A month has gone by since the last earnings report for UBS (UBS Quick QuoteUBS - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UBS 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 drivers.

UBS Group AG’s Q2 Earnings Improve Y/Y, Expenses Flare Up

UBS Group AG reported second-quarter 2021 net profit attributable to shareholders of $2 billion, up 63% from the prior-year quarter. The company’s second-quarter 2021 earnings per share of 55 cents, reported a 66.7% rise from the figure reported in the prior-year quarter.

The company’s performance was supported by a 29% increase in net fee and commission income, year over year, along with a 17% rise in net interest income. Also, net credit loss release acted as a tailwind. However, rise in expenses was an undermining factor.

Performance of almost all the segments of UBS Group AG was impressive during the quarter. It recorded higher profitability in Asset Management, Global wealth management and Personal & Corporate banking units.

Operating Income Climbs, Expenses Rise

UBS Group AG’s operating income increased 21% to $8.97 billion from the prior-year quarter. Operating expenses flared up 10% to $6.38 billion in the second quarter. This rise was due to higher personal expenses, general and administrative expenses as well as depreciation and impairment of property, equipment and software.

The company reported net credit loss releases of $80 million in the quarter as against expense of $272 million witnessed in the year-ago quarter.

Business Division Performance

Global wealth management’s operating profit before tax was $1.3 billion, up 47% year over year. Higher transaction-based and recurring net fee income supported the company.

Asset Management’s operating profit of $255 million jumped 62% year over year, mostly driven by higher net management fees, as well as a $37 million gain from the sale of its remaining minority investment in Clearstream Fund Centre in the second quarter. Also, invested assets jumped 5% sequentially to $1.17 trillion.

Personal & Corporate banking reported operating profit before tax of $500.4 million, up significantly year over year. Revenue from credit card and foreign exchange transactions was the key driver of the boost in transaction-based income, portraying a gradual rise in travel and leisure spending by clients as pandemic restrictions ease.

Investment Bank unit’s operating profit before tax was $668 million, up 9% from the prior-year quarter, aided by Advisory and Capital Market revenues. However, lower revenues from Global Markets and higher expenses were offsetting factors.

Group Functions incurred an operating loss before tax of $124 million in the reported quarter compared with the loss of $305 million witnessed in year-ago quarter.

Strong Capital Position

As of Jun 30, 2021, UBS Group AG's invested assets remained flat at $4.5 trillion. Total assets increased 2.1% to $1.08 trillion from previous quarter.

The company’s phase-in common equity tier (CET) 1 ratio was 14.5% as of Jun 30, 2021, compared with 13.3% on Jun 30, 2020. Phase-in CET 1 capital increased 11.7% to $42.6 billion. Fully applied risk-weighted assets increased 2.4% to $293.3 billion from the year-ago quarter.

Outlook

Third Quarter

Notwithstanding any interest-rate headwinds, the management estimates a marginal rise in NII sequentially, driven majorly by decent lending.

The company expects revenues in the third quarter of 2021 to be positively influenced by seasonal factors such as higher client activity, when compared with second-quarter 2021. Higher asset prices are likely to have a positive impact on recurring fee income in its asset gathering businesses.

Full Year

Management projects costs (excluding variable FA compensation, currency effects and restructuring) to be up 1%.

Tax rate is expected to be about 25% in the remaining six months of 2021. The expectation excludes any potential impacts from the reassessment of deferred tax assets in connection with business planning process and any potential changes in U.S. corporate or other jurisdictional statutory tax rates that could be enacted during the year.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.