Western Alliance Bancorporation (WAL)

Regional banking company Western Alliance Bancorporation (NYSE:WAL) reported revenue ahead of Wall Streets expectations in Q4 CY2025, with sales up 18% year on year to $980.9 million. Its GAAP profit of $2.59 per share was 8.9% above analysts’ consensus estimates.

Company Overview

Operating through five distinct regional banking divisions across the western United States, Western Alliance Bancorporation (NYSE:WAL) provides commercial banking, treasury management, mortgage services, and specialized financial solutions through its banking divisions and subsidiaries.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Western Alliance Bancorporation competes with regional banks like Zions Bancorporation (NASDAQ:ZION), East West Bancorp (NASDAQ:EWBC), and Cullen/Frost Bankers (NYSE:CFR), as well as larger national institutions including JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) in its commercial banking and mortgage services markets.

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Thankfully, Western Alliance Bancorporation’s 23% annualized revenue growth over the last five years was incredible. Its growth beat the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Western Alliance Bancorporation’s annualized revenue growth of 12.1% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Western Alliance Bancorporation reported year-on-year revenue growth of 18%, and its $980.9 million of revenue exceeded Wall Street’s estimates by 7%.

Net interest income made up 83.1% of the company’s total revenue during the last five years, meaning Western Alliance Bancorporation barely relies on non-interest income to drive its overall growth.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Western Alliance Bancorporation’s efficiency ratio has increased by 13.5 percentage points, going from 42.9% to 52.8%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Western Alliance Bancorporation’s efficiency ratio came in at 55.7% this quarter, beating analysts’ expectations by 207.6 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Western Alliance Bancorporation to become less profitable as it anticipates an efficiency ratio of 56%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Western Alliance Bancorporation’s EPS grew at a solid 11.6% compounded annual growth rate over the last five years. Despite its efficiency ratio improvement during that time, this performance was lower than its 23% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Western Alliance Bancorporation, its two-year annual EPS growth of 15.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Western Alliance Bancorporation reported EPS of $2.59, up from $1.95 in the same quarter last year. This print beat analysts’ estimates by 8.9%. Over the next 12 months, Wall Street expects Western Alliance Bancorporation’s full-year EPS of $8.73 to grow 18.7%.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Western Alliance Bancorporation has averaged a Tier 1 capital ratio of 11.1%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Western Alliance Bancorporation has averaged an ROE of 16.3%, excellent for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Western Alliance Bancorporation.

We were impressed by how significantly Western Alliance Bancorporation blew past analysts’ revenue expectations this quarter. We were also happy its net interest income outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $88.25 immediately after reporting.

Updated: January 27, 2026 at 5:25 AM EST

Before deciding whether to buy Western Alliance Bancorporation or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are some bright spots in Western Alliance Bancorporation’s fundamentals, but its business quality ultimately falls short. First off, its revenue growth was exceptional over the last five years. And while its worsening efficiency ratio shows the business has become less productive, its net interest income growth was exceptional over the last five years. On top of that, its projected EPS for the next year implies the company’s fundamentals will improve.

Western Alliance Bancorporation’s P/B ratio based on the next 12 months is 1.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $101.50 on the company (compared to the current share price of $88.25).