We are delighted to share the third report in our Industry Primers series, this one on US regional banks. The series exists to help fundamental, long-term investors expand and deepen their circle of competence, one industry at a time, and your feedback on what was useful and on which industries to cover next shapes what we produce. Two podcast episodes complement the report, the first telling the industry’s story and the second digging deeper into the fundamentals from an investor’s standpoint. The companion slide deck (free to access) and the full research report (members only) follow below.
A regional bank buys money from depositors in its territory and lends it back there at about ten times leverage, so its value sits in the price it pays for that money. At June 30, 2026, 4,238 federally insured institutions held $26tn of assets and $21tn of deposits, and each filed the same quarterly Call Report whether it held $4bn or $700bn. The 109 listed regional banks and thrifts held $6.4tn of those assets, from U.S. Bancorp (NYSE: USB) at $726bn to Arrow Financial (Nasdaq: AROW) at $4.5bn, and were worth $871bn at the September 11, 2026 close. Across the forty-eight banks the report features, the cost of total deposits in fiscal 2025 ran from 0.26 percent at Westamerica Bancorporation (Nasdaq: WABC) to 3.5 percent at Live Oak Bancshares (NYSE: LOB), against a median of 1.9 percent.
The industry’s average return has trailed the market for twenty years, and the case for studying it rests on the gap between the best banks and the rest. Kenneth French’s value-weighted portfolio of American bank stocks compounded at 11 percent a year from July 1926 to July 2026 against 10 percent for the market, but at 6.5 percent over the twenty years to December 2025 against the market’s 11 percent. Over that window eight owner-operator records compounded tangible book value per share with dividends at a median of 11 percent a year, led by First Citizens BancShares (Nasdaq: FCNCA) at 15 percent. At the bottom the record ends at zero: SVB Financial, the parent of Silicon Valley Bank, compounded at 17 percent a year for thirteen years and went to nothing on March 10, 2023. Every variable behind that gap was observable in advance in free public documents.
The companion deck. US Regional Banks: a self-contained summary of the report.
Key findings
The report covers the listed American banks below the four money-center charters, from the ten super-regionals through the regionals and mid-caps to the specialists, and every figure in it is dated and sourced in the notes. These are the main findings of each part.
A bank’s return on equity is decided mostly by the choices a management makes on the liability side, because regulation sets the leverage. Equity was 10 percent of assets across insured commercial banks at December 31, 2025, against 6.1 percent at the end of 1984. Cullen/Frost Bankers (NYSE: CFR) held $43bn of deposits at that date, a third of them paying no interest, and earned a 3.7 percent margin and a 15 percent return on equity. The return breaks in three ways: credit through the provision, rates through the margin and the securities book, and liquidity when deposits leave. Statute draws the map, since at $10bn of assets a bank loses its uncapped debit interchange income and the $100bn and $250bn lines set the stress-testing and capital regime. (Part I, Orientation)
The thousands of small American banks are a product of law, and deregulation in the wrong order produced the failures of the 1980s. A federal tax on state banknotes in 1866 pushed state banks onto deposits, and the McFadden Act of 1927 froze the branching map for sixty-seven years. The price of deposits was freed in 1980 and the powers to invest them in 1982, while the guarantee rose to $100,000. Continental Illinois lost its funding in a week in May 1984. From 1980 to 1994, 1,617 banks and 1,295 thrifts were resolved, and nine of the ten largest Texas holding companies failed or were sold, though in 1980 to 1982 they had been better capitalized than their peers by more than a quarter. (Part II, Evolution, Chapters 4 and 5)
Consolidation since 1994 has been the middle of the industry absorbing the bottom, and each crisis has charged its cost back to the surviving banks. Ten super-regionals absorbed 490 charters between them. The crisis of 2008 to 2014 took 507 banks and drove the insurance fund to a negative $21bn. More than $40bn left Silicon Valley Bank on March 9, 2023; Signature Bank and First Republic Bank followed, and the industry paid a $16bn special assessment across 114 banking organizations. In the latest wave approvals take four to six months, and Banco Santander (NYSE: SAN) completed its purchase of Webster Financial for about $12bn on August 20, 2026. (Part II, Evolution, Chapters 6 and 7)
The case studies show banks dying of funding, underwriting and duration, and one survivor that set down in advance why it would avoid all three. Washington Mutual grew to about $300bn of assets through acquisitions and then the option adjustable-rate mortgage, and its failure cost its shareholders everything. Silicon Valley Bank reported a 16 percent total risk-based capital ratio at December 31, 2022, beside an unrecognized held-to-maturity loss of $15,158m against $11,847m of tangible common equity. M&T Bank (NYSE: MTB) under Robert Wilmers refused the loans everyone else made in 2006, bought distressed franchises in 2009 to 2011, and compounded tangible book plus dividends at 12 percent a year from 2005 to 2017 against 3.2 percent for the bank index. (Part II, Evolution, Chapter 8)
The deposit is a bank’s product, and the speed at which its price follows the policy rate is a lasting trait of each franchise. Across the featured banks the cost of interest-bearing money ran from 0.50 percent at Westamerica to 4.0 percent at Flagstar Financial (NYSE: FLG) in fiscal 2025. In the tightening of 2022 to 2023 the industry passed half of the policy move into that price, a cumulative deposit beta of 0.50, while individual banks ran from 0.02 to 0.80. The same eight banks have sat in the bottom quartile across three cycles and twenty years. At the industry’s price Westamerica’s interest expense would have been about $77m a year higher before tax, against $116m of net income. (Part III, Structure & Economics, Chapter 9)
The average credit loss is survivable by design, and concentration is what turns a downturn into a failure. The industry’s net charge-off rate has averaged 0.71 percent a year since 1967 and peaked at 1.6 percent in 1991 and 2.6 percent in 2009. The interagency guidance of December 2006 flags construction lending above 100 percent of total risk-based capital. Bank OZK (Nasdaq: OZK) is the only featured bank above that line, at 120 percent, and Westamerica makes no construction loans at all. In 2026 the lines to watch are office loans, 3.1 percent delinquent at banks above $250bn against 1.3 percent at $10bn to $250bn, and lending to non-depository financial institutions, up 22 percent in a year to about $1.5tn. (Part III, Structure & Economics, Chapter 10)
Banks reach similar returns by opposite routes, and the securities book is where the accounting and the economics part. Four banks worked in the report earn 15 to 16 percent on tangible common equity: Cullen/Frost on cheap deposits, Westamerica on a 40 percent efficiency ratio, Western Alliance Bancorporation (NYSE: WAL) on volume and fees, and U.S. Bancorp on fee income. Industry unrealized securities losses peaked at $690bn in the third quarter of 2022, and nearly every regional bank keeps them out of regulatory capital. At June 30, 2026 they stood at $327bn, measured before the rate increase of September 16, 2026. (Part III, Structure & Economics, Chapter 11)
Banks are best sorted by what they pay for money and what they lend against, and only two competitive advantages can be measured from public data. One family pays 0.5 to 2.0 percent for money and takes little credit risk, the other pays 3.0 to 4.0 percent and earns it back on a concentrated book; both make 14 to 18 percent on tangible common equity in a good year, and only the first does so in a bad one. The two measurable advantages are a low cost of deposits and the community lender’s knowledge of local borrowers, which the FDIC’s 2020 study credits with 36 percent of the industry’s small-business loans from 15 percent of its lending. (Part III, Structure & Economics, Chapters 12 and 13)
The featured banks differ so widely that the industry cannot be analyzed as one business, and the market prices them by their funding. Across the forty-eight on one date, the net interest margin runs from 1.7 to 5.1 percent, the efficiency ratio from 32 to 93 percent and price to tangible book from 0.75 to 2.5 times. The tier predicts size and regulation and little about the model. Of the ten banks with the cheapest deposits, eight of the nine with a quoted multiple trade above the median, and of the ten that pay the most, seven of the eight trade below it. (Part IV, The Players, Chapter 14)
The best records came from refusing to overpay for deposits, to concentrate or to grow in a hot market, and from buying failed banks from the government. Seven of the seventeen leaders profiled bought failed institutions from the receiver, the only transaction that adds tangible book at a discount to tangible book by construction. First Citizens bought about $72bn of Silicon Valley Bridge Bank’s assets at a $17bn discount on March 27, 2023. The group’s unpriced risk is succession: George Gleason has run Bank OZK for forty-seven years and David Payne Westamerica for thirty-seven, and neither has an announced successor. (Part IV, The Players, Chapter 15)
Measured on one basis, the owner-operators beat their industry by a wide margin, though the panel shows the size of the gap among known compounders and not the odds of finding one. From December 31, 2005 to December 31, 2025, David Zalman compounded Prosperity Bancshares (NYSE: PB) at 13 percent a year and Johnny Allison Home BancShares (NYSE: HOMB) at 12 percent, and all eight records beat the bank portfolio’s 6.5 percent. Dividends carry much of it: on ending book alone Cullen/Frost compounded at 7.3 percent and Westamerica at 6.7 percent. Silicon Valley Bank’s pay plan held no metric that worsens as risk rises, and Westamerica’s holds two. (Part IV, The Players, Chapter 16)
The balance sheets that set the industry’s prices file no proxy statement. The Deposit Insurance Fund held $161bn at a 1.5 percent reserve ratio at June 30, 2026. Federal Home Loan Bank advances rose from $827bn at December 31, 2022 to more than $1tn at March 31, 2023. The 4,250 tax-exempt credit unions hold $2.5tn and bought sixteen banks in 2025. After the 2024 merger policies were rescinded in 2025, approval times fell from about fifteen months to about four. (Part IV, The Players, Chapter 17)
No bank figure can be compared until its basis is named, and reported capital and book value are the product of three accounting choices. Cullen/Frost’s fiscal 2025 cost of deposits is 1.89, 1.87 and 1.85 percent on three defensible bases. The three choices are the securities classification, the size of the reserve and the treatment of the marks: the industry’s allowance went from 1.2 percent of loans at the end of 2019 to 2.2 percent at the end of 2020 and 1.6 percent at the end of 2025, while realized losses moved the other way. First Citizens’ $9.8bn bargain-purchase gain is a transfer from the insurance fund, not earnings a multiple can be applied to. (Part V, Speaking the Language)
Price to tangible book reflects the quality of a bank’s funding more than its return on equity. The analysis runs liability side first, because every failure in the record began with funding. Across ninety-five listed banks at the September 11, 2026 close, the fitted line is 0.94 plus 0.0635 times the return on tangible common equity in percent, with an R² of 0.26. Glacier Bancorp (NYSE: GBCI) traded at 2.0 times tangible book on an 8.1 percent return, while Western Alliance earned 13 percent at 1.2 times. The 2025 and 2026 deals were struck at 1.5 to 1.9 times tangible book and 6.6 to 8.6 percent of deposits. (Part VI, Analysis & Valuation, Chapters 21 and 22)
What a bank did with its capital explains little of what its owners earned over twelve years, and most exits from the industry were sales rather than failures. Over the twelve years to December 31, 2025 the median featured bank grew tangible book plus dividends at 9.8 percent a year and returned 7.6 percent to its shareholders, as an entry multiple of 2.1 times tangible book compressed. Of roughly 18,463 insured charters alive at the end of 1984, 3,451 still operated in September 2026, and most of the exits were sales at a premium. The winners shared cheap and stable deposits, no concentration, a moderate entry multiple and long tenure. (Part VI, Analysis & Valuation, Chapter 23)
Artificial intelligence has not yet shown up in the featured banks’ costs, and its largest risk sits in their deposits. The median featured bank’s efficiency ratio is 1.4 points better than in 2019, while the ten super-regionals are 1.3 points worse. JPMorganChase (NYSE: JPM) reported $11bn on its tagged technology line in fiscal 2025, against $11m at Westamerica, so regional banks rent their systems. No bank publishes what its deposits would cost if every customer used a tool that moved balances to the best insured rate each week. Regions Financial (NYSE: RF) is the one featured bank that discloses data-center lending, which rose from 2.2 to 6.0 percent of its investor real estate book in 2025. (Part VII, The AI Inflection)
Banks fail through credit, rates or liquidity, each visible in the filings two to eight quarters ahead, except for fraud. The warnings are loan growth far above peers, concentration ratios, unrealized losses against common equity tier 1, and uninsured deposits beside brokered funding. At least three failures since the March 2023 cohort were frauds. In the second quarter of 2026 insured institutions earned $90bn at a 1.4 percent return on assets, with forty-seven banks on the problem list. On September 16, 2026 the Federal Open Market Committee raised the target range to 3.75 to 4.00 percent, against $327bn of unrealized securities losses. Of eleven debates, the report finds three will move returns: the margin as rates rise, commercial real estate, and private credit. (Part VIII, Risks & Debates, Chapters 26 and 27)
The appendices give the analyst the working tools: the investable universe of 109 listed banks and thrifts by tier and region, a due-diligence checklist of forty-two questions in seven sections with a free source for each, a reading course of letters, transcripts, regulators’ post-mortems, books and data sources, and the 312 numbered notes that source the report. (Appendices)
How to use this primer
The report does not need to be read in order. Suggested paths:
a generalist with limited time, Parts I and VI plus the checklist in Appendix B;
a reader interested in the history, Part II with Chapter 8;
an accountant, Part V;
an analyst working on a specific bank, Chapter 14, then Parts III, V, and VI in order;
a risk officer, Part VIII with Chapter 26;
a technologist, Part VII;
a reader who came for the owner-operators, Chapters 15 and 16, with Chapter 23 for what their records are worth against the index.
Every chapter ends with a “What to remember” box, and the twenty-seven boxes read in sequence summarize the report. The checklist follows the order of the analytical procedure in Chapter 21, and the eight questions on the deposit franchise come first, because a bank whose funding fails that block will not be saved by the thirty-four questions after it.
Feedback and requests
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Corrected September 26, 2026. ServisFirst Bancshares trades at 2.35x tangible book, not 1.17x; the earlier figure paired a share count from before the company’s two-for-one split of August 21, 2026 with the post-split price. The fitted line in Chapter 22 is now 0.94 plus 0.0635 times the return, with an R² of 0.26, and the report, deck and Part Two audio have been replaced. Our thanks to the member who caught it.
This content is published by MOI Global for educational purposes only. It is not investment advice, an offer, or a solicitation, and no security mentioned herein is recommended for purchase or sale. The publisher and contributors may hold positions in securities discussed. Figures are believed accurate as of the dates stated but are not warranted; readers should verify all data against primary sources before relying on it. Nothing herein constitutes legal, tax, or accounting advice.
Such a great material, thanks John!