PNC is demonstrating the problem all the banks—particularly regionals—are having.
PNC metrics (quarter over quarter):
- Net interest margin: down
- Net interest income: down
- Loan growth: flat
Net interest income (down 1 percent, in line with forecasts) and net interest margin (down 9 basis points to 2.73 percent, in line with expectations) are not expanding because yields remain low.
US Bancorp, also out this quarter, had similar metrics: net interest margin declined 5 basis point to 3.03 percent (in line with expectations) with loan yields down slightly.
This is an issue because regionals were investor favorites in the second quarter on a modest increase in rates. The SPDR Regional Banking ETF, a basket of regional banks, was up about 10 percent in the second quarter on higher volume.
So investors piled in, but the payoff—in the form of better net interest income—has yet to materialize because loan growth has been flat to modestly positive and rates have not risen all that much.
How long will investors wait? Some have already begun exiting, initially because banks usually sell off a bit going into earnings. I suspect that more will exit soon.