Webster Banks on 3.35% NIM and 5–7% Loan Growth Despite Soft Q4 Payoffs

Date of Call: Jan 23, 2026

Financials Results

• EPS: EPS up 10% over the prior year

Guidance:

• Loan growth of 5% to 7% expected for 2026.
• Deposit growth of 4% to 6% expected for 2026.
• Midpoint of revenue guide is $3,000,000,000 for 2026.
• Net interest income guide of $2,570,000,000 to $2,630,000,000 for 2026, assuming 0.25/0.25 Fed funds cuts in June and September.
• Fees expected to be $390,000,000 to $410,000,000 for 2026.
• Expenses expected to be $1,460,000,000 to $1,480,000,000 for 2026, likely a few percentage points higher than Q4 adjusted expenses due to seasonal impacts, payroll taxes, annual merit and benefit costs.
• NIM expected to be around 3.35% for 2026.

Business Commentary:

Strong Financial Performance in 2025:

• Webster Financial Corporation generated a 17% Return on Tangible Common Equity (ROTCE) and a 1.2% Return on Assets (ROA) for the full year of 2025.
• Earnings per share (EPS) increased by 10% over the previous year.
• This performance was driven by consistent strategic execution, strong loan and deposit growth, and investments in non-traditional banking verticals.

Loan and Deposit Growth:

• Loans grew by 8% and deposits by 6% for the full year of 2025.
• The growth was broad-based across various asset classes, reflecting the bank's diverse origination capabilities and continued client activity despite macroeconomic uncertainties.

Asset Quality and Credit Performance:

• Commercial classified loans decreased by 5% relative to the prior year-end, and non-performing assets were down 8%.
• The improvement in credit quality was a result of strategic remediation efforts and favorable macroeconomic conditions supporting asset quality trends.

HSA Bank and Mitros Growth:

• The company anticipates $1,000,000,000 to $2,500,000,000 in incremental deposit growth at HSA Bank over the next five years.
• This expectation is based on the anticipated adoption of HSA accounts by newly eligible individuals under the Affordable Care Act and enhancements in mobile and web enrollment systems.

Capital Management and Shareholder Returns:

• Webster repurchased 10,900,000 shares in 2025 and aims to continue returning capital to shareholders while maintaining robust capital levels.
• The capital strategy includes investment in organic growth and potential tuck-in acquisitions to enhance healthcare verticals.

Sentiment Analysis:

Overall Tone: Positive

• Management stated 'We entered 2026 on our front foot' and 'Our performance was consistently strong.' They highlighted 'strong financial results,' 'robust capital levels,' 'diverse asset origination capabilities,' and 'solid asset quality trends.' They also expressed optimism about strategic growth opportunities and are positioned to 'prosper into the future.'

Q&A:

• Question from Jared Shaw (Barclays): Update on the partnership with Marathon and its influence on loan growth.
  Response: The partnership is live operationally but has not yet materially impacted loan growth trajectory; it is seen as a smart strategic move with potential upside.

• Question from Jared Shaw (Barclays): Regarding expense trends and investments for the bronze opportunity, is it mostly marketing or system changes?
  Response: Investments are mostly marketing to identify and educate direct-to-consumer individuals; technology infrastructure is already in place.

• Question from Mark Fitzgibbon (Piper Sandler): Suppose the category four threshold is lifted, how does that change plans and expenses?
  Response: It provides flexibility to either increase profitability or reposition dollars into revenue-generating investments, but does not significantly change the strategic growth trajectory.

• Question from Mark Fitzgibbon (Piper Sandler): Help think through the NIM trajectory for 2026.
  Response: Expect the NIM to maintain the December exit rate of 3.35% for the full year, with normal seasonal variability around that midpoint.

• Question from Matthew Breese (Stephens): How much more room is there to lower deposit costs, and what was the period-end cost?
  Response: Deposits ended December at an average cost of $191 versus $199 for the quarter; competition remains strong but pricing was more aggressive in Q4, with a 30% overall beta assumed for the cycle.

• Question from Matthew Breese (Stephens): Thoughts on loan growth relating to reserve, current spreads on CRE and C&I, and expectation for reserve reduction.
  Response: Credit spreads have tightened 30-50 bps over 18 months; growth in lower-risk sectors like stabilized CRE may allow for less risk in the portfolio and potential reserve reduction, but depends on market conditions.

• Question from Casey Haire (Autonomous Research) [via Jackson Singleton]: Why is the loan growth guide 5%-7% given strong recent growth?
  Response: The guide balances optimal growth with profitability, accounts for lower-than-expected payoffs in Q4, and deliberate capital allocation to core franchise-building businesses; upside potential exists if M&A and sponsor book activity pick up.

• Question from Casey Haire (Autonomous Research) [via Jackson Singleton]: Any ceiling for loan-to-deposit ratio, and mix of deposit growth for 2026?
  Response: Target is to stay in the 80%-85% range; deposit mix will be similar to 2025 with slightly more from HSA, strong growth from Amitros, and similar rates elsewhere.

• Question from Chris McGratty (KBW) [via Chris O'Connell]: Any unusual movement on the liability side of the balance sheet?
  Response: No unusual factors; movements relate to seasonality, including a $1.2B public funds outflow in Q4 offset by broker deposits and FHLB advances, and a reduction in sub-debt after note redemptions.

• Question from Chris McGratty (KBW) [via Chris O'Connell]: Drivers behind the wider fee growth guide (1%-high single digits).
  Response: The range accounts for volatility in categories like BOLI, CBA, and direct investments; higher end is possible if loan-related fees (swaps, syndications, FX) continue strong momentum.

• Question from David Schiavarini (Jefferies): How did the HSA open enrollment season go and its impact on deposits?
  Response: Slightly ahead of last year with about 15,000 more accounts opened; momentum is good in the employer channel, and direct-to-consumer growth is expected to accelerate through the year.

• Question from David Schiavarini (Jefferies): Pace of buybacks looking forward and timing of reducing CET1 to 10.5% long-term target.
  Response: Expect another year like 2025 with significant buybacks; likely to move CET1 target down after annual stress testing in Q1/Q2, more comfortable now due to economic momentum.

• Question from Daniel Tamayo (Raymond James): Latest thoughts on the office book and potential sales/charge-offs for coming year.
  Response: Office portfolio ($720M) is ring-fenced, risk-rated appropriately, and not expected to be a big contributor to nonaccruals or losses; overall credit profile is improving.

• Question from Daniel Tamayo (Raymond James): Outlook for non-interest-bearing deposits and when a bottom is seen.
  Response: Reduction in non-interest-bearing deposits is slowing; close to an inflection point for the core book, but focus remains on growing deposit relationships in healthcare services.

• Question from David Smith (Truist Securities): Frame areas within geographic footprint with more or less deposit competition.
  Response: Competition is elevated across the board: consumer CDs, direct bank, and commercial deposits; Webster is being aggressive with pricing but focused on balancing liquidity and NIM.

• Question from Manan Gosalia (Morgan Stanley): What drove better loan yields than anticipated, and what is baked into flattish NIM?
  Response: Better performance was driven by lower-than-expected loan payoffs, not necessarily higher yields; spreads have bottomed, and are expected to hold relative to the back half of 2025.

• Question from Manan Gosalia (Morgan Stanley): Impact of withdrawn leverage lending guidance on loan growth and client relationships.
  Response: Provides more flexibility to do deals but is not expected to materially change the financial outlook or guidance; may allow 3-5 additional transactions but is factored into current numbers.

• Question from Bernard Von Gazzicchi (Deutsche Bank): Details on the Secure Save acquisition (sizing, economics, color).
  Response: Deal is relatively small, already factored into numbers; it adds emergency savings accounts for large employers, a growing market, and is a good fit for Webster's existing channels.

• Question from Bernard Von Gazzicchi (Deutsche Bank): Appetite for further deals and pricing on bolt-ons to add to HSA business.
  Response: Actively looking at tuck-ins to enhance deposit gathering and fee income, but disciplined on price; finding bolt-ons is challenging as other banks also target similar areas.

• Question from Jon Arfstrom (RBC): Slope of expenses for 2026.
  Response: A few percentage point increase in Q1 due to seasonal factors, then neutral to slight increases each subsequent quarter.

• Question from Jon Arfstrom (RBC): Reason for lower payoff activity and outlook for commercial/CRE originations.
  Response: Lower payoffs were due to seasonality and later-than-expected rate moves; pipelines are building for 2026, with potential for stronger growth in the back half of the year.

• Question from Anthony Ileon (JPMorgan): Is loan and deposit growth expected to be spread evenly or weighted to a half?
  Response: Difficult to predict seasonality precisely, but modeling an even growth trajectory is reasonable, with Q1 typically slower.

• Question from Anthony Ileon (JPMorgan): Is all necessary infrastructure in place for HSA's $1-2.5B incremental deposit growth over five years?
  Response: Yes, technology infrastructure is in place and scalable to handle potential growth in the direct-to-consumer channel without incremental cost.

Contradiction Point 1

Loan Growth Outlook and Impact of Marathon JV

Inconsistent assessment of JV's material impact on loan growth trajectory.

How is the partnership with Marathon impacting loan growth, and what's the current status after a few quarters? - Jared Shaw (Barclays)

2025Q4: The Marathon JV is live and operational, but has not yet materially impacted loan growth trajectory. - John Ciullo(CEO)

What is the early success of the Marathon partnership and its impact on 2025-2026 growth? - Jared Shaw (Barclays)

2025Q3: The partnership is off to a good start... For 2026, it should allow for an expanded product offering, potentially leading to more on-balance sheet business, deposits, fees, and capital markets opportunities. - Luis Massiani(COO)

Contradiction Point 2

Strategic M&A Appetite

Contradictory statements on willingness to consider whole-bank acquisitions.

What is your appetite for further deals, how actively are you pursuing them, and what is your perspective on pricing and the availability of bolt-ons for the HSA business? - Bernard Von Gazzicchi (Deutsche Bank)

2025Q4: The company is active in looking for tuck-in acquisitions... They will remain disciplined. - John Ciullo(CEO)

Why isn't Webster interested in bank M&A despite the favorable regulatory environment and potential lifting of the Category 4 threshold? - Mark Fitzgibbon (Piper Sandler)

2025Q3: A whole-bank acquisition is highly unlikely in the short or medium term... - John Ciulla(CEO)

Contradiction Point 3

Capital Management and CET1 Target Timeline

Inconsistent timeline for moving towards the long-term CET1 target of 10.5%.

Can you discuss the expected pace of buybacks moving forward and the timeline for reducing CET1 from 11.2% to the near-term target of 11% and long-term target of 10.5%? - David Schiavarini (Jefferies)

2025Q4: The move towards the long-term CET1 target of 10.5% is more likely after the upcoming stress testing and capital management exercises (Q1/Q2), with specifics expected in a couple of quarters. - John Ciullo(CEO)

Considering the current environment and potential deregulation, what is your willingness to reduce CET1, and what are your views on the near-term buyback pace? - Andrew Steven Leischner (KBW, on for Chris McGratty)

2025Q2: The medium-term and short-term goal for CET1 is 11%, with potential to move toward a 10.5% range in the long term as markets stabilize. - John R. Ciulla(CEO)

Contradiction Point 4

Deposit Cost Outlook and Competition

Contradiction on the ability to reduce deposit costs in the absence of rate cuts.

What's the potential to reduce deposit costs without rate cuts this year, and what was the period-end cost of deposits? - Matthew Breese (Stephens)

2025Q4: Deposit pricing was more aggressive in Q4, with competition remaining strong. The average cost of deposits decreased to $191 in December from $199 for the quarter. - John Ciullo(CEO) and Neil Holland(CFO)

How are deposit costs expected to be impacted by two rate cuts and InterSYNC's strong deposit growth in the second half of the year? - Mark Thomas Fitzgibbon (Piper Sandler)

2025Q2: If the two expected rate cuts don't occur, there is significant deposit competition and no material opportunity to further reduce deposit costs. - John R. Ciulla(CEO)

Contradiction Point 5

Driver of Strong Q4 Loan Growth

Contradiction on whether strong loan growth was due to higher-yielding new originations or lower-than-expected payoffs.

What factors are contributing to the higher-than-expected loan yields this quarter? - Manan Gosalia (Morgan Stanley)

2025Q4: Better loan yields in Q4 were driven by lower-than-expected loan payoffs, not by originating higher-yielding new loans. - Luis Massiani(COO) and Neil Holland(CFO)

What caused Q1's strong loan growth? - Anthony Ileon (JPMorgan)

2025Q1: The strength in loan growth was driven by higher-yielding new originations, particularly in commercial real estate and equipment finance. - John Ciullo(CEO)