By Elizabeth Dilts Marshall and Manya Saini

(Reuters) -Bank of America Corp beat analysts' estimates for second-quarter profit on Monday, with healthy consumer spending and strong demand for loans limiting the hit from its investment banking business.

Executives at the second-largest U.S. bank painted an overall positive outlook for consumer spending going forward, saying that despite decades-high inflation, spending continues to grow, albeit at a slower pace.

"We observed from our data spending remains excellent, deposit balances remain high, capacity to borrow is still there, credit quality is still there," Chief Financial Officer Alastair Borthwick said on a call.

The U.S. Federal Reserve has been hiking interest rates rapidly as it attempts to tame inflation, and though that continues to have economists calculating the risk of a recession, it meant healthy profits for banks in the second quarter.

Bank of America's net interest income, a key measure of the difference between the interest earned on loans and the amount paid out on deposits, jumped 22%, or $2.2 billion, to $12.4 billion in the second quarter.

The bank expects it can grow NII by $900 million to $1 billion by the third quarter, Borthwick said.

With respect to its economic outlook, the bank released $48 million of reserves in the quarter, compared to rival banks JPMorgan Chase & Co and Wells Fargo & Co, which boosted loss provisions in the quarter. BofA's total loan loss provisions as of June 30 were $500 million.

"Net interest income growth has always been its strong point and should bridge (the bank) through the oncoming recession, even if credit losses rise off of historical lows," Viola Risk Advisors president David Hendler wrote in a note on Monday.

Bank of America's shares, which have fallen nearly 28% so far this year, were up 0.91% at 11:45 EST (1545 GMT).

The company's profit fell 34% to $5.93 billion, or 73 cents per share, for the quarter ended June 30. On an adjusted basis BofA earned 78 cents per share, compared with estimates of 75 cents per share, according to Refinitiv IBES data.

Bank of America's investment banking fees fell 47% to $1.1 billion in the second quarter, as Wall Street has seen public listings and dealmaking activity slump amid volatile capital markets and geopolitical tension.

Revenue, net of interest expense, rose 6% to $22.7 billion despite a downturn in the leveraged finance markets. Borthwick said the bank will be working down leveraged loan exposure from the $300 million mark.

"Some of those deals have been funded, and we're working through any remaining exposure to get them through the market," Borthwick said on a call with analysts.

SPENDING & THE FED

Despite inflation hovering at levels not seen in four decades, spending by Bank of America's 60 million household customers rose 11% to $220.5 billion over the first quarter this year.

"Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels," Chief Executive Officer Brian Moynihan said.

Spending trends are key indicators of the financial health of consumers and Moynihan said they are seeing more customers spend on travel and fuel, due to increased prices, and less spending at retail stores. Overall, revenue for the consumer banking unit rose 12% to $9.1 billion in the reported quarter.

Total loans and leases, excluding those from the government's Paycheck Protection Program, also grew 14% year-over-year, and it was 4% than the immediately preceding quarter.

"While all of this is good news," Moynihan said, "it clearly makes the Fed's job tougher when you take the statistics and combine it with a low unemployment rate."

(Reporting by Manya Saini and Niket Nishant in Bengaluru and Elizabeth Dilts Marshall in New York; Editing by Shounak Dasgupta and Nick Zieminski)