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Jan 19 (Reuters) - Regions Financial Corp and SunTrust Banks Inc topped Wall Street expectations for fourth-quarter earnings on Friday, as both U.S. banks benefited from higher interest rates even as lending remained sluggish.
While Alabama-based Regions reported a 5.6 percent increase in net interest income in the quarter ended Dec. 31, Atlanta-headquartered SunTrust's net interest income climbed 6.8 percent.
Both banks are among America's biggest regional lenders and their results highlight the effect of three interest rate hikes by the Federal Reserve in 2017.
The Fed is expected to maintain a similar pace for rate hikes this year and the next in the backdrop of a strengthening U.S. economy.
Higher interest rates typically translate to more returns for banks as they can charge a higher interest on loans.
While rate hikes have helped banks grow profits, they have deterred some borrowers from taking out loans. Still, many banks have made up for stunted loan growth thanks to rising rates.
Both Regions and SunTrust reported sluggish lending results in the fourth quarter. Regions reported a fall in average loans, while SunTrust lent at the slowest rate in at least two years.
Both banks also posted increases in expenses as they doled out benefits to employees.
SunTrust reported a gain of $172 million in the quarter, helped by new U.S. tax laws.
Regions earned 27 cents per share in the fourth quarter, while SunTrust earned $1.09 per share excluding the tax benefit 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. (Reporting by Diptendu Lahiri and Aparajita Saxena in Bengaluru; editing by Sai Sachin Ravikumar)