April 19 (Reuters) - Fifth Third Bancorp ( FITB ) posted

a 10% drop in first-quarter profit on Friday as higher deposit

costs weighed on the lender's interest income.

Regional banks have steadily increased the interest rates

they offer on deposit accounts to retain customers looking for

greater returns by parking their money in higher-yielding

alternatives.

Cincinnati, Ohio-based Fifth Third's net interest income on

a reported basis - the difference between what a bank earns on

loans and pays on deposits - fell nearly 8.8% to $1.38 billion

in the quarter.

Net interest margin contracted to 2.86% in the first quarter

versus 3.29% in the year-ago period.

Fifth Third continues to expect its NII in 2024 to decline

between 2% and 4%. Analysts on average expect it to fall 3.4%,

according to LSEG data.

Regional peers U.S. Bancorp ( USB ) and KeyCorp ( KEY )

reported their earnings on Thursday and posted similar NII

declines.

Provision for credit losses fell to $94 million in the

quarter from $164 million last year.

Higher interest rates have also tempered the demand for

loans as borrowers sit on the sidelines waiting for rate cuts.

Fifth Third's total average portfolio loans and leases fell

4% to $117.33 billion in the quarter, hurt by a decrease in its

consumer and commercial portfolios.

Meanwhile, the bank's total average deposits rose 5% to

$168.12 billion, helped by higher interest checking and money

market accounts.

The lender's net income available to common shareholders

fell to $480 million, or 70 cents per share, for the three

months ended March 31, from $535 million, or 78 cents per share,

a year earlier.

Shares of Fifth Third have fallen 0.8% so far this year,

through its previous close, compared to a 14.2% drop in the KBW

Regional Banking Index.