Western Alliance Q3 Earnings Rise as Margin Expands, 2026 Outlook Revised

Western Alliance Bancorporation (WAL) reported higher third-quarter earnings as loan growth and its deposit optimization program supported net interest income and margin expansion. The bank also revised its 2026 outlook, narrowing expected net interest income growth to 11% to 12% while lowering its loan and deposit growth ranges and raising its projection for non-interest income.

Net income for the quarter ended September 30 rose 6.4% from a year earlier to $277.2 million, while diluted earnings per share increased 7.5% to $2.45. Net income available to common shareholders was $266.9 million, compared with $250.2 million in the prior-year quarter.

Net revenue advanced 8.1% year over year to $1.01 billion. Pre-provision net revenue, a non-GAAP measure, increased 6.4% to $419.1 million. Return on average assets was 1.12%, and non-GAAP return on average tangible common equity was 15.5%.

Deposit strategy supports net interest income

Net interest income increased 1.3% sequentially and 7.6% year over year to $807.6 million. Net interest margin expanded four basis points from the second quarter to 3.57%, reflecting a 10-basis-point increase in the yield on interest-earning assets that was partly offset by a six-basis-point rise in funding costs.

The bank attributed the improvement to higher average held-for-investment loans and the continued movement of cash into loans. Average held-for-investment loans rose by $1.5 billion during the quarter to $60.8 billion, representing 67% of average earning assets.

Western Alliance said it had cumulatively remixed about $4.5 billion of higher-cost deposits and remained on track to exceed $5 billion in 2026. Deposit-related costs declined by $13.8 million from the second quarter to $165.4 million, primarily because of lower average balances of deposits tied to earnings credit rates, or ECRs.

Total deposits were $81.76 billion, down $119 million from the previous quarter but up $4.51 billion from a year earlier. Non-interest-bearing deposits declined by $2.07 billion sequentially as part of the optimization strategy, while interest-bearing demand deposits and certificates of deposit increased. Commercial banking deposits grew by $1.8 billion during the quarter and accounted for 34% of total deposits, up from 31% in the second quarter.

Commercial lending drives loan growth

Held-for-investment loans increased by $600 million during the quarter and $4.9 billion, or 8.7%, from a year earlier to $61.55 billion. Commercial and industrial loans accounted for $4.37 billion of the annual increase, reflecting what the bank described as diversified C&I momentum. Non-owner-occupied commercial real estate loans rose by $396 million sequentially, while residential and consumer loans declined by $112 million.

The held-for-investment loan-to-deposit ratio increased to 75.3% from 74.4% in the second quarter and 73.3% a year earlier.

Non-interest income rose 10% year over year to $206.6 million, supported by commercial banking income and related fees, which increased to $78.7 million from $52.4 million. Mortgage banking revenue fell to $79.5 million from $94.6 million a year earlier. Mortgage production totaled $14.5 billion, down 11% sequentially and 4% year over year, while interest-rate lock volume declined 27% from the second quarter and 14% from the prior-year period.

Non-interest expense increased to $595.1 million from $544.4 million a year earlier. Salaries and employee benefits rose by $21.8 million sequentially to $226.1 million, more than offsetting the reduction in deposit costs. The non-GAAP efficiency ratio was 58.1%, while the adjusted ratio excluding deposit costs increased to 50% from 48.9% in the second quarter.

Credit coverage rises as nonaccrual loans decline

Nonaccrual loans declined by $77 million during the quarter to $485 million, or 0.79% of funded held-for-investment loans, compared with 0.92% in both the prior quarter and the year-earlier period. Western Alliance said it had resolved four of the six nonaccrual loans discussed at its Investor Day.

The provision for credit losses was $80 million, reflecting net charge-offs, loan growth and macroeconomic risks associated with the higher-rate environment. Net loan charge-offs fell to $45.8 million, or 0.30% of average loans, from $55 million, or 0.37%, in the second quarter. They remained above the $31.1 million, or 0.22%, reported a year earlier.

Total loan allowance for credit losses increased by $35 million to about $575 million, including reserves for unfunded commitments. Coverage of funded held-for-investment loans rose four basis points to 0.93%, while coverage of nonaccrual loans increased to 118% from 96%.

Classified assets declined by $37 million to $1.09 billion, although special-mention loans increased by $81 million to $397 million. Other real estate owned rose by $39 million to $165 million. The bank’s $3.1 billion office portfolio included $361 million of criticized commitments, equal to 12% of the portfolio.

Management revises 2026 outlook

Management now expects held-for-investment loans to increase by $4 billion in 2026, compared with its prior projection of $5 billion. Deposit growth is forecast at $3.5 billion to $4 billion, down from the previous $6 billion outlook, with the range subject to continued deposit optimization and a shift toward commercial banking deposits.

Net interest income is projected to rise 11% to 12%, compared with the prior range of 12% to 14%. Management expects fourth-quarter net interest income to be flat to slightly higher than the third quarter. The revised outlook assumes one additional 25-basis-point rate increase in December.

The company raised its expected non-interest income growth range to 18% to 21% from 13% to 17%. Non-interest expense excluding deposit costs remains projected at $1.60 billion to $1.65 billion and is tracking toward the upper end of that range. Expected deposit costs were narrowed to $650 million to $675 million from $650 million to $700 million. Management continues to anticipate a net charge-off rate of 25 to 35 basis points, with core charge-offs excluding fraud tracking in the upper half of that range.

Western Alliance ended the quarter with a common equity Tier 1 ratio of 10.9%, which remained above regulatory well-capitalized levels. The bank repurchased $92.1 million of shares during the quarter and maintained a quarterly common dividend of $0.42 per share. Non-GAAP tangible book value per share was $62.22, down 1.6% sequentially due primarily to accumulated other comprehensive income changes and repurchases, but up 6.3% year over year.

The outlook remains subject to interest-rate and funding changes, depositor behavior, macroeconomic conditions and credit performance. The bank’s rate-sensitivity model indicated that a gradual 100-basis-point decline would reduce net interest income by 2.5%, while an equivalent increase would raise it by 2.6%.