A month has gone by since the last earnings report for Bank of America (BAC Quick QuoteBAC - Free Report) . Shares have added about 8.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Bank of America Q2 Earnings Beat on Reserve Release, Advisory Fees

Bank of America’s second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter.

Results in the reported quarter included provision benefits and gains from tax adjustment related to revaluation of the U.K. deferred tax assets.

The company’s top line was hurt by weaknesses in trading and underwriting businesses, and lower interest rates. Muted loan demand also adversely impacted revenues.

As expected, Bank of America’s trading numbers were dismal. Sales and trading revenues (excluding DVA) declined 18.5% from the prior-year quarter. This was due to 38.3% plunge in fixed income trading fees, while 33% improvement in equity trading income was an offsetting factor.

Despite modest rise in loan balance during the quarter, flattening of the yield curve and low interest rate environment hurt Bank of America’s NII. The company recorded a rise in operating expenses.

Driven by stellar deal-making activities during the second quarter, advisory fees rose 9% from the prior-year quarter. However, underwriting business disappointed. The company’s equity and debt underwriting fees declined 5.4% and 4.2%, respectively. Total IB fees, thus, fell almost 1%.

A reserve release of $2.2 billion during the quarter, leading to provision benefits, supported the company’s financials. Backed by improvement in consumer spending and economic rebound, Bank of America witnessed 27% surge in total card income on a year-over-year basis.

Asset management business acted as tailwind. The bank posted 27.1% jump in asset management fees during the quarter.

Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets, witnessed an improvement in net income.

Overall, net income soared substantially from the prior-year quarter to $9.2 billion.

Dismal Trading Hurts Revenues, Expenses Rise

Net revenues amounted to $21.5 billion, which lagged the Zacks Consensus Estimate of $21.8 billion. The top line declined 3.9% from the prior-year level.

NII (fully taxable-equivalent basis) declined 3.9% year over year to $10.3 billion, mainly due to lower interest rates and soft loan demand. Also, net interest yield contracted 26 basis points (bps) to 1.61%.

Non-interest income declined 2.1% from the year-ago quarter to $11.2 billion.

Non-interest expenses were $15 billion, up 12.2%. This included certain non-recurring items.

Efficiency ratio was 70.09%, up from 60.06% in the year-ago quarter. Increase in the efficiency ratio indicates deterioration in profitability.

Credit Quality: Mixed Bag

Provision for credit losses was a benefit of $1.6 billion against a provision of $5.1 billion in the prior-year quarter. This reflected a reserve release of $2.2 billion amid an improved macroeconomic outlook. Net charge-offs (NCOs) plunged 48.1% to $595 million.

As of Jun 30, 2021, non-performing loans and leases were 0.54%, up 10 bps.

Strong Capital Position

The company’s book value per share as of Jun 30, 2021 was $29.89 compared with $27.96 a year ago. Tangible book value per share as of second quarter-end was $21.61, up from $19.90.

At the end of June 2021, common equity tier 1 capital ratio (Advanced approaches) was 13.0%, up from 11.4% as of Jun 30, 2020.

Share Repurchase Update

During the quarter, Bank of America repurchased shares worth $4.2 billion. It must be noted that the company resumed buybacks following approval for the same from the Fed in December 2020.

Outlook

Management expects NII to improve gradually and be roughly $11.3 billion in fourth-quarter 2021 on the assumptions of the forward interest rate curve materializing, the economy’s recovery and modest loan growth in the second half of the year.

Management expects operating expenses to be in the lower end of $14 billion range per quarter. For 2021, expenses are projected to be approximately $56.5 billion.

As the economic outlook and remaining uncertainties continue to improve, the company expects reserve levels to keep moving lower. With respect to card losses, given the continued low level of late-stage delinquencies in the 180-day pipeline, card losses are expected to decline in the third quarter of 2021.

For at least the next couple of quarters, total NCOs are likely to be around the second-quarter 2021 level, given lower card losses partly offset by lower net recoveries and other products.

For the second half of 2021, effective tax rate (excluding any changes in the current tax laws or other unusual items) is expected to be in the range of 10-12%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Bank of America has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.