April 19 (Reuters) - U.S. mid-sized banks' profits would remain under pressure for most of 2024, Wall Street analysts said, as higher deposit costs and muted loan growth drag their earnings.

Regions Financial, Huntington Bancshares and Fifth Third Bancorp joined peers in reporting smaller first-quarter profits on Friday, due to a steep fall in their interest income.

Net interest margin, a key measure of banking profitability that takes into account earnings from interest on loans and payments on deposits, also contracted across regional lenders for the second straight quarter.

Most mid-sized U.S. banks are expecting a decline in net interest income (NII) this year, as elevated interest rates have stymied loan activity while efforts to retain customers from chasing better returns elsewhere have pushed up deposit costs.

"I think we've got another quarter of down in net interest income to get through before we see some recovery in the second half and this higher-for-longer is kind of a double edged sword for banks in terms of interest rates," said Stephen Biggar, analyst at Argus Research.

"We need to see a downward trajectory in rates to see improvement in loan growth."

On Friday, Regions Financial, Fifth Third Bancorp and Huntington Bancshares kept their outlook for 2024 interest income decline unchanged.

Rivals KeyCorp and Comerica also maintained their forecasts for NII decline this year, when they reported lower first-quarter profits earlier this week.

"The broader higher-for-longer rate environment will continue to challenge net interest income for regional banks, with some institutions facing declines due to higher funding costs or changes in deposit mix and pricing," said Theresa Paiz-Fredel, senior director, Fitch Ratings.

Hotter-than-expected inflation has raised fears of borrowing costs staying higher for longer, which has pushed borrowers on the sidelines and discouraged them from taking out long-term debt such as home mortgages.

"Loan growth remains very weak," analysts at Piper Sandler said in a note earlier this week. The brokerage added that total industry loans grew just 2.2% in the second week of April.

Last week, strong economic data led to analysts pushing back rate-cut expectations to the back half of the year, further clouding the outlook for a meaningful recovery in the mortgage market.

Several banking executives have said they were actively working to lower expenses to counter interest income headwinds.

The pressure on profits has also been a drag on industry stocks. The KBW Regional Banking Index, which tracks a basket of major U.S. regional lenders, has fallen 14.2% this year, underperforming the benchmark S&P 500's 5% gain.

(Reporting by Manya Saini and Jaiveer Singh Shekhawat in Bengaluru; Additional reporting by Arasu Kannagi Basil and Tatiana Bautzer; Editing by Shinjini Ganguli)