PNC Financial’s interest income forecast trim clouds upbeat quarter

(Reuters) – PNC Financial Services Group (NYSE:) on Tuesday cut its forecast for full-year net interest income (NII), casting a shadow over the lender’s second-quarter earnings beat.

Shares of the bank fell nearly 3.5% in premarket trading as it estimated NII to rise 5% to 6% in 2023 from last year, compared to its previous forecast of 6% to 8% growth.

The cut in full-year expectations for NII – the difference between the interest banks earn on loans and pay out on deposits – came even as PNC reported a 15% jump in NII to $3.51 billion.

The rate increases by the U.S. Federal Reserve to rein in sticky inflation have boosted lenders’ income from bigger interest payments, but banks have warned that the higher borrowing costs could soon start to weigh on loan demand.

To lure more customers, banks are also expected to pay higher interest on deposits, a move that could increase costs and weigh on profits.

Lenders have also been allocating more capital to their rainy day funds, responding to uncertainty about the trajectory of the economy following the U.S. central bank’s aggressive monetary tightening.

PNC set aside $146 million as provisions for credit losses in the second quarter, compared to $36 million a year earlier.

Earnings reports from U.S. lenders are expected to shine a light on the health of the industry after the collapse of three banks led to a meltdown earlier this year.

For the three months ended June 30, PNC earned $3.36 per share. Analysts had expected a profit of $3.28 per share, according to Refinitiv IBES data.