Webster Financial Corporation (WBS) Q4 2025 Earnings Call Transcript

Webster Financial Corporation (NYSE: WBS) Q4 2025 Earnings Call dated Jan. 23, 2026

Corporate Participants:

John R. Ciulla — Chairman and Chief Executive Officer

Luis Massiani — President and Chief Operating Officer

Neal Holland — Chief Financial Officer,

Emlen Harmon — Investor Relations

Analysts:

Unidentified Participant

Jared Shaw — Analyst

Mark Fitzgibbon — Analyst

Mathew Breese — Analyst

David Chiaverini — Analyst

Daniel Tamayo — Analyst

David Smith — Analyst

Manan Gosalia — Analyst

Bernard von-Gizycki — Analyst

Jon Arfstrom — Analyst

Anthony Elian — Analyst

Presentation:

operator

Good Morning. Welcome to Webster’s financial corporation’s fourth quarter 2025 earnings conference call. Please note that this event is being recorded. I would now like to introduce Webster’s Director of Investor Relations, Emlyn Harmon to introduce the call. Mr. Harmon, please go ahead.

Emlen Harmon — Investor Relations

Good morning. Before we begin our remarks, I want. To remind you that comments made by management may include forward looking statements within. The meaning of the Private Securities Litigation. Reform act of 1995 and are subject to the Safe harbor rules. Please review the forward looking disclaimer in Safe harbor language in today’s press release and presentation for more information about risks and uncertainties which may affect us. The presentation accompanying Management’s remarks can be found on the Company’s investor relations website@investors.websterbank.com. I’ll now turn the call over to. Webster Financial CEO John Ciula.

John R. Ciulla — Chairman and Chief Executive Officer

Thanks Emily 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 Masiani 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 and Q and 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 deposited 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 non traditional 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 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 enter 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. These enable the sustainable and steady growth of the company. I’ll now turn it over to Luis to review business developments.

Luis Massiani — President and Chief Operating Officer

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 non performers 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. In 2021, following the strong year of deposit growth in which our commercial, consumer, healthcare, 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, Bronx Plan participants in Affordable Care act healthcare plans have started opening HSA accounts. We enhanced our existing mobile and web enrollment systems to better serve ACA participants and we are seeing increased account openings in our direct to consumer channel which should accelerate through the rest of the year.

Our expectation for deposit growth from HSA eligibility for bronze and catastrophic plan participants 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 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 healthcare policy developments 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 healthcare saving and spending needs.

This includes the potential for unpassed 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 Amitros 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. Turn it over to Neil

Neal Holland — Chief Financial Officer,

Thanks, Luis. And good morning everyone. I’ll start on slide 5 with a review of our balance sheet. Balance sheet growth continued 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 6. 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 7 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 8. There were a number of adjustments this quarter. The net effect was a loss of 8 million to pre tax income and 6 million to after tax income. Excluding these adjusted PP and R 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 payoffs activity than anticipated into quarter end. Better than expected. Loan yields also helped support the net interest margin which was a couple basis points better than our most recent guidance. Our December and spot NIM were both 335 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 non interest 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 to 2.63 billion, which assumes 2.25basis point fed funds cuts in June and September.

We expect FEES to be 390 to 410 million and expenses to be 1.46 to 1.48 billion, while noting that first quarter of 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 R. Ciulla — Chairman and Chief Executive Officer

Thanks Neil. 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 90th 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 the past several years has created a bank with a differentiated business model that organically and sustainably outgrows and out earns. 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.

Questions and Answers:

operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question again, press star one. We also ask that you limit yourself to one question and one follow up. For any additional questions, please re queue. And your first question comes from Jared Shaw with Barclays. Please go ahead everybody.

Jared Shaw

Good morning.

John R. Ciulla

Good morning.

Jared Shaw

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, where things stand there now that we’ve had a couple quarters.

John R. 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, you know, we promised people that this quarter we would give you a little indication of what it meant for financials. 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. And 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 client outreach or is there any system change that you’re contemplating to bring on more of those individuals?

Luis Massiani

No, it’s mostly marketing. Jared. 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 to 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, so the investment of the technology is done and we feel very good about the capabilities of what we have there. But you are going to continue to see us investing in identifying those individuals and then motivating and educating those individuals to become HSA holders.

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

Jared Shaw

Great, thanks.

Luis Massiani

Thank you. J.

operator

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

Mark Fitzgibbon

Thanks guys. Good morning. Let’s suppose the category 4 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, 30 million. But I guess I’m curious strategically how that might change your plans for the company.

Neal Holland

Yes, 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 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 4 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.

John R. Ciulla

Okay, great. And then separately, Neil, 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 335 we expect that exit rate to maintain throughout 2026, and so we should see kind of a 335 for the full year. Now, obviously there’s variability there depending on what happens with the curve and other items, but we think 335 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, then tick back up in Q3. But I would be thinking in that mid-330s range for our go forward NIM expectations for 2026.

Mark Fitzgibbon

Thank you.

John R. Ciulla

Thank you, Mark.

operator

Your next question comes from the line of Matthew Breese with Stevens. Please go ahead.

Mathew Breese

Hey, good morning. Morning, John. At a recent event, you noted that you and the Webster team can be a bit more aggressive on deposit pricing. Something 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 haven’t, what was the period end cost of deposits?

John R. Ciulla

Yeah, I’ll let Neil 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 kind of 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 191 versus 199 for the quarter. So a nice trajectory down there. As John said, competition remains strong. But we did have some positive movement, especially on that last cut, and are continuing to look for ways to optimize our overall cost of 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.

Mathew Breese

Great. And then just thinking about loan growth. As it relates to reserve. You know, maybe first, what are, what are current spreads on commercial real estate and cni? 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.

Neal Holland

Yeah, that’s another interesting question. You know, credit spreads have tightened significantly. I was talking with our chief credit risk officer yesterday, and you know, we’ve seen 30 to 50 basis points over the last 18 months or so, compression in spreads, particularly in kind of commercial real estate assets, you know, that have gone kind of stabilized down to 180 basis points, to 200 basis points over reference rates. So, you know, I do think you’re seeing in our portfolio and what you see saw in our provisioning this quarter, Neil 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 think mentioned it. You know, we’d like to see the sponsor business of 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 environment and you continue to see trend lines in where we’re growing assets, I think your supposition is correct that we would, we would have less risk in the overall portfolio and we could still have room in that reserve as we move forward.

Mathew Breese

Thank you.

Neal Holland

Thank you.

operator

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

Unidentified Participant

Hi, good morning. This is Jackson Singleton on for Casey Hare. Just starting out. I hear your thoughts on Marathon, but also wanted to follow up on loan growth. I mean, just given 11% annualized growth in 4Q and really just strong growth in all of 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 R. Ciulla

Sure. You know, I do think that there was and Neil 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 kind of 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 Neil and I and the rest of the team have been doing is spending a lot of time thinking, thinking about sort of 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 we’ll 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 hum along and we get a few breaks with respect to M and A activity and the sponsor book? Yes. But we think this is our best guess of optimal growth and profitability mix.

Unidentified Participant

Got it. Thanks for that. And then just my follow up is on loan to deposit ratio. So the deposit guide, the midpoint of deposit guide’s a little bit lower than the midpoint of the loan guide. So just wondering maybe is there any kind of CP 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. You know, 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 plan to kind of stay more in that 80 to 85% range. On the deposit growth side and 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.

Unidentified Participant

Got it. Okay, perfect. Thanks for taking my questions.

John R. Ciulla

Thank you.

operator

Your next question comes from the line of Chris McGrady with KBW. Please go ahead.

Unidentified Participant

Hey, good morning. This is Chris O’ Connell filling in for Chris.

John R. Ciulla

Hey, Chris.

Unidentified Participant

Hey. Just wanted to start off just quickly on the balance sheet on the liability side, you know, on the end of period basis, there seemed to be a bit of movement outsized here and there on the borrowing side. Anything driving that outside of seasonality and kind of the movement with the sub debt in the quarter?

Neal Holland

Nothing unusual, I guess. I wouldn’t 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 were 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 into, in for 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 nothing unusual there, just some transactions that tie into seasonality and tie into our September sub debt issuance.

Unidentified Participant

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

John R. Ciulla

Yeah, we’ve talked about our fee earnings having kind of four major areas in the past. And on our kind of healthcare services, our loan business and our deposit business, 3 of the main businesses, we kind of expect that steady 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 profitable 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, a 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 in the back half of this year was in loan related fees. So we actually did see with the, as been pointed out in the call, with the higher origination activity that we saw and the growth that we saw in CNI and in cre, we do get a fair amount of 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 kind of, we’ll call it the larger commercial asset classes, then we feel very good that 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. But it’s a good opportunity.

Unidentified Participant

Great, thank you.

operator

Your next question comes from the line of David Scheverini with Jeff Breese. Please go ahead.

David Chiaverini

Hi, thanks for taking the questions. Wanted to start on hsa. How did the open enrollment season go? Because I know that normally leads to a nice bump in deposits in the first quarter.

John R. Ciulla

Yeah, David, so far so good is how we’re 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 25. And total account opening so far about are just side 250,000. So we had, as we mentioned on prior calls, during the course of the year we’ve had a fair amount, we made a fair amount of investments on just broad based client experience, new technology, new investment experience that led to some nice client wins. Obviously it’s a competitive market so we had some client 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 openings. 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 25, 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 kind of 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, through this date, you know, last year. So we have Seen growth growth, but we have not yet seen 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 kind of increasing and accelerating. The growth in account openings should accelerate over the course of the year and we should be able to continue to maintain the good and positive momentum that we have in the employer channel as well.

So we feel good about the business and where it is today.

David Chiaverini

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 11.2 with the near term target 11% and long term target 10.5. Can you talk about the timing of bringing that CE21 down?

John R. Ciulla

Sure. I think our capital strategies from the top of the house remain the same. We look to invest in organic growth and we’re still looking at 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 and a half 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 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 and we’ve got some good economic momentum. So I think you’ll, 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 breach that 11% CET1 ratio as we move to through the year.

David Chiaverini

Great, thank you.

John R. 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.

John R. Ciulla

Good morning.

Daniel Tamayo

Maybe we can start on the credit. I know that’s not as precious a topic as it has been, but new year maybe just kind of reset expectations and give your, your latest thoughts on the, the office book and, and what that could look like there any further sales, et cetera for, for the coming year?

Daniel Tamayo

Sure. You know, I feel really pretty good overall. I mean I think we nailed it and I give credit to our, our chief credit officer in terms of, you know, calling the inflection point. We’ve had three good quarters of underlying risk rating migration trending. As you saw, we’ve materially reduced, criticized classified and non accrual 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 healthcare services, you know, they still represent a large portion of MPLs 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 healthcare 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, you know, as agreed. We’ve risk rated it appropriately, we’ve got the appropriate reserves and so, you know, we don’t think it’s going to be a big contributor as we move forward to kind of outsize non accruals or losses. We could see obviously more as we try and resolve some of the sticky non accruals we have now.

You know, 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, you know, 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 portfolio which is now down to like $400 million.

So in aggregate, those two portfolios are roughly a billion dollars. We’ve identified the problems that are in them. We’ve adequately reserved and we’re not as concerned to have contributions and big contributions in charges and NPLs going forward.

David Chiaverini

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 non interest 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, if you see a bottom from a mix perspective with non interest bearing anytime soon.

Neal Holland

Yeah, I would answer that with two different directions. The first is saying that we are seeing a slowing pace in reductions in non interest 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 non interest 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 a metros 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 healthcare services book which is differentiated and we have strong opportunities there.

So overall we kind of look at those combined and we do think for the pure non interest bearing, excluding healthcare vertical we are close to an inflection point.

John R. Ciulla

And I want to be clear that we still have a significant focus on driving core commercial and condition consumer relationships and non interest 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 share of wallet and that we’re getting our share of operating business along with the loans we’re making. So I agree with Neil’s comments but I don’t want that to be misconstrued that we’re not still focused on making sure that we’re growing kind of core traditional consumers 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.

John R. Ciulla

Hey David.

David Smith

You had mentioned that deposit competition was elevated in a lot of your geographic footprint right now. I’m wondering if you just help us frame within your broader footprint what areas you’re 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. The direct bank, we don’t have a large portion of our portfolio there, you know, between 2 and 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 markets. 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 in the mid December rate cut and we’ll continue to be aggressive. But we do very much focused 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.

John R. Ciulla

Thank you.

operator

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

Manan Gosalia

Hey, good morning all.

John R. Ciulla

Morning.

Manan Gosalia

You noted earlier on that loan yields were better this quarter than you previously anticipated. Can you talk about what’s driving that? You also mentioned the credit spreads have tied in. So it seems like the loan growth is coming in higher yielding categories. I guess to part question is that right? And if that is, then what is baked into the flattish nim trajectory that you just spoke about?

John R. Ciulla

Yeah, I’ll take the first one, the first question and then Neil can answer on the nib. 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 we saw in the portfolio was driven by the fact that loan, you know, expectations regarding loan payoffs with rates and so forth did not turn out to be be what we thought it was.

So we actually better performances. So we were able to retain, you know, larger percentage particularly of the commercial 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 been talking about a little bit on the, 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.

Just better call it more middle of the fairway type of assets that are just by design going to have a tighter credit spread than things that are not middle of the fairway and not as bank eligible or as bank friendly from an asset class perspective. So we feel good about where the Origination and pipeline activity is for 26. We think that spreads are going to help 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 relative 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, you know, that would be a positive.

Neal Holland

Yes. 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 in 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 leveraged lending guidance being 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 R. 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, you know, those kind of prescriptive guidance things. It’s interesting the unintended consequences is you end up maybe doing transactions that are not as optimal, actually not as credit strong, but within a box of a prescriptive 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 25 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, you know, 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, it’s definitely not as impactful as people say, but it’s another good sign.

Consider Consistent with a more constructive and tailored regulatory environment that gives 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 Gwicke 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 Secure Save in December which adds employer sponsored emergency savings accounts. Can you just talk more on the. Acquisition sizing of the deal, any economics or any color you can share on that?

John R. Ciulla

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 it’s, 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, and capital metrics and so forth. So it’s a, you know, Secure Safe is a relatively small company still in, we could characterize it as almost in, you know, still pseudo startup 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 help those employees through an incremental benefit to being able to save for eventuality specific rainy day funds and so forth. And so it’s largely viewed as a retention tool by employers. It’s a big kind of focal point of HR officers for large employers are trying to figure out other ways to help those places that have large employee workforces to just kind of put more arms around them and bear hug their employees to stay on and kind of limit turnover.

But again it’s a small business. We think that it has 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. So we’ve been very familiar with the product for about the last year, year and a half and we think that this could be again it’s going to be well received endorsed 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 of large and large corporate.

But more to come on how well 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 a follow up. So what is your appetite on further. Deals and how actively are you looking. At them and any color on pricing and is it just harder to find these type of bolt ons to add. To the HSA business?

John R. Ciulla

Yeah, it is. I mean I think 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. And 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 the metrics in terms of tangible book value dilution and others get very challenging.

So, 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 secure save, we’ve done Amitros. So 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 but 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 R. Ciulla

Thank you.

operator

Your next question comes from the line of John Armstrong with rbc. Please go ahead.

Jon Arfstrom

Thanks. Good morning guys.

Neal Holland

Good morning John.

Jon Arfstrom

Neil, 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 on expenses?

Neal Holland

I think you said what does the slope look like? You were a little hard to hear but okay. Perfect

Neal Holland

background I guess. Maybe.

Neal Holland

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. Outside of that I think fairly stable expenses on the quarters after we’re going to continue to invest in our client facing businesses, look for opportunities to grow. At the same time we’ll be continuing as we always do to look for ways to drive efficiencies into the organization. So I would say that we’ll have a few percentage point increase into Q1, as I mentioned before, and then probably neutral to 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. I heard your comments on less payoffs maybe cause 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? Is there something else going on there? Thank you.

John R. Ciulla

Yeah, I think that it’s a little bit of seasonality. So it’s a little bit of all the above that you mentioned. If you go back through the performance of 2025, 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 CNI 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 on to, you know, how things will perform. You know, rate moves being a little bit later in the quarter than what we had originally anticipated also drove some of that performance.

But if rates continue to go down, you should see some accelerated payoffs, particularly on the CRE book. But 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. We 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 hit the high end of the range.

Jon Arfstrom

Okay. All right, thank you very much.

operator

Your next question comes from the line of Anthony Ilean with JP Morgan. 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 R. Ciulla

You know that’s always tough to predict. There is a general seasonality. 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. You know, 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. 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 one to two and a half 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 buildout required?

John R. Ciulla

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 clients trying to open up accounts through our direct to consumer channel, that we have all the capabilities and scalability to be able to take that on at no incremental cost to where we are today. So we feel very good about the, the tech investments that we’ve made there.

Anthony Elian

Great, thank you.

John R. Ciulla

Thank you.

operator

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

John R. Ciulla

Yeah, I just want to thank everyone 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.