Webster Financial Corp (WBS) 2025 Q4 法說會逐字稿

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, Emlen Harmon to introduce the call. Mr. Harmon, please go ahead.

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 and 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 at investors.websterbank.com. I'll now turn the call over to Webster's Financial's CEO, 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 enter 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 non-traditional banking verticals including HSA Bank, Ametros 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 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. These enable the sustainable and steady growth of the company.

I'll now turn it over to Luis to review business development.

Thanks, John. Our performance in the 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. 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 platform. While still early stages, (inaudible) participants in affordable care at healthcare plans have started opening HSA accounts.

We enhanced our existing mobile and web enrollment systems to better serve HSA 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 million to $100 million of growth in 2026. The acceleration in growth will be gradual as newly eligible enrollees in the HSA plans first recognize and then adopt HSA accounts.

We're also closely watching health care policy developments as their 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 the health care savings 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 HSA subsidies directly into consumer agency accounts. The outlook for deposit growth at Ametros 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 Neal.

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%. The 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 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 third 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 payouts activity than anticipated in the quarter end. Better-than-expected loan yields also helped 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 non-interest expense trends. Increases in expenses quarter-over-quarter were largely related to growth and growth potential with higher incentive accruals, investments and the 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 in improvements in underlying credit trends. Those improving trends are highlighted on the following slide, which shows that non-performing 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 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 225 basis point Fed fund 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 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 it back to John for closing remarks.

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 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 in the past several years has created a bank with a differentiated business model that organically and sustainably outgrows and outearns the banking industry at large. Does so with a focus on risk-appropriate returns and at the same time as 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 Instructions)

Jared Shaw, Barclays.

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 maybe where things stand there now that we've -- in a couple of quarters?

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 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.

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 sort of client outreach? Or is there any system change that you're contemplating to bring on more of those individuals?

No, it's mostly marketing, Jared. It's -- as we've talked about the opportunity in the past, the 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 investment in 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 investment dollars are going to work in the fourth quarter and are continue to -- you'll continue to see in 2026.

Graet. Thanks.

Mark Fitzgibbon, Piper Sandler.

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 million, $30 million. But I guess I'm curious strategically how that might change your plans for the company?

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 not pedal to the metal in terms of getting ready for Category 4 because we think it's highly likely that it will 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 Gulf. So I think that's the way I would characterize our view of Category 4.

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

Yes. 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. We'll pick up a few basis points likely in Q1, and then that will come down a little bit in Q2 and tick back up in Q3. But I would be thinking in that mid-3.30s range for our go-forward NIM expectations for 2026.

Thank you.

Matthew Breese, Stephens.

Hey, 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?

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 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.

Yeah. For those of you who listened to our last public comments, we've 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 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, 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 data, which a little bit higher than we are today, but that's how we're looking at deposit pricing within our guide.

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 reserve as a percentage of loans?

Yes. That's another interesting question. Credit spreads have tightened significantly. I was talking with our Chief Credit Risk Officer yesterday, and 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 that have gone to kind of stabilize down to 180 basis points to 200 basis points over reference rates. So I do think you're seeing in our portfolio 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 is 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 is 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 have less risk in the overall portfolio, and we could still have room in that reserve as we move forward.

Thank you.

Casey Haire, Autonomous Research.

Good morning. This is Jackson Singleton on for Casey Haire. Just starting out, I hear your thoughts on Marathon, but I 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%.

Sure. 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 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 Neal and I and the rest of the team have been doing is spending a lot of time 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&A activity and then the sponsor book? Yes. What we think this is our best guess of optimal growth and profitability mix.

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?

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 plan to kind of 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 Ametros business and then similar growth rates across the board and the other categories.

Perfect. Thanks for taking my question.

Chris McGratty, KBW.

Hey, good morning. This is Chris O'Connell filling in for Chris. Just wanted to start off just quickly on the balance sheet on the liability side. On a period basis, there seem 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 of the sub debt in 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 in -- 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 for Q1, just those seasonal trends.

So 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 reduced back down. So no, nothing unusual there, just some transactions that tie into seasonality and tie in to our September sub debt issuance.

Okay. Great. Thank you. And then on the fee guide, if I'm reading the 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 in growth for next year? And kind of what would put you towards the lower or higher end of the upside?

Yes. We've talked about our fee earnings having kind of more 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 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 CBIA 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.

Yeah. I'd add one more thing there is 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 and 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 C&I 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 that we continue to see good momentum in those, kind of, we'll call it, the larger commercial asset classes. 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. So it's -- but it's a good opportunity.

Great. Thank you.

David Chiaverini, Jefferies.

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.

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 '25. And total account opening so far about -- or just in 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 nice momentum on 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 when you'll see 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 -- we had guided to the new HSA opportunity to be a kind of slow moving target, I guess, it'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 -- through this date last year. So we have seen 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.

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 CET1 down?

Sure. I think our kind of capital strategy 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 10.5% target, I think you see that the industry on mass 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 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 cost seems pretty clear, and 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.

Great. Thank you.

Daniel Tamayo, Raymond James.

Thank you. Good morning. Maybe we can start on the credit. I know that's not as pressing that 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? Is there any further sales, et cetera, for the coming year?

Sure. I feel really pretty good overall. I mean I think Neal 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, 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 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 healthcare services is that I think we have it pretty much ring-fenced, 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 non-accrual or at least we could see, obviously, more as we try and resolve some of the sticking on accruals 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 we'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.

Okay. Great. That's great color. And then we've talked a lot about the deposit portfolio today. The non-interest-bearing side, obviously tied to commercial loan growth, but really has continued to trend down for reasons that 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 and quarters. Just curious if you see a bottom from a mix perspective with non-interest-bearing anytime soon. Thanks.

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 priced at 15 basis points, where we had $450 million in growth this year. So when we have a marginal dollar of marketing where we can put towards Ametros 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 the strong opportunities there. So overall, we kind of look at those combined, and we do think for the pure non-interest-bearing excluding health care vertical, we are close to an inflection point.

And I want to be clear that we still have a significant focus on driving core commercial and 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 Neal'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 consumer and commercial deposits.

Great. Thanks for the color.

David Smith, Truist Securities.

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

Yeah. I would put it across multiple categories. When we look at consumer CDs, we've been 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 between $2 billion 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, and 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 in 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.

Thank you.

Manan Gosalia, Morgan Stanley.

Hey, good morning, all. 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 that credit spreads have died in. 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?

Yeah. I'll take the first one -- the first question and then Neal can answer on the NIM. 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 -- expectations regarding loan payoffs with rates and so forth did not turn out to be what we thought it was. So we actually better performance so we were able to retain. A larger percent, particularly of the commercial real estate book, which was great.

On loan yields, it's competitive out there. And so we've seen similar to what we've been talking 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, just better, call it, more middle of the fairway type of assets that are just by design going to have a tighter static spread than things that are not middle of the framework, not as bank eligible or as a bank friendly from an asset class perspective. So we feel good about where the origination and pipeline activity is for '26. We get spreads are going to hold in relative to what we've seen through the back half of this year.

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

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 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 we're 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.

Got it. Perfect. And then just wanted to get your thoughts on the leverage 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?

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 prescriptive leverage covenant. This gives us a little more flexibility to do deals.

We know are good. In the sponsor book. We've been in the business for 25 years, and we're really good at it. So I would say, 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 has been asked across, it's definitely not as impactful as people say. But it's another good sign 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.

Very helpful. Thank you.

Bernard Von Gizycki, Deutsche Bank.

Hey, guys, good morning. Just my first question, sorry if I missed this, but I think you acquired SecureSave in December, which adds employee sponsor emergency savings accounts. Can you just talk more on the acquisition side of the deal? Any economics or any color you can share on that?

Yeah. The size of the deal, Bernard, would not, we didn't put anything out when we announced it. And so it's you could assume that it's relatively small and it's already factored into all of the quarter end balance sheet numbers and capital metrics and so forth. So SecureSave is a relatively small company still -- we could characterize it as almost in still pseudostart-up phase.

But it does have its market leader in that growing business of ESAs as emergency savings accounts. It's clearly -- or the mission of the business is focused on helping large employers that have large workforces, help those employees through an incremental benefit of being able to save for eventuality specific ready-day funds and so forth.

And so it's fully viewed as a retention tool by employers. It's a big kind of focal point of HR officers for large employers here trying to figure out other ways to help those places that have large employee workforces to just kind of put the more arms around that and bear hug their employees to stay on and kind of turnover. But again, it's a small business. We think that it has a lot of good potential. It's a product that we have started through our HSA Bank channel to our employer clients for some time and saw some good respectivity.

So we've been very familiar with the product for about the last year, 1.5 years, and we think that this 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 human resources are in large corporate. But more to come on how that business will continue to evolve, and you'll start seeing we'll call out deposit balances and start highlighting those as those flow in over the course of this year.

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 like pricing? And maybe is it just harder to find these types of like bolt-ons to add to the HSA business?

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 Ametros 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 I'd say we're active. If you think about it, since the sterling MOE, we've done tend in HSA, we've done InterSync.

We've done SecureSave. We've done Ametros. 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.

Great. Thanks.

Jon Arfstrom, RBC.

Good morning, guys. Neal, a 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?

I think you said what does the slope look like. You were a little hard to hear, but perfect. Yes, as I mentioned in the prepared remarks, we'll move up seasonally a little bit in Q1 due to those three factors that I mentioned. I'll say 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 had mentioned before. And then probably neutral to slight increase each quarter going forward. So not a material upflow after the first quarter.

Okay. Good. That helps. And then back on growth, I heard your comments on less payoffs maybe caused an aberration and 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?

Yeah. I think that it's a little bit of season now. So it's a little bit of all of the above that you mentioned. The -- 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 refined buildings over the course of the year.

And so we continue to feel good that pipelines are building up nicely for '26 as well. But you're -- I'm lucky to see the same type of growth trajectory that we saw in the fourth quarter on those specific CRE and C&I asset classes, as you saw in the back half of the year. But -- and you'll see potentially some seasonality in the back half of 2016 as well that could get you to the higher end of the range that we put out there today. So there's a little bit of all of the above. Why did the expected payoffs perform better?

It happens at times. So we -- again, we think that there's -- we go through the portfolio, we have pretty good visibility on to how things will perform, rate moves being a little bit later in the quarter than what we had originally anticipated. Also, we drove some of that performance. But if rates continue to go down, you should see some accelerated payoffs, particularly in the CRE book, but we'll see what happens over the course of the year. And if rate comes -- 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 -- there could be good potential opportunities for us to hit the high end of the range.

Anthony Elian, JPMorgan.

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?

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. 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 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.

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 buildout required? Thank you.

No buildout required from a technology perspective. It's in place, and we feel very good that we've made the investments that if there is a mad rush of potentially to say clients time 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 tech investments that we've made there.

Great. Thank you.

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

Yeah. I just want to thank everyone for joining us today. I hope you can survive the storm this weekend no matter where you are and enjoy the day.

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