Thank you for joining us. 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.

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, maintained the core net interest margin despite heightened deposit competition, continued 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 six 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 CNI, commercial real estate, home equity, and residential mortgage. Excluding the impact of the $11.5 million runoff from our dealer floor plan business, which has been fully exited, our CNI loans rose by $61 million or a healthy 5% on an annualized basis. While CNI 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 CREE concentration now stands at 278. On September 30th, our approved commercial loan pipeline totaled $574 million, up from $510 million on June 30th. Our loan pipeline has benefited from strong origination activity, 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 non-performing loans and criticized and classified loan buckets, the levels are consistent with our historical credit performance. Our net charge-offs were just two basis points for the third quarter and have averaged just six basis points over the last five 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 five 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 non-recurring core systems conversion costs, expenses were down compared to the second quarter. We remain vigilant regarding our expense level. 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 timeline 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 one 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've 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'll consolidate our corporate headquarters into a single location at one technology place in Rockland, Mass., bringing nearly 400 employees together from five 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.

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 in 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 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 decent 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 six basis points for the quarter. The net interest margin for the quarter of 3.89% increased four basis points from the prior quarter as a result of increased purchase accounting benefit. while the adjusted core margin excluding purchase accounting and other non-core 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 CNI. 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 30th, our CET-1 ratio sits at 12.7%, and our tangible capital ratio is 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 three-year term loan, with pricing at one 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 non-performing assets increased to 126.2 million or 0.5% of total assets. The increase is primarily driven by one office loan currently in workout status. This one 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 two 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 non-performing loan as well as previously impaired workout loans reaching maturity dates. Moving now to non-interest 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 non-interest 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 conversion 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 to $2 million of one-time 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 to a 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 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 one to one and a half million dollars of one time 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.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question is from the line of Fetty Strickland from Hovde Group. Your line is now open. Please go ahead.

Hey, good morning, Jeff and Mark. Let's start on the credit side. Can you provide any more detail on the office credit that entered non-approval this quarter, geography, type, and just expectations for the workout process there?

Sure. It's just a local office loan. Basically, another single tenant that is looking to leave and is planning to vacate. So it'll essentially convert into a fairly empty 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.

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 non-performing status. And they're looking for a partner to help them with the transition to a multifamily property. So it'll probably take a little while for it to So it'll work itself out, but we do feel like there's a little bit of optimism based on the sponsorship.

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

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

Yeah. The good news there, Freddie, I guess is that's one loan. And just a reminder, that is one that actually went to non-accrual 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 one loan with a $6 million reserve on it.

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

Yeah, 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. 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 pay downs 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 can make it a challenge for new projects, it also makes it more difficult to refinance into a lower rate. So we think that 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.

Yeah, 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, sort of some of the CRE dynamics, certainly the higher interest rates is challenging saleable mortgage volume. A lot of what we're seeing now is it's basically 80% purchase, 20% refi, and most of that purchase, if You know, 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. Got it. Thanks for the color. I'll step back. Thank you.

Your next question is from the line of Justin Crowley from Piper Sandler. Your line is now open. Please go ahead.

Hey, good morning, everyone.

Hi, Justin.

Wanted to start off on the NIM. Mark, do you have 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?

Sure. So we did see a gradual increase into September. I will caveat, so the spot NIM for September was 381. 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 a 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 144, 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. will still have the repricing benefit affecting both loans and securities. So I do expect earning asset, you know, 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, you know, 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. Yeah, 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, you know, maybe a couple more hikes on the table and maybe just more thematically as I know you'll get into formal outlook come January. But, you know, you've got that constant debate between defending them or tolerating some pressure to grow NII. So just kind of curious how you're thinking about that moving forward.

Yeah, you know, I know In a number of conversations over the last quarter or two, 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 four to five quarters. That alone can drive upwards of seven 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 four or five quarters. So I do think there is a path to end of 27, looking at a 4% margin.

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, you know, could you look to get even more active just given how the stock and, you know, really the whole group's traded over the past couple months?

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, and the appetite to do a little bit more. But I'd say a minimum level of 100% of profits. Inclusive of the dividend. Perfect.

Great. I'll leave it there. I appreciate it.

No problem.

Your next question comes from the line of Lori Hunsicker from Seaport Research Partners. Your line is now open. Please go ahead.

Yeah. Hi. Good morning, Jeff and Mark. Thanks for taking my questions. Just wanted to circle back to credit here. You know, I know the jump the non-performers it looks like as you said was all office but I just wanted to get the actual dollar amount was that a 22 million dollar loan then or is you have a better number yes yeah sorry we didn't make that clear it is a 22 million dollar loan 22.4 million 22.4 okay great and then obviously so if I'm just looking at the breakdown of the 62 million in non-performers office non-performers so 22.4 is the new non-performer You still have that $22 million SNCC, or is there a better balance on that one?

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

Okay, and is there still a thought that that one might come current in the fourth quarter?

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

That's great. Okay. And then the $17 million that you have in life sciences non-performers, is that your only non-performer in life sciences?

Yes. Yes. It's about a $100 million portfolio, and I'm pretty certain that's the only non-performer. and just a reminder on that one, Laurie, we also have a $6 million reserve on that. That's the other 17 million with a large reserve.

Okay, okay, great. And any thought on when we might see movement on that one?

Yeah, I'm hoping, you know, if we could get that resolved by calendar year, that would be great. It could spill over into the first quarter. You know, that's a little of my prepared comments Just a reminder between the new non-performer and 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, two of which we hope to resolve in the next couple of quarters. You will see those draw drops 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.

Yeah, because we have a lot of conversations going on now with a handful of larger office loans. And we feel pretty good about the quality of the dialogue and moving forward, resolving them, as Mark suggested. you know there is some lost content in some of those but we're aggressively moving them off the balance sheet and for the most part I've been working with cooperative sponsors in order to do that.

Okay okay and then just sort of last question here on credit so within that 62 million bucket of office non-performers that leaves I don't know five or six million what what is that?

We have

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

And to the left off, Laurie, I apologize for that. Do we have Laurie still in the queue? John, are you there?

Our next question comes from the line of Steve Moss from Raymond James. Your line is now open. Please go ahead.

Hey, good morning, guys. I guess, Mark, just to answer your question on what you were trying to say to Laurie, it cut off before you started speaking, at least on my end.

I appreciate that. Laurie, you can obviously come back into the queue, but it's three loans that are on NPA. It's a $22.2 million loan. which is the new one. There's the $22 million, which is the SNCC. And then there's the 17.7 million. So those make up 60 of the 62. There's one small, one other small office loan on NPA, but it's primarily free loans. All right. Thank you, Steve. Appreciate that.

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

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 SNCC. So there's essentially $22 million of actual charge off and or reserve. And then, you know, on top of that would be your standard, call it, you know, one to one and a quarter percent reserve on kind of the general methodology. Okay, great. Appreciate that.

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

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 security, I'd say there's a good chance that's nearing 6%. We're staying pretty plain vanilla there, Steve. Mortgage backs, agency backed mortgage securities, We still find good value in 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 a on average seven or eight year duration So you're seeing likely $1.5 to $2 billion of either repricing or cash flow happening on an annual basis. And similarly, 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, though we'll probably move to mid sixes as well in the fourth quarter.

Okay, that's really helpful there. And then in terms of just kind of expenses here, you know, 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.

Yeah, not ready to give full year 27 guidance, but I would just reiterate, you know, Jeff's opening comments around, you know, we believe we have the ability to quote unquote 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.

Great, I appreciate all the color here and a nice quarter.

Thanks, Steve.

Your next call is from the line of Lori Hunsicker from Seaport Research Partners. Your line is now open. Please go ahead.

Oh, yeah. Hi. Thanks. Yeah, good morning again. Just wanted to circle back one thing on expenses. Is there any one-time charges you're taking with the consolidation of the headquarters? or has that already been baked in?

Yeah, that'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. Your next question is from the line of Jared Shaw from Barclays. Your line is now open. Please go ahead. Hey, good morning.

Could you just give us some context around what drove the decision to move the core conversion out to February? I guess, you know, what changed since the September investment deck? And then when we think about the earnings impact, Mark, I think you pointed out, you know, 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?

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, you know, 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. 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.

And may I add the second part of that question, Jared? The expense, the one-time expense I would think of is really outside third-party consulting. There's really no, we're not necessarily, we're not quote-unquote run in parallel, so there isn't core run rate expenses going through the P&L. The good news, just as a reminder, is we expect the upgrade new system to be you know 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 one-time cost you're seeing our outside third party consulting help and that's what what we'll hit in the fourth quarter as we just get through to the to the finish line okay all right thanks now I guess just for my follow-up shifting shifting back over to to margin um you know if we look at that sort of uh you know um

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 a 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, four to five 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'd 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 one to two year money as we'll look to sort of lock up longer term rates but 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 additional funding cost, a couple 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 a reminder, you still have that back book repricing benefit to help negate some of that.

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

Yeah, 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, you know, 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, you know, 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.

Yeah. Okay. Thank you.

Thank you.

Your next question is from the line of Matthew Brees from Stevens, Inc. Your line is now open. Please go ahead.

Good morning, everybody. Hello. So just thinking about the commercial pipeline, it's grown for three 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 kind of a normalized pace of growth?

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 outside payoffs we've seen, especially in the second quarter, were kind of one-off and they were, you know, we had a couple of larger relationships that in particular were are 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 homes don't fund up right away. And so it'll 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.

Just one quick. To give that a little perspective, Matt, on average, heading into the third quarter, there was a slightly higher than $500 million pipeline. That resulted in about $400 million in funding. 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 you know I think that funding would be sort of you know leveraging historical uh the last couple of quarters you know we're seeing pay downs in amortization probably in that two you know 300 million dollar range call it so you know that's the potential for a net growth of a hundred million or so you know I think the second quarter you saw payoffs in the 500 million dollar range so that's That kind of covers back to how much of this is unusual. Certainly $100 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.

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

Yeah, 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 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 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, both with people and just understanding what the landscape is like. Don't have anything to report today, but it is something that we're continuing to push at.

Great. And then this 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?

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, you know, 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 Cree index, a Cree valuation index, start to move, that'll already start to inform potentially higher reserves. And then as a management team, if we feel that data supporting the math is not necessarily indicative of the risk, then we have the ability to tweak that through Q-Factor. 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 wouldn't have an impact on demand as some of these projects may may be much more challenged in penciling out from a debt service perspective.

Great. I appreciate you taking all my questions. I'll leave it there. Thank you. Thanks, Matt.

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

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

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