Earnings call transcript: Webster Financial Q3 2025 beats earnings expectations

Webster Financial Corporation reported its third-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $1.54 against a forecast of $1.52. Revenue also exceeded projections, coming in at $732.6 million compared to the expected $727.54 million. According to InvestingPro data, seven analysts have recently revised their earnings expectations upward for the upcoming period, and the company maintains a "GOOD" financial health score. Despite these positive results, the company’s stock price reacted negatively, dropping 0.63% to $54.02 in pre-market trading.

Key Takeaways

• Webster Financial’s EPS and revenue both surpassed analyst expectations.
• The stock fell by 0.63% in pre-market trading despite the earnings beat.
• The company reported a 2.3% growth in overall revenue.
• Net income rose to $261 million from the previous quarter’s $259 million.
• Webster Financial continues to invest in technological innovations and partnerships.

Company Performance

Webster Financial Corporation demonstrated strong performance in Q3 2025, with net income increasing to $261 million, up from $259 million in the prior quarter. Trading at a P/E ratio of 11.02 and maintaining dividend payments for 39 consecutive years, the company’s return on tangible common equity was 18%, and return on assets was nearly 1.3%. Loan and deposit growth exceeded 2% on a linked quarter basis, reflecting a solid financial foundation and effective management strategies.

Financial Highlights

• Revenue: $732.6 million, up 2.3% from the previous quarter.
• Earnings per share: $1.54, up from $1.52 in the previous quarter.
• Total assets: $83 billion.
• Tangible book value increased by 3.7%.

Earnings vs. Forecast

Webster Financial’s actual EPS of $1.54 surpassed the forecasted $1.52, marking a positive earnings surprise of 1.32%. Revenue also exceeded expectations, reaching $732.6 million compared to the forecast of $727.54 million. This marks a consistent trend of outperforming market expectations in recent quarters.

Market Reaction

Despite the positive earnings report, Webster Financial’s stock price fell by 0.63% to $54.02 in pre-market trading. This decline contrasts with the company’s strong financial performance and may reflect broader market trends or investor concerns about potential future challenges. InvestingPro analysis indicates the stock is currently undervalued, with analyst price targets ranging from $67 to $78. The stock remains within its 52-week range, which saw a high of $63.99 and a low of $39.43.

Outlook & Guidance

Looking forward, Webster Financial anticipates steady loan growth in the mid-single digits for 2026. The company plans continued investment in digitization and treasury management, with a focus on high-quality loan originations. The guidance for future quarters remains optimistic, with EPS forecasts ranging from $1.50 to $1.57 and revenue projections showing consistent growth.

Executive Commentary

CEO John Ciulla emphasized the company’s collaborative efforts, stating, "Our performance this quarter, this year, and over Webster’s history is a true team effort." He also addressed potential strategic decisions, noting, "We’re not looking to sell the bank. We’re also pragmatic and good fiduciaries with our board." President and COO Luis Massiani highlighted growth opportunities, particularly in health savings accounts (HSA), saying, "We view that as being one of the big opportunities and untapped channels."

Risks and Challenges

• Regulatory changes could impact future operations and profitability.
• Market volatility may affect stock performance despite strong financial results.
• Economic uncertainties, such as potential tariffs and labor market shifts, could pose challenges.
• The competitive landscape in commercial banking remains intense.
• Managing criticized loans and charge-offs will be crucial for maintaining financial health.

Q&A

During the earnings call, analysts inquired about the potential of the Marathon Asset Management joint venture and the company’s NBFI exposure. Executives also addressed questions regarding the impact of the upcoming New York City mayoral election and provided insights on expected loan growth and margin trends.

Full transcript - Webster Financial Corp (WBS) Q3 2025:

Conference Operator: Good morning. Welcome to the third quarter 2025 Webster Financial Corporation earnings call. Please note 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.

Emlen Harmon, Director of Investor Relations, Webster Financial Corporation: 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 site at investors.websterbank.com. For the Q&A portion of the call, we ask that each participant ask just one question and one follow-up before returning to the queue. I will now turn the call over to Webster Financial CEO John Ciulla.

John Ciulla, CEO, Webster Financial Corporation: Thanks, Emlen. Good morning and welcome to Webster Financial Corporation’s third quarter 2025 earnings call. We appreciate you joining us this morning. I’m going to start with a recap of our results. Our President and Chief Operating Officer, Luis Massiani, is going to provide an update on developments in our operating segments, and our CFO, Neal Holland, will provide additional detail on financials before my closing remarks and Q&A. Highlights for the third quarter are provided on slide two of our earnings presentation. Our results were strong, with a return on tangible common equity of 18%, ROA of nearly 1.3%, and growth in both loans and deposits of over 2% linked quarter. Overall revenue grew 2.3% over the prior quarter. In aggregate, Webster’s results this quarter reflect how our strategic position fuels our performance, including diverse balance sheet growth while maintaining substantial liquidity and conservative credit positioning.

Robust profitability is supported by a unique business mix and capital generation that supplements organic earnings growth opportunities. More specifically, loan growth was driven by a diversity of categories, with all of our portfolios increasing this quarter. Deposit growth was also diverse as we grew the Commercial and Healthcare Financial Services books, in addition to regular seasonal growth in our public funds business. Webster’s capital generation is a distinct strategic advantage. We repurchased 2.2 million shares, or 1.4% of the outstanding shares, at the end of the second quarter. At the same time, tangible book value grew 3.7% over the prior quarter. We continue to see the inflection point in asset quality that we projected at the onset of the year. Importantly, criticized loans were down over 7%, with non-accrual loans essentially flat.

Charge-offs of 28 basis points remain near the bottom of our anticipated normalized range of 25 to 35 basis points, and our provision of $44 million is down modestly from last quarter, even as we built slightly more conservative macroeconomic scenarios into our loan loss reserve modeling. As we look to the future, despite recent market volatility, macro tailwinds for the banking industry are building, and we are in a good position to benefit. Loan growth remains solid, and we are seeing opportunities to originate assets with appealing risk-reward characteristics as we did this quarter. As always, we point to the diversity of our deposit generation on slide three, which is a key factor supporting the balance sheet as activity accelerates. We continue to see indications of a more appropriate regulatory tailoring, which should, over time, allow us to allocate resources towards activity-appropriate risk management practices.

While we remain vigilant, tariffs and labor market uncertainty are not significantly impacting the credit performance of our loan portfolio, and we are not seeing pockets of correlated credit risk emerging. We’ll also stay on our front foot in terms of business development opportunities for our existing segments. I’ll now turn it over to Luis to review developments in our operating segments this quarter, including an update on Commercial Banking activity, the Affordable Care Act opportunity for HSA Bank, and our credit joint venture with Marathon Asset Management.

Luis Massiani, President and Chief Operating Officer, Webster Financial Corporation: Thanks, John. On our business lines, activity was positive in Q3. Clients have proven to be resilient, have gained a better understanding of the potential impact from tariffs, and have continued with their business investment plans. We referenced strong commercial lending pipeline activity in our Q2 call, which came through in the third quarter with growth at the higher end of our outlook range, with all major lending categories in Commercial and Consumer contributing. We also saw a nice pickup in loan-related fees as capital markets businesses were more active. Our diversified deposit businesses continue to perform well, with Amitros boasting strong new account growth and record volume in lifetime deposit case value added. We also delivered significant growth in deposits in InterSync, Commercial, Public Sector, and Business Banking, funding our loan growth with deposits, which has allowed us to maintain our strong liquidity profile.

Our private credit joint venture with Marathon Asset Management is now fully operational, and we’re working through a significant pipeline of potential lending opportunities. Early returns are positive, with good alignment between our two organizations on operations, risk appetite, and good referral activity on loan, deposit, and fee opportunities. The JV is working as intended and has expanded our ability to offer more lending solutions to our existing sponsors’ client base. At HSA Bank, new legislation continues to support an increase in the addressable market for HSA accounts. As discussed last quarter, the original bill that passed in July enacts HSA eligibility for bronze and catastrophic Affordable Care Act healthcare plans beginning in 2026.

Our assessment of the original legislation was that the change would increase the addressable market for HSAs by 7 million customers and drive $1 billion to $2.5 billion in incremental deposit growth at HSA Bank over the next five years. In September, the Center for Medicare and Medicaid Services clarified that new HSA eligibility for bronze and catastrophic plans was more expansive than originally thought, which would further increase enrollment eligibility in the addressable market. We’re working through quantifying the potential impact on account deposit growth. We are investing in our existing mobile and web enrollment systems to best serve ACA participants ahead of the annual planned enrollment period, which will begin in November. These refinements will streamline and optimize the enrollment process and help us better capitalize on this growth opportunity. I’ll turn it over to Neal.

Neal Holland, CFO, Webster Financial Corporation: Thanks, Luis, and good morning, everyone. I’ll start on slide four with a review of our balance sheet. Total assets were $83 billion at period end, as both loans and deposits were up over 2% this quarter. We continue to operate from an advantageous capital position, where ratios increased modestly despite the fact that we repurchased 2.2 million shares this quarter. Loan trends are highlighted on slide five. In total, loans were up $1.4 billion, or 2.6%. Every loan category grew, including a pickup in commercial real estate, which has the potential to be a contributor to growth going forward. We provide additional details on deposits on slide six. Public funds were up $1.2 billion seasonally, though we saw growth in the commercial and Healthcare Financial Services businesses as well. Deposit costs were up three basis points over the prior quarter. Income statement trends are on slide seven.

Overall, we saw a positive trend on PP&R, up $5.8 million over the prior quarter. The provision was $44 million, down $2.5 million from the last quarter. Net income of $261 million is up from $259 million in the prior quarter, and EPS grew to $1.54 from $1.52 in the prior quarter. Our tax rate increased to 21.3%, consistent with our outlook for the back half of the year. On slide eight, we highlight net interest income, which increased $10 million, driven by balance sheet growth and the higher day count quarter over quarter. This was partially offset by a decline in NIM. The net interest margin was down four basis points from the prior quarter to 3.4%. Recall, there was a discrete benefit from a non-accrual reversal that added two basis points to NIM in the second quarter. The trend in the quarter also reflects some organic spread compression.

Slide nine illustrates our net interest income sensitivity to rates. We remained fairly neutral to interest rates on the short end of the curve, with a slightly greater impact to our NII from down rate shock scenarios. On slide 10 is non-interest income. Non-interest income was $101 million, up $6 million over the prior quarter. We had a modest increase in swap fee income, and we also realized a positive legal settlement of $4 million. Slide 11 has non-interest expense. We reported expenses of $357 million, up $11 million linked quarter. The largest driver of this change was an $8 million increase in incentive accruals, reflective of performance of the bank in the quarter and year to date. Slide 12 details components of our allowance for credit losses, which was up $6 million relative to the prior quarter.

The largest portion of this increase was tied to balance sheet growth, as the positive asset quality trends we realized last quarter continued. Our CECL macroeconomic projections are slightly worse this quarter. Slide 13 highlights our key asset quality metrics. Charge-offs of 28 bps were consistent with last quarter. Our commercial classified ratio declined 10 bps from the prior quarter, and non-performing loan ratio was down 1 bp. Turning to slide 14, our capital ratios remain above well-capitalized levels, and we maintain excess capital to our publicly stated targets. Our tangible book value per share increased to $36.42 from $35.13, with net income and improvement in AOCI partially offset by shareholder capital return. I will wrap up my comments on slide 15 with our outlook for the fourth quarter. We’re expecting net interest income to be effectively flat to the third quarter.

Balance sheet growth will be offset by lower quarterly NIM. Underlying this assumption, we anticipate seasonal outflows of deposits. We will also have higher debt costs in the quarter until we redeem the subordinated notes due in 2029 and 2030, which we intend to do this quarter, subject to market conditions. Fees are likely to step back a bit without the benefit of another legal settlement. The roughly 1% decline in deposits is an effect of lower public funds on a seasonal basis. Excluding this, we would expect to grow deposits by roughly 1% this quarter. On a full-year basis, relative to the outlook we provided in January, we’ll be above the range on loan growth, at the top end of our NII guidance, and a bit higher than the midpoint on fees and expenses. With that, I’ll turn it back to John for closing remarks.

John Ciulla, CEO, Webster Financial Corporation: Thanks, Neal. This past week, Webster celebrated its 90th anniversary of its founding as First Federal Savings and Loan Association of Waterbury in 1935. Originally founded by Harold Webster Smith with $25,000 he borrowed from friends and family to help people build and buy their homes amidst the Great Depression, First Federal, now Webster, has grown to one of the country’s largest commercial banks, offering sophisticated financial products to diverse client segments. The bank’s sustained success is the result of a consistent commitment to doing what’s right for our colleagues, clients, and the communities we serve. Webster’s strong and consistent results this quarter echo the bank’s performance since its founding. I’d like to thank all of these parties and our other various business partners for helping to grow Webster into the institution it is today.

Our performance this quarter, this year, and over Webster’s history is a true team effort, and we’re proud to drive consistent and comprehensive positive outcomes. Thank you for joining our call today. Operator, we’ll take questions.

Conference Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Again, we ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Jared Shaw of Barclays. Your line is open.

Hey, good morning, everybody.

John Ciulla, CEO, Webster Financial Corporation: Hey, Jared.

Maybe just starting with the Marathon Asset Management partnership, if you can give any detail on early success there, and is that reflected in sort of the optimism for growth in 2025, and I guess how should we think about that in 2026?

Luis Massiani, President and Chief Operating Officer, Webster Financial Corporation: Yeah, Jared, this is Luis. So far, so good, as how we characterize it. We have started building a nice pipeline of business there. Annually, we do weekly calls and meetings of the investment committee to actively review transactions. We’ve started approving transactions. We’ve started originating transactions and placing them into the joint venture. From the perspective of what we thought it was going to allow us to do, which is being able to offer an expanded product set to our diverse universe of sponsor clients, it’s essentially achieving exactly that, which is great.

Long term, we feel that the prospects for what we’re trying to do there are good, which is we’re going to be able to offer more, and that’s going to result in both transactions for the JV as well as opportunities for on-balance sheet business, which you haven’t seen the impact of that much because it’s still early stages. As we move into 2026, we think that that’s going to be a good, it’s going to allow us to expand an expanded product offering, which should reflect in some on-balance sheet business as well and other types of opportunities with deposits, fees, capital markets business also. So far, so good.

Okay. All right, great. Thanks for that detail. I guess shifting over to the deposit side, Amitros balances are up. InterSync balances are up. How should we think about the trajectory of growth over the near and midterm there and the priority of those versus broker deposits?

Neal Holland, CFO, Webster Financial Corporation: Yeah. This is Neal. We continue to do all we can to grow the attractive categories in HSA and Amitros. Those are great businesses, and we love growth there. We have seen strong growth in InterSync this year, and we prefer InterSync balances over broker deposits. You know, we pretty much have no cost to originate. The operating costs are more than offset by the fees we earn in that business, and it’s 100% beta. In a down environment, it will be an attractive balance for us. We really use broker deposits in Q2 and Q4. We have seasonal inflows of public deposits, which come in, obviously, in Q1 and Q3. As you’ll notice, this quarter, we had seasonal inflows of those public deposits.

Our broker concentration is down to about 2%, and next quarter, it may jump up to 4%, and then Q1 will probably be more back down in that 2% range. We really use broker deposits to offset those swings in our public deposits.

Okay, thank you.

John Ciulla, CEO, Webster Financial Corporation: Thanks, Jared.

Conference Operator: Your next question comes from Mark Fitzgibbon with Piper Sandler. Your line is open.

Hey, guys. Good morning.

John Ciulla, CEO, Webster Financial Corporation: Mark, good morning.

There’s been a lot of talk, John, this past week about the private credit space, and I wondered if you could share with us any details on sort of what sort of lending exposure you have to the private credit industry and maybe any areas that you might be avoiding within that space.

Yeah. Mark, I’ll give you an overview. Our NBFI exposure, and obviously, everybody’s been talking about this a lot, is a pretty amorphous and large category. For us, it’s pretty simple. We’ve got about $6 billion in what would be characterized as NBFI. 90% of that for us is really in two categories and relatively evenly split. One is fund banking, which everybody understands: lower yielding, lower risk. That’s really tied to the LPs fulfilling their commitments to private equity funds, right? There’s no operating risk with borrowers, and as I think people know, in the history of that product, there’s been virtually no losses. The other half for us is in lender finance. It’s about $2.6 billion. We’ve been in that business. We’re not newcomers for about 10 years. The way we characterize that business for us is we deal with top-name asset managers with significant AUM and experience.

You know, we advance on a pool of loans, effective senior leverage, and attachment point of 2.7 times across the book as we go through that. We have had zero losses, zero classified or non-accrual loans over the 10-year period. I think it’s really important for us, and we feel very, very comfortable in this space. Many of them are 20% risk-weighted assets, so significantly lower risk, and they carry a lower yield as well. As we’ve grown that, that’s been in our plan. We feel very comfortable with our NBFI exposure, just given the characteristics in nature and our history in the business. We haven’t been exposed to the headline credits that you’ve seen in the last few days, I guess, mostly. We’re very confident that the underwriting we have in there is extremely solid, and we’re not in any sort of other esoteric risk classes.

Okay, great. Just to follow up, kind of changing gears a little bit, I know, John, you’ve said in the past that you’re not interested right now in doing bank M&A, but I guess I’m curious if the category four threshold is lifted. Given that the regulatory environment’s so welcoming these days of bank M&A, why not sort of push that to the front of the line in terms of priorities?

Yeah, Mark, we are going to be consistent with what we’ve said many times. I don’t think the lifting of the category four hurdle changes our outlook, right? It could benefit us from an expense perspective and let us focus on competing and growing our business lines instead of necessarily building out other regulatory-mandated infrastructure. As it relates to M&A, you know, we have said, and we continue to believe that it would be highly, highly unlikely for you to see us acquire a whole bank over the short or medium term, given our momentum and given what we think we can create, and given the risk of getting involved in M&A on an offensive basis. We continue to look at, you know, smaller healthcare-related acquisitions that wouldn’t dilute tangible book value significantly and could add to our fee and deposit-generating capabilities.

As it relates to whole bank M&A, we’re not interested in participating at the current time.

Thank you.

Conference Operator: Your next question comes from Chris McGrathy with KBW. Your line is open.

Hey, how’s it going? This is Andrew Leisher on for Chris.

Good morning.

On the loan growth, it looks like the Q4 guide is back around where you’ve been after the strong quarter this past quarter. Can you speak in a little bit more detail about current pipelines and then how we should be thinking about the loan growth outlook going into 2026? Thanks.

John Ciulla, CEO, Webster Financial Corporation: Yeah, I think our pipelines are continuing to be relatively robust. We talked about a big pipeline heading into the third quarter, and you saw us pull through. I think our view on the fourth quarter is that we anticipate, as normally happens in the fourth quarter, maybe a higher level of prepayments. I think our view of looking at a relatively solid pipeline, our pull-through rates, and year-end prepays and payoffs, that’s why you see us not going with the same level of third-quarter loan growth. We could outperform that if payoffs don’t come through and we continue to originate. I’d say we feel really good about our pipelines. We’re also really getting narrowly focused on capital allocation and trying to make sure that our risk return profiles on the loans we’re originating work, and we’re wanting to continue to grow core CNI categories as we move forward.

Kind of business mix, what we believe in payoffs, and a pretty solid and robust pipeline will lead us to good solid growth in the fourth quarter. We just don’t anticipate it being as strong as in the third quarter.

Okay, great. Thank you. Just one follow-up. Just given that CET1 is still above your near-term target at 11.4%, how should we be thinking about the pace of buybacks going forward? Thanks.

I think I’m going to give you the boring answer that we always do. We’re looking to deploy capital into loan growth. We’re looking at potentially some strategic, smaller, inorganic growth with respect to our healthcare vertical on fees and deposit growth capabilities. If we don’t have robust loan growth and we don’t have opportunities to deploy capital in the aforementioned healthcare space, I think then you’ll see us look at returning capital to shareholders. Obviously, we also take into consideration volatility in the market and where credit’s trending as well. You’ll continue to see us buy back shares, and the pace of that will be dependent on what I mentioned earlier in terms of other priorities for capital use.

Okay, great. Thank you.

Thank you.

Conference Operator: The next question comes from Matthew Brees with Stephens, Inc. Your line is open.

Hey, good morning.

John Ciulla, CEO, Webster Financial Corporation: Hey, Matt.

The first one’s kind of a two-parter. You had mentioned in the release and in your opening remarks that tighter loan spreads on new loans were a driver of NIM compression. I was hoping you could talk a little bit about that, what new spreads are, and with the five-year down a bit, what new commercial real estate yields are today. The other thing I wanted to hone in on was commercial loan yields for the presentation. We’re at 6.41%. Down a healthy 15 basis points quarter over quarter, but so far was relatively flat. I was curious why such a pronounced drop in commercial loan yields as well.

Yeah, I’ll let Neal give you specific numbers, but I think we’ve had a continued trend line of onboarding higher quality credits. If you look at sort of weighted average risk rating on originations over the past several quarters compared to what’s in the existing book, there’s a significant positive delta there. I think part of it, Matt, is risk selection. Part of it is credit spread compression. The markets, there are tighter credit spreads on high-quality commercial real estate deals and other areas. I would say it’s a combination of mix and tighter spreads in what we’re originating.

It goes to my earlier point on the previous question that we continue to look as we move forward, that it’s not just loan growth for loan growth’s sake, but we want to make sure we’re onboarding high quality, but we’re also onboarding good solid loan yields so that we can make sure that the NIM’s not contracting perpetually over time. I think that would be my answer. I think we’re pleased with what we’re being able to onboard in terms of full relationship, high-quality commercial real estate and CNI deals, but they are coming in at a lower yield than historically had been the case.

Neal Holland, CFO, Webster Financial Corporation: Yeah, John hit it. CRE, we’re seeing some compression just in the market on spreads. You’re in that low 6% range on originations, on recent originations. It really is our loan mixing categories, and the risk weighting of what we’ve originated the last few quarters has been very high quality, which is great from stable long-term credit performance, but it does put some pressure on our NIM. That has been our trend recently on where we’re originating and the high-quality assets we’ve been putting on our books over the last few quarters.

Got it. Okay. My other one is, you know, John, back to M&A. Obviously, there’s some big bank deals out there. It seems like the window is open. I do not get the sense that you’re a whole bank buyer near-term or medium-term, but I am curious what you think strategic options are on the sale front and how seriously that’s considered. I ask because I’m getting that question more and more frequently and would love your thoughts there.

John Ciulla, CEO, Webster Financial Corporation: Yeah, I mean, it’s always a tough one to answer. We’re not looking to sell the bank. We’re also pragmatic and good fiduciaries with our board. Obviously, if there was an opportunity to become part of a larger bank, we would have to evaluate that. Matt, as I said earlier, I think the whole dialogue around M&A, I understand why the question’s there, and there’s obviously going to be probably more transactions. We just take kind of a pragmatic fiduciary approach, make sure that we’re operating at a high level and continuing to have a good organic path forward. We would have to react, obviously, if there was an opportunity and look at it from a pragmatic perspective. It’s not something that, you know, we’re looking for proactively.

That’s all I had. Thank you.

Thanks.

Conference Operator: The next question comes from Casey Hare with Autonomous Research. Your line is open.

Yeah, great. Thanks. Good morning, everyone. John, wanted to follow up on the NBFI question. I fully appreciate your answer and that these asset classes are low risk. Some of the others that were in these headlines, where they got blindsided, was the double pledging of collateral. It seems like an easy thing to safeguard against. What measures do you have in place to guard against your borrowers double pledging collateral?

John Ciulla, CEO, Webster Financial Corporation: Yeah, that’s a great question, right? It’s around how do you protect against fraud. I think it starts with who you do business with. Again, as a former Chief Credit Officer, I probably to a fault tell people you can’t promise excellent and perfect credit performance. If you think about the fact that what I talked about, you know, Jason Soto, our Chief Risk Officer, is always pushing people away when they want to deal with first-time asset managers and people that don’t have great reputations in the space. It starts with dealing with high-quality established asset managers and then doing strong quarterly reviews. We’ve had instances on some of these pools in lender finance when a credit goes bad, the asset manager replaces that poor credit with a performing credit. We’re at relatively low LTVs when we lend against it.

I think it’s a combination of being diligent in the underwriting to start and making sure you’re dealing with people who have a track record of transparency and being able to provide great information, underwriting and looking through to the portfolio of loans you’re lending against. As I said, we’ve had 10 years of perfect credit performance. Will that continue forever? We’re in the business of taking risk. I can never say never, but I think we do a good job. It’s kind of the way I describe KCR, our sponsor book, right? Not all things are created equal. People who get involved in that business, we’ve been in it for 20 years. You kind of know who operates in the industry. You kind of know who you want to deal with. You make your best guesses and diligence on underwriting and monitoring. So far, so good.

I think that’s the best I can give you.

Gotcha. Understood. Okay. Apologies if I missed this in prepared remarks, but the outlook for, I mean, the credit quality was stable. It didn’t get worse, which is good, but it didn’t show much improvement from NPAs and commercial classified. Just wondering, what’s the outlook going forward? Is this expected to cure gradually or kind of run in place? You know, just an outlook on how credit quality cures.

Yeah, I think it’s a great question. I think, you know, when I talked to Jason, I think we were a bit disappointed to not get more resolution on the non-accrual and classifieds. I had mentioned, and we go back, that some of that resolution is a bit sticky, right? We’re smart. We know that we want to get those headline numbers down because if people think there’s an overhang. We’re also, you know, looking at economic profit when we look through these things. If we’ve got a good collateral base and we think that there’s not big losses, we’re not going to do something stupid economically.

I think the key underlying factor of why you heard me not sheepishly but confidently say that we think the inflection point continued is that a lot of this has to do with kind of roll rates, right, and trend lines in risk rating. That 7% decline in criticized assets, which is, you know, the step before we get to classified and non-accruals, was really important to us that we continue to see in our quarterly reviews an overall improvement in risk rating migration, which portends well, you know, absent a credit correction and a recession and other things, it portends well to a lower future inflow of problems. We do see line of sight to resolution on a bunch of those non-accruals and classifieds. For us, we feel like, hey, we’d like to accelerate that.

We had line of sight to what we thought was slightly better resolution on some of those. There’s no question that from our standpoint, with respect to the level of charge-offs, the risk rating migration trends, and the lower criticized assets, that this was another, you know, positive step in our credit performance. Again, overall, you know, we’ve been able to continue to post high returns, given our active, you know, actual credit costs over the last several quarters. We’re feeling good about our credit profile. As I’ve always mentioned, and I don’t want to go on too long, but you know, most of our, I should say, a large portion of our classified and non-accrual loans are concentrated in healthcare services and office, right? On two relatively discrete and small portfolios. I think that’s why we feel pretty comfortable that credit’s trending in the right direction.

Great, thank you.

Thank you, Casey.

Conference Operator: The next question comes from Anthony Ehlien with J.P. Morgan. Your line is open.

Hi, everyone. On credit more broadly, just to follow up, your metrics on slide 13 look really good. I’m curious if beyond your comments on NBFIs earlier on this call, if there are any portfolios you’re taking a closer look at today or scrubbing, especially after the recent events.

John Ciulla, CEO, Webster Financial Corporation: Yeah, I mean, I guess we think we’re proactive. As I’ve mentioned several times, we haven’t really seen any pockets of correlated risk in any asset class, geography, or business line of ours. Obviously, we looked at auto when we saw this. We’ve got very small exposure to auto. I think it’s like $300 million overall, and that would include any part of the entire ecosystem. That’s that. We don’t have a specialty team. We’re not involved. That’s sort of just in our general commercial business. I would say no. We focused on resolving office. We continue to move. It’s been a little bit slower the last quarter. Obviously, we’re keeping an eye on rent-regulated multifamily because of all the noise around the potential election of the mayor there. We still feel very comfortable with that portfolio.

It’s extremely granular, and it’s performing well with a good updated debt service coverage ratio. I don’t think there’s anything that’s high on our radar screen in terms of flashing yellow lights or red lights.

Thank you. My follow-up, slide 28, it looks like loan originations rose from the prior quarter, and much of that came from commercial real estate. I’m curious on the types of pre-loans you originated during the quarter and if this is a good level for pre-originations going forward. Thank you.

Luis Massiani, President and Chief Operating Officer, Webster Financial Corporation: Yeah, sure. That’s a great question. Part of that was, you know, we alluded to the pipeline that was a little bit softer at the beginning of the year, and we started to, and we talked, I think it was in the first quarter of this call, that we had started to see that build up in the early part of the second quarter and then throughout the second quarter. Part of how to, you know, to think about Q3 is that there was some, you know, pent-up activity in the pipeline that was, you know, fully reflected and came through in Q3. Therefore, the growth was, you know, stronger than prior quarters, and it was, you know, good, diversified, industrial, and, you know, kind of multi, you know, asset classes. The mix of the business was great. You know, good structure, relatively good pricing.

We were very pleased with the type of originations that we saw. With that said, the pipeline is still in very good shape, but as John alluded to, the combo of potentially some accelerated payoff activity, particularly if rates go down, and then the fact that you don’t have that quarter and a half or two quarters of pent-up demand that we had from the first and the second quarter, we think that there’s going to be good commercial real estate originations in Q4 and then into 2026, but it shouldn’t be, you know, kind of the Q3 numbers should not be seen as a watermark or the high watermark for what originations will be going forward. Still good, strong growth.

John Ciulla, CEO, Webster Financial Corporation: I would just add to that, we feel very comfortable. We’re still in the mid-250s with respect to concentration on CRI as a % of tier-one capital plus reserves. We can bounce around, down or up 10% from there and feel very comfortable that from a regulatory perspective and from an overall risk management perspective, we’re comfortable. It’s an important category for us. You’ll probably see growth, but to Luis’s very good point, I think it’ll be thoughtful growth as we move forward.

Thank you.

Conference Operator: The next question comes from Bernard von Gezicki with Deutsche Bank. Your line is open.

Hey, guys. Good morning.

Bernard, good morning.

Neal, first question for you. You noted the higher debt costs. It looks like you might be absorbing one more rate cut than previously assumed in your guidance. It looks like sponsor obviously might have been maybe a bit better than expected. I know that’s like a bit higher yielding. The 4Q NII, the $630 million. Just what are you thinking of the exit run rate for the NIM and 4Q? Any changes there?

Neal Holland, CFO, Webster Financial Corporation: Yeah. On the last call, we talked about a Q4 NIM of being in the range of 3.35% to 3.40%. After you take into account the seasonal factor, the extra sub-debt that we’ll be holding in Q4, we’ve got a little bit of timing around the seed portfolio and kind of loss of very high yielding loans from the seeding of the JV, which put some one-time pressure. As I mentioned before, in continuing to originate the high quality, kind of lower spread, new originations, that puts pressure on Q4. If you take our $630 million NII, that equates to a guide of right around 3.35% for Q4. There’s opportunity and risk to that depending on how quickly we reprice deposits. If you look at our growth rate last quarter, which was almost 10% annualized on loans and deposits, there’s less opportunity for us to price down.

What we’re looking at in Q4 is potentially a little bit lower growth and so potentially a little bit of opportunity to outperform. Our guide is more in the lower end of what we stated last quarter for Q4. That being said, Q1 next year, we’re not ready to talk about Q1 guidance, but we’ve talked about our seasonality trends. I would clearly expect Q1 next year to be back up higher than Q4 of this year. We’ll talk more about full year 2026 guidance when we meet next time.

Okay, great. Thanks for that color. Just one of my follow-ups for Luis, this is for you. Obviously, the HSA pipeline is growing. You mentioned, from last quarter, the target addressable market increasing that opportunity, at least on the deposit side, being the $1 million to $2.5 million. The recent changes and catastrophic accounts should increase it further. I know you’re still assessing. Just any progress you can share, longer term, how we should think about the fee income growth opportunity. I know you have the 3.5 million accounts there. I’m not sure if you can share how many of those have a bank account or bank product or just anything you can help frame how big this opportunity could be potentially next year or further.

Luis Massiani, President and Chief Operating Officer, Webster Financial Corporation: Yeah, that’s a great question. The short answer to that last part that you asked on, you know, I’ll call it the cross-sell of other banking products into that channel is that it’s not much, is the way to characterize it today. We view that as being one of the big opportunities and untapped, you know, kind of channels where we think that we could do a substantially better job going forward. Part of that is making the investments that we have on the technology front, on people, and on, you know, expanding the product set to be able to create a, you know, something that from a product perspective and from a product bundle perspective is attractive to be able to sell into that 3.5 million client channel that we have there. Part of that is banking, you know, traditional banking products.

Part of that is insurance-related products, Medicare-related products. That is, you know, it’s coming together. We, you know, we anticipate and expect that there is going to be greater activity broadly in the HSA channel in 2026. I’ll, you know, I’ll remind you that the opportunity going forward, particularly as it relates to the addressable target market, is slightly different or it’s actually very different to what we do today, right? Today, the vast majority of what we do in HSA is a, you know, B2B2C business where we’re going through large employers. It’s not the client relationship, even though it is a deposit account with us, is one step removed in the sense that it really goes through the large employer that is our, you know, kind of the, that’s how we originate the transaction accounts.

As we move into the catastrophic and the bronze plan opportunities with the increase and expanded target size, that’s really a direct-to-consumer business. It’s much more akin to what we do in our traditional banking side with Consumer Banking and through our direct channels. That’s why we think that that’s a great opportunity in that the, you know, that is identifying an HSA client that could absolutely become more than just HSA because it’s going to be a direct-to-consumer relationship. We’re going to be, you know, data mining the, you know, to identify the individuals and then having them be a direct, you know, kind of broad HSA and Webster client. A long-winded way of saying that it’s a great opportunity for us. We’re building that we have the investments and we’re making the investments to be able to capitalize on that.

We envision that in 2026, we should start seeing some benefit out of all the investments that we’ve made.

Hey, thanks for taking my questions.

Conference Operator: The next question comes from David Smith with Truist Securities. Your line is open.

Good morning. Outside of HSA, can you talk about the investment opportunities you’re prioritizing for the bank? With the likely rise in the category four threshold, does that free up investment dollars that you can redeploy into ones that are more directly related to revenue or the profitability of the bank? Thank you.

John Ciulla, CEO, Webster Financial Corporation: Yeah, I think that’s a great question. The short answer is yes. We’ve talked openly about the fact that, you know, Neal talked about a kind of $60 million over three years, a $60-ish million investment run rate increase in expenses related to category four. We are taking a, again, a pragmatic approach. We’re going to wait to see and get more clarity on whether that threshold’s lifted. I think we believe that there is a reasonable probability that that happens. That would allow us to either avoid some of those costs or clearly spread them out over a longer period of time. Our view is that we can take some of that and increase current profitability, but we want to certainly redeploy some of those investment dollars into new business initiatives.

Those would include our continued digitization of channels across our various business lines, treasury management capabilities, new teams in key geographic middle market segments. It’s kind of being able to really focus on accelerating some of our business opportunities. HSA, we talked about it here before. I think we have some adjacent opportunities in Amitros and HSA as well. I think it’ll give us an opportunity to accelerate some of those investments as we move forward. What we’re trying to do is I think we will have more clarity on that, on the regulatory thresholds. By the time we get to the January earnings call, we’re going to our board in a couple of weeks to get our three-year strategic plan vetted and approved.

I think we’ll be able to talk a lot more about how we redeploy some of those investment dollars when we’re clear that we can redeploy those investment dollars. That should all be factored into our guidance in January.

Thank you.

Thank you.

Conference Operator: The next question comes from Daniel Bley with Raymond James. Your line is open.

Thank you. Good morning, everybody. I apologize. I had to jump on the call a little bit late, but as it relates to the most recent rate cut, I’m just curious the ability you’ve had to reprice funding downward and if you’ve had to move all loan rates down in an equivalent manner or if you’ve been able to hold the line. Just curious on basically the impact of the rate cut on spreads.

Neal Holland, CFO, Webster Financial Corporation: Yeah. We’re positioned, as we’ve talked about, pretty neutrally. Obviously, we did see some yields decline on our variable rate portfolios. We tried to be aggressive on the deposit side, and I think we made some good movements on the commercial side. On the consumer side, there’s been a little bit of lag in the industry. We’ve recently moved down and are seeing, about a month after the cut, some pretty good movements down. We are balancing maintaining our loan-to-deposit ratio with the speed of our decline. We’ll be monitoring closely during what we expect to be two more cuts throughout the end of this year and hopefully can drive a strong beta. Our forward guidance is based on a beta just shy of 30% and pretty in line with what we’ve been talking about the last few quarters. We have plans in place to achieve that going forward.

Okay, great. Thanks for that. You talked pretty bullishly about the opportunities from the Marathon Asset Management JV, particularly next year and going forward as it relates to adding loan growth for the sponsor book. Does the uncertainty and the issues that we’ve had in the last few weeks in private credit and loans to NBFI impact the way that you think about that JV at all? I’m just curious if there’s any kind of overlap there.

John Ciulla, CEO, Webster Financial Corporation: Yeah, I don’t think so. We’ve talked a lot about our sponsor finance business, which is not NBFI. It’s financing companies that are platform companies or private equity firms. We’ve had good success over a long period of time. I remind you that our partnership with Marathon Asset Management is as much a risk management tool as it is an offensive opportunity. It allows us to offer more products and services and a bigger balance sheet implied without taking additional risk on the bank’s balance sheet. Our sponsor finance business has not grown in the last eight quarters as much as it had in the prior 10 years because of the proliferation of private credit and because of lower M&A activity and because, quite frankly, we’ve stuck to our risk profile and I think been pretty conservative there.

I think general economic conditions obviously have an impact on the way we look at leverage finance. With respect to what you saw in the market and reactions over the last couple of days, it really has no impact on the way we look at predictable, protectable cash flows of our direct borrowers in the sponsor book.

Terrific. Appreciate that color, John. Thanks for your prior answer, Neal. That’s it for me.

Thank you.

Thank you.

Conference Operator: The next question comes from Janet Lee with TD Securities. Your line is open.

Good morning. Sorry, I joined a little late, so sorry if I missed the prepared remarks. For the loan growth in the quarter, it was pretty robust on a period-end basis. If I look at the CNI loan growth, is most of this growth coming from the middle market? I know that includes the fund banking part. Given that CRE runoffs will not be in the, I mean, we’re not going to see much CRE runoffs in the future quarters. Is it fair to believe that the loan growth in 2026, I know you’re not guiding to 2026, but loan growth should be improving versus the 4% to 5% growth that was previously expected for 2025. Is that the right way to think about it?

John Ciulla, CEO, Webster Financial Corporation: That’s an interesting question. I said at a conference mid-quarter, you know, what we expected, and I think it was a panel, and then the investors said 5% loan growth. I think we think about kind of steady loan growth in next year in this economic environment in that range. We’re not ready to provide guidance because, as I said, we’re right now going through our plans. We are looking at making sure that our loan growth is diverse. We want full relationship loan growth. CRI will be a part of that. We’d like, obviously, middle market and traditional CNI to continue to add to that as well. I don’t think, Janet, I’m prepared to say that we expect loan growth in 2026 to be higher than those mid-single digits, which I think is what people who have provided guidance and industry experts have said.

I’d rather not go there now. I think we’d think that that would be pretty good, you know, solid loan growth. As we finish our strategic plan and look at the economic environment, we’ll let you know in January what we think we can achieve. As I said to an earlier question that you may have missed, it’s not just about balance sheet growth for balance sheet’s sake. We want to make sure we’re also, you know, onboarding good risk return assets. That’s the way I would look at it now, just thinking forward.

Got it. Just going back on NBFI, sorry to keep coming back at this, but your exposure is $6 billion. Just given all of these headlines that keep coming up, does this change your appetite on growing the NBFI exposure, or are you completely, you said you’re comfortable with your position, but does that change your appetite for driving growth coming out of this segment, or does it not?

It’s kind of a trap question, right? I think we’re all smart leaders here the way we think about things. Optically, we have to be absolutely sensitive to the way people view the makeup of our balance sheet. I would say fundamentally, the two categories that make up the substantial whole of our NBFI exposure actually are really low-risk and, quite frankly, lower-yielding loan categories that we feel very comfortable with to the extent we have opportunities in fund banking and lender finance. We’re not stretching into areas and we’re not dealing with newly formed asset managers or going into different esoteric asset classes. We feel comfortable continuing to originate, but we’ll do it in the context of our overall loan portfolio and concentrations and obviously have an eye to what’s going on trendline-wise in the industry.

If we were to see significant cracks in, you know, a broader private credit screen, obviously, we would either pull back or change our underwriting guidelines. Right now, we don’t think, based on a couple of days and a few headlines, that we would need to change the way we view the market.

Thank you.

Conference Operator: The next question comes from John Arfstrom with RBC Capital Markets. Your line is open.

Hey, thanks. Good morning.

Hey, John.

A lot of the topics have been covered, but a smaller one, can you talk a little bit more about the non-interest income drivers and what you’re seeing there and what kind of expectations you have?

Neal Holland, CFO, Webster Financial Corporation: I could jump in there. On the non-interest income side, we had a nice increase quarter over quarter. We talked about a piece of that being due to a legal settlement. Outside of that, we saw nice growth in client activity. As loan originations have picked up, there’s more activity, more swap income. We’ve found some unique new ways for syndication income. I would say overall, we were pleased with the quarter there. Obviously, as we benchmark, we benchmark against peers positively in a lot of segments. Fee income is one of the areas that we’re a little bit lower, and we’re working on different initiatives. As Luis mentioned, there’s some opportunities on the HSA side. There are obviously opportunities through our JV, and we’ll continue to look for ways to drive new categories there.

Going forward, I think until those new potential streams kick in, we’ll be in that similar growth range that we’ve been in over the last year or so on the non-interest income.

Okay, good. Thank you on that. John, kind of a high-wire act question, but just back on the election, is that a legitimate concern for you as a banker that banks the city? Should investors be concerned about it at all? Just how do you think about the potential risks, or are we just, you know, is it overblown in your mind?

John Ciulla, CEO, Webster Financial Corporation: Yeah, it is a high-wire question. I think if we look at credit performance and our credit portfolio, it’s not a big issue in the medium term, right? I think we look at the way we’ve underwritten. We look at what a new mayor would have the power of doing in terms of changing rules, regulations, and other things that would really impact our borrowers’ ability to generate income and cash flow and service debt. I think that may be a bit overblown. Luis and I talk about this. I do think what you want is a healthy New York City, both from a credit performance, but even more importantly, from a business activity performance and our ability to continue to generate growth and deposits.

That’s something that we look at and try and figure out whether over time the city gets less competitive rather than more competitive if there were a significant change in policy. I think history would tell you that things don’t move as dramatically in either direction when you have these changes and that you can navigate through them. In our base case, we don’t have thoughts that there’s going to be a precipitous inflection point in either business activity or credit performance in the near term. My personal, and I guess when Luis and I talk about it, the longer-term risk is you get a trailing economic growth in the city. You get other quality of life changes or things that people perceive, and that could have an impact in the long term.

As I look over our three-year plan, we don’t think there’s a material financial impact by the mayoral election in New York.

The one thing that I’d add there is that as you think about future opportunities for growth, the vast majority of where we have in the topic of what we were talking about before, where we’re investing, the thing that we’re focusing on, even though we are always going to be a, you know, we’re going to have a good, you know, part of our business be, you know, connected and tied into New York City, a fair amount of the growth, particularly in the new business lines, both on the lending and deposit side, are not connected to New York City. Everything that we’re doing on HSA Bank, on Amitros, on InterSync, on the deposit side are not connected directly to New York City. From that perspective, we don’t see that that should be an impact on our ability to continue to generate good deposit funding.

Conversely, on the lending side, when you think about the diversified verticals, yes, there’s a portion of what we do, particularly in CRE, that is New York City connected, but the vast majority of growth and the opportunities that we have seen have not been recently in the last two or three years post-merger connected directly to New York City. As we think about the business opportunity or the existing book of business, yeah, it’s something that we’ll have to deal with, although I think we’re in very good position to be able to offset whatever comes our way from that perspective. As we think about the business opportunity longer term and growth trajectory, we don’t think that this materially impacts our ability to continue to do what we’ve been doing.

Conference Operator: The next question comes from Lori Hunsiker with Seaport. Your line is open.

Yeah, hi, thanks. Good morning.

Good morning.

My first question is super quick. What’s your spot margin?

Neal Holland, CFO, Webster Financial Corporation: Our spot margin? Our margin at the end of the quarter was down 3 basis points from the average at 337. There’s a lot of volatility in spot margin, though, but it kind of ties into what we were talking about in direction.

Yep. Appreciate all the color on that. Okay. Second question here is around credit. I just want to understand a couple of things. Your $6 billion NBFI portfolio, that’s within the sponsor and specialty finance book. I guess, yes or no. Can you help us think about how much there is non-performing and what the charge-offs were? Finally, the $37 million you have in commercial net charge-offs, just because I don’t see the breakdown. Can you share with us what’s CNI, what’s CRI, what’s sponsors, what’s office? I know I just hit you with a lot, but I just want some more details on that. Thank you so very much.

John Ciulla, CEO, Webster Financial Corporation: Yes, Lori. We’ll try and we may have to get back on a couple of those things, but I’ll tell you that the answer is no to your first question. All of our NBFI is not included in sponsor and specialty. Our lender finance numbers are included in sponsor. Our fund banking is, and we have it footnoted on the slide, included in our CNI business. With respect to some of those specific credit questions, we might get back to you. Let me just give you a high line again, right? We’ve got the concentration of charge-offs historically and non-accruals have been concentrated in our Healthcare Financial Services book, which is down to about $400 million. Again, very discrete and low. We’ve always talked about the sponsor book as having some volatility in risk rating, but not translating into loss. I think that’s continued.

I’m trying to think of her other question. Lori, what I’m going to do is have Jason and Neal talk to you offline. We’re not seeing any material deterioration in our sponsor book. That’s the short answer. What we’ve seen with respect to charge-offs—oh, she had charge-offs in the fourth quarter. As I looked at those charge-offs, there weren’t any high single points. All the charge-offs were under $10 million with respect to single-point charges. There was an office loan in there. There was a CNI loan in there, an ABL credit. These were all kind of relatively granular across categories in commercial.

Conference Operator: That is all the time we have for questions. I will turn the call to John Ciulla for closing remarks.

John Ciulla, CEO, Webster Financial Corporation: Thank you very much. I really appreciate everybody’s engagement this morning. Have a great day and a great weekend.

Conference Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.