Earnings Call Transcript - WBS Q2 2025

Operator, Operator

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.

Emlen Briggs Harmon, Director of Investor Relations

Good morning. Before we begin our remarks, I want to remind you that comments made by management may include forward-looking statements which 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 that may affect us. The presentation accompanying management's remarks can be found on the company's Investor Relations site at investors.websterbank.com. I will now turn it over to Webster Financial's CEO and Chairman, John Ciulla.

John R. Ciulla, CEO and Chairman

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 performance 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 regarding 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. The combination of our funding advantage and diversified loan origination engine will 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.

Luis R. Massiani, President and COO

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 have strong support in both the House and Senate. Additional substantive legislation in 2025 is likely, including the possibility of another reconciliation bill. If all of the provisions that were in the original spending bill passed by the House were to become law, we believe this could double our range of opportunity for incremental deposits. Turning to asset management. We have reached operational realization of the private credit joint venture we had previously announced with Marathon Asset Management. In the second quarter, we moved $242 million of loans in held-for-sale status as these loans will be contributed to the joint venture, which we expect will be up and running in the third quarter. The economics of our asset management strategy will be determined by the long-term performance of the joint venture, but we anticipate the benefits will be significant as we strengthen our competitive position in the private credit 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.

William Holland, CFO

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 one-time transfer of $242 million of loans moved to held-for-sale, loan growth would have been $858 million or 1.6%. We provide additional detail on deposits on Slide 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.

John R. Ciulla, CEO and Chairman

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 to 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, Operator

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

Andrew Steven Leischner, Analyst

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?

John R. Ciulla, CEO and Chairman

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.

Operator, Operator

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

Casey Haire, Analyst

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.

John R. Ciulla, CEO and Chairman

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 point 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 will have a 1 basis point impact to NIM.

Operator, Operator

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

Mark Thomas Fitzgibbon, Analyst

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's strong deposit growth. How are you thinking about deposit costs?

John R. Ciulla, CEO and Chairman

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.

Mark Thomas Fitzgibbon, Analyst

Okay. I have a follow-up question for John that is not related. If the Category 4 threshold is lifted, how significant does bank M&A become for Webster? Additionally, what would you consider important in potential targets, such as business lines or geography? Any comments on this would be greatly appreciated.

John R. Ciulla, CEO and Chairman

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 this 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.

Operator, Operator

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

Jared David Wesley Shaw, Analyst

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?

Luis R. Massiani, President and COO

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 gets the new eligible consumers that can have an HSA, can now have an HSA, doesn't mean that they're going to take it up 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 the operating expense trajectory of the business.

Jared David Wesley Shaw, Analyst

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?

John R. Ciulla, CEO and Chairman

Jared, as we mention every quarter, the CECL program and process is closely linked to risk rating migration, loan growth, and the weighted average risk ratings in our portfolio, and we typically refrain from providing guidance on it. We feel confident about our total coverage ratio when comparing it to our peers and our Category 4 group; we believe we are in a good position. Any increase in our coverage would likely result from balance sheet growth or credit deterioration. I think we made a strategic decision in the first quarter to adjust our expectation for a recession scenario, which we believe was the right move. Our outlook remains unchanged. One point of pride for us is that our provision significantly decreased due to underlying credit performance, rather than a shift in our perspective on future conditions. We still maintain a cautious view, accounting for potential recession risks ahead. Overall, our stance is conservative and appropriate, with future developments dependent on loan growth and credit performance in the latter half of the year.

Operator, Operator

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

Matthew M. Breese, Analyst

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.

John R. Ciulla, CEO and Chairman

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 million 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.

William Holland, CFO

Yes. Matt, I'd like to add that there was some pent-up demand earlier this year in the first quarter, influenced by various factors like tariffs. This has contributed to an increase in originations and volumes that we observed in the second quarter. One reason we're confident about the second half of the year is that the pipeline for both commercial C&I and commercial real estate has improved during May and June. Currently, we have better visibility regarding our expected loan growth for the second half of the year. While we can't pinpoint the reason for the $2 billion in originations, it occurred on the C&I side and was widespread. The encouraging news is that we are continuing to see this level of activity across all business lines. We feel optimistic about the second half of the year for originations.

Matthew M. Breese, Analyst

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 what kind of allowance against this asset class you already have?

Luis R. Massiani, President and COO

We do not have an allowance specifically for the rent-regulated assets. While we could investigate further, you raised a valid point, Matt. It is uncertain whether Mamdani will win, but there's a possibility he might. We have shifted away from the rent-regulated sector, especially regarding new originations, for quite some time. This aspect does not undermine our origination efforts. The existing portfolio is seasoned, originated a while back with strong debt service coverage ratios and loan-to-value ratios. Although we have a considerable rent-regulated portfolio, it is not something we originated recently. It is well-established, and the credit metrics for this portfolio remain strong. Historically, we haven’t set aside significant reserves for it due to its solid credit profile, and we believe this will continue, especially concerning the types of properties we maintain. Regarding future valuation, while I can't confirm we've observed the exact commitments related to rent freezes, this asset class has faced various iterations of similar risks and has proven relatively resilient over time. There will be some valuation effects, but we believe these will not materially affect our overall business, given the portfolio's seasoning. We will manage any eventual challenges that may arise from Mamdani’s potential win.

John R. Ciulla, CEO and Chairman

And Matt, to reiterate, we have $1.36 billion in total exposure, with only eight deals over $15 million, which means a really small average loan size and solid loan-to-value ratios along with current debt service. Therefore, we believe we are not overly exposed to that asset class. Additionally, over 60%, somewhere between 60% and 70%, of what we underwrote in rent-regulated multifamily was done after the rent-regulated laws were enacted in 2019, indicating that we did not anticipate significant rent increases to service the debt. This represents a very small part of our overall portfolio. Hence, we do not foresee a material credit impact even if further regulations are introduced.

Operator, Operator

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

Anthony Albert Elian, Analyst

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 R. Ciulla, CEO and Chairman

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.

Operator, Operator

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

David Charles Smith, Analyst

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 R. Ciulla, CEO and Chairman

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.

Operator, Operator

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

Bernard Von Gizycki, Analyst

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?

William Holland, CFO

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've reached the bottom of that decline and should 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.

Bernard Von Gizycki, Analyst

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?

Luis R. Massiani, President and COO

Yes, it’s slightly more than a rounding error, but I think you could still view it as such concerning the last two. The main factor driving this is that under today's enrollment rates, around 7 million consumers are now eligible to set up their HSA accounts with the bronze package. That's the primary reason behind this. This also illustrates our long-term goal of identifying these 7 million consumers and figuring out how best to educate them on using an HSA, which will take some time. Overall, that is mainly what is driving the growth opportunity for deposits.

William Holland, CFO

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 with the other two. But I agree with Luis, that it really is majority, the one provision that's driving our estimate.

Operator, Operator

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

Daniel Tamayo, Analyst

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?

Luis R. Massiani, President and COO

The short answer is yes. It was very late in the first quarter and early in the second quarter of this year. Even looking back to the third and fourth quarters of last year, we had already begun to notice a decline in origination activity. However, the pipeline of business on the sponsor side has improved significantly in the latter half of the second quarter. We anticipate returning to a stronger growth trajectory and profile. Additionally, enhancing our competitive position through the joint venture with Marathon will also positively impact our on-balance sheet origination. This will allow us to explore more deals and potentially target larger ones than we have previously. When you combine the expected increase in sector activity for private equity with our efforts to strengthen our position as an originator, we believe these factors will lead to a more favorable growth trajectory in the latter half of this year.

Daniel Tamayo, Analyst

Thanks, Luis, for that. Regarding the deposit side, there were seasonal factors that affected your growth or inflows of brokered CDs in the quarter. I'm curious about your thoughts on the movement of that portfolio for the third quarter and your overall perspective on the long-term contribution of brokered as a percentage of deposits.

William Holland, CFO

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.

Operator, Operator

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

Timur Felixovich Braziler, Analyst

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?

John R. Ciulla, CEO and Chairman

We believe that we will have more opportunities to compete for larger transactions without increasing the size of our on-balance sheet holdings. While our origination capabilities will mainly focus on what we contribute to the joint venture, we are optimistic about this development. There will be a ramp-up period before we start seeing non-interest income, but we anticipate that we will soon benefit from a more competitive offering and a larger implied balance sheet.

Timur Felixovich Braziler, Analyst

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?

William Holland, CFO

Yes, we still expect a net interest margin of approximately 3.4% this year. In the first half of the year, we performed slightly above that level, so we anticipate finishing the year between 3.35% and 3.40%. We’ll have more cash on the balance sheet, and we have a debt restructure planned for the latter half of the year, which may put some pressure on our securities portfolio, contributing to a basis point or two of changes due to shifts in mix. There might also be some modest spread impacts that depend on how quickly we grow the balance sheet, which introduces some variables for the latter part of the year. Deposit competition remains tough in the market. Our teams are doing well in retaining clients and acquiring new ones, but it is indeed a challenging environment. Additionally, our new loan originations are of even higher quality than our overall loan portfolio, which is leading to a bit of organic spread compression as we move forward. We are reiterating our full-year net interest margin guidance, but I expect the second half to result in a slightly lower net interest margin than the first half. It's important to note that we do not manage the organization based on net interest margin; our primary focus is on net interest income, with net interest margin being just an outcome. I wanted to give you insight into the factors we are considering for the latter half of the year.

John R. Ciulla, CEO and Chairman

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.

Operator, Operator

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

Benjamin Tyson Gerlinger, Analyst

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 millions per quarter, once you get the full thing going? So probably more like a run rate late '26.

Luis R. Massiani, President and COO

Yes, I see two opportunities regarding the potential impact of the joint venture. When we mention fee income, we are referring to the income generated from asset management for the first vehicle we will be operating. It's going to be smaller than tens of millions, but it will provide a solid recurring source of fee income, and we will share more details as we progress. You will observe this income ramping up in the profit and loss statements over time. Another significant opportunity comes from larger transactions involving larger companies, which will present bigger chances for capital markets business, swap indications, and treasury management along with deposit opportunities. Fee income will increasingly relate to the origination activities of the vehicle, which we plan to have operational by the third quarter, allowing us to start originating loans then. This is a dual approach, highlighting the positive impact of the joint venture on our balance sheet through increased origination activity and the associated loan fees, most of which we intend to keep at Webster Bank. In the longer term, we expect an income stream driven by the portfolio's performance within the vehicle and the growth in the volume of loans on the platform.

John R. Ciulla, CEO and Chairman

One important point I want to emphasize is that this is not a new activity for us. We are not searching for new sponsors or chasing opportunities. This simply enhances our ability to maintain full relationships, manage cash, handle deposits, and generate loan fees and originations with our existing sponsors. As the markets shift towards private credit, these sponsors have increasingly moved in that direction. We continue to conduct a significant amount of business with them, but for larger deals, they tend to look elsewhere due to our balance sheet constraints. It's crucial to understand that this does not alter our risk profile or lead to new activity. We do not need to hire additional personnel; our sponsor group already consists of very skilled individuals. This change merely provides them with more tools to better serve their existing clients.

Operator, Operator

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

Laura Katherine Havener Hunsicker, Analyst

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?

William Holland, CFO

Yes. Our Q2 share repurchases were at $51.69.

John R. Ciulla, CEO and Chairman

And our current debt service coverage ratio on the portfolio is 1.56x. No, normal course.

Operator, Operator

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

John R. Ciulla, CEO and Chairman

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

Operator, Operator

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