New loans are a bank’s lifeblood, but investors seem to be willing to look through sluggish loan growth this earnings season. That might not stay the case if demand doesn’t pick up soon.
Most of the largest banks have reported earnings and, on the surface, it has been a success. On the first day of big bank earnings last week, the KBW Nasdaq Bank Index notched its largest gain since the day after the presidential election. Of the first 17 financials to report, just one failed to beat estimates, according to LSEG IBES.
One area of caution has been loan growth , which can only be described as sluggish. According to Morgan Stanley analyst Betsy Graseck, a basket of 25 banks, including Wells Fargo, JPMorgan Chase, Citizens Financial Group, and Regions Financial, have reported a median increase in loan growth of 1.13% from a year ago. While Graseck sees large-cap banks’ 2025 loan growth rising to 2.6%, that remains below 2023’s 3.7%.
Consumer and commercial loans are helpful as a mirror of economic health, as well as borrowers’ confidence, willingness, and ability to take on debt. They are also integral to banks’ bottom lines and feed into net interest income, or NII — the difference between what the bank makes on interest payments and what it pays back to customers. NII is a significant, closely tracked bank revenue source.
Investors are aware of the need to boost lending. A recent Morgan Stanley survey of 201 institutional investors suggests the issue is top of mind. Loan growth drew the largest share of votes as the top mid-cap bank stock driver in 2025. For large lenders it was viewed as the second-most effective driver, behind interest rates, more important than even the much-hyped prospect of revived M&A.
Yet loan growth has been, for the most part, disappointing. At Wells Fargo, weak loan demand led to declines across assets such as auto loans, which even credit-card balance growth didn’t offset. Commercial clients’ demand for loans was also subdued.
“As you look at the consumer side of the picture, mortgages will likely continue to decline slightly, given the rate environment we’re in,” Wells Fargo Chief Financial Officer Michael Santomassimo told analysts this past week. “We did see a little bit of incremental refinance activity in the fourth quarter…. But now, with rates back up, that seems to be back down again.” Still, the stock gained 6.7% after the release as earnings topped expectations despite a 7% drop in NII from the year prior.
Not every bank reported sluggish growth. Bank of America, the second-largest U.S. lender, stood out for its loan book. The bank said consumer loans grew across the board from the prior quarter, and on the commercial side, loan demand grew 5% from a year earlier. That was “a much faster annualized pace” in the fourth quarter than the third quarter, BofA CEO Brian Moynihan told analysts this past week.
But for now the “upside risk” of greater loan demand appears, for most other banks, more a hope than a reality. Terry Turner, the CEO of Nashville-based Pinnacle Financial Partners, said the primary growth driver for his firm, which has $53 billion in assets and caters to markets in the Southeast, would be revved-up loan requests in response to an improving economic picture.
“Essentially, all our loan growth came from new revenue-producer hires, which is just another way of saying it’s all market share movement,” Turner said on Pinnacle’s earnings call on Wednesday. “To the extent you really get a pickup in economic loan demand, I think that’s your opportunity for upside.”
Further north, CEO John Ciulla of Stamford, Conn.-based Webster Financial said he anticipates mid-single-digit loan growth and is hoping for more. He said on Webster’s earnings call last week that the bank would prioritize using its excess capital to fund loan growth if loan demand were to pick up.
Investor focus on borrower activity levels was magnified on Tuesday, when KeyCorp reported guidance that disappointed investors. The bank’s forecast that average loans would drop between 2% and 5% this year, while NII would rise 20%, fell short of expectations, Raymond James analyst David Long notes. KeyCorp shares fell 3.6% for their worst day in a month. The bank said “tepid client loan demand” drove loans down 8% from a year ago, though CEO Chris Gorman told analysts that he was “confident in our ability to drive commercial loan growth this year.”
Some confidence is warranted. That banks can beat earnings forecasts despite slower loan growth is an impressive indication of a healthy economy, strong consumer spending, and active capital markets. Investors are also hoping that changes yet to be initiated by President Trump will reduce the regulatory burden banks operate under, boost mergers and acquisitions, and accelerate economic growth. That optimism has helped offset concerns about the prospect that fewer Federal Reserve interest-rate cuts may eat into banks’ profits.
Still, bank stocks reflect a lot of good news already, and much is riding on Trump instituting the policy mix bankers are looking for. But if loan growth can’t recover, the bank rally could be short-lived.