Western Alliance Bancorporation (WAL)

Regional banking company Western Alliance Bancorporation (NYSE:WAL) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 15.2% year on year to $938.2 million. Its GAAP profit of $2.28 per share was 9.1% 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.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Thankfully, Western Alliance Bancorporation’s 23.3% annualized revenue growth over the last five years was incredible. Its growth surpassed the average banking company and shows its offerings resonate with customers, a great starting point for our analysis.

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 13.2% 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 15.2%, and its $938.2 million of revenue exceeded Wall Street’s estimates by 6.2%.

Net interest income made up 85.2% 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.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

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 15.8 percentage points, going from 42.9% to 55%. 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 57.4% this quarter, beating analysts’ expectations by 367.3 basis points (100 basis points = 1 percentage point). This result was 4.7 percentage points worse than the same quarter last year.

For the next 12 months, Wall Street expects Western Alliance Bancorporation to become less profitable as it anticipates an efficiency ratio of 56.2%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Western Alliance Bancorporation’s EPS grew at an astounding 13.1% compounded annual growth rate over the last five years. Despite its efficiency ratio improvement during that time, this performance was lower than its 23.3% 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 1.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Western Alliance Bancorporation reported EPS of $2.28, up from $1.80 in the same quarter last year. This print beat analysts’ estimates by 9.1%. Over the next 12 months, Wall Street expects Western Alliance Bancorporation’s full-year EPS of $8.09 to grow 23.5%.

The balance sheet drives banking profitability since earnings flow from the spread between borrowing and lending rates. As such, valuations for these companies concentrate on capital strength and sustainable equity accumulation potential.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Western Alliance Bancorporation’s TBVPS grew at an incredible 14.9% annual clip over the last five years. The last two years show a similar trajectory as TBVPS grew by 15.3% annually from $44.02 to $58.56 per share.

Over the next 12 months, Consensus estimates call for Western Alliance Bancorporation’s TBVPS to grow by 12.9% to $66.14, top-notch growth rate.

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, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Western Alliance Bancorporation has averaged an ROE of 16.8%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Western Alliance Bancorporation has a strong competitive moat.

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. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.7% to $79 immediately following the results.

Updated: December 4, 2025 at 11:42 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Western Alliance Bancorporation, you should also grasp the company’s longer-term business quality and valuation.

Western Alliance Bancorporation isn’t a bad business, but we have other favorites. First off, its revenue growth was exceptional over the last five years. And while Western Alliance Bancorporation’s anticipated efficiency ratio over the next year signals its day-to-day expenses will rise, 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 1.3x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $100.50 on the company (compared to the current share price of $85.20).