REUTERS - JPMorgan Chase & Co reported a better-than-expected quarterly profit on Friday due to strong loan growth and higher interest rates, but said net interest income for the year would be lower than expected, sending its shares down about 2 percent.
The bank's borrowing business increased across residential mortgages, business loans, credit cards, and even auto loans, an area where some lenders have been pulling back.
However, on a call with analysts, Chief Financial Officer Marianne Lake said net interest income for the full year would increase by $4 billion, rather than a $4.5 billion estimate given in April. This is due to mortgage adjustments and a change in the alignment of interest rates, Lake said.
Overall, JPMorgan's net income rose 13 percent to $7.03 billion, or $1.82 per share, from $6.2 billion, or $1.55 per share, in the year-ago quarter (bit.ly/2tQ630n).
This was driven by JPMorgan's average core loan book, which grew 8 percent in the second quarter compared with the same period a year earlier. Higher interest rates helped JPMorgan earn more money on these loans.
Excluding a gain from a legal settlement, the bank earned $1.71 per share, topping the average analyst estimate of $1.58, according to Thomson Reuters I/B/E/S.
The stock was down 1.7 percent at $91.55 in morning trade.
The Federal Reserve lifted interest rates for the second time this year in June. Rising rates are usually good for banks, allowing them to increase how much they charge for loans faster than they boost how much they pay for deposits.
Chief Financial Officer Marianne Lake called rate movements "a tale of two cities," in which Wall Street businesses change quickly, but Main Street customers are not yet demanding more money for their deposits.
"While there have been changes in the industry and CDs, there's been nothing in checking or savings," said Lake.
The bank expects the Fed to hike rates again in December, she said.
As JPMorgan's loan book has expanded, it has also set aside more money for borrowers who do not repay their debts.
In credit cards, where it has been growing aggressively, the bank built loan-loss reserves by $252 million as the charge-off rate ticked above 3 percent, an increase from both the prior and year-ago periods.
JPMorgan executives have told investors to expect credit card loss rates to go up as the company makes more loans. On newer card accounts, the bank sees charge-off rates of about 4.5 percent, Gordon Smith, head of consumer banking, said at an investor conference in June.
Trading revenue was a dark spot for JPMorgan as volatility hit multi-year lows. But executives across Wall Street have been warning investors to look for declines because the year-ago quarter benefited from a surge in trading around the UK's Brexit vote.
JPMorgan's markets revenue dropped 14 percent to $3.22 billion, mostly due to fixed income trading. It was the first decline in five quarters.
Wells Fargo & Co and Citigroup Inc also reported results on Friday.
Reporting by Sweta Singh in Bengaluru and David Henry in New York; Editing by Jeffrey Benkoe and Bernard Orr