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Canadian Imperial Bank of Commerce (CM) Q1 2019 Earnings Conference Call Transcript

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Canadian Imperial Bank of Commerce (NYSE: CM)
Q1 2019 Earnings Conference Call
Feb. 28, 2019 8:00 a.m. ET

Contents:

  • 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 Kevin Glass, senior executive vice president and chief financial officer.

Please go ahead, Kevin.

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

Thank you, operator, and good morning, everyone. Before we start, I'd like to update you on some internal changes we have made. Last December, Amy South assumed responsibility for finance business support, reporting and planning; and Hratch Panossian assumed responsibility as global controller and also head of investor relations. I just want to take this opportunity to welcome Hratch, and thank Amy for all of her contributions to the IR group in the past year.

Many of you on this call have already had the introductory conversations with Hratch. And going forward, there will be many more opportunities to engage with him. So with that, let me turn the call over to Hratch.

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Hratch Panossian -- Global Controller and Head of Investor Relations

Thank you, Kevin. Good morning, everyone, and thank you for joining us for CIBC's results call for the first quarter of fiscal 2019. Victor Dodig, CIBC's president and chief executive officer will kick off our agenda in a moment with his opening remarks. Kevin Glass, our chief financial officer will follow with a financial review; and Laura Dottori-Attanasio, our chief risk officer, will provide a risk management update before we move on to take questions.

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

Before we begin, let me remind you of the caution regarding forward-looking statements on Slide 2 of our investors presentation. Our comments 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.

Victor Dodig -- President and Chief Executive Officer

Thank you, Hratch, and good morning, everyone. This quarter, we continue to make strategic progress across all our CIBC businesses. Despite headwinds from market volatility in some areas, we are pleased with our strong overall -- performance overall and our progress toward building a modern, client-focused bank across Canada and the United States. We also achieved a significant milestone in our U.S.

growth strategy with the private bank acquisition becoming accretive to earnings this quarter, which was well ahead of expectations. Clients on both sides of the border are benefiting from our expanded cross-border capabilities, and it is these relationships that are driving our strong performance in this business. And we expect this to continue. This quarter, we also settled the Enron tax case with the CRA and are pleased to have this matter resolved.

Kevin will touch on this further in his remarks. Turning to our first-quarter results. Adjusted net income of CAD 1.4 billion for the quarter is in line with the same period last year and reflects higher year-over-year provisions, driven by isolated impairments and updates to forward-looking indicators. Overall economic fundamentals remain constructive to credit across North America.

And as Laura will cover later in this call, we remain comfortable with our credit quality and credit outlook. Adjusted pre-provision earnings were CAD 2.1 billion, representing an 8% increase year over year. While businesses with market-sensitive revenue streams faced moderate headwinds, this overall result reflects strong core business performance across our client franchise. And this is particularly evident across our commercial banking businesses in Canada and the United States.

In personal and small business banking, we drove balanced growth this quarter by serving our clients' needs. Notably, we continued successfully growing our proprietary Aventura travel rewards program, and we've seen market-leading growth in deposits. We continue to focus on attracting new clients through foundational products and differentiated advice, and deepening these relationships over time. We also continued investments to modernize our distribution network.

We are transforming our banking centers across our network to facilitate advice-based conversations, while also building on our leading digital capabilities. Our banking center count decreased 3% over the last year and almost 89% of day-to-day transactions were performed in self-service channels this quarter. In addition, we further invested in Simplii Financial with the launch of our Simplii credit card, enabling deeper client relationships through our direct banking platform. Our Canadian commercial banking and wealth management business had a very strong quarter.

Commercial banking revenue was up 17% year over year, driven by strong double-digit growth in loans and in deposits on the back of our investments in frontline staff and product enhancements made over the last several years. Despite a volatile market impacting flows, our wealth management businesses performed well by remaining focused on industry-leading advice and collaboration across our businesses. Assets under management were up 2% in the quarter and we're pleased to be tracking ahead on both our referral and efficiency goals that we shared with you on investor day. We also continue investing to expand our capabilities in our wealth business as our clients preferences evolve.

This quarter, we strengthened our product lineup by launching CIBC Smart Investment Solutions and our CIBC ETS. Our U.S. commercial banking and wealth management business continues to perform very well, as we continue to invest in growth south of the border. The business delivered double-digit growth on both sides of the balance sheet this quarter, driven by growth in existing geographies, as well as meaningful contributions from our strategic expansion at the new markets and cross-border referrals.

We have successfully executed on the strategy laid out at the time of our acquisition and outperformed our investment assumptions, which has resulted in accretion to earnings a year and a half earlier than anticipated. The strength of our entire team at CIBC Bank USA and the cultural alignment with CIBC overall have been key drivers of our collective success. We feel very confident in our ability to continue to sustain this performance as we enter the next chapter of our U.S. growth strategy.

Our capital markets business delivered growth in line with the range we outlined at investor day, excluding loan losses, which were higher this quarter. We saw a slower market for new debt and equity issues in the first quarter, but we delivered robust trading revenues and continued strong performance in corporate banking. Our capital markets team is seeing good momentum from client connectivity with all of our business units. We continue to invest in our capabilities to take advantage of this connectivity, particularly in the U.S.

market. In fact across our bank, we continue to see the benefits of an interconnected franchise. Strong connectivity across our team has been instrumental in generating new business on both sides of the border and across our business units as we focus on helping our clients achieve their goals. At an enterprise level, we continue to focus on transforming our bank by simplifying our businesses and reinvesting the resources and key capabilities to fuel our organic growth.

On a net basis, this continues to contain our cost base and drive improvements and efficiency. Our first-quarter efficiency ratio of 54% exceeded our target of 55%, and we are progressing well toward our medium-term target of 52%. This quarter, we also continued to improve the strength of our balance sheet. Our client base growth is balanced across loans and deposits, and diversified across businesses and geographies.

And we're particularly pleased with the strong growth in deposits across all of our businesses this quarter. Our capital position remains strong with a CET1 ratio of 11.2%. Strong capital generation was offset by organic growth as we noted in the last quarter's call, regulatory adjustments and the impact of the payment to Air Canada to secure our participation in their loyalty program had an offset in this year's CET1 calculation -- this quarter's CET1 calculation. Going forward, we anticipate continued strength in internal capital generation, which will give us strategic optionality.

Our primary focus for capital deployment will be to support organic growth, and we will grow dividends with earnings to stay within our communicated payout range. To that end, we announced this morning a $0.04 increase per share toward quarterly common dividend to our shareholders. We'll also selectively consider inorganic opportunities to deploy capital where they advance our strategic goals and allow us to generate strong risk-adjusted returns for our shareholders. In summary, while we were met with some challenges this quarter, including a volatile market and isolated loan impairments, our core business continued to perform very well and in line with our strategy.

Our investments in strong client relationships, our ongoing earnings diversification and our improving operational efficiency are paying off and providing resilience to our earnings through occasional headwinds. And with that, let me now turn over the call to my colleague, Kevin Glass, who is going to cover our financial results in greater detail. Kevin?

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 $1.2 billion and EPS of $2.60 for the first quarter of 2019. Adjusting for items of note detailed in the appendix of this presentation, which included the payment made to Air Canada to secure our participation in new loyalty program, our net income was 1.4 billion and EPS of $3.01.

We generated revenue of 4.6 billion for the quarter, which was up 3% year over year despite market volatility which lowered revenue in our capital markets and wealth businesses. While continuing to invest in our business, we managed expenses well, delivering positive operating leverage and an efficiency ratio of 54.4% for the quarter. And we also increased our quarterly dividend by $0.04 to $1.40 per share. If we turn to capital on Slide 6.

We ended the quarter with a CET1 ratio of 11.2%, down 20 basis points from the prior quarter and comfortably above our target range. Our internal capital generation this quarter was offset by the impact of regulatory changes, growth in risk-weighted assets and the Air Canada payment. Our leverage ratio was 4.2%, and our liquidity coverage ratio was 131%. The balance of my presentation will be focused on adjusted results, which exclude items of note.

So let me now turn to the performance of our business units. Slide 7 reflects the results of Canadian personal and small business banking. Net income for the quarter was $632 million, down 4% from last year. Revenue of 2.2 billion was up 1% from last year, primarily driven by favorable rates and volume growth, partially offset by competitive pricing, prime BA spread compression and some headwinds related to IFRS 15 implementation.

Net interest margin was u seven basis points year over year and down three basis points sequentially. Relative to last quarter, the impact of promotions on our e-savings and Simplii deposit accounts, the competitive pricing I mentioned earlier, and also compressed prime BA spreads was partially offset by favorable rates. Moving forward, we continue to expect margin expansion in 2019, as the impact of the deposit promotions runs off and we see the benefits of improved rates. The level of expansion may be moderated by the current competitive environment.

Noninterest expenses were 1.1 billion, relatively flat from the prior year. The lower than normal run rate was due to some expense volatility and timing of investment spend. Expense discipline, along with revenue growth combined to generate pre-provision earnings growth of 2.5%, operating leverage of 1.2% and a 60 basis point year-over-year improvement in our NIX ratio. Provisions for impaired loans was up $12 million from last year due to higher provisions in the personal lending portfolio.

Provisions on performing loans was largely in line with our expectations. 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 319 million, up 2% from last year.

Commercial banking revenue was up 17%, driven by strong lending and deposit volume growth, wider spreads and higher credit-related fees. Deposit balances were up 16% and lending balances were up 13% from the same period last year. Wealth management revenue was down 4%, primarily due to lower commission revenue as a result of market-driven lower issuance activity and transaction volumes in our full service brokerage business. Despite recent market volatility, AUM increased 2% and AUA increased 1% during the quarter.

The NIX margin was up 27 basis points quarter over quarter, driven by favorable rates, the compressed prime BA spread, improved pricing and higher deposits in commercial banking and in our full service brokerage business. NIM for personal and commercial banking was flat sequentially. Provision for credit losses was up 42 million due to higher provisions on impaired loans associated with new impairments. Noninterest expenses were down 2%, primarily due to lower performance-based variable compensation in our full service brokerage business.

Solid top line growth and continued expense discipline contributed to positive operating leverage of 5.6% and resulted in a 295 basis point year-over-year improvement in our efficiency ratio. Slide 9 shows the results of U.S. commercial banking and wealth management, where net income grew by 34 million or 24% from the prior year, supported by significant revenue growth and operating leverage, reflecting solid business performance and a stronger U.S. dollar.

Revenue grew 13% from the prior year, driven by double-digit volume growth, NIM expansion and higher asset management fees driven by client acquisition despite market volatility. Expenses were up 22 million, or 10% from the prior year, and included a 14% increase in headcount to support growth. Compared to the prior quarter, expenses increased by 8 million, or 3%, and included approximately $7 million in seasonally higher payroll taxes and benefits related to payments for annual bonuses and CIBC Bank USA retention awards as well as approximately $4 million in front-loaded compensation agreements for retirement-eligible employees. NIX ratio for the segment improved to 54% given the aforementioned growth in revenue, down 180 basis points from a year ago.

Let me now turn to CIBC Bank USA which contributed $126 million to the segment's net income, compared to 104 million in the prior year. Net interest margin for CIBC Bank USA for the quarter was 366 basis points, up 21 basis points from a year ago. Sequentially, NIM was up one basis point as higher loan yields were partially offset by increased deposit costs. Going forward, we anticipate NIM staying stable.

Parity in loans grew by USD 2.3 billion, or 13% year over year, reflecting continued momentum in client development primarily in commercial and industrial loans. About half of the growth came from expanded geographies and industry specialties. Deposits grew by USD 3.3 billion or 19% year over year, reflecting outsized organic growth from new clients and deposit initiatives, including cross-border referrals. CIBC Bank USA's deposits typically experience some seasonality as our commercial clients utilize balances during the second fiscal quarter for tax payments, seasonal distributions and capital investments.

Going forward, for the full year, we expect deposit growth to be in line with the investor day guidance of 13% to 15%. As Victor mentioned in his remarks, the private bank acquisition became accretive to earnings this quarter, well ahead of our acquisition business case, and it is also trending well ahead of our return on capital expectations. Overall, we are very pleased with the performance of our U.S. segment, which continues to execute on our high-touch relationship-oriented strategy.

Turning to capital markets on Slide 10. Net income of 201 million was down $121 million from a year ago, reflecting lower revenue and a higher provision for credit losses, partially offset by lower noninterest expenses. Revenue this quarter was 705 million, down $96 million, or 12% from a year ago, primarily reflecting higher equity derivatives revenue and portfolio gains in Q1 of '18. Interest rate trading revenue and revenue from equity and debt underwriting were also lower, partially offset by higher revenue from advisory and corporate banking.

Revenue was up 56 million, or 9% from the prior quarter, driven mainly by higher trading revenue, advisory fees and higher corporate banking revenue. Noninterest expenses were down 8 million, or 2% from a year ago, primarily driven by lower performance-related compensation, partially offset by higher spending in support of growth initiatives. Provision for credit losses was up with the increase in impaired due to a new impairment and the increase in performing as a result of updates to our forward-looking indicators. Capital markets continues to make progress against key objectives, including a 17% year-over-year revenue growth in U.S.

, as well as extending capital markets products and services to all of CIBC's clients. Slide 11 reflects the results of corporate and other, where net income for the quarter was 37 million compared to a loss of $1 million in the prior year. Results this quarter were helped by higher revenue in CIBC First Caribbean and a lower TEB revenue offset, as well as lower expenses resulting from the timing of investments, as well as the timing of cost recoveries from our business segments. Going forward, we expect higher expenses in this segment.

And as Victor mentioned, this quarter we settled the Enron tax case with the CRA and anticipate additional tax deductions in the U.S. relating to this matter. As well, as mentioned last quarter, we recorded a deferred tax asset writedown due to tax changes enacted by the Barbados government. So in conclusion, we have solid results this quarter in a challenging environment.

And with that, let me turn the call over to Laura.

Laura Dottori-Attanasio -- Chief Risk Officer

Thank you, Kevin, and good morning. Turning to Slide 13. Our provision for credit loss rate on impaired was 30 basis points, up from 27 basis points last quarter. Provisions for impaired loans increased from 259 million to 295 million this quarter.

This was mainly attributable to provisions on new impairments totaling 83 million in our Canadian commercial banking and Canadian markets divisions. I would point out that these impairments are across unrelated sectors and regions, reflective of our diversified portfolios and are representative of how impairments and provisions will arise from time-to-time in these types of lending businesses. These increases were partially offset by lower provisions in our U.S. commercial banking segment and CIBC First Caribbean.

Provision for performing loans this quarter was 43 million. This was largely driven by changes to our forward-looking indicators that were mainly affected by lower forecasts for oil prices, equity market returns and house prices. The next slide provides an overview of our gross impaired loans, which were up from 30 basis points last quarter to 38 basis points this quarter. The increase was mainly driven by the new impairments in Canadian commercial banking and capital markets that I referenced earlier.

Slide 15 provides the net write-off rates of our Canadian consumer portfolios, which overall remained relatively flat on a quarter-over-quarter and year-over-year basis. Slide 16 provides the 90-plus day delinquency rates of our Canadian consumer portfolios. Whereas on a total basis, we experienced a modest increase to delinquency rates both quarter over quarter and year over year, our credit card portfolio performed very well with a notable year-over-year improvement. The slight increase to the overall delinquency rate was primarily driven by our real estate secured lending portfolio as clients adjusted to recent variable interest rate increases.

I would point out that we are not seeing any trends of concern as our retail businesses continue to perform within our risk appetite. Slide 17 shows the distribution of revenue in our trading portfolios as compared with VAR. Despite the increased volatility in the markets during the quarter, we had all positive trading days reflective of our strong market risk management strategies that translated into average trading VAR of 5.3 million, up slightly from 5.1 million last quarter. I'll close by saying that notwithstanding this quarter's provisions on impaired in the Canadian commercial banking and capital markets businesses, we continue to have strong credit quality across all of our lending portfolios.

Our overall risk performance remains consistent with our expectations and within our risk appetite. And with that, I'd like to turn the call over to the operator to open the line for questions. 

Questions and Answers:

Operator

[Operator instructions] The first question is from John Aiken with Barclays. Please go ahead.

John Aiken -- Barclays -- Analyst

Good morning. CIBC had a very impressive performance, at least on a relative basis in capital markets. And I was wondering, I know how difficult it is to actually try to forecast numbers on a go-forward basis. But how confident are you that this relative advantage will be sustainable against your peer group? Or was there any anomalies either in trading or advisory that helped boost the revenues this quarter?

Harry Culham -- Senior Executive Vice President

It's Harry Culham here. We're really pleased with the results in quarter one, notwithstanding some of the higher loan losses on both impaired and performing. There was slower client activity, obviously, given heightened volatility in, as Victor mentioned, the equity and debt capital markets, and also in our bond trade business. But we're very pleased with the diversification of our revenue across products, industry and geography.

And we're pretty confident this is going to continue forward. Just look at the quarter-on-quarter trading revenue up 10% and the pre-provision's earnings up 15%. So we gave you guidance a while ago at the Investor Day, and we're pretty confident with those numbers.

John Aiken -- Barclays -- Analyst

Thanks, Harry and just to follow on in terms of the U.S. platform. Obviously, as Kevin pointed out, strong growth on a year-over-year basis. Was there any particular product or line that was driving that or is it fairly broad-based?

Harry Culham -- Senior Executive Vice President

It's fairly broad-based. We continue to invest for growth. We're seeing revenue opportunities in growth across the platform, including our connectivity, as Victor mentioned, with our CIBC Bank USA We're seeing good penetration there. We are seeing good results over the last many quarters actually.

And we have a long-term North America strategy, which we are executing on and we're pretty confident it's going according to plan.

John Aiken -- Barclays -- Analyst

Great. Thanks for the color. I'll requeue.

Operator

The next question is from Meny Grauman with Cormark Securities. Please go ahead.

Meny Grauman -- Cormark Securities -- Analyst

Hi, good morning. A question on the buyback. You didn't buy back any shares during the quarter, even though toward the end of the year bank shares, yours included, were under quite a bit of pressure. So I'm wondering why you took that decision and what the outlook is going forward on that particular issue?

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

I think if we look at the existing quarter, I mean, there was a lot of the volatility at the end of the year. You're right, Meny. But we don't trade on a daily basis, particularly not with our stock so that would be the general strategy. We indicated last quarter, actually, that we'd be more cautious this quarter given some of the regulatory headwinds, given the Air Canada payment that we were making.

So we didn't actually anticipate doing significant or any real purchases this quarter. But in terms of the forecast, let me hand that over to Victor.

Victor Dodig -- President and Chief Executive Officer

So Meny, we've always been very, very clear on our capital deployment strategy. Invest organically, over-index in commercial banking and wealth management, make sure that we're growing our dividends, which we announced again this quarter, well within our payout range. Use buybacks as another lever and have capital available for inorganic growth. That's been a clear strategy all the way along.

It will be clear going forward. Those are the four levers we'll use and we'll use them as we see fit to drive shareholder volume.

Meny Grauman -- Cormark Securities -- Analyst

And then just want to ask in terms of the M&A picture in the U.S. We've seen a lot of deal activity there. Wondering whether that changes the way you view your U.S. business and specifically how do you get comfort that you have enough scale in the U.S.? Or do you have enough scale in the U.S.

as it is now?

Victor Dodig -- President and Chief Executive Officer

I think the first order of business for us was to make sure that the acquisition of the private bank was executed well, that our people stayed, our clients stayed, the integration effort proceeded according to plan and we're receiving check marks on all of those. We're really, really pleased that we're growing organically in the markets that we serve and that we're continuing to expand into new markets, which is also the case; that we're growing the commercial business, the wealth business and the capital markets business. So our focus continues to be on strengthening the initial investment that we've made. There is a heightened level of activity and chatter in the U.S.

market driven partly by the SunTrust BB&T acquisition. Our focus remains on strengthening the investment that we've made through organic investment. And then we recognize the valuations are becoming more attractive, but we proceed cautiously, because the most important thing for us is to make sure that any inorganic capital that's deployed is going to strengthen the growth profile of our existing business, particularly in commercial banking.

Meny Grauman -- Cormark Securities -- Analyst

Thanks for that.

Operator

The next question is from Steve Theriault with Eight Capital. Please go ahead.

Steve Theriault -- Eight Capital -- Analyst

Thanks very much. Maybe starting for Christina. Last quarter, there was discussion around mortgage or real estate secured lending growth and getting back to market levels of growth this year. We can see in the appendix that you had a slight negative real estate secured lending growth.

Can you refresh us on your outlook? How you expect that growth to pace through the year when the comps get a little bit easier? And is that -- or could we see market growth for the year or is it more that you get to the market levels of growth by the end of the year?

Christina Kramer -- Group Head, Personal and Small Business

Thank you, Steve, for the question. Let me first talk about what we saw in Q1. Our volume growth was below market, and that's a function of the market and our strategy. So we've been transparent about our strategy and our expectations of moderating growth in this space.

We're not as concerned about the volume gap in Q1 as margins were unusually tight in the quarter and considerably lower than the margins that we saw during our period of higher growth in mortgages. So we are pleased with our overall market share, and we expect improvement in this space. Our outlook is low single-digit growth. We do see good employment numbers.

We do see housing activity pick up. We see some price improvement, albeit small. So we do see that the mortgage season is starting to come to life, but likely won't be at the same rate as what we saw in the prior years. So we do expect in the second half to see some improvement in this space.

Steve Theriault -- Eight Capital -- Analyst

OK, thanks for that. And for Laura. It looks like a $40-ish million charge that, I think, we're going to expect is from PG&E. Can you tell us if you believe that that fully sorts out the risk or could we see some more noise from the utility's PCL line going forward?

Laura Dottori-Attanasio -- Chief Risk Officer

Steve, when we look at that -- I mean, my view is that we're appropriately provisioned at this time. We'll see as this plays out, but I really do feel comfortable with the amount that we've taken as a provision.

Steve Theriault -- Eight Capital -- Analyst

And we heard from one of your peers that they've sold down some risk. Have you changed your positioning within the context of that name or not?

Laura Dottori-Attanasio -- Chief Risk Officer

We have. So we actually did sell a piece of that loan into the market just yesterday. And so throughout the quarter, we'll continue to -- and as long as we have this, we'll continue to monitor it closely and we'll take the actions that we think are best for our organization.

Steve Theriault -- Eight Capital -- Analyst

OK, thanks for that.

Operator

The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.

Gabriel Dechaine -- National Bank Financial -- Analyst

Good morning. I also want to ask about the mortgage growth. So you're saying that the decline in originations and the flat mortgage growth is really a function of market conditions. You didn't like the pricing, so you backed off.

Is that something you're willing to do more than you were a few years ago? Because when Victor was talking about how you want the business to look, over-index commercial, over-index wealth, Canadian consumer is kind of excluded from that.

Christina Kramer -- Group Head, Personal and Small Business

Thank you for the question, Gabriel. When we take a look at our relative growth rate relative to peers, I talked a bit about our strategy and our expectations of moderating growth. Relative performance also was impacted by our strength in the GTA and GVA markets where we had pursued opportunities to serve client demand and growth over the last few years, and it was an opportunity for ourselves to grow our business. In those markets, we've seen a pullback in the real estate activity and the markets have seen double-digit sales -- unit sales declines in the last quarter.

And so given our strength and our focus in these areas that has had a more pronounced impact on our growth rate. We definitely want to continue to see growth in our overall mortgage portfolio, and we'll continue to do that, grow in line with our strategy for deeper client relationships, and we'll continue to be active in this space.

Gabriel Dechaine -- National Bank Financial -- Analyst

OK. And just maybe a weird one here, but the card fees were down year over year. And it's not -- it's not unique to CIBC I saw that trend at a few of the banks. Was there anything unusual going on, card promotional activities this quarter that would have caused expenses or whatever to go up? I mean, I'm an avid card guy so I didn't notice that much.

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

Gabriel, it's Kevin. In my remarks, I mentioned IFRS 15 and so the card fee issue is IFRS 15. So that reduction in cards is actually an offset on the expense line, so that's the volatility that you're seeing in the card fee line.

Gabriel Dechaine -- National Bank Financial -- Analyst

And just a last quick one for Laura. Stage 1 and Stage 2, you gave the reasons for the additions for the reserves. Could we see that trend maybe continue? Because it seems like few banks are making regular additions as they, I don't know, take a more conservative outlook in their assumptions?

Laura Dottori-Attanasio -- Chief Risk Officer

Well, it could. As you know, what drives our provisioning for our performing loans really has to do with the changes that we make to scenarios and to our economic outlook. So it really depends, sort of, quarter-to-quarter how our economic outlook changes. This quarter, we kept our base case scenario, but we did change -- we had a few of our indicators, and the ones that change the most, as I mentioned, on the call were really in oil equity returns and house prices.

Gabriel Dechaine -- National Bank Financial -- Analyst

I'm going to follow-up offline. Thank you.

Operator

The next question is from with Sumit Malhotra with Scotia Capital. Please go ahead.

Sumit Malhotra -- Scotia Capital -- Analyst

Thanks. Good morning. Laura, just to pick up on a couple of those provision topics because I just want to make sure I understand what's going on there. First off, just for the utility sector.

If the numbers are right here, it looks like your impairments were up about 180 million in that space and you provisioned roughly 40 of it. So that 25% coverage, you think that's the bulk of what the bank will need to do for that particular sector, if that is just the one account?

Laura Dottori-Attanasio -- Chief Risk Officer

In capital markets, that is the one account in utilities. A bit difficult when you go through the disclosure, in that we did have some contingent liability in the form of a letter of credit. So it doesn't quite -- like you have to go to different areas, I guess, to pull that together. So our provisioning wasn't that high.

That said, we do feel that we're well provisioned based upon the analysis that we've done of the situation and the outlook for this loan, if you will, when we look forward.

Sumit Malhotra -- Scotia Capital -- Analyst

And maybe this is related to what Gabe was getting at, but the addition this quarter to the non-impaired book, the Stage 1 and 2, obviously bigger than you have done so far under IFRS 9. And I know it's still relatively early days. But when you make these adjustments to your assumptions or your scenario analysis, does that result in provisions in the Stage 1 and Stage 2 portfolios continuing at an elevated pace? And I think really what I'm getting at here with the -- on a ratio basis, you're up to 35 basis points this quarter. Do you view that as more normalized now? Or were there -- were these two factors pushing that level up to a point that you don't think is the sustainable level in 2019?

Laura Dottori-Attanasio -- Chief Risk Officer

Well, I guess, if I go back and maybe this is an easier way, at least for myself, to take that question, and let me know if I answered it. So when we go back to the first-quarter 2018 was really when we implemented the IFRS 9. And as you know, we went of -- we would have gone off of what our economic outlook was at the time. And so we adjust our economic outlook for the variables every quarter.

And so we would have seen or experienced a large release, you might recall, when we first implemented in the first quarter. And that really had to do with the fact that the biggest driver there was on employment where our expectations changed quarter over quarter. Then, as we go from last quarter to this quarter, there were other variables. I'm not sure if that answers your question.

But this is really sort of quarter over quarter as we update our economic variables, our model will come up with how the impairments on performings will move. And of course, with that it's not just all FLI, there's credit migration that comes into those numbers, including growth and transfers that might come in and out of those numbers. But again, a lot of it will have to do with how the economy moves as we go. I don't know if that answers your question?

Sumit Malhotra -- Scotia Capital -- Analyst

Yes. I think I've got you. The fact that you made these adjustments this quarter results in an increase relative to Q4 doesn't necessarily mean you're at a new -- or we're going to see this type of build in the performing book next quarter. I think that's what you're telling.

Laura Dottori-Attanasio -- Chief Risk Officer

That's right. I was trying to stay away from the term build, because this is really model driven. And again the forward-looking indicators, it's as they change each quarter and as we change our scenario weights from percentage base to the upside to the downside. What I can say, I mean, if it gives you comfort, I actually when I look at things -- and we've talked about this sort of in past calls.

When we look at how our total ECLs are doing relative to our sort of trailing 12 months of net credit losses, we continue to have sufficient allowances that cover our actual loan losses. So I'm actually quite pleased with how well our model is performing.

Sumit Malhotra -- Scotia Capital -- Analyst

Thank you for that color. Two very quick numbers questions, probably for Kevin, to wrap up. Kevin just on the tax rate. So you gave us the good news about the settlement with the CRA and just want to make sure I understand you here.

I've got the tax rate this quarter on a TEB basis around 22.3. Is there a new run rate that -- or a new level that you would suggest is a reasonable post this settlement? And then just sticking with the U.S., how much of wholesale earnings right now, if you're disclosing that, are coming out of the U.S.? Those are my two numbers questions to wrap up.

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

So let me start with the tax rate. Our tax rate was helped a little this quarter because of the net amount between the Enron settlement, which had two components, Canada and the U.S. So there was a slight pickup there with a slight charge in terms of the deferred tax write-off. So that would have helped us a bit.

But I wouldn't be looking for a significantly different run rate. It may have been helped a little this quarter. But by and large, I think the run rate that you've got right now is probably appropriate. And sorry, as far as the second question is concerned, we don't disclose that level of detail.

But obviously there's good growth, as Harry indicated.

Sumit Malhotra -- Scotia Capital -- Analyst

Yes. I think that was one of your objectives at the investor day was to have the wholesale component of capital markets become a bigger piece in the pie, so I think that would be one that's interesting to track going forward.

Kevin Glass -- Group Head, Client Connectivity and Innovation

For sure.

Sumit Malhotra -- Scotia Capital -- Analyst

Look forward to that. Thanks for your time.

Operator

The next question is from Doug Young with Desjardins. Please go ahead.

Doug Young -- Desjardins Capital Markets -- Analyst

Hi, good morning. I've got a few just quick ones. Laura, just back to the PCL on performing loans. I mean, it was five basis points this quarter.

And one of your competitor has said it's going to be around three basis points per quarter, but this quarter it was double that. Just from simple loan growth and growth in your book, what is a normal PCL on performing loans on a quarterly basis? Is it three points or five points? Is there any way you can give a sense of what that would be if your business just continued to grow?

Laura Dottori-Attanasio -- Chief Risk Officer

Well, that's a tough one. We do look at what we think it might be from, like a, call it a Stage 1 perspective, because that one would cover growth. But as you can appreciate, a lot of it has to do with how we change our forward-looking indicators every quarter. So unless one were prepared to large management overlay, that one is not one that you can easily predict, which is why we always talk about how there is a lot of volatility to that number because it will change quarter over quarter.

So we don't typically try to predict, sort of, what's going to happen in that particular case. I apologize, that might not answer the question that you are looking for.

Doug Young -- Desjardins Capital Markets -- Analyst

What I'm trying to get at, I guess, it's just like if you don't change any of your assumptions, like what would the PCL on performing loans be?

Laura Dottori-Attanasio -- Chief Risk Officer

I mean, if this helps, a lot of the impairments that took place this quarter felt like unique events, which I'd like to think won't transpire again. We're not seeing any systemic or any trends of concern in our book. Continue to have strong credit quality. So I mean, if the economic environment remains stable, although it is moderating somewhat, and if we continue to have low unemployment rates for Canada as a whole.

And again, I guess, we had Hratch, who made his statement that, sort of, we don't give forward-looking guidance. But really barring any unforeseen events or I'd say more pronounced changes to our economic outlook, I'd expect to see our provisions come in at or below the 30 basis points for the full year, and that would be for all of our PCLs. But again, I just say barring any unforeseen events and changes to -- or pronounced changes to the economic outlook because that can sway things as you know.

Doug Young -- Desjardins Capital Markets -- Analyst

Sure. That's fair. And then just back to the PG&E. The only exposure you have, is it 100% corporate loans? Or is there any other type of exposure that you've got to that credit?

Laura Dottori-Attanasio -- Chief Risk Officer

As you know, we don't -- we're not supposed to talk about individual names. So that one account in the utility space was comprised of different credit exposures, if you will, to the name.

Doug Young -- Desjardins Capital Markets -- Analyst

And what were those different exposures be or...

Laura Dottori-Attanasio -- Chief Risk Officer

So just where we -- so exposure at the HoldCo level, operating company level, different types of lines of credit. I think the important takeaway here is that we took a provision -- we moved this to impaired. We took a provision on it. We feel that we're adequately provisioned.

And as I mentioned earlier, we did sell a small piece of the loan, and the amount for which we sold the loan would indicate to me that we were well provisioned. And so I'm comfortable with what we've done in this particular case.

Doug Young -- Desjardins Capital Markets -- Analyst

So there is no guarantees or anything else that's embedded in your exposure. It's just simply loans to different kind of -- of the part of the capital stack?

Laura Dottori-Attanasio -- Chief Risk Officer

Well I mentioned again just earlier, we did have LCs. So that's why when you go through the disclosure, it's a bit tougher to pull everything together. But again, that's just a different type of exposure to the company.

Doug Young -- Desjardins Capital Markets -- Analyst

OK. Thank you very much.

Operator

The next question is from Scott Chan with Canaccord Genuity. Please go ahead.

Scott Chan -- Canaccord Genuity -- Analyst

Good morning. Thanks. Kevin, I wanted to go back to your comments on Canadian commercial banking. And while you talked about the strong revenue growth in commercial double-digit volume growth, but I missed the margin commentary if you can kind of clarify that for me, please?

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

Sure. When you look at -- the way we report our results is we break out Canadian personal banking, and we have a separate segment for the commercial and wealth business. Lot of peers put those together in terms of just Canadian personal and commercial. My comment was, we had a slight drop in terms of -- we had a three basis point decrease as far as personal was concerned.

We had an uptick in the commercial side. But if you look at it on a consolidated basis, NIMs were flat on a quarter-over-quarter basis.

Scott Chan -- Canaccord Genuity -- Analyst

OK, that's helpful. And then maybe just going to the U.S. Obviously the commercial loan volume continues to be very robust. Looking at the commercial real estate loan side, it seems like it's slowing about 4% year over year.

Just curious about an outlook on that, on that segment and platform for fiscal '19?

Larry Richman -- Group Head, U.S. Region

Good morning, it's Larry. We actually feel very good about the opportunities we're seeing across the various product lines and businesses. There is certainly more growth opportunities that we're seeing on the C&I side of the businesses, and that's very diversified both by types of clients and geographies. On the real estate side, we're seeing really good deal flow.

And as we continue to remix that book and given the levels of exposure, we're very comfortable saying that, call it, 4%, 5% growth.

Scott Chan -- Canaccord Genuity -- Analyst

OK. Thank you very much.

Larry Richman -- Group Head, U.S. Region

You're welcome.

Operator

The next question is from Mario Mendonca with TD Securities. Please go ahead.

Mario Mendonca -- TD Securities -- Analyst

Good afternoon. Kevin, can you just clarify something on Enron. So going forward there wouldn't be any P&L or capital impact? I guess, the point you're making here is to the extent that some perceive this as an overhang, it's no longer an overhang. Is that a fair way to put it?

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

Yes. I think that is a fair way to put it. There's still some loose ends to tie up. It's not completely done because we may have some adjustments in terms of the final resolution.

But it's unlikely to be material and certainly don't see -- for sure don't see any material downside to that number. And so from an overhang perspective, for sure, it's behind us.

Mario Mendonca -- TD Securities -- Analyst

OK. So moving on to commercial real estate. And I'm looking at this from a total bank perspective. And just it's a question I brought up before and it's something that would help -- good to understand this.

The quarter-over-quarter growth, 5%, and I'm looking at Page 23 of your supplement. Last quarter, same thing, 6% quarter over quarter. Where is this growth coming from, sort of, geographically? And is there any kind of color you can give us on why this would grow at this pace?

Jon Hountalas -- Group Head, Commercial Banking and Wealth

This is Jon Hountalas. Some of the growth -- so let me try with the commercial real estate. Over the last two or -- and three years, the diversified book has grown faster than our commercial real estate book. I talked last quarter about some of our clients, our bigger, more active clients were doing deals in Q4.

That continued into Q1. So the larger investment-grade companies, unrelated to residential real estate, were doing deals, commercial, industrial. So I'd say in the last two quarters, our commercial real estate growth has been faster than our commercial growth, our diversified growth. But I see that kind of evening out over time.

Mario Mendonca -- TD Securities -- Analyst

And so you're talking Canada, then?

Jon Hountalas -- Group Head, Commercial Banking and Wealth

Yes.

Mario Mendonca -- TD Securities -- Analyst

And then one quick thins on expenses. I've been surprised, is probably the right word to use, to see the expense growth at some banks relative to others. Other banks continue to grow their expenses pretty aggressively. Then CIBC and I think maybe one or two others that are not.

Maybe Victor, could you just give me your outlook on this? Like, do you -- is there any concern here that the modest expense growth will have some negative implications down the road from a client acquisition perspective, in particular?

Victor Dodig -- President and Chief Executive Officer

At some point in time, we love our investors to look prudent expense growth as being a good thing. So what we've really been focused on and it's a good question Mario, because there are differences in the marketplace and we recognize that. But all I can speak to is our own strategy. And as we've talked about in our Investor Days, a couple of years ago, last year, and then the next one that we'll have, our goal is to continue to improve the NIX ratio of our bank by repurposing expenses.

So taking expenses out of the old economy and putting them into the new economy. When I look at the new economy and how we're performing, I look at our personal and small business bank, our digital platform is market-leading. We continue to see transaction migration. We continue to refurbish our branch networks.

In our commercial bank, we've invested in our cash management platform, which is why you see such a significant deposit growth happening in the cash management side of the business where you didn't see that before. We are continuing to invest. You'll see some innovations on the wealth management side over the course of the next year. In capital markets, the growth has all been driven by technology investment.

So that connectivity to the rest of our business and the quality of the capital markets earnings are driven by relationships, connectivity and technology investment. And then when I look at defense, we continue to invest in the defense of the bank and making sure that we're resilient. So I think the overall story is, we have a repurposing agenda in terms of expenses. We're trying to take out the old.

We're trying to put it into the new and we're seeing those benefits manifest themselves in terms of performance going forward.

Mario Mendonca -- TD Securities -- Analyst

Is it conceivable we'll see another restructuring charge to push this strategy forward?

Victor Dodig -- President and Chief Executive Officer

I think what we try and do is we try and run things as steady as possible. We've indicated that in the past. I don't foresee any of that. If those things kind of come to a culmination, they'll be minor in size.

I think right now it's just steady as she goes. We've indicated that we want to get to 52% NIX ratio. We will get there.

Mario Mendonca -- TD Securities -- Analyst

Thank you.

Operator

The next question is from Sohrab Movahedi with BMO Capital Markets. Please go ahead.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thanks. I just wanted to actually pick up where Mario left off. Christine, your headcount attributed to your business is down about 1,200 or thereabouts and steadily down. Is that -- and you've been able to keep your expenses, ex some of these onetimers, pretty steady and flat actually, not much growth.

How sustainable is that?

Christina Kramer -- Group Head, Personal and Small Business

So over the quarter, we would have seen some FTE reductions in personal and small business banking, and they are a transfer to our corporate and other area. So it is not a reduction of FTE over the quarter. It is an organizational change. Those expenses are allocated back to personal and small business banking, and they have no impact on our financial results.

In terms of our expenses and our outlook for expense growth, we had previously given guidance that on a normalized basis we would expect our expense growth to be in the range of 3%, and that's what we expect going forward. Over this quarter, I would say that the small expense growth isn't a good indication of our investment levels in the business. As Victor mentioned, we are repurposing some expenses and we have the benefit of some initiatives that have helped reduce some costs in the quarter. There are also some timing-related impacts where we see a slightly lower spend in Q1, which will be normalized going forward.

And then there is the impact of IFRS 15, which resulted in some expenses being reclassified as contra revenue. So again, on a normalized basis, we would have been closer to our guidance of 3% and that's what we expect going forward.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

OK. So just to be clear, the headcount reduction has had really no bearing on the expense line in your segment?

Christina Kramer -- Group Head, Personal and Small Business

In the quarter, it was really an organizational change and did not have any bearing on expense reduction.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

But what about on a year-over-year basis?

Christina Kramer -- Group Head, Personal and Small Business

On a year over year, there was some improvement in terms of contribution of some reductions to our expense base. But our priority is ensuring that we continue to invest in our people, continue to invest in our business. We had an appendix to the presentation that shows you some of the outcomes of that in terms of digital adoption, which Victor made reference to. And we'll continue to repurpose our expenses, and that's what you're actually seeing in our personal and small business banking through a number of initiatives, including our transformation of our banking centers.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

OK. And just maybe a couple of quarters -- or maybe it was a few quarters ago, I can't remember. You had provided some additional transparency as to the cross-sell success that -- or targets in what you're on the path of. Any updates as to how you're cross-selling some of that, mortgages that you originated a few years ago?

Christina Kramer -- Group Head, Personal and Small Business

Yes. Our growth strategy with mortgages over the past few years, I can speak to that. We're pleased with the market share that we've grown and the quality of the portfolio. 87% of the -- of our residential mortgage clients have multiple CIBC products with us, and that's been consistent over the past couple of years.

And when we take a look at our current results and our overall portfolio, we see the business -- the core business performing very well. We continue to see strong client acquisition, even though we are changing the mix of our business, declining attrition, digital relationships, strong digital adoption, as mentioned, and also improvements in client experience or net promoter score. So we're on track with our overall client relationship strategy.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Maybe you can kind of give us some updated slide one of these coming quarters? And then just one last one for U.S. Larry, when you think about your loan composition, I mean, I think the CRE commercial real estate is somewhere around that 40 to 45% range of the loan balance is there. Do you see that mix changing much?

Larry Richman -- Group Head, U.S. Region

Couple thoughts. First, we're seeing really good levels of activity across the organization, and we're maintaining a strong sense as well of selectivity and discipline around how we look at the portfolio and how we look at deals and support our clients. I would tell you that the current view -- the current quarter, C&I clearly has grown more than CRE. We're seeing in the CRE is a shortened intermediary lender, that there's a lot of liquidity in the market that's given our clients the ability to build, create value, and then to refinance.

An that's good and fine. So I think the short answer is we're seeing good mix, good diversification, across geographies, clients and also industries. But I would think you'd see greater growth in C&I than CRE.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

So the mix of CRE coming down, at least as your business is concerned probably over the next...

Larry Richman -- Group Head, U.S. Region

We will probably grow more C&I and less growth, but still growth in CRE.

Sohrab Movahedi -- BMO Capital Markets -- Analyst

Thank you very much.

Operator

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

Victor Dodig -- President and Chief Executive Officer

Oh. Thank you. Excellent. I want to just close with a couple of remarks before we wrap up the call.

Strategically, this is an important quarter for us as we focus on building a relationship-oriented bank for modern world. We demonstrated the strength of our CIBC franchise through solid core business performance, the merits of our diversified and interconnected franchise and I can't over emphasize that enough, and the success of our U.S. strategy. Our U.S.

business now contributes about 15% to our earnings compared to just 7% private -- prior to the private bank acquisition. We have a best-in-class commercial banking business. A private wealth business with over $50 billion in assets under management, and a private banking business connecting the two. Our CIBC franchise is well positioned to serve the private economy centered around midmarket companies, and we'll continue investing to build on this position of strength.

Organic efforts will continue to be our core focus, though we will consider inorganic opportunities in a disciplined manner where they make both strategic and financial sense. We are very pleased with the strategic progress across all our businesses and, in particular, with the performance of our commercial banking businesses on both sides of the border and the benefits that we're seeing from the connectivity to our capital markets business. This approach is working well and providing real value for both our clients and our shareholders. We're also pleased with the balanced growth and overall performance of our retail bank.

We continue to see opportunities to deepen our relationships with clients in this business, delivering sustainable growth on both sides of the balance sheet. Going forward, we will continue to invest for growth as we build a strong client-focused platform across North America. These investments will enable us to transform our bank and maintain the capital and balance sheet strength to support our clients and our growth going forward. Underpinning all of our efforts is a clear focus on our clients and a long-term view of our business.

In closing, on behalf of CIBC's executive committee and our board, I'd like to thank all of our shareholders for their continued support and interest in our bank, and all of CIBC's 44,000 team members for their dedication to serving our clients each and every day. Have a good day, and thank you for being here today.

Operator

[Operator signoff]

Duration: 65 minutes

Call Participants:

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

Hratch Panossian -- Global Controller and Head of Investor Relations

Victor Dodig -- President and Chief Executive Officer

Laura Dottori-Attanasio -- Chief Risk Officer

John Aiken -- Barclays -- Analyst

Harry Culham -- Senior Executive Vice President

Meny Grauman -- Cormark Securities -- Analyst

Steve Theriault -- Eight Capital -- Analyst

Christina Kramer -- Group Head, Personal and Small Business

Gabriel Dechaine -- National Bank Financial -- Analyst

Sumit Malhotra -- Scotia Capital -- Analyst

Kevin Glass -- Group Head, Client Connectivity and Innovation

Doug Young -- Desjardins Capital Markets -- Analyst

Scott Chan -- Canaccord Genuity -- Analyst

Larry Richman -- Group Head, U.S. Region

Mario Mendonca -- TD Securities -- Analyst

Jon Hountalas -- Group Head, Commercial Banking and Wealth

Sohrab Movahedi -- BMO Capital Markets -- Analyst

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