Fifth Third Bancorp ( FITB - Get Report), the Midwestern-regional lender whose shares have been beaten up this year because of a regulatory probe, matched Wall Street expectations in posting 7% higher profits in the first quarter. The Cincinnati-based bank earned $418.9 million, or 72 cents a share, compared with earnings of $390 million, or 66 cents, a year ago. The Thomson Financial/First Call consensus estimate had called for the bank to earn 72 cents a share. In other bank news, Chicago-based Bank One ( ONE - Get Report) and San Francisco-based Wells Fargo ( WFC - Get Report) also reported higher earnings Tuesday. Bank One reported that its net income in the quarter rose 4% to $818 million, or 71 cents a share, compared to 67 cents a year ago. The bank's first-quarter earnings came in a penny shy of the Wall Street consensus estimate of 72 cents a share. Bank One's total revenue in the quarter fell to $3.98 billion, a 5% decline from a year ago. Meanwhile, Wells Fargo, one of the nation's largest mortgage lenders, slightly exceeded analyst expectations. The bank earned $1.49 billion, or 88 cents a share, compared to $1.38 billion a year ago. The consensus estimate had been for Wells Fargo to earn 87 cents a share. Fifth Third's earnings, like many regional lenders, were fueled by strong growth in consumer and small business loans. The bank said loan and lease volume rose more than 12% from a year ago, to $47.3 billion from $42 billion. Loan growth also was the driver behind Wells Fargo's earnings beat.
Just like last year, low interest rates have led to a surge in home refinancings and new mortgage borrowing by consumers -- one of the bread-and-butter revenue drivers for regional banks. But Fifth Third, like other regional banks, is starting to feel the squeeze from low interest rates. Its net interest margin declined by 8.8% to 3.74% in the quarter compared to a year ago. Net interest margin reflects the difference between what a bank pays on deposits and it earns on loans. Regional lenders have been facing margin compression as low interest rates encourage borrowers to replace higher interest-bearing loans with ones that carry a smaller interest burden. For much of this year shares of Fifth Third, once a darling of Wall Street money managers, have been under pressure because of the impact of a regulatory investigation by the Federal Reserve Bank of Cleveland. Investors also have wondered whether the bank deserves to trade at a premium to other regional lenders. The bank and the Federal Reserve settled the investigation last month. The deal will require the bank to make certain changes in its risk management operations and permit some monitoring of its operations. Some analysts have worried that the settlement may make it more difficult for Fifth Third to make acquisitions, a strategy it has used to build its customer base and add deposits.