with a handful of the larger office loan, and we feel pretty good about the quality of the dialogue and moving forward, resolving them, as Mark suggested, there is some loss content in some of those, but we're aggressively moving them off the balance sheet and for the most part, working with cooperative sponsors in order to do that.

Laura Havener Hunsicker

Okay. Okay. And then just sort of last question here on credit. So within that $62 million bucket of office nonperformers, that leaves, I don't know, $5 million or $6 million? What is that?

Mark Ruggiero

We have -- bear with me here, there is the...

[Technical Difficulty]

Operator

Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue.

Mark Ruggiero

Laurie. Apologize for that. Do we have Laurie still in the queue?

Operator

Our next question comes from the line of Steve Moss from Raymond James.

Stephen Moss

I guess, Mark, just to answer your question with what you're trying to say to Laurie, it cut off before you started speaking, at least on my end.

Mark Ruggiero

I appreciate that. Laurie, you can obviously come back into the queue, but it's 3 loans that are on NPA. It's a $22.2 million which is the new one. There's the $22 million, which is the SNC and then there's the $17.7 million. So those make up $60 million of the $62 million. There's one small -- one other small office loan on NPA, but it's primarily 3 loans.

Stephen Moss

Absolutely. And maybe just a quick follow-up on office here. Just curious, what are the total reserves for the office portfolio here?

Mark Ruggiero

So specific reserves, we have a little over $14 million, which, as a reminder, does not include the $8 million we already charged off on the SNC. So there's essentially $22 million of actual charge-off and/or reserve. And then on top of that would be your standard, call it, 1% to 1.25% reserve on kind of the general methodology.

Stephen Moss

Okay. Great. Appreciate that. And then maybe going back to the margin here. In terms of -- just on the -- I guess, 2 things. Curious as to what types of securities and yields you're purchasing these days, especially as we look at -- and also just thoughts on the book going forward. And then the second thing, just where our loan yield -- loan origination yields these days? And how much should we expect in terms of cash flows from the securities portfolio -- from the loan portfolio over the next 12 months?

Mark Ruggiero

Sure. So the first question on security yields, purchasing. For the quarter, we were basically weighted average yield of around 5%. That started to uptick, obviously, north of that in September. So today, if we're purchasing a security, I'd say there's a good chance that's nearing 6% -- we're staying pretty plain vanilla there, Steve, mortgage-backed, agency-backed mortgage securities. We still find good value in deep low coupon deep discounted securities where it gives us some downside protection, likely less prepayment risk.

So we're basically primarily buying that type of bond, and that's giving us the nice lift. If anything, it probably suggests it could move a bit higher over what's coming due, which, as I mentioned, is a little over $500 million in 2027. That's at about a 2.5% rate. So you're talking probably a good 300-plus basis points of spread on that $500-plus million churn in the securities book. On the loan side, it's still less scientific on a number, but think of it as on average 7- or 8-year duration. So you're seeing likely $1.5 billion to $2 billion of either repricing or cash flow happening on an annual basis.

And similarly, that you still have a lot of older fixed rate loans in the portfolio that are coming off around 5% yields and new pricing on the commercial side is averaging around 6.5% at least in the third quarter, that's potential to move higher with rates continuing to move a bit higher in the fourth quarter. Home equity is pretty much in the same range as that's tied off of prime. And I'd say the resi was maybe a tick lower than that in the third quarter, that we'll probably move to mid-6s as well in the fourth quarter.

Stephen Moss

Okay. That's really helpful there. And then in terms of just kind of expenses here, with the systems conversion getting pushed into the first quarter, I appreciate the color on the guidance for the fourth quarter. Just kind of curious how you're thinking about maybe an early thought process on expenses -- total expenses for 2027.

Mark Ruggiero

Yes. Not ready to give full year '27 guidance, but I would just reiterate Jeff's opening comments around we believe we have the ability to "hold the line on expenses. That doesn't mean we will not invest in this company. There's certainly technology enhancements. There's AI development. There's a lot we want to get done. We think the core conversion is a big step in continuing to enhance our technology and get more efficient.

But we'll look to invest in those by really being disciplined in other areas of discretionary spend. So without giving specific guidance, I think what you're seeing in 2026 would be the goal to kind of move forward into 2027. There'll be merit increases. There'll be inflationary impact, I'm sure, on some of our larger contracts. But I think just in terms of overall spend, we're really trying to stay disciplined there.

Operator

Your next call is from the line of Laurie Hunsicker from Seaport Research Partners.

Laura Havener Hunsicker

Just wanted to circle back one thing on expenses. Is there any onetime charges you're taking with the consolidation of the headquarters? Or has that already been baked in?

Mark Ruggiero

Yes, it's a great question. We have not yet -- there will be, and we'll give that as part of our '27 guidance. So it won't be real significant dollars, but there'll be a couple of facilities that have leases out into 2028 that we would look to be accelerating the remaining rent expense on that. Accounting rules are a little tighter there. You have to basically be out of that space. So I think from a timing standpoint, that might be -- those will likely be 2027 numbers, Laurie. But I'll give that as part of the full year guide next quarter.

Operator

Your next question is from the line of Jared Shaw from Barclays.

Jared David Shaw

Could you just give us some context around what drove the decision to move the core conversion out to February? I guess, what's changed since the September investment deck? And then when we think about the earnings impact, Mark, I think you pointed out an additional or incremental cost for fourth quarter. Is that just maintaining both systems in the fourth quarter and we should just think about the delay just sort of pushing the efficiency benefits out past February? Or is that an incremental cost for running additional testing?

Jeffrey Tengel

Yes, I'll take the first part of that, Jared. And it really was not a lot more than what I shared in my prepared remarks. We just didn't feel like we were ready. There's a lot of reasons for that. Not all of it was on us, I'll say that. But as we were getting more clarity around kind of the lift that we thought we would need in order to get it done in October, the stress we were putting on our employees to try and get that done and then the risk of it not going well, we just felt like it was prudent to delay it until February, make sure that, as I said, we have all of our ducks in a row and feel very confident that we'll get it done in the way that we would expect to get it done with minimal customer disruption.

And it's not a significant incremental cost to do to push it out. So that also gave us comfort that it was something that we probably should do and had really nothing more than that, just feeling like we weren't quite ready. And as I also mentioned in my prepared remarks, you get one chance to get this right. And if you don't, then you'll have customer implications for a while. And so I really felt like we needed to make sure that we get it right so that we don't have any negative customer effects.

Mark Ruggiero

And I'll add the second part of that question, Jared. The expense -- the onetime expense, I would think of as really outside third-party consulting. There's really no -- we're not necessarily -- we're not "run in parallel." -- so there isn't core run rate expenses going through the P&L. But the good news, just as a reminder, is we expect the upgrade new system to be pretty much the same run rate as what we're paying today. So we've been able to negotiate a pretty good contract there. The onetime costs you're seeing are outside third-party consulting help, and that's what will hit in the fourth quarter as we just get through to the finish line.

Jared David Shaw

Okay. All right. And I guess just for my follow-up, shifting back over to margin. If we look at that sort of milepost of 4% at the end of '27 based on no Fed moves, what happens if we get 1 to 2 hikes sort of midyear? I think you said if we get a hike in fourth quarter, that could be a couple of basis points. But how should we think about margin with a couple of hikes next year?

Mark Ruggiero

Yes. I think the slope of the curve is still really important. So I just want to preface sort of my answer here with if we really just focus on the short end of the curve and what would likely happen with the Fed hike, the non-CD book, I would say, is running around a 25% to 30% beta, inclusive of the DDA. So I would expect to see cost of deposits go up, call it, 4 to 5 basis points on the non-CD book. And on the loan side, we have about 25% of the loan book that's tied to the same short end of the curve. So I think you get pretty much equal and offsetting impact on loan yields versus cost of deposits.

Where I think you get a little bit of that timing lag is whether you start to see CD costs go up as well. I do think we're going to get to a point where that's going to be a little bit more driven by kind of 1- to 2-year money as we'll look to sort of lock up longer-term rates. But that -- if you see a level of increase in the cost of deposits related to the CDs, I think that's where you get a little bit of sort of additional funding cost a couple of basis points over and above what we'll get on the loan side, if you follow me. So that's just what's happening on the short end of the curve. Just to remind you, you still have that back book repricing benefit to help negate some of that.

Jared David Shaw

Yes. Okay. And then on the CD side, where you sort of putting your focus today, are you extending duration? Is there uptake in the longer duration CDs today or people staying pretty short?

Mark Ruggiero

Yes. We're shifting the pricing a bit to be much more in line with the slope of the curve today. I think through 2026, a lot of our strategy was to keep some of that -- a lot of our promotional pricing short term, and that attracted a lot of interest into the CD book. But I think as we're getting a bit more clarity over what feels like a revert back to a normal slope, we'll look to entice longer CDs from a pricing standpoint and get back to kind of a normal shaped pricing curve, if that makes sense.

Operator

Your next question is from the line of Matthew Breese from Stephens Inc.

Matthew Breese

So just thinking about the commercial pipeline, it's grown for 3 straight quarters. It's now at $574 million, but obviously, realized loan growth has been much more modest. Knowing that prepay and payoff activity is a big driver, if you were to kind of circle or look at the prepays and payoffs individually, how much of that would you chalk up to being really unusual and outsized? And with that kind of production activity, the $575 million pipeline, what's kind of a normalized pace of growth?

Jeffrey Tengel

Well, so keep in mind that the pipeline that we talk about our commitments, they're not outstanding. So that would be one just point of clarification. And in the real estate book, where we've seen most of the payoffs and paydowns other than just normal amortization, the outsized payoffs we've seen, especially in the second quarter, were kind of one-off, and they were -- we had a couple of larger relationships that, in particular, were -- or loans that were paid off. And I think that drove a lot of the pressure on loan growth there.

So if I'm understanding your question correctly, I mean, we think that the C&I business is going to continue to grow. The real estate business, one of the unique aspects of that is to the extent we're growing -- and we have seen a little bit more construction loan activity, including in the LIHTC space. Those loans don't fund up right away. And so it will take 12 or 15 months before we start to see any funding on them. And so I think we're still -- again, assuming normal levels of payoffs and amortization, we're expecting kind of low single-digit growth in the commercial real estate portfolio going forward.

Mark Ruggiero

Just one quick add to that, to give that a little perspective, Matt, on average, call it, heading into the third quarter, slightly higher than $500 million pipeline. That resulted in about $400 million in fundings. -- just -- I think that same ratio would probably apply, right? So a $550 million pipeline probably leads to a little over $400 million in actual fundings out of the gate to Jeff's point, some of that being unused lines.

And I think that funding would be sort of leveraging historical the last couple of quarters, we're seeing paydowns and amortization probably in that $300 million range, call it. So that's the potential for a net growth of $100 million or so. I think the second quarter, you saw payoffs in the $500 million range. So that kind of covers back to how much of this is unusual. Certainly, $100 million to $150 million of unusual payoffs is enough to challenge net growth with the numbers I just gave you. If you don't see those unusual payoffs, it suggests that sort of low single-digit rate we've been talking.

Matthew Breese

And then last quarter, we talked a little bit about the disruption in Connecticut, that area as something potentially being something you consider for new growth. Any updates there, team hires or geography-wise areas you're interested in?

Jeffrey Tengel

Yes. So we haven't hired anybody in Connecticut or New Hampshire for that matter. I mean, new people in New Hampshire in some of the markets where we're not. I'm thinking of principally like Manchester or Portsmouth in New Hampshire. But we're having active dialogue with a number of people in both of those markets. I was commenting just yesterday to our Board about an event I was at a couple of weeks ago in Providence, where we had -- it was a client event, and we don't have any branches in Providence.

It was started as a kind of an LPO probably 10 or 15 years ago. And the quality of the clientele that we have in that market is it's really incredible. And so I know we can do it because we've done it before, and it's just a matter of finding the right people and feeling like there's opportunity for us to win. So that's what we're exploring right now, whether it's both with people and just understanding what the landscape is like. I don't have anything to report today, but it is something that we're continuing to push at.

Matthew Breese

Great. And then just last one for me. In light of the shape of the curve, higher rates, when do you start contemplating applying higher cap rates for commercial real estate deals? And along those lines, should we start contemplating higher reserves or higher provisioning tied to that book on the back of higher cap rates? How quickly does that happen?

Mark Ruggiero

From an allowance standpoint, there'll be a combination there to be practical, there'll be a combination of actual data that will drive the starting point. And then I think, as you know, Matt, there's obviously room for judgment and qualitative adjustments to appreciate maybe what might be shifting in the environment. So I think if we start to see, call it, like a CRE index, a CRE valuation index start to move, that will already start to inform potentially higher reserves. And then as a management team, if we feel that, that data supporting the math is not necessarily indicative of the risk, then we have the ability to tweak that through Q factors.

So it's a fair point, something we're very cognizant of. And we'll provide some transparency if we start to see reserve increases as a result. I think also to your question, I mean, it's the types of conversations we're having just in terms of looking at opportunities and thinking about the existing pipeline. I mean I think the good news is the pipeline is strong. We think there's certainly room for near-term growth. I think we'd be naive to suggest that if it stays higher for longer or even creeps up a bit more north that it doesn't -- that it wouldn't have an impact on demand as some of these projects may be much more challenged in penciling out from a debt service perspective.

Operator

There are no further questions at this time. I will now turn the call back over to Jeff Tengel for closing remarks.

Jeffrey Tengel

Thanks, everybody, for joining us this morning, and we appreciate your interest in INDB, and have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.