Webster Financial Corporation (WBS) Q2 2025 Earnings Report, Transcript and Summary

Good morning. Welcome to the 2Q '25 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. [Operator Instructions] I will now turn it over to Webster Financial's CEO and Chairman, 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 financial before my closing remarks and Q&A. Highlights for the second quarter are provided on Slide 2 of our earnings presentation. Our results were solid with a return on tangible common equity of 18%, ROAA 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 1 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 bps. 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, any potential effects from proposed tariffs, we don't 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 in distinctive businesses 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 Ametros, 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 should 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. InterSYNC 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 will enhance sponsor loan growth and drive fee revenue in 2026 and beyond. Combination of our funding advantage and diversified loan origination engine allow 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 and we run a highly efficient and profitable bank, and 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.

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 health care plan. We estimate the potential deposit opportunity for HSA Bank over the next 5 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 were 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 didn't make the final spending bill has 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 markets. 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 secured 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 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 opportunities. We have continued to make targeted investments in technology and business development in areas including Ametros, 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.

Thanks, Luis, and good morning, everyone. I'll start on Slide 4 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 5. In total, loans were up $616 million or 1.2% linked quarter. Excluding the onetime 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 6. We grew total deposits by $739 million. Deposit costs were up 3 basis points over the prior quarter as we experienced the seasonal mix shift effects of the second quarter in HSA and public deposit accounts. On Slide 7, our income statement trends. Interest income was up $9 million from Q1 and non-interest income was up $2.1 million. Expenses were up $2 million. At an efficiency ratio of 45.4%, we maintained 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 8, we highlight net interest income, which increased $9 million, driven by balance sheet growth and a higher day count quarter-over-quarter. The NIM was down 4 basis points from the prior quarter to 3.44%. There was a discrete benefit from a non- accrual reversal that added 2 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 9 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 non-interest income. Non-interest 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 non-interest expense. We reported expenses of $346 million, a $2.1 million linked quarter. The modest increase in expenses was primarily the result of investments 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, non-performing 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 2 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 at 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.

Thanks, Neal. In summary, it was a good quarter for Webster. We're generating solid growth and high returns. We're executing on new opportunities to grow our business and 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 they are appropriately tailored to the complexities and size of individual institutions, and they should help enable U.S. 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, and 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 Bley's intent to retire. Jason has 15 years of experience at a Category 4 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 15 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're 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 doesn't 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 Instructions] Your first question comes from the line of Chris McGratty with KBW.

This is Andrew Leischner on for Chris McGratty. So 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?

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 health care 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.

Your next question comes from the line of Casey Haire with Autonomous Research.

My first 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.

Yes. On the cash, we're getting right to the levels that we're hoping to get to. In this quarter, building cash had a 1 basis point impact to NIM. We expect an additional 1 basis points throughout the rest of this year over the next 2 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 we'll have 1 basis impact to NIM.

Your next question comes from the line of Mark Fitzgibbon with Piper Sandler.

Just to follow up. I was curious on deposit costs for the second half of the year given your expectation for two rate cuts and also InterSYNC, sort of, strong deposit growth. How are you thinking about deposit costs?

Yes. So maybe I'll take a step back and talk about our interest rate sensitivity for a second. So we've 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 we are seeing some pretty significant competition on the deposit side. So we don't see material opportunity to continue to move down deposit costs, but the team is actively focused in that area, and it's something that we're closely monitoring.

Okay. And then just a follow-up, John, unrelated. If the Category 4 threshold gets lifted, how important does bank M&A become for Webster? And if so, what would you be, sort of, looking for in potential targets, whether business line or geography or any other -- any comments on that would be much appreciated.

Sure, Mark. I mean, I think, our stance right now, and clearly, there 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 stage and how aggressively we continue to build out certain regulatory requirements. So I think that we're attuned to it. There's no question about the fact that we've said that we're not really in the market for whole bank M&A. Part of the reason was is 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, 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 a 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 health care 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.

Next question comes from the line of Jared Shaw with Barclays Capital.

I guess maybe on the HSA news, 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 how should we think about the expense associated with going after that market?

Yes. No, great question, Jared. No material change in the expense trajectory of HSA. We actually today already run a pretty significant direct-to-consumer channel, and this is going to be the opportunity that's presented itself with these changes is slightly different than 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 new account openings and a 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 figure out as we go. And the reason for being somewhat cautious on just the ramp-up that we're going to see is that HSA is just because everybody get the new eligible consumers that can have an HSA, can now have an HSA, it doesn't mean that they're going to take it up immediately. And so we 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 identifying the new consumers, educating them on how we 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 OpEx trajectory of the business.

Okay. Great. And then, if I could follow up, on the allowance and provision, 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 of that as a percentage of average loans?

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 4 peers and our current peer group, I think we're in a pretty good place right now. I think the growth in our coverage would come from balance sheet growth or credit deterioration. I think, we took a great move, I thought strategically in the first quarter of changing our waiting 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 it will be driven by loan growth and credit performance in the second half of the year.

Next question comes from the line of Matthew Breese with Stephens Incorporated.

Two things on originations. First, C&I originations picked up quite a bit this quarter, over $2 billion. How much of that feel 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.

Yes. I'll take a shot and then ask Luis and Neal, 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 relationship 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 pipelines build, we do think that we can see similar loan growth quarterly over the course of the rest of '25.

Yes. Matt, the only thing that I'd add there is that the -- there was a little bit of pent-up demand where you saw earlier in the year in first quarter, with all the noise that we were seeing with tariffs and so forth, I think that 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 to 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 is $2 billion in originations. It was on the C&I side. It was across the board. And the positive is that we're starting -- we're continuing to see that type of activity across all the business lines and verticals. So we feel pretty good about the second half of the year for originations.

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. How much of a valuation impact do you think there could be to the heavier rent-regulated buildings? Could this asset class become more of a problem for you? And do you have at your fingertips will kind of allowance against this asset class you already have?

So we don't have the allowance on the rent-regulated itself. Obviously, we could track it down while we're here. But you kind of hit the nail on the head and the question, Matt, which is, it's an if, it's not for sure for certain that Zohran is going to win, but maybe he does. 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 well a long time ago with good debt service coverage ratios and LTVs. And so even though we do have a decent-sized portfolio 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 it's not a portfolio that we have historically reserved for significantly because the credit profile has been very good, and we expect that that's going to continue to be the case, particularly with the types of properties that we have there. I'd tell you the kind of the path forward from a valuation perspective, 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 -- it's been somewhat resilient over time. And so, is there going to be a valuation impact? 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 we'll have to manage and deal with whatever eventualities come up if it does happen at Mamdani once.

And Matt, just again, to reiterate, $1.36 billion in total exposure, only eight deals over $15 million, really small average loan size and really good LTVs and current debt services. So I think, we don't -- we 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.

Your next question comes from the line of Anthony Elian with JPMorgan.

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 is this declaring victory on credit quality now? Or should we expect these metrics to improve even further?

Yes. I think, you kind of asked and answered the question. We're always loath to predict credit performance, and I'd probably get myself in trouble for not being more aggressively positive. But we underline 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 or 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 NPLs on the balance sheet right now are either CRE office or health care services and 25% of our classified loans are in those two categories, two categories now, which are both well below $1 billion. 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.

Your next question comes from the line of David Smith with Truist Securities.

Just on the topic of credit continuing to improve. Is there any further benefit to recovery of interest income in the NII forecast as other non-accruals work down over time?

Yes. Again, that's one where, 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 non-accruals tend to have an impact. You either accelerate if you have a resolution previously deferred income or you start to get a drag if you've got a new non-performer. I guess the best thing to say would be, we anticipate non-performers 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.

Your next question comes from the line of Bernard Von Gizycki with Deutsche Bank.

Neal, first question, just on non-interest-bearing deposits, there is a nice uptick of about $200 million in the quarter. And I know that previous guidance was expecting the DDA's to 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?

Yes. Non-interest-bearing was interesting this quarter. As you pointed out, we were up $200 million point-to-point. But if you get into the average balance movement, we were actually down $200 million in the quarter. So we did see a little bit of a positive movement towards the end of the quarter. We continue to believe that if you trend back historically over the last 5 or 6 quarters, obviously, as an industry in 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 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.

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 $1 billion to $2.5 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 is like a bigger component?

Yes. It's slightly more than a 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 -- so under today's enrollment rates in the bronze package is about 7 million consumers are now going to be eligible to prepare up their branch package with an HSA account. That's largely the driver of this. And that's again why this for us is a long-term path of identifying the 7 million consumers and then trying to figure out where -- kind of 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 opportunity for the most part.

Yes. That clearly is the big one. The other two are valuable. The telehealth, for example, was 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.

The next question comes from the line of Daniel Tamayo with Raymond James.

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's 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?

Short answer is yes. It was very late in the first and early part of the second quarter of this year. Even going back to the third and fourth quarter of last year, there was -- we had already started to see a downward trend in origination activity. That 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 a better growth trajectory and growth profile there. And we do think that the addition of the -- 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 it in the past. We're going to be able to target slightly larger deals than what we have been able to do in the past. And so when you factor in return to greater just sector activity 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.

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 that portfolio maybe in the third quarter, but overall, just thoughts on where you think that, that category shakes out for you as you look at the contribution of brokered as a percentage of deposits longer term?

Yes. So brokered, we run brokered fairly low as a percent of our total deposit mix. In Season 1 and Season 3, we see nice increases in our public deposit accounts. In quarter 2 and quarter 4, 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 potentially brokered come down as those public deposits move up, and you'll see that trend reverse again in Q4. But we really run our brokered deposits kind of in that 3% to 5% of deposit range. So a range we're really comfortable with. And that's how we think about the seasonal movements in the broker deposits.

Your next question comes from the line of Timur Braziler with Wells Fargo.

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 2-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?

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 2-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 non-interest income, but we do think that we'll benefit relatively shortly from a more competitive offering and a larger implied balance sheet.

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?

Yes. So we are still expecting a 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 mentioned a couple of items. 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 1 basis point or 2 basis points, as we have some mix shifts there. And then, there'll be some modest spread impacts. And that really depends on how fast we grow the balance sheet and so there's some variables there on where we could end on the back half of the year. But as you mentioned and I mentioned earlier, deposit competition is challenging 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. And we're also -- have put on some -- if you look at the risk rating of our new loan originations, they're at 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 I do expect that the back half of the year to be a little bit less on the net interest margin side than the first half. And I always want to add that we don't manage the organization in NIM. We're most focused on NII and NIM is an outcome. But I did want to provide that color on some of the factors we're thinking about in the back half of the year.

And the one thing I would say to tie that to the earlier question, if we do see continued increased 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.

Your next question comes from the line of Ben Gerlinger with Citi.

Just kind of following up a little bit or tangential to Timur's question about the Marathon. With the larger loan size, you would theoretically think it may be a little bit bigger company. And then with the fee income opportunities you had part of you, you guys teased it a little bit that it's going to take a little while to ramp up and it's more of a '26 question than '25. Once we get that flywheel really going, the contribution to fee income, are we talking like a couple of million incremental third 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 '26.

Yes. I think that there's two opportunities as we think about the potential for what the impact of the joint venture is going to be. When we're referring to the fee income, that we're talking about asset management income, and that is for the first vehicle that we're going to be running. It's going to be more of the -- as you said, tens of millions, it's not that big. It's going to be smaller than that, but it's going to be a good recurring source of fee income that we'll be generating, and we'll continue to provide more details. And you'll see those -- you'll see it ramping up in the -- through the P&L over time. The -- just as good of an opportunity, if not better. And I think you hit the nail on the head when you said larger transactions means larger companies, which will mean larger opportunity to be able to do capital markets business, swaps indications as well as just treasury management and deposit opportunity plays there as well. You're going to start seeing that fee income being generated more closely tied to the origination activity of the vehicle, which going to be up and running in the third quarter, and we're going to start originating, we anticipate loans into the vehicle at that time. So it's a two-pronged approach, a good impact of the JV is what's going to happen on our own balance sheet with just 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 an income stream that will be driven off of the -- what the eventual performance of the portfolio becomes in the vehicle as well as how large the vehicle becomes in the perspective of kind of the number of loans that are held on the platform.

And one important point I want to make on this is -- and because I think this isn't a new activity for us. This isn't us having to go out and 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 I think, it's an 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. It's just giving them more tools to take advantage and deliver for their existing clients.

Got you. 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? Or is it really trying to keep separate church and state between Webster JV and Marathon on like opportunity in front of you?

Yes. 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.

Next question comes from the line of Laurie Hunsicker with Seaport.

Two questions. Number one, what was your share buyback price on the 1.5 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 approximate debt service coverage? And then anything to think about or know about on that $185 million of maturities coming up over the next 12 months?

Yes. Our Q2 share repurchases were at $51.69. John?

And our current debt service coverage ratio on the portfolio is 1.56x.

Perfect. And anything on that, the $185 million of maturities that we should be thinking about?

No, normal course.

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

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

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