Western Alliance Bancorporation (NYSE:WAL) is one of the 10 Best Bank Stocks to Buy in 2026.
On February 4, UBS trimmed its target price on Western Alliance (WAL) by 0.9% to $106 (from $107) but retained its Buy recommendation on the stock. The firm said in a research note to investors that Q4 2025 results from mid-cap banks were strong and that it did not see any early asset quality concerns. It also thinks that the steepening of the yield curve, combined with faster loan book expansion and more M&A activity, will sustain investor sentiment for 2026.
This update follows Western Alliance’s 4th-quarter 2025 earnings report on January 26, which highlighted a 32.4% YoY increase in attributable net income (from $213.7 million to $282.9 million). On a per share basis, diluted earnings grew 32.8% YoY to $2.59 (from $1.95). The strong earnings growth yielded a 19-basis-point improvement to 1.23% (from 1.04%) in return on average assets and a 230-basis-point increase to 16.9% (from 14.6%) in return on average total common equity.
The strong Q4 earnings growth was driven primarily by a 15.0% YoY increase in net interest income (NII), which in turn was caused mostly by loan growth and a slight expansion in net interest margins (NIM). Total loans held for investment grew 9.3% YoY to $58.7 billion (from $53.7 billion). Commercial and industrial loans accounted for 86% of the loan book expansion, growing 20.8% YoY to $27.9 billion (from $23.1 billion). Construction & land loans, meanwhile, dragged, falling 8.9% to $4.1 billion (from $4.5 billion). The $5.0 billion YoY increase in loan growth was funded fully by the $10.8 billion increase in total deposits to $77.2 billion (from $66.3 billion).
Net interest margin, meanwhile, expanded slightly by 3 basis points YoY to 3.51% (from 3.48%), as average funding costs fell by 41 basis points YoY to 2.11% (from 2.52%). The fall in funding costs barely offset the erosion of earning asset yields (13 basis points YoY for investment securities and 33 basis points YoY for loans). The bank estimates that every 100-basis-point increase (decrease) in overall interest rates will increase (decrease) net interest income by 2.7%.
Asset quality, meanwhile, was relatively stable YoY across various metrics. Special mention loans %-age improved by 18 basis points YoY to 0.55% (from 0.73%), non-performing loans %-age improved by 4 basis points YoY to 0.85% (from 0.89%).
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Moving forward, the bank’s management expects to grow loans by $6 billion (10.2% YoY) in 2026, funded by an $8 billion increase in deposits (10.4% YoY). They expect the US Federal Reserve to cut rates twice (25 basis points each cut). The loan and deposit growth, combined with the rate cut, will drive 11%-14% YoY growth in net interest income. Management also sees asset quality slightly deteriorating, with net charge-off percentage increasing to 25-35 basis points (from 24 basis points in 2025).
