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JPMorgan Chase said earnings from its lending business would continue to increase this year on the back of higher interest rates as the largest US bank reported a jump in profits in the second quarter.

The group said on Friday that net income had jumped 67 per cent year on year to $14.47bn, ahead of analysts’ estimates of $11.9bn, according to consensus data compiled by Bloomberg.

Much of the increase was driven by higher net interest income, up 44 per cent year on year to $21.9bn, the fifth straight quarter of double-digit growth and ahead of estimates of almost $21bn. Net interest income is the difference in what banks pay on deposits and what they earn from loans and other assets. 

JPMorgan also increased its net interest income target for 2023, excluding its trading division, to about $87bn from around $84bn. The Federal Reserve paused raising interest rates at its most recent meeting but officials have indicated they still plan further increases

Earlier on Friday, Wells Fargo increased its own net interest income target for the year, as the nation’s largest banks continue to benefit from higher interest rates, even as worries about loan defaults, especially in commercial real estate, grow.

JPMorgan shares were up 2.5 per cent in pre-market trading in New York, while Wells was up almost 3 per cent.

Big banks such as JPMorgan and Wells have been able to charge more for loans since last year when the Fed started lifting rates; they have not raised rates on deposits as much. Smaller banks have come under greater pressure to boost deposit rates to retain deposits, hurting their profit margins. 

In the five quarters since March 2022 when the Fed started to increase rates, JPMorgan has earned $95.3bn in net interest income, up from $66.1bn in the prior five quarters.

Bar chart of Net interest income in $bn showing JPMorgan benefits from Fed lifting interest rates

There is typically a lag between interest rates rising and savings rates going up and the question for banks such as JPMorgan is when the benefits from higher rates will fade. JPMorgan’s deposits rose 1 per cent during the quarter to just shy of $2.4tn. 

JPMorgan’s lending business received a further boost in May when it acquired First Republic, a California-based bank specialising in wealth management that lost tens of billions of dollars in deposits following the collapse of Silicon Valley Bank in March. JPMorgan also benefited from a $1.8bn gain relating to the First Republic deal.

“The US economy continues to be resilient. Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly,” chief executive Jamie Dimon said in a statement. 

JPMorgan’s bumper lending profits compensated for a fall in investment banking fees, which were down 6 per cent at $1.56bn, still ahead of analysts’ estimates of $1.4bn.

Revenue from fixed income and equity trading were down 10 per cent at $7bn amid calmer financial markets but they are still above pre-pandemic levels. Analysts had forecast trading revenue of $6.8bn.