CHARLOTTE, N.C. ( TheStreet) -- The case for buying Bank of America ( BAC) shares ahead of its earnings report on Friday is this: Investors tend to overreact.

The second quarter wasn't a great one for big banks : Lending income has been held back by economic problems; fee revenue has been hindered by regulatory changes; and trading revenue was weak because market volatility spooked investors.

Meanwhile, the reasons for the volatility and fear -- the European debt crisis, the "flash crash," financial reform -- centered around issues that big banks are grappling with as well.

The broad market sell-off led to huge declines in big-bank stocks like Bank of America, JPMorgan Chase ( JPM), Wells Fargo ( WFC), Citigroup ( C), Goldman Sachs ( GS) and Morgan Stanley ( MS).

Bank of America recently touched a low of $13.50 on July 1, a 32% drop from its second-quarter high in mid-April , and a 24% pullback from its close on March 31. Analysts have lowered second-quarter estimates leading up to the earnings season because of the reform and economic headwinds, but not nearly by that much. If the banks report numbers that are viewed by Wall Street as not-so-bad or moderately good, it could set up short-term investors for a good "sell the rally" play.

As the biggest bank in the country, and one of the most diverse, Bank of America is an ideal barometer for how the industry is faring. JPMorgan Chase ( JPM) was the first of the Big Four money-center banks to report on Thursday, and its results should provide some clues for how Bank of America's business lines performed, but here's a look at what else investors should consider leading up to the big kahuna's report:

Earnings:

Analysts expect Bank of America to earn $2.3 billion, or 22 cents per share, on average, according to Thomson Reuters, about a penny less than they did shortly after Bank of America reported its first-quarter results. That would represent a slight decline from the second quarter of 2009, when the firm earned $2.4 billion.

Still, considering the fact that analysts have been off by anywhere from 1,045% to -723% since the financial crisis erupted two years ago, there's a good chance Bank of America will surprise The Street once again. Furthermore, profit estimates have a wide range of 10 cents per share to 37 cents per share, reflecting the heightened uncertainty of late.

Bulls will highlight where things are getting less bad, rather than better. Big banks aren't earning more money from loans, since consumer and small-business lending is nearly at a stand-still and the mortgage refinancing spree has begun to sputter.

But banks will almost certainly be seeing better performance in many loan books vs. the dark days of 2008 and 2009. They may also reserve less capital against bad debt as a result, leaving more "dry powder" to use for more profitable opportunities.

Additionally, funding costs are still at an all-time low with the Federal Reserve holding its interest-rate target steady at near-zero. Debt yields have also dropped as a result of investors fleeing equities. In other words, it's hard for banks not to make money, even if it's not a great operating environment.

Bears, however, will point to ongoing stress in commercial real-estate , the broader lending freeze and the fact that easy-money profit centers that once flourished -- ATM fees, credit-card rate hikes, proprietary trading -- have either been targeted by regulators or are less profitable now because of market conditions.

Revenue:

Wall Street expects Bank of America to post revenue of $29.75 billion, a 9% decline from the year-ago period. In recent quarters, investors have been more focused on top-line results, even when banks beat bottom-line expectations.

That's because revenue seems to reflect the economic reality and on-the-ground business conditions more than net income.

"While investor expectations have been scaled back heading into 2Q, our sense is that better-than-expected credit results, margin expansion, and refreshed management outlooks will fall short of a meaningful catalyst given concerns about financial reform and the likelihood of more tepid growth," Todd Hagerman, an analyst with Collins Stewart, said in a recent report. "Growth prospects rather than credit is quickly becoming the primary catalyst for the sector."

With mortgage originations having slowed and other lending channels being held back by high unemployment and weak consumer sentiment, loan revenue is likely to remain soft.

Similarly, there have been reports that trading revenues were weaker. For instance, Goldman Sachs ( GS) CFO David Viniar indicated that "uncertainty surrounding the overhaul of financial regulation and economic challenges in Europe have left market participants in a state of paralysis," according to a June report by Sandler O'Neill analyst Jeff Harte. The capital markets, wealth management and investment banking divisions of Bank of America-Merrill Lynch were facing the same headwinds.

Analysts have cut revenue targets by $127 million over the past couple of months, but that may not have been enough to reflect the cool-off in business. Yet estimates range from $27.9 billion to over $30.3 billion, leaving room for both bulls and bears to be caught off-guard.

Stock Performance:

Much like its big-bank brethren, Bank of America shares haven't been performing so well over the past few months. But whether the stock is going through a necessary correction or is oversold with plenty of room to grow depends on where one stands on the broader economic recovery.

The stock is down 12% since the end of the first quarter and 21% since touching a high near $20 in mid-April. However, the sell-off did an abrupt about-face as soon as the second quarter began - hitting a low of $13.50 on July 1 and climbing 16% since then, to close at $15.67 on Tuesday.

Double-dippers suspect that, whatever the second-quarter results, the economy is heading into another downward spiral with more loan-loss pain and revenue slumps ahead. Recovery optimists brush off that view as poppycock, and point out that with historically low funding costs, historically high capital levels and the impact of financial reform several years away, big banks have one direction to go from here: Up.

"Simply stated, bank earning capacity has never been greater," Rochdale Securities analyst Richard Bove said in a report on Wednesday.

Both Bove and Hagerman hold buy ratings on Bank of America shares, much like the rest of the analyst community. Of 28 analysts who cover Bank of America's stock, not one suggests selling the shares. Five advise investors to hold onto their positions, while 23 rate the stock a buy or strong buy. Their average 12-month target price is $22.38, representing 43% upside from current levels.

Management Commentary:

Reform , reform , reform .

Bank of America CEO Brian Moynihan , who has just passed the half-year mark in his new role, is likely to field many questions about the financial-reform bill and what it means for B of A. The wide-ranging legislative conquest -- which has yet to pass both Houses of Congress -- stands to stir change across just about every line of business that Bank of America is focused on.

Moynihan is sure to face questions about the economic recovery as well -- how various loan books are performing, where he sees opportunities, where the bank will find lost fee revenue, what the future of housing finance looks like, whether the consumer finance business is truly dead, whether he expects a double-dip recession himself, and what he expects to happen as reform meets the eventual recovery.

Another Bank of America-related issue that surfaced lately is one of so-called "window dressing" ahead of quarterly reports. The company recently admitted to inappropriately identifying $10.7 billion worth of items as assets when they should have been counted as loans over a two-year period.

While the effect was immaterial to results, analysts may pry into whether there are other consequences to using such tactics. While "window dressing" is a common practice on Wall Street, it has become controversial since an examiner's report noted that Lehman Brothers used a tactic called Repo 105 to cover up deeper balance-sheet problems.

-- Written by Lauren Tara LaCapra in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.