(Reuters) - Regions Financial Corp (RF.N) and SunTrust Banks Inc (STI.N) reported quarterly earnings on Friday that topped Wall Street expectations, benefiting from higher interest rates amid sluggish lending.
Three interest rate hikes by the Federal Reserve in 2017 have helped the regional banks grow profit even as they dole out less loans. The Fed is expected to maintain a similar rate hike pace for the next two years as the U.S. economy strengthens.
Higher interest rates typically translate to more returns for banks as they can charge higher interest on loans.
In the latest quarter, Alabama-based Regions reported a 5.6 percent increase in net interest income. Atlanta-headquartered SunTrust’s net interest income climbed 6.8 percent.
While rate hikes have benefited banks, potential borrowers have stayed on the sidelines. Regions reported a fall in average loans, while SunTrust lent at the slowest rate in at least two years.
The banks posted higher expenses as they put out more money to cover benefits for employees.
Several banks this quarter took huge charges for the new tax overhaul. Regions recorded a charge of $52 million, while SunTrust reported a gain of $172 million.
The sweeping tax changes, which slashed the U.S. corporate rate to 21 percent from 35 percent, is largely expected to kick-start economic growth in the U.S. and result in long-term gains.
Regions earned 27 cents per share in the fourth quarter, while SunTrust earned $1.09 per share, excluding the tax gain and other one-time items.
Regions earned 36 cents after adjusting for one-time items, according to Thomson Reuters I/B/E/S.
Analysts had expected earnings of 26 cents at Regions and $1.05 at SunTrust.
(This story was corrected to show Regions recorded a charge of $52 million in the seventh paragraph, not Regions did not record a charge.)
Reporting by Diptendu Lahiri and Aparajita Saxena in Bengaluru; editing by Sai Sachin Ravikumar