Bank of America (BAC) released its Q1 earnings announcement on Thursday, and the company's message was largely in line with lackluster expectations.
The bank earned $0.21 per share, which was a penny better than analysts' expectations.
Two broad themes were represented in Bank of America's results: 1) the US consumer is healthy, and 2) the banking business is tough.
The US consumer is looking good
"This quarter, we benefited from good consumer and commercial banking activity," Bank of America CEO Brian Moynihan said. "Our business segments earned $4.5 billion, up 16% from the year-ago quarter."
Average loans and leases grew 8% to $215 billion. Total credit and debit card spending activity increased by 5%. Bank of America issued 1.2 million new US consumer credit cards during the period.
Indeed, Bank of America is getting a boost from the US economic recovery, which has been highlighted by strong job gains, increasing home and stock prices, and what appears to be the beginning of rising wages.
The banking business is tough
Banks have been facing three big headwinds in recent months: 1) low interest rates, which have squeezed profit margins, 2) volatile markets, which has slowed investment banking activity, and 3) low commodity prices, which has called into question the credit quality of energy loans.
"[Good consumer and commercial banking activity] was partially offset by valuation adjustments from lower long-term interest rates and annual compensation expenses," Moynihan continued. "Despite volatile markets, our Global Markets business produced solid earnings."
Investment banking fees fell 22% to $1.2 billion. Sales and trading revenue tumbled 16% to $3.3 billion.
Any bank who has lent money to a company in the energy industry has felt the pinch of low prices. For banks, they prepare for default by setting aside more reserves.
"Provision for credit losses increased $457 million, driven primarily by increases in energy-related reserves," management said.
But banks will be banks
Low interest rates put pressure on bank profit margins. One of the most important measures of bank profitability is the net interest margin, or NIM, which is roughly the difference between the interest banks collect less the interest they pay out for holding deposits.
But bank CEOs like Dimon and Moynihan have been emphasizing the importance of building customers in this environment.
"I'd rather have real growth in the number of clients than more spread," Dimon said to Yahoo Finance.
"As always, we are focused on loan and deposit growth and managing expenses," Moynihan said. "By doing that, we continue to improve on what we do best: helping consumers live their financial lives and helping businesses grow and employ more people."
And when long-term rates do rise, the banks with the most customers should see profits grow again.
Sam Ro is managing editor at Yahoo Finance