(Adds net interest income guidance, commercial real estate allowance)
By Saeed Azhar and Manya Saini
NEW YORK April 19 (Reuters) - Citizens Financial Group Inc's first-quarter profit missed Wall Street estimates as deposits declined and it set aside more rainy-day funds to cover for souring loans.
The lender also cut its forecast for net interest income -- a measure of how much a bank earns from lending -- to a range of 5% to 7% this year from an earlier prediction of 11% to 14% announced in January.
"We did take our outlook for the year down a little bit, particularly in net interest income, just because we're going to pay more for deposits," CEO Bruce Van Saun told Reuters in an interview.
The bank's shares, which have lost nearly 23% so far this year, fell 0.3% to $30.36 in afternoon trading.
Regional U.S. lenders have been roiled in recent weeks after two bank failures battered confidence and roiled global markets.
The crisis also exacerbated recession concerns. The potential economic downturn prompted Citizens to set aside $168 million in case its customers default on their loans, compared with $3 million a year earlier.
Citizens gradually set aside more money to cover potential losses on office loans, where it predicts weakness as remote working becomes more popular, while rising interest rates and a weaker economy put pressure on borrowers. It raised the stockpile to $272 million, accounting for 6.7% of its $4.1 billion portfolio of office loans.
Average deposits fell 2.6% to $174.4 billion in the three months ended March 31, compared with $179 billion at the end of the previous quarter.
In March, depositors who were rattled by the turmoil sought safety by moving their funds from smaller banks to bigger lenders.
Deposits at State Street Corp and Charles Schwab Corp fell in the first quarter as customers chased higher yields for their money.
Citizens reported an underlying profit of $1.10 per share; analysts' on average had expected it to report $1.13 per share, according to Refinitiv IBES data. (Reporting by Manya Saini in Bengaluru and Saeed Azhar in New York; Editing by Pooja Desai, Lananh Nguyen and Diane Craft)
