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How to Turn Your Equity Into Rentals with a HELOC or Cash-Out Refi (Rookie Reply)


Pulling equity out of your home to buy your next rental can feel like free money, but it isn’t. Whether you use a HELOC or a cash-out refinance, if you don’t run the numbers the right way, it can eat up your cash flow…fast. But if you get it right, the equity you’ve already built can fund your next down payment without draining your savings, while growing your portfolio!

Welcome back to another Rookie Reply! Today’s first question comes from an investor who has owned a long-term rental for eight years, with significant equity. Now, she wants to use that equity to buy her next rental, but doesn’t know how to account for the new debt. We break down how a HELOC (home equity line of credit) and a cash-out refi actually work, and how Tony used a HELOC on his own home to help cover his next down payment! We also run through the one test every deal has to pass before you tap your equity.

Ever wanted to help a family member find a stable place to live? We go head-to-head on whether to buy a condo or build an ADU, and share how to protect your investment (and your family relationships) if plans change. Finally, if you’re ready to hire a property manager so you’re not the one taking every tenant call, we’ll walk you through how to vet one, which fees to inquire about upfront, and the questions to ask before you hand over the keys!

Whether you’re tapping your equity, housing someone you love, or handing off the keys, this episode will help you make your next move with confidence!

Ashley Kehr:
Today’s rookie replies about the decisions that happen after the first deal looks possible. A lot of rookies know the strategy headline, but the real risk is in the next layer, the refinance payment, the HOA rules, the property manager, and the people who will actually help you operate the assets.

Tony Robinson:
Today, our questions are coming from rookies who are asking about things like how to underwrite a refinance before it actually happens, or a family member trying to buy housing for a disabled relative and a new property manager asking how investors actually find property managers.

Ashley Kehr:
This is the Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony Robinson:
And I’m Tony J. Robinson. And with that, let’s get into our first question, which today comes from Cassandra in the BiggerPockets Forums. Cassandra says, “Hey guys, I’m new here with the question about underwriting when a cash out refi, burr, HELOC, or loan is part of your plan. I often hear in the podcast, especially the real estate podcast, talking about using your home’s equity as a vehicle to finance your next purchase. I currently own one long-term rental that I’ve had for about eight years and a 2.5 COVID era interest rate and an MTR, an accessory dwelling unit on my residential property. I have significant equity in my first home, the long-term rental, and I’m considering taking out some equity to help me buy my next deal, but I have no experience with this.” Everyone makes it sounds like a burr or other strategies like this are super easy to do because you add value or do a light rehab and you can just “take the money out for another home.” But the truth is that money still isn’t yours to keep.
You still have to pay it back to the bank, so it’s not something you can just get free and clear. So how do you factor this into your underwriting? I feel like no one talks about that part. How do you know you’re getting a good deal even though after you refinance and take the money out, you have an even bigger bill or mortgage to pay? There’s no way to really know what your interest rate or monthly payment will be or even what your new home value will be when you’re initially looking at trying to buy that property. Okay, so this is a great question, right? Cassandra’s basically asking, if I want to use the equity for my current property, how do I account for that cost as I go look to purchase my next property? But let’s just define a few things here for Ricky’s because she threw out a few terms.
I just want to make sure that we get those defined for you first. So she said cash out refi, burr, HELOC.
Those are all slightly different ways. Well, slightly different strategies and ways of accessing your capital. Let’s talk about HELOC versus cash out refi. A HELOC is a home equity line of credit where your original mortgage stays in place. So for Cassandra, her 2.5% COVID era interest rate loan, that stays in place, but she then adds basically a second mortgage in addition to her current property. So the current mortgage stays there, but she gets the second mortgage that allows her to tap into some of that equity. And a home equity line of credit operates like a credit card where you really only get billed for what you use. If you’re not using it, you’re not paying for it. Once you use it, you got to pay it off like you would a credit card. A cash out refinance is replacing your current mortgage with a new mortgage and you get the difference between the balance of what you originally owed and what the balances of your new mortgage.
So if your original mortgage was $300,000, your new one’s $400,000, you get that difference of 100K as part of your new loan. So I just wanted to define those so folks understand as we talk through what this looks like. I actually just did this on my own primary where before we moved out, we pulled the HELOC and then we use that HELOC as part of our down payment for our next property. And the way that we did the math was we said, okay, once we pull this HELOC, we know what the rate’s going to be, at least ballpark, and we just want to make sure that we account for that in the underwriting of this new deal. And can our old house, can the one that we’re moving out of with its rents cover both the current mortgage and this new second mortgage? That’s the way that we did it.
But if you’re looking at it from an investment perspective, then you simply say for the deal that I’m about to buy, if I also include the payment for this HELOC, can this new rental cover its own mortgage, its own expenses and the HELOC payment as well? So that’s one strategy to make sure that you’re accounting for those costs.

Ashley Kehr:
Cassandra, you have a really good point asking about the interest rate. You don’t know what your interest rate is going to be when you’re ready to refinance, whether that’s three in the months from now, six months from now, 12 months from now. And obviously it’s easier to estimate when you are closer, when you know you’re going to be refinancing in three months. But what you can do is look at the worst case scenario. Worst case, what do you think this interest rate will be? There was a lot of people during COVID that went and got these bridge loans and needed to refinance later on, but interest rates were like 3%, so they were getting these good deals. But then when interest rates shot up, those weren’t good deals anymore because their mortgage payment had gone up so much. And some of them couldn’t even refinance because the bank wouldn’t lend to them because it wouldn’t make sense on the deal anymore.
So you are asking a really great question. So the first thing is when you’re doing a bur, what is going to be your timeframe? So the shorter you can make your timeframe, the better, the less risk of interest rates changing rapidly. Especially if you’re a rookie, you shouldn’t be taking on a huge full gut rehab that’s going to take over a year to get done anyways. So you’re starting with something smaller. All of my first properties were cosmetic rehabs. I wasn’t ripping down vaults. I wasn’t putting in all new plumbing, anything like that. They were mostly cosmetic. So it was a very short period of time before I had to go and refinance. But you’re going to run the numbers with putting some caution in place and you’re going to look at what’s the worst case scenario of the interest rate. So play around with it.
What would happen if the interest rate jumped two points? If it went from say you’re getting 7% now and then it went all the way up to 9%, what would that look like? Would there be any cash flow left? So that would be my recommendation is use a worst case scenario number. And I don’t know exactly what that would be, I would say depending on the timeframe, but try and look and see what’s your worst case of what percentage does this property no longer cash flow for you? And then you’re going to have to try and gauge whether you’re going to take that risk that you can refinance in a period of time before interest rates jump that much. For interest rates to jump up 2%, I don’t see that happening within a three month period. Maybe in a six month period that actually could happen.
Over a year period, it definitely could. So I think gauging what your timeline is for your rehab to refinance along with looking at the worst case scenario of what’s the highest your interest rate actually could be before you’re losing money and kind of gauge that as to like, okay, how much do I feel comfortable with this deal?

Speaker 3:
If you’re building a real estate portfolio, your banking setup matters more than you think because the more properties you add to your portfolio, the more complicated managing the money can get. I own and manage dozens of properties and there’s money constantly moving, rents and payouts coming in, mortgages, repairs and expenses going out. With traditional banking, you’re left figuring out what belongs to which property and spending hours updating spreadsheets just to understand your cash flow. That’s why I use Baseline. It’s BiggerPocket’s official banking platform specifically built for real estate investors and operators. I can organize my banking by property or entity with bookkeeping built right into it. So the bookkeeping happens as I bank and transactions are automatically categorized so I’m not spending hours at the end of the month trying to piece everything together. I can see what’s coming in, what’s going out and how each property is actually performing.
So as your portfolio grows, your banking and bookkeeping can actually keep up with you. Open your account with Baseline at baseline.com/bp.

Ashley Kehr:
Cassandra’s next question is about underwriting the next debt payment before she makes a move. Our next question is about underwriting something harder to put in a calculator, a family driven housing decision. Okay, so here’s Elizabeth’s question. “My brother is disabled and needs a stable place. He receives disability. After a series of unfortunate events, he is not in a position to receive any housing vouchers. My father is helping him find a place, but my brother is a difficult person and often finds himself kicked out of roommate situations. While this is not ideal for a first time investment situation, it is the reality. So here are some of the options I’ve come up with. Invest in a tiny house in my dad’s property, but I have no idea how to recover the investment if I do.” So I think in this scenario, Elizabeth is saying she would buy a tiny home and place it onto her dad’s property.
So the second option is to invest in a relatively lower price condo nearby, which would be 99,000. If we did this, we would put down half the value of the sale price, so 50,000 and mortgage the rest so that the mortgage payment plus the HOA fees, utilities, and the weekly cleaning fee would be in range of my brother’s disability income while still giving him enough to live on. So here’s the advice that I would need. We live in Washington state. My brother lives in Texas. Who would you recommend for accounting and educating us on the tax income implications? Two, what other considerations am I missing for option two? And three, how would you recover your investment of either the tiny house on the property of a parent or looking at the condo? Thank you in advance. So great question. And I also love that this is something you want to do for your brother.
And I think that real estate investing is something that gives us the opportunity to do things for the people that we love and we care about that a lot of other investments or careers wouldn’t allow us to do. So the first question is that she needs advice on recommendations for accounting and educating them on the tax income implications. So I’ll give you my two cents and then we can give you a recommendation of an actual professional because remember everybody who’s been listening, I failed my first ever CPA exam, so I am not the person. So for the tiny home, so purchasing the tiny home, because you’re putting it onto a lot that you don’t own, you will not get any of the real estate tax benefits from that. So I potentially don’t see any tax write-offs like depreciation, property taxes, things like that. If you are charging your brother rents though, you will have rental income and you can offset some of the expenses you may have, like if you’re going to be covering any of the utilities or any expenses you’ll have to have to maintain or repair the property, you’ll be able to write off to offset the income you’re collecting from your brother.
So that’s one thing to think about with the tiny home. The second thing is the condo. So the condo, you will be owning a piece of real estate, so you will have more tax benefits than you would if you were just then putting the tiny home on your dad’s property. For the condo, when you sell the property, since you’re purchasing this as an investment property, you will have tax implications for the sale of that. The same with the tiny home as if you’re purchasing it, you’ll have to sell it at some point. With the condo, you could get more tax benefits with it because you’re owning the piece of property where with the tiny home, you wouldn’t.

Tony Robinson:
There’s another way too that we can approach the kind of tiny home is can we actually build a true ADU on a fixed foundation? And one of the things that she mentioned was how will I actually recover the investment into that property if I do? There are companies out there because ADUs are becoming more and more popular, so naturally the markets respond and there are lending options out there that help folks finance the cost of ADUs. And much like when the short-term rental industry started picking up a lot of steam post – COVID, there weren’t a ton of financing options in 2020. There are many, many, many today. The same thing is kind of happening in the ADU space where you’re seeing more lenders offer financing options to build out ADUs. So that is one way that you could potentially, not even necessarily recoup your costs, but just have less costs in general to get into it.
And then on the other hand, say that you were just going to kind of pay cash to build out this property, maybe the way that you can recoup that cost is by then refinancing your parents’ property. I don’t know what their interest rate is or what that looks like, but now that they’ve added this ADU, if they go back and get it reappraised, does that then give them the ability to get some cash back to repay the cost of building this out? I don’t know if there’s any right or wrong answer to this, Ash. It’s a very kind of deeply personal situation and a lot of kind of emotional part inside of here, but my gut I think would be to probably do the ADU on the back of the parents’ house because I just feel like from a mathematics perspective, it’s what I think would probably make the most sense.

Ashley Kehr:
I love these moments, Tony, but I’m going to disagree with you. We’re going to get into a heated debate right now. I’m going to go with the condo because with the condo, it’s two family members. It’s Elizabeth and her brother. With the tiny home, it’s her investment, her dad’s property, and then her brother living there. I think about what if the dad and the brother get into a dispute? The dad doesn’t want the brother there anymore. They don’t like living there. The brother doesn’t want to live there. It’s not like, are you going to be able to go and now rent this tiny home out on your dad’s property to somebody else? So I like the condo because it’s less personal because this is the dad’s home because she does say we will put half down. So I don’t know if the dad’s chipping in or something onto the condo or whatever, but at least it’s not the dad living there and it’s not his home or whatever.
So I think it makes it personally less complicated for the family if it is the condo. If it doesn’t work out with the brother and they decide that it’s not working out anymore, they can at least take the condo and rent it or sell it to recoup their investment. Where with the tiny home, I feel like that’s more restricted as to how they can recoup their investment if the brother doesn’t end up living there anymore with it being the dad’s property. So that’s how I look at that situation. So I’m going to say the condo.

Tony Robinson:
That is actually a great point, Ash. And the only thing that comes to mind for me is maybe a counter. And we’ve talked about this before and guys, I’m not an ADU expert in any sense because I’ve never done an ADU, but I know that we’ve interviewed Leika, Dave, Thatch Point has talked about this as well, where they’re building these ADUs and they’re actually separating them off as their own parcel. And again, there are probably implications to the initial, the main homes, maybe appraised value or even potentially the mortgage. And I’m not sure what that approval process looks like, but I wonder if they are able to do that, does that then solve that situation? So the brother’s still close, she can hopefully recoup back some of that cost of building it out and she then doesn’t have to worry about the co-mingling of her investment with her parents’ property.

Ashley Kehr:
One last thought too as to how I’ll be nice today and I will say one positive towards your choice, your situation is that she did say the brother didn’t live well with roommates and things. So maybe it won’t work out in the condo because he’ll be in apartments and he won’t get along with the neighbors or something like that, where at least at the dad’s house, he’s with the dad and you don’t have to deal with people complaining because they’re not getting along or things like that too. So there is another personal side where maybe it actually is more beneficial, but I think financially the condo is the safer bet as an investment. But also looking at the HOA too is making sure they allow it for rentals and what you can do with it as far as that too, if the brother does move out too.
All

Tony Robinson:
Right. Our last question today guys comes from Blanca Munoz and she is asking from the property manager side, but the answer is actually incredibly useful for rookie investors too because it tells you what a good property manager should be doing for your own portfolio. So the question is pretty straightforward. It says, how do investors find property managers and are investors simply interested in hiring property managers? So let’s answer this question, but again, we’ll talk about it from maybe more so from the perspective of being an investor. Well, first I think rookies need to decide, do I want to self-manage or do I want to hire a manager? And there are different reasons why different people come to those conclusions. When I bought my first long-term rental, I just didn’t have the confidence that I could self-manage it myself. It was several thousand miles away. I’d never done anything like that before.
Didn’t necessarily have someone in my corner who could guide me through that process. I was working a full-time job. I just had all these things swirling in my mind to say, I don’t know if I can do this. So I made the decision before I even bought the property that I was going to hire a property manager, just lifestyle, all those things, skillset, confidence, I just didn’t have it. So I knew that I wanted to hire someone. And my approach for finding that person was I just searched, I think I went on even just Google. I think I even checked in the BiggerPockets forums. It was a smaller town though, Shreveport, Louisiana. It’s not a major metropolitan area, but I found a handful of property managers. I emailed them all and just said, “Hey, here’s who I am. I’m looking. I don’t have anything yet, but here’s what I’m looking for in this market.” And I just sent them a few questions that I think I scraped from somewhere in the BiggerPockets forums like, “Hey, ask these questions.” And I was just trying to get a sense of who they are, how they operate, how many units are they managing, how long have they been in business, some kind of key highlights from their management agreement, like what do they charge for, what’s included, just trying to get a good sense of who they are and how they operate.
And I think of the, I don’t know, five or six that I emailed, only two of them actually replied to my email. So that weeded out a lot of them from the beginning. And then when I actually went out there, when I was closing on the property, I met with a couple of them in person and the ones who I liked more, that’s who I ended up going with. So that was my motivation for hiring a manager, and then that was my process for actually trying to source or identify which manager was a better fit for me personally.

Ashley Kehr:
Your first step is going to go to biggerpockets.com/pmfinder. I found a nice little link for you guys to go to, and you can search and find property managers in the market that you’re looking at. For me, I definitely did it wrong when I was looking for a property manager when I decided I didn’t want to do it anymore. I didn’t want one of the big huge companies that manages thousands of rentals and commercial buildings and all of this. So I looked for smaller ones. My mistake was that I found a property management company that was in its growth phase. So they had never done any large apartment complex before. And with my partner’s properties, we were giving them all together to property management. He had large apartment complexes and they would be his first. And that’s very different than managing single family and small multifamily units.
So not getting clarification on what their experience is as far as managing. Then the second thing was not getting clarity on the fees and if the fees can change. So after probably a year of having management in place, they sent a letter to every owner saying that they are going to start doing inspections in every single unit twice a year and it’s going to be like a $80 fee to the owner to do it. Well, okay, that doesn’t 80 bucks, but you’re doing it twice a year. If you have one property, that’s going to be a decent amount of your cash flow. But also too, if you have a large apartment complex, one was a 40 unit and $80 per unit, that adds up to quite a bit of money. And then once they go in, they would say like, “Okay, here’s all of these different things that we think you should do.” And some of them needed to be done.
At one point they said that the smoke detectors should be updated in the 40 unit apartment complex. “Okay. Yeah, we should do that. That’s a safety. We don’t want them to fail. Let’s update it. They need them. They quoted us a price to just like, if I were to walk into Lowe’s and buy it off the shelf, that’s the price. Between the two 40 unit apartment complexes, we’re buying 80 of these. So 80 of them, we can’t go and get bulk pricing somewhere. So asking about the cost, the pricing, a lot of that stuff, especially at a larger scale is something I did not do ahead of time. So if they’re doing a turnover and they’re doing the remodeling, are you getting a bid? What is their project management fee? I think theirs was like 10% on top of doing the project, which is fine.
They’re coordinating it all, getting the materials, things like that, plus the hourly labor. So I would just become knowledgeable about what all those fees are and how their maintenance process works. So some maintenance companies, they’ll let their tenants know and we will respond within 48 hours. For an issue like this, we will resolve it within four days. They have kind of expectations they put out to the tenants when they rent with them. So ask, do they have anything like that? How does a tenant get a hold of the property manager on the weekend? So if it is an emergency, is there someone on call? Does it go to a voicemail? What is that process? I didn’t ask enough questions about the tenant side of things. And when your tenant is not happy, it’s ultimately going to cause problems for you. Even if you have the property manager as the middleman, over time, you’re going to see more vacancy because people don’t want them as a property manager, don’t want to move in there.
They leave because it’s not great property management.
And then eventually the issues are going to have to come to you because they’re going to raise a big enough stink about things. So I would say just ask as many questions as you can. Ask AI, be like, “Here’s the property management company I’m looking to interview. Scroll through anything and find me any Facebook posts, any reviews, anything that mentions this company in this market, Reddit.” They could be anywhere, especially if it’s bigger companies. And I want you to give me a summary of what you found about this company and then give me 50 different questions that I should ask them and then you can kind of weed through them and see which ones you actually want to ask the company to. But that’s where I would start. Well, thank you guys so much for joining us today on this episode of Real Estate. Rookie, if you have a question, you can leave it in the BiggerPockets forums and we may answer it for you on the show.
I’m Ashley. He’s Tony and we’ll see you guys next time.

 

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American Express Business Gold 4x Ads & Wireless Categories To Be Narrowed


American Express has announced that effective February 17, 2027 the 4x categories on the Business Gold for ads and wireless will be narrowing to select merchants.

Effective February 17, 2027, eligible purchases of online, television, and radio advertising made from media providers located in the U.S. will be limited to purchases made directly with Meta, Google, Amazon, Microsoft, GoDaddy, and Yelp; eligible purchases for monthly wireless telephone service charges made directly from a wireless telephone service provider located in the U.S. will be limited to purchases made directly with Verizon, AT&T, T-Mobile, Frontier, Comcast, Charter, Spectrum Mobile, UScellular, Optimum, Ultra Mobile, and Mint Mobile.

The American Express business gold currently earns 4x points on your top 2 categories where your business spends the most each billing cycle with an annual calendar year cap of $150,000:

  • Purchases at U.S. media providers for advertising in select media (online, TV, radio)**

  • U.S. purchases made from electronic goods retailers and software & cloud system providers

  • U.S. purchases at restaurants, including takeout and delivery

  • U.S. purchases at gas stations

  • Transit purchases including trains, taxicabs, rideshare services, ferries, tolls, parking, buses, and subways

  • Monthly wireless telephone service charges made directly from a wireless telephone service provider in the U.S

American Express recently replaced FedEx with UPS on this card as well for the $240 flexible credit benefit. 

Hat tip to reader ehrosenberg

Trump waives many Russia-related sanctions, tariffs before they were to take effect under new law




Trump waives many Russia-related sanctions, tariffs before they were to take effect under new law

WNBA All-Star Nneka Ogwumike: Players are experiencing safety threats from prediction market users



As prediction markets like Kalshi and Polymarket are increasingly being used for sportsbetting, athletes are warning of the negative and even violent consequences of these platforms on players.

At the Fortune Most Powerful Women Summit in Santa Barbara, California on Tuesday, Nneka Ogwumike, former Los Angeles Sparks forward, 2016 MVP, and 11-time All-Star in the league, said prediction markets are having a clear adverse impact on WNBA players.

“It’s not a safe place for athletes,” Ogwumike told Most Powerful Women editor Emma Hinchliffe. “I don’t think I ever want to say that something is outrightly bad unless it absolutely is, but players are definitely having a hard time dealing with the vitriol that comes with prediction markets as it relates to our performance.”

Prediction markets have emerged as an alternative and supplement to online sportsbooks because they are classified as a financial exchange, rather than gambling platforms, allowing them to bypass regulations and restrictions. Last week, both Kalshi and Polymarket hit new records, according to  Dune Analytics data, reaching a combined weekly volume of $22.2 billion as a result of NFL and NCAA-bolstered trading volumes.

College athletes are reporting harassment associated with sportsbetting. The 2025 NCAA Growth, Opportunities, Aspirations and Learning of Students in College study found more than have of Division 1 men’s basketball players reported social media abuse based on their on-court performance, and 46% said the highest rate of negative or threatening messages were from someone who placed a bet on a game they played in.

On Tuesday, both the NBA and WNBA announced a responsible gaming campaign, partnering with National Council on Problem Gambling (NCPG) to educate fans about sports betting risks. Ogwumike said more efforts are required to mitigate abuse of players related to sports betting.

“There’s been a lot of safety issues and concerns that haven’t necessarily been publicly displayed,” she said. “Through the [players association] and through the WNBA, there’s resources that are available to try and mitigate those things, but it doesn’t mean that it stops players from experiencing things that could potentially and have potentially affected their performance.”

CREA downgrades home sales forecast for the third time this year




The Canadian Real Estate Association has downgraded its forecast for home sales activity in 2026 for the third straight quarter.

BlackRock’s Larry Fink Warns That Halting AI Data Center Construction Could Trigger A US Recession


BlackRock (NYSE: BLK) CEO Larry Fink cautioned that imposing a broad pause on data center development across the United States could tip the economy into recession.

Speaking on CNBC shortly after the world’s largest asset manager reported stronger-than-expected third-quarter results, Fink stated that “if we have a moratorium of some sort in this country, we will be in a recession.”

He tied the risk directly to the scale of ongoing capital spending, observing that “so much of our economy is based on the buildout of this capex” related to artificial intelligence infrastructure.

The remarks arrived as BlackRock shares rose roughly 1 percent in morning trading.

Fink’s comments reflect the extraordinary concentration of economic activity in AI-related investment.

Wall Street analysts project that total capital expenditures tied to artificial intelligence could exceed $1 trillion in 2027 and surpass $5 trillion cumulatively by 2030.

These outlays cover not only the data centers themselves but also the supporting ecosystem of specialized chips, networking equipment, construction, and the power systems required to keep the facilities running.

Local resistance to new data centers has become a prominent issue ahead of the November 3 midterm elections.

Communities in multiple states have raised objections over higher electricity bills, substantial water consumption for cooling, potential environmental effects, and limited transparency surrounding the projects.

Fink acknowledged these concerns but attributed the majority of the opposition to misinformation.

He insisted that “data centers are not the problem” and emphasized their role in generating employment.

The construction surge has increased demand for construction workers along with related needs for physical digital infrastructure, AI computing hardware, and energy projects that expand and reinforce the electrical grid.

The warning underscores how heavily recent US growth has come to depend on technology capital expenditure.

A nationwide or widespread moratorium would interrupt a pipeline of projects that currently support activity across construction, manufacturing of specialized equipment, and utility-scale power development.

Fink’s position is that the facilities themselves are not the core issue; rather, they function as engines of demand that help absorb available skilled labor in trades facing shortages.

At the same time, the political and community pushback illustrates the practical frictions created by rapid expansion.

Data centers place concentrated loads on local power systems and water resources, effects that become visible to residents through utility rates and permitting battles.

These tensions have already prompted some jurisdictions to consider temporary freezes or heightened review processes for large projects.Fink’s assessment places the AI infrastructure boom at the center of the current economic expansion.

Should construction activity slow sharply because of policy or local restrictions, the loss of that spending could remove a major contributor to overall output, employment, and related industrial activity.

The scale of projected investment—running into the trillions of dollars over the remainder of the decade—makes any coordinated pause potentially consequential for growth rates.

BlackRock, as a major participant in infrastructure financing, has a direct stake in the continued expansion of these assets.

Fink’s public comments therefore serve both as an economic observation and as a signal about the importance of sustaining private capital flows into the sector. The debate over data centers is likely to remain active through the midterm cycle, with local cost and environmental questions competing against arguments about jobs and national competitiveness in artificial intelligence.



The Most Consequential Move a New CEO Can Make


HBR Executive delivers trusted insights and actionable strategies to guide leaders through consequential decisions. Practical tools, and forward-looking perspectives cut through the noise to equip you to navigate uncertainty, stay ahead of emerging trends, and plan for a stable future.



How I’d invest on the average Kiwi Salary! ($70,000)



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Why Graduated Repayment Is A Student Loan Trap


The Question

Why do you keep calling graduated repayment ‘a trap’?

— Anonymous Facebook User


Welcome to the Friday mailbag, where we take one reader question and answer it. Have one? Send it to us — details at the bottom.


The Short Answer

The graduated repayment plan looks borrower-friendly because the first payments are small. That low payment costs you in two ways.

The payments generally don’t count toward loan forgiveness, and you pay more interest than you would on the 10-year Standard plan. Statistically, less than 10% of student loan borrowers enroll in the graduated plan, but nearly nobody completes repayment on the plan.

After helping borrowers navigate their student loans for nearly 20 years, I consistently see a trend: borrowers enroll in this plan and remain in it for 4 to 8 years, at which point they realize it’s not the best plan for them, and they end up switching. However, that switching has cost them 4 to 8 years of time towards loan forgiveness, and they’ve likely made very little to no progress on repayment.

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How Does The Graduated Repayment Plan Work?

The graduated plan starts with low payments that step up, every two years, over a 10-year term. Under the federal Direct Loan repayment rules, no single payment can be more than three times any other payment. That means the last payments can run triple the first ones, well above what the Standard plan and income driven repayment plans cost.

Graduated repayment on consolidation loans can run up to 30 years, depending on the balance. A longer term means even more years of interest.

Why Don’t Early Graduated Payments Count Toward Forgiveness?

A month counts toward PSLF only when the payment is at least what you’d owe on the 10-year Standard plan. The PSLF regulation sets that rule. Our breakdown of which payments count toward PSLF walks through the details.

Graduated payments fall below the Standard amount for most of the first half of the plan. In our example below, the first 72 months fall short and don’t count toward Public Service Loan Forgiveness or IDR time-based loan forgiveness. And then, when payments rise above the IBR level, you’re basically wasting money to get the same PSLF monthly credit.

This is the scenario that just happened to thousands of borrowers who saw their PSLF payment counts removed.

The bigger problem is what happens when the payment jumps. Borrowers who can’t keep up switch to Income-Based Repayment, and only the months that met the Standard amount carry over. A borrower who leaves graduated after five years has lost all five.

Five lost years costs 25% of new IBR’s 20-year clock and half of the 120 payments PSLF requires. Borrowers on old IBR, with its 25-year clock, lose 20%.

How Much More Does Graduated Repayment Cost?

Graduated repayment costs about $3,383 more in interest than the 10-year Standard plan on a $35,000 loan. We used 6.39%, the 2025-26 undergraduate Direct Loan rate. The graduated schedules are estimates built within the federal payment rules, so your servicer’s exact figures may differ slightly.

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What A $35,000 Loan Costs Under Each Plan
10-Year Standard Graduated Extended (Level) Extended Graduated
Monthly Payment $395 $227, rising to $681 $234 $186, rising to $343
Repayment Term 10 years 10 years 25 years 25 years
Total Interest $12,455 $15,838 $35,177 $41,193
Total Paid $47,455 $50,838 $70,177 $76,193
Balance After 5 Years $20,265 $28,123 $31,649 $34,489
6.39% interest rate. Graduated payments estimated within federal plan limits. Source: Federal Student Aid. The College Investor.

The table also shows the cost for forgiveness seekers. After five years on graduated repayment, this borrower still owes $28,123, about $7,858 more than on the Standard plan. That larger balance is what moves into IBR or RAP once the payment gets too high.

You’ll also notice the graduated plan is more expensive at both time frames. Whether you do the graduated plan for 10 years or the extended graduated plan, both scenarios have you paying more than the similar-term standard plans.

Why Is Extended Graduated Repayment Even Worse?

Extended Graduated repayment combines the slow start of graduated payments with a 25-year term. It’s open to borrowers with more than $30,000 in Direct Loans, the same threshold as the level Extended Repayment Plan.

In our example, Extended Graduated costs $41,193 in interest. That’s $28,738 more than the 10-year Standard plan and $6,016 more than level Extended. The first payment barely covers the monthly interest, so after five years of payments the balance has dropped only $511.

The forgiveness math is worse too. The payment in our example tops out at $343, which never reaches the $395 Standard amount. Not one Extended Graduated payment counts toward PSLF or IDR forgiveness.

What Should You Use Instead Of Graduated Repayment?

The better plan depends on whether you’re paying the loan off or going for forgiveness. Our ranking of the best student loan repayment plans covers every option, and each of these three beats graduated repayment for its goal.

Pay It Off For The Least: The 10-Year Standard Plan

The 10-year Standard plan charges the least interest of any traditional plan. Every payment also counts if you later move into PSLF or IDR, so starting there costs you nothing.

Need A Lower Bill: Extended Repayment Plus Extra Payments

The level Extended Repayment Plan stretches payments up to 25 years for borrowers with more than $30,000 in Direct Loans. Treat that payment as a floor and add extra payments with the debt snowball method. Extended payments don’t count toward PSLF, so pick this path only if forgiveness isn’t the goal.

Extra payments only work if they hit principal. Tell your servicer to apply them to principal so you don’t end up in paid-ahead status. Or simply make additional payments manually on your loan servicers website.

Low Income Or Pursuing Forgiveness: RAP Or IBR

The Repayment Assistance Plan ties payments to income with a $10 minimum. RAP waives unpaid interest each month and adds a principal match of up to $50. RAP payments count toward PSLF, so the forgiveness clock runs from day one.

Existing borrowers can also choose IBR, which caps payments at 10% or 15% of discretionary income. Run your numbers through our RAP calculator to compare.

Can You Still Choose Graduated Repayment In 2026?

Only borrowers with older loans can still pick it. Under the One Big Beautiful Bill Act, loans made on or after July 1, 2026 must use the Tiered Standard plan or RAP, as our federal student loan changes timeline shows.

Taking a new loan or consolidating on or after July 1, 2026 removes graduated and Extended Graduated repayment from all of your Direct Loans. Our explainer on staying in your current plan after 2026 covers what to avoid.

The Bottom Line

Graduated repayment buys a few years of low payments, and it charges you for them in interest and lost forgiveness credit. If you need a smaller payment today, RAP or IBR lowers it and starts your forgiveness clock at the same time.

And if your actual goal is student loan repayment, our preferred strategy is the standard 10-year plan or the extended plan. RAP can be a third option for student loan repayment borrowers, but that’s if you plan on adjusting your payments in just a couple years. We don’t want to see you draw RAP out for the full 30 years if repayment is the goal.

Frequently Asked Questions

Does Graduated Repayment Count Toward PSLF?

Only in months when the payment equals or exceeds the 10-year Standard payment. The lower early payments don’t count, so the first several years on graduated repayment don’t move you toward PSLF. And if you’re on Graduated Extended, it’s likely none of the payments will ever qualify for PSLF. If you are pursuing PSLF, you want to be enrolled in IBR or RAP.

Can I Switch From Graduated Repayment To IBR Or RAP?

Yes. Direct Loan borrowers can change plans through their servicer or StudentAid.gov. Only the months that met the Standard amount count toward time-based IDR forgiveness.

Is Graduated Repayment Ever A Good Choice?

Our general answer is no. Graduated is never a good option. In 20 years of helping people with their student loans, we’ve never seen a success story using the graduated plan. The best student loan repayment plans include options that keep the payment low without giving up forgiveness credit.

Send Us Your Question

Got a student loan, financial aid, or money question you can’t get a straight answer on? Send it to us and we may answer it in a future Friday mailbag.

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Independent Bank (INDB) Q3 2026 Earnings Call Transcript


Image source: The Motley Fool.

DATE

Friday, Oct. 16, 2026

CALL PARTICIPANTS

  • President and Chief Executive Officer – Jeffrey Tengel
  • Chief Financial Officer and Executive Vice President of Consumer Lending – Mark J. Ruggiero

TAKEAWAYS

  • Net Income — $89.7 million, representing a 12% increase in diluted earnings per share over the second quarter of 2026.
  • Net Interest Margin — 3.89%, representing a four basis point increase from the prior quarter primarily due to increased purchase accounting benefits.
  • Adjusted Core Margin — 3.76%, which remained flat compared to the second quarter when excluding purchase accounting and other non-core items.
  • Total Loan Growth — $158 million, representing nearly 3.5% annualized growth with expansion across C&I, commercial real estate, home equity, and residential mortgage classes.
  • C&I Loans — $61 million increase, representing 5% annualized growth when excluding the $11.5 million runoff from the fully exited dealer floor plan business.
  • Commercial Real Estate Growth — $31 million, driven by increased construction draw activity and a 27% reduction in loan payoffs compared to the second quarter.
  • Approved Commercial Loan Pipeline — $574 million as of Sept. 30, 2026, an increase from $510 million as of June 30, 2026.
  • Non-time Deposits — $230 million increase, representing 5.4% annualized growth driven by consumer and business segments.
  • Cost of Deposits — 1.42%, an increase of six basis points from the prior quarter despite heightened competition for deposits.
  • Net Charge-offs — 0.02% of average loans for the third quarter, compared to a 20-year average of 0.16%.
  • Provision for Loan Losses — $6.5 million, primarily reflecting a specific reserve for one office real estate loan that moved to non-performing status.
  • Non-performing Assets — $126.2 million, or 0.5% of total assets, driven by one local office loan in workout status.
  • Stock Repurchases — $57.4 million, involving the repurchase of approximately 679,000 shares at an average price of $84.60 per share during the third quarter.
  • Common Equity Tier 1 Ratio — 12.7% as of Sept. 30, 2026, compared to 12.8% at the end of the second quarter.
  • Home Equity Demand — 12% annualized growth for the quarter, while residential mortgage activity remained soft due to higher long-term rates.
  • Holding Company Debt — $125 million, representing a new three-year term loan priced at one month SOFR plus 170 basis points.
  • System Conversion Expenses — $2.2 million for the quarter, with an additional $1.5 million to $2 million expected over the next two quarters.
  • Fee Income — $41.3 million, a 2.6% decrease from the second quarter due to lower wealth management tax fees and softened mortgage banking demand.
  • Commercial Real Estate Concentration — 278% of capital as of Sept. 30, 2026.
  • FDIC Assessment Expense — $2.5 million, a decrease from $3.2 million in the prior quarter that included a $400,000 retroactive adjustment.
  • Securities Portfolio — $3.5 billion, representing 14% of total assets, with a weighted average yield of 3.36%.
  • Q4 Margin Guidance — Slightly north of 3.9%, assuming no further Federal Reserve action and including a 10 basis point benefit from loan accretion.
  • Q4 Loan Growth Guidance — Mid-single digit annualized growth for C&I and low single-digit annualized growth for CRE and construction.

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RISKS

  • Ruggiero stated, “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,” noting that these anticipated losses are already largely recognized in reserves.
  • Tengel stated, “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,” indicating external economic pressures on loan demand.

SUMMARY

Independent Bank Corp. (INDB +3.81%) reported record quarterly net income and earnings per share for the third quarter of 2026. Management reported growth in loans and deposits despite significant competition and a challenging economic environment. The company maintained its adjusted net interest margin while returning capital to shareholders through dividends and stock repurchases. Asset quality remained within historical performance ranges, although management identified stress in the office loan portfolio that required additional reserves. The company also announced a delay in its core system conversion to prioritize operational stability.

  • The company postponed its planned core systems upgrade from Oct. 2026 to Feb. 2027. CEO Tengel stated, “you only get one chance to do this well and minimize customer impact, so we are laser-focused on getting it done right.”
  • Management is consolidating its corporate headquarters into a single location in Rockland, Massachusetts. Beginning in Nov. 2026, nearly 400 employees will move from five separate buildings to improve collaboration and culture.
  • Independent Bank has initiated internal beta testing of artificial intelligence applications. Tengel noted that the first use cases will be internally oriented to build operational experience before pursuing customer-facing applications.
  • CFO Ruggiero indicated that the company expects to return at least 100% of profits to shareholders via common dividends and buybacks.
  • The securities portfolio is expected to generate significant cash flow. Ruggiero stated, “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.”
  • Management identified a path to a 4% net interest margin by the end of 2027, driven by the repricing of the loan and securities back books.

INDUSTRY GLOSSARY

  • C&I: Commercial and industrial loans made to businesses for working capital or capital expenditures.
  • CET1: Common Equity Tier 1 ratio, a measure of a bank’s core equity capital compared to its total risk-weighted assets.
  • CRE: Commercial real estate loans secured by income-producing properties.
  • FTE: Fully tax-equivalent, an adjustment to interest income to make tax-exempt assets comparable to taxable ones.
  • LIHTC: Low-Income Housing Tax Credit, a federal program providing incentives for the development of affordable rental housing.
  • NIM: Net interest margin, the difference between the interest income earned and the interest paid to lenders.
  • OCI: Other comprehensive income, which includes revenues, expenses, gains, and losses that are excluded from net income.
  • ROTCE: Return on average tangible common equity, a performance ratio measuring profits against the physical capital of the company.
  • SNC: Shared National Credit, a loan or loan commitment of at least $100 million shared by three or more supervised institutions.
  • SOFR: Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans.

Full Conference Call Transcript

Operator: 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.

Jeff Tengel: Thank you. Good morning, and thanks for joining us today. I am 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 Federal Reserve 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 floor plan 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 pay downs were down 27% from the second quarter, and our CRE 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 2 basis points for the third quarter and have averaged just 6 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 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 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 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 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.

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 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. 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 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. 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 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 30th, our CET1 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 will switch gears now to asset quality, and we will 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.

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. 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 will 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. 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 million 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. Lastly, as expected, the tax rate stayed relatively consistent at 23.3%.

With that, I will now finish up by providing fourth quarter 2026 guidance. Regarding loan growth, we estimate CRE and 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.

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. 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. On the expense side, we anticipate operating expenses, which excludes system conversion costs, to be up slightly over third quarter operating expenses. As I just mentioned, we anticipate approximately $1 million to $1.5 million of one-time expense related to the core conversion in the quarter. Lastly, we anticipate no material changes to the tax rate. That concludes my comments. With that, we will now open it up for questions.

Operator: 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 one to raise your hand. To withdraw your question, press star one 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 Feddie Strickland from Hovde Group. Your line is now open. Please go ahead.

Feddie Strickland: Hey, good morning, Jeff and Mark. If we just start on the credit side, can you provide any more detail on the office credit that entered non-accrual this quarter? Geography, types, 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 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.

Jeff Tengel: The other thing I would add is the sponsor has a history of supporting their projects. 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 work itself out, but we do feel like there’s a little bit of optimism based on the sponsorship.

Mark Ruggiero: That’s a good point. 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.

Feddie Strickland: Got it. Thanks for the color. 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?

Mark Ruggiero: Yeah. The good news there, Freddie, I guess, is that is one loan. That is one that actually went to non-accrual last quarter. We also have a $6 million reserve on that loan already established. It is being marketed for sale. We have seen some early interest, so we are hopeful for an early 2027 resolution on that. But that is one loan with a $6 million reserve on it.

Feddie Strickland: Got it. If I could just squeeze in one more on loan growth.

Mark Ruggiero: Sure.

Feddie Strickland: It seems like you have 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?

Jeff Tengel: 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 has not been very seasonal. So my expectations on the C&I side is we are going to continue to see kind of that mid-single digit growth that we just talked about through the fourth quarter and into 2027. 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 paydowns. 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 can make it a challenge for new projects, it also makes it more difficult to refinance into a lower rate. 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.

Mark Ruggiero: Yeah. Similar to the third quarter results, I would expect you’ll see home equity demand continue to stay pretty strong. For the same reason Jeff just talked about some of the CRE dynamics, certainly the higher interest rates is challenging sellable mortgage volume. A lot of what we’re seeing now is it’s basically 80% purchase, 20% refi. 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.

Feddie Strickland: Got it. Thanks for the color. I’ll step back.

Mark Ruggiero: Thank you.

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

Justin Crowley: Hey, good morning, everyone.

Mark Ruggiero: Hi, Justin.

Justin Crowley: 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?

Mark Ruggiero: Sure. We did see a gradual increase into September. I will caveat, the spot NIM for September was 381, but you will 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 will 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. 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 are 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 will see a little bit of acceleration in loan yields out of the gate.

We will still have the repricing benefit affecting both loans and securities. So I do expect the asset yields to improve nicely. I will expect deposit costs to go up a little bit. But I do think we will be able to increase the adjusted core margin by a few basis points here. Does that make sense? There is a lot of moving pieces there. Hopefully, I gave a little bit of color on each component.

Justin Crowley: Yeah, no, that is super helpful. I appreciate that. I guess any early read on how you think that margin could behave as we get into next year with maybe a couple more hikes on the table, and maybe just more thematically, as I know you will get into formal outlook.

Mark Ruggiero: Yes

Justin Crowley: come January. You’ve got that constant debate between defending NIM or tolerating some pressure to grow NII. Just kind of curious how you’re thinking about that moving forward.

Mark Ruggiero: Yeah. 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 7 basis points of expansion in the margin.

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. I do think there is a path to end of 2027, looking at a 4% margin.

Justin Crowley: Okay. Got it. 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. 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’s 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. We certainly have the capacity, I think, and the appetite to do a little bit more. I’d say a minimum level of 100% of profits inclusive of the dividend.

Justin Crowley: Perfect. Great. I will leave it there. I appreciate it.

Mark Ruggiero: No problem.

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

Laurie Hunsicker: Yeah. Hi, good morning, Jeff and Mark. Thanks for taking my questions. Just wanted to circle back to credit here. I know the jump in 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 loan then, or do you have a better number?

Mark Ruggiero: Yes. Sorry, we didn’t make that clear. It is a $22 million loan, $22.4 million.

Laurie Hunsicker: 22.4. Okay, great. If I’m just looking at the breakdown of the $62 million in office non-performers. So $22.4 million is the new non-performer. You still have that $22 million SNC or is there a better balance on that loan?

Mark Ruggiero: Yep. That’s paid down a little bit, Laurie. That’s basically 22 even now, 21.9, 22, right around there.

Laurie Hunsicker: Okay. Is there still a thought that one might come current in the fourth quarter? What’s the latest?

Mark Ruggiero: Yes. I think it will be January of 2027, if I understand sort of the six-month performance period. I think it is going to be a Q1 event. Yes, it is still-

Laurie Hunsicker: Okay

Mark Ruggiero: on track returning to accrual.

Laurie Hunsicker: That is great. Okay. The $17 million that you have in life sciences non-performers, is that your only non-performer in life sciences?

Jeff Tengel: Yes.

Jeff Tengel: I think so.

Mark Ruggiero: Yes. It is about a $100 million portfolio, and I am pretty certain that is the only non-performer. Just a reminder on that one, Laurie Hunsicker, we also have a $6 million reserve on that. That is the other $17 million with a large reserve.

Laurie Hunsicker: Okay. Great. Any thought on when we might see movement on that one?

Mark Ruggiero: Yeah, I am hoping if we could get that resolved by calendar year, that would be great. It could spill over into the first quarter. That is a little of my prepared comments. Just a reminder between the new non-performer and this loan, there is $12 million plus of reserves. There is another $1.6 million on another office property that is a much longer. I think it is 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. So 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.

Jeff Tengel: Yeah. Laurie Hunsicker, because we have a lot of conversations going on now with a handful of the larger office loans, and we feel pretty good about the quality of the dialogue and moving forward resolving them. As Mark Ruggiero suggested, there is some loss content in some of those. But we are aggressively moving them off the balance sheet and, for the most part, have been working with cooperative sponsors in order to do that.

Laurie Hunsicker: 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, $5 million or $6 million. What is that?

Mark Ruggiero: Bear with me here. There is the tw-

Laurie Hunsicker: Oops, did I get disconnected?

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

Mark Ruggiero: Yeah, until I left off, Laurie. Apologize for that. Do we have Laurie still in the queue? John, are you there?

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

Steve Moss: Hey, good morning, guys. 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.

Mark Ruggiero: All right. I appreciate that. Laurie, you can obviously come back into the queue, but it’s three loans that are on NPA. There’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 of the 62. There’s one other small office loan on NPA, but it’s primarily three loans. All right. Thank you, Steve. I appreciate that.

Steve Moss: Absolutely. Maybe just a quick follow-up on office here. Just curious, what are the total reserves for the office portfolio here?

Mark Ruggiero: 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. Then on top of that would be your standard, call it 1%-1.25% reserve on kind of the general methodology.

Steve Moss: Okay, great. Appreciate that. Then maybe going back to the margin here, I guess two things. Curious as to what types of securities and yields you’re purchasing these days, especially as we look at. Also just thoughts on the book going forward. Then the second thing, just where are loan origination yields these days, and how much should we expect in terms of cash flows 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 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 is still less scientific on a number, but think of it as an on average 7 or 8-year duration. So you are seeing likely $1.5 billion to $2 billion of either repricing or cash flow happening on an annual basis. Similarly, you still have a lot of older fixed rate loans in the portfolio that are coming off around 5% yields.

New pricing on the commercial side is averaging around 6.5%, at least in the third quarter. That is 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 is tied off of prime. I would say the resi was maybe a tick lower than that in the third quarter, though we will probably move to mid-sixes as well in the fourth quarter.

Steve Moss: Okay. That is really helpful there. 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 are thinking about maybe an early thought process on total expenses for 2027.

Mark Ruggiero: Yeah. Not ready to give full year 2027 guidance, but I would just reiterate Jeff’s opening comments around we believe we have the ability to quote, unquote, “hold the line on expenses.” That does not mean we will not invest in this company. There is certainly technology enhancements. There is AI development. There is 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 will look to invest in those by really being disciplined in other areas of discretionary spend.

So, without giving specific guidance, I think what you are seeing in 2026 would be the goal to kind of move forward into 2027. There will be merit increases, there will be inflationary impact, I am sure, on some of our larger contracts. But I think just in terms of overall spend, we are really trying to stay disciplined there.

Steve Moss: Great. Appreciate all the color here and a nice quarter.

Mark Ruggiero: Thanks, Steve.

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

Laurie Hunsicker: 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?

Mark Ruggiero: Yeah, that’s a great question. We have not yet. There will be, and we’ll give that as part of our 2027 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, those will likely be 2027 numbers, Laurie. But I’ll give that as part of the full year guide next quarter.

Laurie Hunsicker: Great. Thanks. I’ll leave it there.

Mark Ruggiero: Okay.

Operator: Your next question is from the line of Jared Shaw from Barclays. Your line is now open. Please go ahead.

Jared Shaw: Hey, good morning.

Mark Ruggiero: Hey, Jared.

Jared Shaw: Hey. Could you just give us some context around what drove the decision to move the core conversion out to February? I guess, what changed since the September investment deck? 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?

Jeff Tengel: Yeah, I’ll take the first part of that, Jared. 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. 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. 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. 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.

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: May I’ll add the second part of that question, Jared. The one-time expense I would think of as really outside third-party consulting. We’re not quote unquote running 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 one-time cost 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 Shaw: Okay. All right. Thanks. For my follow-up, shifting back over to margin. If we look at that sort of milepost of 4% at the end of 2027 based on no Fed moves, what happens if we get one to two hikes sort of mid-year? I think you said if we get a hike in fourth quarter, that could be a couple of basis points. How should we think about margin with a couple hikes next year?

Mark Ruggiero: Yeah. I think the slope of the curve is still really important. I just want to preface 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%-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. 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. 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. 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.

Jared Shaw: Yeah. Okay. 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?

Mark Ruggiero: Yeah. We are shifting the pricing of it 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 a lot of our promotional pricing short-term, and that attracted a lot of interest into the CD book. But I think as we are getting a bit more clarity over what feels like a revert back to a normal slope, we will look to entice longer CDs from a pricing standpoint and get back to kind of a normal shaped pricing curve, if that makes sense.

Jared Shaw: Yeah. Okay. Thank you.

Mark Ruggiero: Thank you.

Operator: Your next question is from the line of Matthew Breese from Stephens Inc. Your line is now open. Please go ahead.

Matthew Breese: Good morning, everybody.

Mark Ruggiero: Matt.

Matthew Breese: Hello. 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? With that kind of production activity, the $575 million pipeline, what’s kind of a normalized pace of growth?

Jeff Tengel: Well, so keep in mind that the pipeline that we talk about are commitments. They’re not outstanding. That would be one just point of clarification. In the real estate book where we’ve seen most of the payoffs and pay downs, other than just normal amortization, the outsized payoffs we’ve seen especially in the second quarter, were kind of one-off and we had a couple of larger relationships that in particular were 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, 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. It’ll take 12 or 15 months before we start to see any funding on them. I think we’re still, again, assuming normal levels of payoffs and amortization, we’re expecting 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, because 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. I think that funding would be leveraging historical the last couple of quarters. We’re seeing pay-downs 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: Got it. Okay. 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?

Jeff Tengel: Yeah. 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. It was a client event, and we don’t have any branches in Providence. It was started as a kind of a LPO probably 10 or 15 years ago. The quality of the clientele that we have in that market is really incredible.

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.

Matthew Breese: Great. Just last one from 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? 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. 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’ll already start to inform potentially higher reserves. 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 factors. So it’s a fair point, something we’re very cognizant of.

We’ll provide some transparency if we start to see reserve increases as a result. I think also to your question, it’s the types of conversations we’re having just in terms of looking at opportunities and thinking about the existing pipeline. 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 be much more challenged in penciling out from a debt service perspective.

Matthew Breese: Great. I appreciate you taking all my questions. I will leave it there. Thank you.

Mark Ruggiero: Thanks, Matt.

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

Jeff 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.