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    WAL
    Earnings call· Jun 2026(Q2 FY26)

    WESTERN ALLIANCE BANCORPORATION WAL

    Jul 22, 2026 Source

    Executive summary

    Western Alliance Bancorporation Q2 FY26 — Strong Growth, Capital Returns, and Deposit Optimization

    Western Alliance Bancorporation delivered strong Q2 FY26 results, marked by robust C&I-driven loan growth and significant pre-provision net revenue expansion. The company initiated a strategic pivot towards enhanced shareholder returns through increased share repurchases, funded by a moderated loan growth outlook, while continuing deposit optimization efforts to improve funding costs. Management remains confident in achieving medium-term profitability targets and maintaining a resilient balance sheet.

    Highlights

    5

    • Quarterly held-for-investment loan growth of $1.8 billion, led by C&I, demonstrating industry-leading growth.

    • Net interest income increased $31 million or 16% on a linked quarter annualized basis, driven by average earning asset growth of $2.7 billion.

    • Pre-provision net revenue (PPNR) increased 25% year-over-year to $412 million, highlighting strong earnings power.

    • Tangible book value per share rose $2.10 from Q1 to $63.24, representing 13% year-over-year growth.

    • Credit trends remain constructive with criticized assets decreasing $87 million to $316 million and net charge-offs declining to 37 basis points.

    Concerns

    4

    • Total deposits declined by $849 million during the quarter due to intentional reduction of approximately $1.2 billion of higher cost deposits.

    • Nonaccrual loans increased $70 million, primarily due to the migration of one previously disclosed loan, though it remains current on payments.

    • Noninterest income guidance revised down to 13%-17% growth (from 20%-25%) due to headwinds in mortgage banking revenue from higher rates and geopolitical environment.

    • Gain on sale margin in mortgage banking compressed 8 basis points from Q1 to 29 basis points due to lower secondary gains and softer investor demand.

    Guidance & targets

    20
    CategoryTargetConfidence
    Full-year 2026 HFI loan growth
    $5 billion
    high materiality
    High
    Full-year 2026 deposit growth
    $6 billion
    high materiality
    High
    Share repurchases
    $150 million
    high materiality
    High
    Full-year 2026 Net Interest Income growth
    12% to 14%
    high materiality
    High
    Net Interest Margin trajectory
    stable
    medium materiality
    Medium
    Full-year 2026 Total Noninterest Income growth
    13% to 17%
    high materiality
    High
    Full-year 2026 Deposit Costs
    $650 million to $700 million
    medium materiality
    High
    Full-year 2026 Operating Expenses
    $1.6 billion to $1.65 billion
    high materiality
    High
    Full-year 2026 Core Net Charge-off Rate
    25 to 35 basis points
    high materiality
    High
    Nonperforming Loans trajectory
    falling
    high materiality
    High
    Full-year 2026 Effective Tax Rate
    19%
    medium materiality
    High
    Deposit optimization (high-cost deposit reduction)
    $750 million
    medium materiality
    High
    Q3 FY26 Total Deposit Growth
    $1 billion
    medium materiality
    High
    Q4 FY26 Deposit Optimization (high-cost deposit reduction)
    several hundred million dollars
    medium materiality
    Medium
    Full-year 2026 Deposit Optimization (high-cost deposit reduction)
    $3 billion
    high materiality
    High
    H2 FY26 Net Charge-off Rate
    above midpoint of 25-35 bps
    medium materiality
    Medium
    Full-year 2026 Loan Growth
    8.5%
    high materiality
    High
    Full-year 2026 Deposit Growth
    8%
    high materiality
    High
    H3 FY26 HFI Loan Growth
    $1.2 billion to $1.3 billion
    high materiality
    High
    H4 FY26 HFI Loan Growth
    $1.2 billion to $1.3 billion
    high materiality
    High

    Operational metrics

    67
    Adjusted Q1 fee income (excluding securities gains)
    $199 million
    Q1 FY26

    Noninterest income of $199 million was consistent with adjusted Q1 fee income, which excludes securities gains of $50.5 million.

    Securities gains
    $50.5 million
    Q1 FY26

    Elevated securities gains realized last quarter.

    Noninterest income growth
    $51 million34%
    YoY

    Year-over-year growth of approximately $51 million or 34% reflected building momentum in service charges and fees through greater commercial banking, treasury management and FX offerings.

    Noninterest income growth rate
    34%
    YoY

    Year-over-year growth of approximately $51 million or 34% reflected building momentum in service charges and fees through greater commercial banking, treasury management and FX offerings.

    Mortgage banking gain on sale margin
    29down 8 bps QoQ
    Q2 FY26

    The gain on sale margin did compress 8 basis points from Q1 to 29 basis points from lower secondary gains, which reflected softer investor demand due to higher rates.

    Servicing revenue
    $31 millionrebounded
    Q2 FY26

    Servicing revenue rebounded to $31 million, mostly from slower prepayment speeds in a higher rate environment.

    Gains from hedging mortgage business
    $6 million
    Q2 FY26

    To hedge volatility in the mortgage market, we sold covered call options on mortgage bonds, which produced gains of $6 million and are embedded in fair value gain adjustments.

    Noninterest expense increase
    $9 million
    QoQ

    Noninterest expense increased less than $9 million from the prior quarter to $583 million.

    Deposit costs increase (noninterest expense)
    $16 million
    QoQ

    Deposit costs rose $16 million due to a full quarter impact of significant back-weighted mortgage warehouse deposit growth in Q1.

    Pre-provision net revenue (PPNR)
    $412 millionup 25% YoY
    Q2 FY26

    Pre-provision net revenue of $412 million was 25% higher compared to Q2 2025 (assuming ASR error for Q2 2020).

    Provision expense
    $80 million
    Q2 FY26

    Provision expense of $80 million was mostly a function of loan growth and net charge-off replenishment.

    Adjusted EPS
    $2.22
    Q1 FY26

    Earnings per share of $2.36 was 6% above our adjusted EPS of $2.22 in Q1 or 14% higher year-over-year.

    Securities and cash decline
    $2.4 billion
    QoQ

    Securities and cash declined $2.4 billion, primarily driven by a $2.6 billion reduction in cash as we deployed more liquidity into increased loan growth.

    Cash reduction
    $2.6 billion
    QoQ

    Primarily driven by a $2.6 billion reduction in cash as we deployed more liquidity into increased loan growth.

    Securities and cash as % of assets
    mid-20% areamoved closer to
    Q2 FY26

    Securities and cash as a percentage of assets moved closer to the mid-20% area.

    HFI loan-to-deposit ratio
    74%increased
    Q2 FY26

    Increased to 74% and closer to our medium-term target of 77% to 80%.

    HFI loan growth
    $1.8 billion
    Q2 FY26

    Total quarterly HFI loan growth, generated mostly from C&I growth.

    C&I loan growth as % of total HFI growth
    Over 80%
    Q2 FY26

    Over 80% of quarterly HFI growth occurred in C&I categories.

    Commercial Banking loan growth
    $950 million
    Q2 FY26

    Primarily from specialty commercial banking verticals and hotel franchise finance within CRE.

    C&I loans as % of HFI portfolio
    49%nearly
    Q2 FY26

    C&I accounting for nearly 49% of the HFI portfolio.

    CRE ex-construction loans as % of HFI portfolio
    19.5%down about 2 points YoY
    Q2 FY26

    CRE ex construction has declined about 2 points over the past year to 19.5% of the book.

    Total deposits decline
    $849 million
    QoQ

    The $849 million decline in deposits from the prior quarter reflected our deposit optimization strategy.

    Higher cost deposit reduction (Q2)
    $1.2 billion
    Q2 FY26

    Resulting in a reduction of over $1 billion in higher cost balances towards the end of the quarter (Ken stated $1.2B earlier).

    Higher cost deposit reduction (early Q3)
    $1 billion
    early Q3 FY26

    Additional reductions made during the first few weeks of Q3.

    Total assets
    just below $99 billion
    Q2 FY26

    Total assets remained just below $99 billion.

    Total equity expansion
    $227 million
    QoQ

    Mostly from retained earnings growth.

    Securities yield
    4.64%up 5 bps QoQ
    Q2 FY26

    Reflecting continued reinvestment and higher yields.

    HFI loan yields
    5.82%down 3 bps QoQ
    Q2 FY26

    As a function of ongoing remixing efforts into more C&I loans compared to CRE.

    Interest-bearing deposit costs
    274compressed 1 bps QoQ
    Q2 FY26

    Compressed 1 basis points to 274 from Q1.

    Overall liability funding cost
    196declined 3 bps QoQ
    Q2 FY26

    Declined 3 basis points from the prior quarter, helped by higher average balances in noninterest-bearing deposits.

    Average earning assets growth
    3%
    QoQ

    Average earning assets grew 3% from the prior quarter.

    Average earning assets
    $91.7 billionup 3% QoQ
    Q2 FY26

    Average earning assets grew 3% from the prior quarter to $91.7 billion.

    Interest cost of earning assets decline
    2
    QoQ

    Declined 2 basis points.

    Earning asset yield decline
    3
    QoQ

    Declined 3 basis points.

    Adjusted efficiency ratio
    49%up 140 bps QoQ
    Q2 FY26

    Increased 140 basis points from the prior quarter.

    Adjusted efficiency ratio (ex-securities gains)
    declined by about 150 bps
    QoQ

    When excluding the security gains of Q1, this ratio would have declined by about 150 basis points.

    Adjusted efficiency ratio (YoY)
    dropped by almost 3 points
    YoY

    On a year-over-year basis, the adjusted efficiency ratio dropped by almost 3 points.

    Noninterest expense decrease (ex-deposit costs)
    $7 million
    QoQ

    Excluding deposit costs, noninterest expense decreased $7 million from the prior quarter.

    Operating leverage (revenue vs expense growth)
    3x
    QoQ

    Operating leverage resumed in the second quarter with revenue growing 3x more than noninterest expense on a quarterly basis (excluding Q1 securities gains).

    Variable earning assets as % of total
    67%
    Q2 FY26

    67% of total earning assets are variable.

    Variable liabilities as % of total earning assets
    87%
    Q2 FY26

    Variable liabilities represent 87% of total earning assets.

    Non-maturity deposit beta (next 12 months)
    59%
    next 12 months

    Non-maturity deposit rates, including ECRs, are estimated to have a beta of 59% over the next 12 months.

    Earnings at risk (up 100 bps ramp)
    0.8%expected to rise
    Q2 FY26

    Earnings are expected to rise 0.8% in an up 100-basis-point ramp scenario.

    Earnings at risk (down 100 bps ramp)
    0.8%expected to rise
    Q2 FY26

    Earnings are expected to rise 0.8% in a down 100-basis-point ramp scenario.

    Special mention loans
    $316 milliondecreased $87 million QoQ
    Q2 FY26

    Special mention loans decreased $87 million to $316 million.

    Special mention loans as % of funded HFI loans
    52dropped 16 bps QoQ
    Q2 FY26

    As a percentage of funded HFI loans dropped 16 basis points to 52 bps.

    Classified accruing loans
    $440 millionedged down $15 million QoQ
    Q2 FY26

    Classified accruing loans edged down $15 million to $440 million.

    Classified accruing loans as % of funded HFI loans
    72from 77 bps last quarter
    Q2 FY26

    Or 72 basis points from 77% last quarter (ASR error, likely 77 bps).

    Nonaccrual loans increase
    $70 million
    QoQ

    Nearly all of this change was related to the migration of one loan mentioned previously that is now current.

    Allowance for loan losses
    $487 millionmoved higher QoQ
    Q2 FY26

    Our allowance for loan losses moved higher to $487 million.

    Allowance for loan losses as % of funded HFI loans
    80
    Q2 FY26

    Or 80 basis points of funded HFI loans.

    Allowance for credit losses (ACL)
    89increased 2 bps QoQ
    Q2 FY26

    Our allowance for credit losses also increased 2 basis points to 89.

    Total loan ACL to funded loans ratio (ex-CLN)
    101
    Q2 FY26

    Excluding loans covered by credit linked notes, the total loan ACL to funded loans ratio is 101.

    Tangible common equity to tangible assets ratio
    7%up 20 bps from year-end
    Q2 FY26

    Lifted approximately 20 basis points from year-end to 7% from solid retained earnings growth as well as a slight decrease in tangible assets and an incremental improvement in our AOCI position.

    PPNR as % of average assets
    1.68%
    Q2 FY26

    This quarter PPNR was 1.68% of average assets.

    Loan loss reserve addition
    $14 million
    Q2 FY26

    An additional $14 million was put into the loan loss reserve.

    EPS impact from loan loss reserve addition
    $0.10
    Q2 FY26

    The $14 million loan loss reserve addition is worth about $0.10 to EPS.

    Gains from hedging mortgage business
    $3 million
    Q3 FY26

    Already locked in for Q3 from selling covered call options on mortgage bonds.

    Q1 HFI loan growth
    $400 million
    Q1 FY26

    HFI loan growth in Q1.

    Higher cost deposit reduction
    $1.75 billion
    Q3 FY26

    Total high-cost deposits transitioned off the balance sheet in Q3.

    Competitor CET1 ratio range
    10.2% to 10.5%
    current

    Many competitors run their CET1 ratio in this range.

    Cost of total deposits
    1.78%down 3 bps QoQ
    Q2 FY26

    Cost of total deposits declined 3 basis points from 1.81% to 1.78%.

    Cost of total deposits (June exit)
    1-2 bps below Q2 average
    June exit

    June's end-of-month total cost of deposits was approximately 1 to 2 basis points below Q2's total average cost of $1.78.

    Cost of interest-bearing deposits
    2.74%down 1 bps QoQ
    Q2 FY26

    Cost of interest-bearing deposits was down about 1 basis point in Q2, from 2.75% to 2.74%.

    Cost of interest-bearing deposits (June exit)
    1-2 bps below Q2 average
    June exit

    Exiting June with cost of interest-bearing deposits being down about 1 to 2 basis points.

    New deposit businesses growth rate
    2.5xfaster than rest of balance sheet
    past year

    New deposit businesses have grown 2.5x as fast as the rest of the balance sheet in the past year.

    C&I portion of Q2 HFI loan growth
    $1.5 billion
    Q2 FY26

    $1.5 billion of the $1.8 billion HFI loan growth in Q2 came from C&I.

    Industry KPIs

    13
    MetricValueDetails
    Loans$1.8 billionUSD
    Deposits$81.9 billionUSD
    Rotce ROE15.4%%
    Cet1 ratio11%%
    Capital returns$150 millionUSD
    Fee income lines$199 millionUSD
    Allowance reserves$487 millionUSD
    Net interest income$797 millionUSD
    Net interest margin3.53%%
    Net charge offs npls37bps
    Total operating expenses$583 millionUSD
    Provision for credit losses$80 millionUSD
    Efficiency ratio operating leverage49%%

    Risks & headwinds

    4
    Higher rates and tighter spreads in mortgage bankingQ3 and Q4 FY26

    Mortgage banking revenue will hold Q3 and Q4's mortgage banking revenue in line to Q2 level.

    Mitigation: Hedging mortgage market volatility by selling covered call options on mortgage bonds, generating $6.2 million in Q2 and $3 million in July.

    Uncertainty in timing of Juris Banking fee incomeQ3 and Q4 FY26

    Accelerated income in H1 from large claims; pipeline looks great but timing is difficult to pin down.

    Mitigation: No specific mitigation, but long-term pipeline continues to grow.

    Nonaccrual loan resolution delaysH2 FY26

    $70 million increase in NALs in Q2 due to one credit; 2 of 6 previously discussed NALs resolved, 3rd expected in 1-10 days, 4th by Q3 end, last 2 in Q4.

    Mitigation: Active resolution efforts, including working with borrower to bring in a potential tenant for the current NAL.

    Spread compression in certain loan categoriesOngoing

    Will not look to push as hard on capital [indiscernible] and subscription lines where spreads are compressing fast.

    Mitigation: Slowing loan growth in less attractive categories and reallocating to higher risk-adjusted returns.

    What to watch in Q3 FY26

    5

    Nonaccrual Loan Resolution Progress

    Q3 FY26
    Current2 of 6 previously discussed NALs resolved; 1 credit (not part of the 6) increased NALs by $70M but is current.
    Target3rd of 6 NALs resolved in 1-10 days; 4th of 6 NALs resolved by Q3 end.

    Why it matters

    Successful resolution of nonaccrual loans is key to improving asset quality metrics and reducing credit risk.

    As a follow-up to Investor Day commentary, we successfully resolved 2 of the 6 nonaccrual loans discussed with the remaining 4 on track for resolution in the second half of 2026.

    Q&A highlights

    5

    Is the pivot due to reduced loan/deposit opportunities or stock undervaluation? What would prompt a return to prioritizing growth?

    The pivot is a deliberate capital allocation decision to enhance shareholder value by addressing stock undervaluation. Even with reduced loan growth, WAL will still have top organic growth among peers. The company will continuously review loan growth vs. buybacks, aiming to maintain 11% CET1. Potential Basel III capital relief could also fund future buybacks.

    “we're not getting rewarded for the excess growth. So we can still be the top performing loan growth bank inside of the peer group, but we're just better. We don't need to be better by a very wide margin because that wide margin we were not getting compensated for.”

    asked by David Smith · answered by Kenneth Vecchione

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Capital Reallocation

    Western Alliance is deliberately shifting its capital allocation strategy, reducing its full-year loan growth outlook to $5 billion to enable a significant increase in share repurchases, with $150 million planned for H2 2026. This pivot aims to maximize shareholder value by capitalizing on the perceived undervaluation of its stock, while still maintaining industry-leading growth rates within its peer group. The company also anticipates utilizing potential incremental CET1 capital from finalized Basel III rules in 2027 for further buybacks or growth.

    02

    Deposit Optimization and Funding Costs

    The bank is actively executing a deposit optimization strategy, having reduced approximately $1.2 billion of higher-cost deposits in Q2 and an additional $1 billion in early Q3, with plans for another $750 million reduction by Q3 end. This initiative is designed to improve funding costs and enhance profitability, with early Q3 indications showing continued declines in interest expense and deposit costs. Despite these reductions, the company intends to grow total deposits by approximately $1 billion in Q3.

    03

    Asset Quality and NPL Resolution

    Core asset quality remains stable, with special mention loans decreasing to $316 million and criticized accruing loans edging down. While nonaccrual loans increased by $70 million due to one specific credit, management expects a meaningful decline in NPLs during H2 2026, having already resolved two of six previously discussed nonaccrual loans and with a third expected to close soon. The charge-off rate is believed to have peaked in Q1/Q2 and is projected to gently decline in H2.

    04

    Mortgage Banking and Fee Income Dynamics

    Mortgage banking revenue improved from Q1, but higher rates and tighter spreads are creating headwinds, leading to a downward revision in full-year noninterest income growth guidance. The company is actively hedging mortgage market volatility🌐 by selling covered call options on mortgage bonds, generating $6.2 million in Q2 and $3 million in July, a strategy expected to continue. Fee income from Juris Banking saw accelerated income in H1 due to large claims, with a strong pipeline for 2027, but near-term timing uncertainty.

    05

    Operating Leverage and Efficiency

    Western Alliance demonstrated strong operating leverage, with total revenue growth outpacing total expense growth by a 3:1 margin (excluding Q1 securities gains). The adjusted efficiency ratio, excluding Q1 securities gains, would have declined by 150 basis points. The bank has absorbed significant costs related to preparing for LFI status (over $100 billion in assets) while maintaining a steady or improving efficiency ratio, indicating disciplined expense management.

    AI-generated summary of the company’s earnings call. Not investment advice.