(Reuters) - Truist Financial (NYSE:TFC) reported a near 31% drop in third-quarter profit on Thursday as the lender's interest income from mortgages and credit-card debt declined while it allocated more funds towards rainy-day reserves to cover potential sour loans.
Analysts had forecast the boost from higher interest income would diminish as banks pay more to retain deposits and prevent clients from shifting to money-market funds for higher risk-free returns.
Truist's net interest margin in the quarter contracted to 2.95% from 3.12% a year earlier.
Lenders, which typically thrive in times of stable economic growth, are also grappling with the possibility of a recession that might burden customers with debt and pressure banks' loan growth.
Truist's net interest income for the three months ended Sept. 30 fell 4.3% to $3.62 billion, compared with a year earlier.
The bank's average deposits at the end of the third quarter were roughly flat from the prior quarter, but dropped 4.5% compared year-on-year.
Peer Citizens Financial (NYSE:CFG) Group also reported a similar drop in interest income on Tuesday, impacting the lender's quarterly profit.
Truist reported $497 million in provisions for third-quarter loan losses, accounting for its customers potentially defaulting on their debt against a worsening economic backdrop, more than double from last year's $234 million.
The higher reserves reflect weakness in the commercial real estate sector that has been in the doldrums due to higher rates and financing costs.
The bank's net income attributable to common shareholders fell to $1.07 billion, or 80 cents per share, in the reported quarter, compared with $1.54 billion, or $1.15 per share, a year earlier.
Truist said in September that it was planning "sizable reductions" in its workforce over the next few months to save about $300 million.