The Zacks Major Regional Banks continue to witness poor asset quality as Trump’s tariff plans are expected to result in higher inflation in the near term. Further, economic expansion is likely to be modest. These are likely to lead to a slight rise in loan demand. Yet, once the uncertainty related to tariffs is over, industry players’ net interest income (NII) and margins will benefit.
Business restructuring/expansion initiatives and digitization will offer support. Hence, major banks like U.S. Bancorp USB, The Bank of New York Mellon Corporation BK, Truist Financial Corporation TFC and Northern Trust Corporation NTRS are worth considering.
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 the banks are involved in several complex financial activities, they are required to meet the stringent regulations set by the Federal Reserve and other agencies. Apart from traditional banking services, which are the source of the net interest income (NII), major regional banks provide a wide array of other financial services and products to retail, corporate and institutional clients, domestic and global. These include credit and debit cards, mortgage banking, wealth management and investment banking, among others. Therefore, a large revenue source for these banks is fees and commissions earned from these services.
4 Themes to Influence the Major Regional Banks Industry
Modest Rise in Loan Demand: The central bank’s aggressive monetary policy hurt loan demand amid the risk of a severe economic downturn/recession. While the Fed’s Summary of Economic Projections (SEP) released earlier this month indicates that the U.S. economic growth is expected to slow down a bit this year because of concerns over tariffs, demand for loans is likely to be modest on relatively lower interest rates. As such, major regional banks’ NII and NIM are expected to rise slightly.
Tariffs & its Impact on Interest Rates: Last year, the Fed lowered the interest rates by 100 basis points but has kept those steady since then. Per the latest SEP, for 2025, inflation will likely be 2.8%, an upward tick from the prior forecast of 2.5%. Though the central bank has signaled two rate cuts this year, this is likely to happen in the later part of the year as tariffs are expected to result in higher prices. Thus, inflation is less likely to come down to the Fed range of 2% anytime soon. Nonetheless, as the interest rates come down, banks will likely benefit from the fall/stabilization of deposit costs and a gradual improvement in the lending scenario. There will likely be near-term pain in the form of lower NII and NIM, but the industry players are expected to gain from reduced interest rates once ambiguity related to tariffs gets resolved.
Restructuring Initiatives: Major regional banks are undertaking initiatives to expand into new avenues and lower their dependence on spread income. The business restructuring is essential for technological advancement and further domestic/global expansion to continue improving profitability. The industry players are constantly investing in artificial intelligence and other digital platforms and even partnering/acquiring providers of such services. Major regional banks are also aggressively expanding their footprint outside the United States. Several industry players are re-evaluating their business structure to simplify operations and do away with less profitable ones.
Weak Asset Quality: Mounting concerns about the economic health and uncertainty about the impacts of policies being pursued by the Trump administration are pushing up prices. This is taking a toll on clients’ ability to repay loans. Thus, industry players are building additional reserves to counter any fallout from unexpected defaults and payment delays. While conservative lending policy and the resilience of borrowers helped major regional banks keep their asset quality manageable, several metrics have crossed the pre-pandemic era levels. This signals the gradual deterioration of the industry players’ asset quality.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Major Regional Banks industry is a 10-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #48, which places it in the top 19% of more than 250 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 outperform 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for 2025 have been revised 5.6% upward.
Before we present some major bank stocks to keep on your radar, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms the S&P 500, Trails the Sector
The Zacks Major Regional Banks industry outperformed the S&P 500 composite while lagging the sector in the past year.
Stocks in this industry have collectively soared 14.1% in the past year. In the same time frame, the Zacks S&P 500 composite has jumped 9.1% and the Zacks Finance sector rallied 16.1%.
One-Year Price Performance
Industry's Valuation
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 results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.24X. This compares with the highest level of 3.23X, the lowest of 1.32X and the median of 2.32X 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 12.95X, 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 5.79X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
4 Major Regional Banks to Keep an Eye on
U.S. Bancorp: Headquartered in Minneapolis, MN, U.S. Bancorp provides banking and investment services, principally operating in the Midwest and West regions of the United States. A solid business model and diverse revenue streams are likely to aid its financials.
USB has experienced solid growth in average loans and deposits in the past few years as it continued to expand and deepen relationships with current customers and acquire new customers and market share. The solid pipeline in the commercial and credit card space is expected to drive loan growth. Also, stabilizing deposit trends will continue to support deposit growth.
Organic growth and diverse revenue sources are key strengths of U.S. Bancorp. Management is encouraged by current trends in client growth and penetration rates, as evidenced by the continued strength of its fee revenue businesses. Hence, the company is well-positioned to improve its revenue trend, which is backed by growth in fee income and NII.
U.S. Bancorp has completed several strategic acquisitions over the years, which have opened new markets to it and fortified existing markets. In 2022, it acquired MUFG Union Bank’s core regional banking franchise, expanding its branch network and enjoying greater access to digital banking tools. Such buyouts and the ongoing investments in innovative product enhancements, services and people will strengthen this Zacks Rank #3 (Hold) company’s fee-based businesses. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
USB has a market cap of $66.7 billion. The Zacks Consensus Estimate for earnings suggests 9.1% growth for 2025 and 11.2% for 2026. In the past year, the stock has lost 1.6%.
Price and Consensus: USB
BNY Mellon: Operating in 35 countries, BNY Mellon 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.
Higher interest rates continue to support BNY Mellon’s top-line growth. While the company’s NII and NIM declined in 2020 and 2021, both rebounded solidly thereafter. Though higher funding costs will likely weigh on NII, the metric is anticipated to keep improving in the quarters ahead, driven by lower rates. BNY Mellon’s growth initiatives are impressive. The company has been launching several new services and products, digitizing operations and making strategic acquisitions.
In November 2024, BK 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. In September, the company announced plans to launch Alts Bridge, an extensive data, software and services solution.
This Zacks Rank #3 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.
BNY Mellon has a market cap of $60 billion. The Zacks Consensus Estimate for earnings indicates growth of 15.4% for 2025 and 12.6% for 2026. In the past year, the stock has jumped 47.8%.
Price and Consensus: BK
Truist Financial: Formed following the ‘merger of equals’ deal between BB&T Corp and SunTrust Banks, Truist Financial has become one of the largest commercial banks in the United States. The company, based in Charlotte, NC, conducts business operations primarily through its bank subsidiary, Truist Bank, and a few other non-bank subsidiaries.
Growth in loans, relatively higher interest rates and Truist Financial’s efforts to improve fee income are likely to keep aiding financials. An improvement in NII has been recorded due to decent loan demand and rising rates.
Management remains open to strategic business restructuring initiatives to bolster fee income. In sync with this, in May 2024, the company sold its remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings. Subsequently, the bank undertook a balance sheet repositioning to support NII in the quarters ahead. These measures bolstered the bank's capitalization and liquidity profile.
Further, last year, the company divested its asset-management subsidiary, Sterling Capital Management LLC. Earlier, this Zacks Rank #3 company had acquired Service Finance Company, which augmented its point-of-sale lending business. Driven by these restructuring efforts, Truist Financial is expected to witness growth in the top line.
TFC has a market cap of $54.1 billion. The Zacks Consensus Estimate for earnings implies growth of 8.4% and 13.9% for 2025 and 2026, respectively. The stock has risen 10.2% in the past year.
Price and Consensus: TFC
Northern Trust: With total assets worth $155.5 billion as of Dec. 31, 2024, Northern Trust 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 7.8% over the last four years (2020-2024), 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 2022, Northern Trust hiked its quarterly dividend by 7% to 75 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 $19.3 billion. The Zacks Consensus Estimate for earnings indicates growth of 7.1% and 9.2% for 2025 and 2026, respectively. The stock, which sports a Zacks Rank of 1, has soared 15.1% in the past year.
Price and Consensus: NTRS
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