Webster Financial Corp Q3 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Fitzgibbon - Piper Sandler - Analyst : Hey, guys, good morning.

Question: Mark Fitzgibbon - Piper Sandler - Analyst : 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 what sort of lending exposure you have to the private credit industry? And maybe any areas that you might be avoiding within that space.

Question: Mark Fitzgibbon - Piper Sandler - Analyst : Okay, great. And then just a follow-up 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. And given that the regulatory environments so welcoming these days of bank M&A, why not push that to the front of the line in terms of priorities?

Question: Mark Fitzgibbon - Piper Sandler - Analyst : Thank you.

Question: Andrew Leischner - Keefe Bruyette & Woods Inc - Analyst : Hey, how's it going? This is Andrew Leischner on for Chris. Just on -- good morning -- just 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.

Question: Andrew Leischner - Keefe Bruyette & Woods Inc - Analyst : Okay, great, thank you. And then 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.

Question: Andrew Leischner - Keefe Bruyette & Woods Inc - Analyst : Okay, great, thank you.

Question: Matthew Breese - Stephens Inc - Analyst : Hey, good morning. The first one is 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. 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 real 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2025 / 1:00PM, WBS.N - Q3 2025 Webster Financial Corp Earnings Call

Question: Matthew Breese - Stephens Inc - Analyst : Got it. Okay. And then my other one is, John, back to M&A. 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 sales front and how seriously that's considered? And I ask because I'm getting that question more and more frequently and would love your thoughts there.

Question: Matthew Breese - Stephens Inc - Analyst : That's all I had, thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2025 / 1:00PM, WBS.N - Q3 2025 Webster Financial Corp Earnings Call

Question: Casey Haire - Autonomous Research - Analyst : Yeah, great, thanks. Good morning, everyone. John, I wanted to follow up on the NDFI question. I fully appreciate the -- your answer and that these asset classes are low risk. But some of the others that were -- that are in these headlines, where they got blindsided was the double pledging of collateral. So it seems like an easy thing to safeguard against. So what measures do you have in place to guard against your borrowers double pledging collateral?

Question: Casey Haire - Autonomous Research - Analyst : Got you. Understood. Okay. And then just -- apologies if I missed this in prepared remarks, but the outlook -- 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. So just wondering what's the outlook going forward. Is this expected to cure gradually or kind of run in place? Just an outlook on how credit quality cures.

Question: Casey Haire - Autonomous Research - Analyst : Great, thank you.

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

Question: Anthony Elian - JPMorgan Chase & Co - Analyst : Thank you. And then 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 CRE loans you originated during the quarter and if this is a good level for CRE originations going forward? Thank you. Luis Massiani - Webster Financial Corp - Senior Executive Vice President, President of the Webster Bank, Chief Operating Officer of the Company and Webster Bank Yeah, sure. That's a great question. Part of that was -- 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 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 think about Q3 is that there was some pent-up activity in the pipeline that was fully reflected and came through in Q3. And so therefore, the growth was stronger than prior quarters, and it was good, diversified industrial, and multi-asset classes. And so the mix of the business was great, good structure, relatively good pricing. So we were very pleased with the type of origination 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 rigs 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 -- the Q3 number should not be seen as a watermark high watermark for what originations will be going forward. But still good strong growth.

Question: Anthony Elian - JPMorgan Chase & Co - Analyst : Thank you.

Question: Bernard Von-Gizycki - Deutsche Bank AG - Analyst : Hey, guys, good morning. Neal, 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 4Q NII is $630 million. Just what are you thinking of the exit run rate for the NIM in 4Q? Any changes there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2025 / 1:00PM, WBS.N - Q3 2025 Webster Financial Corp Earnings Call William Holland - Webster Financial Corp - Chief Financial Officer, Executive Vice President - Finance of the Company and Webster Bank Yes. So 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 loss of very high-yielding loans from the seating of the JV, kind of put some onetime pressure. We were -- as I mentioned before and continuing to originate the high-quality lower spread new originations, that puts pressure on Q4. So if you take our $630 million NII that equates to a guide of right around [6] -- sorry, 3.35% for the Q4, there's opportunity and risk to that depending on how quickly we reprice deposits. And that's -- 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 on 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 we've talked about our seasonality trends. So 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.

Question: Bernard Von-Gizycki - Deutsche Bank AG - Analyst : Okay. Thanks for taking my questions.

Question: David Smith - Truist Securities - Analyst : Good morning. Outside of HSA, can you talk about the investment opportunities you're prioritizing for the bank? And 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.

Question: David Smith - Truist Securities - Analyst : Thank you.

Question: Daniel Tamayo - Raymond James - Analyst : Thank you, good morning, everybody. I apologize, I 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 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 of the rate cut on spreads? William Holland - Webster Financial Corp - Chief Financial Officer, Executive Vice President - Finance of the Company and Webster Bank Yeah. So 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, 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. So we are balancing, maintaining our loan-to-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 30% and 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.

Question: Daniel Tamayo - Raymond James - Analyst : Terrific, appreciate that color, John, and thanks for prior answer, Neal. That's it for me.

Question: Jon Arfstrom - RBC Capital Markets Inc - Analyst : Hey, thanks, good morning.

Question: Jon Arfstrom - RBC Capital Markets Inc - Analyst : A lot of the topics have been covered, but a smaller 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2025 / 1:00PM, WBS.N - Q3 2025 Webster Financial Corp Earnings Call William Holland - Webster Financial Corp - Chief Financial Officer, Executive Vice President - Finance of the Company and Webster Bank Yeah. I can 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 a 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 were 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 through our JV, and we'll continue to look for ways to drive new categories there. But 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 noninterest income.

Question: Laurie Hunsicker - Seaport - Analyst : Yeah. Hi, thanks, good morning. My first question is super quick. What's your spot margin? William Holland - Webster Financial Corp - Chief Financial Officer, Executive Vice President - Finance of the Company and Webster Bank Our spot margin, our margin at the end of the quarter was down 3 basis points from the average at 3.37%. There's a lot of volatility in spot margin though, but it ties into what we were talking about in direction.