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.

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, I ask that each participant ask just one question and one follow-up before returning to the queue. I'll now turn the call over to Webster Financial's CEO, John Ciulla.

Thanks, Emlen. Good morning, 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 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 normalized range of 25 to 35 basis points. And our provision…

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 plan. 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. Diversified deposit businesses continue to perform well, with the metros posting strong new account growth and record volume and 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 a strong liquidity profile. The 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 opportunity. 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 continued 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 health care plans beginning in 2026. Our assessment of the original legislation was that change would increase the addressable market for 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 is 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 plan enrollment period which will begin in November. These refinements will streamline and optimize the enrollment process to help us better capitalize on this growth opportunity. I'll turn it over to Neal.

Thanks, Luis, and good morning, everyone. I'll turn 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 PPNR, 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 nonaccrual reverse that added two basis points to NIM in the second quarter. The trend in the quarter also reflects some organic spread compression. Slide nine…

Thanks, Neal. This past week, Webster celebrated its ninetieth anniversary of a 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.

Thank you. If you would like to withdraw your question, simply press 1 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.

Good morning, everybody.

Hey, Jared.

Maybe just starting with the Marathon partnership. If you can give any detail on early success there, and is that reflected in sort of the optimism for growth in '25? And I guess how should we think about that in '26?

Yeah, Jared. This is Luis. So far so good, is how we characterize it. We have started building a nice pipeline of business there. Annual weekly calls and meetings of our investment committee to actively review transactions and placing them into the joint venture. We started approving transactions. We started originating transactions. So 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 sponsored clients, it's essentially achieving exactly that, which is great. And so long term, we feel that the prospects for what we're trying to do there are good, which we're gonna be able to offer more, and that's gonna 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. But as we move into 2026, we think that that's gonna be a good it's gonna allow us to, you know, an expanded product offering, which should reflect in some on-balance sheet business as well and other opportunities with deposits, fees, capital markets, business also. So so far, so good.

Okay. Alright. Great. Thanks for that detail. And I guess shifting over to the deposit side, you know, Mitros balances are up. Interesting. 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?

Yeah. So this is Neal. We continue to do all we can to grow the attractive categories in HSA and Ametros. Those are great businesses, and we love growth there. We have seen strong growth in InnerSync year, and we prefer Intersink 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 a 100% beta. So in a down environment, we'll be an attractive balance for us. We really use broker deposits to in Q2 and Q4. We have seasonal inflows of public deposits, which come in obviously in Q1 and Q3. And so as you'll notice, this quarter, we had seasonal inflows of those public deposits. So our broker concentration is down to about 2% and, you know, next quarter, it may jump up to 4%, and then Q1 will probably be more back down that 2% range. So we really use broker deposits to offset those swings in our public deposits.

Okay. Thank you.

Thanks, Jared.

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

Hey, guys. Good morning.

Mark, good morning.

There's been a lot of talk, John, this past week about the private credit space, and so I wondered if you could share with us any details on sort of what sort of lending exposure you'd have. Do 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 NDFI exposure and, obviously, everybody's been talking about this a lot as pretty amorphous and large category. For us, it's pretty simple. We've got about $6 billion in what would be characterized as NDFI. 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 ten years. And 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 nonaccrual loans over the ten-year period. And so I think it's really important to 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. And as we've grown that, we've you know, that's that's been in our plan. So we feel very comfortable with our NDFI exposure just given the characteristics and nature. And our history in the business. So you know, we haven't been exposed to the headline credits that you've you've seen in the last few days, I guess, mostly. But we're 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. And then just to follow-up kinda 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, you know, the regulatory environments 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're we are going to be consistent to what we did 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. But 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, you know, wouldn't dilute tangible book value significantly. And could add to our fee and deposit generating capabilities. But as it relates to whole bank M&A, we're not interested in participating at the current time.

Thank you.

Your next question comes from Chris McGratty with KBW. Your line is open.

Hey. How's it going? This is Andrew Leischner on for Chris. Good morning. Just on the loan growth, 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 is it be thinking about the loan growth outlook going into 2026? Thanks.

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, you know, as normally happens in the fourth quarter, maybe a higher level of prepayments. And so 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, you know, if payoffs don't come through and we continue to originate. But I'd say we feel really good about our pipelines. We're also, I think, 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, you know, wanting to continue to grow core C&I categories as we move forward. So kinda 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. And then just one follow-up. Just given that CET1 is still above your near-term target, at eleven point four, how should we be thinking about the pace of buybacks going forward? Thanks.

Yeah. I think I'm gonna give you the boring answer that we always do. You know, we're looking to deploy capital into loan growth. We're looking at potentially some strategic, you know, 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 share capital to shareholders. Obviously, we also take into consideration 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.

The next question comes from Matthew Breese with Stephens Inc. Your line is open.

Hey, good morning.

Hey, Matt.

The first one is kind of a two-parter. You'd mentioned in the release and in your opening remarks that tighter loan spreads on new loans were a driver of NIM compression, and so 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 new commercial estate yields are today, and then the other thing I wanted to hone in on was commercial loan yield for the presentation. We're at 6.41%, so down a healthy 15 basis points quarter over quarter, but SOFA was relatively flat. And so 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, you know, we've had a continued trend line of onboarding higher quality credit 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. You know, there's a significant positive delta there. So I think part of it, Matt, is risk selection. Part of it is credit spread compression. You know, the markets there are tighter credit spreads on high-quality commercial real estate deals and other areas. So 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. We wanna 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 is not contracting perpetually over time. I think that would be my answer, and you know, I think we're pleased with what we're being able to onboard in terms of full relationship, high-quality commercial real estate and C&I deals. But they are coming in at a lower yield than this historically had been the case.

Yeah. John hit it. 6% range on originations on recent originations. And then it really is our loan mix and 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. So that has been our trend recently on where we're originating in the high-quality assets we've been putting on our books over the last few quarters.

Got it. Okay. And then my other one is you know, John, back to M&A. You know, obviously, there's some big bank deals out there. It seems like the window is open. And 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. And I asked because I'm getting that question more and more frequently. And would love your thoughts there.

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 and so, obviously, if there was an opportunity to become part of a large bank, we would have to evaluate that. But, Matt, as I said earlier, I think the whole dialogue around M&A, I understand why the question's there, and there's gonna 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. But it's not something that we're looking for proactively.

That's all I had. Thank you.

Thanks.

The next question comes from Casey Haire with Autonomous Research.

John, wanted to follow-up on the NDFI question. Fully appreciate your answer and that these asset classes are low risk. But some of the others that were that, you know, are in these headlines you know, where they got blindsided was the double pledging of collateral. So which seems like an easy thing to safeguard against. So what countermeasures do you have in place to guard against you know, your borrowers double pledging double pledging collateral?

Yeah. That's a great question. Right? It's around how do you protect against fraud, and I think it starts with who you do business with. And, as, you know, a former chief credit officer, I'm always I probably, to a fault, tell people I can't you can't promise excellent and perfect credit performance. But if you think about the fact that what I talked about you know, Jason So to, our chief Chris Credit Risk Officer, always pushing people away when they wanna deal with first-time asset managers and people that, you know, are don't have great reputations in the space. And so it starts with dealing with high-quality established asset managers and then doing strong quarterly reviews. You know, 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. You know, we're at relatively low LTVs when we lend against it. So 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, and as I said, we've had ten 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. And I think it kind of the way I describe KCRs. Our sponsor book. Right? It's not all things are created equal, and people who get involved in that business, we've been in it for twenty years. We kinda know who operates in the industry. You kinda know who you wanna deal with. You make your best guesses and diligence on underwriting and monitoring, and so far, so good. I think that's the best I can give you.

Gotcha. Understood. Okay. And then just apologies if I missed this in prepared remarks, but the outlook for I mean, the credit quality was stable. Didn't get worse, which is good, but it didn't show much improvement from NPAs and commercial classified. So just wondering, what's the outlook going forward? Is this expected to cure gradually or kinda run-in place? Know, just an outlook on how credit quality cures.

Yeah. I think it's a great question. And I think, you know, when I talked to Jason I think we were a bit disappointed to not get more resolution on the nonaccrual and classifieds. And I had mentioned, and we go back, that some of that resolution is a bit sticky. Right? We're smart. We know that we wanna get those headline numbers down because if people think there's an overhang, but we're also, you know, looking at economic profit when we look through these things. And if we've got a good collateral base, and we think that there's not big losses, we're not gonna 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 rate right, and trend lines in risk rating. And that 7% decline in criticized assets, which is, you know, the step before we get to classify the nonaccruals. 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 and we do see line of sight to resolution on a bunch of those nonaccruals and classifieds. So 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. But 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 positive step in our credit performance. And, again, overall, know, we've been able to continue to post high returns given our active you know, actual credit costs over the last several quarters. So you know, we're feeling good about our credit profile. And as I've always mentioned, and I don't wanna go on too long, but you know, most of our I should say a large portion of our classified and nonaccrual loans are concentrated in healthcare services and office. Right? And so on two relatively discrete and small portfolios. So I think that's why we feel pretty comfortable that credit's trending in the right direction.

Great. Thank you.

Thank you, Casey.

The next question comes from Anthony Elian with JPMorgan. Your line is open.

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

Yeah. I mean, I guess I guess we're you know, we think we're proactive. And as I've mentioned several times, we haven't really seen any pockets of correlated risk in either asset class, geography, 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, you know, any part of the entire ecosystem. And so that's that we don't have a specialty team. We're not involved. That's sort of just in our general commercial business. So I would say no. You know, we focused on resolving office. We continue to move. It's been a little bit slower the last quarter. You know, 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, you know, it's performing well with a good updated debt service coverage ratio. So I don't think there's anything that's high on our radar screen in terms of flashing yellow lights or red lights.

You. And then my follow-up, Slide 28, it looks like loan origination rose from the prior quarter and much of that came from commercial real estate. I'm curious on the types of CRE loans you originated during the quarter and if this is a good level for CRE originations going forward.

Yeah. Sure. That's, you know, a great question. Part of that was we alluded to the pipeline that was, you know, a little bit softer at the beginning of the year, and we started to we talked that I think it was in the first quarter earnings call. That we had started to see that build up in the early part of the second quarter and then throughout the second quarter. And so part of how to, you know, 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. So, therefore, the growth was, you know, stronger than prior quarters in you know, and it was, you know, good diversified industrial and, you know, kind of multi you know, asset classes. And so mix of the business was great. You know, good structure, relatively good pricing. So we were very pleased with the type of originations that we saw. With that said, 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, then the fact that you don't have the 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 gonna be good commercial real estate originations in Q4 and then into 2026. But it shouldn't be, you know, kind of the Q3 number should not be seen as a watermark or a high watermark for what originations will be going forward. But still good strong growth.

And I would just add to that. We feel very comfortable. We're still in the, you know, mid two fifties with respect to concentration on CRE. As a percent of tier one capital plus reserves and we can bounce around, you know, 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. So it's an important category for us. You'll probably see growth. But to Luis's very good point, I think you know, it'll be thoughtful growth as we move forward.

Thank you.

The next question comes from Bernard Von Gizycki with Deutsche Bank. Your line is open.

Bernard, good morning. Neil, first question for you. So 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. And I know that's, like, a bit higher yielding. The four q NII, the 630 million, just what what are you thinking of the exit run rate for the for the NIM in four q? Any changes there?

Yes. Yeah. So on the last call, we talked about a Q4 NIM of being in the range of three thirty-five to three forty. You know, 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 kinda put some onetime pressure. We were as I mentioned before, and they're continuing to originate the high quality kind of the lower spread new originations. That puts pressure on q '4. So you know, if you take our six thirty NII that equates there's opportunity and risk to that depending on to a guide of right around six sorry, three thirty-five for the Q4. how quickly we reprice deposits. And that's you know, 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. So what we're looking at in Q4 is, potentially a little bit lower growth, and so potentially a little bit of opportunity to outperform. But we've kind of our guide is more in the lower end of what we stated last quarter for Q4. Now that being said, Q1 next year, we're not ready to talk about Q1 guidance, but know, we've talked about our seasonality trends. So, you know, I would clearly expect Q1 next year to be back up higher than Q4 of this year. And then we'll talk more about full year '26 guidance when we meet next time.

Okay. Great. Thanks for that color. Just post my follow-up for, Lisa, this is for you. Obviously, they just say pipeline is growing. You know, you mentioned obviously, from last quarter, the target addressable market increasing. That opportunity at least on the deposit side being, you know, the one to two and a half. And the recent changes and catastrophic accounts should increase it further. And I know you're still assessing. But just any progress you can share just longer term we should think about the fee income growth opportunity?

I know you have the $3.03 and a half million, you know, 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 just help frame how big this opportunity could be potentially next year or further? Yeah. That's a great question. And the short answer to that last part that you asked on, you know, I'll call it the cross sell of other baking products into that channel. Is that it's not much? Is the way to characterize it today. But 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. And so 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, from a product bundle perspective is attractive to be able to sell into that three and a half million client channel that we have there. And so part of that is banking, know, traditional banking products. Part of that is in insurance related products, Medicare related products. And so that is you know, it's coming together. We, you know, we anticipate in expect that there is going to be greater activity broadly in the age channel in 2026. And I'll, you know, I'll remind you that the opportunity going forward, particularly as it relates 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, b to b to c business where we're…

K. Thanks for taking my questions.

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? And, you know, with the likely rise in the category four threshold, does that free up investment dollars that you can redeploy into that are more directly related to revenue or the profitability of the bank? Thank you.

Yeah. I think that's a great question, and the short answer is yes. You know, we've talked openly about the fact that, you know, Neil talked about a kind of 60 over three years, a 60-ish million dollar investment run rate increase in expenses. Related to category four. You know, we are taking a, again, a pragmatic approach. We're gonna wait to see and get more clarity on whether that threshold's lifted. You know, I think we believe that there is a reasonable probability that that happens. And that would allow us to either avoid some of those costs or clearly spread them out over a longer period of time. And, you know, our view is that we can take some of that and increase current profitability, but we wanna certainly redeploy some of those investment dollars into new business initiatives. Those would include our continued digitization of channels across, you know, our various business lines, treasury management capabilities, new teams in key geographic middle market segments, and so, you know, it's kind of being able to really focus on accelerating some of our business opportunities. HSA, we talked about it heretofore. I think we have some adjacent opportunities in the Metro and HSA as well. So I think it'll give us an opportunity to accelerate some of those investments as we move forward. And I think 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 get our three-year strategic plan vetted and approved. And 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, and I that should all be factored into our guidance in January.

Thank you.

Thank you.

The next question comes from Daniel Tamayo with Raymond James. Your line is open.

Thank you. Good morning, everybody. I apologize. I jumped had to jump on the call a little bit late, but is as it relates to the most recent rate cut, I'm just curious the ability you've had to reprice you know, 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, on the impact on of the rate cut on spreads.

Yeah. So, you know, we're positioned as we've talked about pretty neutrally. So, obviously, we did see some yields decline on our variable rate portfolios. We tried to be aggressive on the deposit side. 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, you know, about a month after the cut, some pretty good movements down. So we are balancing, maintaining our loan deposit ratio with the speed of our decline. So 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 20 30% and kind of a pretty in line with what we've been talking about the last few quarters. And we've plans in place to achieve that going forward.

Okay. Great. Thanks for that. And, you know, I talked pretty bullishly about the opportunities from the Marathon 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 NDFI impact that the way that you think about that you know, that JV at all? I'm just curious if there's any kind of overlap there.

Yeah. I don't think so. You know, when we're we've talked a lot about our sponsor finance business, right, which is not NDFI. It's financing you know, companies that are platform companies or private equity firms. And we've had good success over a long period of time. I remind you that our partnership with Marathon is as much a risk management tool as it is an offensive opportunity. It allows us to have 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 ten 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. So you know, I think general economic conditions obviously have an impact on the way we look at leveraged finance. But 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, you know, direct borrowers in the sponsor book.

Terrific. Appreciate that color, John, and thanks for your prior answer, Neal. That's it for me.

Thank you.

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 prepared remarks. But for the loan growth in the quarter, it was pretty robust on a period end basis. So if I look at the C&I loan growth, is this is most of this growth coming from, like, the middle market? I know that includes, like, the fund banking part. And given that CRE run offs will not be in the in I mean, we're not gonna see, like, 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 '26, but loan growth should be improving versus, like, the four four to 5%. Growth that was previously expected for 2025. Is that the right way to think about it?

That's an interesting question. I sat 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 kinda 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. CRE will be a part of that. We'd like, obviously, middle market and C&I to continue to add to that as well. I don't think, Janet, I'm prepared to say that we expect loan growth in '26 to be higher than those mid single digits, which I think is what people who have provided guidance and industry experts have said. So I'd rather not go there now. I think we think that that would be pretty good solid loan growth. And 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. And we won't and as I said in it to an earlier question that you may have missed, it's not just about balance sheet growth for growth for balance sheet's sake. We wanna make sure we're also onboarding good risk return assets. So that's the way I would look at it now just thinking forward.

Got it. And just going back on NDFI, sorry to just keep coming back. Back at this, but your exposure is $6 billion. Just given all of these you know, headlines that just keep coming up, does this change your appetite on growing the NDFI exposure, or are you completely comp do you use that you're comfortable with your position? But does it does that change your appetite for driving growth coming out of this segment, or does it does it die?

It's kind of a trap question. Right? Because I think we're all smart leaders here the way we think about things. And optically, we have to be absolutely sensitive to the way people view the makeup of our balance sheet. But I would say, fundamentally, the two categories that make up the substantial whole of our NDFI 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, and we're not stretching into areas, and we're not dealing with new 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 trend line wise in the industry. So if we were to see significant cracks in a broader private credit screen. Obviously, we would either pull back or change our underwriting guidelines. But 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.

The next question comes from Jon Arfstrom with RBC Capital Markets. Your line is open.

Hey, John. Lot of the topics have been covered, but small one. Can you talk a little bit more about the noninterest income drivers? And what you're seeing there and what kind of expectations you have?

Yeah. I could jump in there. So on the noninterest income side, we had a nice increase quarter over quarter, and we talked about a piece of that was due to a legal settlement. But 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. So I would say, overall, we were pleased with the quarter there. Overall, obviously, as we benchmark, we benchmark against peers positively in a lot of segments. And 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's obviously opportunities to do our JV, and we'll continue to look for ways to drive new categories there. But you know, kinda going forward, I think, until those new potential streams kick in, we'll be kind of in that similar growth range that we've been in over the last year or so on the noninterest 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? Shouldn't and know, should investors be concerned about it at all? Just how do you think about the potential risks or we just, you know, is it overblown in your mind?

Yeah. It's a 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. So I think that may be a bit overblown. You know, Luis and I talk about this. I do think you know, you what you want is a healthy New York City. Both from a credit performance, but even more importantly, from a business performance and our ability to continue to generate growth in deposits. So that's something that we look at and, you know, try and figure out whether over time the city gets less competitive rather than more competitive. If there were a change significant change in policy. But I think you know, his history would tell you that things don't move as dramatically in either direction. When you have these changes. That you can navigate through them. So in our base case, like, we don't have thoughts that there's gonna be a precipitous inflection point in either business activity or credit performance in the near term. I think, you know, my personal and, I guess, when Luis and I talk about the longer-term risk is you get a trailing economic growth in the city. You get, you know, other quality of life changes or things that people perceive, and that could have an impact in the long term. But as I look over our three-year plan, we don't think there's a material financial impact. By the mayor election in New York.

And 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 to live in the to 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 know, we're gonna have a good, you know, part of our business fee, you know, connected and tied into New York City if we're not gonna be growing, particularly in the new business lines both on the lending and deposit side. Not connected to New York City. So everything that we're doing on HSA, on the mutuals, on Intersink, on the deposit side are not connected directly to New York City. So from that perspective, we don't see that that should be an impact on our ability to continue to generate good deposit funding. And 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 recent in the last two or three years post-merger connected directly in New York City. And so 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, you know, to be able to offset whatever comes our way from that perspective. And as we think about the business opportunity longer term and growth trajectory, we don't think that materially impacts our ability to continue to do what we've been doing.

The next question comes from Laurie Hunsicker with Seaport. Your line is open.

Yes. Hi, thanks. Good morning.

Good morning.

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

Our spot margin our margin at the end of the quarter was down three basis points from the average at three thirty-seven. There's a lot of volatility in spot margin though, but it kinda ties into what we were talking about in direction.

Yep. Appreciate all the color on that. Okay. Second question here is around credit. So I just wanna understand a couple things. Your $6 billion NDFI portfolio that's within the sponsor and specialty finance book. And I guess secondly or, you know, yes or no. And then just the can you think can you help us think about how much there is nonperforming and what the charge off were. And then 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 C&I What's Cree? What's what's what's office, And I know it just hit you with a lot, but I just I want some more details on that. Thank you so very much.

Yes, Laurie. We'll try and we may have to get back to you in a couple of those things. But I'll tell you that the answer is no. To your first question. All of our MDFI is not included in and specialty. Our lender finance numbers are included in sponsor. Our fund banking is and we have it on footnoted on the slide is included in in our C&I business. And then 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 charges historically and nonaccruals have been concentrated in our healthcare services book. Which is down to about $400 million. So, again, very discreet and low. Talked about the sponsor book as having some volatility in risk rating. But not translating into loss. And I think that's continued I'm trying to think of the other question. Laurie, what I'm gonna do is have Jason and Neil talk to you offline. We're not seeing any material deterioration in our sponsor book. That's the short answer. And what we've seen with respect to trucks oh, she had charge offs in 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 an office loan in there. There was a C&I loan in there. An ABL credit. So these were all kind of relatively granular across categories in commercial. That is all the time we have for questions.

I will turn the call to John Ciulla for closing remarks.

Thank you very much. I really appreciate everybody's engagement this morning. Have a great day and a great weekend.

This concludes today's conference call. Thank you for joining. You may now disconnect.