12:20 PM EDT, 07/09/2024 (MT Newswires) -- The path of small and regional banks' margins and net interest income remain the primary investor focus areas over the near term, while credit quality is more like a medium-term question, RBC Capital Markets said Tuesday.

In a client note previewing second-quarter earnings across 24 lenders in RBC's coverage space, including First Commonwealth Financial ( FCF ) , New York Community Bancorp ( NYCB/PU ) and Valley National Bancorp ( VLY ) , RBC continues to project the net interest income path to be favorable for many regional banks in a high-for-longer interest rate environment.

The brokerage said margins and net interest income have "troughed" for most lenders, even though the Federal Reserve has pushed back the timing of its rate cuts. Loan growth is expected to improve sequentially, despite slowing down so far this year, RBC said.

"Near-term investor questions remain focused on margin and deposit assumptions, and the expectations for (the second half) will be an important topic," RBC Associate Director of US Research Jon Arfstrom wrote. "Any signs of life for loan activity in (the second half) will also be a question, as well as deposit mix expectations."

Credit quality continues to be a medium-term topic, according to RBC. Investors will look out for updates on the health of corporate real estate and multifamily portfolios. Recent management commentary suggests asset quality metrics are performing in line with expectations, Arfstrom said.

RBC said it is "modestly" adjusting its second-quarter per-share earnings estimates for banks and lowering full-year forecasts by 0.5%. The revision reflects lower margin and loan growth assumption, along with higher provisions and reserves.

"Overall, we continue to see value in the banks, particularly if 2024 fundamental outlooks can be generally maintained," according to Arfstrom. "We see provisions and net interest income outlooks as the primary risks to estimates."

RBC highlights First Horizon ( FHN ) , Huntington Bancshares ( HBAN ) and Wintrust Financial ( WTFC ) as particularly well positioned names with diversified funding and revenue opportunities, as well as "manageable credit quality trajectories." The brokerage remains optimistic on the overall group.

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