Webster Financial Q2 2025 Earnings Report

Webster Financial EPS Results

• Actual EPS: $1.52
• Consensus EPS: $1.43
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: $1.26

Webster Financial Revenue Results

• Actual Revenue: $715.80 million
• Expected Revenue: $716.59 million
• Beat/Miss: Missed by -$792.00 thousand
• YoY Revenue Growth: +16.50%

Webster Financial Announcement Details

• Quarter: Q2 2025
• Date: 7/17/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 17, 2025
• Conference Call Time: 9:00AM ET

Webster Financial (NYSE:WBS) operates as the bank holding company for Webster Bank, National Association that provides a range of financial products and services to individuals, families, and businesses in the United States. It operates through three segments: Commercial Banking, HSA Bank, and Consumer Banking. The Commercial Banking segment offers commercial real estate and equipment financing, business banking, asset-based lending, and commercial services; public sector finance; mortgage warehouse financing; sponsor and specialty financing services; credit, deposit, and cash flow management services; and wealth management solutions to business owners and operators, including trust, asset management, financial planning, insurance, retirement, and investment products, as well as treasury management services comprising derivative, treasury, accounts payable, accounts receivable, and trade products and services. This segment also provides commercial services, such as accounts receivable factoring and trade financing, payroll funding, and business process outsourcing. The HSA Bank segment offers health savings accounts, health reimbursement arrangements, flexible spending accounts, and commuter benefit services that are distributed directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors. The Consumer Banking segment provides consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit cards to consumers; and small business banking products, such as credit, deposit, and cash flow management products to businesses and professional service firms. The company offers online and mobile banking services. Webster Financial Corporation was founded in 1935 and is headquartered in Stamford, Connecticut.

Webster Financial Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong 2Q performance with 18% ROTCE, 1.3% ROA, 1.2% loan and deposit growth, and 1.6% sequential revenue increase.
• Positive Sentiment: Asset quality inflection as criticized commercial loans and non-accruals declined and net charge-offs stayed at 27 bps, within the 25–35 bps normalized range.
• Positive Sentiment: Capital deployment bolstered by a $700 million share repurchase authorization and 1.5 million shares bought back in the quarter.
• Positive Sentiment: Healthcare Financial Services tailwinds from reconciliation bill provisions are expected to add $1–2.5 billion of HSA deposits over five years.
• Negative Sentiment: Margin headwinds persist with NIM down 4 bps to 3.44% and further pressure from higher cash balances, seasonal deposit mix shifts, competitive funding costs, and an upcoming debt issuance.

Presentation

[Operator]

Good morning. Welcome to the 2Q twenty twenty five Webster Financial Corporation Earnings Call. Please note this event is being recorded. I would now like to introduce Webster's Director of Investor Relations, Hamlin Harman, to introduce the call. Mr. Harman, please go ahead.

[Emlen Harmon, Senior MD at Webster Financial]

Good morning. Before we begin our remarks, I want to remind you that comments made by management may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor rules. Please review the forward looking disclaimer and Safe Harbor language in today's press release and presentation for more information about risks and uncertainties which may affect us. The presentation accompanying management's remarks can be found on the company's Investor Relations site at investors.websterbank.com. For the Q and A portion of the call, we ask that each participant ask just one question and one follow-up before returning to the queue.

[Emlen Harmon, Senior MD at Webster Financial]

I'll now turn it over to Webster Financial's CEO and Chairman, John Ciullo.

[John Ciulla, Chairman & CEO at Webster Financial]

Thanks, Emlen. Good morning, welcome to Webster Financial Corporation's second quarter twenty twenty five earnings call. We appreciate you joining us this morning. I'm going 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, Neil Holland, provide additional detail on financials before my closing remarks and Q and A.

[John Ciulla, Chairman & CEO at Webster Financial]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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 $700,000,000 in share repurchases and we bought back 1,500,000.0 shares in the quarter. Additionally, the inflection point in asset quality that we projected to occur in mid-twenty twenty five 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 bps to 35 bps.

[John Ciulla, Chairman & CEO at Webster Financial]

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 and 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 Amitros, our growing source of low cost, long duration and very sticky deposits.

[John Ciulla, Chairman & CEO at Webster Financial]

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. Interlink provides us access to granular deposits and is another differentiating feature for Webster as a source of liquidity.

[John Ciulla, Chairman & CEO at Webster Financial]

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 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, we run a highly efficient and profitable bank, and we generate a lot of capital.

[John Ciulla, Chairman & CEO at Webster Financial]

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, COO & President at Webster Financial]

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 five years ranges from $1,000,000,000 to $2,500,000,000 of additional deposits, starting with incremental growth next year of 50,000,000 to 100,000,000 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.

[Luis Massiani, COO & President at Webster Financial]

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 didn't 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 this 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.

[Luis Massiani, COO & President at Webster Financial]

In the second quarter, we moved $242,000,000 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.

[Luis Massiani, COO & President at Webster Financial]

We're 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 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 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 Neil for a detailed review of financial performance.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Thanks, Luis, and good morning, everyone. I'll start on Slide four with a review of our balance sheet. Total assets were $82,000,000,000 at period end, up $1,600,000,000 from last quarter with growth in loans, cash and securities. Deposits were up over $700,000,000 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.

[Neal Holland, Senior EVP & CFO at Webster Bank]

At the same time, we repurchased 1,500,000.0 shares. Loan trends are highlighted on slide five. In total, loans were up $616,000,000 or 1.2% linked quarter. Excluding the one time transfer of $242,000,000 of loans moved to held for sale, loan growth would have been $858,000,000 or 1.6%. We provide additional detail on deposits on slide six.

[Neal Holland, Senior EVP & CFO at Webster Bank]

We grew total deposits by $739,000,000 Deposit costs were up three 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 seven, our income statement trends. Interest income was up $9,000,000 from Q1 and non interest income was up $2,100,000 Expenses were up $2,000,000 At an efficiency ratio of 45.4%, we maintain solid efficiency while investing in our franchise. Overall, net income to common shareholders was up $31,000,000 relative to prior quarter. EPS was $1.52 versus $1.3 in the first quarter.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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 9,000,000 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 non accrual reversal that added two basis points to the NIM this quarter.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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 shift expected in our net income for up and down rate scenarios. On Slide 10 is non interest income.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Non interest income was $95,000,000 up $3,000,000 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 $346,000,000 up 2,100,000.0 linked quarter. The modest increase in expenses was primarily the result of investments in human capital, partially offset by seasonal benefits expense.

[Neal Holland, Senior EVP & CFO at Webster Bank]

We continue to incur expenses that enhance our operating foundation as we prepare to cross $100,000,000,000 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 $9,000,000 relative to the prior quarter. The increase in the allowance was predominantly tied to balance sheet growth.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Our CECL macroeconomic scenario was relatively stable and we saw good asset quality trends quarter over quarter. After booking $36,000,000 in net charge offs, we recorded a $47,000,000 provision. This increased our allowance for loan losses to $722,000,000 or 1.35% of loans. Our provision was down $31,000,000 from the prior quarter. Slide 13 highlights our key asset quality metrics.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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 twenty twenty five outlook, which appears on slide 15, points to improvements in NII and the tax rate for the year. We now expect NII of $2,470,000,000 to $2,500,000,000 on a non FTE basis.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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 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.

[John Ciulla, Chairman & CEO at Webster Financial]

Thanks, Neil. 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.

[John Ciulla, Chairman & CEO at Webster Financial]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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 $100,000,000,000 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.

[John Ciulla, Chairman & CEO at Webster Financial]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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]

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

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey, how's it going? This is Andrew Leishner on for Chris McGratty.

[John Ciulla, Chairman & CEO at Webster Financial]

Hey, Andrew. Are you?

[Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey, how's it going? 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, Chairman & CEO at Webster Financial]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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 our return capital to shareholders through dividends or share buybacks.

[John Ciulla, Chairman & CEO at Webster Financial]

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, Senior Analyst - US Mid-Cap Banks at Autonomous Research]

Great. Thanks. Good morning, everyone.

[John Ciulla, Chairman & CEO at Webster Financial]

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 what how that's going to impact.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Yes. On the cash, we're getting right to the levels that we were 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 two quarters. So a little bit of impact there, but not overly material.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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. Go ahead.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

Hey, guys. Guys. Good morning. 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 interest in sort of strong deposit growth. How are you thinking about deposit costs?

[Neal Holland, Senior EVP & CFO at Webster Bank]

Yeah. So maybe I'll take a step back and talk about our interest rate sensitivity for a second. So we position 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, we get additional cuts, we expect to continue to move our deposit costs down.

[Neal Holland, Senior EVP & CFO at Webster Bank]

If we don't get two additional cuts, we are seeing some pretty significant competition on the deposit side. So 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.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

Okay. And then just a follow-up, John unrelated, if the category four threshold gets lifted, how important does bank M and A become for Webster? If 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.

[John Ciulla, Chairman & CEO at Webster Financial]

Sure, Mark. I mean, think our stance right now and clearly there is some noise around the fact that there may be an indexing of that $100,000,000,000 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.

[John Ciulla, Chairman & CEO at Webster Financial]

There's no question about the fact that we've said that we're not really in the market for whole bank M and 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 $100,000,000,000 I think the clear thing we want to get across is that's not our primary goal regardless of whether the $100,000,000,000 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 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 organic growth, tuck in acquisitions that continue to build out our deposit profile and strengthen our healthcare services vertical.

[John Ciulla, Chairman & CEO at Webster Financial]

So I would still say it's unlikely to see us engage in the short to medium term in active bank M and A.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

Thank you.

[Operator]

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

[Jared Shaw, Managing Director at Barclays Capital]

Hey, good morning.

[Operator]

Good morning.

[Jared Shaw, Managing Director at Barclays Capital]

I guess maybe on 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?

[Luis Massiani, COO & President at Webster Financial]

Yes. No, great question, Jared.

[Luis Massiani, COO & President at Webster Financial]

No material change in the expense trajectory of HSA. We actually did they already run a pretty significant direct to consumer channel and this is going to be the opportunity that's presented itself for these changes. It's slightly different to what we typically do through the employers and it is more of a direct 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 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.

[Luis Massiani, COO & President at Webster Financial]

And the reason for being somewhat cautious on just the ramp up that we're going to see is that 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 gonna take it up, you know, immediately. And so we do envision that there's gonna 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 gonna 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 OpEx trajectory of the business.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. All right. Thanks. 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 that as a percentage of average loans?

[John Ciulla, Chairman & CEO at Webster Financial]

Jared, as we say every quarter, the CECL program and processes 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. I think 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.

[John Ciulla, Chairman & CEO at Webster Financial]

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'll be driven by loan growth and credit performance in the second half of the year.

[Jared Shaw, Managing Director at Barclays Capital]

Thanks.

[Operator]

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

[Matt Breese, Managing Director at Stephens Inc]

Hey, good morning.

[John Ciulla, Chairman & CEO at Webster Financial]

Two

[Matt Breese, Managing Director at Stephens Inc]

things on originations. First, C and I originations picked up quite a bit this quarter, over $2,000,000,000 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 $1,200,000,000 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, Chairman & CEO at Webster Financial]

Yes. I'll take a shot and then ask Luis and Neil if they want to add anything. 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 and 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.

[John Ciulla, Chairman & CEO at Webster Financial]

We've said we're really comfortable where we are in that two fifty 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 2025.

[Luis Massiani, COO & President at Webster Financial]

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, first quarter with all the noise that we were seeing with tariffs and so forth. Think that part of this is just, you know, 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, you know, a lot of, you know, confidence going into the second half of the year is that the pipeline of activity in both commercial C and 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 $2,000,000,000 in originations.

[Luis Massiani, COO & President at Webster Financial]

It was, on on the, you know, the C and I side. It was across the board, and the positive is that we're starting you know, we were 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.

[Matt Breese, Managing Director at Stephens Inc]

Great. And my second question is just in light of Mondani'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 what kind of allowance against this asset class you already have?

[Luis Massiani, COO & President at Webster Financial]

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 in the question, Matt, which is it's an if. It's not for sure and for certain that, that Zorin is going to win, but, 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.

[Luis Massiani, COO & President at Webster Financial]

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 in 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.

[Luis Massiani, COO & President at Webster Financial]

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. We've 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 have been somewhat resilient over time. And so we is there going be evaluation? In fact, there will.

[Luis Massiani, COO & President at Webster Financial]

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 that Mondami wants.

[John Ciulla, Chairman & CEO at Webster Financial]

And Matt, just again to reiterate, dollars 1,360,000,000.00 in total exposure, only eight deals over $15,000,000 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.

[Matt Breese, Managing Director at Stephens Inc]

Appreciate all that. Thank you.

[Operator]

Your next question comes from the line of Anthony Elion with JPMorgan. Please go ahead.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

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

[John Ciulla, Chairman & CEO at Webster Financial]

Yes.

[John Ciulla, Chairman & CEO at Webster Financial]

I think you kind of asked and answered the question. 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, 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 healthcare services And 25% of our classified loans are in those two categories.

[John Ciulla, Chairman & CEO at Webster Financial]

Two categories now, which are both well below $1,000,000,000 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, Equity Research – Banks at J.P. Morgan]

That's fair. Thank you.

[Operator]

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

[David Smith, Head - Consumer Lending at Truist Securities]

Good morning. 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?

[John Ciulla, Chairman & CEO at Webster Financial]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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, Head - Consumer Lending at Truist Securities]

All right. Thank you.

[Operator]

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

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Hey, guys. Good morning. Neil, first question, just on non interest bearing deposits. There's a nice uptick of about $200,000,000 in the quarter. And I know that previous guidance was expecting the DDAs remain flat on a full year basis.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

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, Senior EVP & CFO at Webster Bank]

Yes. Non interest bearing was interesting this quarter. As you pointed out, we were up 200,000,000 point to point. But if you get into the average balance movement, we were actually down 2 100,000,000 in the quarter. So we did see a little bit of a positive movement towards the end of the quarter.

[Neal Holland, Senior EVP & CFO at Webster Bank]

We continue to believe that, you know, if you trend back historically over the last five or six quarters, obviously, as an industry 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 should see a return to the trend for Webster Bank and for the banking industry as a whole.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

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 how big were those would you say of the the 1 to 2 and a half billion you kind of cited, which is just, you know, kind of like a rounding error?

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Or just anything you can give, just on, like, sizing, since the bonds are, the bigger component?

[Luis Massiani, COO & President at Webster Financial]

Yeah. It's, it's it's it's slightly more than a rounding error, but I think you could still characterize it as a as a rounding error on the last two. The the the big driver of this is the fact that you now have, you know, so you know, under today's enrollment rates in in the bronze packages, about 7,000,000 consumers that are now going to be eligible to, you know, to, you know, prepare up their their bronze package with a 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, you know, identifying the 7,000,000 consumers and then trying to figure out where, you know, kinda how how best to educate them on how to use an HSA, which is gonna take some time to do. But it is it is largely that that is the driver of the of the deposit growth opportunity for the most part.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Yeah. That clearly is the big one. The other two are valuable. You know, the 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 so we're very happy by the other two, but I agree with Luis that it it really is majority, the the one provision that's driving our estimate.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Okay. Great. Thanks for taking my questions.

[John Ciulla, Chairman & CEO at Webster Financial]

Thank you.

[Operator]

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

[Daniel Tamayo, Vice President at Raymond James Financial]

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 and 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?

[Luis Massiani, COO & President at Webster Financial]

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 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.

[Luis Massiani, COO & President at Webster Financial]

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 originations. So we're going be able to look at more deals than what we looked at in the past. We're going 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 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, Vice President at Raymond James Financial]

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, 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? Thanks.

[Neal Holland, Senior EVP & CFO at Webster Bank]

Yes. So brokered, we run brokered fairly low as a percent 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 potentially brokered come down as those public deposits move up and you'll see that trend reverse again in Q4.

[Neal Holland, Senior EVP & CFO at Webster Bank]

But we really run our broker deposit kind of in that 3% to 5% of deposit range, so range we're real comfortable with. And, that that's how we think about the seasonal movements on the broker deposits.

[Operator]

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

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hi, good morning. Hey, Kumar. 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, Chairman & CEO at Webster Financial]

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, 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.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

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 3.4% 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, Senior EVP & CFO at Webster Bank]

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.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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. 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 can end on the back half of the year.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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. And we're also have put on some if you look at the risk rating of our new loan originations, they're at a 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.

[Neal Holland, Senior EVP & CFO at Webster Bank]

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.

[John Ciulla, Chairman & CEO at Webster Financial]

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

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Great. Thank you.

[Operator]

Your next question comes from the line of Ben Gurlinger with Citi. Please go ahead.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Hi. Good morning.

[John Ciulla, Chairman & CEO at Webster Financial]

Good morning, Ben.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Just kind of following up a little bit or change on to Timur's question about the marathon. With with the larger loan size, you would theoretically think it's maybe a little bit bigger company. And then with the fee income opportunity in front 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. But once we get that flywheel really going, the contribution to fee income, are we talking like a couple of 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 runway late twenty six.

[Luis Massiani, COO & President at Webster Financial]

Yes. I think that there's two opportunities as we think about the potential for what the impact of the of the joint venture is going to be. When we're referring to the, you know, the fee income that's you know, we're talking about asset management income, and, you know, that is, you know, for, you know, for the first vehicle that we're gonna be running, it's going to be more of the you said tens of millions, if 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 will 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 and 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, syndications 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 can 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, you know, what the eventual performance of the portfolio becomes in the vehicle as well as how large the vehicle becomes in the perspective of the number of loans that are held on the platform.

[John Ciulla, Chairman & CEO at Webster Financial]

And one important point I want to make on this is because I think this isn't 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.

[John Ciulla, Chairman & CEO at Webster Financial]

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.

[Ben Gerlinger, VP - Equity Research at Citigroup]

Got you. That's helpful. I just wanna dig a little deeper than that. Do you have the kind of, let's call it, back office or banking opportunities for 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

[John Ciulla, Chairman & CEO at Webster Financial]

in Yes. Front of wouldn't comment on that now. I think over the long term, they're a great firm, 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, VP - Equity Research at Citigroup]

Thank you. Appreciate it.

[Operator]

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

[Laurie Hunsicker, Senior Equity Research Analyst at Seaport Research Partners]

Great. Hi. Thanks. Good morning. Two questions.

[Laurie Hunsicker, Senior Equity Research Analyst at Seaport Research Partners]

Number one, what was your share buyback price on the 1,000,000 point shares in the quarter? And then number two, just going back to the rent regulated multifamily, that $1,400,000,000 do you have an approximate debt service coverage? And then anything to think about or know about on that 185,000,000 of maturities coming up over the next twelve months?

[Neal Holland, Senior EVP & CFO at Webster Bank]

Yeah. Our q two share repurchases were at $51.69, John.

[John Ciulla, Chairman & CEO at Webster Financial]

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

[Laurie Hunsicker, Senior Equity Research Analyst at Seaport Research Partners]

Perfect. Thank you so much. Oh, and anything on that, the $185,000,000 of maturities that we should be thinking about?

[John Ciulla, Chairman & CEO at Webster Financial]

No. Normal course.

[Laurie Hunsicker, Senior Equity Research Analyst at Seaport Research Partners]

Right. Thanks, guys.

[John Ciulla, Chairman & CEO at Webster Financial]

Thank you, Laurie.

[Operator]

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

[John Ciulla, Chairman & CEO at Webster Financial]

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.

Participants

Executives

• Emlen Harmon, Senior MD
• John Ciulla, Chairman & CEO
• Luis Massiani, COO & President

Analysts

• Neal Holland, Senior EVP & CFO at Webster Bank
• Andrew Leischner, AVP - Equity Research at Keefe, Bruyette & Woods (KBW)
• Casey Haire, Senior Analyst - US Mid-Cap Banks at Autonomous Research
• Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies
• Jared Shaw, Managing Director at Barclays Capital
• Matt Breese, Managing Director at Stephens Inc
• Anthony Elian, Equity Research – Banks at J.P. Morgan
• David Smith, Head - Consumer Lending at Truist Securities
• Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank
• Daniel Tamayo, Vice President at Raymond James Financial
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo
• Ben Gerlinger, VP - Equity Research at Citigroup
• Laurie Hunsicker, Senior Equity Research Analyst at Seaport Research Partners