Regional banks (BANR, FFIN): the only 2 solid picks

2026-07-04 · By Lubin Danilo, founder of Lubin Investment

Across US regional banks, our method eliminates almost everyone: too much debt, results too tied to interest rates. Two banks still pass our quality screen, Banner Corp and First Financial Bankshares, thanks to unusually strict credit discipline and cash margins rarely seen in this business. Here is why, and at what price.

• Across US regional banks in our screener, almost none earn a good quality score: too much debt, results too tied to interest rates and the credit cycle.
• Two exceptions stand out with a quality score of 9 out of 10 each: Banner Corp (BANR), a Pacific Northwest bank, and First Financial Bankshares (FFIN), a Texas bank.
• What they share: credit discipline far stricter than the sector average, with loan losses that stay minimal even in tough periods.
• Both post free cash flow margins well above what you typically see in regional banking: 46.1% for Banner, 59.7% for First Financial.
• That does not make this the right time to buy: both currently trade above our recommended buy price, about 19% higher for Banner and 51% higher for First Financial.

Why most regional banks almost never pass my quality screen

Out of the more than 5,000 stocks my screener reviews, one sector comes back almost systematically empty when I filter for top quality: US regional banks. That is not chance or a bias against the sector, it is the very structure of the banking business that clashes with my scoring grid.

A bank lends out money it has itself borrowed, with a leverage ratio I would not tolerate in any other sector: 8 to 10 dollars of debt for every 1 dollar of equity. Its results depend on central bank decisions and the yield curve, not on the quality of its product. And what a bank calls profit is often not real cash but an accounting construct full of provisions. I detailed this mechanism in my <a href="/blog/secteurs-sans-note-parfaite-banques-energie-distribution">piece on the sectors that never get a perfect score</a>: banks, energy, and large retail belong there for different but equally structural reasons.

On my screener, the regional banking sector trades on average around 11.7 times free cash flow, noticeably cheaper than the broader US market. That low price is no accident, it reflects lingering investor distrust since the 2023 regional banking crisis, when Silicon Valley Bank, Signature Bank, and First Republic collapsed within days over mismanaged interest rate risk. A Stanford study estimated roughly 186 other banks carried comparable vulnerability at the time. The market still remembers.

The two exceptions: Banner Corp and First Financial Bankshares

On this minefield, two banks still pass my filter with a score of 9 out of 10, the second highest score possible in my method. My quality score summarizes ten fundamental criteria: profitability, sales and cash growth, margins, buybacks, debt, and return on capital. A company that validates nearly all of them earns a high score regardless of the sector it operates in. Banner Corp and First Financial Bankshares get there where almost every other regional bank fails.

To compare their price, I use the P/FCF (price to free cash flow): the share price divided by the free cash flow generated each year, the money genuinely left in the bank once the bills are paid. A P/FCF of 10 means you are paying today for ten years of that cash. The lower the number, the cheaper the stock.

Banner Corp (BANR): Pacific Northwest discipline

Banner Bank, Banner Corp's operating subsidiary, dates back to 1890, founded in Walla Walla, Washington, as the National Building Loan and Trust Association. It now runs about 190 branches across 58 counties in Washington, Oregon, Idaho, and California. Such a long history in an agricultural region shapes risk culture directly: the booms and busts of farm commodities taught management to lend cautiously rather than chase every growth cycle.

It shows up in recent numbers. In the first quarter of 2026, Banner's allowance for credit losses stood at 1.37% of total loans and covered 353% of nonperforming loans. Delinquencies remain low, and management is targeting low to mid single digit loan growth in 2026 rather than chasing every deal, even though new loan originations jumped 61% year over year. Banner also announced the acquisition of Pacific Financial Corp, a consolidation within its historical footprint rather than a risky push into an unfamiliar market.

On price, Banner trades at 7.9 times free cash flow, cheaper than the sector median of 11.7 times. On the surface, that looks like a bargain. But my recommended buy price, based on conservative growth assumptions, sits at $54.32, against a current price of $67.17. A good quality score and a price below peers do not mean cheap in absolute terms, which is exactly why I always judge the two separately.

One caveat shows up over time: free cash flow per share grew only 6.9% a year over five years, one of the few criteria that still looks weak on my scorecard. The years of near zero rates followed by sharp hikes compressed the interest margin at every bank, even the best run ones. Banner offsets this by buying back its own shares, the share count edges down each year, and by growing its dividend 4% a year, with a still reasonable payout ratio of 33% of cash generated.

First Financial Bankshares (FFIN): the Texas doctrine of near zero risk

First Financial Bankshares, headquartered in Abilene, Texas, manages $15.4 billion in assets through a network of local Texas banks. Its credit committee and compliance function are centralized at headquarters, an organization that imposes the same discipline on every local branch. The bank has weathered the Great Depression of the 1930s and the collapse of the Texas oil economy in the 1980s without straying from its doctrine: avoid high volatility loan categories rather than chase yield.

The result shows in its net charge off ratio, which runs around 0.05%, one of the lowest on the entire US market. In the fourth quarter of 2025, net charge offs totaled $391,000, versus $1.94 million a year earlier. In the first quarter of 2026 they ticked up slightly to $356,000, versus $236,000 a year earlier, but remain negligible relative to the size of the balance sheet. That kind of restraint is almost nowhere else in the sector.

On profitability, First Financial posts the higher net margin of the two, 41.9%, and a free cash flow margin of 59.7%. Out of every 100 dollars of revenue, nearly 60 end up as available cash. That figure looks more like a software company's than a typical regional bank's.

This is where the thesis gets complicated. First Financial trades at 16.6 times free cash flow, twice as expensive as Banner, for comparable revenue growth, 12% a year over five years versus 13.3% for Banner. My recommended buy price is $16.96, while the stock trades at $34.88. The market is paying a premium of more than 50% over my target for First Financial's safety and credit track record. That kind of premium only makes sense if you believe this discipline holds for decades to come.

Like Banner, First Financial shows free cash flow per share declining 3% a year over five years, despite a nearly flat share count with no dilution. It is the same symptom of the 2021 to 2023 rate cycle, not a sign of structural deterioration in the model.

What explains both their 9 out of 10 scores

Both banks post the exact same Cash ROCE, 18.3%. That is return on capital employed measured in real cash rather than accounting profit: for every dollar put into the machine, how much cash comes back out each year. A Cash ROCE of 18.3% is excellent, well above what you find at the average regional bank, where accounting results often mask a far weaker conversion into cash.

Both also convert accounting profit into real cash at more than 100%, 1.42 times for Banner, 1.12 times for First Financial, a rare signal for financial institutions where provisions and accounting adjustments often distort this reading. And measured against cash generated, both pay down their debt in under a year, 0.67 years for Banner, 0.30 years for First Financial, far from the ratios that trip up most regional banks on my criteria.

The shared trait in one sentence: credit discipline that has held for decades, controlled operating costs that leave a real cash margin, and rational capital allocation rather than a race for size. That is exactly what Silicon Valley Bank and Signature Bank lacked in 2023: rapid growth funded by uninsured, concentrated deposits, with no safety margin on interest rate risk.

Should you buy Banner Corp or First Financial Bankshares now?

No, not right away, if you follow my method to the letter. A good quality score and a good price are two different questions, and I always judge them separately. Both stocks currently trade above the price I would allow myself to pay: 19% more for Banner, 51% more for First Financial. That is not a flaw in the business, it is a flaw in the current moment.

Two dates to watch this summer: First Financial reports second quarter results on July 16, 2026, EPS expected around $0.51, and Banner follows on July 22, 2026, EPS expected around $1.49. A disappointment on interest margins or a higher than expected loan loss provision could bring both stocks closer to my entry price. A positive surprise, conversely, could also justify an even higher valuation if quality keeps confirming itself quarter after quarter.

What this changes about how you look at a sector

I never look for a whole sector at once, I look for companies that pass my criteria, whatever sector label gets stuck on them. Regional banking is a great example: a quality grid that filters out almost everyone, two names that still pass, and a price that, for now, does not yet reward their quality. Spotting these two exceptions in seconds rather than combing through a balance sheet for hours is exactly what I wanted to be able to do for any sector, so I built it into my analysis tool. You can review the full detail of the criteria on the <a href="/analyse/BANR">Banner Corp</a> and <a href="/analyse/FFIN">First Financial Bankshares</a> pages, or read my <a href="/methodologie">full methodology</a> to understand how I separate quality from price across the more than 5,000 stocks in my screener.

FAQ

Why do most regional banks never earn a good score in your screener?

Because the banking business runs on extreme leverage, 8 to 10 dollars of debt for every 1 dollar of equity, results that depend on interest rates more than product quality, and accounting profit that does not always convert into real cash. Those three factors trip up nearly every regional bank on my ten criteria.

Are Banner Corp and First Financial Bankshares the only two quality regional banks in the US?

As of now, they are the two that stand out most clearly in my screener with a 9 out of 10 score. My screener covers more than 5,000 stocks, so a smaller or less followed name could slip under my radar, but among well established regional banks, these two clearly lead the pack.

Should you buy these two stocks now?

Not at the current price if you follow my method. Both trade above my recommended buy price, 19% more for Banner and 51% more for First Financial. The quality is there, the price is not yet. This is not personalized investment advice, do your own research.

What is the main difference between Banner Corp and First Financial Bankshares?

Geography and price. Banner operates in the Pacific Northwest, Washington, Oregon, Idaho, California, and trades cheaper, at 7.9 times free cash flow. First Financial operates in Texas, posts higher margins and a near zero history of loan losses, but trades twice as expensive, at 16.6 times.

When do these two banks report next?

First Financial reports on July 16, 2026 and Banner on July 22, 2026, both for their second quarter 2026. Both dates are worth watching since both stocks already trade above my recommended buy price.

Analyser une action sur Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).