April 19 (Reuters) - Huntington Bancshares ( HBAN )

posted a drop in first-quarter profit on Friday, as higher

deposit costs hurt the lender's interest income.

Regional banks have been offering higher returns on deposits

to prevent customers from fleeing to a higher yielding

alternatives.

Net interest income, the difference between what banks pay

customers on deposits and earn as interest on loans, declined

8.3% to $1.3 billion, in the three months ended March 31,

Huntington said.

The high interest-rate environment, however, has squeezed

the finances of borrowers, resulting in banks allocating more

capital for potential loan defaults.

Provision for credit losses at Huntington Bancshares ( HBAN ) grew

nearly 26% to $107 million.

The lender's quarterly profit came in at $419 million, or 26

cents per share, compared with $602 million, or 39 cents per

share, a year ago.

The bank also incurred an expense of $32 million related to

the additional special assessment that it had to pay to

replenish the Federal Deposit Insurance Corp's deposit insurance

fund.