Canadian Imperial Bank of Commerce (CM) Q2 2019 Earnings Call Transcript

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Canadian Imperial Bank of Commerce (NYSE: CM) Q2 2019 Earnings Call May 22, 2019, 8:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the CIBC quarterly financial results call. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Hratch Panossian, Executive Vice President, Global Controller and Investor Relations. Please, go ahead, Hratch.

Hratch Panossian -- Global Controller and Head of Investor Relations

Thank you, Operator. Good morning, everyone, and thank you for joining us for CIBC's investor presentation for the second quarter of 2019. This morning we will have Victor Dodig, our bank's President and CEO kick off our agenda with his opening remarks. Kevin Glass, our Chief Financial Officer will follow with a review of our operating results, and Laura Dottori-Attanasio, our Chief Risk Officer, will provide a risk management update. We will then move on to take questions from those on the call.

We are joined in the room by CIBC business leaders, including Mike Capatides, Harry Culham, Jon Hountalas, Christina Kramer, as well as other senior officers. They will be available to take questions following our prepared remarks. The documents referenced on this call, including CIBC's news release, shareholder report, investor presentation, and financial supplements, as well as an archive of this audio webcast, can be found on our website at cibc.com.

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Before we begin, let me remind you of the caution regarding forward-looking statements on Slide 2 of our investor presentation. Our presentation and our comments this morning may contain forward-looking statements that involve applying assumptions, which have inherent risks and uncertainties. Actual results may differ materially. With that, let me now turn the meeting over to Victor Dodig.

Victor Dodig -- President and Chief Executive Officer

Thank you, Hratch, and good morning everyone. This quarter we continued executing our client-focused strategy and delivered solid results across our bank. Through our connected franchise, we grew our client base, improved client experience, and strengthened the depth of our relationships. As a result, we announced adjust earnings per share of $2.97 for the second quarter. Revenues and pre-provision earnings grew 4% year over year on an adjusted basis supported by continued strength in our North American Commercial Banking and Wealth Management Businesses as well as our Capital Markets Franchise.

We also continued making investments to modernize our platforms, improve efficiency, and enhance our client's experience. On a net basis, our investments drove accelerated expense growth at essentially flat operating leverage. Despite market volatility, which is driven largely by geopolitical uncertainty, the economic environment continues to be constructive across our businesses while trends in our risk indicators and provisions remain benign. Our capital position remains strong with CET1 at 11.2%. Continued capital generation was primarily offset by reinvestment for organic growth this quarter. Going forward, we anticipate generating excess capital over time and we will look to deploy it in a manner that maximizes shareholder value over the long-term.

Turning to our business units' results. In Personal Small Business Banking, we remain focused on our long-term strategy of modernizing our bank and deepening client relationships. This quarter, we delivered a modest year over year revenue growth while continuing to make investments that will accelerate revenue growth in the medium-term. We continue to acquire new clients, deepen the relationship, and improve our client's experience with us. In the most recent JD Power survey, we saw the biggest improvement among our bank peers. Our internal relationship depth index has increased substantially over the last two years and our mobile banking app recently earned the highest score among the Big 5 from Forester Research.

Building on our progress, in the second quarter our transformational investments remained focused on further modernization of our distribution channels, deepening client relationships, and diversifying our earnings base. With 89% of the day to day transactions being performed on mobile and online self-service platforms, we are investing to ensure that we offer the solutions that our clients need in these areas. For example, in April we extended our Innovative Global Money Transfer platform to eliminate transfer fees for our business clients when sending money overseas. And in May, we formally launched a market first with our new Smart Banking for Business platform an open architecture solution that provides a single digital interface for payroll and accounting functions for our business clients.

At the same time, human interaction and relationships remain important in our business. Over the past two years, we have physically transformed a quarter of our banking centers to enable more advice-based conversations with our clients. We're seeing positive results in these new centers both in terms of growth and net promoter scores. We're also investing in our CIBC team, particularly with respect to our advisory capabilities. This includes expanding our Mobile Investment Consultant team to attract deposits and investments as well as our Business Advisor roles to grow our presence in communities across Canada.

Similarly, in Canadian Commercial and Wealth Management, we continued to make strategic hires in client-facing roles as well as investments in technology and innovation which are delivering solid returns. Commercial Loans and Deposits continued to show strong double-digit growth, exceeding the targets communicated at our last Investor's Day. Over the last five years, we've steadily grown our share of deposits in the business and have been the fastest growing bank in the last year. Our strong deposit growth is directly related to our continued investment in our cash management system. This year we maintained our position as Canada's best treasury and cash management bank for the third consecutive year. In Wealth Management, we saw a 5% increase in assets under administration with contributions from volume growth in our private wealth segment and the success in referrals across our businesses.

To date, we've generated over $7 billion in assets from referrals between Wealth Management and Commercial Banking. Here, again, we're on track to exceeding our Investor Day targets. We're also investing in our financial planning capabilities to improve the strength and depth of our client relationships. We will continue to drive growth by investing in markets where we have historically been underrepresented and by leveraging our technology to provide best-in-class advice and experience for our client.

Our US Commercial Banking and Wealth Management business also continued its expansion with investments in client-facing roles this quarter. Since closing the acquisition, we've opened offices in new markets and meaningfully increased our relationship-based teams across both commercial banking and Wealth Management. The success of our US growth strategy is reflected in our financial results with year over year adjusted earnings growth of 24%. Assets under management also performed will with year over year growth of 10% driven by both market appreciation and solid net flows.

During the quarter, we announced leadership changes to our US business. Mike Capatides assumed the CEO role from Larry Richman, who will continue to focus on building client relationships as chair of our US region. This leadership transition has gone smoothly. We are seeing stability and enthusiasm for the future from our US team and our US clients. In addition to continued operation in the day to day business, Mike and his team are focused on defining the next stage of our US growth strategy to build on our success to date.

Turning to our Capital Markets business. We are seeing the benefits of a differentiated platform that we've been building over the last few years: a stable, client-focused business with strong connectivity to the rest of our CIBC franchise and industry-leading productivity. We drove 12% adjusted earnings growth this quarter through a focus on our clients and our pursuit of cross-border and cross-bank opportunities. Results were also helped by improved conditions in debt and equity markets after a challenging first quarter. In Capital Markets, we continue to invest in both technology and talent to expand our US trading and advisory capabilities for our US client base. As a result, we've seen a 7% increase in US revenues over the last year.

We also continue to build on our unique capital markets model by increasing connectivity with the rest of our businesses. For example, in the first half of this year, we saw Capital Markets revenue derive from Canadian and US commercial clients grow 16% and 25% respectively. Across our bank, we also continue to invest in key enterprise infrastructure and capabilities that will support our businesses and defend CIBC, including investing in the strategic use of data, artificial intelligence, automation, and ongoing investments in cybersecurity and risk management. Our investments are purpose-driven, focused on our clients and the long-term growth of our bank.

Overall, I'm pleased with the progress we've made to date in our transformative journey as we build a relationship-oriented bank for a modern world. We clearly have areas of opportunity within our business and we're making sound investments to deliver on those opportunities going forward. Importantly, the connectivity across our bank is helping to differentiate us in the market. Our growth is increasingly driven by a connected team across business lines and across borders. Going forward, we are still on a path to transformation and we will continue investing in our business for the long-term despite short-term pressure on revenues.

Given market conditions to date and our decision to continue investing in the business, we expect year over year EPS growth to be relatively flat for fiscal 2019. Longer-term, the execution of our strategy will allow us to deliver on all of our financial targets over time, including our medium turn EPS growth target of 5% to 10%.

With that, I would like to now turn the call over to my colleague, Keven Glass, for a more detailed review of our financial results. Keven.

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

Thanks, Victor. So, my presentation will refer to the slides that are posted on our website starting with slide 5. CIBC reported earnings of $1.3 billion and EPS of $2.95 for the second quarter of 2019. Adjusting for items of note detailed in the appendix to this presentation, our net income was $1.4 billion, and EPS was $2.97. We generated revenue of $4.5 billion for the quarter, which is up 4.4% year over year, and we continued investing in our business while delivering an efficiency ratio of 56.1%.

Turning to Capital on slide 6. We ended the quarter with a CET1 ratio of 11.2%, flat from the prior quarter and comfortably above our target range. Our internal capital generation this quarter was offset by an increase in risk rated assets. Risk-rated assets increased $9.2 billion during the quarter, reflecting significant growth in our Commercial and Corporate Banking businesses as well as strong Capital Markets performance. Our leverage ratio was 4.3% and our liquidity coverage ratio was 134%.

The balance of my presentation will be focused on adjusted results which exclude items of note. Let me now turn to the performance of our business units. Slide 7 reflects the results of Personal and Small Business banking. Net income for the quarter $571 million, down 3% from last year. Revenue of $2.1 billion was up 2% from last year, primarily driven by favorable rates and volume growth partially offset by lower fee income. Net interest margin was up 5 basis points sequentially largely due to the prime BA spread widening and the benefit of favorable rates.

Moving forward, we continue to expect new expansion in 2019 as we see the impact of deposit promotions ending next quarter. A level of expansion may be moderated by the current competitive environment. Non-interest expenses were $1.1 billion, up 3% from the prior year as we focus on growth initiatives in strategic areas. Specifically, modernizing our distribution channels and investing in key client segments and products. Operating leverage is negative this quarter at minus 1% as our expense growth returned to more normal levels. Provision for credit losses was up $26 million from the same period last year, driven by an increase in provision for performing loans. Laura will speak to credit quality in more detail in her remarks.

Slide 8 shows the results of Canadian Commercial Banking and Wealth Management. Net income for the quarter was $328 million, up 6% from last year. Commercial banking revenue was up 14% driven by strong lending and a positive volume gross and a higher credit-related and mid-marketing investment banking fees. Deposit balances were up 15% and lending balances were up 12%from the same period last year. Wealth Management Revenue was up 3%, primarily driven by higher AUA of 5% and higher AUM of 7%. The net interest margin was down 22% sequentially primarily due to lower BA rate impacting commercial banking and full-service brokers deposit business.

On a combined basis, for personal and commercial banking was up 3 basis points sequentially as the impact of the wider prime BA spread in commercial banking was more than offset by the impact of favorable rates in our Personal and Small Business Banking business. Provision for credit losses was up $22 million due to higher provisions on impaired loans. Non-interest expenses were up 4% primarily driven by investments in strategic initiatives, including hiring and client-facing roles. Solid topline growth and continued expense discipline contributed to positive operating leverage of 3.2% and resulted in a 164-basis point year over year improvement in our efficiency ratio.

Slide 9 shows the results of US Commercial Banking and Wealth Management where net income grew by $34 million or 24% from the prior year. Results reflect solid business performance and investments to support growth assisted by a stronger US dollar. Net income grew 19% from the prior period in local currency. Revenue was up 13% from the prior year, driven by double-digit volume growth and high asset management revenue from growth in AUM as well as stronger US dollar. Expenses increased 9# from the prior year as a result of an increase in headcount to support growth as well as higher marketing expenses and the impact of the stronger US dollar. The mix ratio for the segment improved to 54.5% down from 56.5% a year ago.

Let me now turn to CIBC Bank US which contributed $128 million Canadian to the segments net income, up 36% from the prior year. Net-interest margins for CIBC Bank USA was 366 basis point, up 3 basis points from a year ago. Sequentially, NIM was stable as higher loan yields were offset by increased deposit costs. Parity and loans in CIBC Bank USA grew $3.2 billion US dollars or 18% year over year reflecting continued momentum in client development. Approximately 40% of the growth came from expanded geographies and industry specialties. Deposits grew $2.2 billion US or 13% year over year, reflecting organic growth from new clients and deposit initiatives. Compared with the prior quarter, deposits were down slightly. As we mentioned last quarter, CIBC Bank USA's deposits typically experience some seasonality during the second fiscal quarter as our Commercial clients utilize balances for tax payments, seasonal distributions, and capital investments. Overall, we are pleased with the performance of our US segment which continues to execute on high touch, relationship-oriented strategy.

Turn to Capital Markets on slide 10. Net income of $279 million was up $30 million from a year ago, reflecting higher revenue and lower non-interest expenses partially offset by a higher provision for credit losses. Revenue in this quarter was $751 million, up $41 million or 6% from a year ago, primarily due to high-interest rate trading revenue, high equity and debt underwriting activity, and high corporate banking revenue. Non-interest expenses are down $4 million or 1% from a year ago primarily driven by lower performance-related compensation. Provision for credit losses was up $9 million due to a higher released on performing loans in the prior quarter. Capital Markets continues to make progress against key objectives including a 7% year to date revenue growth in the US region.

Slide 11 reflects the results of corporate and other when net-income for the quarter was $3 million compared to a net income of $58 million in the prior year. Higher revenue in CIBC First Caribbean and lower provision for credit losses were more than offset by lower treasury revenue and higher expenses as a result of strategic, corporatewide investments. Over the balance of the year, we anticipate higher expenses as we continue to invest in defensive and infrastructure investments, and we expect net losses in the segment to trend higher.

In conclusion, we had a solid quarter overall with particularly strong results in our US and Canadian Commercial businesses as well as in Capital Markets. With that, I'll turn the call over to Laura.

Laura Dottori-Attanasio -- Chief Risk Officer

Thank you, Kevin, and good morning everyone. So, turning to Slide 13, provisions on impaired loans decreased from $295 million to $250 million this quarter. This was mainly due to lower provisions in Canadian Commercial Banking and Capital Markets partially offset by a slight increase in provisions in US Commercial Banking and higher seasonal write-offs in our credit card portfolio. This decrease helped our loss rate which improved to 26 basis points down from 30 basis points last quarter. Provisions on performing loans were $5 million this quarter. We've highlighted the moving parts on this slide which would all be considered the normal course as part of the IFRS provisioning process.

The next slide provides an overview of our gross impaired loans which were up from 46 basis points to 52 basis points this quarter. The increase was driven by the funding of an impaired utility commitment that we spoke about last quarter which had previously been undrawn. We've subsequently sold our exposure to this loan and so excluding this previously impaired loan, our gross impaired ratio would have been 43 basis points this quarter, which is virtually flat quarter-over-quarter and year-over-year.

Slide 15 provides the net write-off rates of our Canadian consumer portfolios. Credit cards drove the majority of the increase due to the seasonal nature of the portfolio which typically experiences peak losses in the second quarter. Overall, we continue to be pleased with the performance of all of our retail portfolios that are performing in line with our expectations.

Slide 16 provides the 90 plus days delinquency rates of our Canadian consumer portfolios. On a quarter-over-quarter basis, delinquencies have remained stable and are performing within our risk appetite. In closing, we continue to have strong credit quality across all of our lending portfolios, and we remain pleased with our credit performance.

And now, I'll turn the call over to the operator for questions.

Questions and Answers:

Operator

Thank you. Please press * 1 at this time if you have a question. There will be a brief pause for the participants to register for questions. Thank you for your patience.

Our first question is from Ebrahim Poonawala with Bank of America Merrill Lynch. Please, go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Managing Director

Thanks, good morning guys. I just first wanted to start off with your top of the house, if you can comment around, like you mentioned that earnings growth are probably going to be flat year-over-year, can you talk to the ROE which was about 15.9% this quarter and the ability to defend that relative to your strategic target of 15% percent plus? And what do you think is the chance that you see the ROE actually dip below 15% at some point this year or next?

Victor Dodig -- President and Chief Executive Officer

Good morning, Ebrahim. All good questions, thank you for that. If you'll recall our Investor Day targets from last year, we have now four key targets; one was a mix of 55% by the end of this year, which will be slightly off of due to investments. The second was a dividend payout ratio in the 40% to 50% range, which we're well within.

The third was EPS target of 5% to 10%, which we've been able to deliver in the last several years, but as we see the macroeconomic environment and a desire to continue to invest through the cycle that will result in slighter earnings this year, but we expect over the medium-term to get up to 5% to 10%.

Specifically, on ROE, we've told our investor base long ago that as we invest in the US business and we invest in our Canadian business, we will see the ROE drop from what was up to 20% some time ago, to be above 15%. Our goal is to keep that above 15% going forward.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Managing Director

Understood. So, despite the investments you don't see that dipping below 15%, am I hearing you correctly?

Victor Dodig -- President and Chief Executive Officer

Yes. Well, look in the banking world being above 15% if you're looking at things globally that would put us in the top decile. So, let's just keep focused on that as best as we can.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Managing Director

Understood. And I guess, just moving to the margin, Kevin, you mentioned you expect the margin I guess to move higher in Canada P&C. If you can just give a little bit of a framework around the magnitude of expansion that we should see both in terms of the Canadian consolidated margin as well as in the US, and if both Bank of Canada and the Fed on hold. If you can just talk through the headwinds, tailwinds of the margin, the outlook for the next few quarters that would be helpful.

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

Well Ebrahim, let me start and then if my colleagues want to elaborate, they can jump in. But if we look at Canadian P&C, we would expect modest increases over the balance of the year. So, not material, part of that would be mix. We'd have the tailwind of previous rate hikes, which will continue to help us, and in the last couple of quarters, we've had the impact of some promotional activity that we've done on deposits as that runs off we would expect that NIMs to increase. So, we would see that happening. If we look at P&C on a consolidated basis, again probably just a slight increase over the course of the year.

If we turn to the US, we are seeing slight increases in loan yields. We've seen increases in deposit costs. We see that sort of moving in tandem. So, which is why we've guided to more or less flat NIMs moving forward.

And then if you look at some of the headwinds, more of an impact for us in Canada if rates stay stable and our forecasts have them staying stable, you will see the increases and flat in the U.S. as I indicated. A cut would place a bit of pressure on our Canadian businesses, not much of an impact in the U.S. because again those would move more or less in tandem. But why don't I turn it over to the business units and let them elaborate? Christina?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

Sure. It's Christina speaking. For the Canadian Personal and Small Business Banking business, the improvement in our NIM during the quarter was largely due to favorable economic rates. And last quarter we had said, you may recall, that our NIM was negatively impacted by prime BA compression and the impact of deposit promotions.

So, this quarter, prime-BA moved in our favor and next quarter we will see the benefit of the impact of deposit promotions running off. So, our outlook has not changed. We've previously guided to about 1 basis points to 2 basis points per quarter on average over time. And if you look at the last two quarters, Q1, Q2, we would have gone up by 2 year-over-year. We're up by 9. So, all of that is in line with our overall guidance, with some volatility quarter-over-quarter.

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

So, it's Jon from Canadian Commercial and Wealth. Kevin and Christina have talked to the rate environment. Outside of the rate environment, we're not seeing any compression on the margin side either on loans or deposits. So again, from a customer perspective, flat and we'll see what happens in the rate environment.

Michael Capatides -- President and CEO of CIBC Bank USA

This is Mike Capatides, from the US. I will just elaborate on what my colleagues have said. Like Jon, on the loan side, although we are seeing competition, we're not competing on price or risk and are seeing relatively stable yields. On the deposit side, we are still seeing some pressures on NIM from price increases, but that should subside, we hope, in the coming quarters. Against all that, we still have some tailwind from past rate increases that have been offsetting the pressure from deposit pricing. Assuming the rate environment stays stable from here, we expect our NIMs to continue to be stable and we will react as the rest of the industry to the extent rates are dropped.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Managing Director

Got it. Thank you very much for taking my questions.

Operator

Thank you. Our next question is from John Aiken with Barclays. Please, go ahead.

John Aiken -- Barclays-- Analyst

Good morning. Laura, I wanted to dive in a little bit more on the consumer net write-offs. You said that was in line with your expectations, but we've seen personal lending write-off start to pick up. Is your comfort level with that basically predicated on the fact that the delinquencies are a little bit stable? And again, sorry, I'm looking at the personal lending line in particular.

Laura Dottori-Attanasio -- Chief Risk Officer

Yes, John, we actually have our retail portfolios are all performing really well and as expected and so on the-I guess, I can speak a bit to the provisions on performing. The bulk of the move there related to some updates we did to our forward-looking indicators and the two larger ones were, if you will, a bit more of a pessimistic outlook from an unemployment perspective and housing price index perspective. And then, we also had a parameter update that mostly related to our small business model, where we updated our loss given default pulls. So, that was the main driver, if you will, of the increase in provisions for performing in retail. Does that answer your question?

John Aiken -- Barclays-- Analyst

No, it does. And then I wanted to dovetail into, I guess, for Christina. The strong growth that we're seeing in the personal lending, are you still comfortable with that in terms of the context of via look for credit shifting, I'm not going to say deteriorating, but shifting a little bit in terms of little more negative?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

So, just to add to the comments Laura has already said, I think we feel comfortable with our overall portfolio. It continues to perform well, and I think our strategy focused on client relationships, and deepening the client relationships will also serve us well through the cycle.

John Aiken -- Barclays-- Analyst

So, then, Christina, do you plan on remaining as aggressive as you have been in the past or what should we expect in terms of the personal lending volumes going forward?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

Personal lending volumes as it relates to secured lending, which...?

John Aiken -- Barclays-- Analyst

No, the non-real estate secured.

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

The non-real estate secured lending, yes. So, we expect that our unsecured lending growth continued to be higher than our market growth rates given the ramp up in our auto lending business. We've talked about it previously. So obviously, we started from a smaller base in the market on higher growth rates in the early days we're experiencing due to the ramp up and that reflects this.

We remain a small player in Canadian auto lending, which is the higher component of the growth rates here. Not compromising on credit origination standards, we believe that this is a good portfolio like the quality of it. It helps diversify our sources of revenue, and it helps us to be in business as it relates to this client need for our clients. So, we're comfortable with it overall and the growth rate.

John Aiken -- Barclays-- Analyst

Great, thanks for the color. I'll requeue.

Operator

Thank you. Our next question is from Steve Theriault with Eight Capital. Please, go ahead.

Steve Theriault -- Eight Capital -- Analyst

Thanks very much. If I could start with a question on capital, your slide Kevin, I understand you're pointing to strong loan growth as drivers of the strong RWA growth, but a couple of things there. The 35 basis points of drag we saw from RWA in Q2 and I think it was similar in Q1. It's about double I think last year's run rate. Is that all or primarily the strong commercial loan growth that you've been seeing?

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

So, Steve, certainly commercial loan growth was a very significant contributor to that. If you look at just RWAs excluding FX, the US segment would have been about 12 basis points of that and Canadian Commercial Banking about 9 basis points or 10 basis points.

So, for sure, those are big drivers. But as well, capital markets RWA this quarter also increased and that was business growth as well as higher counterparty credit risk. Operational risk is also a little bit higher because of the increased volumes and then FX also had a 6-basis point, 7-basis point impact on RWA this quarter. So, there were a bunch of items that had an impact, exceptionally strong loan growth, but then also capital markets grew, and FX also had an impact. So certainly, higher than our normal run rate.

Steve Theriault -- Eight Capital -- Analyst

Thinking of the US specifically, we've talked about higher competition, we hear about more curve like structures and transactions in the US. I'm wondering if the new business you're putting on today creates more dollar for dollar RWA than say in the recent past.

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

No. From that perspective, and we can go into other aspects of your question, Steve, but certainly, from an RWA perspective, we're on the standardized approach. And so, therefore, it's the same. The business we've added, which is frankly consistent business with the past, is the same RWA impact.

Steve Theriault -- Eight Capital -- Analyst

And secondly then for Christina, a couple of things. Christina, could just talk a bit about how you describe or what you're seeing in terms of the spring mortgage season so far? And if you could also update us on when you think you will get back to more market levels of real estate secured lending growth?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

Thank you for the question and I'll take a little bit of time just to speak to where we've been, what we're seeing today, and our outlook going forward. So, as we've discussed before, we have a client-focused relationship strategy and while mortgages are core product in that mix for Canadian, our strategy is not focused on any one single product alone. We are pleased with our overall mortgage market share position. We have a strong competitive product suite and a strong advisory team.

Over the last few years, a large part of our strategy to grow and deepen client relationships has been focused on large urban markets and in these markets, housing and mortgage markets were growing substantially. There was demand from clients and we were successful meeting that demand and that resulted in outsized growth relative to the market.

More importantly, we acquired valuable clients and we deepened relationships over time. And as Victor mentioned in his remarks, our overall depth to client relationship has improved substantially in each of the last two years and that applies similarly to the clients acquired via a mortgage or those clients acquired via other products or needs. Meaning that the depths of relationship and our strategy is the driver, not a product-driven strategy.

So, given that, last year we communicated that we would see ourselves decelerating and growing at market going forward as we saw headwinds in the markets we're focused on. We recognize that our growth has been slower than that and that's due to the market turning out different than we had anticipated impacting us more than our peers due to our strategic focus. In large urban markets, pullback and activity have been more pronounced and more prolonged than we assumed.

There have also been more activities through third-party channels and as you know our focus is on direct client relationships. We haven't actively participated in the third-party market since exiting the first line. And we're also seeing increased competition. So, we remain competitive but also disciplined on pricing, which means we're not pursuing mortgages at any cost.

So, going forward, if markets continue to perform as they have, it will take us longer to converge to industry growth levels for the product. We're committed to our relationship strategy and will not change course to chase accelerated mortgage growth.

So, in terms of what are we seeing in the market? We've seen some pickup across Canada, hasn't been significantly materially year-over-year improvement, BC is still performing slow relative to its peak, and GTA is performing a bit better.

Steve Theriault -- Eight Capital -- Analyst

Okay. Thanks for that color.

Operator

Thank you. Our next question is from Gabriel Dechaine with National Bank Financial. Please, go ahead.

Gabriel Dechaine -- National Bank -- Analyst

Hi, good morning. Just a question on the top line and I see a couple of the segments, like the US, was up year-over-year on margins and Canada was up sequentially. We see that. But at the top of the house quite a different story, margins look like a low point for as long as I can see anyway. I just wanted to dive into that dynamic here because it did weigh on your net interest income growth this quarter and I tie that mostly to the corporate segment. Is that something that you can explain a bit more? And what we should expect to see?

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

So, Gabriel, I think and we've indicated this in the past, in terms of total bank NIM, we don't get to particularly meaningful number to look at because there is a fair amount of volatility and fluctuation in terms of our securities balance some of the notional on low-yielding assets. There is volatility on that both within our Capital Markets segment as well as in our treasury segment and you have seen some of that volatility this quarter and last quarter as we rebalance for liquidity management purposes and as we have specific client deals that may drive that up or down

So, we don't think that will be a drag or anything, it just happens to be related to specific transactions during the quarter. And so, wouldn't read anything into that other than an increase in some low yielding balances over the last couple of quarters.

Gabriel Dechaine -- National Bank -- Analyst

Right, I mean, you might not see it as meaningful, but we had negative net interest income growth for the first time in a few years. Is that something in the trading revenue noise perhaps that led to that?

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

No, I wouldn't think so. And again, the NIM would be additional revenue on the margins. So, it's adding revenue to the bottom line as opposed to being a drag.

Gabriel Dechaine -- National Bank -- Analyst

Okay, my next question, maybe for Victor. I know that last quarter about your appetite for M&A in the US and if you want to talk generically about that, and maybe give me a sense of what you're kind of looking for? Is it more on the asset management side to bulk up Atlantic Trust or is it the banking type operation you're looking to build and maybe expand the borders outside of the Midwest a little bit if you can help me out there?

Victor Dodig -- President and Chief Executive Officer

Just a couple of things in the US. I think we've made a great deal of progress across our CIBC platform in Commercial Banking, Wealth Management, and Capital Markets in the US. You go back a number of years and we're generating 4% of our profits from the US and now it's anywhere from 15% to 18%. So, that came through acquisition, it came through organic growth, and it came through very good execution.

In our most recent acquisition, we're very pleased with the way the Private Bank integration, the team-oriented approach, and the results have really delivered great results for our shareholders. We're accretive in the first quarter, well ahead of schedule.

Our US business continues to grow organically in the market and continues to grow as we expand into new markets. We've always said that in the US and in Canada, we want to focus over-indexing on capital deployment in terms of over-indexing on Commercial Banking and Wealth Management.

So, as we look to the US's next stage of growth, we continue to focus on organic growth, which again is end markets and market expansion. Over time, further acquisitions are in the radar screen, but we're going to be patient to find the right cultural fit, the right size so that we can make things, again, accretive to our shareholders in a reasonable period of time.

Gabriel Dechaine -- National Bank -- Analyst

Okay, thanks for that.

Operator

Thank you. Our next question is from Sumit Malhotra with Scotiabank. Please, go ahead.

Sumit Malhotra -- Scotiabank -- Analyst

Thank you, good morning. First for Kevin, to go back to the capital conversation. So, Kevin, we had the update from us last quarter on the counterparty RWA, which had an impact on the CET1. Maybe relating to it what Steve was getting at, did that update besides having the upfront impact in Q1, also affect how counterparty RWA trends on a run rate basis? So, as you write more business, is there a higher capital cost associated with this new methodology? And then to put this all together, what would you suggest to us is the run rate for organic capital build or CET1 ratio build for CIBC with these new parameters?

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

So, as far as that change last quarter is concerned, I mean the big change would have been more of a one-off in the quarter. So, I mean on a marginal basis, maybe a very slight increase, but that wouldn't be a big driver moving forward. It was a one-time hit that we took last quarter. So, if we look at things moving forward, historically we probably generated maybe 10 basis points to 20 basis points of CET1 each quarter from earnings, net of dividends. Capital density is slightly higher now given our acquisition in the US and the way we're growing. So, we'd anticipate that being more in the 10-basis point range moving forward per quarter, Sumit.

Sumit Malhotra -- Scotiabank -- Analyst

10 basis points, OK. Thank you for that. And then to relate the capital level with capital deployment, Victor, the changes last quarter the stronger corporate and commercial loan growth this quarter, we've had six months of the year and then capital is down about 20 basis points. Is that the reason that the bank hasn't allocated any capital toward share repurchases or is it just that you see better value for potential deployment elsewhere?

Victor Dodig -- President and Chief Executive Officer

Look, we've been diversifying our business and as we diversify our business to complement our strong footprint in the Canadian Personal Banking space by growth in the Commercial Banking space, both in the US and Canada, you see some of that RWA growth which is not generating the organic capital that you've come to expect. But we will continue to generate excess capital over time.

Your question specifically is around the buybacks, I think is what you're getting at. We've always been quite clear, Sumit, that we've got four levers. One is an organic investment; two is an inorganic investment; three is buybacks, and four is dividends.

When it comes to buybacks, we did announce our NCIB again this morning to acquire up to 9 million shares. We were active in the back half of 2018, where we acquired 3.5 million shares or 40% of our NCIB.

So, we just look at those four levers as a leadership team and we utilize them as best as possible to maximize shareholder value over the long term. Sometimes some levers are dormant, some are more active, but we want to have that active lever on buybacks available to us when and if we want to use it over the coming 12 months.

Sumit Malhotra -- Scotiabank -- Analyst

I don't know how specific you can be, but how much of a factor is the absolute or the relative valuation of CIBC shares? How does that factor into management's decision-making process around those levers?

Victor Dodig -- President and Chief Executive Officer

Well, we want to grow, we want CEP ratio to expand over time to reflect the true growth and strength of our business. So, my own view is that there is room for improvement there and we're going to decide how to deploy that capital best to improve that over time.

Sumit Malhotra -- Scotiabank -- Analyst

Can I ask one more or queue?

Victor Dodig -- President and Chief Executive Officer

Sure. Why not?

Sumit Malhotra -- Scotiabank -- Analyst

Thank you. This is going to be for Harry to get to the actual business. I thought the results in Capital Markets were very good this quarter. The one question I had as it relates to the overall US objectives of CIBC to which Capital Markets is playing a key role. Some of your peers who have been building out their wholesale operations in the US have endured some higher costs that aren't necessarily revenue generating costs, regulatory compliance, IT. It doesn't seem like that's been as much of a factor and I think this quarter your expenses were actually down year-over-year despite good revenue.

So, to get to the point, as you build out the US capital markets capabilities, is there more of investment spend or expense level that we should expect from the bank going forward in this segment?

Harry Culham -- Senior Executive Vice President and Group Head, Capital Markets

Hi, and thank you for the question. As we've stated for a while now, the US has been a priority with respect to our bank, and obviously with Capital Markets being an important part of our bank. We continue to be very disciplined around our resources. We are aiming for a mix of around 50 in the Capital Markets business and that continues to this day in fact. Part of that is our build in the US. So, we've been focused on moving resources to the US from other areas.

So, we move people around. We've invested in the platform. We have the product capabilities and we're going to continue to invest down there. There is no doubt there are headwinds around regulatory spend, and technology spends and so on, project spend. But we think it's manageable and we're going to continue to target a mix of around 50 for the business.

Sumit Malhotra -- Scotiabank -- Analyst

Thank you for your time.

Operator

Thank you. Our next question is from Meny Grauman with Cormark Securities. Please, go ahead.

Meny Grauman -- Cormack Securities -- Managing Director

Thank you and good morning. Christine, you mentioned that market activity on the third-party channel was stronger than expected. I'm just wondering what's driving that and does that reality change your view of how you approach the third-party channel? Does it cause you to reconsider decisions you've made in that channel?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

So, I won't comment to the third-party activity, because we're not in that space, but there are a lot of market dynamics in the market today in terms of rates and offers and available mortgage arrangements. Having said that, I would say we're comfortable with the strategy that we have. It was a deliberate strategy when we exited First Line. It's a deliberate strategy for us to be focused on client relationships and not planning to change course with that.

Meny Grauman -- Cormack Securities -- Managing Director

Okay. And then if I could just ask, going back to the commentary on the EPS growth for 2019. I'm wondering built into that, what is the outlook for domestic commercial loan growth, in particular, it's been growing, I think this quarter it was up about 12.5%, it's growing very strongly. Is there implicitly in that guidance, is there a view that commercial loan growth will slow and slow materially from here as we go further into the year?

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

Hi, it's Jon Hountalas. Thank you for the question. We have been outperforming the guidelines we put out on Investor Day. We said 9 to 11 on both sides of the balance sheet. We've been a little bit higher than that in the last couple of quarters when we talked about EPS growth flat going forward or up to the little, that's based on that type of guidance. High single digits are what we think we will do. Hopefully, outperform but counting on high-single digits.

Meny Grauman -- Cormack Securities -- Managing Director

And if you could just comment on sort of the market dynamics that will see the slowdown here, what are you seeing? Are you seeing a slowdown already taking place or what do you think is driving that outlook?

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

The 9 to 11 was good. I think the industry has been roughly 9 to 11 for the last six quarters or eight quarters. Last quarter was a bit of an outsize on loan growth. I think deposits were high single digits. Again, it feels normal. Clients, entrepreneurs are feeling confident. The book feels good, the pipeline is strong. So, 9 to 11 feels right.

Meny Grauman -- Cormack Securities -- Managing Director

Thank you.

Operator

Thank you. Our next question is from Doug Young with Desjardins Capital. Please, go ahead.

Doug Young -- Desjardins Capital Markets -- Analyst

Hi, good morning. I wanted to go back maybe for Jon related to the Canadian commercial market. Maybe we can touch on the U.S. commercial market. I'm just surprised because I think in both comments for both of the divisions it was mentioned that you're not seeing intense competition or increased competition in terms and conditions. It just feels like it's contrary to what we are hearing. So, just wanted to get a little bit more flavor, if possible, on that.

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

So, this is Jon on the Canadian side. I think so far; we haven't seen price compression for sure. We do see competition. We don't tend to compete on kind of rates or price. This is a long-term game. We've been calling on clients over several years and it's all working. So, is it competitive? Yes.

Are there things we're seeing that are completely kind of outside of the normal things seen in the past? The answer is no. So overall, we continue to feel very good about the book, continue to feel good about the pipeline, and again it's been a long-term build. This is not something --commercial banking is a relationship business over time. This isn't a new phenomenon for us, we've been doing it, I'd say, for a few years now.

Michael Capatides -- President and CEO of CIBC Bank USA

So, this is Mike on the U.S. side. Partly the same answer and partly a bit different. We're also sticking to our core client-focused model and staying disciplined on price and credit, and we're not stretching for business. And there certainly is competition, but our strong growth is coming from our existing businesses, our existing clients and partly from expanded offices and new initiatives.

In fact, 60% of our growth is coming from existing businesses and where we're seeing good growth, it's above market. But in that business, it's closer to what you're seeing in the industry in the US, which is strong growth.

The rest of the 40% is coming from our expansion initiatives, which include both new offices we've opened in the last few years and other new initiatives, such as adding personnel to our existing offices to include commercial bankers, private bankers, and wealth professionals. Referral and collaboration efforts are starting to bear fruit. I'll say this was the plan from day one in the US for this business when we first started looking at this acquisition. We're pleased what the team is doing, and we think the strategy is working and we're very optimistic about the coming year.

Doug Young -- Desjardins Capital Markets -- Analyst

It doesn't feel like there are any warning signs in Canada and the US. I guess that's a fair statement.

Michael Capatides -- President and CEO of CIBC Bank USA

Well, I'll speak to the US first. We are very watchful. Looking at my colleagues from Risk across the table, we're monitoring, we're watchful, but our clients are upbeat and they're growing their businesses.

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

This is Jon from Canada; I would concur with those comments.

Doug Young -- Desjardins Capital Markets -- Analyst

Okay. And then second Laura, I guess the gross impaired loan formations there are a few moving parts from some of my understanding. The one that I just wanted to get maybe a little more color on it, looks like there was a bump up in real estate and construction gross impaired loan formations. Just hoping to get a little bit more color of I guess where that was, what it was related to? Thank you.

Laura Dottori-Attanasio -- Chief Risk Officer

Yes, Doug. As you can appreciate, we don't go into a sort of specifics on a name. So, there was one loan in that segment that did go to impaired. It wasn't the only one there were few and I would say it was pretty diversified in terms of formations that we had this quarter. But I'm not seeing, just maybe to add on to what Mike and Jon said, not seeing anything of concern in our commercial books.

We haven't changed or loosened if you will, our underwriting standards. When we look at probably the most telling sign our watch-list accounts, I'd tell you that they're down from a year-over-year perspective and quarter-over-quarter, it's pretty stable. So, nothing of concern in these numbers.

Doug Young -- Desjardins Capital Markets -- Analyst

And the real estate construction was that more US or Canada or was that more development? I don't know if you can give that a little flavor.

Laura Dottori-Attanasio -- Chief Risk Officer

Well, the real estate loan particular would have been in the US, if that's your question.

Doug Young -- Desjardins Capital Markets -- Analyst

Yes. Okay, thank you.

Operator

Thank you. Our next question is from Mario Mendonca with TD Securities. Please go ahead.

Mario Mendonca -- TD Securities -- Analyst

Good morning. Victor, could we go back to some previous comments you've offered? In the past, we've talked about expense growth and how the bank had been able to keep it so modest. I think your response was that the Bank has done a good job of reallocating from one priority to another. There seems to be a slight change in your emphasis on this call. Can you talk about what has changed that sort of makes you question the capacity to just allocate expenses from one to another?

Victor Dodig -- President and Chief Executive Officer

Good morning, Mario. Good question. So, our investments. We've always said we're looking to repurpose our expense base so that we can use all the economy expenses as we invest in the new economy. It's never easy to kind of manage that quarter-over-quarter. I think we trying to manage it over three or four quarters cycle.

If I look at where we are investing right now, I put in the three specific buckets. One is strategic investments, pretty significant investment in the overhaul of our retail distribution network, which is pretty expense intensive, but it is an investment in the future. Our mobile banking platform and our brand.

I think the second big area of investment would be in technology infrastructure. There is an industrywide investment in payments modernization that you would be familiar with, but that's not specific to us. I think the acceleration of a movement in the cloud, some more investments in automation agile methodologies, data-intensive investments would be in the infrastructure space and the third will fall into cyber and AML. So, we've been very focused on those two areas as well.

So, sometimes, what you have is you have a bit of a bump up. And our view is that even if things slow down, the economy starts to slow down, it's important for us to continue to transform CIBC into the bank that we believe we're are building. And every once in a while, we have a heightened level of expenses, maybe for a period of several quarters. And this is why we are telling our investors that's what we think we'll be doing to continue to build a strong bank that we're building.

I mean we really have a view that we're building the relationship-oriented bank. Some of the data that we're seeing on client experience and depth of relationship across our business units and across our markets is very encouraging to us. And we want to be disciplined in terms of how we invest. We want to pace that appropriately, but we really don't want to back off on the journey that we're on.

Mario Mendonca -- TD Securities -- Analyst

So, when I look at domestic retail banking and I'm looking at the combined Personal and Commercial now the disclosure you gave us the expenses there were up about 3.4% year-over-year. Do you see it accelerating from there? Does that make sense to you?

Victor Dodig -- President and Chief Executive Officer

That's probably the appropriate level of that level of 3% to 4%, sometimes it will be 2.7%, sometimes it will be 3.7%. But that number is kind of the range that we feel comfortable with.

Mario Mendonca -- TD Securities -- Analyst

And then finally, this is from referring to Page 19 now of your presentation, I mean I know it doesn't include commercial to personal and small business, but I was sort of struck by the number of six's and fives that appear in the far right column and so it does appear that the bank has lost some momentum in consumer lending in Canada. When you look at this, what does this mean to you? Is this something you need to address urgently, or does it just make sense given where the pricing environment is, our competition is? How do you look at this?

Victor Dodig -- President and Chief Executive Officer

Well, I think what we've done is we, as we get more mature in the credit cycle, we've really started focusing on deposits. We continue to focus on relationships overall, and if you kind of had the basis point change on the far-right hand column, I don't think that we're that far off the middle in some of these areas. And if we were in the middle in some of these areas, through the acquisition of some of those products in the first year or two, you don't necessarily get the bump up in earnings, either. I think what this is reflective of is a transition in terms of the credit cycle and our continued focus on relationships.

Over time, what we'd like to do more of is share with our investor base, some of the data that we're seeing on what's more most meaningful in terms of our financials, and that is really the quality and depth of our client relationships. Sometimes that doesn't show through in terms of the spike in revenue growth, but I think the quality of the earnings that you get from CIBC today are quite high. And that's what's most important to us.

Mario Mendonca -- TD Securities -- Analyst

Okay, thank you.

Operator

Thank you. Our next question is from Sohrab Movahedi with BMO Capital Markets. Please, go ahead.

Sohrab Movahedi -- BMO Capital Markets -- Managing Director

Hi, thank you. A couple of hopefully, quickies. Christina, you've mentioned the client relationship strategy. What do you look at to see if that's working or not because the revenue growth in your segment, I think has never been lower? So, when does this translate into something that is visible to us?

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

So, I think Victor spoke a little bit to that Sohrab, so let me continue on. The metrics that we're looking at on deepening client relationships are tracking well. They relate to client growth, client depth, and client experience, and we're seeing across the board positive trends. We've developed a proprietary metric that measures the depth of client relationship that's consistent with our strategy. We've seen substantial improvement over the last two years.

Our measure of relationship depth is not simply a product use count measure and it looks at a number of factors. I'd bucket them into three, it looks at the primacy of relationship, are we the primary bank of the client engagements. Is the client actively engaged with banking with CIBC? And then the quality of the relationship. So, is there a relationship more traditional around the product use count a single product client or is a high depth of relationship that we have with clients? And we are seeing positive momentum in respective client depth of relationship metrics. Again, as Victor mentioned, we do think over time, this is the right strategy and we'll show it in our earnings.

So, while I'm at it, why don't I talk a little bit about the revenue side because that's really where we'll end up seeing the growth there. Our margins remain strong and are improving, which is indicative of the underlying profitability and the discipline in the business. Volume has been lighter than our longer-term targets but has produced NII growth of 3.4% year-over-year on the back of margin strength.

On the fee side, we have seen some headwinds dragged overall revenue back to 1.8% and part of this is noise due to IFRS 15 as we discussed last quarter. Some of it is due to market and internal factors.

But underlying those top-line numbers as I mentioned, are the strong improvement in our depth to client relationships scores, the proprietary metric as well as positive client net acquisition and reduced client attrition. That really speaks to the quality that Victor was referencing, the quality of our earnings as well a referral volume into other SBUs remains strong.

So, that combined with the investments we're making and advice and products and ease of doing banking, we believe will generate and improve our revenue growth over the medium-term. So, we feel confident that we will achieve our Investor Day targets over that period.

Operator

Thank you. I would now like to turn the meeting back over to Victor.

Victor Dodig -- President and Chief Executive Officer

Thank you, operator, and thank you, everyone, for your very good questions. So, in closing, this quarter we delivered solid overall results and continue to invest for the future with a disciplined focus to improve our client experience, deepen our client relationships, and build a deeply interconnected CIBC banking franchise. As a result, our core businesses performed well as we build deeper trusted client relationships, diversified our earnings, and improved our operational efficiency. We remain confident about our future performance, as the benefit of our investments take hold.

Going forward, CIBC is well positioned to serve the private economy, which is centered around mid-market companies. We will continue investing to build on the strategic position, particularly in the United States. We will fund part of these investments through incremental capital generation over time and through opportunities to reallocate capital from other areas of our business. While organic investments will be at the core of our efforts to build a strong client-focused platform across North America, we will also selectively consider inorganic opportunities to deploy capital where they make strategic and financial sense.

As we wrap up the call, I'd like to take a moment to address the spring flooding that has affected many communities in Eastern Canada. As a relationship-oriented bank, we are deeply invested in the well-being of our clients, our team, and our communities. We have been providing support to those affected as well as to the Red Cross relief efforts. I'd like to thank all the volunteers and emergency workers who have been working around the clock to remediate this situation.

Finally, on behalf of CIBC's Executive Committee and our Board, I'd like to thank our shareholders for their continued support and all of CIBC's 44,000 team members for their dedication to serving our clients.

Thank you for being on the call today and have a good day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

Duration: 64 minutes

Call participants:

Hratch Panossian -- Global Controller and Head of Investor Relations

Victor Dodig -- President and Chief Executive Officer

Kevin Glass -- Senior Executive Vice President and Chief Financial Officer

Laura Dottori-Attanasio -- Chief Risk Officer

Christina Kramer -- Senior Vice President and Group Head, Personal and Small Business

Jon Hountalas -- Senior Vice President and Group Head, Commercial Banking and Wealth, Canada

Michael Capatides -- President and CEO of CIBC Bank USA

Harry Culham -- Senior Executive Vice President and Group Head, Capital Markets

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Managing Director

John Aiken -- Barclays-- Analyst

Steve Theriault -- Eight Capital -- Analyst

Gabriel Dechaine -- National Bank -- Analyst

Sumit Malhotra -- Scotiabank -- Analyst

Meny Grauman -- Cormack Securities -- Managing Director

Doug Young -- Desjardins Capital Markets -- Analyst

Mario Mendonca -- TD Securities -- Analyst

Sohrab Movahedi -- BMO Capital Markets -- Managing Director

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