Webster (WBS) Q2 2025 Earnings Call Transcript

The analysis indicates that Image source: The Motley Fool

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

InterSync: The rebranded deposit platform continues to vide granular deposits and liquidity diversification, in light of current trends

SUMMARYManagement reported broad-based growth in earnings, assets, and deposits compared to the prior quarter, while maintaining efficiency and capital strength

They highlighted a material inflection point in asset quality, with criticized commercial loans and non-accruals both declining

Executives anticipate significant long-term deposit growth from HSA Bank due to legislative changes, with the majority of the expanded opportunity tied to newly eligible bronze ACA plan participants, amid market uncertainty

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

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

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

Management stated, "We do not see new pockets of credit deterioration anywhere across any industry or sector (which is quite significant), in today's market environment. " and reaffirmed that existing classified loan exposure is concentrated in CRE office and healthcare service, in today's market environment

At the same time, INDUSTRY GLOSSARYHSA Bank: A Webster Financial Corporation segment viding health savings accounts and related health spending solutions distributed via employers and individual channels

On the other hand, InterSync: Webster's rebranded deposit platform (formerly Interlink) designed to broaden access to granular, low-cost deposits and enhance liquidity diversification, considering recent developments

B2B2C model: -to--to-consumer; HSA Bank operates by distributing ducts through organizations to end consumers

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

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

Full Conference Call TranscriptJohn Ciulla: Thanks, Emlen

We appreciate you joining us this morning (fascinating analysis)

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 vide an on exciting developments in our operating segments, and our CFO, Neal Holland, will vide additional detail on financials before my closing remarks and Q&A

Furthermore, Highlights for the second quarter are vided on Slide two of our earnings presentation (remarkable data), in today's market environment

Moreover, 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

Moreover, We achieved this outcome while maintaining our strong operating position and balance sheet flexibility, in this volatile climate

Our common equity tier one ratio increased, and our loan to deposit ratio remained roughly flat

Both criticized commercial loans and non-accruals were down in the quarter

Our net charge-off ratio was 27 basis points, within our long-term normalized charge-off range of 25 to 35 basis points

We do not see new pockets of credit deterioration anywhere across any industry or sector (an important development), considering recent developments

However, Similar to our view a quarter ago, we have not yet seen any impact to credit related to various tariff posals, in this volatile climate

While remaining vigilant to any potential effects from posed tariffs, we do not have disportionate 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 vide 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 file within our peer group, in particular, our healthcare financial services segment comprised of HSA Bank and Amitros, our growing source of low-cost, long-duration, and very sticky deposits

The B2B2C model of these es enables efficient operation and distribution

Additionally, However, Visions included within the recently passed reconciliation bill also accelerate growth in HSA deposits (noteworthy indeed), in this volatile climate

At the same time, In addition to the healthcare financial services segment, we also have strong deposit franchises in our consumer and commercial bank, amid market uncertainty

We also operate InterSync, previously known as Interlink, and rebranded this quarter

Furthermore, Interlink vides us access to granular deposits and is another differentiating feature for Webster as a source of liquidity (something worth watching)

As a predominantly commercial bank, we have a diversity of loan origination channels with distinct risk-reward characteristics

These vide us the opportunity to add assets in the loan that vide the most appealing risk-reward characteristics at a given point in time, amid market uncertainty

We anticipate that the asset management partnership with Marathon we announced last year will be effective as of later today, and we believe that it will enhance sponsored loan growth and drive fee revenue in 2026 and beyond

The combination of our funding advantage and diversified loan origination engine allows us to grow at an accelerated rate relative to peers over the long term (fascinating analysis)

Ultimately, with our distinctive composition, we have a lot of liquidity

We run a highly efficient and fitable bank

Additionally, We generate a lot of capital

Additionally, This vides 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 holders

I will now turn it over to Luis to discuss emerging strategic opportunities for Webster, including at HSA Bank and within the commercial segment, each of which have recently experienced strategically important developments

Luis Massiani: Thanks, John

Moreover, Starting with HSA Bank, we were pleased to see three favorable visions for HSA accounts incorporated in the reconciliation bill, which was signed into law earlier this month

In our view, these visions will significantly increase the addressable market for the HSA industry and HSA Bank, mainly driven by bronze ACA plan participants newly gained eligibility to fund an HSA account as part of their healthcare plan, in light of current trends

There's ly 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 (which is quite significant)

Additionally, Moreover, We're further encouraged that for the first time, eligibility for HSA accounts has been decoupled from high deductible health plans, and that several visions that were initially included but did not make the final spending bill have strong support in both the House and Senate (an important development)

If all of the visions 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 (an important development)

The evidence shows economics of our asset management strategy will be determined by the long-term performance of the joint venture, but we anticipate the benefits will be significant as we strengthen our competitive position in the private credit market (which is quite significant)

Webster will be able to lead larger bilateral deals, participate in larger syndications, accelerate on-balance-sheet loan growth and spread income, and offer clients a broader set of deal structures beyond senior positions without changing our existing on-balance-sheet credit file

Webster will retain full banking relationships, including opportunities for cash management, capital, and deposit

We're also continuing to invest across all other areas of our bank, both in our lines of as well as operations, nology, and risk

Conversely, We have continued to make targeted investments in nology and 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 file, in today's financial world

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

At the same time, Neal Holland: Thanks, Luis, and good morning, everyone

I'll start on Slide four with a review of our balance sheet

Nevertheless, At the same time, we repurchased 1

Loan trends are highlighted on Slide five

We vide additional detail on deposits on Slide six