UPDATE 1-U.S. Bancorp's profit beats on higher rates

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July 19 (Reuters) - U.S. Bancorp reported a better-than-expected quarterly profit on Wednesday as the largest U.S. regional bank benefited from higher interest rates.

The Minneapolis-based bank relies heavily on plain-vanilla traditional banking and interest rate increases by the U.S. Federal Reserve helped boost the lender's interest income by 8.5 percent in the latest quarter.

The Fed has raised rates three times since the second quarter of last year, with latest increase coming in June.

U.S. Bancorp's net interest income rose to $3.55 billion in the second quarter ended June 30, from $3.25 billion a year earlier.

However, net income attributable to common shareholders was nearly flat at $1.43 billion.

Earnings per share rose to 85 cents, beating the analysts' average estimate of 84 cents, according to Thomson Reuters I/B/E/S.

Mortgage banking revenue fell nearly 11 percent to $212 million.

Mortgage banking was a dark spot for many U.S. banks in the latest quarter as higher interest rates kept customers away from refinancing their loans.

Wells Fargo & Co, the biggest U.S. home lender, reported a 19 percent fall in mortgage banking revenue in the quarter.

U.S. Bancorp set aside $350 million to cover bad loans, up 7 percent from a year earlier.

Total loans rose 3.3 percent to $277.28 billion.

U.S. Bancorp's shares were marginally down in premarket trading on Wednesday. (Reporting by Diptendu Lahiri in Bengaluru; Editing by Sriraj Kalluvila)