Interest rate cuts can be a double-edged sword, and the latest quarterly earnings reports from Wells Fargo and Bank of America provide evidence for that maxim with lower revenue from some property loans.
Investors often cheer the Federal Reserve when it cuts interest rates, as lower rates are seen as a stimulus for business activity. But rate cuts can also have a negative effect, as banks generate less revenue from floating-rate loans.
That's what happened during the fourth quarter, especially for commercial real estate loans, executives at Wells Fargo and Bank of America said on Wednesday.
"You've got a big variable-rate portfolio there on the commercial side," Mike Santomassimo, chief financial officer at Wells Fargo, said during a conference call.
The Fed lowered its benchmark interest rate three times in late 2025 to the current range of 3.5% to 3.75%. Wells Fargo's economists currently project the Fed will cut rates two or three times in 2026.
The Bank of Canada has lowered interest rates three times since mid-2024, bringing the overnight rate down to 2.25%. The Canadian central bank has since taken a pause on rate cuts. Both Wells and BofA conduct business in Canada, primarily serving commercial clients rather than individual consumers.
"Rates are coming down, which is a headwind for net interest income," Santomassimo said. Net interest income is a measurement of the revenue that banks generate from loans minus interest paid to depositors.
Commercial loans
Fourth-quarter revenue from commercial real estate in Wells Fargo's corporate and investment banking division fell 3% to $1.24 billion, compared to a year earlier, on "the impact of lower interest rates," the San Francisco-based bank said in a news release. For Wells Fargo's entire $986 billion loan portfolio, the average loan yield dropped 38 basis points to 5.78% during the same period.
At Charlotte, North Carolina-based Bank of America, the average yield on commercial real estate loans in the fourth quarter dropped 76 basis points to 5.93% compared to the fourth quarter of 2024. Bank of America's book of commercial real estate loans, however, increased 4.6% to $68.7 billion in the same period.
While the two large banks are generating less revenue from loans, both said they're seeing increased demand for loans, especially for commercial properties.
"There has been good demand there for a while across a lot of different sectors, whether it's multifamily, industrial, data centers," Santomassimo said. "The fundamentals there haven't shifted that much."
Loan demand has remained steady at Bank of America as well, from both individuals and businesses, CEO Brian Moynihan said during a conference call with investors.
"With consumers and businesses proving resilient, as well as the regulatory environment and tax and trade policies coming into sharper focus, we expect further economic growth in the year ahead," Moynihan said.
Loan growth
The comments from Wells and Bank of America echo what executives at other banks have said recently about commercial property loan demand. In October, officials with M&T Bank and PNC Financial Services Group projected that commercial mortgage demand would resume growth in early 2026.
"Our assets grew 11% from a year ago, including broad-based loan growth," Wells Fargo CEO Charles Scharf said during the call.
The market for office-building mortgages is different, however.
"You do have a bifurcation there between really good office space ... in vibrant cities that are doing well and demand is up substantially," Santomassimo said. "On the older inventory and older stock, I think things have stabilized. Other than the older office stock, there seems to be good demand."
More banks are scheduled to report fourth-quarter earnings in the coming days, including Goldman Sachs on Thursday and PNC Financial Services Group on Friday.