U.S. regional banks including SunTrust Banks Inc , BB&T Corp and PNC Financial Services Group Inc are paying less for deposits, which helped fuel higher profits in the second quarter.

Pittsburgh-based PNC's net interest income climbed to $2.4 billion in the second quarter, up 2 percent from the first quarter and up 11 percent from the year-earlier quarter.

PNC's net interest margin, a measure of the profit it wrings out of money it borrows from depositors, increased to 4.35 percent from 4.24 percent in the first quarter and 3.6 percent a year earlier. The bank cited lower deposit costs as a reason for rising margins.

Not every bank experienced higher margins. Columbus, Ohio-based Huntington Bancshares Inc said its net interest margin shrank by 0.01 percent.

And Fifth Third Bancorp reported a decline in both margin and net interest income -- 0.06 percent and 2 percent, respectively.

Despite improving net interest margins, the banks cautioned that loan demand is still soft among their so-called Main Street borrowers, and credit costs, while easing, remain high.

Like other banks that have reported results throughout the past week, regional banks reported a mixed outlook for loan demand.

At the beginning of the year we thought that by now we would be seeing a pickup in loan demand as the economy began to expand, said Stephen Steinour, chief executive of Huntington. While there have been some signs of economic expansion, meaningful loan growth has not yet materialized.

SunTrust said borrowers are hesitant to seek credit in the current economy. Its average loan balances declined 9 percent year-over-year.

BB&T bucked the trend, saying new loan originations were up 13.6 percent over the first quarter, to $15.4 billion.

Atlanta-based SunTrust reported a narrower net loss, while Winston-Salem, North Carolina-based BB&T reported higher net income.

Columbus, Ohio-based Huntington swung to a profit from a year-earlier loss. PNC and Fifth Third reported better-than-expected profit.

CREDIT

Regional U.S. banks, unlike larger national banks, typically rely heavily on loans to generate profit.

Many lack large investment banking or wealth management businesses to bolster revenue when lending slows down.

But the banks are showing some signs of improvement.

BB&T said its nonperforming assets -- or loans the bank believes will not be repaid -- dropped 3.1 percent during the second quarter, its first decline since the first quarter 2006.

The bank's provision for credit losses decreased 7.3 percent over the same quarter a year prior.

PNC's higher-than-expected results were fueled by lower credit costs, even as loan losses increased. The bank put aside $823 million against loan losses in the second quarter, down from $1.1 billion a year earlier.

Loan losses jumped to $840 million in the second quarter from $691 million in the first quarter and $795 million in the year-earlier quarter.

The bank recorded $75 million in loan losses related to sales from its distressed assets portfolio.

Revenue at PNC climbed 3 percent to $3.9 billion.

Fifth Third reported its lowest level of loan losses since the second quarter of 2008; losses fell to $434 million from $626 million in the year-earlier quarter.

(Reporting by Joe Rauch, additional reporting by Elinor Comlay in New York; editing by John Wallace)