(Reuters) - U.S. Bancorp beat estimates for third-quarter profit on Wednesday, helped by higher-than-expected interest income, sending the bank's shares up 2.3% in premarket trading.

The U.S. Federal Reserve kept interest rates at their highest levels in two decades until September, which helped banks rake in more money on loans given to customers.

U.S. Bancorp's net interest income, the difference between what banks pay customers on deposits and earn as interest on loans, was $4.14 billion for the quarter ending Sept. 30, above analysts' expectation of $4.04 billion, according to estimates compiled by LSEG.

However, its interest income fell 2.4% from last year.

The banking industry increased provisions for losses from bad loans as high interest rates heighten the risk of default on mortgages and credit-card debt by borrowers.

U.S. Bancorp's provisions for credit losses rose to $557 million in the third quarter, versus $515 million a year earlier.

The Minneapolis, Minnesota-based lender also reported a decline in average loans to $374.07 billion from $376.88 billion in the year-ago quarter, as borrowers awaited a more favorable interest-rate environment.

Net interest margin - a key measure of lending profitability - contracted to 2.74%, compared with 2.81% in the year-ago period.

Net income attributable to U.S. Bancorp common shareholders came in at $1.60 billion or $1.03 per diluted share, on an adjusted basis, in the reported quarter, beating analysts' estimate of $1.54 billion or 99 cents per diluted share.

(Reporting by Pritam Biswas in Bengaluru; Editing by Pooja Desai)