Webster Financial (WBS)

Regional banking company Webster Financial (NYSE:WBS) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 13.1% year on year to $732.6 million. Its GAAP profit of $1.54 per share was 0.8% above analysts’ consensus estimates.

Company Overview

Founded during the Great Depression in 1935 and evolving into a major Northeastern financial institution, Webster Financial (NYSE:WBS) is a bank holding company that provides commercial banking, consumer banking, and employee benefits solutions through its Webster Bank and HSA Bank division.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Webster Financial competes with other regional banks in the Northeast such as Citizens Financial Group (NYSE:CFG), M&T Bank (NYSE:MTB), and KeyCorp (NYSE:KEY), as well as national banks like JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC). In the HSA space, its competitors include HealthEquity (NASDAQ:HQY) and Optum Bank, a UnitedHealth Group (NYSE:UNH) subsidiary.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Thankfully, Webster Financial’s 19.2% annualized revenue growth over the last five years was incredible. Its growth beat the average banking company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Webster Financial’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.3% over the last two years was well below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Webster Financial reported year-on-year revenue growth of 13.1%, and its $732.6 million of revenue exceeded Wall Street’s estimates by 0.9%.

Net interest income made up 82.5% of the company’s total revenue during the last five years, meaning Webster Financial barely relies on non-interest income to drive its overall growth.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Webster Financial’s efficiency ratio has swelled by 13.7 percentage points, going from 56.6% to 45.7%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

Webster Financial’s efficiency ratio came in at 45.8% this quarter, beating analysts’ expectations by 189.1 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

For the next 12 months, Wall Street expects Webster Financial to become less profitable as it anticipates an efficiency ratio of 47.9%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Webster Financial’s EPS grew at an astounding 15% compounded annual growth rate over the last five years. However, this performance was lower than its 19.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Webster Financial, its two-year annual EPS growth of 1.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Webster Financial reported EPS of $1.54, up from $1.10 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Webster Financial’s full-year EPS of $5.37 to grow 19.1%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

Webster Financial’s TBVPS grew at a decent 5.5% annual clip over the last five years. TBVPS growth has accelerated recently, growing by 11.2% annually over the last two years from $29.48 to $36.42 per share.

Over the next 12 months, Consensus estimates call for Webster Financial’s TBVPS to grow by 11.5% to $40.61, top-notch growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Webster Financial has averaged a Tier 1 capital ratio of 11.1%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Webster Financial has averaged an ROE of 9.9%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Webster Financial has a decent competitive moat.

It was good to see Webster Financial narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS and tangible book value per share narrowly outperformed Wall Street’s estimates. Overall, this quarter was solid. The stock traded up 1.7% to $54.98 immediately after reporting.

Updated: December 4, 2025 at 11:42 PM EST

Are you wondering whether to buy Webster Financial or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Webster Financial isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its anticipated efficiency ratio over the next year signals its day-to-day expenses will rise. And while the company’s net interest income growth was exceptional over the last five years, the downside is its estimated net interest income for the next 12 months are weak.

Webster Financial’s P/B ratio based on the next 12 months is 1.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $71.06 on the company (compared to the current share price of $62.06).