Thank you, Brian, and good morning, everyone.
I’ll begin on slide six. All my comments that follow including the discussion of business line results will be on an adjusted basis that excludes acquisitions and divestiture related amounts.
The most significant adjustment this quarter relates to the after tax loss on the announced divestiture of Puerto Rico of $402 million. The Bank delivered $2.5 billion in earnings and diluted EPS of $1.88 for the quarter, up 9% and 7%, respectively, compared to last year.
Revenue increased 11% from last year or about 5% excluding the impact of acquisitions and IFRS 15 with strong growth in both net interest income and noninterest revenues. Net interest income was up 7%, driven mostly from the impact of acquisitions. Also contributing to the increase was growth in cars, auto, commercial loans and retail deposits in Canadian Banking and commercial and retail lending in International Banking. These increases were partly offset by lower contributions from asset/liability management activities and the negative impact of foreign currency translation.
The core banking margin was slightly lower, 1 basis point versus last year, driven by lower margins in Global Banking and Markets and the impact of a flattening yield curve on our asset/liability management activities compared to last year. This was partly offset by higher margins in International Banking from the change in business mix driven by the acquisitions, and in Canadian Banking from prior rate increases by the Bank of Canada.
Noninterest income grew 16% compared to last year with approximately half of this growth driven by acquisitions. The remaining growth was driven by higher banking, wealth management and trading revenues, gains from investments and income from associated corporations. This was partly offset by lower revenues in Global Banking and Markets, primarily from lower underwriting fees and the impact of the adoption of IFRS 15. Expenses were up 11% year-over-year. The increase was largely driven by the impact of acquisitions, partly offset by the adoption of IFRS 15.
Excluding the impact of these items, expenses rose 4% year-over-year, due primarily to the Bank’s investments to meet regulatory requirements, technology initiatives, amortization, other employee costs, advertising and business development expenses.
The Bank’s productivity ratio improved 10 basis points to 51.7% and achieved positive operating levers again this quarter.
Excluding the impact of the 2018 pension revaluation benefit, the Bank’s year-to-date operating leverage has improved to negative 1.2%.
The total PCL ratio was 48 basis points, improving by 3 basis points quarter-over-quarter, but up 8 basis points year-over-year.
Our PCL ratio on impaired loans was 52 basis points, up 11 basis points from last year.
Our tax rate remained in line with our outlook of 21% to 25% through 2019.
On slide seven, we provided the evolution of our CET 1 capital ratio over the last quarter. The Bank reported a Common Equity Tier 1 ratio of 11.2%, up approximately 10 basis points. Strong internal capital generation of 16 basis points was partly offset by increased employee pension and post-retirement benefits liability that was impacted by discount rate changes in the quarter and continued share buybacks.
Risk-weighted assets were flat quarter-over-quarter, and up a modest 1% compared to last year. We repurchased 2.8 million common shares during the quarter or 10 million shares on a year-to-date basis at an average year-to-date price of $71.66 per share. Since May 2018 when we closed our first acquisition of Jarislowsky Fraser, the Bank has repurchased and cancelled 16 million shares.
Including the capital benefit from the announced non-core divestitures that have yet to close, our pro forma Common Equity Tier 1 ratio would increase by approximately 50 basis points to 11.7%.
We’re pleased with the pace of rebuild of our capital, driven by strong internal capital regeneration, prudent management of risk-weighted asset growth, and the divestitures of non-core businesses.
Turning now to the business line results, beginning on slide eight. Canadian Banking reported adjusted net income of $1.2 billion, up to 3% year-over-year.
As disclosed on slide 19, the impact of lower real estate gains reduced the division’s earnings growth by approximately 2%. In retail lending, residential mortgages grew 3%, personal loans 3%, and credit cards 7%. Meanwhile, business lending grew 10%.
Given the slower start to the housing market in 2019, we expect to finish the year at low single digit volume growth in mortgages. Deposits grew a strong 10%, driven by both personal and non-personal deposits and outpaced asset growth.
The net interest margin was up 3 basis points quarter-over-quarter and year-over-year, driven by the impact of prior rate increases by the Bank of Canada.
We expect margins to be stable to modestly higher for the balance of the year, in line with our prior guidance. Non-interest income was up 5% due to higher wealth management fee income from acquisitions and credit fees, partly offset by the impact of IFRS 15 and lower real estate gains.
Canadian Wealth Management adjusted earnings increased 20% year-over-year, driven by strong contributions from recent acquisitions, as well as the co-businesses. AUM growth was strong, up 20% year-over-year, with the sequential increase reflecting positive net sales and market appreciation. Canadian Banking delivered positive operating leverage of over 100 basis points through prudent expense management and as we have previously committed, guided by growth in revenue.
Excluding M&A and the impact of IFRS 15, Canadian Banking’s expenses grew a modest 1%. The productivity ratio improved 50 basis points to 48.3%. PCLs were higher compared to last year, mainly due to higher retail provisions due to portfolio mix changes. Meanwhile, commercial provisions reported lower recoveries compared to last year. On a quarter-over-quarter basis, PCLs were down 5%, largely due to improvements in credit quality.
Turning to the next slide on International Banking. Earnings of $815 million were up 14% year-over-year, driven by strong loan growth in the Pacific Alliance, impact of acquisitions and higher noninterest income.
Our GBM operations in Latin America were also very strong with earnings up 23% year-over-year, driven by strong growth in our capital markets and corporate banking businesses as well as the impact of acquisitions.
My comments that follow are based on results on an adjusted and consent dollar basis. Revenue grew 20% with net interest income up a strong 19% and noninterest income growing 23%.
Our Pacific Alliance countries grew revenues by 26% year-over-year that included the impact of acquisitions.
In the Pacific Alliance, deposit grew a strong 4% sequentially and outpaced asset growth. Margins declined 25 basis points year-over-year within the plus or minus 10 basis points of 450 basis points that we have previously guided to. This was driven by the business mix impact of the Chile acquisition that closed in Q3 2018, which is the higher quality, lower margin business as well as some margin compression in Mexico this quarter reflecting higher cost of funds on deposits in that country.
Noninterest income growth was driven by acquisitions, higher banking fees, and increased contribution from associated corps, higher trading revenues and some investment gains. Approximately three quarters of the expense growth was driven by acquisitions with the remaining growth in line with business volume growth, higher regulatory cost and the impact of inflations. Prudent expense management contributed to the productivity ratio improving by 140 basis points year-over-year. Operating leverage continued to be strong at positive 3.2% for the quarter.
Moving to slide 10, global banking and markets. Net income of $374 million was down 15% year-over-year due to more challenging market conditions, lower client financing activity and higher expenses compared to last year. GBM Latin America results, which are reported in our International Banking segment, reflected strong double-digit year-over-year growth.
Corporate loan growth was up 12% year-over-year, reflecting continued growth in the U.S. and Canada.
In addition, M&A and corporate lending pipelines remained strong.
On the other side of the balance sheet, customer deposits are up a very impressive 18%. Both net interest income and net interest margin was down year-over-year. The net interest margin declined by approximately 20 basis points to 1.61%. The margin compression primarily resulted from our strong growth in customer deposits and declining market rates.
Noninterest income was stable year-over-year. We had a strong quarter in equity trading that is offset by modest underwriting and advisory income growth as last year benefited from a couple of large transactions in the energy and financial space. Expenses were flat to the seasonally shorter Q2 and in line with the guidance we provided last quarter. The year-over-year increase of 9% was driven by higher regulatory, technology and risk infrastructure costs to support our operations, and manage regulatory and compliance requirements, as well as the unfavorable impact of foreign currency translation.
I’ll now to the Other segment on slide 11, which incorporates the results of group treasury, smaller operating units and certain corporate adjustments. The results also include the net loss on divestitures, and the net impact of asset/liability management activities. The Other segment reported a smaller loss versus last year, due mainly to higher investment gains and lower taxes. Contributions from asset/liability management activities were lower versus last year.
However, sequentially, the Other segment reported a lower loss, due mainly to higher investment gains and positive contributions from asset/liability management activities.
I’ll now turn it over to Daniel, who will discuss risk management.