3 Major Regional Banks to Bet on Amid Favorable Industry Tailwinds
Business restructuring and expansion efforts, along with ongoing digitization, should provide additional support. Major regional banks like U.S. Bancorp USB, The Bank of New York Mellon Corporation BK and Northern Trust Corporation NTRS are well-positioned to gain.
About the Industry
The Zacks Major Regional Banks industry includes the nation’s largest banks in terms of assets, with most operating globally. The financial performance of these banks largely depends on the nation’s economic health. As banks are involved in numerous complex financial activities, they are required to comply with stringent regulations set by the Federal Reserve and other regulatory agencies. Apart from traditional banking services, which are the source of net interest income (NII), major regional banks provide a wide array of other financial services and products to retail, corporate and institutional clients, both domestic and global. These include credit and debit cards, mortgage banking, wealth management and investment banking, among others. Therefore, a significant revenue source for these banks is fees and commissions earned from these services.
4 Major Themes to Watch for the Regional Banks Industry
Lower Interest Rates: The Fed lowered interest rates, a 75-basis-point cut in 2025 and a 100-basis-point cut in 2024. Inflation and the weakening labor markets are driving the central bank to slash rates. As the rates fall, major regional banks will likely benefit from further fall/stabilization of deposit and funding costs and a gradual improvement in the lending backdrop. Though there will likely be near-term pain in the form of lower NII and margins, industry players are expected to benefit from reduced interest rates once the recent geopolitical tension in the Middle East and ambiguity over trade policy subsides.
Modest Rise in Loan Demand: The central bank’s aggressive monetary policy stance in 2021 and 2022 hurt loan demand amid the risk of a severe economic downturn/recession. Per the Fed’s Summary of Economic Projections (SEP) released in December 2025, U.S. economic growth is expected to improve. Hence, this, along with declining borrowing costs and clarity on several macro factors, will likely drive loan demand. As such, major regional banks’ NII and net interest margin are expected to expand.
Restructuring Initiatives: Major regional banks are undertaking initiatives to expand into new avenues and lower their dependence on NII. The business restructuring is essential for technological advancement and further domestic/global expansion to continue improving profitability. Industry players are investing in artificial intelligence and other digital platforms and even partnering with or acquiring providers of such services. Major regional banks are also aggressively expanding their footprint within the country and globally. Several industry players are reevaluating their business structures to simplify operations and eliminate less profitable ones.
Asset Quality: Mounting worries about the economy and uncertainty around trade policies pursued by the Trump administration have added to inflationary pressure. Renewed Middle East tensions and oil-shock risks could further lift costs, squeezing household and business budgets and, in turn, weakening borrowers’ repayment capacity. In response, the industry players are expected to increase loan-loss reserves to cushion against potential defaults and payment delays. While disciplined underwriting and generally resilient borrowers have helped major regional banks keep asset quality under control, several key credit indicators have drifted above pre-pandemic levels.
Zacks Industry Rank Reflects Solid Prospects
The Zacks Major Regional Banks industry is a nine-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #21, which places it in the top 9% of more than 240 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outpace the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of an encouraging earnings outlook for the constituent companies in aggregate. The aggregate estimate revision trend reflects an improving situation. Over the past year, the industry’s earnings estimates for 2026 have been revised 2.7% upward, and those for 2027 are up 2.9%.
Before we present some major bank stocks to bet on, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry's Stock Market Performance is Solid
The Zacks Major Regional Banks industry underperformed the S&P 500 composite and the sector in the past two years.
Stocks in this industry have collectively jumped 48% in the past two years. In the same time frame, the Zacks S&P 500 composite has surged 40.5% and the Zacks Finance sector rallied 35.4%.
Two-Year Price Performance
Industry's Valuation is Attractive
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.55X. This compares with the highest level of 3.21X, the lowest of 1.85X and the median of 2.38X over the past five years. The industry is trading at a huge discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 12.32X, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a lower P/TBV ratio, comparing major regional banks with the S&P 500 may not make sense to many investors. However, comparing the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/TBV came in at 6.00X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
3 Major Regional Banks to Invest in
U.S. Bancorp: Headquartered in Minneapolis, MN, U.S. Bancorp provides banking and investment services, mainly operating in the Midwest and Western regions of the United States. The company has expanded through several strategic acquisitions over the years, which have strengthened its market position, digital capabilities and diversified revenue streams.
In the past few years, USBUSB-- has acquired Salucro Healthcare Solutions LLC, MUFG Union Bank’s core regional banking franchise and several fintech platforms. In January, the company announced an agreement to acquire BTIG for $1 billion, expanding its capital markets platform and capabilities in investment banking, equity trading, research and advisory services. These efforts will continue to strengthen the company’s fee-based businesses.
Additionally, the company’s NII has been rising over the past few years. Going forward, investment portfolio repositioning, less deposit migration, lower rates and stabilizing funding costs will continue to support NII and NIM expansion. U.S. Bancorp is experiencing solid growth in average loans and deposits in recent years as it expands relationships with existing customers and acquires new ones.
The company’s capital distributions seem impressive. In September 2025, U.S. Bancorp hiked its quarterly dividend by 4% to 52 cents per share. In 2024, the company announced a $5 billion share repurchase program. Given its consistent earnings and decent liquidity position, the company’s capital deployment activities seem to be sustainable.
USB, which carries a Zacks Rank #2 (Buy), has a market cap of $84.9 billion. The Zacks Consensus Estimate for earnings indicates growth of 8.9% and 11.4% for 2026 and 2027, respectively. The stock has rallied 10.6% over the last six months.
Price and Consensus: USB
BNY: Operating in 35 countries, BNY provides various products and services to individuals and institutions. Its global client base consists of financial institutions, corporations, government agencies, endowments and foundations, and high-net-worth individuals.
Despite the decline, interest rates are still relatively higher than the near-zero levels in 2020 and 2021. This will support BK’s NII and net interest margin (NIM), driven by stabilizing funding costs. The company’s growth initiatives are impressive. It has been unveiling several new services and products, digitizing operations and making strategic collaborations. The launch of a Stablecoin reserves fund to support institutional adoption of digital assets will further drive fee revenues.
In 2024, BKBK-- acquired Berwyn, PA-based Archer Holdco, LLC, a leading technology-enabled service provider of managed account solutions to the asset and wealth management industry. This will bolster the company’s retail wealth presence. The company also announced plans to launch Alts Bridge, an extensive data, software and services solution.
This Zacks Rank #2 company has been trying to gain a foothold in foreign markets and is undertaking several growth initiatives (including launching new services, digitizing operations and making strategic buyouts). Its international revenues are expected to continue improving as the demand for personalized services rises globally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BNY has a market cap of $82.1 billion. The Zacks Consensus Estimate for earnings indicates growth of 10.9% for 2026 and 12.5% for 2027. Over the past six months, the stock has gained 13.7%.
Northern Trust: With total assets worth $177.1 billion as of Dec. 31, 2024, Northern TrustNTRS-- is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals.
Organic growth is the company’s key strength. Its revenues witnessed a CAGR of 5.7% over the last five years (2020-2025), driven by rising non-interest income and NII. As the client base expands, the company expects to see a rebound in loan activity. This ongoing focus on wealth management is expected to drive growth in the lending portfolio in the near term. Also, robust pipelines in the Asset Servicing segment will likely drive top-line growth.
NTRS is undertaking expense management efforts to tackle expense growth and reinstate its operating leverage. It focused on disciplined headcount management, vendor consolidation, rationalization of its real estate footprint and process automation. Through such efforts, it will likely improve productivity and meet the financial targets.
The company’s capital distributions seem impressive. In 2025, Northern Trust hiked its quarterly dividend by 7% to 80 cents per share. In 2021, the company announced a 25-million share repurchase program with no expiration date. Its debt/equity ratio, which compares favorably with the broader industry, and decent liquidity highlight the fact that such capital-distribution activities are sustainable in the future.
NTRS has a market cap of $27 billion. The Zacks Consensus Estimate for earnings indicates 10.1% and 9.4% growth in 2026 and 2027, respectively. The company, which carries a Zacks Rank of 2, witnessed an 11.7% rise in its stock price over the past six months.
Price and Consensus: NTRS
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U.S. Bancorp (USB): Free Stock Analysis Report
The Bank of New York Mellon Corporation (BK): Free Stock Analysis Report
Northern Trust Corporation (NTRS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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