(Reuters) -Fifth Third Bancorp reported a rise in second-quarter profit on Thursday, as lower deposit costs boosted the regional bank's interest income, cushioning a larger buffer for loan losses.

An interest rate cutting cycle by the U.S. Federal Reserve in the second half of 2024 has prompted efforts by banks to reduce deposit costs across their portfolios.

The company's net interest income (NII) - the difference between what banks pay customers on deposits and what it earns as interest on loans - for the quarter rose 7.8% from a year ago to $1.5 billion.

The rise in NII reflected an improving asset mix and repricing of certain fixed-rate assets, with interest expense down 20% compared with the year-ago period.

After a rocky start to the quarter when U.S. President Donald Trump's tariffs scuttled dealmaking, executive sentiment has rebounded on hopes for trade deals and potential rate cuts by the Fed.

But regional lenders such as Fifth Third depend largely on loans to small businesses and consumers, who are particularly vulnerable to an economic slowdown.

The Cincinnati, Ohio-based bank's provision for credit losses jumped to $173 million in the quarter from $97 million a year earlier, as it set aside more funds to account for a potential increase in loan defaults.

The lender also benefited from higher fees, with total non-interest income rising 8% to $750 million in the quarter, boosted by a seasonal equity fund return.

Net income available to common shareholders rose to $591 million, or 88 cents per share, in the three months ended June 30. It had reported $561 million, or 81 cents per share, a year earlier.

Shares of Fifth Third have risen 1.8% YTD, as of last close, compared with a 10.7% gain in the KBW Bank index.