Webster Financial Corporation (NYSE:WBS) Q2 2024 Earnings Conference Call July 23, 2024 9:00 AM ET
Company Participants
Emlen Harmon - Director, IR
John Ciulla - CEO
Glenn MacInnes - CFO
Conference Call Participants
Matthew Breese - Stephens
Christopher McGratty - KBW
Mark Fitzgibbon - Piper Sandler
Steven Alexopoulos - JP Morgan
Jared Shaw - Barclays.
Manan Gosalia - Morgan Stanley
Casey Haire - Jefferies
Daniel Tamayo - Raymond James
Bernard Von Gizycki - Deutsche Bank
Timur Braziler - Wells Fargo Securities
Laurie Hunsicker - Seaport Research Partners
Operator
Good morning. Welcome to the Webster Financial Corporation 2Q 2024 Earnings. 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 Harmon
Good morning. Before we begin our remarks, I want to remind you that the 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&A portion of the call, we ask that each participant ask just one question and one follow-up before returning to the queue.
I will now turn the call over to Webster Financial CEO, John Ciulla.
John Ciulla
Thanks a lot, Emlen. Good morning, and welcome to Webster Financial Corporation's second quarter 2024 earnings call. We appreciate you joining us this morning. I'll provide remarks on our high level results and operations before turning it over to Glenn to cover our financial results in greater detail. There have been a number of important accomplishments since our last earnings call, including the announcement of our private credit joint venture with Marathon Asset Management, the hiring of Neal Holland as our next Chief Financial Officer, and the addition of Bill Haas to our Board of Directors. .
The Marathon joint venture is a great opportunity for Webster, as it will allow the sponsor team to better serve and meet the growing needs of our client base, while at the same time enhancing Webster's balance sheet flexibility and adding a new source of fee income and deposit opportunities. Our sponsor team will continue to operate in its existing form. And by partnering with Marathon to fund a portion of our loan originations will gain the ability to offer larger facilities and additional financing solutions to our existing clients that we would not traditionally hold on our balance sheet.
We're also very excited about the new leaders we have brought into the company. Neal is a great addition to our executive management team. In addition to his many talents, Neal brings years of experience leading finance organizations at large banking institutions. He was CFO of First Republic prior to Webster, having joined their team in November of 2022. 14 years prior to that, Neal was with MUFG and their Union Bank subsidiary, where at different times, he served as CFO, Chief Accounting Officer and Head of FP&A of their Americas organization, whose balance sheet was over $300 billion in assets. He also served as CFO of their regional bank. I think you'll share my enthusiasm as each of you have opportunities to engage with him following Glenn's transition in early August.
Bill Hass, who joined Webster's Board of Directors last week is also a great addition to the company. Bill is coming off a 38-year career at the OCC where he was Deputy Controller for a mid-sized bank supervision. His extensive regulatory and risk management background will be a tremendous asset to our Board of Directors. In combination, these additions illustrate our commitment to investing in the people and processes that will advance the capabilities of our company as we grow and create long-term franchise value for stakeholders.
I'll now turn to our financial performance for the quarter, beginning on Slide 2. On an adjusted basis for the quarter, we generated a return on average assets of 1.16% and a return on tangible common equity of 17.1%. Our adjusted EPS was $1.26. Our efficiency ratio was 46%. We were pleased to grow core deposits by $700 million and used a significant portion of the funds to redeem wholesale funding. Loans grew by $500 million or just under 1% with growth anticipated to continue in the back half of the year.
On Slide 3, we recap our unique deposit funding profile where I specifically want to highlight encouraging developments at HSA Bank and Ametros. At HSA Bank, investments we have made to enhance our technology via the Bend acquisition two years ago are bearing fruit. We advanced our digital experience, which led to some significant client wins during selling season this spring and bodes well for our deposit balances next year. These investments in technology also provides flexibility to improve our solutions.
In the third quarter, we will launch a new investment offering, which provides a discrete opportunity to add roughly $400 million in deposits. In the quarter, we also extended our long-term relationship with Cigna, our largest HSA partner relationship. Ametros continues to produce the robust deposit growth we anticipated when we announced the acquisition at the end of last year. Additionally, we will begin offering Webster banking products to Ametros member base in the third quarter. This opportunity was not anticipated in our original projections for Ametros and strengthens the strategic rationale for the acquisition in addition to the value proposition for Ametros' member base.
On Slide 4, we provide an updated overview of our commercial real estate portfolio, focusing on the two portfolios that are capturing most of the headlines. There were no significant changes to the performance characteristics of our rent regulated multifamily portfolio, where our conservatively underwritten portfolio's performance has held up really well, as you can see by consistently low levels of classified and non-accrual loans. The portfolio is granular, has conservative LTVs and debt service coverage ratios was underwritten to property cash flows at the time of origination and has limited maturities in the next two years.
For office, we also have a portfolio that is granular with conservative underwriting characteristics. As the sector continues to be challenged, we did have several loans moved to non-accrual, which was the primary driver of the increase in our overall NPLs this quarter. Office balances were $950 million at the end of the second quarter, down from just over $1 billion last quarter. In our office portfolio, approximately 75% of the remaining loan balances have some form of credit enhancement which adds significant value in mitigating potential losses.
A few important comments to make as it relates to overall credit. Even with the negative risk rating migration, our NPL ratio, classified loan ratio and annualized charge-off rate in the quarter all remain proximate to or better than pre-pandemic Webster levels, meaning these metrics remain consistent with a more normalized credit environment. As we continue to aggressively and proactively manage and review the portfolio, after the material change in the environment or unforeseen surprises, we don't see this rate of upgrade migration continuing in Q3. Finally, with a 1.3% reserve coverage, our CET capital accreting back to 11% by year end and our strong operating and capital generation capabilities, we remain confident in our ability to navigate through whatever this credit cycle throws at us.
With that, I'll turn it over to Glenn to cover our financials in more detail.
Glenn MacInnes
Thanks, John, and good morning, everyone. I'll start on Slide 5 with our GAAP and adjusted earnings for the second quarter. We reported GAAP net income to common shareholders of $177 million with diluted earnings per share of $1.03. On an adjusted basis, we reported net income to common shareholders of $216 million and diluted EPS of $1.26. The adjustment was a pre-tax $49 million charge as a result of repositioning of our securities portfolio.
Next, I'll review balance sheet trends beginning on Slide 6. Total assets were $77 billion at period end, up nearly $700 million from the first quarter. Our security balances were up $165 million relative to the first quarter. The yield on the portfolio increased 22 basis points linked quarter to 3.86%. In the quarter, we sold securities with a book value of $962 million and reinvested with a nearly 400 basis point improvement in yield. These securities had a duration of 3.7 years, and we anticipate an earn back of less than 1.5 years.
The restructuring contributed 11 basis points of the portfolio improvement. We expect that we'll add another 13 basis points in the third quarter as yields will fully reflect the restructuring that occurred midway through the second quarter. Reinvestment of cash flows and portfolio growth made up the balance of the improvement in yields for the quarter. It's notable that we manage our securities restructuring such that it did not meaningfully impact our capital ratios.
Loans increased $475 million or 0.9% over the linked quarter, with the majority of the growth driven by commercial categories. Total deposits were up $1.5 billion with growth driven by interLINK, Ametros and Consumer Banking, offset by a seasonal decline in public funds. Loan to deposit ratio was 83% in the range of where we expect to operate over the next few quarters. Borrowings decreased $1 billion as we replace borrowings with core deposits from interLINK.
Capital levels improved modestly. The Common Equity Tier 1 ratio was 10.6%, and our tangible common equity ratio was 7.18%. Tangible book value increased to $30.82 per common share with the increase from the prior quarter driven by retained earnings, offset by a small increase in AOCI. In a steady interest rate environment, we anticipate $100 million of unrealized security losses would accrete back into capital annually.
Loan trends are highlighted on Slide 7. In total, loans were up $475 million or 0.9% linked quarter. Growth was driven by commercial real estate and C&I. As we said on our last earnings call, we would not expect significant growth in the CRE portfolio beyond this quarter. The yield on the loan portfolio was flat as we continue to see mix shift toward categories with lower credit spreads. Floating and periodic loans were 58% of total loans at quarter end.
We provide additional detail on deposits on Slide 8. We grew total deposits $1.5 billion with growth driven by interLINK, Consumer Banking and Ametros. When combined transactional and low cost, long duration health care financial services deposits comprised 45% of our deposit base. Our DDA balances were down $220 million relative to the prior quarter as migration to higher cost deposit categories is slowing.
Our total deposit cost was up 12 basis points over the prior quarter to 235 basis points. For the month of June, the deposit cost was 237 basis points. Increases were the result of clients opting for higher yielding products, renewals in our CD portfolio and the utilization of interLINK to replace wholesale borrowings. Our total cost of funds was up a less significant 10 basis points and our cumulative cycle to date total deposit beta is now 44%.
On Slide 9, we illustrate our funding beta assumptions. On the left hand side, we have updated our deposit beta assumption to incorporate the third quarter during which we expect our cycle to date beta to hold steady at 45%. Price competition for deposit has slowed and over the course of the second quarter, we successfully piloted small decreases in pricing of certain products.
Additionally, we have repriced substantially all our CD portfolio in the past year and renewals are now pricing below legacy rates. These factors plus the HSA deposit opportunity John mentioned in his remarks will contribute to a slower pace of deposit rate increases. We've also show our funding beta on the right hand side, which is a better illustration of the power of our unique deposit profile.
While our utilization of interLINK as a source of liquidity results in a higher deposit beta, in conjunction with our other deposit products, it lowers total funding costs and enhances offbeat balance sheet liquidity. As you can see, this advantage by looking at our all-in funding costs over the last 12 months compared to peer and industry trends.
Moving to Slide 10. We highlight our reported to adjusted income statement, compared to our adjusted earnings for the prior period. Net interest income was up $5 million from prior quarter driven by balance sheet growth and higher earning asset yields, partially offset by higher funding costs. Adjusted non-interest income was down $5 million, driven by lower BOLI income and lower deposit and customer hedging activity. Adjusted expenses were up $5 million and the provision increased $13.5 million. Excluding adjustments, our tax rate was 21.2% this quarter, up from 20.7% in the first quarter. Overall, adjusted net income was down $17 million relative to the prior quarter, and our efficiency ratio was 46%.
On Slide 11, we highlight net interest income, which increased $5 million or 0.8% linked quarter, driven by balance sheet growth and the repositioning of our securities portfolio. The net interest margin was down 3 basis points to 332 basis points as a result of increased funding costs, which were partially offset by higher asset yields. Our yield on earning assets increased 6 basis points over prior quarter with loan yields flat and the securities portfolio up 22 basis points. Deposit costs were up 12 basis points as we utilize interLINK to reduce our wholesale borrowings. As I previously mentioned, we expect the underlying pace of deposit repricing to continue to moderate. Total liability costs were up 10 basis points relative to a 12 basis point increase in the last quarter.
On Slide 12 is non-interest income, which was down $5 million versus prior quarter on an adjusted basis. There were a number of components driving the decline, including $4 million in lower HSA fees, driven by seasonal trends and account fees and a $1 million lower benefit from CVA adjustment whose valuation was unchanged this quarter.
Non-interest expense is on Slide 13, report adjusted expenses of $326 million, up $5 million from the prior quarter. $3 million of the increase came from a full quarter of Ametros operating expense and intangibles and the remaining increase related to investments in technology and increased deposit insurance costs.
Slide 14 details components of our allowance for credit losses, which was up relative to prior quarter. After recording $33 million in net charge-offs, we recorded a $61 million provision, of which $55 million was primarily due to credit factors and $6 million due to loan growth. As a result, our allowance coverage to loans increased to 130 basis points from 126 basis points last quarter. I would also note, we increased reserves in the traditional office portfolio by $10 million in the quarter.
Slide 15 highlights our key asset quality metrics. On the upper left, non-performing assets increased $85 million relative to the prior quarter, with non-performing loans now representing 72 basis points of total loans. As John indicated earlier, the increase in NPLs was related to four office credits. Commercial classified loans as a percent of commercial loans increased to 291 basis points from 224 basis points as classified loans increased by $286 million on an absolute basis. Classified loan increase was concentrated in health care and office. Net charge-offs on the upper right totaled $33 million or 26 basis points of average loans on an annualized basis, down modestly from last quarter's level.
On Slide 16, we maintained strong capital levels. Our common equity Tier 1 ratio was 10.6%, and our tangible common equity ratio was 7.2%. Our tangible book value was $30.82 a share.
I'll wrap up my comments on Slide 17 with our outlook for 2024. We expect loans to grow by 4% to 5% for the full year, with growth for the remainder of the year driven by C&I categories. We're anticipating deposit growth in the 5% range with growth in diverse products. We now expect net interest income in the range of $2.32 billion, $2.34 billion on a non-FTE basis, which will effectively leave us flat on a year-over-year basis. For those modeling net interest income on an FTE basis, the FTE adjustment is now expected to be roughly $55 million from $65 million previously.
Our net interest income outlook assumes one cut to Fed funds rate in December. Adjusted non-interest income will be roughly $375 million at the lower end of our prior range. Adjusted expenses continue to be in the range of $1.3 billion to $1.325 billion, our efficiency ratio is expected to be in the mid-40% range. We expect an effective tax rate of 21%, and we remain prudent managers to capital. Our near term common equity Tier 1 ratio target is 11%, which we anticipate will achieve by year end 2024, and as you can see, our long-term target continues to be 10.5%.
With that, I'll turn it back to John for closing remarks.
John Ciulla
Thanks, Glenn. I want to make one final point on outlook. While on an absolute basis, our net interest income performance has been relatively solid with respect to industry trends, with NII increasing over last quarter. It obviously has not been as robust as we anticipated earlier in the year. Our sponsor business has not grown as anticipated due to slower private equity activity and competition from the private credit markets and the absolute level of loan repricings and refinancings in a higher for longer environment has been lower than anticipated, which has had the collective impact of muting loan yields. I want to stress that we've taken steps to stress the downside risks in our revised outlook to position us well to deliver results within the new range by the end of 2024.
I want to take a moment to recognize Glenn's outstanding 13 years at Webster. He's been my partner in providing steadfast execution and a ton of value as we have grown the bank and navigated through some unique operating environments and a transformational MOE. Consistent with the strong commitment to Webster, Glenn has agreed to remain an adviser to the company for a period of time. On behalf of our Board and our leadership team, I want to wish Glenn all the best in his next chapter.
We remain confident about Webster's prospects and long-term franchise opportunities as we continue to build and invest in our organization's capabilities and people. Our return profile and balance sheet strength provide us with great opportunities to invest in our company and better serve our clients, helping to ensure we remain in a position of strength with returns at the top of our peer group, a better than peer efficiency ratio, a strong level of absolute net interest margin and a relatively favorable deposit and funding cost profile.
Thank you to all of you for joining us today. Operator, Glenn and I will open the line for questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] We'll take our first question from Matthew Breese at Stephens Inc.
Matthew Breese
Hey. Good morning. I was hoping you could give us some idea for the margin as we head into year-end with some rate cuts in 2025. Obviously, the balance sheet is a bit more interest rate neutral. There was a securities restructuring, and then there's still fixed asset pricing. So I was just looking for some frame of reference of where we might see the NIM migrate to over the next couple of quarters and into 2025?
Glenn MacInnes
Sure. And so as I sort of indicated in our comments, and John sort of touched on as well, we'll get the benefit of fixed asset repricing going forward, loan growth as well as the securities repositioning and some of that will be offset by what we think is going to be more modest deposit repricing. And I can go deeper on that as far as what we see. But all that combined, Matt, I think we're at 3.32. I think you probably expect us to exit the year somewhere around the mid-3.30s on a NIM basis.
Matthew Breese
Okay. Great. And then John, maybe you could touch on the commercial real estate NPL pickup. First of all, you mentioned it was a handful of loans, maybe a couple of loans. How many were in there size? And then just some idea on resolution and expected loss content would be great.
John Ciulla
Sure. Happy to, Matt. So yeah, the credit story, obviously, at the headline here looks negative because we had negative risk rating migration. But it really was sort of unique to a couple of discrete portfolios mainly in the office portfolio in CRE, which, as you know, is $950 million. Our NPLs in commercial went up $84 million, I believe, and that was the result almost entirely of four office loans. So you get a sense again of the granularity, not huge single point exposures and so the rest of the entire loan portfolio sort of behaved as you would normally kind of slowly migrating to normalized credit.
With respect to loss content, it's awful hard. I mean what I would tell you is when we're looking at NPLs, obviously, we do a deep dive, we get updated appraisals. And so all of that is kind of factored into CECL. And so what I would say is in our 130 coverage ratio, we believe that, obviously, we have adequate reserves for any expected losses. I'd also tell you, and it wasn't just a throwaway comment that 3/4 of our office loans have some sort of credit enhancement, which doesn't really factor into the probability of default risk rating, but factors in our minds into loss given default.
So things like debt service reserves, additional completion guarantees, extended guarantees from the sponsor and maybe bootstrap collateral from other property types, we think all will help mitigate losses. So again, we don't see loss content really impacting. We still look at our projected annualized charge-off rate in that 25 basis point to 30 basis point range. Obviously, as we always qualify, we say that in commercial lending, you can have a bigger quarter and a smaller quarter, but kind of as a run rate, we still think our losses are not going to change as we move forward. We're well reserved.
And again, we're encouraged by the fact that everything you see from a credit perspective really in this quarter is a result of what happened in our office portfolio, and a bit in C&I, and I'll just anticipate the next question in kind of our health care related and health care services portfolio, which is also under $1 billion. But as you probably know, industry-wide, that's been a little bit challenged for things like labor availability, wage inflation, higher input costs and slower reimbursement rates. So again, we're encouraged by the fact that it's not a portfolio wide deterioration, but really into discrete portfolios that are relatively small, and we think we have a good handle on.
Matthew Breese
Great. I’ll leave it there. Thank you for taking my questions.
Operator
We'll move next to Chris McGratty at KBW.
Christopher McGratty
Good morning.
John Ciulla
Good morning, Chris.
Christopher McGratty
John or Glenn, the -- getting a few questions on the updated NII guide. I think in your prepared remarks, you said high confidence, this is the last cut. Could you elaborate, I guess, on what would make it either conservative or a little bit aggressive at this point?
John Ciulla
Yeah. Chris, that's an interesting one. The dynamic here has been a lot around, as I referenced in my comments, a lot around loan yields. And obviously, deposit costs have gone up modestly. We still have compared to industry favorable deposit costs and favorable funding costs when you look at the peer group or the broader industry. And what we missed, quite frankly was, number one, our kind of gem of sponsor and specialty having higher yields at what we believe to be all day long, a better risk adjusted return. It has really not grown significantly.
We've had a lot of churn in the portfolio, decent originations, but losing the yield on hundreds of millions of dollars of anticipated sponsor and changing the mix of loan growth and having overall -- slower loan growth, obviously hurt yields. There's also the dynamic of refinancings and the repricing, which have slowed significantly to our original expectations and kind of perversely, we believe that once the Fed starts cutting that while our repricing down on existing floating rate loans will obviously provide some sort of headwind. But we also think that a lot of the repricing and refinancings will actually improve the loan yields as we move forward.
So I guess if you were to ask me whether it's aggressive or conservative, what I would tell you is I think it's right in our model, the range obviously adjusted down our expectations of the benefit of repricing and refinancings. We do anticipate a stronger second half in sponsor, but we're not relying on a spring back. We have a higher pipeline and we are seeing significantly more activity there, but we don't know what will happen with respect to churn in the portfolio. So I think it's our best case. And so if we get a more normalized origination channel and sponsor, and we get some pickup in refinancing activities.
And as Glenn can talk about more with respect to pricing, we have CDs rolling off at higher levels than new CDs are coming on. We get some moderation. We could outperform the guide. What could have us underperform the guide is not being able to hit our, what we believe to be reasonable and modest loan growth targets and a continued mix towards lower-yielding assets. And so this has been a unique environment for us with an inverted yield curve, we missed the mark on the guidance, obviously, and we're not pleased with it. It doesn't make us happy. We've tried to pressure test where we are. But we think the guidance range we've given is neither conservative nor aggressive. It's kind of right in the middle of our updated assumptions based on the trends and the knowledge we know now.
Glenn MacInnes
Yeah. And if I can, John, just to add a little bit more on the funding side of it, right? So we did see the deposit costs go up 12 basis points, and part of that was driven by lower average DDA balances. I would say that's probably about 3 basis points. As John mentioned, I mean, during the quarter, we had about $2.2 billion in CDs that matured and they matured at 404 and repriced at 443. That reverses itself as we get into the third quarter, where we have about $2.4 billion in maturing CDs with a weighted average rate of 4.8%. And they'll reprice down to 4.5%. So that will be positive and will support the NIM going forward.
And then the other thing I would say is that the DDA migration, we saw a $500 million decline in the first quarter. It's down to $300 million. About half of that $300 million is public funds, which come back in, in the third quarter. And so that -- we do think given those dynamics that our -- both our deposit costs and our funding costs should moderate going forward.
Christopher McGratty
That's great. And John, if I could on capital, you said 11 by the end of the year, 10 over time. How does that play out for 2025? Does that mean growth, do you expect growth to pick up and use capital that way or would you flip on the buyback again?
John Ciulla
Well, I mean, I think in our -- just given our profitability, we should be at 11% organically by the end of this year. And then I think it's looking at the operating environment, the expectations are that things are more normalized, that we've got good line of sight that credit -- any credit migration has moderated. We feel comfortable about where we are. I think we go back, Chris, to kind of our general stated capital management program, which is, if we have opportunities to grow our balance sheet organically in good returning assets, we'll obviously accelerate that.
If we have an opportunity to continue to broaden like a Ametros tuck-in or do something from an acquisition perspective, we would. If not, we would absolutely turn back on the buyback and look at the dividend as well. So kind of that's the order magnitude of right now in our base case, our expectations that once we crest year end, we’re going to have good line of sight and visibility to where we are. We’ll get hopefully some certainty around the path of rates from the Fed and we’ll be back to managing our capital with that longer-term 10.5% in sight, but we’re not going to do that before we feel very comfortable that we’ve got a not volatile macro environment.
Christopher McGratty
Thank you.
John Ciulla
Thank you.
Operator
We'll take our next question from Mark Fitzgibbon at Piper Sandler.
Mark Fitzgibbon
Hey, guys. Good morning.
John Ciulla
Good morning, Mark.
Mark Fitzgibbon
I noticed the average rate on the interLINK deposits this quarter was, I think, $557 million, can you help us understand the thinking around adding sort of $1.1 billion this quarter in interLINK deposits? Do you expect those to reprice down or any color you could give would be great.
Glenn MacInnes
Yeah. Those are basically tied to Fed funds, and it's client driven and so it depends on the new originations of that. But absolutely, as we look at the Fed making any kind of move, interLINK is 1 that would reprice down because it's indexed to Fed funds. So as the Fed begins to move those, we reprice down.
Mark Fitzgibbon
Okay. And then just a follow-up. And I'm sorry if I missed this earlier, but did you mention the $119 million uptick in commercial nonmortgage 30 to 89 day delinquencies, what was that?
John Ciulla
Yeah. It was a single credit mark, and it was actually a strong rate of credit that just administratively didn’t get fixed and rolled over by quarter end and it was cured the first week in July. So that went away and there’s no credit issue associated with that spike up in delinquency.
Mark Fitzgibbon
Thank you.
John Ciulla
Thank you.
Operator
Next we'll go to Steven Alexopoulos at JPMorgan.
Steven Alexopoulos
Hey, good morning, everyone.
John Ciulla
Hey, Steven.
Steven Alexopoulos
So I want to start to go back to the NII outlook for a minute. John, I know you said you stressed it, but if we get two cuts with the first cut in September, then another in December. Does that bring you to the low end of the new range or does that bring you below the range? And then Glenn, in response to Matt's question, you said mid-330s exit NIM, but I don't -- what if we get two cuts, what does exit NIM look like then?
Glenn MacInnes
Yeah. So just on the first question, let me take it, because if you looked at our funding and our total balance sheet. So as I said in the past, of our $61 billion in deposits, about 20% of that I would characterize as high beta products, that's where you find to intellect some government banking, things like that, that reprice pretty quickly. So in a 25 basis point reduction, you would expect that to come down. So take $12 billion, probably at around, say, $8 million a quarter in benefit.
Now the flip side is that we have about $23 million or $23 billion in floating rate loans that would also reprice. And so that would be a net drag if you take those down 25 basis points. And then offsetting that are further declines in like the normal CD or the normal retail deposits that eventually drift down. And then we have -- we get the benefit of -- we put on hedges that's probably beneficial to the tune of like $5 million a quarter once the Fed reduces by 25 basis points.
So if you put all that together, it's probably a net positive on a small basis. So it's -- we think about $1 million, $1.5 million in the quarter, right, if the Fed were to go in September. So it's basically neutralized. In fact, if you look at our slides back on 26, you can see that we've done a lot of work to sort of neutralize the balance sheet. And that's -- so we're well positioned, I think, for reductions.
The second half of your question, I think on -- I think it was on NIM. Yeah. And so that, again, I think it would be driven by the same sort of factors. And you would expect it still the puts and takes of that still, you'd get the benefit of the hedges, you get the benefit of the 20% of deposits repricing immediately, partially offset by the floating rate loans that we set. And so you'd probably still be in that mid-3.30% range on a NIM basis.
John Ciulla
So Steve, right, Steve, the high level, just to repeat for the sake of repeating. When we did the merger, we significantly reduced asset sensitivity naturally in terms of the entire makeup of the balance sheet. And then with extending duration in the securities portfolio, the hedges we put on and the dynamics were significantly less asset sensitive than we were kind of last -- heading into the last rate cut cycle, so that sort of the first premise.
And then when you look at to Glenn's point, when we look at the difference between no cuts September cut, a September and a December cut, the actual quarterly impact is relatively modest, just given all the inputs and output of the immediately pricing down deposits, the immediately lowering yield in the loan portfolio and then the hedging and the other dynamics that we have in our balance sheet. So we don't see that as either a big tailwind or a big headwind as we look at the second half of the year.
Steven Alexopoulos
Got it. Okay. That's actually a great color. If I could ask on the loan outlook because, John, I know you said that, that was one of the drivers of why NII has been reduced. If I look at the midpoint of the new guide, it implies around $1.4 billion of loan growth in 24 million, you're at $850 million at the midpoint. So that implies about $600 million in the second half to get to the guide. Quite a few banks who have weaker loan growth than you in the first half are guiding to an uptick in the second half, why are you guys not expecting a bit of an uptick or at least continuation in the second half, particularly if we get those cuts, maybe it percolates demand a bit.
John Ciulla
It's a good question, right? You've been covering us for a long time, and I've bragged about high-single digit 10% commercial loan growth year-in and year-out. And over the last 10 years, we've done that with the exception of March Madness last year and the pandemic, right? And so I get and I think one of the aspects and elements obviously is that we're deemphasizing pre-originations, so that has an impact, but I agree with you in the build, and that's why we still think that 4% to 5% loan growth for the full year is attainable.
The most granularity I can give you is, we're up 1.7% year-to-date in loan growth on a stated basis that's 2.2% loan growth in the first half. If you adjust for the fact that we took commercial services and factoring and put it into loans held for sale. So I do have some confidence that we can do another 2.2%, 2.5%, 3% loan growth in the second half of the year. And I think if you ask me for kind of the geography of that growth, we are turning on and we have already started generating some mortgage growth, and we think that now is the time that we can do that given our balance sheet. So that will be a contributor.
Obviously, sponsor, we think we'll have a better second half than first half. We've got public sector finance, which has a pretty good pipeline fund banking, which, although outstandings can be a little fluctuating, we continue to have really good sponsor relationships and the ability to do that. Lender finance, our traditional middle market our business banking, our asset-based lending, we still have a whole bunch of levers that we're pulling on and we do think that the second half, our gut tells us will be a more robust loan growth environment for the industry, but I think given what we've done in terms of missing people's expectations on NII, we're not going to overpromise.
And so I think that our 4% to 5% seems to be grounded in reality, and it seems to be grounded in where we think we have confidence to get there. Could there be some upside in the second half, particularly with the Fed cutting and maybe with what happens in November in the election and people have a little bit more confidence, Sure. And I think that we'll position ourselves and we're ready offensively low loan-to-deposit ratio, lots of deposits and liquidity we'll be able to take advantage of it. So I think our loan growth of 2.5% in the second half of the year is our base case best estimate. If it gets more difficult, will scrounge our way to get there. Is there an opportunity to maybe outperform that number in the second half given macro conditions, sure.
Steven Alexopoulos
If I could just wrap Glenn. Thanks for all the years providing really great color on the calls. When I think back 13 years ago to today, I mean, there's no comparison of the company today. You leave Webster at big shoes to fill. So thanks for all your service. (ph)
Glenn MacInnes
Thank you, Steve. Appreciate it. Thank you.
Operator
We'll go next to Jared Shaw at Barclays Capital.
Jared Shaw
Hi. Good morning. Thanks. And I'd just like to reiterate my congratulations, Glenn. It's been great working with you and good luck with the next step.
Glenn MacInnes
Thanks, Jared.
Jared Shaw
Maybe just looking at credit and the reserves. I'm just looking at Slide 14 with the $55 million provision tied to macro and credit. During the quarter, I guess, the Moody's base case improved. Is that then just all sort of due to credit migration within the portfolio or are you using a different weighting on some of the Moody's scenarios?
Glenn MacInnes
Yeah. No. So $61 million provision, as I mentioned, does include about $10 million of incremental reserve for the office portfolio. But I would say, the remainder of that, so say $51 million is -- our increase in reserves was a result of credit risk migration in the quarter. So Moody's as a whole from a macro standpoint was basically neutral quarter-over-quarter. So most of that was driven by the risk rating migration.
Jared Shaw
Okay. All right. Thanks. And then we've been getting a lot of questions this past week on what some other banks are paying on their sweeper accounts and people are trying to see how that impacts or how HSA could be impacted by that. Could you give us give an update on how confident you are with the HSA structure in terms of not being caught up in this sweep account discussion and just confirm that this is not sort of an ERISA type of product for us.
John Ciulla
Yeah. There’s nothing right now that would suggest and I think we take a pretty standard approach that we’re a nationally regulated financial institution, not in the business of providing fiduciary suit, fiduciary services or investment advice. And so obviously, we’ve been on top of it working with the HAS team and our legislative team, we do not see that we would be subject to those new rules.
Jared Shaw
Great. Thank you very much.
John Ciulla
Thank you.
Operator
We'll move next to Manan Gosalia at Morgan Stanley.
Manan Gosalia
Hey. Good morning. I wanted to ask on the expense side. You got the expense guide unchanged, while cutting the NII guide, so do you see any potential offsets on the expense side if revenues remain under pressure here?
John Ciulla
Yeah. I mean, I think that where we are is, as we think about investing in the business, we think about investment in risk and our march to category for we don't see any near-term pressures on hitting our guidance on expenses I think we've been conservative in sort of keeping that expense base to make sure that we can continue to invest in the company. I always remind people that we're starting from a mid-40s efficiency ratio, which is 10 percentage points below our peer group.
Do we have opportunities as things shift in terms of our capital allocation to different business lines, do we have opportunities to make organizational efficiencies. We do. We're examining those, but we thought it was premature to cut our expense guidance at this time. Obviously, as prudent managers, we need to do things to -- we've promised market-leading returns over time as there's pressure on revenues, we need to make sure we right-size our expenses. I do think we have some opportunities, but at this juncture, given the makeup and given where we are and the opportunities we see in front of us, we're sticking with our initial guidance. And we'll do everything we can to bring that in at the low end of the guidance.
Glenn MacInnes
Yeah. And I would just keep in mind that given our guidance, if you look at it on either side, the low end or the high end, it's about $100 million, say, of an increase and of that increase, about half of that is on the Ametros platform. So it's the operating expense and the intangibles associated with Ametros. And then the other two pieces are basically performance based compensation and investments that we've made in the business, whether it's HSA or in the commercial business or in the operations side. So that's the broad brush of what the increase is. And I would just point to that investment in Ametros, as you can see on the numbers and the financials is beginning to pay off already.
Manan Gosalia
Got it. And then separately, can you talk about what's driving the decisioning for securities repositioning, so you're locking in higher rates ahead of rate cuts, are you taking advantage of the lower mark-to-market. Is it the capital accretion from each quarter? So can you just talk about what's driving the decisioning and what duration you're putting on in the securities book and if you have room to do more on the repositioning side. Thanks.
John Ciulla
Yeah. Glenn will give you some of the financial details, but I think you just hit on the number of factors. So basically, one of our primary objectives is to accrete capital back to 11% on CET1. So I would say that what has been driving us to opportunistically look at balance sheet repositioning has been the desire for capital neutrality, looking at the earn-back period and you'll see that the moves we've made thus far this year have been really short payback periods. And so that all factors in and we'll look. Obviously, we have no plans to do anything right now, but we'll continue to look opportunistically based on all of those metrics. The impact to earnings, the impact to capital and the earn-back period on the move.
Glenn MacInnes
Yeah. The only thing I would add is that year-to-date, we’ve done about $1.3 billion in restructuring. And you said the biggest piece was in the second quarter. But as I indicated in my comments, we’re picking up about 400 basis points on yield and the duration is staying around 3.7 years. So that helped our asset sensitivity as well. But I don’t think that once we start looking at other tranches, the earn back continues to increase. So it’s something we’re monitoring we do a pretty thorough job in just looking at the securities portfolio continuously. But I don’t think that you’d expect to see another $1.3 billion or $1.4 billion in the immediate near term.
Manan Gosalia
Great. Thank you and all the very best, Glenn.
Glenn MacInnes
Thank you.
Operator
We'll take our next question from Casey Haire at Jefferies.
Casey Haire
Great. Thanks. Good morning, guys.
John Ciulla
Good morning, Casey.
Casey Haire
So wanted to touch on the fixed rate asset repricing and the loan yield. So it sounds like you guys are stepping away from CRE here and are going to be doing more sponsor finance. I'm just wondering the new money yields in the second quarter versus new money yields of what's in the pipeline currently?
Glenn MacInnes
Yeah. So let me just, if I can, Casey, let me just talk about the yield quarter-over-quarter because there's been some questions about that and so $623 versus $624. And as I look at that, like there's headwinds and tailwinds on that. And so I think part of the decline quarter-over-quarter was lower loan marks, and that was worth about 1 basis points. And then we did move commercial services up to held for sale, that was also a drag of 1 basis point. the hedging cost on the CRE portfolio was worth another basis point. And so those are sort of big things and then mix -- a higher mix to CRE and public sector finance. So you have that headwind going against you.
And then part of what we've seen going the other way are, we are seeing like the sponsor and specialty book of 17 basis points, middle market up 9 basis points, fund banking up 9 basis points. So on a weighted basis, that calls back about 3 basis points. So that's the dynamics of the net 1 down basis point quarter-over-quarter. And so our total -- for the second quarter, our total origination coupon rate was like $775 million. And I think that's fairly consistent with where we were in the first quarter as well.
John Ciulla
And Casey, just to give you like a little market comp. So our originations in the second quarter with respect to sponsor being down as well, and we had some fund banking growth a little bit of CRE growth on public sector finance growth. You're looking at SOFR plus mid-2s on some of those deals where sponsors were SOFR plus 350 to SOFR plus 4. And so the origination yield mix has a significant impact. We do see more activity. And I would qualify your comment, it's not like we're overemphasizing sponsor. I think we're growing all of our other asset classes, but the expectation is that we'll have more normalized sponsor growth, which has a positive impact on overall loan yields.
Casey Haire
Got you. Okay. And then just the -- so the CRE concentration, last quarter, you guys talked about a goal of getting -- working that down over the next four to six quarters. You also seem open to divesting of some CRE. Just wondering what is the current thinking on reducing the CRE concentration and do you get there organically?
John Ciulla
It's a great point. I think there will be more than just organic. There will be opportunities. I have nothing to sort of announce on this call. But if you think about some of the things we're working on, we have agency eligible loans that we can securitize. We've got interest in continued loan sales, particularly on floating rate, high quality loans where they may not be strategic deposits alongside of it. So you can rest assured that all of the potential opportunities to potentially have step function reductions.
And by the way, provide us with more opportunity to continue to support our existing great relationships with CRE folks because we're certainly not out of that business, but there are ways where we can moderate and keep flat our growth as we accrete capital and grow the other loan categories. So I would say that you'll hear us in the next several calls, tell you about opportunities that have been kind of neutral to earnings. Obviously, we're losing earning assets, but in terms of not selling at discounts, we have opportunities to make good economic decisions as we grow other asset categories and free up opportunities to grow really good CRE with strong relationships and deposits.
You'll hear us talk about some of the moves that we'll make to accelerate and move away from just organic flattening of that portfolio. But yeah, I think we're still on track to get into that 250-ish range in the next three to four quarters, I think I said last quarter, four to six quarters. So whatever that is now three to five quarters, we still think we can get to 250. And then we have to talk about and decide as we move forward, the makeup of the balance sheet, our origination and distribution capabilities because we've got some really good capital markets people in CRE as well so that as we kind of march over the next three years closer to category four, whether that and how we get that exposure even lower between 200% and 250%.
Operator
We'll go next to Daniel Tamayo at Raymond James.
Daniel Tamayo
Thank you. Good morning, everybody.
John Ciulla
Good morning, Dan.
Daniel Tamayo
Maybe just a quick question on the office portfolio and the migration that we had in the quarter. Just curious, if there was kind of you could connect dots in between those four loans, if there's anything that they had in common. I appreciate the data that you have on the New York City exposure, which looks like that was part of it, but curious, just location wise, size wise anything else you can talk about of those properties that may be connected relative to the rest of the office portfolio.
John Ciulla
Yeah. Actually, there were no geographic connectivity. Three were in our kind of branch footprint. One was outside our branch footprint with end market sponsor. I would say the things they have in common stress on rents and NOI and lower appraisals and so that's what drove that migration. So I would say nothing related to specific underwriting team or a specific pressure in one geography. It's the overall pressure on office and rents occupancy and value.
Daniel Tamayo
Okay. Great. And then you mentioned you don't expect risk migration to continue at this pace. What gives you confidence when you say that, particularly, I guess, in the office book that as maturities continue to come up, that we might not continue to see loans deteriorate there in a meaningful way.
John Ciulla
Yeah. Daniel, that's a really good question. And as a former Chief Credit Risk Officer, I always hate to kind of forecast credit performance. And that's why I qualify the statement by saying assuming that the macro conditions stay the same, and we don't get any big surprises. I think what gives us general confidence is, and we've talked about this before. Jason and his team have continued to do quarterly deep dives into those portfolios that evidence the most stress. I mentioned earlier that we still have really concentration in credit pressure in the $950 million office portfolio, the rest of CRE is actually performing really well and performing actually at a better rate than overall C&I, which you've heard other people mention on calls as well.
And then within C&I, we sort of have this little pocket of health care services which is also under $1 billion, a little bit in food and restaurant, which is a relatively small portfolio, but a couple of pockets of concentration. And so with these deep dives across the portfolio, and with our, what I believe to be proactive and conservative risk rating biasies, we don't see as we're going through our problem asset reports as we're looking at things kind of significant deterioration outside of those pockets and my hope is that our team has captured the current risk profile in those two portfolios. So that's why when we look and we do roll rates and we look forward we certainly don't see similar migration in Q3.
Daniel Tamayo
Okay. Great. Thanks for the color, John. Appreciate it.
John Ciulla
You got it, anytime.
Operator
We'll go next to Bernard Von Gizycki at Deutsche Bank.
Bernard Von Gizycki
Hey, guys. Good morning.
John Ciulla
Good morning.
Bernard Von Gizycki
So John, you noted the partnership with Marathon will provide more capabilities for clients and allow Web search to participate in bigger loan deals that you wouldn't have been able to do so otherwise due to size limits. I'm just wondering, were you expanding the credit box to participate in deals? How does underwriting standards of Marathon compared to the credit culture at Webster?
John Ciulla
Yeah. Well, the only thing I will say, and obviously, we actually -- after the announcement, we just signed the JV. We plan on everything going live towards the end of the fourth quarter, maybe the beginning of the first quarter. And so I'm not going to comment on any details, but I certainly can answer your question. It should have no impact functionally on how we operate, how we originate loans, how we go to market with our sponsors.
It does give us more balance sheet flexibility, and it does give us the ability to continue to move upmarket and keep our bank balance sheet hold levels similar, but also be able to do larger transactions because there is a natural partner to be able to warehouse and hold the higher portions of the bigger loans.
And so I think the key message for us to you is that it's not going to change the risk profile of the bank, it doesn't dilute or change our focus on what we're doing for the bank's balance sheet or the bank's earnings profile. It just gives us more flexibility, optionality and basically a larger overall balance sheet, if you will, to be able to fund larger loans.
Bernard Von Gizycki
Okay. Great. And then just following up, I know earlier in the call, you did mention some of the pressure in sponsor was related just to the increased competition from private credit Obviously, you're doing the JV. Just any comments, anything you can elaborate on what you've been seeing with that and increased competition specifically and the impact on sponsor?
John Ciulla
Sure. And I don't think this is a secret to anyone, right? We have seen the proliferation of private credit impact. We've been in this business, as you know, for a long time. And even going back 10 years, many of our primary competitors were BDCs, finance companies, sort of private credit as defined 10 years ago. Obviously, now there's $1.5 trillion in private credit out there. And so what you've seen, the impact on banks overall has been on capital markets fees, underwriting and syndication because private credit extends the leverage profile on loans, they hold larger pieces of loans than our prudent for bank sheets to hold. And I would say since March Madness of last year, there's been an acceleration.
The key for me to talk about is that it doesn't render us non-competitive. Many private equity firms and many of the ones that we deal with in sectors we know well prefer to deal with banks. There's a different relationship style. There's a different management process when things go sideways. There's the full capabilities of a bank with respect to swaps and FX and cash management and treasury products, but it has had an impact on spreads and it has had an impact on sort of the number of swings we get it to play. And so -- but I do think that for the first two quarters this year, it’s been more activity-based than competitive based that’s muted the growth in that area.
So I do think with some of the tools we’re building, we can remain very competitive with our existing sponsors and continue to grow that business. But there is no doubt that private credit has become more relevant in the financing space. And I know it’s impacting the entire industry.
Bernard Von Gizycki
Okay. Great. Thanks for the color and thanks for taking my questions.
Operator
We'll go next to Timur Braziler at Wells Fargo Securities.
Timur Braziler
Hi. Good morning.
John Ciulla
Good morning, Timur.
Timur Braziler
Circling back to the office discussion. I'm just wondering what drove the updated appraisals this quarter where the loans coming up for maturity? Was there anything else? And then maybe just provide an update for the remainder of the book, what portion has recent appraisals on it?
John Ciulla
I didn't catch the last part, but I'll ask you for that again. The first part is just the general normal processes either risk rating migration, certain levels of debt service or approaching maturity that we will order appraisals and then take into consideration the entire value of property, NOI, debt service coverage in terms of making a risk rating determination on accrual or non-accrual. So that's like standard operating procedure.
What was the second part of that question?
Timur Braziler
Just what portion of the office book now has updated appraisals on it?
John Ciulla
I'd say maybe 40%.
Timur Braziler
Okay. And then…
John Ciulla
That's a swag, by the way, but I think that's probably pretty close to accurate.
Timur Braziler
Okay. Yeah. I appreciate that. And then just on the HSA business, the migration from deposits to investments seems to be accelerating maybe here a little bit. Can you just talk through that dynamic and just remind us how you monetize the investment component of HSA?
John Ciulla
Yeah. Sure. Obviously, in a higher rate environment as well, we have seen migration. We always remind folks that if you look at the dynamics of the various spenders, savers and investors that investors still have significantly higher average deposit balances than spenders. So we -- as people continue to invest while that takes some deposits away from us that the underlying deposit base of those investors is still very, very strong and profitable.
We make significantly more money, particularly in this rate environment on a deposit than we do on an investment. We have taken steps, and I mentioned in my comments, to continue to have investment offerings that are not only and most importantly, better experiences for our clients, but also that give us slightly more economics. So we're moving it in the right direction. But at the end of the day, we make a fraction of what we make on deposits based on the value of deposits now than we do on $1 of investment.
Glenn MacInnes
Yeah. The only think I’d add Timur is that, our business like 3 million accounts, about $2 million or 75% say, are still spenders. So they have an average balance of $475, right? And then if you go to the savers profile, they have an average balance of about $8,000 and then the investors are only 8% of our accounts. So – and that’s up to your point, a very good point from 5%, say, a year ago, but they still maintain an average balance of like $6,000 and they have a $20,000 investment balance. So we still get the benefit of the funding advantage on our balance sheet. I think the opportunity for us is obviously to educate those spenders on the benefits of savings, the triple tax-free nature of it such that they become more savers. And so that’s – and I know that’s something that Chad and his team are always have been focused on.
Timur Braziler
Thanks.
Operator
We'll go next to Laurie Hunsicker at Seaport Research Partners.
John Ciulla
Good morning, Laurie.
Laura Hunsicker
Good morning. Glenn, I just want to say congrats and best wishes. So my question is really sort of multipronged around commercial credit, not to beat a dead horse here, but just want to understand, so the $61 million loan loss provision less to $6 million growth down to $55 million, how much of that specifically was office? How much of that was also your sponsor in specialty. And then I know you mentioned that the office reserves grew by $10 million. What is your specific office reserve now?
Glenn MacInnes
So let me take it one at a time, and John can jump in here. So of the $61 million, as I indicated in the comments, about $10 million is office, right, of that $61 million. And I think on the sponsor book, I don't have the absolute dollar number, but I know our coverage ratio is up 2%.
John Ciulla
It's 2%.
Glenn MacInnes
I got it 2%, I'm sorry. So I don't know if you want to add to that.
Laura Hunsicker
Okay. So the -- but just the $10 million was office and you said that, obviously, you had credit risk migration. So that -- so that's that only $10 million of your $61 million in loan loss provision was related to office. Is that correct?
Glenn MacInnes
That's correct.
John Ciulla
Yeah. Laurie, if you think about it, we already had rates on those non-accruals. We're likely in substandard already or had specific reserves against them. So at the end of the day, that's the incremental reserve amount for the quarter Yeah.
Laura Hunsicker
Perfect. Okay. And your sponsor and specialty book, what are the non-performers there now? And then just one last follow-up on charge-offs, the $33 million that were commercial. How much of that was office and then or even if you have the split between CRE and C&I, obviously, how much was office? And then also how much was the sponsor in specialty.
John Ciulla
Can you repeat that question, Laurie?
Glenn MacInnes
Second question.
Laura Hunsicker
Sure. Yeah. Of your charge-offs of $33 million, it was mainly all commercial, $33 million in charge-offs. Just looking for the split between CRE and C&I. And then just also specifically, what were your office charge-offs? And what were your sponsor in specialty charge-offs? And I mean, just the sponsor especially non-performing number that I had from last quarter was $135 million, just want to make sure I have a refresh there. Thanks so much.
John Ciulla
So we had total charge-offs in the quarter of $33 million. $10 million of that were proactive loan sales, mostly in CRE and so of the actual kind of liquidated charge-offs, normal horse charge-offs, we basically had a traditional office loan. We had a loss in ABL and a small loan and sponsor of $5 million. So that's the makeup of the charge-offs, which were actually down from last quarter.
Operator
We'll move next to Samuel [indiscernible] at UBS.
Unidentified Participant
Hey. Good morning. I just wanted to go back to the loan and deposit guide for a second. On the loan growth, rather I appreciate all the color you've provided so far this morning. Can you just, I guess, name sort of some of the categories that you're most confident in for the second half of the year loan growth?
John Ciulla
Sure, I will. And before I do that, I'm actually going to answer Laurie's last question, even though she's not on the phone, the NPLs and sponsor are flat to last quarter. So that same number you're looking at, Laurie, and I apologize for you getting cut off there.
Yeah. I mean, I think we have -- as I said, if you look, and I think Steve made the comment, it's somewhere between $850 million and $1.4 billion in that 4% to 5% range in terms of what we would need to do in the second half of the year, there's no one concentrated category, but if you think of a few hundred million dollars in mortgage as a start in a contribution, a couple of hundred million dollars in lender finance, a couple of hundred million dollars in fund banking, a little bit more in traditional middle market C&I and then some smaller, but material amounts in public sector finance and then contributions from ABL and Business Banking, I think that's how we build that.
So it's not either throwing the bomb or putting emphasis on one category. It's using the portfolio of levers we have to have kind of diversified and robust loan growth. As we said, there may be CRE will be bounced around, maybe flat, could be up a little bit depending on the actions we take but it will be a pretty diversified loan growth with maybe the addition from last couple of quarters of some more originations for holding in our residential mortgage, but kind of the same categories that have been contributing and hopefully, a more robust sponsor quarter.
Unidentified Participant
Got it. Thanks for that. And then just switching over to the deposit guide. Is it fair to look at the deposit guide as a derivative of the loan growth guide and you don't want to put on extra liquidity if you're able to drive more deposits or are those two more of a separate thought process for you?
Glenn MacInnes
Yeah. No, I think that's fair. It is -- the pricing anyway, and therefore, the deposit balances are driven by the funding nature of the loan book. So yes, we manage it that way along with broker deposits and wholesale funding as well. So those are the dynamics we look at. I think as you look at the guide, like I said, the cost will moderate. That's how we're thinking about it right now. So there's opportunity for us and I think when you look at that second or third page of our deck, you can get a sense of the diversification and the levers we can pull to optimize that mix.
John Ciulla
And interLINK is the real lever the other deposits we want right, regardless of what loan growth, the strength of our franchise is growing core operating deposits. So we want HSA to maximize its growth, Ametros to supercharge its growth, and we want all of our middle market and commercial real estate and commercial and business banking activities and our retail bank to continue to grow good relationship deposits at reasonable prices.
So that's really not a factor of what we see available to us on the asset generation side. That's a factor of continuing to grow the value of our deposit franchise, but I do think, Glenn, as it relates to what we look for with respect to interLINK growth or other brokered CDs or other things, that will be a function of deploying that liquidity for asset growth.
Unidentified Participant
Got it. Thanks for the color.
Operator
And that concludes our Q&A session. I will now turn the conference back over to John for closing remarks.
John Ciulla
Thank everybody for joining us today. Have a great day. Thank you.
Operator
And this concludes today's conference call. Thank you for your participation. You may now disconnect.