Valley National Bancorp's margins fell sequentially, prompting investor concerns about its profit growth in a low-rate environment, while its Northeastern peer First Niagara Financial managed to hold the line on its margins.

Regional banks are facing squeezed margins as the Federal Reserve holds long-term interest rates down to boost a weak economy. On Wednesday, regulators signaled they would keep the rates low for another two years.

Lenders have seen their net interest income -- the difference between what they earn on loans and pay out on deposits -- stagnating as a result.

Valley's net interest income fell 3 percent to $118.3 million sequentially, despite the bank reporting a growth in commercial and industrial loans portfolio.

First Niagara, which recently cleared the antitrust hurdle to its near $1 billion acquisition of some of banking behemoth HSBC's U.S. branch network, saw its net interest income rising 3 percent, on more loans.

Commercial and industrial lending has been the sole bright spot in an otherwise lackluster loan environment, pointing to an improving economy.

Last week, larger U.S. regional banks like SunTrust Banks , PNC Financial and US Bancorp showed loan growth and improved credit quality in their results.

Earlier in the day, data from the Commerce department showed that new orders for manufactured goods rose in December and a gauge of future business investment rebounded.

Buffalo, New York-based First Niagara's fourth-quarter profit rose 27 percent to $58.5 million, or 19 cents a share. While Wayne, New Jersey-based Valley National's profit slumped 35 percent to $24.8 million, or 15 cents a share.

First Niagara's shares were up 2 percent at $9.65 in afternoon trade on the Nasdaq, while Valley National's shares were down more than 5 percent on the New York Stock Exchange.

(Reporting by Jochelle Mendonca and Sharanya Hrishikesh in Bangalore; Editing by Gopakumar Warrier)

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