Webster (WBS) Q2 2025 Earnings Call Transcript

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DATE

Thursday, July 17, 2025 at 9 a.m. ET

CALL PARTICIPANTS

Chairman, CEO, and President — John Ciulla

President and Chief Operating Officer — Luis Massiani

Chief Financial Officer — Neal Holland

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TAKEAWAYS

Return on Tangible Common Equity: 18% for the second quarter, illustrating continued profitability.

Revenue Growth: Revenue grew 1.6% compared to the prior quarter.

Loan and Deposit Growth: Loans and deposits each grew over 1% sequentially in Q2 2025.

EPS: $1.52 for Q2 2025, an increase from $1.30 in the first quarter (GAAP EPS for Q1 2025).

Efficiency Ratio: 45.4% efficiency ratio, maintaining operational efficiency while investing in the business.

Tangible Book Value per Share: Tangible book value per common share reached $35.13, up over 3% from the prior quarter.

Common Equity Tier 1 (CET1) Ratio: Increased; management affirmed a short- to medium-term CET1 target of 11% for the remainder of 2025.

Net Charge-Off Ratio: 27 basis points for net charge-off ratio, positioned within Webster's long-term normalized charge-off range of 25-35 basis points.

Provision for Loan Losses: $47 million provision for credit losses, $31 million lower than the previous quarter (Q1 2025), driven by credit performance improvement.

Allowance for Loan Losses: $722 million or 1.35% of loans, reflecting increased balance sheet growth rather than changes in the economic outlook.

Net Interest Income (NII): Projected full-year 2025 NII guidance of $2.47 billion to $2.5 billion; assumes two Fed funds rate cuts starting in September.

Net Interest Margin (NIM): 3.44% net interest margin, down four basis points from the prior quarter, with expectations to end the year between 3.35% and 3.40%.

Deposits: Total deposits increased by $739 million, including a $200 million uptick in noninterest-bearing deposits at period end (but with $200 million lower average balances over the quarter).

Share Repurchases: 1.5 million shares repurchased at an average price of $51.69, with an additional $700 million authorized for future buybacks.

Asset Quality Trends: Nonperforming assets declined 5%, and commercial classified loans declined 4% sequentially.

Loan Portfolio Activity: C&I originations exceeded $2 billion; commercial real estate originations totaled $1.2 billion, while balances in this segment decreased due to payoffs.

HSA Bank Opportunity: The reconciliation bill's new provisions are expected to yield $1 billion to $2.5 billion in incremental HSA deposits over the next five years, and $50 million to $100 million of incremental HSA Bank deposit growth is anticipated as early as next year.

InterSync: The rebranded deposit platform continues to provide granular deposits and liquidity diversification.

Marathon Asset Management Joint Venture: Operational as of next quarter, with $242 million of loans moved to held-for-sale status in preparation for contribution; meaningful fee income expected to build in 2026.

Tax Rate: Effective tax rate was 20% year-to-date, of 2025, expected to move to 21% in the second half.

Rent-Regulated Multifamily Loan Exposure: Portfolio totals $1.36 billion, with only eight loans exceeding $15 million and a current debt service coverage ratio of 1.56 times.

SUMMARY

Management reported broad-based growth in earnings, assets, and deposits compared to the prior quarter, while maintaining efficiency and capital strength. They highlighted a material inflection point in asset quality, with criticized commercial loans and non-accruals both declining. Executives anticipate significant long-term deposit growth from HSA Bank due to legislative changes, with the majority of the expanded opportunity tied to newly eligible bronze ACA plan participants. The company confirmed its Marathon joint venture is set to bolster balance sheet flexibility and future fee income, with fee income expected to begin ramping in 2026, positioning Webster to pursue larger loan deals and grow capital markets revenue streams. Tangible book value per share increased to $35.13 alongside disciplined share repurchase activity, with a consistent deployment framework tied to capital availability and market opportunities. The outlook remains for full-year 2025 NII of $2.47 billion to $2.5 billion, and NIM (Net Interest Margin) is expected to moderate toward a 3.35%-3.40% range as year-end approaches.

Management described continued investments in technology, business development, and risk management as part of preparations for growth toward the $100 billion asset threshold.

Executives do not anticipate material expense changes in HSA Bank operations from expanded direct-to-consumer outreach, with incremental marketing spend expected but no substantial change in expense trajectory.

Deposit cost guidance for the back half of 2025 assumes movement dependent on Fed rate cuts and ongoing market competition; management maintains effective neutrality to interest rate changes in near-term scenarios.

The company expects the sponsor finance pipeline to recover, supported by increased sector activity and new capabilities from the Marathon joint venture, which will also support larger bilateral transactions and broader deal structures.

Brokered deposits are managed within a 3%-5% range of total deposits, with anticipated seasonal fluctuations but stable long-term contribution.

Leadership changes include the appointment of Jason Schugel as Chief Risk Officer and Fred Crawford as a new board member, both cited as bringing valuable large-bank expertise as Webster approaches regulatory asset size thresholds.

Management stated, "We do not see new pockets of credit deterioration developing anywhere across any industry or sector." and reaffirmed that existing classified loan exposure is concentrated in CRE office and healthcare service categories.

INDUSTRY GLOSSARY

HSA Bank: A Webster Financial Corporation segment providing health savings accounts and related health spending solutions distributed via employers and individual channels.

InterSync: Webster's rebranded deposit platform (formerly Interlink) designed to broaden access to granular, low-cost deposits and enhance liquidity diversification.

B2B2C model: Business-to-business-to-consumer; HSA Bank operates by distributing products through organizations to end consumers.

Marathon Asset Management Joint Venture: A partnership between Webster and Marathon to expand Webster's private credit origination capabilities, contribute loans, and generate fee income through asset management.

Classified Loans: Loans designated as carrying elevated credit risk requiring monitoring or remediation, typically including 'substandard,' 'doubtful,' or 'loss' classifications.

Full Conference Call Transcript

John Ciulla: Thanks, Emlen. Good morning, and welcome to Webster Financial Corporation's second quarter 2025 earnings call. We appreciate you joining us this morning. I'm going to start with a recap of our results and the competitive positioning that drives them. Our President and Chief Operating Officer, Luis Massiani, is going to provide an update on exciting 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 second quarter are provided on Slide two of our earnings presentation. Our results were solid with a return on tangible common equity of 18%, ROA of nearly 1.3%, and growth in both loans and deposits of over 1% linked quarter.

Overall revenue grew 1.6% over the prior quarter. Our financial results put our company on a trajectory to meet the outlook we established in January, despite a less certain macroeconomic picture at points in the first half of the year. We achieved this outcome while maintaining our strong operating position and balance sheet flexibility. Our common equity tier one ratio increased, and our loan to deposit ratio remained roughly flat. With our strong capital position and new capital generation, the board authorized an additional $700 million in share repurchases, and we bought back 1.5 million shares in the quarter. Additionally, the inflection point in asset quality that we projected to occur in mid-2025 is materializing.

Both criticized commercial loans and non-accruals were down in the quarter. Our net charge-off ratio was 27 basis points, within our long-term normalized charge-off range of 25 to 35 basis points. We do not see new pockets of credit deterioration developing anywhere across any industry or sector. Similar to our view a quarter ago, we have not yet seen any impact to credit related to various tariff proposals. While remaining vigilant to any potential effects from proposed tariffs, we do not have disproportionate exposure to industries we believe could be most impacted, and our borrowers have had additional time to develop strategies to manage costs, their supply chains, and pricing.

Our strong operating position and distinctive business provide us a lot of flexibility and growth opportunities, an advantage that will serve us well as tailwinds accumulate for the banking industry. We feel we have the most differentiated deposit profile within our peer group, in particular, our healthcare financial services segment comprised of HSA Bank and Amitros, our growing source of low-cost, long-duration, and very sticky deposits. The B2B2C model of these businesses enables efficient operation and distribution. Provisions included within the recently passed reconciliation bill also accelerate growth in HSA deposits. In addition to the healthcare financial services segment, we also have strong deposit franchises in our consumer and commercial bank.

We also operate InterSync, previously known as Interlink, and rebranded this quarter. Interlink provides us access to granular deposits and is another differentiating feature for Webster as a source of liquidity. As a predominantly commercial bank, we have a diversity of loan origination channels with distinct risk-reward characteristics. These provide us the opportunity to add assets in the loan categories that provide the most appealing risk-reward characteristics at a given point in time. We anticipate that the asset management partnership with Marathon we announced last year will be effective as of later today, and we believe that it will enhance sponsored loan growth and drive fee revenue in 2026 and beyond.

The combination of our funding advantage and diversified loan origination engine allows us to grow at an accelerated rate relative to peers over the long term. Ultimately, with our distinctive business composition, we have a lot of liquidity. We run a highly efficient and profitable bank. We generate a lot of capital. This provides us with both a solid defensive position and a great deal of optionality on offense, whether that be organic growth, strategically compelling tuck-in acquisitions, or returning capital to shareholders. I will now turn it over to Luis to discuss emerging strategic opportunities for Webster, including at HSA Bank and within the commercial segment, each of which have recently experienced strategically important developments.

Luis Massiani: Thanks, John. Starting with HSA Bank, we were pleased to see three favorable provisions for HSA accounts incorporated in the reconciliation bill, which was signed into law earlier this month. In our view, these provisions will significantly increase the addressable market for the HSA industry and HSA Bank, mainly driven by bronze ACA plan participants newly gained eligibility to fund an HSA account as part of their healthcare plan. We estimate the potential deposit opportunity for HSA Bank over the next five years ranges from $1 billion to $2.5 billion of additional deposits, starting with incremental growth next year of $50 million to $100 million.

There is likely to be a somewhat lengthy ramp-up period for adoption as newly eligible consumers begin to understand the benefits of an HSA account and how best to use it for their health and financial wellness. We are further encouraged that for the first time, eligibility for HSA accounts has been decoupled from high deductible health plans, and that several provisions that were initially included but did not make the final spending bill have strong support in both the House and Senate. Additional substantive legislation in 2025 is likely, including the possibility of another reconciliation bill.

If all of the provisions that were in the original spending bill passed by the House were to become law, we believe this could double our range of opportunity for incremental deposits. Turning to asset management, we have reached operational realization of the private credit joint venture we had previously announced with Marathon Asset Management. In the second quarter, we moved $242 million of loans in held-for-sale status as these loans will be contributed to the joint venture, which we expect will be up and running in the third quarter.

The economics of our asset management strategy will be determined by the long-term performance of the joint venture, but we anticipate the benefits will be significant as we strengthen our competitive position in the private credit market. Webster will be able to lead larger bilateral deals, participate in larger syndications, accelerate on-balance-sheet loan growth and spread income, and offer clients a broader set of deal structures beyond senior positions without changing our existing on-balance-sheet credit profile. Webster will retain full banking relationships, including opportunities for cash management, capital markets, and deposit business.

The asset management platform will also drive economic value by generating fee income, which we anticipate will be limited for the remainder of 2025 but will then begin to ramp in 2026. We are also continuing to invest across all other areas of our bank, both in our lines of business as well as operations, technology, and risk. Business pipelines are building nicely for the second half of 2025, with a well-diversified mix of commercial and consumer loan and deposit opportunity. We have continued to make targeted investments in technology and business development in areas including metros, HSA, InterSync, and the consumer and commercial banking verticals, which should allow us to further strengthen our deposit channels and funding profile.

I will turn it over to Neal for a detailed review of financial performance.

Neal Holland: Thanks, Luis, and good morning, everyone. I'll start on Slide four with a review of our balance sheet. Total assets were $82 billion at period end, up $1.6 billion from last quarter with growth in loans, cash, and securities. Deposits were up over $700 million. The loan to deposit ratio held flat at 81% as we maintained a favorable liquidity position. Our capital ratios remained well positioned, and we grew our tangible book value per common share to $35.13, up over 3% from last quarter. At the same time, we repurchased 1.5 million shares. Loan trends are highlighted on Slide five. In total, loans were up $616 million or 1.2% linked quarter.

Excluding the one-time transfer of $242 million of loans moved to held for sale, loan growth would have been $858 million or 1.6%. We provide additional detail on deposits on Slide six. We grew total deposits $739 million. Deposit costs were up three basis points over the prior quarter, as we experienced the seasonal mix shift effect of the second quarter in HSA and public deposit accounts. On Slide seven, are income statement trends. Interest income was up $9 million from Q1, and noninterest income was up $2.1 million. Expenses were up $2 million. At an efficiency ratio of 45.4%, we maintain solid efficiency while investing in our franchise.

Overall, net income to common shareholders was up $31 million relative to the prior quarter. EPS was $1.52, versus $1.30 in the first quarter. In addition to a solid PPNR trend, we also saw a significant reduction in the provision this quarter. Our tax rate was 20%. On Slide eight, we highlight net interest income, which increased $9 million driven by balance sheet growth and the higher day count quarter over quarter. The NIM was down four basis points from the prior quarter to 3.44%. There was a discrete benefit from a nonaccrual reversal that added two basis points to the NIM this quarter. Excluding this, the NIM would have been 3.42%.

Drivers of lower NIM include seasonal deposit mix shift, higher cash balances, and slight organic spread compression. Slide nine illustrates our interest income sensitivity to rates. We remain effectively neutral to interest rates on the short end of the curve, with modest shifts expected in our net income for up and down rate scenarios. On Slide 10 is noninterest income. Noninterest income was $95 million, up $3 million over the prior quarter. The modest increase reflects growth in deposit service fees and a lower impact from the credit valuation adjustment. Slide 11 has noninterest expense. We reported expenses of $346 million, up $2.1 million linked quarter.

The modest increase in expenses was primarily the result of in human capital, partially offset by seasonal benefits expense. We continue to incur expenses that enhance our operating foundation as we prepare to cross $100 billion in assets. One significant investment came to fruition in the second quarter. I'm happy to say that this is the first quarter we are reporting earnings on our new cloud-native general ledger. On Slide 12, detailed components of our allowance for credit losses, which was up $9 million relative to the prior quarter. The increase in the allowance was predominantly tied to balance sheet growth. Our CECL macroeconomic scenario was relatively stable, and we saw good asset quality trends quarter over quarter.

After booking $36 million in net charge-offs, we recorded a $47 million provision. This increased our allowance for loan losses to $722 million or 1.35% of loans. Our provision was down $31 million from the prior quarter. Slide 13 highlights our key asset quality metrics. As you can see on the left side of the page, nonperforming assets were down 5%, and commercial classified loans were down 4%. On 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 $35.13 from $33.97, with net income partially offset by shareholder capital return.

Our full-year 2025 outlook, which appears on Slide 15, points to improvements in NII and the tax rate for the year. We now expect NII of $2.47 billion to $2.5 billion on a non-FTE basis. This assumes two Fed funds rate cuts beginning in September. We expect the full-year tax rate will be in the range of 20 to 21%. Year to date, we are in a 20% effective tax rate due to discrete benefits, but we expect the rate to return to 21% in the second half of the year. With that, I will turn back to John for closing remarks.

John Ciulla: Thanks, Neil. In summary, it was a good quarter for Webster, generating solid growth and high returns. We are executing on new opportunities to grow our business. Our proactive approach on credit risk management has allowed us to remain in front of potential problems. Tailwinds are building for regional banks. With some additional time to digest and plan for tariffs, our clients are moving forward with business development plans, and it appears that loan growth is set to accelerate. We are starting to observe changes in banking regulations, such that they are appropriately tailored to the complexities and size of individual institutions, and they should help enable US banks to strengthen their competitive position.

As I stated last quarter, Webster is positioned to prosper in a variety of operating environments, including an accelerating investment cycle. We are excited to demonstrate Webster's full potential. We have excess capital to deploy, diverse loan origination channels, a differentiated and competitively advantageous funding profile, and are focused on new business opportunities. I want to take a moment to welcome Jason Schugel to our executive management committee. Jason joined us as Chief Risk Officer this week, as we had previously announced Dan Bligh's intent to retire. Jason has fifteen years of experience at a category four bank, most recently as chief risk officer. Particularly valuable experience as we grow our bank toward $100 billion in assets.

Dan served as our chief risk officer for fifteen years and built an exemplary risk team over a period of substantial change for Webster and the banking industry. We wish him the best in his retirement. We were also happy to announce recently that we added Fred Crawford as a new board member. Fred joins the board with impressive C-suite large financial institution expertise. Finally, I'd like to thank our colleagues for their efforts so far this year. We saw positive financial and strategic outcomes virtually across the board this quarter. This type of result does not materialize without a significant amount of effort and engagement throughout our organization. Thanks again for joining us on the call today.

Operator, we'll now open the line to questions.

Operator: Your first question comes from the line of Chris McGratty with KBW. Please go ahead.

Andrew Leisher: Hey. How's it going? This is Andrew Leisher on for Chris McGratty.

John Ciulla: Hey. How are you?

Andrew Leisher: Just starting on capital. Just given the current environment and outlook for potential deregulation, what is your willingness to reduce CET1? And then just overall thoughts on near-term pace of the buyback? Thanks.

John Ciulla: Sure. I know we stated that our medium-term and short-term goal is 11%. And that over the long term, as markets stabilize, that we could see that target move back towards a 10.5% range. I would still say that for the balance of '25, that 11% target is probably the right amount. And we'll talk further about that going forward. But we do think over time that we can reduce the level comfortably and safely of our CET1 ratio. And the second question, I think, was on capital management and share buybacks. I think we say every quarter, we take a really disciplined approach to it. First prize is continuing to grow our balance sheet with good full relationship loans.

If that's not available to us, we do have, and we continue to look seriously at opportunities to continue to enhance our healthcare services vertical and other areas of the bank where we think we can grow deposits and fees inorganically through tuck-in acquisitions. If neither of those are available, we look to return capital to shareholders through dividends or share buybacks. And so I think if the first two don't materialize, given our capital level, you'll likely see us continue some level of share buyback in the second half.

Operator: Your next question comes from the line of Casey Haire with Autonomous Research. Please go ahead.

Casey Haire: Great. Thanks. Good morning, everyone. Question on the NIM outlook. The cash build, are you guys good with where the cash balances are today? And then also, I think you guys talked about a long-term debt issue coming in the second half of the year. Just wondering how that's going to impact?

Neal Holland: Yeah. On the cash, we're getting right to the levels that we're hoping to get to. In this quarter, building cash had a one basis point impact to NIM. We expect an additional one basis point throughout the rest of this year over the next few quarters. So a little bit of impact there, but not overly material. And we are still expecting a new debt issuance in the back half of the year that will have one basis point impact to NIM.

Operator: Your next question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon: Hey, guys. Good morning. Neil, just to follow-up, I was curious on deposit cost for the second half of the year given your expectation for two rate cuts. And also InterSync's sort of strong deposit growth. How are you thinking about deposit costs?

Neal Holland: Yeah. So maybe I'll take a step back and talk about our interest rate sensitivity for a second. So we positioned pretty neutral. So if we don't get the two cuts in the back half of the year, we don't expect any material impact to our overall net interest margin. But going specifically to your deposit question, obviously, if we get additional cuts, we expect to continue to move our deposit costs down. If we don't get two additional cuts, you know, we are seeing some pretty significant competition on the deposit side, so don't see material opportunity to move down deposit cost. But the team is active in that area, and it's something that we're closely monitoring.

Mark Fitzgibbon: Okay. And then just to follow-up, John, unrelated. If the category four threshold gets lifted, how important does bank M&A become for Webster? And if so, you know, what would you be sort of looking for in potential targets? Whether business line or geography or any other any on that would be much appreciated.

John Ciulla: Sure, Mark. I mean, I think our stance right now and, you know, clearly, is some noise around the fact that there may be an indexing of that $100 billion mark or maybe even an elimination of it. We're kind of standing pat to say, that happens when and if it happens. And it impacts kind of the way we stayed and how aggressively we continue to build out certain regulatory requirements. So I think, you know, that we're attuned to it. There's no question about the fact that we've said that, you know, we're not really in the market for whole bank M&A.

Part of the reason was that we do something transformational if we did, and we were not going to do that until we were ready to cross $100 billion. I think the clear thing we want to get across is that's not our primary goal regardless of whether the $100 billion mark moves or not. So I think it's fair to say for you that gives us more optionality if that number either moves up or is eliminated. And if the right circumstances exist, we would be more able to engage in whole bank acquisition.

But I think if you think about what we're talking to our board about and what we're doing as a management team right now, it's really a focus on organic growth, tuck-in acquisitions that continue to build out our deposit profile and strengthen our healthcare services vertical. So I would still say it's unlikely to see us engage in the short to medium term in active bank M&A.

Operator: Thank you. Next question comes from the line of Jared Shaw with Barclays Capital. Please go ahead.

Jared Shaw: Hey. Good morning.

John Ciulla: Morning.

Jared Shaw: I guess maybe on the HSA news, you know, it's great that the total addressable market is expanding. Does that require you to make any investments in new delivery channels or new outreach channels to capture that additional pool or, you know, how should we think about the expense associated with going after that market?

Luis Massiani: Yeah. No. Great question, Jared. No material change in the expense trajectory of HSA. We actually already run a pretty significant direct-to-consumer channel, and this is going to be the opportunity that's presented itself with these changes. It is slightly different from what we typically do through the employers, and it is more of a direct-to-consumer channel. But we actually do have a direct-to-consumer channel today that generates a not insignificant amount of new accounts and, you know, new account openings and pretty sizable business that we run direct-to-consumer today already. So no major change.

There will be, obviously, some elements of different types of marketing and some marketing spend that we'll have to, you know, that we'll have to figure out as we go. And, you know, the reason for being somewhat cautious on just the ramp-up that we're going to see is that, you know, HSA is, you know, just because everybody getting over the new eligible consumers that can have an HSA can now have an HSA doesn't mean that they're going to take it up, you know, immediately. And so do envision that there's going to be some spend on the marketing and education front.

No changes that we need to make from a technology or operational perspective, but this is going to be a long-term investment in, you know, identifying the new consumers, educating them on how they should be using an HSA benefits. Both short-term and long-term. And so there will be some element of investment that we'll make in that education process, but it's not going to materially change the OpEx trajectory of the business.

Jared Shaw: Okay. Alright. Thanks. And then if I could follow-up, on the allowance and provision. You know, with the improving broader credit backdrop, how should we think about the allowance build from here and the provision? Is that being targeted as a percentage of loan originations, or should we be thinking that as a percentage of the average loans?

Neal Holland: Jared, as we say every quarter, the CECL program and process is pretty much tied to risk rating migration, loan growth, weighted average risk ratings in the portfolio, and we generally don't give guidance on it. I think we are comfortable in our total coverage ratio when you triangulate and look at peers and our category four peers and our current peer group, I think we're in a pretty good place right now. You know, I think growth in our coverage would come from balance sheet growth or credit deterioration. I think, you know, we took a great move, I thought, strategically in the first quarter of changing our weighting for a recession scenario.

So we really felt like that was a good move to get us in the right spot. We did not back off our sense of what the future holds. So I think one of the things we're proud of is that our provision came down significantly driven by credit performance underlying, not driven by a change in what we think the outlook is. We still have a pretty good balance and a pretty good assessment of or a pretty good portion of assuming that there could be recession risk in the future.

So I feel like where we are is conservative, appropriate, and, you know, it'll be driven by loan growth and credit performance in the second half of the year.

Operator: The next question comes from the line of Matthew Breese with Stephens Incorporated. Please go ahead.

Matthew Breese: Hey. Good morning. Two things on originations. You know, first, C&I originations picked up quite a bit this quarter. Over $2 billion. How much of that feels sustainable, and how are spreads holding up there? And then two, commercial real estate originations were strong as well at $1.2 billion. Balances were actually down. So maybe you could talk about that dynamic and how payoffs are playing a role in commercial real estate today.

John Ciulla: Yeah. I'll take a shot and then ask Luis and Neil if they want to add anything. I mean, I think another thing we were proud of this quarter is that our originations came really across the entire bank in all categories, commercial and consumer. We had a really nice quarter with respect to commercial middle market, traditional C&I. And as you mentioned, at the end of the day, we actually reduced our CRE concentration. Quite frankly, not intentionally. That pipeline is building. We've said we're really comfortable where we are in that 250-ish range.

And so we do have a building pipeline in CRE with high-quality full loans, and hopefully, you'll see that category contribute to what we believe will be strong back half of the year loan growth across the board. And with respect to your specific question about is it replicable, given the fact that it wasn't in any one category and we're seeing pipeline build, we do think that we can see similar loan growth quarterly over the course of the rest of 2025.

Luis Massiani: Yeah, Matt. The only thing that I'd add there is that there was a little bit of pent-up demand where you saw earlier in the year, you know, first quarter all the noise that we were seeing with tariffs and so forth. I think that a part of this is just back-ended growth in originations and volumes that we saw ramping up over the course of the second quarter. And one of the things that gives us a lot of confidence going into the second half of the year is that the pipeline of activity in both commercial C&I and commercial real estate has gotten better over the course of May and June.

And today, we sit in a place where we have, I think, greater visibility of what we're going to be seeing from a loan growth perspective for the second half of the year. So nothing specific to point to as to why there's $2 billion in originations. It was on the C&I side. It was across the board, and the positive is that we're starting, you know, we're continuing to see type of activity across all the business lines and verticals, so we feel pretty good about the second half of the year for originations.

Matthew Breese: Great. And my second question is just in light of Mamdani's ascendancy here towards the mayorship in New York City. And, of course, this is if he wins. You know, how much of a valuation impact do you think there could be to, you know, the heavier rent-regulated buildings? Could this asset class become more of a problem for you, and do you have at your fingertips what kind of allowance against this asset class you already have?

Luis Massiani: So we don't have the allowance on the rent-regulated itself. You know, let me see if we could track it down while we're here. But, you know, you kind of hit the nail on the head in the question, Matt, which is it's an if. You know, it's not for sure and for certain that Zorin is going to win, you know, maybe he does. You know, we had moved away from the rent-regulated business particularly from a new originations perspective for quite some time. So it's not anything that we feel would derail what we're doing on the origination side. And the portfolio that we have is very seasoned.

It was originated, you know, well, you know, a long time ago with good debt service coverage ratios and LTVs. And so even though we do have, you know, a decent-sized portfolio of rent-regulated, it's not anything that we've originated recently. It's well-seasoned. And the credit stats on the portfolio are very, very good. But, you know, it's not a portfolio that we have historically reserved for significantly because the credit profile has been very good, and we expect that's going to continue to be the case. Particularly with the types of properties that we have there.

I tell you the path forward from a valuation perspective, you know, I'm not going to say that we've seen the exact types of commitments that are being made there now with rent freezes, but this is an asset class that has gone through multiple iterations of this type of risk, and it's continued to, you know, been somewhat resilient over time. And is there going to be a valuation effect? There will. But we don't think that it's anything that would have any material impact on our book of business given how seasoned it is, and, you know, we'll have to manage, you know, deal with whatever, you know, eventualities come up if it does happen that Mondavi wins.

Neal Holland: And, Matt, just again to reiterate, $1.36 billion in total exposure, only eight deals over $15 million, really small average loan size. And, you know, really good LTVs and current debt services. So I think, you know, we don't think of that as we are not overly exposed to that asset class. And I think more than 60%, or somewhere between around 60% of what we underwrote in rent-regulated multifamily was underwritten after the rent-regulated laws came into effect in 2019, meaning we weren't anticipating significant rent increases in order to service the debt. So really granular, very small part of our overall portfolio, and so, again, we don't see a material credit impact even if there's further regulation.

Matthew Breese: Appreciate all that. Thank you.

Operator: Your next question comes from the line of Anthony Elian with JPMorgan. Please go ahead.

Anthony Elian: Hi, everyone. The credit quality metrics inflected as you would expect by this part of the year. But should we expect the metrics you highlight on Slide 13 to improve further in the coming quarters? I understand there will be one-offs, but you know, is this declaring victory on credit quality now, or should we expect these metrics to improve even further? Thank you.

John Ciulla: Yeah. I think you kind of asked and answered the question. You know, we're always low to predict credit performance, and I probably get myself in trouble for not being more aggressively positive. But underlying here is the fact that our risk rating migration has really stabilized, and we're not seeing any new pockets of problems either in any sector, any geography, or any business line, which is really encouraging. And the other thing that I would remind everybody is even the NPLs and classifieds that are outstanding, they're really concentrated in those two portfolios that we continue to talk about for a long time.

So 45% of our on the balance sheet right now are either CRE office or healthcare services, and 25% of our classified loans are in those two categories. Two categories now, which are both well below a billion dollars. We've worked through them significantly. We don't have significant originations in either of those two categories. So that gives us another sense that, yes, directionally, over time, we think we should continue to see trending down in those two asset categories. And, obviously, with the caveat that because we're a commercial bank with larger exposures that in any one quarter, you could see things bump around.

Anthony Elian: That's fair. Thank you.

Operator: Your next question comes from the line of David Smith with Truist Securities. Please go ahead.

David Smith: Good morning. Just on the topic of credit continuing to improve, is there any further benefit to recovery of interest income, you know, in the NII forecast as other nonaccruals work down over time?

Neal Holland: Yeah. Again, that's one where, you know, obviously, if we had line of sight to it and we would be dealing with it, accelerating it. So I would say if you look at every single one of our quarters, ins and outs and nonaccruals tend to have an impact. You either accelerate if you have a resolution, you know, previously deferred income, or you start to get a drag if you've got a new nonperformer. I guess the best thing to say would be, we anticipate nonperformers to trend down. So we hope that the positive impact outweighs the negative impact.

But nothing in our forecast would lead us to believe that we have sort of any material impact on NII either way in the second half of the year.

David Smith: Alright. Thank you.

Operator: Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank. Please go ahead.

Bernard Von Gizycki: Hey, guys. Good morning. Neil, first question just on noninterest-bearing deposits. There's a nice uptick of about $200 million in the quarter. And I know that previous guidance was expecting the PPAs remain flat on a full-year basis. Just any thoughts on how you're thinking about any potential growth in the second half and how we should think about full year?

Neal Holland: Yeah. Noninterest-bearing was interesting quarter. As you pointed out, we were up $200 million points to point. But if you get into the average balance movement, we were actually down $200 million the quarter. So we did see a little bit of a positive movement towards the end of the quarter. We continue to believe that, you know, if you trend back historically over the last five or six quarters, obviously, as an end of and banking, we've seen decline in DDA accounts. Our belief is we're at the bottom of that decline, and we'll start to see some, you know, mild growth coming in the back half of the year.

We're not counting on outsized growth to hit our guidance, but we do believe we've kind of reached that bottom and should see a return to the trend for Webster Bank and for the banking industry as a whole.

Bernard Von Gizycki: Okay. Great. And just one follow-up for Luis. Just on HSA, like you mentioned on the three provisions included in the final bill, most of the benefit that you mentioned is coming from the bronze HSA plan participants. But the other two, regarding the direct primary care and telehealth, anything how big were those, would you say, of the one to two and a half billion you kind of cited? Was this just kind of like a rounding error? Or just anything you can give just on, like, sizing since the bronze are, like, the bigger component?

Luis Massiani: Yeah. It's slightly more than rounding error, but I think you could still characterize it as a rounding error on the last two. The big driver of this is the fact that you now have, you know, under today's enrollment rates in the bronze package about 7 million consumers that are now going to be eligible to, you know, to pair up their bronze package with an HSA account.

That's largely the driver of this, and that's again why this, you know, for us is a long-term path of identifying the 7 million consumers and then trying to figure out where, you know, how best to educate them on how to use an HSA, which is going to take some time to do. But it is largely that is the driver of the deposit growth for the most part.

Neal Holland: Yeah. That clearly is the big one. The other two are valuable. You know, the telehealth, for example, a risk to the industry. And it's great to see that, passing and that risk removed from the industry. So we're very happy by the other two, but I agree with Luis that it really is majority the one provision that's driving our estimate.

Bernard Von Gizycki: Okay. Great. Thanks for taking my questions.

Operator: Thank you. The next question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo: Hey. Good morning, guys. Thanks for taking my questions. Most of my questions asked and answered at this point. But I guess first, just you've talked about the C&I and CRE broadly, but curious on the sponsor side that been a little bit light lately, if you're seeing any changes in demand there, if you're kind of baking in any pickup in that book in the back half of the year as the other categories start to pick up.

Luis Massiani: Yeah. Short answer is yes. It was very late in the first and, you know, early part of the second quarter of this year, even going back to the third and fourth quarter of last year, there was, you know, we had already started to see a downward trend in, you know, origination activity. That, you know, pipeline of business on the sponsor side has ramped up nicely in the second part of the second quarter. And we do envision that we're going to get back to, you know, a better growth trajectory and growth profile there.

And we do think that the addition of the, you know, just becoming a improving and strengthening our competitive position through the joint venture with Marathon is also going to be helpful to on-balance-sheet origination. So we're going to be able to look at more deals than what we looked at in the past. We're going to be able to target slightly larger deals than what we have been able to in the past.

And so when you factor in return to greater just sector activity for, you know, for PE in general, combined with what we are doing on just improving our competitive position as an originator, all of that should result in a better growth trajectory in the back half of this year.

Daniel Tamayo: Great. Thanks, Luis, for that. And then I guess just quickly on the deposit side. So you had the seasonal factors that impacted your growth or inflows of the brokered CDs in the quarter. Curious if you can kind of how you're thinking about the movement of the portfolio maybe in the third quarter. But overall, just thoughts on where you think that category shakes out for you as you look at the contribution of brokered as a percentage of deposits longer term? Thanks.

Neal Holland: Yes. So brokered, we run brokered fairly low as a percentage of our total deposit mix. In season one and season three, we see nice increases in our public deposit accounts. In quarter two and quarter four, as we see those trend down, we bring in more broker deposits to help offset those. So as you think about Q3, you'll likely see, you know, potentially brokered come down as those public deposits move up. You'll see that trend reverse again in Q4. But we really run our broker deposits kind of in that 3-5% of deposit range, so range we're real comfortable with, and that's how we think about the seasonal movement in the broker deposits.

Operator: Your next question comes from the line of Kumar Braziler with Wells Fargo. Please go ahead.

Kumar Braziler: Good morning.

Neal Holland: Hey, Kumar.

Kumar Braziler: Following up on the Marathon commentary, I'm just wondering to what extent does that loan growth come just from looking at larger deals? And is that a two-way street where things that Marathon might originate will end up on your balance sheet? Or is that just what you're originating will end up on the JV?

John Ciulla: It largely we think that the more swings at the plate will come from the fact that we can participate and compete for larger transactions without increasing the on-balance-sheet hold sizes. I would say that, yes, there is a two-way street there that could benefit us from an origination perspective. Although our origination channel and capabilities will be the majority of the originations related to what we would put in the joint venture. So excited about it. Again, this will be, as Luis mentioned in his comments, there'll be a ramp period before we start to get noninterest income. But we do think that we'll benefit relatively shortly from a more competitive offering and a larger implied balance sheet.

Kumar Braziler: Okay. Great. And then as a follow-up, just looking at margin trajectory, realizing that it benefited a little bit from some interest recoveries here in 2Q, but can you just maybe talk to some of the competitive landscapes around the deposit side, some of the spread tightening on new loan production and is the expectation that we're still kind of tracking towards a 3.40 margin as we go through the back end of the year, or does maybe some of the loan growth commentary mitigate some of those pressures?

Neal Holland: Yeah. So we're still expecting net interest margin of approximately 3.4% this year. And so if you think about that in the first half of the year, we were obviously a little bit above that 3.4% level. So we kind of expect to exit the year somewhere between 3.35 and 3.40. And I've mentioned a couple items. You know, we'll have a little bit more cash on the balance sheet. We've got a debt restructure in the back half of the year. We've got a little bit of pressure on our securities portfolio called a basis point or two as we have some mix shifts there.

Then there'll be some modest spread impact, and that really depends on how fast we grow the balance sheet. And so there's some variables there on where we end on the back half of the year. But as you mentioned, and I mentioned earlier, deposit competition is challenging in the market right now. I think our teams are doing a great job of maintaining clients and winning new relationships, but it's a challenging environment. We're also have put on some, you look at the risk rating of our new loan origination, they're at an even higher quality than our overall loan portfolio. So that's causing a little bit of organic spread compression as we move forward.

So we're reiterating our full-year NIM guidance. But do expect that the back half of the year to be a little bit less of the net interest margin side of the first half. And I always want to add that we don't manage the organization in NIM. You know, we're most focused on NII and NIMs and outcome, but did want to provide that color on some of the factors we're thinking about in the back half of the year.

One thing I would say to tie that to the earlier question, if we do see continued increase M&A activity and what Luis talked about with respect to sponsor pipeline improves, that gives us a chance to outperform as our higher-yielding loans could impact positively the margin.

Kumar Braziler: Great. Thank you.

Operator: Your next question comes from the line of Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger: Hi. Good morning.

Neal Holland: Morning, Ben.

Ben Gerlinger: Just kind of following up a little bit tangential on the Timur's question. The marathon. With the larger loan size, do you think it's maybe a little bit bigger company? And then with the fee income opportunity and part of you, you guys tease it a little bit that it's going to take a little while to ramp up. And it's more of a 2026 question than 2025. But once we get that flywheel really going, the contribution to fee income, are we talking, like, a couple million incremental per quarter, or are we talking, like, tens of million per quarter once you get the full thing going? So probably more like a run rate late 2026.

Luis Massiani: Yeah. I think that there's two opportunities as we think about the potential for, you know, what the impact of the joint venture is going to be. When we're referring to the, you know, the fee income that, you know, we're talking about asset management income, and, you know, that is, you know, for, you know, the first vehicle that we're going to be running, it's going to be more of the, you know, you said tens of millions is not that big. It's going to be smaller than that, but it's going to be a good recurring source of income that we will be generating, and we'll continue to provide more details.

And you'll see those, you know, you'll see it ramping up in the, you know, through the P&L over time. The just as good of an opportunity, if not better, and you and I think you hit the nail on the head when you said, you know, larger, you know, larger transactions means larger companies will mean larger opportunity to be able to do capital markets business, swaps, indications, as well as, you know, just treasury management and deposit opportunity plays there as well.

You're going to start seeing that fee income being generated, you know, more, you know, more closely tied to the origination activity of the vehicle, which will be up and running in the third quarter, and we should we're going to start originating. You know, we anticipate, you know, loans into the vehicle at that time. So a two-pronged approach. You know, a good impact of the JV is what's going to happen on our own balance sheet with just, you know, greater origination activity and then all of the loan fee activity that happens off of those originations, which we are largely going to retain at Webster Bank.

And then, longer term, you'll have, you know, an income that will be driven off of the, you know, what the eventual performance of the portfolio becomes in the vehicle as well as, you know, how large the vehicle becomes in the perspective of, you know, kind of the number of loans that are held in, you know, on the platform.

John Ciulla: And one important point I want to make on this is and because I think it's this isn't new activity for us. This isn't us having to go out find new sponsors or we're chasing things. This is simply gives us the capacity to continue to deliver full relationships, cash management, deposits, loan fees, originations with existing sponsors who, as the markets change with private credit, have moved more to private credit. We still do tons of business with them. But on the larger deals, they move away from us because of our balance sheet. So it's important point to know that this isn't changing risk profile. This isn't changing activity. We don't need to hire new people.

We have very sophisticated people in that sponsor group. To just giving them more tools to take advantage and deliver for their existing clients.

Ben Gerlinger: Gotcha. That's helpful. I just want to dig a little deeper than that. Do you have the kind of let's call it, back office or banking opportunities for kind of legacy marathon relationships now? Is it really trying to keep separate church and state between Webster, JV, and Marathon? On, like, opportunity in front of you.

John Ciulla: I wouldn't comment on that now. I think over the long term, they're a great firm. And I think there are more things we can do together. One of them would be what you talked about with respect to having a good banking services product for other borrowers. But that's not on the drawing board now, and I wouldn't comment on that.

Ben Gerlinger: Do appreciate it.

Operator: Next question comes from the line of Laurie Hunsicker with Seaport. Please go ahead.

Laurie Hunsicker: Great. Hi. Thanks. Good morning. Two questions. Number one, what was your share buyback price on the 1 million shares in the quarter? And then number two, just going back to the rent-regulated multifamily, that $1.4 billion, do you have an approx debt service coverage and then anything to think about or know about on that $185 million of maturities coming up over the next twelve months?

Neal Holland: Yeah. Our Q2 share repurchases were at $51.69.

Laurie Hunsicker: Thank you.

Neal Holland: And our current debt service coverage ratio on the portfolio is 1.56 times.

Laurie Hunsicker: Perfect. Thank you so much. Oh, and anything on that $185 million of maturities that we should be thinking about?

Neal Holland: No. Normal course.

Laurie Hunsicker: Right. Thanks, guys.

Operator: I will now turn the call back over to John Ciulla for closing remarks. Please go ahead.

John Ciulla: Thank you very much. We appreciate everyone participating this morning. Have a great day.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

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