First-quarter earnings at the nation's biggest banking companies pointed to continued credit-quality concerns, particularly in commercial lending, and highlighted the effect of narrowing margins on banks' ability to reap profits from mortgages and other lending activities.

Analysts said the quarter - as in previous reporting periods - continued to illustrate the dramatic divergence between money-center banks, with their wildly profitable investment banking units, and regional banks, which are largely dependent on traditional lending.

Regional banks did participate in and benefit from market activities in greater numbers than in previous quarters, however. Market-sensitive businesses, including brokerage services, contributed an average of 18% of profits in a group of regional banking companies that included BB&T Corp. in Winston-Salem, N.C.; U.S. Bancorp in Minneapolis; and PNC Financial Services Group in Pittsburgh, according to research by Deutsche Banc Alex. Brown. In contrast, market-sensitive activities in the fourth quarter contributed 16.3% of regional banks' profits.

"Absent growth in market-sensitive activities, the underlying growth for the regional bank group was pretty low," said George Bicher, an analyst at Deutsche Banc Alex. Brown.

The quarter's biggest themes included narrowing spreads on the profits banks made from lending. The average net interest margin narrowed by 0.03%, according to Goldman, Sachs & Co. research, an improvement from the decline of 0.08% in the fourth quarter.

Credit quality continued to show signs of strain, particularly in commercial lending, analysts said. Nonperforming assets in the commercial sector rose, particularly at banks that lend to the troubled health-care sector, including First Union Corp. "Expect to see steady but modest increases throughout the year," said David Hilder, an analyst at Morgan Stanley Dean Witter & Co.

Though a few of the largest banking companies posted unexpectedly strong gains on capital markets activities and venture capital investments in the first quarter, many analysts cautioned that similarly strong gains may not be earned this quarter, which so far has been rocked by severe market volatility.

Chase Manhattan Corp., Bank of America Corp., J.P. Morgan & Co., and Wells Fargo & Co. were among several banking companies that benefited from a healthy investment banking boost during the first three months of the year, including gains on investments in fledgling technology companies. The same group of companies has also targeted the tech sector as a source of business for underwriting stock offerings and arranging financing deals.

Uncertainty surrounding this market could soften second-quarter results. "The underwriting cycle is so iffy right now," said Steve Eisman, an analyst at CIBC World Markets. "People don't have the same appetite for [technology] investments that they once did." Mr. Eisman predicted profits from investment banking would decline "substantially" across the board in the second quarter.

Others also expect a downturn but are unclear about its extent.

"The stock market and capital markets are going to be a key element," said Michael Mayo, an analyst at Credit Suisse First Boston. "If the stock market stays subdued, it's likely to have an impact."

For the most part, banking companies are expected to improve their overall profit, said Henry "Chip" Dickson, an analyst at Citigroup's Salomon Smith Barney. "The first quarter seasonally tends to be the weakest of the year," he said. "I expect to see some improvement."

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