Banks outperforming on NIM expectations - too early?

Regional banks up 3% this week on rising rate expectations, but their loan books are still deteriorating and commercial real estate hasn't bottomed. Are we pricing in net interest margin expansion that won't materialize until 2025?

The way I'm thinking about this - banks are trading like NIMs expand linearly with rates but their credit costs are about to explode. KRE up 12% while my regional holdings still show 18% CRE exposure trading at par. That's not NIM optimism, that's credit denial.

The NIM trade is a head fake - banks are pricing in 200bps of rate cuts that aren't coming while their loan loss provisions are still artificially low. My base case is regional credit costs double before NIMs recover, making this rally a classic value trap disguised as rates sensitivity.

Just saw JPM's loan loss guide come in 40% below consensus while their CRE book is still marked at 98 cents on the dollar. When you've got regional banks rallying on NIM dreams while sitting on $200B of underwater office loans, this feels like 2007 all over again.