The stocks of regional banks have rallied from their lows in the spring. Yet their earnings remain under pressure.

Many lenders this week revised down their estimates of a key measure of profitability, net interest income, which shows the difference between what banks earn on their loans and pay to attract deposits.

Executives said they expect these margins to get smaller in the second quarter because they are paying more to bring in deposits as the fight for funding gets more competitive across the industry.

The guidance from the chief operating officer of Zions (ZION) was that net interest income for the next 12 months would be "decreasing," a downgrade from "moderately decreasing."

John Woods, CFO for Citizens Financial Group (CFG), said its decline would be “a little more” than the 3% previously predicted.

The finance chief of KeyCorp (KEY) said net interest income would be "in the range of down 12" percent, more than twice a prior prediction.

"We're going to come in softer than we thought," said KeyCorp CFO Clark Khayat.

The warnings, all delivered at a Morgan Stanley conference in New York, offered an early preview of what could be in store when lenders release their second-quarter results in mid July.

'We all knew this was coming'

Regional banks are clearly not under the same amount of pressure as they were in March, when the failures of three lenders within a matter of days triggered panic across the country. And many are now attracting back some of the deposits they lost in the spring.

But they still face some of the same macroeconomic problems that contributed to the turmoil, including high interest rates.

An aggressive campaign by the Federal Reserve to bring down inflation has lowered the value of the assets banks hold, such as loans or bonds, just as deposit costs creep higher to keep customers from seeking higher yields elsewhere.

"We all knew this was coming," Tim Coffey, an analyst with Janney told Yahoo Finance. "The whole reason we’re seeing lower net interest for 2Q is because the Fed went parabolic with rate increases."

The Fed last Wednesday made it clear this past week that more hikes are coming this year. But it also decided to pause in June, which does buy banks some time.

"With the pause it gives banks a chance to catch up to the new reality," Coffey said.

'The crisis may not be over'

For the moment investors are sending stocks mostly higher.

Since hitting a year to date low on May 4, the week regulators seized First Republic and sold the bulk of its operations to JPMorgan Chase, the KBW Regional Bank Index (KRX) has rallied 15%, outpacing the S&P 500 during that time. That run has included four straight weeks of gains. The index closed slightly down Friday.

Some of the banks that experienced the most turmoil in the spring are among the best performers. The stock of PacWest (PACW) has climbed 159%, while Western Alliance (WAL) is up 113%. Zions has climbed 45%.

Investors are hoping some of these stocks return to pre-crisis valuations, but it won't be easy, said Steve Sosnick, chief market strategist with Interactive Brokers.

"It's going to take time for people to really go through each bank in a granular fashion to figure out whether there are more minefields out there," Sosnick told Yahoo Finance.

Timothy Ghriskey, senior portfolio strategist at Ingalls & Snyder, told Yahoo Finance his firm added to its holdings of Western Alliance in late May and those positions are now up roughly 18%.

His firm, he said, likes the fact that Western Alliance has reduced its reliance on uninsured depositors, who are more likely to flee during times of stress.

"These banks are likely to attract assets going forward given that they're survivors of the crisis, but the crisis may not be over," Ghriskey said. "The group in general is attractive, but it's probably not going to be smooth sailing, it's not going to be straight up."

Many of these banks, in fact, are still below where they traded at the start of the year. PacWest is still down 64% year to date, Zions is down 41% and Western Alliance is 37% lower than its Jan. 1 level. Many fell during trading on Friday.

"Even though they've rallied pretty strongly since early May, they’re still way below their February highs," Matt Maley, Miller Tabak Chief Market Strategist told Yahoo Finance.

"There are a lot of reasons to be cautious but like anything else, the ones that survive are going to look really, really good five years from now," Maley added.

Trouble ahead?

Mike Mayo, a banking analyst with Wells Fargo, told Bloomberg he didn’t expect any more banks to fail in the immediate term.

"The detour for not owning bank stocks is over," he said during an appearance on Bloomberg Surveillance. "There’s over 4,500 banks. You’re going to have bank failures — that’s the rule of banking. It’s not going to be any bank in the S&P 500, in my view, over the immediate time-frame. So that phase is over."

There still could be trouble ahead for many banks, even if they don’t fail. Regulators are preparing new capital requirements that will force some to hold greater buffers against losses. That will increase their stability but will also make it more difficult to earn robust profits.

The larger banks aren’t immune to challenges, either. Many with big Wall Street operations are suffering through a drought of deal making that will likely drag down their second-quarter results.

Citigroup said on Wednesday it would be eliminating 1,600 people during the second quarter, the latest giant institution to announce Wall Street-related cuts.

Even JPMorgan Chase (JPM), the nation’s biggest and most profitable bank, is feeling pressure from an industry wide fight for deposits that is making life more difficult for its smaller rivals.

"Deposits will continue the trend of being slightly down from here," Jennifer Piepszak, co-CEO of JPMorgan Chase's massive consumer and community bank, said Wednesday.

The bank has predicted it will earn net interest income of $84 billion this year, but if the deposit pressure keeps up that figure could experience a "mild reprice," she said.

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