Western Alliance Bancorporation Q3 Earnings Call Highlights

Key Points

• Credit quality improved: Non-accrual loans fell 14% sequentially to $485 million, while net charge-offs declined to 30 basis points. Management expects further improvement as it resolves the remaining two identified credits by year-end.
• Deposit optimization strengthened margins: Western Alliance transitioned $3 billion of higher-cost deposits during the quarter, helping reduce deposit costs by $14 million and expand adjusted net interest margin by 10 basis points. The bank expects another $500 million of deposits to transition in Q4.
• Earnings grew, but 2026 guidance was moderated: Q3 EPS rose 7.5% year over year to $2.45, while loans grew $600 million and stock repurchases totaled $92.1 million. The company lowered its deposit and loan-growth outlook, while maintaining its capital-return strategy and targeting a CET1 ratio near 11%.

Western Alliance Bancorporation NYSE: WAL said its third-quarter 2026 results reflected improved credit quality, lower deposit costs and increased capital returns as the bank advanced strategic priorities set at its May Investor Day.

Chairman, President and Chief Executive Officer Ken Vecchione said the company entered the quarter focused on improving asset quality, reducing funding costs by transitioning higher-cost deposits, and accelerating share repurchases. “We exited the quarter having made significant strides against each of these goals,” Vecchione said.

Credit Metrics Improve as Non-Accrual Loans Decline

Western Alliance reported that non-accrual loans declined 14%, or $77 million, from the prior quarter to $485 million. The company said the balance represented 79 basis points of funded held-for-investment loans, down 13 basis points sequentially.

Net charge-offs decreased $9 million from the second quarter to $46 million, or 30 basis points. The allowance for credit losses on total loans rose to 93 basis points of funded held-for-investment loans, while total loan allowance coverage of non-accrual loans increased to 118% from 96% in the prior quarter.

Western Alliance had identified six credits for resolution at its Investor Day. During the third quarter, it resolved two additional credits, leaving two remaining resolutions expected before year-end. Chief Credit Officer Lynne Herndon said the four previously resolved credits involved sales of assets outside the bank and did not include seller financing from Western Alliance.

Classified assets declined $37 million to less than $1.1 billion, while classified accruing loans were essentially flat at $441 million. Real estate owned rose $39 million to $165 million. Special mention loans increased $81 million as the bank continued to migrate credits into that category for earlier identification and management.

Vecchione said management expects non-accrual loans to decline further in the fourth quarter as the remaining two identified credits are resolved. The company reaffirmed its full-year core net charge-off outlook of 25 to 35 basis points and said it expects fourth-quarter performance to be similar to the third quarter.

Deposit Optimization Supports Margin Expansion

The bank transitioned $3 billion of higher-cost earnings credit rate, or ECR-related, deposits during the quarter while keeping total deposits nearly unchanged from the second quarter. Commercial banking deposits increased $1.8 billion, helping offset the planned reduction in higher-cost balances.

Across the past two quarters, Western Alliance remixed $4.5 billion in deposits, exceeding its original goal by $1.5 billion and completing the initiative one quarter earlier than planned. The company expects another $500 million of deposits to transition in the fourth quarter, bringing total optimization to at least $5 billion for the year.

Deposit costs declined $14 million from the second quarter, contributing to a 10-basis-point quarterly expansion in adjusted net interest margin, according to management. Reported net interest margin increased four basis points to 3.57% as average earning-asset yields increased 10 basis points, partly offset by a six-basis-point rise in funding costs.

Total deposits were $81.8 billion at quarter-end, down just $119 million from the prior quarter despite the optimization efforts. Commercial banking deposits represented 34% of total deposits, up from 31% in the second quarter. Securities and cash declined about $1 billion to $25.6 billion as the bank deployed funds into loans and reduced excess liquidity.

Western Alliance said its held-for-investment loan-to-deposit ratio increased about one percentage point to 75%, moving toward its medium-term target range of 77% to 80%.

Management expects deposit costs to decline again in the fourth quarter, even after accounting for the September interest-rate increase. However, it expects net interest margin to face a seasonal headwind of roughly three to four basis points as warehouse-related deposits decline and are replaced with higher-cost borrowings. Chief Financial Officer Vishal Idnani said net interest income dollars are expected to be flat to modestly higher sequentially.

Earnings, Loan Growth and Fees

Pre-provision net revenue rose 6% year over year to $419 million, while earnings per share increased 7.5% to $2.45. Net income was $277 million, up 6% from a year earlier, and return on average tangible common equity increased 20 basis points from the second quarter to 15.5%.

Net interest income totaled $808 million, increasing $57 million, or 8%, from a year earlier. On a sequential basis, the company said net interest income increased $11 million, supported by higher average held-for-investment loan balances.

Held-for-investment loans grew $600 million during the quarter. Commercial and industrial loans increased nearly $350 million, and C&I lending has accounted for about 90% of the company’s $4.9 billion of held-for-investment loan growth over the past year. Growth in commercial lending and select commercial real estate businesses was partly offset by an approximately $350 million decline in mortgage warehouse and mortgage servicing rights balances as mortgage demand softened.

Non-interest income increased 10% year over year and rose $8 million sequentially to $207 million. Commercial banking fees increased $6 million from the prior quarter and $26 million from a year earlier. Mortgage banking revenue was $80 million, down $5 million sequentially, as mortgage production declined 4% and rate-lock volume fell 14% from a year earlier. The bank said private-label securitizations helped support secondary-market revenue.

Updated Outlook and Capital Returns

Western Alliance lowered its 2026 deposit-growth outlook to $3.5 billion to $4 billion from $6 billion, reflecting the larger-than-expected optimization program. It also reduced its loan-growth outlook by $1 billion as it transitions excess deposits off the balance sheet and anticipates seasonal weakness in warehouse lending.

• Net interest income growth is expected to be 11% to 12%, compared with prior guidance of 12% to 14%.
• Non-interest income is expected to grow 18% to 21%, up from prior guidance of 13% to 17%.
• Fourth-quarter mortgage banking revenue is expected to be about $70 million.
• Deposit costs are projected at $650 million to $675 million for the year, with the upper end of the prior range lowered.
• Total operating expense guidance remains $1.6 billion to $1.65 billion, with management expecting to finish near the upper end.

The company repurchased $92.1 million of stock during the third quarter, or approximately 1.15 million shares at an average price of $79.78. Cumulative repurchases since the program began totaled $212.5 million through Sept. 30. Western Alliance said it remains on track to meet its $150 million second-half repurchase target and continued buying shares in the fourth quarter.

Its CET1 ratio declined 10 basis points sequentially to 10.9%, while tangible common equity to tangible assets declined 10 basis points to 6.9%, reflecting higher interest rates’ impact on accumulated other comprehensive income and share repurchases. Vecchione said the company intends to balance repurchases with its goal of maintaining CET1 near 11% and improving its tangible common equity ratio toward peer levels.

About Western Alliance Bancorporation (NYSE:WAL)

Western Alliance Bancorporation NYSE: WAL is a bank holding company headquartered in Phoenix, Arizona. Through its principal subsidiary, Western Alliance Bank, the company provides banking and financial services to businesses, professionals, entrepreneurs, and individual customers.

Western Alliance Bank offers commercial and industrial lending, commercial real estate financing, construction loans, residential mortgage warehouse lending, and consumer banking services. Its deposit products include checking, savings, money market, and time deposit accounts, while its other services include treasury management, online banking, payments, and wealth management solutions.

The bank serves customers through a combination of regional banking divisions and specialized businesses, with operations focused on markets including Arizona, California, and Nevada as well as nationwide industry-based lending and financial services.

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