Western Alliance Reverses Second-Quarter Margin Decline

The Tip Desk · October 21, 2026 · 3 min read

The bank’s net interest margin widened 4 bps to 3.57%, while its deposit overhaul reduced quarterly costs recorded in non-interest expense by $13.8 million.

Western Alliance Bancorporation (WAL), the parent of business-focused Western Alliance Bank, reversed its second-quarter margin decline, reporting a third-quarter net interest margin of 3.57% against 3.53% the previous quarter. The 4 bps expansion followed a 1 bp decline in the second quarter. The company attributed the latest improvement to higher asset yields, partly offset by higher costs on interest-bearing liabilities.

Net interest income increased to $807.6 million from $796.9 million in the second quarter. Western Alliance attributed the increase primarily to higher yields and average loan balances. Period-end loans held for investment reached $61.5 billion, up 8.7% YoY and 1.0% QoQ. Quarterly growth slowed from 3.1% in the second quarter, with the latest increase led by non-owner-occupied commercial real estate and commercial and industrial lending.

The funding overhaul also reduced costs outside interest expense. Chief executive Kenneth A. Vecchione said deposit optimization actions totaled $4.5 billion over two quarters. Lower average ECR-related deposit balances reduced associated quarterly expenses by $13.8 million. Total deposits ended September at $81.8 billion, down 0.1% QoQ and up 5.8% YoY. The bank said commercial banking deposit growth offset the optimization activity.

That stable deposit total masked a shift in funding mix. Non-interest-bearing deposits fell to $25.8 billion from $27.8 billion at June’s end, while interest-bearing demand deposits, certificates of deposit and savings balances increased. Western Alliance attributed the decline in non-interest-bearing balances to its optimization efforts. Its ratio of held-for-investment loans to deposits increased to 75.3% from 74.4%.

The deposit savings did not prevent total expenses from increasing. Non-interest expense reached $595.1 million, against $583.3 million in the second quarter, with a $21.8 million increase in salaries and employee benefits outweighing the deposit-cost reduction. The efficiency ratio adjusted for deposit costs, a non-GAAP measure, deteriorated to 50.0% from 48.9%.

Non-interest income increased to $206.6 million from $198.8 million. The bank attributed the improvement primarily to higher securities-sale gains, partly offset by lower mortgage banking revenue. Net income totaled $277.2 million, and diluted earnings increased to $2.45 a share from $2.28 a share a year earlier.

Western Alliance repurchased $92.1 million of shares during the quarter. Total equity nevertheless declined to $7.9 billion from $8.1 billion; the bank attributed the reduction primarily to securities valuation losses, repurchases and dividends, partly offset by earnings. Tangible book value fell to $62.22 a share from $63.24, while the common equity Tier 1 capital ratio slipped to 10.9% from 11.0%.

Credit performance reversed some second-quarter deterioration. Nonaccrual loans fell $77 million to $485 million, reducing their share of funded held-for-investment loans by 13 bps to 0.79%. That followed a 9 bps increase in the second quarter. Reserve coverage of nonaccrual loans increased to 118% from 96%.

Other credit indicators remained mixed. Repossessed assets increased to $165 million from $126 million, and criticized loans edged higher. The bank recorded an $80.0 million credit-loss provision, down from $80.4 million in the second quarter, citing charge-offs, loan growth and precautionary provisioning for macroeconomic risks associated with higher interest rates. Annualized net charge-offs declined 7 bps QoQ to 0.30%, although they remained 8 bps above a year earlier. Vecchione said the latest rate matched the midpoint of management’s 2026 guidance range.