Thanks operator and good morning everyone. I'm going to take you through the earnings presentation which is available on our website. Please refer to the disclaimer at the back of the presentation.
Starting on page one, the firm reports a record net income of $7 billion, EPS of $1.82 and a return on tangible common equity of 14% on revenue of $26.4 billion. Included in the result is a legal benefit of approximately $400 million after tax from a previously announced settlement involving the FDIC's Washington Mutual receivership. Other notable items predominantly net result changes and legal expense were a small net negative this quarter, so underlying adjusted performance was really strong and highlights of the quarter include average core loan growth of 8% year-on-year, reflecting continued growth across products; double-digit consumer deposit growth; strong card sales, up 15%; and Merchant volume up 12%; number one, global IB fees up 10% and we delivered record net income in both Commercial Banking and in Asset & Wealth Management. Moving on to Page 2 and some more details about the quarter, revenues of $26.4 billion was up $1.2 billion or 5% year-on-year with the increase predominantly in net interest income up approximately $900 million reflecting continued loan growth and the impact of higher rates. Fee revenue was up $300 million year-on-year, but adjusting for one-time items in both years was down modestly. With lower fixed income markets, mortgage and card revenue, all as guided being offset by strong fee revenue growth across remaining businesses. Adjusted expense of $14.4 billion was up a little less than $400 million year-on-year with auto leases being the biggest driver, but also increasing the impact of the FDIC surcharge and broader growth being offset by lower compensation. Credit cost of $1.2 billion were down $187 million year-on-year on new reserve build. And a net reserve build in Consumer of a little over $250 million driven by card was offset by a net release in wholesale of a little under $250 million driven by Energy. Anticipating you may have questions given the recent Gas & Oil prices, I would emphasize that we guided to expect reserve releases given we started the year with $1.5 billion of energy related reserves and with oil prices having found a lower but seemingly stable level we feel appropriately reserved.
Shifting to balance sheet and capital on Page 3. You can see in the red circle on the page here that we ended the quarter with binding fully phased in CET 1 12.5% under the standardized approach with the improvement being primarily driven by capital generation offset by net loan growth. We've been hovering around the inflection point under the Collins Floor for a while now and expect standardized to remain our binding constrain from here. Given that, we've replicated this page under standardized rules in the appendix, please read. Balance sheet, risk weighted assets and SLR, all remained relatively flat from the prior quarter and while not on the page, I would also note that we remained compliant with all liquidity requirements. We were pleased to announce growth repurchase capacity of up to $19.4 billion over the next four quarters and the Board announced its intention to increase common stock dividends 12% to $0.56 a share effective in the third quarter. In addition, we recently submitted our 2017 resolution plan which we believe fully addresses outstanding regulatory feedback. Moving on to Page 4 and Consumer & Community Banking. CCB generated $2.2 billion of net income and an ROE of 16.5%. We continue to grow core loans up 9% year-on-year driven by strength in mortgage up 12%, card and business banking were each up 8% and auto loans and leases were also up 8% driven by strong lease performance from our manufacturing partners. Deposit rate continues to be strong up 10% year-on-year with household retention remaining at historically high levels. Before improvement in our deposit margin up 16 basis points. Sales growth in card was very strong again this quarter up 15% as new accounts mature and merchant processing volumes grew double-digits up 12%. Revenue of $11.4 billion was flat year-on-year, but recall that last year included a net benefit of about $200 million principally driven by the Visa Europe gain. So excluding that revenue was up modestly. Consumer & Business banking revenue was up 13% on both strong deposit growth and margin expansion. Mortgage revenue was down 26% and higher rates drove higher funding cost which together with lower MSR risk management and lower production margins the pressure on mortgage revenue year-over-year. In addition, revenue increase and a reduction of approximately $75 million to net interest income related the capitalized interest on modified loans. And card commercialization and auto revenue was down 3%, but if you exclude the non-core items I mentioned was up 2%. With NII growth on higher loan balances and higher auto lease income predominantly offset by the continued impact of investments in card new account acquisitions. Expense of $6.5 billion was up 8% year-on-year on higher auto lease depreciation, higher marketing expense and continued underlying business growth. Finally on credit performance, card services drove higher net charge-offs year-on-year, but still within our guidance for the full year of less than 3%. Net reserve builds were around $250 million building $350 million in card, $50 million in business banking and 25 million in auto, in part due to loan growth and in part higher loss rates in card. This was partially offset by a release of $175 million in mortgage reflecting continued improvement in home prices and lower delinquencies. To touch on consumer delinquency trends in particular in card we were seeing some early signs of normalization which are generally in line with our expectations and our credit risk appetite and in auto our trends are relatively flat. Now turning to Page 5 on the Corporate Investment Bank.
CIB reported net income of $2.7 billion on revenue of $8.9 billion and an ROE of 14.5%. In banking, IB revenue of $1.7 billion was up 14% year-on-year with strong performance across products and particular strength in DCM. We ranked number one in global IB fees and number one in North America and EMEA. We were also number one in ECM and DCM globally and each case gaining share for the first half of this year. Advisory fees were up 8% benefiting from a large number of deals closing this quarter. Equity underwriting fees were up 29% better than the market, but relative to a weak prior year quarter. With a strong market backdrop and supported valuations we saw continued momentum in global issuance especially IPOs. And debt underwriting fees were up 5% from a strong quarter last year driven by the high flow volume of repricing and refinancing activity even with fewer large acquisition financings. In terms of the outlook, we expect IB fees in the second half of the year to be down year-on-year given that we had the highest IB fees on records for the third quarter last year. That said, overall sentiment remains positive, ECM issuance is expected to continue given the stable market backdrop and the M&A backlog is healthy with conditions remaining constructive for refinancing activities.
Treasury Services revenue of $1.1 billion was up 18% driven by higher rates as well as operating deposit growth. Lending revenue of $373 million was up 35% reflecting lower mark-to-market losses on hedges of accrual lends. Moving on to Markets, total revenue was $4.8 billion down 14% year-on-year. Fixed income revenue was down 19% with decent performance across products relative to a very strong second quarter last year which was driven by higher levels of volatility and activity broadly, including as a result of Brexit. This quarter conversely can be characterized by a lack of idiosyncratic events resulting in sustained low volatility, reduced flows and continued credit spreads tightening, all of which impacted activity levels in rates, credit rating and commodities. Emerging market performance was relatively stronger on a weaker dollar and lower rate as well as some regional events. Equities revenue was down 1%. In derivatives on the structured side we did quite well and outperformed and on the flow end we held our own in a quiet and therefore challenging environment. Prime is a bright spot as we are realizing the benefit of the investments we've been consistently making. Before I move on, I would also like to remind you that the third quarter of 2016 markets revenue was also a record since 2010, in fact it was about a billion dollars more than the average of the previous five years. And so while that is in the guidance it is context as this quarter has felt quiet more like prior years. Securities services revenue of $982 million was up 8% driven by higher rates and higher asset based fees on higher market levels and remember the second quarter benefits from dividend seasonality. Finally expense of $4.8 billion was down 5% year-on-year driven by lower compensation expense and the comp to revenue ration for the quarter was 28%. Moving on to Page 6 and Commercial Banking. Another quarter of excellent performance with record revenue and net income and an ROE of 17%. Revenue grew 15% driven by the deposit NII as the rate environment continues to be favorable and on higher loan balances with spreads remaining steady. IB revenue was down due to the lack of large deal activity during the quarter, but underlying flow activity was solid across products as momentum continued and forwards pipelines appeared strong.
Expense of $790 million was up 8% and we expect this to grow moderately in the second half as we continue to execute on the investments in bankers and technology that we outlined at investor day. Loan balances were up 12% year-on-year and 3% quarter-on-quarter. C&I loans were up 4% sequentially ahead of the industry on broad based growth across market and within specialized industries. CRE showed growth of 2% in line with the industry but below last year's pace on reduced origination activity as we continue to be selective at this stage in the cycle.
Finally, credit performance remained very strong with a net charge-off rate of 2 basis points. Leaving the Commercial Bank and moving on to Asset & Wealth Management on Page 7. Asset & Wealth Management reported record net income of $624 million with pretax margin of 32% and an ROE of 27%. Revenue of $3.2 billion was up 9% year-on-year driven primarily by higher market levels but also strong banking results on higher deposit NII. Expense of $2.2 billion was up 4% year-on-year driven by a combination of higher external fees and compensation on higher revenue. This quarter, we saw net long term inflows of $9 billion with positive flows across multi-assets, fixed income and alternatives being partially offset by outflows in equity products. We saw net liquidity outflows of $7 billion largely due to the Pacific client deal related cash needs. Record AUM of $1.9 trillion and overall client assets of $2.6 trillion were both up 11% year-on-year on high market levels. Deposits were flat year-on-year and down 5% sequentially reflecting the beginning of balance migration into investment related assets as expected and those balances remained with us. Finally, loan balances were up 9% year-over-year driven by mortgage up nearly 20%.
Moving on to Page 8 and Corporate. Corporate reported net income of $570 million which includes the legal benefit I mentioned earlier of $645 million in revenue or $400 million after tax. And a reminder, this is the same $645 million that was publicly announced in August 2016 and represents partial reimbursement for costs that we previously incurred and paid that remained the responsibility of the WaMu receivership. Finally turn to Page 9 and the Outlook. Starting with the quarter we guided second quarter NII to be up about $400 million from the third quarter given the rate hike, but you'll see that the NII deposits increased by only $150 million while we did fully realize the expected benefit of higher rate and continued growth, against that we had the one-time $75 million mortgage adjustment as well as lower CIB markets NII.
These effects together with modest downward pressure from lower tenure rate with all other things equal point to a full year number of closer to $4 billion up, while this is in the previous 4.5, but with the potential to be higher if we continue to benefit from tailwinds of lower deposit re-price. So you will see, we have adjusted the guidance on the page, but it will be market dependent and any near-term forecast is sensitive to a number of factors none of which changes our conviction that we will ultimately deliver $11 billion plus of incremental NII as rates normalize and we are well on our way. On expense, we continue to expect full year adjusted expense of $58 billion. Second quarter was in line with our expectations and our guidance as a little better than $14.5 billion which is also where we expect the third quarter to come in.
Finally, we have revised our full year core loan growth down to 8% year-over-year with a couple of comments. First, we are seeing slightly lower growth than we expected, coming into the year, it is only modestly lower and more importantly, we remain encouraged by the consistency and breadth of client demand across products. Secondly, we noted that mortgage could be a big driver and with a smaller market and a more competitive environment fewer loans have met our hurdle rate. And of course we remain appropriately focused on quality and not quantity of growth and as such loan growth is an outcome, not target. So to wrap up, we are very pleased with the firm's performance this quarter with all of our businesses showing broad strength. We maintained or improved leadership positions and are delivering the benefits to both clients and shareholders of our operating model and our continued investments. We remain encouraged by the growth outlook for the global economy and expect continued solid growth here in the U.S., which positions us well going forward. And with that operator, you can open up the line to Q&A.