Bank of America (BAC  ) shares were higher following its Q1 earnings report which showed it exceeding analysts' estimates on the top and bottom-line. A positive surprise was that lean defaults were much less than what the bank had forecast.

Yet, Bank of America shares have underperformed in 2022 along with other financial stocks despite rising rates typically being bullish for bank stocks. The major factor seems to be that the ascent of short-term rates has led to fears of a slowdown or recession which is negatively impacting the sector along with others. Yet, there's no sign of a slowdown in bank earnings despite a sharp deceleration from last year mainly due to tough year-over-year comps.

Inside the Numbers

This is evident in its Q1 earnings report in which it topped analysts' expectations for earnings with $0.80 per share vs $0.75 per share. Revenue also edged out estimates at $23.3 billion vs $23.2 billion. Last year, it reported $0.92 per share in earnings and revenue of $22.6 billion in Q1.

The biggest contributor to earnings growth was fewer defaults than expected, an indication that consumers are in a good position as of Q1 though this could be impacted by rising prices of food and energy. Net loan charge-offs declined by 52% to $392 million, less than half of forecasts.

It also released $362 million in reserves while only adding $30 million for loan loss reserves which was much less than expected. In contrast, JPMorgan (JPM  ) added $1.5 billion to provisions for credit losses due to its assessment that the odds of a recession have increased due to the Fed's tightening and inflation.

Bank of America also had strong loan growth, another indication of strong economic activity. Another potential risk is the inverted yield curve which makes lending less profitable especially in an inflationary environment.

Bank of America's trading division reported results in-line with estimates. Fixed income generated $2.7 billion, and equities accounted for $2 billion of revenue, due to elevated volatility and higher trading volumes. Investment banking declined by 35% due to less M&A activity and reduced IPO issuance.