Webster Financial: A Hidden Gem with Growth Potential in HSAs and Moderate NDFI Exposure

Webster Financial's shares have been flat over the past year, but have pulled back 12% from recent highs. The company's growth in health savings accounts (HSAs) and modest exposure to non-deposit funding initiatives (NDFI) make it an attractive investment.

Webster Financial Corporation (WBS) reported its third-quarter 2025 earnings, highlighting strong financial performance despite a flat stock price over the past year. The company's shares have pulled back 12% from recent highs, but its robust growth in health savings accounts (HSAs) and modest exposure to non-deposit funding initiatives (NDFI) make it an attractive investment for investors and financial professionals.

The company reported net income applicable to common stockholders of $254.1 million, or $1.54 per diluted share, exceeding analyst expectations of $1.52 per share, according to an Investing.com article. Revenue reached $732.6 million, surpassing the consensus estimate of $727.54 million. The bank's loan portfolio expanded by $1.4 billion or 2.6% from the prior quarter to $55.1 billion, while deposits grew by $1.9 billion or 2.8% to $68.2 billion, as the same Investing.com piece noted.

Webster Financial's CEO, John Ciulla, emphasized the company's strategic position and growth in both loans and deposits, which grew over 2% linked quarter. He also highlighted the company's share repurchases of 2.2 million shares, representing 1.4% of outstanding shares, and the tangible book value growth of 3.7% over the prior quarter, according to Seeking Alpha.

The company's private credit joint venture with Marathon Asset Management is now fully operational, with early returns described as positive. The recent legislative changes and regulatory clarifications regarding HSA eligibility for Bronze and Catastrophic Affordable Care Act (ACA) plans would further increase enrollment eligibility and the addressable market, Seeking Alpha noted. Investments are being made in mobile and web enrollment systems to capitalize on this opportunity.

Despite the positive results, the company’s stock price reacted negatively, dropping 0.63% to $54.02 in pre-market trading, according to an Investing.com transcript. This could be attributed to the ongoing challenges of seasonal deposit outflows and net interest margin (NIM) compression, as well as market volatility and increased scrutiny on private credit exposure and NDFI.

Webster Financial's third-quarter results demonstrate the company's ability to navigate market volatility and maintain a disciplined approach to growth and risk. The company's focus on high-quality credits and established asset managers for NDFI underscores its commitment to risk management. As regulatory tailwinds continue to develop, Webster Financial is well-positioned to capitalize on further growth opportunities in HSAs and other strategic initiatives.