Zacks Industry Outlook U.S. Bancorp, State Street, and Northern Trust

Industry: Major Regional Banks

Link: https://www.zacks.com/commentary/2976809/3-major-regional-banks-that-could-win-big-from-industry-tailwinds

The Zacks Major Regional Banks’ asset quality is expected to remain subdued in the near term due to a challenging operating backdrop. While the Federal Reserve is likely to keep rates unchanged in the near term, industry players should continue benefiting from relatively lower rates. Combined with decent economic growth and improving loan demand, this is expected to support expansion in net interest income and margins.

Business restructuring and expansion efforts and ongoing digitization should provide additional support. Major regional banks like U.S. Bancorp, State Street Corp.  and Northern Trust Corp.  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. A significant revenue source for these banks is fees and commissions earned from these services.

4 Key Themes to Influence the Major Regional Banks Industry

No Change in Interest Rates:The Fed has paused interest rate cuts and turned hawkish because of rising inflation numbers amid the ongoing geopolitical conflict. Market participants expect at least one rate hike before 2026 ends, with no chance of further cuts till mid-2027. As such, major regional banks are likely to keep benefiting from relatively lower rates (compared with historically higher rates in 2022 and 2023) as deposit and funding costs fall/stabilize and the lending backdrop gradually improves. As such, industry players’ NII and margins are expected to keep expanding.

Rise in Loan Demand: The central bank’s aggressive monetary tightening in 2021 and 2022 weighed on loan demand amid concerns over a potential economic downturn or recession. However, the trend has reversed since then. According to the Fed’s Summary of Economic Projections released in June 2026, U.S. economic growth is expected to remain decent. This, coupled with lower borrowing costs and greater clarity on several macroeconomic factors, is likely to support loan demand. Major regional banks are expected to see a solid increase in demand for both wholesale and consumer loans.

Restructuring Initiatives: Major regional banks are taking steps to diversify their revenue streams and reduce their reliance on spread income. Business restructuring remains a key priority, enabling banks to support technological advancement, expand their domestic and international operations, and enhance profitability. 

Industry participants are investing heavily in artificial intelligence and other digital platforms, while also pursuing partnerships with or acquisitions of technology and service providers. Several major regional banks are aggressively expanding their footprints across the United States and international markets. At the same time, many are reassessing their business models to streamline operations, improve efficiency and exit less profitable businesses.

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 are further lifting costs, squeezing household and business budgets and, in turn, weakening borrowers’ repayment capacity. In response, major regional banks are less likely to lower loan-loss reserves to cushion against potential defaults and payment delays. While disciplined underwriting and generally resilient borrowers have helped industry players keep asset quality under control, several key credit indicators have drifted above pre-pandemic levels.

Zacks Industry Rank Indicates Optimism

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 #55, which places it in the top 22% 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 9% upward, and those for 2027 are up 7.9%.

Before we present a handful of major regional 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 outperformed the S&P 500 composite and the sector over the past two years. 

Stocks in this industry have collectively jumped 64.6% over the past two years. In the same time frame, the Zacks S&P 500 composite has surged 42.8%, and the Zacks Finance sector rallied 35.3%.

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 3.08X. This compares with the highest level of 3.21X, the lowest of 1.85X and the median of 2.41X 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 10.18X.

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 6.05X. This is above the Zacks Major Regional Banks industry’s ratio. 

3 Major Regional Banks to Consider

U.S. Bancorp: Headquartered in Minneapolis, MN, U.S. Bancorp provides banking and investment services, mainly operating in the Midwest and West 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 June 2026, the company completed the acquisition of BTIG, expanding its capital markets platform with institutional equity sales and trading, equity capital markets, electronic trading and M&A advisory capabilities. This, along with several other expansion efforts, will continue to strengthen USB’s fee-based businesses.

The company’s NII has been rising over the past few years. Going forward, less deposit migration, relatively lower rates and stabilizing funding costs will continue to support NII and NIM expansion. U.S. Bancorp has experienced steady growth in total loans and deposits during the past few years as it continues to expand and deepen relationships with current customers as well as acquire new customers and market share. 

The company’s capital distributions seem impressive. Following the successful completion of the 2026 stress test, management plans to increase the quarterly dividend by 4% to 54 cents per share in the third quarter of 2026, subject to board approval. The company also continues to repurchase shares under its $5 billion buyback 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 $100.9 billion. The Zacks Consensus Estimate for earnings indicates growth of 13% and 10.4% for 2026 and 2027, respectively. The stock has rallied 21.6% over the past three months.

State Street:Headquartered in Boston, MA, State Street provides a range of products and services for institutional investors worldwide through its subsidiaries. As of June 30, 2026, the company reported record assets under custody and administration (AUC/A) of $57.9 trillion and assets under management (AUM) of $6.28 trillion.

State Street's fee-based model continues to benefit from its scale in custody, asset management and markets, supported by strong flows, product expansion and broader distribution. While the company’s total fee revenues declined in 2022 and 2023, the metric saw a four-year (2021-2025) CAGR of 2.3%, mainly driven by higher client activity and significant market volatility. AUC/A and AUM recorded a CAGR of 5.3% and 8.2%, respectively, in the same time frame.  

At the end of the first quarter, STT reported $2.93 trillion of AUC/A to be installed and $335 million of servicing fee revenues to be installed. This provides better forward visibility beyond near-term market swings, while continued Alpha mandate wins reinforce demand for integrated front-to-back solutions. State Street remains well-placed for fundamental business activities, given its global exposure and a broad array of innovative products and services. 

This Zacks Rank #2 company has been using partnerships, minority stakes and strategic bolt-on acquisitions to expand growth platforms across investment, distribution and technology. Despite lower rates, State Street’s NII and net interest margin are expected to witness decent improvements in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

STT has a market cap of $48.7 billion. The Zacks Consensus Estimate for earnings indicates growth of 30.5% for 2026 and 11.2% for 2027. Over the past three months, the stock has gained 27.2%.

Northern Trust: With total assets worth $179.3 billion as of June 30, 2026, 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 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 steady rise in loan activity, particularly as its wealth management services attract more clients. This ongoing focus on wealth management is expected to drive growth in the lending portfolio. 

Following the launch of Family Office Solutions for ultra-high-net-worth clients, NTRS’ investment management division, Northern Trust Asset Management, partnered with Envestnet in January to expand access to its tax-managed direct indexing solutions, enhancing distribution reach for this client segment. These initiatives, along with continued asset servicing wins and low double-digit wealth management trust fee growth, are expected to support fee income and strengthen organic growth momentum.

NTRS is undertaking expense management efforts to tackle expense growth and support operating leverage. It is 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.

NTRS has a market cap of $34.9 billion. The Zacks Consensus Estimate for earnings indicates 28.6% and 9.1% growth in 2026 and 2027, respectively. The company, which carries a Zacks Rank of 2, witnessed a 15.6% rise in its stock price over the past three months.

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