Despite overcoming a crisis in 2023, the pain isn't over for America's regional banks.
The SPDR S&P Regional Banking exchange-traded fund has fallen roughly 13% this year. Shares of New York Community Bank have tumbled 71%, Bank OZK shares have slid 16% and Webster Financial shares have lost 11%.
Regional banks reported wide losses on their profits during the first quarter. Net income fell about 22% at PNC Financial from the prior year, 25% at M&T Bank and 24% at US Bancorp. Citizens Financial saw a 38% drop.
They also saw declines in their net interest income, an important profitability measure for financial institutions. PNC projects that its net interest income will fall between 4% to 5% in 2024 from last year. US Bancorp lowered its guidance and Citizens Financial "broadly reaffirmed" its expectations for net interest income to decline between 6% to 9%.
Elevated interest rates have been a drag on regional lenders, since they mean banks have to pay more interest on deposits. While that's also been a pressure on big banks, their larger size has allowed them to weather the storm better. After the collapses of Silicon Valley Bank, Signature Bank and First Republic Bank last year, big banks also reaped the benefits as customers yanked cash out of small lenders in favor of larger institutions.
The pain is likely to continue. Sticky inflation, a hot jobs market and strong economy have led investors to push back their expectations for when the Federal Reserve will cut rates. Fed Chair Jerome Powell said Tuesday that rate cuts will likely come later than expected. Markets are now projecting that the first cut may not come until September.
"Given the strength of the labor market and progress on inflation so far, it's appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us," Powell said at an event hosted by the Wilson Center.
The central bank in March shuttered the Bank Term Funding Program, established after regional banking turmoil last year to help lenders meet their liquidity needs. Sheila Bair, former chair of the Federal Deposit Insurance Corporation, said that she believes Congress should reinstate another program, the Transaction Account Guarantee, that was in place during the aftermath of the financial crisis.
"I'm worried about a handful of [regional banks]," Bair told CNBC on Tuesday. "The big issue is whether there's another shock to uninsured deposits because of a bank failure, and I think that is really the biggest challenge confronting regional banks right now."
