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Date

Friday, January 23, 2026 at 9:00 a.m. ET

Call participants

  • Chairman, Chief Executive Officer — John Ciulla
  • President, Chief Operating Officer — Luis Massiani
  • Chief Financial Officer — Neal Holland

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Takeaways

  • Return on Tangible Common Equity (ROTCE) -- 17% for the full year, reflecting capital efficiency.
  • Return on Assets (ROA) -- 1.2% reported on a full-year basis.
  • Earnings Per Share (EPS) -- Up 10% over the year prior; adjusted earnings per share benefited from a lower share count due to repurchases.
  • Loan Growth -- Loans increased 7.8% year over year; Q4 loans rose $1.5 billion or 2.8% sequentially, mainly from commercial lending.
  • Deposit Growth -- Deposits up 6% year over year and increased 0.9% quarter over quarter, with contributions from all business lines; seasonal $1.2 billion public fund outflow replaced by corporate deposits.
  • Tangible Book Value Per Share -- Increased 13% year over year and reached $37.20 from $36.42 in the prior quarter.
  • Share Repurchases -- 10.9 million shares repurchased in 2025; 3.6 million shares repurchased in Q4 alone.
  • Commercial Classified Loans -- Down 7% sequentially; total commercial classified loans declined 5% year over year.
  • Nonperforming Assets -- Decreased by 8% sequentially, per management's remediation efforts.
  • Net Charge-Offs -- 35 basis points for the quarter, demonstrating contained credit costs.
  • Allowance for Credit Losses -- Decreased $9 million quarter over quarter due to charge-offs of previously reserved loans and improved credit trends.
  • Net Interest Margin (NIM) -- December and spot NIM at 3.35%; this is the midpoint for 2026 guidance assuming no major curve shifts.
  • Deposit Cost -- Average cost of deposits at period-end was 1.91%, down from 1.99% for the quarter.
  • 2026 Guidance -- Loan growth expected at 5%-7%; deposit growth at 4%-6%; revenue guide midpoint is $3 billion; GAAP net interest income of $2.57 billion-$2.63 billion, with fee income of $390 million-$410 million and expenses at $1.46 billion-$1.48 billion.
  • HSA Bank Outlook -- New eligibility for ACA bronze and catastrophic plans is projected to drive $1 billion-$2.5 billion in incremental deposits over five years, including $50 million-$100 million in 2026.
  • Mitros Deposit Growth -- Business anticipates continued mid-20% deposit growth rate in the coming year.
  • SecureSafe Acquisition -- Deal completed in December adds employer-sponsored emergency savings account (ESA) capability; transaction described as small and already reflected in year-end numbers.
  • Capital Ratios -- CET1 ratio is 11.2%, above the near-term 11% target and long-term 10.5% target; management may move toward lower target after Q2 2026 stress testing.
  • Expense Guidance -- 2026 expenses guided a few percentage points higher than Q4 2025 adjusted expense level, driven by seasonal payroll, merit, and benefit cost increases.
  • Loan-to-Deposit Ratio -- CFO Neal Holland noted current ratio in low 80% range, optimum targeted at low-to-mid 80%s, and no formal ceiling expected above 85%.

Summary

Webster Financial Corporation (WBS 2.96%) delivered double-digit EPS growth, improved capital levels, and notable credit quality improvements during the reported period. Management guided for mid-single digit loan and deposit growth in 2026, incorporated recent and potential health care legislative changes into HSA Bank's outlook, and highlighted further operational investments needed only in marketing rather than technology infrastructure. The company reported a decrease in allowance for credit losses driven by successful charge-off execution and risk rating migration, while highlighting a measured approach to deposit pricing amid heightened competition and falling deposit costs. Strategic focus remains on organic growth supplemented by disciplined tuck-in acquisitions, with the recent addition of SecureSafe expanding employer-focused deposit offerings.

  • Chairman John Ciulla stated repurchase activity could remain consistent with 2025 "absent other organic uses of capital," and management is more comfortable moving toward the 11% CET1 target after upcoming stress testing.
  • President Luis Massiani forecast new HSA account growth from ACA participants, with no new technology build-out required to support volume increases.
  • CFO Neal Holland provided a 2026 NIM guide at 3.35%, expecting quarterly seasonal fluctuations but a stable average for the year.
  • Management noted that category four expense reductions are being redirected to profitability and growth investments in 2026.
  • Acquisition candidates will continue to be assessed conservatively, with a focus on deposit-gathering, health care, and fee-income verticals.
  • Management described the bank's balance sheet as positioned for flexibility, with funding, liquidity, and capital ratios above both internal and regulatory thresholds.

Industry glossary

  • HSA Bank: Subsidiary segment focused on Health Savings Accounts (HSAs) and related consumer-directed health products.
  • Mitros: Webster's settlement administration business focused on professional management of structured settlements and related deposits.
  • InterSync: Specialty commercial banking vertical within Webster, details not specified in transcript but referenced as nontraditional.
  • SecureSafe: Acquired business offering employer-sponsored Emergency Savings Accounts (ESAs) as an employee benefit.
  • Category Four: Regulatory threshold referenced as driving certain cost structures and investment decisions for compliance readiness.
  • CET1 Ratio: Common Equity Tier 1 capital ratio, a regulatory capital measure for banks.
  • Emergency Savings Accounts (ESAs): Employer-sponsored accounts providing employees with a dedicated mechanism to save for emergencies.
  • ACA: Affordable Care Act; its eligibility expansions are driving incremental HSA account and deposit opportunities.
  • BOLI: Bank-Owned Life Insurance, referenced as part of noninterest fee variability.
  • CBA: Credit Valuation Adjustment, referred to as a contributor to fee income volatility.

Full Conference Call Transcript

John Ciulla: Thanks, Emlen. Good morning, and welcome to Webster Financial Corporation's fourth quarter and full year 2025 earnings call. We appreciate you joining us this morning. I'm going to start with a quick synopsis of the year. Our President and Chief Operating Officer, Luis Massiani, is going to provide an update on operating developments, and our CFO, Neal Holland, will provide additional detail on financials before my closing remarks and Q&A. Webster continued to excel from a fundamental perspective in the fourth quarter, and we entered 2026 on our front foot. Our strategic efforts in 2025 largely focused on execution, and our performance was consistently strong over the course of this year.

Despite an uncertain macro backdrop at times, we held our focus on delivering for our clients and enhancing the operating capabilities of the bank. On a full-year basis, Webster generated a 17% ROTCE and a 1.2% ROA. Our EPS was up 10% over the year prior, while we grew loans 8% and deposits 6%. Our tangible book value per share increased 13% over the prior year while accelerating capital distributions to shareholders by repurchasing 10.9 million shares. We produced strong financial results while continuing to invest in our nontraditional banking verticals, including HSA Bank, Mitros, and InterSync, as we look to fortify and advance the strategic advantages these businesses provide.

We also aggressively remediated the two isolated pockets of our loan portfolio with less favorable credit characteristics, which optimizes our balance sheet and enhances forward profitability. One illustration of this initiative is the 5% decline in commercial classified loans relative to the prior year-end. The macroeconomic backdrop remains supportive of asset quality performance more generally as we continue to see solid asset quality trends from our portfolio at large. We entered 2026 with robust capital levels and a uniquely strong funding and liquidity profile. Diverse asset origination capabilities, consistent credit performance, robust capital generation, and a strong risk mitigation framework enable the sustainable and steady growth of the company. I'll now turn it over to Luis to review business developments.

Luis Massiani: Thanks, John. Our performance in the fourth quarter echoed the solid results that we delivered through the year. Our clients continue to navigate well through the macro environment, and client activity remained robust in terms of both loan growth and lending-related fee income. Limited payoff activity also contributed to better-than-expected loan growth in the fourth quarter. Growth was generated across a broad range of asset classes, highlighting the diversity of origination capabilities that is a key strength of our franchise. We saw significant progress on credit remediation as classified commercial loans were down 7% and nonperformers were down 8%. Net charge-offs were 35 basis points.

The trajectory of problem assets should continue to decline, with some quarters decreasing more than others, as was the case in 2025. Following the strong year of deposit growth in which our commercial, consumer, health financial services, and InterSync businesses all contributed to our performance, we see continued opportunity to grow across our diverse funding platforms. While still early stages, Fram's plan participants in Affordable Care Act health care plans have started opening HSA accounts. We enhanced our existing mobile and web enrollment systems to better serve ACA participants. We are seeing increased account openings in our direct-to-consumer channel, which should accelerate through the rest of the year.

Expectation for deposit growth from HSA eligibility for bronze and catastrophic plans is unchanged. We believe newly HSA-eligible plan participants will drive $1 billion to $2.5 billion in incremental deposit growth at HSA Bank over the next five years, including $50 million to $100 million of growth in 2026. The acceleration in growth will be gradual as newly eligible enrollees in the ACA plans first recognize and then adopt HSA accounts. We're also closely watching health care policy development as there is growing appetite in Washington for a number of potential legislative actions that would enable HSA Bank to help a significantly greater portion of Americans manage their health care saving and spending needs.

This includes the potential for unpatched provisions in last year's reconciliation bill to now be passed and proposed legislation that could direct some ACA subsidies directly into consumer HSA accounts. The outlook for deposit growth at Mitros also remains very strong. A greater portion of settlement recipients are recognizing the benefits of professional administration. We are adding sales capacity and leveraging Webster's scale and technology to further enhance the member experience. I'll turn it over to Neal.

Neal Holland: Thanks, Luis, and good morning, everyone. I'll start on slide five with a review of our balance sheet. Balance sheet growth continues at a solid clip in the fourth quarter, with growth in both loans and deposits. Assets were up $880 million or 1% in the fourth quarter. On a full-year basis, they were up just over $5 billion or 6.4%. We continue to operate from a strong capital position relative to internal and external thresholds. During the fourth quarter, we repurchased 3.6 million shares. Loan trends are highlighted on slide six. In total, loans were up $1.5 billion or 2.8%, and on a full-year basis, were up 7.8%.

Growth was diverse and predominantly driven by commercial loan categories, including commercial real estate. We provide additional details on deposits on slide seven, where total deposits were up 0.9% over the prior quarter. While we did see a seasonal $1.2 billion decline in public funds, we also saw growth across each of our business lines and backfilled the seasonal public fund outflows with corporate deposits. Deposit costs were down 11 basis points relative to the prior quarter. While deposit pricing remains competitive, we should see some repricing accelerate in the first quarter driven by seasonal factors and recent repricing efforts. Income statement trends are on slide eight. There were a number of adjustments this quarter.

The net effect was a loss of $8 million to pretax income and $6 million to after-tax income. Excluding these, adjusted PPNR was down $4.9 million relative to the prior quarter, with slightly better revenue offset by expenses related to current and future growth. Adjusted net income was slightly higher than the prior quarter on a lower provision and tax rate. Adjusted earnings per share additionally benefited from a lower share count. The adjustments to GAAP earnings are highlighted on the following slide. On slide 10 is detail of net interest income. We saw a modest increase in NII as loan growth remained solid through the quarter, and we saw more limited payout activity than anticipated in the quarter-end.

Better-than-expected loan yields also help support the net interest margin, which was a couple of basis points better than our most recent guidance. Our December and spot NIM were both 3.35% for the quarter and December. As illustrated on slide 11, we remain effectively neutral to gradual changes in short-term interest rates. On slide 12, linked quarter adjusted fees were up $2.7 million with contributions from increased client activity, direct investment gains, and the credit valuation adjustment. Slide 13 reviews noninterest expense strengths. Increases in expenses quarter over quarter were largely related to growth and growth potential, with higher incentive accruals, investments in expanded opportunity at HSA Bank, and investments in technology.

Slide 14 details components of our allowance for credit losses, which decreased $9 million relative to the prior quarter. The decline was driven by charge-offs of loans previously reserved and improvements in underlying credit trends. Those improving trends are highlighted on the following slide, which shows that nonperforming assets were down 8% and commercial classified loans were down 7%. Criticized loans were also down 6%. Charge-offs for the quarter were 35 basis points. Turning to slide 16, our capital ratios remain above well-capitalized levels and in excess of our publicly stated targets. Our tangible book value per share increased to $37.20 from $36.42 in the prior quarter, with net income partially offset by shareholder capital return.

I'll wrap up my comments on slide 17, with our outlook for full year 2026. We're anticipating loan growth of 5% to 7% and deposit growth of 4% to 6%. The midpoint of the guide has expected revenue of $3 billion for 2026. On a GAAP basis, we expect net interest income of $2.57 billion to $2.63 billion, which assumes two 25 basis point Fed funds cuts in June and September. We expect fees to be $390 million to $410 million and expenses to be $1.46 billion to $1.48 billion.

While noting the '26 expenses will likely be a few percentage points higher than adjusted expenses in the fourth quarter, primarily due to seasonal impacts of payroll taxes, annual merit, and benefit costs. With that, I'll turn back to John for closing remarks.

John Ciulla: Thanks, Neal. Our outlook for this year anticipates that we continue to drive growth that enhances our financial performance. As we also invest in and grow businesses that advance our strategic advantage in terms of attractive funding characteristics and asset origination capabilities, further building on Webster's substantial franchise value. We're in a unique period for the banking industry with positive momentum coming from macroeconomic and regulatory tailwinds. While we anticipate we will be a beneficiary of these dynamics, we will also ensure we grow while maintaining the resiliency and adaptability of the company. In terms of Webster's performance, 2025, our ninetieth year, it was a record year for the bank in terms of milestones and financial achievements.

And we're positioned to prosper into the future. The efforts of those in our organization in the past several years have created a bank with a differentiated business model that organically and sustainably outgrows and outgurns the banking industry at large. Does so with a focus on risk-appropriate returns and at the same time is investing in the well-being of its communities at large. Thank you to our colleagues and clients for their contributions to our success in the fourth quarter and for the full year. And what it means for the future of the organization. Thank you for joining us on the call today. Operator, we'll take questions.

Operator: Thank you. We will now begin the question and answer session. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from Jared Shaw with Barclays. Please go ahead.

Jared Shaw: Hey, everybody. Good morning. Good morning. On the loan growth side or outlook, can you just give an update on how the partnership with Marathon is influencing that and, you know, maybe where things stand there now that we've had a couple of quarters?

John Ciulla: Sure. We're live, and we're operational. I would say we've not yet seen a material impact on loan growth trajectory in the sponsor business. I think we are having more swings at the plate just given the bigger implied balance sheet. So we remain optimistic that it was a smart strategic move, Jared. We promised people that this quarter we would give you a little indication of what it meant financially. It's obviously baked in, and it's not material. We expect a couple of million dollars in positive income resulting from the JV itself, meaning kind of returns, and everything we've quantified is in our loan growth forecast going forward.

I think it could be an upside opportunity for us should we be able to get some more wins in the sponsor business. But we're kind of, I would say, relatively conservative in terms of our view of the impact on both loan growth and our financial performance in '26. But live operational, we have originated loans for the JV. As I said, we've been more competitive in competitive situations with borrowers. We just haven't seen a real change in the dynamic in the sponsor book as of yet.

Jared Shaw: Okay. Thank you. And I guess as a follow-up, just looking at the expense trends and some of the investments you called out in systems and taking advantage of the bronze opportunity, is most of that marketing and, you know, sort of client outreach, or is there any system change that you're contemplating to, you know, to bring on more of those individuals?

Luis Massiani: No. It's mostly marketing, Jared. It's, you know, as we've talked about the opportunity in the past, a large part of what we're doing is that we have to identify who those individuals are, which is very different from how our sales channels have worked historically because this is not an employer business, but a direct-to-consumer business. And so the vast majority of the investment in the technology is done. And we feel very good about the capabilities of what we have there. You are going to continue to see us investing in identifying those individuals and motivating and educating those individuals to become HSA holders.

So that's where the larger investment dollars are going to work in the fourth quarter and will continue to, you know, you'll continue to see in 2026.

Jared Shaw: Great. Thanks.

John Ciulla: Thank you, Jared.

Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon: Thanks, guys. Good morning.

John Ciulla: Mark, let's suppose the category four threshold is lifted meaningfully sometime soon. I know you'll be able to reduce sort of that annual cost number by, pick a number, $20 million to $30 million. But I guess I'm curious, strategically, how that might change your plans for the company.

John Ciulla: Yeah. It's a great question, Mark. And I wish we could give more specific numbers. I mean, I think you see in our guide of expenses that we're not anticipating the additional incremental $20 million of expense this year because we're able to either potentially avoid some of those expenses or certainly have more time to spread out those expenses into the future. So it's our anticipation of changes is already impacting our forward look at investment, and we've already pivoted in terms of, you know, not pedal to the metal in terms of getting ready for category four because we think it's highly likely that it'll be significantly modified in the future.

So I think that's important, and I think it gives us a lot of flexibility going forward. I think from an overall strategic perspective, it really doesn't change kind of the way we view life in terms of our growth trajectory, our organic path forward. So I would say it doesn't have much of an impact on the way we strategically look at growing the bank. It's really giving us the opportunity to either increase profitability in the short term or reposition dollars that otherwise would have been invested for category four preparedness into revenue-generating investments, which is obviously the goal. So I think that's the way I would characterize our view of category four.

Mark Fitzgibbon: Okay. Great. And then separately, Neal, I wonder if you could help us think through the NIM trajectory in the early part of 2026.

Neal Holland: Yeah. So we ended the quarter and December at a NIM of 3.35%. We expect that exit rate to maintain throughout 2026, and so we should see kind of a 3.35% for the full year. Now, obviously, there's variability there depending on what happens with the curve and other items, but we think 3.35% is a good midpoint guide for next year. There will be the normal seasonal factors. You know, we'll tick up a few basis points likely in Q1, and then that will come down a little bit in Q2. And pick back up in Q3. But I would be thinking in that mid-3.30s range for our go-forward NIM expectations for 2026.

Mark Fitzgibbon: Thank you.

John Ciulla: Thank you, Mark.

Operator: Your next question comes from the line of Matthew Breese with Stephens. Please go ahead.

Matthew Breese: Hey, good morning. Good morning. John, at a recent event, you noted that you and the Webster team can be a bit more aggressive on deposit pricing. Hoping you could provide just a bit more color there. How much more room do you see to lower deposit costs absent rate cuts this year? And if you have it, what was the period-end cost of deposits?

John Ciulla: Yeah. I'll let Neal give you the numbers as usual. But I think we did we were a little bit more aggressive in the fourth quarter. There is still significant competition, particularly in our geographic footprint. And so I think we're kind of taking a very thoughtful and deliberate approach, and I'll let Neal kind of talk to you about what transpired in the quarter and how we're looking at pricing going forward.

Neal Holland: Yes. For those of you who listened to our last public comments, we guided down NIM for the fourth quarter by a few basis points. And when we had the mid-December cut, we made more aggressive moves than some of our last cuts. And so we had nice pricing down, and we ended December with an average cost of deposits at $1.91 versus $1.99 for the quarter. So a nice trajectory down there. As John said, competition remains strong. But we did have some positive movement on that last cut and are continuing to look for ways to optimize our overall customer deposits.

Carrying that into kind of beta assumptions, we're assuming for kind of this cycle through the end of next year, a 30% overall beta, which is a little bit higher than we are today, but that's how we're looking at deposit pricing within our guide.

Matthew Breese: Great. And then just thinking about loan growth as it relates to reserve, maybe first, what are current spreads on commercial real estate and C&I? And do you expect to grow in some of these lower-risk sectors in 2026, resulting in further reductions in the, you know, reserve as a percentage of loans?

John Ciulla: Yeah. That's another interesting question. Credit spreads have tightened significantly. I was talking with our Chief Credit Risk yesterday, and we've seen 30 to 50 basis points over the last eighteen months or so compression in spreads, particularly in kind of commercial real estate assets that have gone kind of stabilized down to 180 basis points to 200 basis points over reference rates. So I do think you're seeing in our and what you saw in our provisioning this quarter, Neal mentioned the fact that we resolved some problem assets and that sort of continues to release.

But you're right in that what we've been adding in terms of stabilized commercial real estate, in terms of fund banking, in terms of some of the other asset categories, public sector finance, tend to make the weighted average risk rating of the overall portfolio better. And so I think you'll continue to see that. Quite frankly, and we've mentioned it, we'd like to see the sponsor business at some of our verticals that have higher risk-return profiles and higher yields grow more. So it's not all by choice. It's also by what the market's giving us.

But I think if you see continued benign credit and you continue to see trend lines in where we're growing assets, I think your supposition is correct that we would have less risk in the overall portfolio and we could still have room in that reserve as we move forward.

Matthew Breese: Thank you.

John Ciulla: Thank you.

Operator: Your next question comes from the line of Casey Haire with Autonomous Research. Please go ahead.

Jackson Singleton: Hi. Good morning. This is Jackson Singleton on for Casey Haire. Just starting out, I hear your thoughts on 11% annualized growth in 4Q and really just strong growth in all 2026. It feels like the guide is still a little conservative. So just wondering if you can maybe provide some thoughts on kind of why the 5% to 7%.

John Ciulla: Sure. You know, I do think that there was and Neal mentioned the fact that there were lower payoffs than we had anticipated in the fourth quarter. And so I think if you normalize that, we feel kind of our growth was a little bit less than the headline number was. I think the other dynamic here is we've talked a lot about making sure we maintain our profitability and our returns as we move forward.

And so I think one of the things that Luis and Neal and I and the rest of the team have been doing is spending a lot of time thinking about really deliberate capital allocations and looking at what businesses are going to continue to grow franchise value in the long term. We may be deemphasizing some businesses and really looking at kind of core franchise building full relationships. So I think when you put everything together, as I said earlier, I think we do anticipate continued competition from private credit in the sponsor group, although the moves we're making hopefully will get a little bit more growth out of that business than is in our numbers.

So that could help us surprise to the upside. But I think we think we can grow loans 5% to 7% in a very profitable manner, continue to show at or better than market growth over time, and do it profitably. So we think that's the right number for growth. Could we outperform that if the economy continues to kind of along and we get a few breaks with respect to M&A activity and then the sponsor book? Yes. But we think this is our best guess of optimal growth and profitability mix.

Jackson Singleton: Got it. Thanks for that. And then just my follow-up is on loan-to-deposit ratio. So the deposit guide, the midpoint of the deposit guide's a little bit lower than the midpoint of the loan guide. So just wondering maybe is there any kind of ceiling for the loan-to-deposit ratio that you guys wouldn't want to go past? And then maybe how should we think about the mix of deposit growth in 2026?

Neal Holland: Yeah. I'll start that one. We don't have a formal ceiling that we're looking at. We are in the low 80% range. I personally believe sitting in the CFO seat that kind of in that low to mid-85% range is the optimal place to be. So I would be surprised if we went over 85%, and we tend to stay more in that 80% to 85% range. On the deposit growth side in the mix, the mix should be fairly similar to how we've grown loans this year. We are expecting a little bit more on the HSA side from the bronze opportunity that we've talked about.

We expect continued strong mid-20% growth from our Amitros business and then similar growth rates across the board in the other categories.

Jackson Singleton: Got it. Okay. Perfect. Thanks for taking my questions.

John Ciulla: Thank you.

Operator: Your next question comes from the line of Chris McGratty with KBW. Please go ahead.

Chris O'Connell: Hey. Good morning. This is Chris O'Connell filling in for Chris. Hey, Chris. Hey. Just wanted to start off just quickly on the balance sheet on the liability side. On the end-of-period basis, there seemed to be, you know, a bit of movement outsized here and there on the borrowing side. Anything driving that outside of seasonality in kind of the movement with the sub-debt?

Neal Holland: The quarter? Nothing unusual. I guess I would say the one unusual factor relates to what you mentioned, the sub-debt. So throughout the quarter, we were a little bit elevated on the sub-debt side with long-term debt just over, I think, we're at $1.1 billion, slightly over $1.1 billion, and we now sit at $650 million back where we wanted to be after we redeemed two outstanding notes. So we also have some seasonality in the quarter where I mentioned in my prepared remarks, we had $1.2 billion of public funds leave. Those are already starting to flow back in Q1, just those seasonal trends. So, you know, we offset some of that with broker deposits and FHLB advances.

But during Q1, we'll see, as I mentioned, those public funds flow back in and the broker deposits reduce back down. So no, nothing unusual there. Just some transactions that tie into seasonality and tie into our September sub-debt issuance.

Chris O'Connell: Okay. Great. Thank you. And then, you know, on the fee guide, if I'm, you know, reading the, you know, numbers correct on a year-over-year basis, it's a little bit of a wide range, 1% to nearly high single digits. Can you just maybe frame some of the drivers and growth for next year? And kind of what would push you towards, you know, the lower or higher end of the upside?

Neal Holland: Yes. We've talked about our fee earnings having kind of four major areas in the past. And on our kind of health care services, our loan business, and our deposit business, three of the main businesses, we kind of expect that steady, you know, 2% to 4% growth from client activity. What really drives some variability in our fees are some of the unusual categories.

When we look at BOLI, when we look at our CBA, and when we look at some of our direct investments, which have been very for us, but do have some volatility, leads us to leave a little bit wider range on our fee guide just because of that last 25% and some of the lumpiness of when those flows come in. Is how I would address that one.

Luis Massiani: Yeah. I'd add one more thing there is the, you know, to the place where you see a little bit of seasonality and volatility, but where we saw a lot of good performance in the third and fourth quarter and the back half of this year was in loan-related fees. So we actually did see with the, and that's been pointed out in the call, with the higher origination activity that we saw and the growth that we saw in C&I and in CRE, we do get a fair amount of, you know, swaps, syndications, and FX business as well.

And so what could potentially move it to the higher end of the range is if we continue to see good momentum in those, you know, kind of, we'll call it, the larger commercial asset classes. Then we feel very good that, you know, '26 should be a good year for loan-related fees, and that could potentially move it a little bit higher towards that high end of the range as well. But tough to forecast those because it is very much driven by what overall origination activity is going to be. So it's but it's a good opportunity.

Chris O'Connell: Thank you. Great.

Operator: Your next question comes from the line of David Schiavarini with Jefferies. Please go ahead.

David Schiavarini: Hi. Thanks for taking the questions. Wanted to start on HSA. How did the open enrollment season go? I know that normally leads to a nice bump in deposits in the first quarter.

Luis Massiani: Yeah. David, so far so good as I were characterizing it. So we're slightly ahead of where we were last year. We've opened up approximately about 15,000 more accounts than what we had at this point in 2025. And, you know, total account opening so far about are just shy of 250,000. So we had, as we mentioned on prior calls, you know, during the, you know, course of the year, we've had a fair amount, we made a fair amount of investments on just broad-based client experience, you know, new technology, new investment experience, that led to some nice client wins. Obviously, it's a competitive market, so we had some losses as well.

But net-net, the client wins have outweighed the client losses on the employer side. And so, therefore, we've seen some, you know, some nice momentum on, you know, account opening. And so we think that it should be, it sets up pretty well for having good performance, and we should be slightly ahead of where we were in 2025, you know, when you'll see, you know, for first-quarter results. What we haven't seen yet and we're still waiting on is on the direct-to-consumer side. So the, you know, we had, guided to the, you know, the new ACA opportunity to be a slow-moving target, I guess, that's going to take some time for us to play out.

We've seen account openings that are faster in our direct-to-consumer channel as of the, you know, through this date, you know, last year. So we have seen growth, but we have not yet seen, you know, the type of growth that we think we're going to see over the balance of the year. So we should see the direct-to-consumer channel, you know, kind of increasing and accelerating growth in account opening should accelerate over the course of the year, and we should be able to continue to maintain the good positive momentum that we have in the employer channel as well. So we feel good about the business and where it is today.

David Schiavarini: Great. Thanks for that. And then shifting over to capital management. Nice uptick in the buyback activity in the fourth quarter. Can you talk about the pace looking forward on the buybacks? And I see your CET1 is 11.2% with the near-term target 11% and long-term target 10.5%. Can you talk about the timing of bringing that CET1 down?

John Ciulla: Sure. I think our kind of capital strategy from the top of the house remains the same. We look to invest in organic growth, and we're still looking for tuck-in acquisitions to enhance and supplement our health care verticals. And if those aren't available to us, we obviously look to return capital to shareholders in the form of dividends or buybacks. I think we think that you could see another year like you saw in '25 with respect to share repurchases as we move forward. As it relates to changing from our short-term to our long-term 10.5% target, I think you see that the industry en masse is kind of getting closer to pivoting, and you've seen some people announce.

We go through at the end of the first quarter and into the second quarter our annual stress testing and capital management activities. And I think, you know, we're more likely than we were last year to feel comfortable to start to move that thing down after we go through that exercise. So I think we're a couple of quarters away from giving you a little more specificity on moving that down. But we certainly feel more comfortable. The credit coast seems pretty clear. We've got some good economic momentum. So I think you'll continue to see us buy back shares. Absent other organic uses of capital.

And I think we're getting more confident that we can start to reach that 11% CET1 ratio as we move through the year.

David Schiavarini: Great. Thank you.

John Ciulla: Thanks, David.

Operator: Your next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo: Thank you. Good morning, everyone. Good morning. Maybe we can start on the credit. I know that's not as pressing a topic as it has been, but new year, maybe just kind of reset expectations and give your latest thoughts on the office book and what that could look like through any further sales, etcetera, for the coming year.

John Ciulla: Sure. I feel really pretty good overall. I mean, I think we nailed it, and I give credit to our Chief Credit Officer in terms of calling the inflection point. We've had three good quarters of underlying risk rating, migration trending. As you saw, we've materially reduced criticized class and nonaccrual loans. And so the overall credit profile, I think, continues to improve and be certainly well within our comfort levels.

With respect to those two portfolios we've talked about over and over again, our office and our health care services, they still represent a large portion of NPLs and classifieds, which is sticky and frustrating, but also really portends to the fact that the vast majority of the $55 billion loan book is performing really, really well. The way I would characterize office, and this would also go to health care services, is that I think we have it pretty much ring-fenced. You know, we're about $720 million left in the office portfolio. There's a good amount that's performing as agreed. We've risk-rated it appropriately. We've got the appropriate reserves.

And so we don't think it's going to be a big contributor as we move forward to kind of outsized nonaccruals or losses. We could see, obviously, more as we try and resolve some of the sticky nonaccruals we have now. We'll make the right calls in terms of loan sales or charges. But we feel pretty good about the fact that we can operate within that 25 to 35 basis point annualized charge-off rate. Obviously, when you're a commercial bank with big credits, that can sort of bump around a little bit as you've seen in the last several quarters.

But we feel pretty good that we've kind of have a good handle on everything in there and that we don't see any significant deterioration in that portfolio. And the same goes with the health care portfolio, which is now down to, like, $400 million. So in aggregate, those two portfolios are roughly $1 billion. We've identified the problems that are in them. We've adequately reserved, and we're not as concerned to have contributions in big contributions and charges and NPLs going forward.

Daniel Tamayo: Okay. Great. Yep. That's great color. Thanks. And then, you know, we've talked a lot about the deposit portfolio today. You know, the noninterest-bearing side, obviously, tied to commercial loan growth. But it really has continued to trend down for reasons that, you know, you're growing in other areas. You had a lot of growth opportunities, understandably. But that has kind of continued to trend down over the last few years, even in quarters. Just curious if you see a bottom from a mix perspective with noninterest-bearing anytime soon. Thanks.

Neal Holland: Yeah. You know, I would answer that with two different directions. The first is saying that we are seeing a slowing pace and reductions in noninterest-bearing. For the full year, we were down just over $200 million. So we believe that we're very close to an inflection point there. Looking at it a little differently as an organization, we really focus on noninterest-bearing, including our health care services. You know, priced at 15 basis points. You know, where we had $450 million in growth this year.

And so when we have a marginal dollar of marketing where we could put towards the Mitros or towards the HSA versus going out and competing head-to-head for a new consumer client, we tend to go in the direction of our health care services book, which is differentiated, and we have a strong opportunity there. So, overall, kind of look at those combined, and we do think for the pure, noninterest-bearing excluding health care vertical, we are close to an inflection point.

John Ciulla: And I want to be clear that we still have a significant focus on driving core commercial and consumer relationships in noninterest-bearing accounts. We're investing in treasury management capabilities. We continue to push all of the line folks to make sure that they're deepening their share of wallet and that we're getting our share of operating business along with the loans we're making. I agree with Neal's comments, but I don't want that to be that we're not still focused on making sure that we're growing kind of core traditional consumer and commercial deposits.

Daniel Tamayo: Great. Thanks for the color.

Operator: Your next question comes from the line of David Smith with Truist Securities. Please go ahead.

David Smith: Hey. Good morning. Hey, David. You had mentioned deposit competition was elevated in a lot of your geographic footprint right now. I'm wondering if you could just help us frame, you know, within your broader what areas are seeing more or less competition from a geography standpoint? Thank you.

Neal Holland: Yeah. I would put it across multiple categories. When we look at consumer CDs, we've seen some of the large banks in our market maintain very aggressive pricing there, which were priced a little bit below some of those competitors at this point in time. On the direct bank, we don't have a large portion of our portfolio there, you know, $2 billion to $3 billion, but there's some offers still sitting out in the market, well over 4% where we moved lower. The commercial side continues to be competitive as always, especially in our market. So I would say it's generally across the board. We're seeing a competitive landscape.

As we talked about, we did move pricing down at the mid-December rate cut, and we'll continue to be aggressive. But we do very much focus on that balance between liquidity and net interest margin, and we feel like we're in a good spot. But competition does remain strong in the market.

David Smith: Thank you.

Operator: Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead.

Manan Gosalia: Hey. Good morning, all. Good morning. You noted earlier on that loan yields were better this quarter than you anticipated. Can you talk about what's driving that? You know, you also mentioned the credit spreads have tightened. So it seems like the loan growth is coming in higher-yielding categories. I guess two-part question, is that right? And if that is, then what is baked into the flattish NIM trajectory that you just spoke about?

Luis Massiani: Yeah. I'll take the first one for the first question, Manan, Neal can answer on the NIM. You know? So, no, I don't think that we said that loan yields were better than expected in the fourth quarter. It was actually loan payoffs. And so part of the kind of better performance that we saw from a loan growth perspective and just the overall stability that saw in the portfolio was driven by the fact that loan, you know, the expectations regarding loan payoffs with rate so forth did not turn out to be what we thought it was.

So we actually better performances, so we were able to retain, you know, a larger, you know, larger percent of particularly of the real estate book, which was great. On loan yields, it's competitive out there. And so we've, you know, we've seen, similar to what we've talked about a little bit on the deposit side. We've seen a bottoming out in an inflection point where spreads for the most part have contracted to where they're going to contract.

And part of the spread contraction that we've seen in new originations for us is driven by the fact that we've been focusing on higher quality, you know, just better more middle-of-the-fairway type of assets that are just by design gonna have a tighter credit spread than, you know, than things that are not middle-of-the-fairway, not as bank eligible or as bank friendly from an asset class perspective. So, you know, we feel good about where the, you know, the origination and pipeline activity is for '26. We think that spreads are going to hold, you know, hold in relative to what we've seen for the back half of this year.

And if anything, to the extent that there's a, you know, a better supply-demand imbalance with credit providers into the market to the loan demand. We think that there could be some potential for credit spreads to, you know, move slightly up over the course of the year, but that's not factored into our numbers today. And if anything, that would be a positive.

Neal Holland: Yeah. And so clearly, with market rates coming down, our overall loan yields for the quarter were down about 17 basis points. When we were sitting midway through the quarter and seeing the performance at the beginning of the quarter, we were expecting to see it come down a little bit more. At the end of the quarter, we had a few positive movements and a little bit of change in mix that were better than we were anticipating. So overall, from that middle of the quarter, clearly, loan yields were down based on the overall market, but came in a little bit better than expected for the quarter.

Manan Gosalia: Got it. Perfect. And then just wanted to get your thoughts on the leverage lending guidance withdrawn. Does that help loan growth a little bit? As you look out the next two or three years? And does that help you do more with clients that you already have a deep relationship with?

John Ciulla: Yeah. It's a great question. I think the answer is it does not really change our financial outlook. I think it does give us a little more flexibility in terms of those kind of prescriptive guidance things. It's interesting. The unintended consequences is you end up maybe doing transactions that are not as optimal and actually not as credit strong, but within a box of a leverage covenant. This gives us a little more flexibility to do deals we know are good, you know, in the sponsor book. We've been in the business for twenty-five years, and we're really good at it.

So I would say, you know, during the course of the year, will it allow us to do three to five more transactions that we otherwise might have not done because of regulatory scrutiny that we know are really, really good transactions? Yes. Does that really move the needle and change our kind of forward look on loan growth or profitability? Probably not. It's factored into what we're giving in guidance. So I would kind of say it's definitely and I know this question's been asked across the board. It's definitely not as impactful as people say. But it's another good sign consistent with a more constructive and tailored regulatory environment.

It gives, you know, good bankers and good bank management teams the ability to serve their customers better.

Manan Gosalia: That's very helpful. Thank you.

Operator: Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Please go ahead.

Bernard Von Gizycki: Hey, guys. Good morning. Just my first question, sorry I missed this, but I think you acquired SecureSafe in December, which adds employer-sponsored emergency savings accounts. Can you just talk more on the acquisition, sizing of the deal, any economic or any color you can share on that?

Luis Massiani: Yeah. On the size of the deal, Bernard, we're not, you know, we didn't put anything out when we announced it. And so you could assume that it's, you know, relatively small, and it's already, you know, factored into all of the, you know, quarter-end balance sheet numbers and, you know, capital metrics and so forth. So it's a, you know, SecureSafe is a relatively small company still in, we could characterize it as almost in, you know, still pseudo start-up phase. But it does have, it's a market leader in that growing business of ESAs, of emergency savings accounts.

It's clearly, or the mission of the business is focused on helping, you know, large employers that have, you know, large workforces, you know, help those, you know, employees through an incremental benefit to being able to save for, you know, eventuality, specific rainy day funds, and so forth. And so it's largely viewed as a retention tool by employers. It's a big, you know, kind of focal point of HR officers for large employers.

They're trying to figure out other ways to help those, you know, places that have large employee workforces to, you know, just, you know, kind of put more arms around them and bear hug their employees to, you know, to stay, you know, stay on and kind of limit turnover. But, again, it's a small business. We think that it adds a lot of good potential. It's a product that we had started to sell through our HSA Bank channel to our employer clients for some time and saw some good receptivity.

We've been very familiar with the product for about the last year, year and a half, and we think that could be, again, it's going to be well received into our existing channels, but we're also expanding the universe of potential large employers that we can now target because this is something that we think is going to be well received by the large world of, you know, human resources in large corporate. But more to come on how that business will continue to evolve, and you'll start seeing, you know, we'll call out deposit balances and start highlighting those as those flow in over the course of this year.

Bernard Von Gizycki: Okay. Great. And just as a follow-up, so what is your appetite on further deals? And how actively are you looking at them? And any color on, like, pricing and is it just harder to find these types of, like, bolt-ons to add to the HSA business?

John Ciulla: Yeah. It is. I mean, I think, you know, it's always a good question, and we answer every year. We're obviously very active in looking to enhance two things. Our deposit-gathering low-cost, long-duration deposit-gathering capabilities. We've got a first-mover advantage in health care through HSA and Amitros. Or potentially adding more fee income streams to our business. So we continue to look at those tuck-ins where we can. We have been very transparent in the past that most banks are also looking at those two categories to grow. And when companies go to auction, metrics in terms of tangible book value dilution and others get very challenging. So I'd say we're active.

If you think about it, since the Sterling MOE, we've done Bend in HSA. We've done InterSync. We've done SecureSafe. We've done Amitros. We have a really good track record, I think, of acquiring businesses that enhance our existing business and let us leverage our core competencies without making it shareholder unfriendly. And so I think that's the key. We'll continue to look at it. We'd love to do that sort of on a serial basis. Again, we're going to be really disciplined in terms of how much we pay and what we are looking to acquire.

Bernard Von Gizycki: Great. Thanks for taking my questions.

John Ciulla: Thank you.

Operator: Your next question comes from the line of Jon Arfstrom with RBC. Please go ahead.

Jon Arfstrom: Thanks. Good morning, guys. Good morning, John. Neal, question for you on expenses. It looks like the fourth-quarter run rate, the core run rate, puts you at the low end of the '26 guide. Which is fine. But what do you think the slope looks like for the year-end expenses?

Neal Holland: I think you said what does the slope look like. You're a little hard to hear, but okay. Perfect. Background, I guess, maybe. Yeah. Yes. As I mentioned in prepared remarks, we'll move up seasonally a little bit in Q1 due to those three factors that I mentioned. I'll tell you that I think fairly stable expenses on the quarters after. We're going to continue to invest in our client-facing businesses and look for opportunities to grow. At the same time, we'll be continuing, as we always do, to look for ways to drive efficiency into the organization.

So I would say that we'll have a percentage point increase in Q1, as I've mentioned before, and then probably neutral to a slight increase each quarter going forward. So not a material upslope after the first quarter.

Jon Arfstrom: Okay. Good. That helps. And then back on growth, like, I heard your comments on less payoffs maybe caused an aberration in growth. But do you have any reason for the lower payoff activity? And it also looks like the way I see it, originations in commercial and commercial real estate are up pretty nicely. Is that seasonal, or is there something else going on there? Thank you.

Luis Massiani: Yeah. I think that it's a little bit of easy now. So it's a little bit of all the above that you mentioned. If you go back to the performance of 2025, the first part of the year, first and second quarter, we did not have as much commercial real estate growth as you saw on the back end. So a little bit of that was pipeline buildings over the course of the year.

And, you know, so we continue to feel good that, you know, pipelines are building up nicely for '26 as well, but you're unlikely to see the same type of growth trajectory that we saw in the fourth quarter on those specific, you know, CRE and C&I asset classes as you saw in the back half of the year. But then you'll see potentially some seasonality in the back half of '26 as well that could get you to the higher end of the range that we put out there today. So there's, you know, there's a little bit of all the above. Why did the expected payoffs, you know, perform better? It happens at times. You know?

So we, again, we think that there's, you know, we go through the portfolio. We have, you know, pretty good, you know, visibility onto, you know, how things will perform. Rate moves being a little bit later in the quarter than what we had originally anticipated also, you know, drove some of that performance. But, you know, rates continue to go down. You should see some, you know, accelerated payoffs, particularly on the CRE book, but, you know, we'll see what happens over the course of the year. And if rate cuts do come, that will have some sort of impact.

So it's a little bit of a conservative guide from that perspective, but the overall theme is pipelines are good. Feel good about the origination activity for the year. And we think that there's, you know, there could be good potential opportunities for us to the high end of the range.

Jon Arfstrom: Yeah. Okay. Alright. Thank you very much.

Operator: Your next question comes from the line of Anthony Elian with JPMorgan. Please go ahead.

Anthony Elian: Hi, everyone. On the loan growth and deposit growth outlook, are you anticipating the growth within those ranges spread evenly throughout this year? Or do you think the growth will be more first half or second half weighted?

John Ciulla: You know, that's always tough to predict. There is a general seasonality. The last year actually was a little bit different given the pipeline build in CRE. We had a stronger third quarter than you'd normally see. The fourth quarter is usually the strongest quarter for us, but I think for our modeling purposes, thinking about kind of an even growth trajectory is, you know, you can build it into your models. The first quarter is usually a little bit slower, but, again, it has a lot to do with payoffs, which we can't predict. So very difficult to give you kind of the seasonal growth aspects.

Anthony Elian: Okay. And then on HSA and the $1 billion to $2.5 billion incremental deposit growth, you could see from the bill over the next five years, is all the necessary infrastructure technology in place to support that growth, or is there any further build-out required? Thank you.

Luis Massiani: No build-out required from a technology perspective. It's in place. And we feel very good that we've made the investments that if there's a mad rush of potentially to say client trying to open up accounts through our direct-to-consumer channel that we have all the capabilities and scalability to be able to, you know, to take that on at no incremental cost to where today. So we feel very good about that tech investments that we've made there.

Anthony Elian: Great. Thank you.

John Ciulla: Thank you.

Operator: And that concludes our question and answer session. John, I'll turn it to you for closing remarks.

John Ciulla: Yeah, I just want to thank everybody for joining us today. Hope you can survive the storm this weekend no matter where you are, and enjoy the day.

Operator: And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.