(Bloomberg) -- Shares of US regional banks rallied after Western Alliance Bancorp said deposits had grown by more than $2 billion since the quarter’s end, easing worries about the health of US regional lenders.

The KBW Regional Banking Index soared by 7.3% for its best day since January 2021. Western Alliance rose 10%, while PacWest Bancorp jumped by 22%. The sector had been under pressure since March, when a series of firms including Silicon Valley Bank collapsed.

“The continuous operational updates over the past two months, coupled with yesterday’s brief dive into core-deposit segment trends, gives us solace that not only will WAL weather the storm, but we find it to be notably better positioned than most peer banks,” Hovde Group analyst Ben Gerlinger, who holds an outperform rating on the stock, wrote in a note to clients. 

But Wednesday’s rally did little to alleviate the sector’s pain. Western Alliance is still down by 42% this year and PacWest has fallen 76% over that period. The KBW Regional Banking Index tumbled 27% so far in 2023, as the failures of Silicon Valley Bank, Signature Bank and First Republic Bank rattled investors.

The lender had previously reported that deposit levels had increased $1.8 billion from the end of the prior quarter to $49.4 billion as of May 9. Its latest figures indicate deposit levels increased by another $200 million between May 9 and May 12.

Western Alliance was one of the regional banks initially swept up in the turmoil that followed the collapse of other lenders earlier this year, with investors concerned about unrealized losses on bond investments and deposit levels. Exposure to commercial real estate lending has also been in focus. 

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The collapse of First Republic Bank at the beginning of this month had reignited worries over the group, and sector gauges haven’t been able to recover since the March plunge.

Western Alliance, however, has demonstrated “stability amid an uncertain operating backdrop,” Bloomberg Intelligence analysts Herman Chan and Sergio Ferreira wrote in a note. “We see the bank as well positioned, with $22.6 billion in available liquidity and only about $10 billion in uninsured deposits.”

Larger bank stocks also rallied on Wednesday, with Bank of America Corp. up 4.4% and Wells Fargo & Co. rising 5.4%.

(Updates share moves and chart to market close.)

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