Available on the Bank of America website. Before I turn the call over to Brian and Paul, let me remind you we may make some forward looking statements. For further information on those, please refer to either our earnings release documents, our website or our SEC filings. With that, I'm pleased to turn it over to Brian Moynihan, our Chairman and CEO for some opening comments before Paul D'Onofrio, our CFO goes through the details. Over to you, Brian.
Good morning and thank you for joining us for our 2nd quarter results. This quarter represents another solid example of driving responsible growth here at Bank of America. We're staying the course and executing against our responsible growth mantra has allowed us to gain market share and grow revenue. That mantra drives the way we manage our cost effectively, while at the same time making continued large investments in people and technology for the long term value of this franchise. That mantra allows us to manage risk well, whether it's credit, market operational or reputational risk.
That measure also drives an appropriate pace of growth in a modest GDP environment while holding credit costs down. All of this has resulted in significant operating leverage leading to strong earnings growth and supports our plan to deliver more capital back to shareholders. Through the 1st 6 months of 2017, we have more than doubled the amount of net share repurchase and dividends to shareholders compared to the first half of twenty sixteen. As a reminder, with successful CCAR results behind us, we announced plans on June 28 to deliver 17,000,000,000 dollars in capital back to shareholders over the next 12 months through higher dividends and net share repurchases. For the quarter, we produced net income of 5,300,000,000 dollars after tax, growing 10% compared to last year's Q2.
Now that was driven by continued strong operating leverage across the franchise. Our efficiency ratio reached touched 60% this quarter. In addition to the net income improvement, a 2% reduction in diluted shares resulted in a 12% improvement in diluted EPS. Year over year net interest income improvement of nearly 9 $100,000,000 drove revenue growth, proving the value of this deposit rich franchise. We continue to also make progress on our returns and our return on tangible common equity moved above 11% the first time despite increasing capital levels.
As we look at the next slide on first half line of business results, I'm going to let Paul talk about the details of the quarter in a minute, but I want to highlight basically 2 things. 1st, the momentum the businesses have comparing the first half of this year versus the first half of last year. And second, I'll focus a bit on our consumer business as it reached $2,000,000,000 in after tax earnings this quarter. So as a broad statement, each business segment grew earnings and capital and had its reporting returns well above our cost of capital. Consumer Banking produced $3,900,000,000 in after tax earnings for the first half of the year, growing 14% from 2016.
This is achieved with good revenue improvement and controlling cost and driving operating leverage while maintaining great credit quality. Our Global Wealth and Investment Management business recorded first half earnings of $1,600,000,000 up 9% year over year with a 27% profit margin, both of these are records for this business. Our G WIM business has seen assets under management flows of $57,000,000,000 for the 1st 6 months of the year. This is strong performance considering the industry is navigating many changes, both from the customer side and the regulatory side. While we've been growing and having strong margins, we've been investing the Merrill Lynch 1 platform, our Merrill Edge platform and other many investments are providing great transparency for clients allowing us to lower our cost.
Our Global Banking business serving commercial customers and commercial lending, treasury services and investment banking has produced first half profits of $3,500,000,000 after tax. Earnings are up 36% from last year with strong operating leverage on an operating basis and lower credit costs. And even though this is our most efficient business at 43%, we continue to make investments in both technology and people. This quarter, for example, this year we've rolled out our CashPro customer interface for mobile devices making that cash management services more convenient for our clients. And over the last few years, we've embarked to increase our local market coverage by just simply hiring more bankers.
We've hired nearly 400 bankers over the last couple of years and we have continued to hire more and we'll hire 200 more by the end of next year. And finally, when you look at our global markets business, we earned $2,100,000,000 in the first half and generated 12% return on its capital. We grew our sales and trading revenue, excluding DVA, in the first half of twenty seventeen versus the first half of the prior year, in this case, 2016, for the first time in 5 years, the first half grew faster than the previous year's first half. This growth combined with continuing expense discipline drove that improvement. So in general, all our businesses continue to improve.
And now I want to focus a second on our consumer business and you can see that on Slide 4. So given the $2,000,000,000 in earnings milestone, I want to talk about and focus on the multiyear effort this business has gone through. This change really began around 2,009 when we had more than 6,000 financial centers, 100,000 associates and about 1 third less deposits. And at the time, we had some digital banking capabilities, but nothing near what we had now. The team has worked hard over an extended period to produce the results you see today.
Not only have they significantly reduced headcount, we've done that while adding more and more sales and relationship teammates. We've not only reduced financial centers, but we've invested and refurbished many and added others in markets we didn't previously serve. And we've continuously invested heavily in technology derived innovation to keep up with customer behavior changes. And all during this, our customer experience continues to improve. As you go to Slide 4, you can see some of the trended results just for the last 4 years.
In 2014, due to all the changes that you're all familiar with, the revenue had declined in this business because of regulatory changes into focusing more on our direct business to our consumers as opposed to some of the indirect businesses. As you can see also from the crisis forward, we had focused on underwriting prime and super prime customers and you can see that in the change in total net charge offs that occurred prior to 2014 and remains in good stead for the last 4 years. At the same time, while those credit costs have come down, our risk adjusted revenues have been improving. Also, you can see our expenses in the lower right hand side continue to drive tremendous operating leverage leading to that net income growth. Today's business operates at a 52% efficiency ratio and with continuing to drive the customer behavior changes, continued investments for further cost improvements, we expect that to go lower.
Continuing on Slide 5, you can see some of the other changes in the business that have been able us to make this change happen. How do we make this happen? We do it by optimizing and driving technology enhancements for our customers, for our teammates and ultimately for the benefit of your shareholders. This sustained level investments is also validated by the top tier rankings by third parties, whether it's in digital banking, our mortgage banking fulfillment operations or mail edge, and we continue to enhance these offerings. This quarter, we launched new capabilities for car shopping and financing those cars through mobile and add new person to person features through our partnership with Zelle.
We've also rolled out small business capabilities to respond faster to the needs of the small businesses we serve across America. We can't emphasize enough the positive impacts especially mobile and digital have made in our improvement. As mobile banking users, you can see, have grown to 23,000,000 at the end of the second quarter. Rapid adoption in digital is shown in the charts that you can see on interactions in the lower part of the page. This quarter, we broke through the $1,000,000,000 interactions digitally with our customers.
That's $1,000,000,000 in a single quarter. When you look at deposit transactions, you can see that 21% of all deposits are made through mobile devices today. That's equivalent of what 1,000 financial centers does. That's important for client satisfaction, but it's also important because those costs 1 tenth of what it costs to do it over the counter. Once customer got used to transacting, we're now using devices in a broader sense.
You can see in the quarter, 370,000 of points were set up on a mobile device to come to the branch. When they come to the financial center, we're in better shape to serve them because we know what they're coming for and we know what they need. In addition, sales on digital devices are up to 22% of our account and loan sales. So then we switch to the payment side. Payment volumes have been increasing over this time period, but the electronification of those payments shows increased adoption of mobile banking and other digital payment methods.
You can see in the lower part of the page on the left hand side, while payments have grown 4% overall, digital has grown as 8% pace while non digital is relatively flat. Our latest push that we made a lot of discussion about with all of you has been person to person. This is an important payment stream that we are driving. It's already sizable, but it still only accounts for 3% of the total of payments in our consumer business this quarter. It's still an early adoption, but P2P customers sent $18,000,000,000 in payments for our platform in quarter 2.
This is up 20% year over year. So people focus on all the digital activity, but at the same time we have 800,000 customers a day come into our financial centers. These financial centers serve those customers well, not only helping them transact when they need to, but more importantly, help answer their financial needs and by serving them with the products and capabilities that we have with a face to face specialized professional. We'll continue to invest in that brand structure and that's all in the run rate you see today. We have now built or refurbished 2 90 centers over the past 12 months and expect to have completed more than 1500 by the year end 2019.
In addition, we have upgraded all our ATMs or plan to upgrade all ATMs and we'll finish that by the end of 2019 as well, that's 16,000 new ATMs over 3 or 4 years. All that has led to customer satisfaction levels which has reached the highest level in our history. So at the end of day, our consumer business is an example of driving response for growth, growing with no excuses, doing it on the right way to the customer, doing it managing risk well and importantly doing on a sustainable basis, investing in the future while producing great returns in the current. With that, I want to turn it over to Paul for some more details about the quarter.
Thanks, Brian, and good morning, everybody. I'm starting on Slide 6. As Brian said, we earned $5,300,000,000 or $0.46 per diluted share with EPS increasing 12% versus Q2 2016. Revenue of $22,800,000,000 is 7% higher than Q2 2016 and expenses of $13,700,000,000 was 2% higher than Q2 2016. The quarter included a few noteworthy items.
First, we completed the sale of our UK consumer card business during the quarter resulting in a small after tax gain. The transaction added roughly 12 basis points to our advanced CET1 ratio through both additions to CET1 and reductions in RWA. A pretax gain of roughly $800,000,000 recorded in all other reflects a number of factors, including a premium on credit card receivables sold and the monetization of goodwill. It also reflects the recognition in other income of currency hedging gains and transaction losses from currency fluctuations that were previously recorded in OCI. Lastly, we recorded tax expense associated with the currency hedging gains, which drove our effective tax rate higher in Q2.
After tax, the gain added about $100,000,000 to earnings. The sale completes the transformation of our consumer credit card business from a multi country, multi brand business to a single brand business serving core retail customers in the United States. As usual, we also note DVA for you. This quarter net DVA was a negative 159,000,000 dollars which was similar to Q2 2016. We also recorded a couple of charges and expense that are worth mentioning.
The first is a $300,000,000 impairment charge related to a few data centers we are in the process of selling. The second is severance costs, which were approximately $100,000,000 higher than Q2 2016. Provision expense was 726,000,000 dollars compared to $976,000,000 in Q2 2016 as net charge offs of $908,000,000 improved versus Q1 and year over year. And as Brian mentioned, ROA and ROTC approached our financial targets improving both on a year over year basis and on a linked quarter basis. Turning to the balance sheet on Slide 7.
Overall, end of period assets increased a modest $7,000,000,000 from Q1 despite the sale of assets totaling $11,000,000,000 associated with the UK Card business. We increased assets associated with our trading business as we continue to invest in our clients, particularly in our equities business. These increases in assets were offset by decline in cash, driven by seasonal deposit outflows associated with tax payments and a shift from deposits to AUM and brokerage in our Wealth Management business. When looking at deposits on a year over year basis, they are up $47,000,000,000 or 4% from Q2 2016 driven entirely by our consumer banking business. Loans on an end of period basis were up $11,000,000 from Q1 as broad based growth across consumer and commercial loans was modestly offset by the runoff of legacy non core loans.
It's worth noting that this loan growth excludes UK Card. These card loans were moved from assets of business held for sale when we announced the transaction in Q4 2016. On the liability side, long term debt increased $2,500,000,000 during the quarter to $22,400,000,000 as we increased issuance to meet TLAC requirements. Given our progress in the first half towards the requirements, we currently expect to issue less debt in the second half of twenty seventeen as compared to the first half. Global liquidity sources $515,000,000,000 this quarter and we remain compliant with fully phased in U.
S. LCR requirements. The asset composition of our global liquidity sources is materially the same as high quality liquid assets as defined under the U. S. LCR rule.
However, HQLA for the purposes of calculating LCR are reported not at their fair market value, but at a lower value, which incorporates regulatory haircuts and exclusion of excess liquidity held in certain subsidiaries. Therefore, the HQLA on a net basis when reported will be lower than our current GLS number. Common equity increased $2,800,000,000 compared to Q1. This increase was driven by $4,900,000,000 of net income available to common and improved OCI of $700,000,000 offset by common dividends and net share repurchases totaling $2,800,000,000 in the quarter. Tangible book value per share of $17.78 increased 6% versus Q2, 2016.
Turning to regulatory metrics and focusing on the advanced approach, our CET1 transition ratio under Basel III ended the quarter at 11.6%. On a fully phased in basis, compared to Q1, the CET1 ratio improved 50 basis points to 11.5% and remains well above our 2019 requirement of 9.5%. CET1 increased $4,400,000,000 to $168,700,000,000 driven by earnings, utilization of deferred tax assets and less goodwill deductions given the UK card sale. These improvements in CET1 were partially offset by return of capital. The CET1 ratio also benefit from a $34,000,000,000 decline in RWA driven by continued optimization work, including model improvements as well as the sale of UK Card.
We also provide our capital metrics under the standardized approach. While our RWA reduction was lower under the standardized approach, our CET1 ratio still improved 40 basis points to 12%. Supplement deleverage ratios for both parent and bank continued to exceed U. S. Regulatory minimums to take effect in 2018.
Turning to Slide 8. On an average basis, total loans were up $15,000,000,000 or 2% from Q2 2016. Note that the sale of UK card lowered average loans by $2,900,000,000 So you may want to adjust for that when studying growth trends. As usual, loan growth was reduced by the continued runoff of non core consumer real estate loans in all other. Year over year loans in all other were down $24,000,000,000 On the other hand, loans in our business segments were up $39,000,000,000 or 5%.
Consumer Banking led with 8% growth. We continue to see good growth in residential mortgages. We also saw growth in credit card and vehicle loans. Home equity originations are up nicely, but continued to be outpaced by pay downs. In Wealth Management, we saw year over year growth of 7% driven by residential mortgages as well as structured lending.
Global banking loans were up 3% year over year. There was a lot of capital markets activity this quarter and this may have impacted more than usual loan growth among larger corporates as a number of funded bridge loans were paid off and as borrowers substituted bonds for loans in a flattening curve environment. On the bottom right, note that we grew average deposits by $44,000,000,000 or 4% year over year. This growth was driven by our consumer segment, which grew deposits by 9% year over year. Turning to asset quality on Slide 9.
As I've emphasized before, the stability of our asset quality and loss trends reflects years of disciplined client selection and strengthened underwriting standards along with an improving economy. While there is room in the industry for other strategies, we remain focused on responsible growth. Credit quality continues to be solid with net charge offs, NPLs, delinquencies and reservable criticized exposure, all improving from Q1. Total net charge offs were $908,000,000 or 40 basis points of average loans decreasing $26,000,000 from Q1. Provision expense of $726,000,000 declined 109,000,000 dollars from Q1 and was down $250,000,000 from Q2 2016, driven by lower losses in consumer real estate and improvements across most of our commercial portfolio, particularly energy.
Our reserve coverage remains strong with an allowance to loans coverage ratio of 120 basis points and coverage level 3 times our annual net charge offs. Turning to Slide 10, we break out credit quality metrics for both our consumer and commercial portfolios. Asset quality metrics in consumer real estate continue to improve, while net charge offs were down overall, there are a few small items to bring to your attention. Within consumer, we had a small recovery on the sale of a legacy consumer portfolio and note that 1 third of the quarterly UK card losses went away with the June 1 sale. While U.
S. Card losses increased from seasoning, they remain low. Consumer NPLs of $5,300,000,000 are at the lowest level since Q2 'eight. NPLs came down from Q1 levels and keep in mind that 43% of our consumer NPLs are current on their payments. Commercial losses were up modestly from Q1 driven by a couple of names.
Turning to Slide 11. Net interest income on a GAAP non FTE basis was $11,000,000,000 $11,200,000,000 on FTE basis. Compared to Q2 2016, which has the same day count and seasonal factors, NII is up $868,000,000 or 9% driven by an improving spread between our asset yields and deposit pricing in an environment where both short end rates and long end rates increased. We also benefited from loan growth and excess deposits deployed in security balances. Compared to Q1 2017, NII was relatively flat as the benefit from an increase in short end rates was offset by a number of factors, including lower long end rates in the quarter.
First, we increased client financing activities and balances in our equities business to support clients and drive growth. Some of the products we use to accomplish this created interest expense with no interest income. Instead, they drove trading account profits recorded in non interest income. 2nd, the UK Card sale closed June 1. That was earlier than we expected.
And so the quarter's comparisons to previous ones are negatively impacted by 1 third of UK Cards interest income. 3rd, we saw a decline in leasing interest from the seasonality we see in Q1, but that was offset by one additional day in interest in Q2 versus Q1. And then lastly, we experienced some negative debt hedge ineffectiveness. As a reminder, accounting rules require us to measure changes in the value of our debt differently than changes in the value of swaps we use to hedge, creating temporary ineffectiveness that will revert to 0 over the remaining life. As a general comment on deposit pricing, overall, we held pricing relatively stable in Q2.
However, we did increase pricing for some commercial and wealth management clients late in the quarter and this will impact Q3 NII. While holding pricing relatively steady, we were able to grow deposits 9% year over year in our consumer segment. Looking forward to Q3, please keep 3 additional things in mind. First, with respect to rates, the most recent June short end rate hike should benefit Q3 NII subject to continued stability and industry deposit pricing. But the Q2 decline in long end rates will have a negative lag effect in Q3 with respect to the write off of premium associated with prepayment of mortgage backed securities.
2nd, we will benefit from 1 additional day of interest. And 3rd, going forward, we will also feel the effects of the full quarter loss of interest income from UK card equating to about 2 $25,000,000 Having said all that, we would expect NII to be up compared to Q2 if the forward curve is realized and if we have some loan and deposit growth. With respect to asset sensitivity, as of six thirty and instantaneous 100 basis point parallel increase in rates is estimated to increase NAI by 3,200,000,000 over the subsequent 12 months, which is broadly in line with our position at the end of the Q1 and continues to be predominantly driven by our sensitivity to short end rates. Turning to Slide 12, non interest expense was 13,700,000,000 dollars As I mentioned earlier, Q2 included roughly $400,000,000 in higher costs from the combination of impairments costs associated with the sale of a few data centers and higher severance costs. Otherwise, litigation and other operating costs were lower.
We feel good about our expense progress this quarter, especially in light of our continued investments in sales professionals and new technology. Also remember, we have $100,000,000 in higher quarterly costs from FDIC assessments compared to Q2 2016. The efficiency ratio hit our 60% target this quarter, improving 300 basis points year over year. With respect to associate levels, on a full time equivalent basis, we are down modestly from the prior quarter. Please note that we have changed our disclosure on employees from FTE to headcount this quarter.
By the way, that was a same idea from one of our associates. FTE is much more complicated to calculate and less relevant today given our shift from part time associates. As you can see, the headcount is down more than 4,000 from Q2 twenty sixteen. Half of that decrease is driven by UK Card and half by consumer banking optimization. Note the continuing shift from non client facing associates to primary sales professionals, which now make up 21% of our headcount.
Compared to Q1 2017, the release of associates from the sale of UK Card was offset by bringing on 1500 summer interns and hiring 1,000 primary sales professionals. Just a quick observation on these interns, we selected these 1500 students from 133,000 applications as we continue to be an employer of choice. From a diversity perspective, 42% of these interns are female and 53% are ethnically diverse. Turning to the business segments and starting with Consumer Banking on Slide 13. Consumer banking recorded their highest earnings in a decade.
Earnings were $2,000,000,000 growing 21% year over year and returning 22% on allocated capital. The business created 900 basis points of operating leverage, holding expenses flat while growing revenue 9%. Year over year, average loans grew 8%, average deposits grew 9% and Merrill Edge brokerage assets grew 21%. Improvement in NII drove the 9% revenue growth, which was driven by an increase in the value of deposits given the rise in shortened rates as well as solid loan growth. Note that the rate paid on deposits in this business remains low at 4 basis points as we remain very disciplined on pricing.
Non interest income included improvement in service charges and a small increase in card income that was more than offset by a decline in mortgage banking income. Through combined efforts to drive costs down, the FICCI ratio improved nearly 500 basis points to 52%. Cost of deposits fell below 160 basis points in the quarter. Consumer banking credit quality remained strong with a net charge off ratio of 121 basis points. Turning to Slide 14 and looking at key trends.
Our strategy remains focused on relationship deepening and growing total revenue, while improving operating leverage through expense discipline. The concept of total revenue is important as you evaluate NII and fee movements. Mortgage banking income is lower driven by our strategy of holding more of originations on our balance sheet instead of selling to the agencies. We believe retaining these mortgages on our balance sheet provides better economics over time. In Q2, we retained about 90% of our mortgage production on balance sheet.
Also note that our relationship deepening preferred rewards program is improving NII and balance growth while holding fee lines flat as we reward customers for doing more business with us. Spending levels on debit and credit cards were up 6% year over year and new issuance of credit cards was a solid was solid at $1,300,000 Spending levels on cards drives revenue, but are largely offset by rewards given back to customers. Focusing on client balances on the bottom left, you can see that the success, we continue to have growing deposits, loans and brokerage assets. At the bottom right, you can see deposits broken out. Our 9% year over year average deposit growth continues to outpace the industry, while the rate paid remains low and stable.
Importantly, 50% of these deposits are checking accounts and we estimate 90% of these checking accounts are the primary accounts of households. With respect to loans, residential mortgage continues to lead our growth, while we also saw growth in card and auto. Client brokerage assets are up 21% year over year, driven by strong client flows as well as market performance. New accounts grew 10% from Q2 2016. The digitalization efforts that Brian discussed earlier and other productivity improvements continued to drive expenses lower.
Expenses were stable compared to Q2 2016 despite strong revenue growth and increases in the FDIC assessment rate and charges. We continue to remain focused on prime and super prime excuse me, of least 760. Turning to Slide 15, let's review Global Wealth and Investment Management with produced record earnings of $804,000,000 a pre tax margin of 28% and a return on allocated capital of 23%. The industry continues to evolve as firms and client anticipate new fiduciary requirements and other market dynamics such as the shift between active and passive investing. At the same time, the financial markets continue to provide a tailwind to client activity and balances.
We saw $28,000,000,000 of AUM flow this quarter, continuing the strength of $29,000,000,000 in Q1. Net interest income rose 14% driven by an increase in the value of deposits given the rise in short end rates as well as an increase in loans. Year over year, non interest income improved 3%. However, note that in Q2 2016, non interest income included a $60,000,000 gain from the sale of cash management capabilities as we transition from prior period gain, non interest income improved 5% as 10% higher asset management fees were partially offset by lower transactional revenue. Year over year expenses were up 3% from revenue related incentives as well as higher FDIC costs.
Revenue growth outpaced revenue related expense producing solid operating leverage. Moving to Slide 16, we continue to see overall solid client engagement. Client balances now exceed $2,600,000,000,000 driven by higher market values, solid AUM flows and continued loan growth. Average deposits of $254,000,000,000 were down $12,000,000,000 from Q1, reflecting both normal seasonality from tax payments as well as client shifts to investment in AUM and brokerage. Average loans of 151,000,000,000 dollars were up 7% year over year.
Loan growth remained concentrated in consumer real estate as well as structured lending. Turning to Slide 17, Global Banking earned $1,800,000,000 in Q2. Earnings increased 19% from Q2 2016, driven by good results across Investment Banking and Treasury Services. Return on allocated capital was up year over year to 18% despite an increase in capital allocated to this business. A number of results to note given the strong performance, record revenue in the quarter, record advisory fees, record first half revenue and net income and year to date we remain ranked number 3 in Investment Banking with fees of $3,100,000,000 Year over year revenue growth of 7% coupled with flat expenses drove operating leverage of 600 basis points.
Provision expense of $15,000,000 in Q2 2017 is down $184,000,000 driven by improvements across most of the portfolio, particularly energy. Global Banking loan growth was 3% year over year. The pace of loan growth remains good, but has slowed driven by both capital markets, this intermediation as well as reduced demand from clients as they look for more certainty of economic growth. With respect to this combination, clients are using bond issuance to pay down loans and pay off funded bridges. Global Banking held expenses relatively flat compared to Q2 2016 as savings offset higher technology investment.
Looking at trends on Slide 18 and comparing to Q2 last year, average loans were up $11,000,000,000 or 3% with the exception of CRE, loan growth was fairly broad based with C and I loans up 5% in middle market lending. Average deposits were stable relative to Q2 2016. NII growth drove the 7% year over year revenue increase. NII increased $286,000,000 from Q2 2016 driven by an increase in the value of deposits given the rise in short term rates as well as increase in loans partially offset by modest spread compression on loans. Total investment banking fees of $1,500,000,000 were up 9% from Q2 2016 finishing strong in the last few weeks of the quarter.
As I mentioned, record M and A fees drove the increase. Within debt capital markets, we saw a solid increase in investment grade fees, while leverage finance declined. Switching to global markets on Slide 19, the business had a solid quarter earning $830,000,000 or $928,000,000 if one excludes net TBA. Global Markets generated a 10% return on allocated capital. Earnings were down relative to Q2 2016, which if you remember was uncharacteristically strong given a rebound from a weak Q1 2016 and the Brexit vote.
Just to complete the picture, remember Q3 last year was also atypically stronger than Q2 2016. 2017 has followed a more typical seasonal pattern so far this year. While Q2 was solid, sales in trading excluding DVA declined 9% from Q2 2016. But comparing the first half results of 2017 to 2016, sales in trading ex DVA increased 6%. This is the first time in the past 5 years that first half performance is up year over year.
With respect to expenses, Q2 2017 was 3% higher than Q2 2016 driven by increased technology investment. Moving to trends on Slide 20 and focusing on the components of our sales and trading performance. Sales and trading revenue of $3,400,000,000 excluding net DVA was down 9% from Q2 2016 finishing ahead of our mid quarter expectations. Excluding net DVA and versus Q2 2016, FICC sales and trading of $2,300,000,000 decreased 14%, within FICC,
the year
over year decline was driven by stronger rates in emerging markets in Q2 2016. Equity sales and trading was up 3% year over year to $1,100,000,000 benefiting from growth in client financing activity offset by slower secondary market revenue. On Slide 21, we show all other, which reported a net of $183,000,000 This includes the $100,000,000 after tax gain associated with the sale of UK Card. Revenue here also includes the roughly $800,000,000 pretax gain from the UK Card transaction, which was almost entirely offset by related tax expense recorded here as well. Non interest expense includes the data center impairment charge I mentioned earlier, which was mostly offset by lower personnel and other operating costs.
When comparing expenses and earnings to Q1 2017, remember Q1 2017 includes seasonal retirement eligible incentives and elevated payroll tax expense of 1,400,000,000 dollars The effective tax rate for the quarter was 37.1 percent, which includes approximately $700,000,000 of tax expense recorded in conjunction with the sale of UK Card. We continue to expect an effective tax rate of approximately 30% for the rest of the year, absent unusual items. Okay. A few summary points to wrap up. Again, this quarter, we created operating leverage by managing expenses while improving revenue.
For years, we have been focused on growing responsibly, including staying within our risk and client frameworks, as well as simplifying the company to improve operational efficiency, all aimed at making our growth more sustainable. In Q2, consistent with this strategy, we stuck to our strong underwriting standards, while growing loans and investing in our clients in global markets. Asset quality remains strong as net charge offs, NPLs, delinquencies and commercial reservable criticized exposure all declined. Several of the businesses set new records for revenue or earnings as we grow with our clients and manage costs well. Importantly, we continue to invest in new technology and capabilities while adding sales professionals in certain businesses.
And we significantly increased the amount of capital we returned to shareholders and announced plans to increase that even more. These results tell us our responsible growth is working and that we are well positioned to continue to invest in and grow with our customers and clients as the economy continues to improve. With that, we'll open it up to Q and A.
And we'll take our first question from Glenn Schorr with Evercore ISI. Please go ahead.
Hi, thanks. I appreciate all the detail on the net interest income discussion. One piece of it on the repo borrowings to part of it financing the equity financing side. I'm curious if you think of that as a little episodic and you kind of just go with the flow or is it more a permanent part of the strategy where you're using your strong balance sheet to help grow. The tag along to that is if it's more permanent, why do it through repo?
Is that more expensive?
I think it's a little bit of both. So, we did make a decision to invest more on our equities business this quarter. That's going to go up and down depending on client activity in every quarter. We could always change our mind. But generally we've made a decision to add more balance sheet to equities because we see an opportunity there and because our customers would like us to do that.
In terms of how we add that balance sheet that definitely can change 1 quarter to another. This quarter it was a lot of synthetic, which tends to happen when you have clients overseas who have some demand. Net quarter, it could be more plain old PB. And that does change the mix of NII when that happens. But it's based upon client demand, not necessarily how we want to manage one part of the RP and L versus another.
Got it. I appreciate that. And the tag along for net interest income guidance is, as you mentioned, very low deposit beta on the consumer side, just 2 basis points up in the quarter. Is there a point in time where you expect that to accelerate over the next couple of hikes? I know we all kind of ask the same thing each quarter, but it's amazingly low.
Yes. Look, we're watching it closely. I guess I would point out that Bank of America and the industry really haven't increased as you point out deposit rates on traditional bank accounts. I think we believe we deliver a lot of value to depositors, transparency, convenience, safety, mobile banking, online banking, nationwide network, rewards, vice and counsel. There's some real value to having a relationship with us.
And I think there's value plus the fact that there's been a lack of market pressure so far, there's a lot of us on traditional accounts to leave rates relatively flat. We are starting to see some rate increases on some account types in GWIM and in Global Banking. And if you look at our models, they anticipate that we're going to have to start raising eventually based upon historical experience. But the bottom line is, we're going to balance our customer needs and the competitive environment with our shareholder interest and do the right thing. So we'll just have to wait and see.
Glenn, I'd just add, when you dig into the supplement and other materials and sort of look at the consumer business, even the G1 business, you have to focus on the core checking balances in consumer on a $650,000,000,000 deposit base or $320,000,000,000 And so that is 10 years of hard work of driving core operating accounts to the consumer, with our core checking balances and in the primary accounts we call it running near 90%, up from the 60s 70s many years ago. And those are zero interest and they'll remain zero interest because that's the nature of the beast. So where you'll see other areas like CDs year over year down again 10%. And so we have been driving this business to be core, core and core and that's what's happening. In GWIM you're seeing the piece that we're functionally investment equivalent move faster, but we feel good about it and we feel good about how we're driving both the value to the consumer for the total of our services relative to the interest rate paid on certain types of deposits and frankly relative to non interest bearing deposits.
All right. Thanks both. Appreciate it.
And we'll take our next question from John McDonald with Bernstein. Please go ahead.
Hey, John. Hey, John.
Hi, good morning, guys. Good morning.
Just to follow-up on the NII, Paul. It sounds like
parameters on that? No. I think we want to get out of the game of putting size parameters on it. I've given you all the inputs. I can run through them again if you'd like.
But look, we feel good about where we are that we had some transient kind of things this quarter. There are a lot of variables that go into this. One of the biggest one is, by the way, predicting people's behaviors, predicting customers. So I wouldn't want to give you a number. Again, if you want, I'd be happy to go through kind of all the different ins and outs again if you want, but that's
No, that's fine. Maybe you could just remind us how much the Fed hike itself, what your estimate of how much that helps the June hike? And then also just how much did the lower tenure hurt in the Q2? How should we think about the 10 year impact going forward? So the short and the long end impacts would be helpful.
Thanks.
Yes. Look, they again, I won't give you a number, but the we had significant improvement in NII from the short end. But the long end also did significantly impact us relative to what we were expecting, because as you know, we have a securities portfolio and as rates change their customer behavior changes, we can amortize more or less of that premium.
Okay. And then just on expenses, could you help us think through the expense trajectory for the back half of the year? And more importantly, your current thoughts on the target for the $53,000,000,000 next year and how some of the tech consolidation you did this quarter, how does that impact either the timing or just confidence level on delivering the expense saves?
Sure. We feel good about our goal. I'll remind everybody that some time ago now we said that our full year 2018 expense would be approximately $53,000,000,000 A lot has changed since then, good, bad or whatever, a lot of things have changed, but we're still very confident in that goal. To get there, we feel like we need to run-in a normal quarter at around kind of $13,000,000,000 and then you've got the Q1 that has $1,000,000,000 or so more in retirement eligible and FICA. If you look at our expenses this quarter, right, we reported 13.7 percent last year we reported 13.5 percent if you back out the data center and the elevated severance would be at 13.3.
So we think we made pretty good progress year over year and we just have to continue to make that type of progress over the next few quarters and we'll get there.
Effectively, John, it's about $100,000,000 step down over the next couple of quarters, which has been relative very consistent with what we've been doing. Over the past several quarters, we used to have the major drops as we got a position, but it's going to have been $100,000,000 ish year over year step down from the prior year. And so you'll see that kind of play out, we think.
Okay. Thanks, guys.
And we'll take our next question from Jim Mitchell with Buckingham Research. Please go ahead.
Hey, great. Thanks. Good morning. Maybe getting back to the deposit question, you guys are growing 9% in the consumer book, better than the industry, despite holding low, obviously reflecting your mix. How far do you think hey, I guess can you give your sense of what you think is driving sort of that market share?
And is this something where you're willing to test patience of your customers to lag deposit rates until growth slows more materially? How do we think about what your decision making process is in terms of rates in the consumer book?
I would make it Jim, I'd look more to the broader aspects question, some of the statistics that I talked about earlier. What has been driving this has been in the end of the day to get ourselves positioned as the core transaction in the transaction side of the consumer business, there's a core transaction provider to every household. And we have our checking account numbers are growing now slightly a couple of 100,000 net new checking accounts this quarter type of numbers, but have been falling from $37,000,000 in small business consumer combined down to about $34 ish. And so we had run off a lot of stuff that were extra checking accounts and things like that starting 10 years ago frankly. And so that's what plays your benefit here because in the end of the day as rates continue to rise, if they continue to rise, the value of the consumer deposit franchise as you know being around this industry for a long time is going to be driven by the advantage in the checking balances and then some of the other balances will help, but they'll be more rate sensitive.
So it comes more from the operating business than it does from any strategy on actual pricing because those are free balances and we're main free. So the question is how do you gain share and what you see is if you think about it year over year our consumer business grew about $60,000,000,000 in deposits round number half of that was in checking account balances, one half of that. Right. And that is driven by the innovation I talked about, the 1,000,000,000 digital interactions this quarter, 22,900,000 active digital mobile customers, 30 odd 1000000 active digital customers, more and more capabilities there and becoming more and more embedded in everything the consumer does. And that means you're gaining share against people who don't have all those capabilities in our minds.
And so as you think about it, that's what's going to drive a lot of deposit value. And if you look at some of the rates and volumes charts even you get to the interesting things, we look about the corporation overall, year over year our deposit costs on interest bearing, not non interest bearing were up $100,000,000 $60,000,000 of that was in the U. S. And $40,000,000 of it is on 10 percent of the interest bearing deposits outside the U. S.
So there's not even that much movement on the interest bearing part. So we feel good about the franchise and where we need to price because it's more investment oriented say in the G1 business, we've priced to maintain those balances. Half of what went out of G1 this quarter was us putting people into the market based on our allocation methodology. So irrespective of the rate it went into the market as opposed to into other cash equivalents. So it really
a follow-up on regulation. Obviously, the Treasury report was seeing pretty favorable for the industry. You're not really leverage constrained. Is there any aspect of the recommendations that you would find most helpful to your business?
All of them would be helpful in the sense that you know and there's a good amount of work that's gone in by all the industry groups, all the individual companies and the administration to come up with a list of things that our belief is we want responsible, clear, transparent and regulation that helps maintain the safety and soundness and capabilities of these industries. There's no question. But in areas where things have gotten too far, you've got to bring them back a little bit and that lottery list is really there to provide it. So while some are more important to our franchise than maybe other people's franchise and vice versa, at the end of the day, a careful revisiting of some of these things to ensure that we maintain the safety and soundness while getting good regulation is critical. And I think hopefully the ball is moving forward on that.
Okay. Thanks.
And we'll take our next question from Ken Uddin with Jefferies. Please go ahead.
Thanks. Good morning. If I can ask questions on the card business. First of all, I noticed that the card losses were up 1st to 2nd. They're typically down.
And I'm just wondering if you can help us understand just where we are in the seasoning of the portfolio, also noting that the risk adjusted margin continues to slip as well. So what do you think about card losses going forward? And when do we see that bottoming of the card margin? Thanks.
Sure. So let's start with NCOs. Charge offs this quarter were $287,000,000 They were $266,000,000 last quarter last year, I should say. That both of those numbers and that delta is completely within kind of our expectation and modeling for the portfolio, all within our risk parameters. As you think about what's going on here, we've got a portfolio, we've got a back book that is in great shape, that's getting smaller every day and we've got a front book where that we're growing that is seasoning.
So that's what's driving up the NCOs in a natural way very gradually. Also a little different phenomenon going on sort of this year. Obviously, there's some seasonality as you go throughout the year. So as you think about the future, next couple of quarters, we've got seasonality, which is going to be all else equal, if the year is normal, it's going to be lowering the net charge off rate, but you've got some season that's going to be increasing it. So we'll just have to see how that plays out over the next couple of quarters.
What was the second part of your question?
Just on the risk adjusted the card risk adjusted margin?
Yes. Well, sure. I mean a couple of things. 1, tend to think of it as opposed to the margin as opposed to dollars that we're producing there. And we've got modest growth in the number of cards outstanding.
We've got good growth in debit and credit card spend. And just focusing on the margin, I think, overlooks some key benefits of our strategy to attract relatively higher quality card customers and reward them for deepening their overall relationship with us. That strategy is driving incremental deposit growth and making those deposits a little bit stickier. So that helps NII. It also if you think about these customers, they have lower loss rates and they tend to reduce their interaction with the call center.
We also have a model that has lower acquisition costs in terms of those new cards. So that's how we think about it. Yes, if you just want to focus in on the risk adjusted margin, that's going to, I think perform well in line with the industry and probably drift a little bit lower, but we're more focused on total revenue.
Understood. And if I can just ask one big picture one, all the points you made earlier, all the credit metrics are going the right way otherwise, NPAs, inflows, etcetera. Kind of coming back to this point about where card's going and then just not seeing anything else, you guys have been at 40 basis points of losses. Any reason to see that changing really? And then do you still have some room for release as well given that?
Look, absent some change in the world and the economic situation, we don't see a reason why that necessarily changes materially. I don't want to give you guidance, but that's kind of our view. In terms of releases, we are building. I just pointed out, we're growing loans, we're growing card, things are seasoning, that seasoning. So we may have some releases, but I would more think of those releases as potentially offsetting some of that growth.
Understood. Thanks a lot.
And we'll take our next question from Betsy Graseck with Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning.
Brian, two questions. 1 on the consumer banking efficiency ratio. You mentioned that there still is room for that to fall from the 52%, which is obviously very efficient as it stands right now today. And you indicated all various opportunities to drive incremental revenues at a much improved expense ratio with all the digital that you outlined earlier. But could you speak to how the branch network could also impact those numbers?
I mean, your branch has been coming down about 3% the last couple of years. Is that the kind of pace that you think you're going to continue or does the digital improvements enable you to move even faster there?
Well, I think Betsy to be careful there you have to go back to the broadest context which is the $6,100 to $45,000,000 we got after this relatively early. And so we've got it down to level. We don't know where it goes from here because it will be based on customer behavior demands. But if you go back, if you think about it over the last several years, we've been adding branches in places like Denver and we'll continue to build out there. We have been refurbishing branches heavily across the whole franchise.
That's all in this run rate you see. And that will continue in this is in the expectation I'm talking about. So we'll I think we drifted down 15, 17 branches linked quarter, 100 odd year over year. That will continue to happen. But I think what you would expect is the efficiency of that system continues to improve dramatically.
So let me give you an example. In Chicago, one of these old big branches and what we've done is created a call center in there, to and we have 70 teammates going to work in the call environment just to use the physical space to keep the branch open as opposed to co closing the branch. So if you think about it from that scheme because the telephony capabilities that exist today, you could actually distribute phone calls down to individual people based on the number coming in and things like that, local calls. So we've done that in 3 or 4 markets. We continue to use up the excess capacity.
So you wouldn't see a branch decline there, but you'd see 80% of its real estate goes for a different purpose. So it's a very complex thing and I don't like to get caught by numbers. I'd say that you've seen us manage it well and we'd expect to continue to manage it well in the future, but we're not going to get ahead of the customer and create any disruption to the growth we're seeing in the core channels.
Okay. Thanks for that. And then separately, you've spoken before about the op risk RWA burden that you guys have. We had some questions come in on how you're thinking improvements there could help you given that it's not directly in the CCAR stress test, but maybe you could give us a sense as to how you think any changes could help you given that it's not a constraining factor?
I think you've seen us start to make improvements and changes have gone through in the overall advanced RWA, OPREFS being a portion of that, the change has been more in other areas quite frankly. We'll expect to see further, but you have to be careful at some point standardized then backs into your constraint. And so this will be a toggle between for a long time standard advance was our need over the years. Now it's coming down and so standardized at some point will countervail the improvement overall and then we'll go to work on standardized quite frankly. So expect us to continue to work on optimization of balance sheet really at the end of the day opening up the difference between our GAAP capital levels for lack of better term and our regulatory capital levels.
So we're down RWA on Advanced Base down odd $1,000,000,000 this quarter. Expect that to continue to improve, but be careful that at some point it hits the other side. In a world we have so much excess capital, this is kind of an interesting exercise. But in a world where we actually start returning that capital through our earnings, we're going to have to continue to optimize both sides of that equation.
And then just lastly, you had a nice increase in the dividend. Could you just speak to how you're thinking about dividend payout ratios? Do you feel like you are where you should be given the business model or is there more room and if there is more room what the drivers are to affect that change?
We've always been clear that we in the guidance still relative to large banks is out there sort of 30% of earnings to dividends and 70% of share buybacks. We think that the shares are a tremendous value and we'll continue to do that and with $17,000,000,000 over the next 12 months we can make some headway. So think about 30, 70 split for us the large bank category, I think that's a responsible place to be. Right now we're moving up towards that, but we're not quite there.
Thank you.
And we'll take our next question from Gerard Cassidy with RBC. Please go ahead.
Thank you. Good morning, guys.
Good morning, Gerard.
In looking at your ROE, your returns on allocated capital in the consumer and the wealth management businesses are very strong, well over 20%, global banks 18%, global markets about 10%. Can you share with us how you're going to get the 8% ROE up, let's say, above your cost of capital, let's say, 10%. Is it going to be more coming from the global markets area or management of the capital or somewhere else?
Well, the first thing I would point out is that we have a goal to get our ROA up. We have a goal on our ROA, return on tangible common equity. 1% on ROA, we're making a lot of progress, return on tangible common equity. We want to get the 12%, we're at 11.2% this quarter. And we've been making steady progress.
And if we stay focused on operating leverage and doing the right things for our customers, we know we're going to get there. I would make a point to Brian, what Brian was talking about earlier about our excess capital. So if you just look at the 11.2% return on tangible common equity we had this quarter And you if we ran the company at 10% capital instead of 11.5% that would still be above our regulatory minimum. We'd have a 50 basis point buffer. That would have increased that return on tangible common equity to 12.6%.
So we're at our goal right now from an operating standpoint, if we could just continue to make progress on the amount of excess capital we have at the company. In terms of ROE, look, we've got a lot of goodwill. We could tomorrow just write off all that goodwill. Nothing would change at the company. Your ROE would just go up to your return on tangible common equity.
Very good. And then coming back to the mobile users, I think you guys pointed out you had just shy of 23,000,000 mobile users. What percentage of your customer base are mobile users and where do you see that number going to in the next 2 to 3 years?
I think every time I say this can't go up because we're starting to some inflection point where you've got penetration, it continues to go up. So I think we asked 30 odd 1000000 checking holders. So think about the delta between those two being available for lack of better term. You got 34,000,000 digital users. And so you still have some digital only users who don't use a mobile phone just because they do it, which means they come through the website instead of an app, for example.
And so each year we think it's not going to you start to hit possible inflection points it goes up 10%, 15% year over year. And so I think there's headroom ahead of us. So I think of us having 30% more that we could get just easily and we're growing the customer base and we'll drive it. And as you see, norms change, you'll see that penetration continue to increase. The important thing isn't necessarily only the 22 point 9,000,000 users.
The important thing is how people use it. And so just take the P2P payments, even though we do $18,000,000,000 this quarter, even though it's been a product we've had for a while, even though we're going to relaunch it, we'll see how with Zelle that will drive it, it's still 3%. And even though all the wallets whether it's Apple or Samsung or Android or etcetera, all those are out there, there's still 1.5% of payments. And so in the end of the day, we've got a lot of work within the customer base and how they use all the form factors to get more efficient and more effective for them on top of what you think is more use more penetration so to speak. So we've got a long way to go on penetration, only 22% of the sales are done.
So we'll continue to drive that. But importantly for the team, Tong and Dean and the team is to drive that usage up and that's where we're starting to see some good pickup, but there's a lot of room to go there.
Brian, you mentioned Gazelle. Any early read on what you're seeing there? And when do you expect to have a broad launch of that product if you haven't done it already?
It's Zelle, not Gazelle, but don't want to violate anybody else's trademark here, but the it's still pretty early. The nice thing is that the industry has built a network among all of us that allows us to operate very easily among us of all the companies. And so I think the better time to talk about being 6 months or so after we've gotten everybody up and operating and driving it through. But previous this we were already driving, it was up double digits year over year. And so this sort of just awareness and with the students signing up for accounts in the from now to the fall, you'll see a lot of embedding this in our marketing and our capabilities.
So maybe next quarter, we'll have a better read.
Very good. Thank you.
And we'll take our next question from Matt O'Connor with Deutsche Bank. Please go ahead.
Good morning. Just a couple of quick follow ups. Did you guys disclose the debt hedge ineffectiveness drag that was in net interest income this quarter?
We didn't disclose the amount. It was meaningful, not like huge amount, but it was meaningful. And again, I would remind everybody that over time just going to reverse itself.
Okay. Does that show up in the 10 Q or can't remember where we got that from?
No, I don't think so. Yes, Matt,
at the highest level, remember, we ate up if we go back and think about where we started the quarter, where we ended it, we took out about half of what we thought the increase was going to be due to the card. The rest of us all the factors Paul talked about ins and outs and chewed up the other half of the projected increase. So give you a sense of dimension.
Okay. And then just separately, the expenses related to the U. K. Card business that go away, how much is that?
Sure. Look, let me just run you through the whole picture, okay? If you want to build any models. On the revenue side, it's primarily interest income, think about $10,000,000,000 of receivables at 9%, plus you got a little small amount of card income. I think that was around $30,000,000 in the second quarter.
The efficiency ratio for that business is around 40%. If you look in our supplement, you can see I think the net charge off ratios that's been running a little bit less than 2%, call it $40,000,000 45 $1,000,000 per quarter. I think that probably gives you just about everything you need to model it. I would remind you that when we sold it, we did get 12 15 basis point improvement our CET ratio on an advanced and standardized perspective respectively.
Okay. All right. That's helpful. Thank you.
And we'll take our next question from Steven Dubak with Nomura Instinet. Please go ahead.
Hi, good morning. So Brian, I appreciate the helpful commentary you've given on capital ratios and the continued effort to optimize your RWAs. And just given the significant capital cushion that you're operating with today, I'm just wondering how you're thinking about the payout trajectory over the next couple of years and maybe just to help us frame it from an ROE perspective because you did note that your excess capital Well, if
Well, if you take that the 9.5% is the place we're at, we have 50 basis points or so of cushion on that at all times. And so that gives you a sense where we are and we're running 11.5% and that difference is available. So you'd continue to ask for more capital return. I think to keep you focused in the near term, we got $17,000,000,000 plus that we've got to take out in the next four quarters, which is a pretty healthy chunk. And then we'll go through next year's CCAR process and you'd expect us like the industry to keep stepping that up to start to work against that excess.
Against that, when Paul talked about the last question, the U. K. Card, remember that the thing that people have to think about is not only does it give you current capital benefit, but also in the stress, the losses and stuff are out of the system. So you can also pick that up. So I'd say simply point in the next 12 months, we're going to return more capital we earned in 2016 to give you a framework and we'd expect to ask for as we earn more in 2017, we'd expect to ask for more for the next task and keep driving that forward.
And everything contributed better asset quality, better earnings and better modeling and everything else. So RC car losses continue to come down and we continue to drive the responsible growth. So just think about that as a framework to say more in the future, but we got a nice pickup just coming in the next 4 quarters.
Got it. And then just on some of the expense initiatives, Brian, that you outlined. I'm getting quite a few questions on how we should think about it from a timing perspective. I know that you have the $53,000,000,000 expense target that's out there. But just given some of the efficiency opportunities that you identified, should we expect that progress to continue beyond 2018?
Yes. We are you know, it's you're asking me what have you done for me lately. We'll get into 53 first, Stephen, and then we'll move from there. But the idea is that if you sort of think about an expense base of a financial services firm and Bank of America in particular, about 2 thirds of the cost are people cost. The cost of salaries and wages incentives etcetera, health care costs rising at 6%, 7%, 8%, 9% a year.
And so our job to figure out how to pay our teammates fairly and more for more productivity and what they do to drive for you as shareholders. And if you just lock in a growth rate on that just that part of the expense base, you're locking 2% growth. So what we do through all these initiatives is figure out a way we can turn that into being on a core basis year over year sort of flattish. And so whether the $53,000,000,000 keeps coming down or stays flat or revenue keeps going up, both that will produce further operating leverage. And so we haven't made projections past the 53 more just because we've got a lot of initiatives coming in, but you should expect that we will be just as disciplined and thoughtful about how we both invest and invest to take out expense that we've been so far and I think that will redound our benefit in terms of keeping those expenses relatively flat as revenues grow in the future.
Thanks, Brian. And just one more quick one for me, just on the DOL fiduciary rule. You had outlined your strategy previously for stopping or no longer engaging in retirement brokerage activities. But just given the potential for that rule to be repealed, I'm wondering if your thinking has evolved around that?
I'd say it's let's see what happens. I don't think it will change our thinking. We have accommodated customers' larger balances in some of the areas and some cash IRAs and things that get a little bit different, but just out of necessity. But the overall trend of driving towards the model products and driving towards the effectiveness and offsetting demands for lower and lower cost structure the customer pays and fees to get higher and higher service and capabilities from us is what's driving this. The fiduciary rule is only a part of it.
And so I don't expect to change our course.
Thanks for taking my questions.
And we'll take our next question from Sal Martinez with UBS. Please go ahead.
Hi, good morning. First, I wanted to follow-up on the net interest income. The 100 basis point, the benefit of the $3,200,000,000 you get 100 basis point parallel shift in the yield curve, you mentioned it's primarily sensitive to the short end. I think last quarter you gave a sort of 75, 25 split between short and long end. Is that still a good rule of thumb to use?
It's changed a little bit. We are a little bit more sensitive on the long end now that rates went down. The asset sensitivity in the short end hasn't changed that much.
Okay. So a little bit more skewed to the long end than the disclosure in 1Q?
Yes. It's like 2 thirds, 1 third.
Just to back up, but the first half of the year, when you think about the rate environment, it's really changed on the short end just
to give
you a sense how it works. We've got $1,500,000,000 $1,400,000,000 to $1,500,000,000 pickup in first half NII versus last year. And so that gives you a sense. It really is driven 60%, 70% depending on the quarter by the short end.
I think that's an important point. I mean, again, we picked up that $1,500,000,000 and you haven't seen the sensitivity change much. So that tells you kind of what was embedded in the pass throughs in the first half of the year.
Okay, got it. Moving on just to discuss capital deployment strategies a little bit. You've talked about your excess capital position. Obviously, you upped your return to the CCAR cycle and you'll keep going forward with that. But is it too early to talk about acquisitions as part of the capital strategy?
And how would you think about M and A in terms of opportunities, whether from a product strategy, geographic segmentation standpoint? How do you think about M and A in the context of your capital strategy?
We don't think about M and A in the context of our capital strategy. We are organically growing this company, including opening up in markets, investing in bankers, investing in branches, investing in things. And the capability and investing in cash manager capabilities, we build out a lot in Asia, Tom Montag and the team driving our global franchise. We just don't need the distraction.
Okay. All right. Fair enough. Thanks a lot.
And we'll take our next question from Marty Mosby with Biting Sparks. Please go ahead.
Thanks. I got 3 bigger picture kind of questions. First, Brian, you've turned the corner on the customer growth and business growth. I mean, that was one of my main concerns after so many years of having to deal with the overhang issues to be able to kind of reenergize and get that business segments growing again. What are the couple of things that you could say has helped go through that inflection point as quick as you've been able to do that?
So I think depending on the business, at the end of the day, if you go across 8 businesses and the relationship business has been just deploying more and more relationship management teammates and being able to pay for that while bringing expenses down across the board. So that's whether it's U. S. Trust or Merrill Lynch, the preferred business and consumer, the business banking, global commercial bank, global corporate investment banking and driving that, always had great products. We just literally had to add more sales teams.
Behind that has also been the deployment in technology to help those sales teams. We intelligence to prioritize their work in terms of targeting their efforts. And then if you look in both the markets and the markets business separate from the commercial side of it in the true markets business, you look in the mass market consumer business, what we call retail, you see that the nice thing about the retail business, the mass market is we are now growing and making money on a in a business which was a little bit tricky and that's largely because the electrification digitization has been driving it. And if you go to markets, the team in equities and fixed income has done a great job of repositioning that business and it's gaining share. So in each case, it's investments in people, technology, better customer experience.
And that all sounds like you say it all the time, but it has been relentless focus in just driving that and investing behind that at the all time taking out some extraneous costs including credit costs through very disciplined client selection and credit underwriting capabilities.
Then Paul, I wanted to so the second question, look at we've talked about the core, core, core and that the company has taken actions to try to drive that. But really we've had a historical shift in the liquidity premium coming out of financial crisis and just having rates at 0. So hasn't a lot of this shift been related to just the environment more than really company actions? And what we're seeing has been the de risking. Now that GWAM deposits are starting to move out, is that the first sign of the rerisking or the customers willing to take a little bit more risk and drop that liquidity premium?
So we're kind of watching for that first sign of the customer behavior beginning to change.
I think, Marty, over across all the years since the crisis, there's been ebbs and flows and customers' views about where they want to invest in the cash portion of our balances has come up and down. But I think the consumer and the investor are very bullish on America and they continue to invest in the consumers through their spending and activity doing investors on the personal side through their investments and you've seen those investments in equities and risk products continue to rise almost without fail. And then when there's real market disruption concern you see a pullback a little bit, but basically without sale there's been a steady investment and that's why we hit assets under management levels of record levels at this point.
Now it does seem like there's a little bit of a change sitting there. You'll see it kind of ripple into some of the other business maybe later. But the third question was with what's going on in the mortgage business? You're retaining 90% of loans in the past. I know the number, but I bet you were securitizing before the financial crisis, probably 90% of the loans.
How do you look at that business different? That is such a paradigm shift that you really are now a portfolio lender much more than you are securitization? Are there any other dynamics that we should look at separately?
Well, you have to the business that pre crisis that came out of some of the other firms and etcetera was driven by a basic view of generating more and more mortgages as opposed to customers and penetration of customers and giving mortgages to customers. And so one of the way the major way it did it, 75% of its production was bought from 3rd parties, either its correspondence or brokers or whatever the methodology, all that's gone. And so if you had that size of production that was bought in the secondary market through wholesale trades of the production, you would have to go off balance sheet because you wouldn't have the capacity during the 2004 to 2008 we generated $2,000,000,000,000 of mortgages or something like that. So you had to go off balance sheet. Now where we're now where your core production runs $13,000,000,000 $15,000,000,000 and this huge deposit franchise that needs to be invested, you can put those mortgages on the balance sheet.
The odd thing would be in the past we were sending them off and then buying back mortgage backed securities. The answer is we just retain the mortgages and frankly the credit quality in ours is not worth paying the insurance. And so it's really but it really came to focusing on what we call direct to consumer where our market share continues to be solid and really saying we're in this business. It's always been a tough business. It's priced on a commodity basis.
On your screen every day. And the MSR assets always had interesting issues about how you could hedge them and make them work. Our goal as a company was to take all that volatility and up and down out and just focusing on getting mortgages to our customers of high credit quality and then why wouldn't we keep them because at the end of the day we got to invest our deposit somewhere and these are great investments.
There are customers. It's not like we're as Brian said, we're not buying somebody else's underwriting. These are our customers. We know these customers. We're underwriting these loans and why pay the insurance.
It's not just
you all.
I mean, it's been across the industry where you're seeing much more in retention than you're seeing in securitization. So I just didn't know if there was any operational or other issues that gives you more flexibility on pricing or product development. It's a very different market than what it used to be when we were in it before.
I agree. It's a different market and I think a better one because of it.
Thanks.
And we'll take our final question from Brian Kleinhanzl with KBW. Please go ahead.
Great. I just had a question first on the lending environment overall. Can you guys give an update of the pipelines? And I know last quarter you said middle market revolver, you're at record levels there. Did that were you able to increase utilization rates there?
Just kind of give a sense of where your clients are if optimism is waning?
We feel good about loan growth. Unless economy changes significantly, we wouldn't expect much change from the past few quarters. We did see a little bit of disambiation this quarter in commercial that could slow growth in the future. But having said that, we haven't changed our medium term outlook on our ability to grow loans. We expect total loan growth for the company to be low single digits and we expect to grow mid single digits in our lines of business.
Once you that obviously excludes the headwind from loans and all other mortgage runoff and now UK card is gone. So with respect to each segment, we're anticipating modest growth in consumer led by mortgage. We'd also expect to grow card and auto, although auto growth has probably slowed a little bit, but we still expect a little bit of growth. That growth is going to be partially offset by continued runoff of home equity loans. In commercial, again, while things have slowed a little bit, our outlook still remains favorable led by middle market.
You saw middle market loans grow 5% year over year. And I would note that quarter growth in any quarter in commercial can bounce around a bit because you've got acquisition financing thrown into the mix. All of that I think is consistent with responsible growth.
Okay, great. And then just a question on Wealth and Investment Management. You did see the financial advisers increase 2 percentage points quarter on quarter. Is that a trend now that you think you can go back into a hiring phase where you can actually grow the number of financial advisors, I mean productivity also increased as well, so there was no drag from hiring those advisors?
We have a tremendous customer base that is underserved in the investment management area. And so we're going to continue to grow our financial advisor team to serve that customer base, whether it's the teams that work in the branches, the teams that work in the Merrill office, the team that work in the U. S. Trust. And we've been after that and growing that.
And so you should expect that number to continue to go up with Terry Lock and NEC, Keith Banks and team are driving it. And so that's it's your unit of production for lack of better term. It's your team that really has the core customer interface and will drive that. Meanwhile, on the non financial advisory side, you saw the assets in Edge up 21%. So that means that we're also facing off against the customers who choose to go about it in a different way.
Okay, great. Thanks for taking my questions.
Sure. All right. I think, operator, that's all the call. So I want to thank everyone for joining us again this quarter. I think if you think about this quarter, it's a quarter which shows you what responsible growth is all about.
It's all earnings growth, very solid operating leverage. Each business grew first half of this year versus first half of last year and did it the right way, did it while maintaining great risk and did it while we invested heavily in technology and invested in our people. So we look forward to next quarter and talk to you soon.
This does conclude today's call. You may disconnect at any time and have a wonderful day.