Canadian Imperial Bank of Commerce (CM) Q3 2019 Earnings Call Transcript

Canadian Imperial Bank of Commerce (CM -0.29%)
Q3 2019 Earnings Call
Aug. 22, 2019, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the CIBC quarterly financial results conference 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 Comptroller, and Investor Relations. Please go ahead, Hratch.

Hratch Panossian -- Global Controller and Head of Investor Relations

Thank you, operator, and good morning, everyone. In a moment, Victor Dodig, CIBC's President and Chief Executive Officer, will kick off our prepared remarks. Our Chief Financial Officer Kevin Glass will then review operating results for the third quarter, and Laura Dottori-Attanasio, our Chief Risk Officer, will provide a risk management update before we open the line for questions. We are joined in the room by CIBC business leaders, including Mike Capatides, Harry Culham, Jon Hountalas, and Christina Kramer, who are available to take your questions. For those with multiple questions, we ask that you requeue to give everyone an opportunity to participate.

As noted on slide 2 of our investor presentation, our comments today may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially. With that, I will now turn the call over to Victor.

Victor G. Dodig -- President and Chief Executive Officer

Thank you, Hratch, and good morning, everyone. CIBC delivered solid third-quarter results through the continued execution of our strategy to build a relationship-oriented bank for the modern world. This morning, we reported net income of CA$1.4 billion. On an adjusted basis, we delivered earnings per share of CA$3.10, an increase over the same period last year. Overall, we are pleased with our core operating results this quarter. Through continued growth and deepening of client relationships, we generated revenue growth of 4% year over year. Adjusted pre-provision earnings were a record CA$2.1 billion. We also continued to diversify our earnings, as our highly connected team furthers our own momentum in cross-border business growth.

While our provision for credit losses increased modestly this quarter to CA$291 million, the quality of our book remained relatively stable, and we remain comfortable with the outlook. Our capital position also strengthened this quarter. Our CET1 ratio ended at 11.4%, which gives us the flexibility to deploy capital toward investments in our business for long-term growth. We're also returning capital to shareholders.

We will be disciplined in deploying our capital as we continue to prioritize organic investments across our business, and we will use the other three pillars of our deployment strategy to maximize long-term value creation for our shareholders. We remain open to inorganic investments, but only if there is the right cultural fit that enables our client-focused strategy and on financial terms that would make it accretive to our shareholders in a reasonable period of time. Given our strong capital position, in addition to dividend increases, we will engage in share buybacks to return capital to shareholders.

Looking at organic investment, we have consistently invested in our business to enhance our capabilities for our clients, as well as to modernize our platforms. These investments are delivering clear results. We're driving strong top-line growth in commercial banking across North America through new hires and expansion to new markets. We're augmenting our U.S. capital markets capabilities with our acquisition of Cleary Gull, a U.S. investment banking firm that will extend our M&A and underwriting capabilities to more business clients in the United States.

Market share is growing in three of our business units despite a highly competitive market, and our client-focused strategy in personal and small business banking is showing clear signs of progress. Our internal client experience metrics improved again this quarter, and our clients continue to benefit from our leadership in digital banking. According to the latest J.D. Power survey, we ranked No. 1 in client satisfaction among mobile credit card apps offered by Canada's Big Five banks, and we ranked No. 1 for best overall mobile banking experience in an assessment by Surviscor.

In addition, we're also modernizing and evolving the way we work to further our client-focused culture. Good examples of this include our continued migration to cloud-based technologies, including our recent successful transition to Workday, a unified HR platform that further aligns our team by providing better tools, data, and analytics to enhance business performance, and our preparations for CIBC Square are well under way. This modern urban banking campus will help us attract and retain top talent, enable our teams to better collaborate, and continue to put our clients at the center of all that we do. These are all examples of our strategy to build a relationship-oriented bank for a modern world, enabling us to generate sustainable growth and returns for our shareholders over the long term.

I'd now like to turn to our business segments. Personal and small business banking delivered adjusted earnings growth of 2.5% this quarter compared to the same period last year. The modernization of our banking centers to facilitate advice-based conversations and our investment in industry-leading digital capabilities continued to generate solid volume growth and lower acquisition costs across our core business. Margins expanded 8 basis points in the quarter and deposits grew 8% year over year, demonstrating our success in delivering leading advice and deepening our relationships across existing and new clients.

In our Canadian commercial banking and wealth management business, top-line growth of 4% was primarily driven by strong volume growth on both sides of the balance sheet, as we continued to gain market share in commercial banking. In addition, our strategic hires in client-facing roles and the collaboration between our private banking and brokerage teams helped to grow assets under management by 5% year over year and drove higher fee income.

Our U.S. commercial banking and wealth management business delivered strong results, with adjusted earnings growth of 6% this quarter, backed by double-digit volume growth in both loans and deposits in excess of our Investor Day targets, supported by fee income growth in our private wealth management business. Growth in existing geographies, deliberate and thoughtful expansion into new markets, and cross-border referrals have all contributed to these strong results.

Turning to capital markets, adjusted earnings of CA$231 million were lower than last year, as market conditions were unfavorable to underwriting activity and our provision for credit losses was higher this quarter. However, our focus on diversified growth and deepening client relationships is delivering results. We remained our relative lead table standings, produced trading revenue growth of 8%, and made continued progress against our U.S. and cross-bank growth objectives with revenue growth of 10%. In keeping with our strategy, our capital markets business is delivering consistent revenues despite challenging market conditions because of our well-diversified business model and connectivity with our broader bank.

In summary, we delivered strong underlying results across each of our businesses this quarter. I'm pleased that our client-focused strategy and uniquely interconnected franchise continues to generate benefits on both sides of the border and across our bank. And, before I turn the call over to our CFO, I'd like to add a few comments regarding the senior leadership changes we announced this morning. First, Kevin Glass, our Chief Financial Officer, will be retiring later this year. Many of you on the phone know Kevin well and know that we'll miss not only his expertise, but also his approach and his sense of humor, as well as his cycling expertise -- he's a very good cyclist. Kevin Patterson, who leads our technology and operations team, will retire next spring. Kevin has been with our bank for more than 35 years, and his tremendous leadership and wisdom have been an incredible asset to us. Kevin and Kevin will be with us for a while longer as part of our planned transition.

We also announced appointments to the bank's executive committee that draw on the depth of CIBC's leadership team and will further our efforts to build a relationship-oriented bank. Hratch Panossian will take on the role of CFO on November 1st, Shawn Beber joins our executive committee as general counsel and also leads corporate development, and Deepak Khandelwal will assume a new role as CXO, or Chief Client Experience Officer. Hratch, Shawn, and Deepak are all very talented, client-focused leaders, and I look forward to continue to work with them in their new roles. With that, I'd like to turn the call over to Kevin Glass for a more detailed review of our financials.

Kevin Glass -- Chief Financial Officer

Thanks, Victor. My presentation will refer to the slides that are posted on our website, starting with slide 6. The CIBC reported earnings of CA$1.4 billion and EPS of CA$3.06 for the third quarter of 2019, and adjusting for items of note detailed in the appendix to this presentation, our net income was CA$1.4 billion and EPS was CA$3.10. We generated revenue of CA$4.7 billion for the quarter, which is up 4% year over year. We continued to invest in our businesses while delivering an efficiency ratio of 55.4%, and we increased our quarterly dividend by CA$0.04 to CA$1.44 per share.

Turning to capital on slide 7, we ended the quarter with a CET1 ratio of 11.4%, up 20 basis points from the prior quarter and comfortably above our target range. Our strong internal capital generation of 32 basis points this quarter was partially offset by higher risk-weighted assets, which increased by CA$2 billion, largely reflecting growth in our commercial businesses, both in Canada and the U.S. Our leverage ratio was 4.3% and our liquidity coverage ratio was 129%.

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 8 reflects the results of personal and small business banking. Net income for the quarter was CA$659 million, up 2% from last year. Revenue of CA$2.2 billion was up 3% from last year, primarily driven by favorable rates in deposit volume growth, partially offset by lower fee income. Net interest margin was up 8 basis points sequentially, largely due to the impact of deposit promotions ending, and also due to the benefit of favorable rates. Based on current rate expectations, moving forward, we expect some downward pressure, but relatively stable NIMs.

Non-interest expenses were CA$1.1 billion, up 3.5% from the prior year, as we continue to invest in modernizing our infrastructure, distribution channels, and products. Provision for credit losses was up CA$5 million from the prior year, driven by an increasing provision for performing loans. Laura will speak to credit quality in more detail in her remarks.

Slide 9 shows the results of Canadian commercial banking and wealth management. Net income for the quarter was CA$348 million, in line with the results of a year ago. Commercial banking revenue was up 6%, driven by strong deposits and lending volume growth, with higher credit-related fees. Deposit balances were up 15% and lending balances were up 12% from the same period last year. Wealth management revenue was up 2%, primarily driven by higher AUA of 2% and a higher AUM of 5%.

Net interest margin was down 4 basis points sequentially, primarily due to lower BA rates impacting the commercial banking deposit business. On a combined basis, NIM for personal and commercial banking was up 6 basis points sequentially, as the impact of wider prime BA spread in commercial banking was more than offset by the impact of favorable rates and deposit pricing in our personal and small business banking business. We have included a slide showing results for the combined personal and commercial banking business in the appendix to this presentation. Provision for credit losses was up CA$21 million, mainly due to higher provisions on impaired loans. Non-interest expenses were up 4%, primarily driven by spends associated with strategic initiatives, including hiring in client-facing roles.

Slide 10 shows the results of U.S. commercial banking and wealth management, where net income grew by CA$11 million or 6% from the prior year. Results reflect solid business performance and investments to support growth, assisted by a stronger U.S. dollar. Revenue is up 15% from the prior year, driven by double-digit volume growth, higher asset management revenue from growth in AUM, as well as an increase in syndication fees. Average loans grew CA$3.6 billion or 15% from a year ago, reflecting continued momentum in client development. The growth in loans was driven largely by increases in the commercial real estate and C&I portfolios. The institutional real estate portfolio, formerly our U.S. real estate finance business, has remained relatively flat.

Average deposits grew CA$3.4 billion or 20% from a year ago, reflecting organic growth from new clients and deposit initiatives. Net interest margin for the segment was 318 basis points, down 2 basis points sequentially and down 7 basis points from a year ago. The year-round interest in assets benefited from certain nonrecurring items, which contributed about 7 basis points. This was offset by higher deposit costs as well as a decline in core loan yields as the one-month LIBOR drifted lower. Going forward, we expect NIM to compress given the rate outlook in the U.S. The trajectory of NIM will be further determined by the rate at which we can renegotiate deposit costs, which will lag the loan book. We still expect growth in NII as volume growth continues.

Provisions for credit losses were up CA$16 million, mainly due to higher provisions on impaired loans. Expenses increased 17% from the prior year. We should remember that the prior-year quarter included a recovery in the institutional real estate business. Normalizing for this recovery, expense growth was 12%, and expenses for this quarter include investments in headcount to support growth and higher marketing expenses. Overall, we're 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 11, net income of CA$231 million was down CA$34 million from a year ago, reflecting lower revenue, higher non-interest expenses, and a higher provision for credit losses. Revenues this quarter were CA$746 million, down CA$6 million or 1% from a year ago, reflecting lower equity and debt underwriting activity, lower foreign exchange and equity derivatives trading revenue, and lower investment portfolio gains, but this was partially offset by higher interest rate trading and corporate banking revenue, as well as higher revenue from our financing businesses. Non-interest expenses were up CA$6 million or 2% from a year ago, primarily driven by higher spend on growth initiatives, partially offset by lower performance-related compensation.

Provision for credit losses was up CA$43 million, due to higher provisions on both performing and impaired loans. In capital markets, we continue to make progress against key objectives, including growth in the U.S. as well as growing revenue from nontraditional capital markets clients across CIBC. On a year-to-date basis, the earnings contribution from our U.S. region, which includes the U.S. segment and the U.S. portion of our capital markets, was approximately 17%. You can refer to slide 21 in the appendix to this presentation that shows how this contribution has grown over the years.

Slide 12 reflects the results of corporate and other, where our net loss for the quarter was CA$5 million compared with a net loss of CA$30 million in the prior year. Results reflect higher treasury revenue as well as strong performance in CIBC First Caribbean, including a loan loss recovery this quarter. Expenses this quarter were up 7% compared to the prior year, driven by investments in strategic initiatives and regulatory projects. Going forward, we do anticipate elevated expenses as we invest in defensive and growth initiatives. With that, let me turn the call over to Laura.

Laura Dottori-Attanasio -- Chief Risk Officer

Thank you, Kevin, and let it be transcripted that we are going to miss you. You are a wonderful colleague, fantastic human being. We're going to miss you, Kevin. So, good morning, everyone. Turning to slide 14, provisions on impaired loans increased from CA$250 million to CA$272 million this quarter, and this was mainly due to higher provisions in U.S. commercial banking and capital markets, partially offset by a decrease in provisions in Canadian commercial banking and lower write-offs in our personal lending portfolio. This resulted in a 1-basis-point increase in our loss rate to 27 basis points. Provisions on performing loans were CA$19 million this quarter. The increase was primarily driven by higher forecasted provisioning in the oil and gas portfolio as a result of continued softening of natural gas prices in Canada.

The next slide provides an overview of our gross impaired loans, which were down from 52 basis points to 45 basis points this quarter. The decrease was mainly driven by the completion of the sale of a previously noted impairment in the utilities sector, which was partially offset by a small number of new impairments, half of which were in our Canadian agriculture portfolio, with the balance in the U.S. business services sectors. On a year-over-year basis, our growth-impaired ratio is up by 1 basis point.

Slide 16 provides the net write-off rates of our Canadian consumer portfolios. Overall, the write-off rates are stable year over year, and they remain in line with our expectations. Slide 17 provides the 90-plus days delinquency rates of our Canadian consumer portfolios. On a quarter-over-quarter basis, delinquencies have remained stable and performed within our risk appetite.

To conclude, while we expect to continue to see some movements in our portfolios, commensurate with the later stage of an economic cycle, overall, our asset quality remains well positioned, with no broad industry or sector themes emerging other than for certain gas producers in our energy portfolio. At this time, and as we communicated earlier in the year, barring any unforeseen events, we continue to expect to see our impaired provisions for credit losses come in below 30 basis points for the 2019 fiscal year. With that, I'll turn the call back to the operator for questions.

Questions and Answers:

Operator

Thank you, Laura. Please press *1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Ebrahim Poonawala from Bank of Montreal Merrill Lynch. Please go ahead.

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

Not yet -- Bank of America still. But, good morning. Just a question on capital, I guess, for Victor or Kevin. CET1 at 11.4%. 1). Given the environment, do you think the capital ratio is essentially close to where you would like to stay? And, if that is the case, it seems like given your desire for inorganic growth, there would be some tendency to build excess capital and have some dry powder, particularly given the relative valuation improvement for the Canadian banks versus U.S. regional banks. So, if you could help reconcile in terms of where you want to maintain capital, and if inorganic growth is something that may happen six to 12 months out, would you rather have some dry powder and build capital from current levels?

Victor G. Dodig -- President and Chief Executive Officer

A couple of things. 1). We're pleased with the growth in our CET1 ratio through the performance of our business, 2). We don't think about capital as a dry powder factor; we think about it in our four-pillar framework. We've been very clear about that. The first order of business has always been to strengthen our existing franchise, and you see that in the investments that we've been making in digital technologies, where we continue to be recognized as a leader in Canadian banking. You see that in the expansion of our footprint organically into the U.S. as we expand into new markets and the investments that we're making and continue to make in technologies across our business, both from an offensive standpoint and from a defensive standpoint.

The second thing I'd say is dividends continue to be an important piece of our pillar framework, and that's why we increased the dividend again this quarter. We're confident in our business, we're confident where it's heading, and we increased our dividend by CA$0.04. The other two are mergers and acquisitions -- or "inorganic growth," as you describe it -- and buybacks. We've been very clear that we think of those levers as potentially active, but we've been very clear on the M&A front that we're very patient. That is going to take time. It's going to take time to find the right fit and it's going to take time to find the right business that will enhance the growth profile of CIBC. We've been very clear in today's call that while we announced an NCIB last quarter, we plan to be more active on the share buyback front in our own market here.

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

Got it. So, the capital ratios -- are we close to target levels, or should we anticipate some buildup generally?

Victor G. Dodig -- President and Chief Executive Officer

I think we're in a good place, Ebrahim.

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

Got it. Thank you very much, Victor.

Operator

Thank you. Our following question is from Meny Grauman of Cormark Securities. Please go ahead.

Meny Grauman -- Cormark Securities -- Managing Director

Hi, good morning. Victor, in the past, you've talked about your view that double-digit commercial loan growth -- at least, in Canada -- is not sustainable. I wonder if you could update your thinking about that. Is that still your view, or how do you view the outlook for commercial loan growth in both Canada and the U.S.?

Victor G. Dodig -- President and Chief Executive Officer

I'm going to make a few comments, but then I'm going to hand it off to my colleagues Jon Hountalas and Mike Capatides. One is to emphasize that our commercial banking growth in both Canada and the United States has been not only on the lending side, but on the deposit side. It's been double-digit on both. In Canada, the investments that we've made in cash management technologies and the investments that we've made in relationship management has helped us to drive strong deposit growth as well as lending growth.

In the United States, you see the same factor. The credit rating that we lent the private bank with our acquisition was an important factor, as well as some of the cross-border business that we're seeing and the connectivity to wealth management. So, in terms of growth going forward, I'm going to pass it on to Jon first for the Canadian business, and then to Cap for the U.S. business.

Jon Hountalas -- Group Head, Commercial Banking and Wealth, Canada

Thank you, Victor. It's Jon. Our pipeline is healthy. It's in line with where it's been over the last four quarters, so we're feeling pretty good. We review our clients annually in a credit review process. This is the heaviest period -- the summer period. We went through that. Our clients are in good shape. Our risk weightings confirm all that, so it's all pretty positive. I guess a new factor versus a few months ago is the trade issues out of Asia, and I'd say they've added a little bit of caution into the mix. Lower interest rates help in the short term; trade issues hurt in the long term. Our clients are generally thinking things will sort themselves out before it impacts their business materially. Like Victor, we've been pretty consistent. The double-digit loan growth that we're seeing in the industry feels high. On Investor Day, we thought it would be in the mid-high single digits. We still think that's where it will revert, and we still believe we can outperform and grow in the 9-10% range.

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

This is Mike Capatides. I'm going to echo some of Jon's comments with a little bit of a twist, and that is our loan growth reflects the fact that we have great growth from our existing organic footprint, but as we said before, we've made some investments ever since the acquisition. We have new offices in Tampa, Miami, Dallas, we have significant buildouts of our offices in Atlanta and Boston, and in all these offices, as was always the plan, we're putting in C&I bankers, both on the C&I side and the real estate side, and we're building out our wealth platform and private banking platform as well.

So, all of this has resulted in very good loan growth, very good deposit growth, and over one third of that growth is coming from these new initiatives. So, when you back those out, our growth is a little bit closer to what you're seeing in the market elsewhere in the U.S., but we continue to believe that the investments that we've made in the U.S. and building out these additional initiatives and markets -- with a decline in the cost of doing that, which we see this quarter -- are going to continue to deliver low double-digit loan and deposit growth in the U.S. region.

Meny Grauman -- Cormark Securities -- Managing Director

Just as a follow-up on that, we're obviously talking a lot about trade uncertainty and wondering what it all means for business confidence, but it seems like if I look at the commercial loan growth on both sides, it doesn't seem to be impacting very much at all. Is that your view, or when you look deeper on the ground, do you see trade issues coming into play more than in the past? Are they impacting what you're seeing in terms of business activity?

Jon Hountalas -- Group Head, Commercial Banking and Wealth, Canada

There's pros and cons, right? There's mixed signals. GDP is good, unemployment is strong, interest rates are coming down. Those are positive. The trade issues are being discussed more. The NAFTA thing was a much bigger deal in clients' minds, and that seems to be sorted out or feels better. The Asia thing is more distant. Canada's trade with China isn't as material as with the U.S. So, overall, I think clients believe that this will get sorted out before it impacts their business, and if it doesn't, the balance sheets of our clients are good, and they think they can adjust. So, a little more caution, but so far, I haven't seen a material change in how they're operating in a business.

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

Again, this is Cap. I'll echo those comments. Our customers are still positive about their business and our business with them, but the discussion about trade issues and potential issues in the economy are in the conversation, so we're staying very close to them, but right now, today, we're just not seeing an effect on business.

Meny Grauman -- Cormark Securities -- Managing Director

Thank you.

Operator

Thank you. Our following question is from Steve Theriault from Eight Capital. Please go ahead.

Steve Theriault -- Eight Capital -- Analyst

Thanks very much. A question on margins. Kevin, you were somewhat clear on Canada, and I know it's difficult for the U.S. business, but could you give us any kind of base case of what you think the margin downside could be if we get the four rate cuts in the U.S. that seem to be expected by the forward curve?

Kevin Glass -- Chief Financial Officer

Thanks, Steve. Let me talk about both. Obviously, NIM is impacted by rate moves, but also, changes in business mix and pricing changes. Based on our current expectations, both in Canada and the U.S., we certainly expect some margin compression, but we feel it's manageable. From a Canadian perspective, just to put my comments into context, we based our core capital and deposits on long-term factors. What that means is changes in rates will manifest over time as the balance sheet reprises. So, when you look at our Canadian operations, that's why I said expect NIM to be fairly stable, but with some downward pressure as a result of falling rates over the next 12 or so months. But, we continue to anticipate modest growth in NII.

So, as far as the U.S. is concerned, we'd expect NIM compression due to the rate decreases that are priced in the market, but we still anticipate modest growth in NII in the medium term as volume growth continues, so there's a bit of a timing element to this. After each rate cut, a lot of our deposits are negotiated, so in the short term, you'd see more of an impact, but over time, we'd see that stabilize. I think what's important to understand from our perspective is since the acquisition in particular over the last few quarters, we've taken a number of balance sheet actions to reduce rate sensitivity in the U.S., where we try to adjust our structural interest rate risk to be more in line with where we were before we did the acquisition. So, the intent is to manage rate risk to stable and predictable earnings, so there certainly will be downward pressure, but more acute after a rate drop, but manageable over the longer term.

Steve Theriault -- Eight Capital -- Analyst

Maybe another way to look at it is if the revenue growth has been high single digits, appreciating that the margin might be impacted immediately, and then, as you mentioned, repricing. Is that sustainable with the four rate cuts, looking ahead? I'm just trying to get sense -- the perception is that the margin is going to be more volatile in the U.S. business, and I hear you that it's going to translate into revenue, and you've got loan growth, but maybe boiling it down to revenue would be helpful.

Kevin Glass -- Chief Financial Officer

I think that if you were to take the impact of a 25-basis-point rate cut, all in, once things stabilize, we'd say that's about a CA$10 million per year hit, but it's going to be more acute in the shorter term, max up to CA$15 million, so that would be what your NII impact would be over the longer term.

Steve Theriault -- Eight Capital -- Analyst

Okay, that's helpful. And then, on the margin, the runoff of the deposit promotions in Canada -- is there any more impact from that, or have we seen it all now?

Kevin Glass -- Chief Financial Officer

I think you've certainly seen the benefit of that now, and this will be a new base for us to move forward from.

Steve Theriault -- Eight Capital -- Analyst

Thanks for that, Kevin, and it's been great working with you. Congratulations on your retirement.

Kevin Glass -- Chief Financial Officer

Thanks very much.

Operator

Thank you. Our following question is from Scott Chan from Canaccord Genuity. Please go ahead.

Scott Chan -- Canaccord Genuity -- Director

Good morning. Just on the U.S. business side, it seems like you changed disclosure a little bit relating to CIBC Bank USA in private bank, or specifically, I'm just trying to unwind the growth components of private bank in terms of commercial mortgages or commercial real estate, and what you thought of that material. I was wondering if you could provide data points on that for fiscal Q3.

Kevin Glass -- Chief Financial Officer

I'll just talk about the disclosure. From a general perspective on the slideshow, we managed the U.S. SBU as an integrated unit. We can certainly talk about the contribution of CIBC Bank USA, which continues to perform really well. The sensitivity we've spoken about is generally in that unit, and a lot of the loan growth and deposit growth we're talking about is almost all coming out of the original Private Bank USA because our institutional real estate business from loan growth is flat.

Scott Chan -- Canaccord Genuity -- Director

Maybe look at the 15% year-over-year growth. Did commercials or commercial real estate -- which is the bigger driver of that growth year over year?

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

Hi, this is Mike Capatides. We're seeing good growth across all segments of the SBU unit, and the growth has been about equal between the C&I portfolio and real estate, which is consistent with the historical pattern. So, again, that's consistent with our approach of building out these offices with both C&I and CRE professionals, so it's very balanced, and we see that to continue going forward.

Scott Chan -- Canaccord Genuity -- Director

Okay, thank you very much.

Operator

Thank you. Our following question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Gabriel Dechaine -- National Bank Financial -- Analyst

Hi, good morning. I just want to flip the deposit pricing impact question around a little bit here. It had a beneficial impact on your margin, whereby the promos ended and margins went up, but I also see that deposit growth has been ramping up for a number of quarters. I'm just wondering where you expect deposit growth in Canada to end up since these promotions are gone, and have you seen any of that trend yet?

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Gabriel, it's Christina speaking. Thank you for the question. We're pleased with the performance of our deposits business, and as you mentioned, we've achieved strong and profitable revenue growth, driven by year-over-year balance growth of nearly 8%, and that's also with the benefit of expanding margins. So, as we look to the second half of the year, including Q3, we will see slower growth, but with strong retention of balances, so that'll result in compensating positive impact on margins for the year.

Gabriel Dechaine -- National Bank Financial -- Analyst

Have you started to see deceleration already?

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

We have actually seen strong retention of the balances that we put on promotion. We're actually pleased with our year-over-year performance in that regard.

Gabriel Dechaine -- National Bank Financial -- Analyst

Okay. Then, commercial real estate -- the different question here -- I just look at slide...23, and if I add up real estate and construction plus non-resi mortgage, in Canada, it's about 36-37% of your wholesale loan book, and in the U.S. -- sorry, it's in the high 30s, and in Canada, it's in the low 30s. I'm just wondering -- do you have a limit on how big you want or are able to take CRE to in your total wholesale book? And, by extension, how does that affect your M&A strategy in the U.S.? A lot of targets could potentially have big CRE books. Is that an impediment?

Laura Dottori-Attanasio -- Chief Risk Officer

Gabriel, it's Laura. I'll kick it off, and maybe I'll hand it over to Cap or Jon if they want to add on. So, of our portfolio -- and, it's pretty well split between Canada and the U.S. So, again, it's a very good book. The majority of it is really loans to investment-grade public companies, institutional borrowers, all very well diversified, whether we look at it by property type or borrower type. So, I'm very comfortable with the asset quality of the portfolio. It remains very strong, and we do have limits. We have limits on different types of property buckets, borrower buckets, overall buckets, where we want to be in certain regions and how, and that includes Canada and the U.S., and we go further and break it down by region. All of that is very well managed within our risk appetite.

Gabriel Dechaine -- National Bank Financial -- Analyst

Are you bumping up on any of those limits?

Laura Dottori-Attanasio -- Chief Risk Officer

Yeah, we're coming close in some of the segments to some of the limits, and as you would have heard us mention, I think, on previous calls, we're putting more emphasis on growing the C&I business in the U.S. in particular, and that's where we have started to see some of the growth from, and maybe I'll hand it over to Cap to add on to that.

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

Thanks, Laura. So, as I mentioned before, we have a general guideline in the U.S. segment of CRE being less than 50% of the book, and if you deconstruct that a bit and you go back to the CIBC Bank USA, that split is more two thirds/one third -- one third real estate -- and then, when you add in the legacy CIBC real estate business, which is a more institutional business, we're purposely keeping that segment flat. So, we're seeing very good C&I growth, and on the CRE side, we're very diversified, and within the context of being very cautious, we like our book. We like where we're sitting right now, and we see good growth there, but it's going to be balanced against good growth again for the C&I portfolio.

Gabriel Dechaine -- National Bank Financial -- Analyst

And, on the M&A? How does it affect the M&A?

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

Well, I'll go back to Victor's comments about our four pillars of capital deployment, and with all the caveats in terms of when and if we do something on the M&A side, but I will tell you that one of the very attractive aspects of the legacy private bank was that it was heavier in the C&I portfolio, and we would expect that emphasis to continue going forward. With this 50/50 balance, to the extent anything -- I'd rather not speculate, but I think you'll see in the market M&A activity would involve acquisitions where CRE portfolios are run down, but again, that's pure speculation, and we're not there at this point.

Gabriel Dechaine -- National Bank Financial -- Analyst

And, just a fine point that -- you said your limit in U.S. bank CRE exposure is 50%, and based on slide 10 here, it looks like about a quarter of the loan book is CRE, so theoretically, you could have some room for a more CRE-heavy mix and a target.

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

So, just to repeat -- and, we'll have to get back to you with the tieback to the slide, but the CIBC Bank, which is pretty much the legacy private bank where all the expansion is taking place, it continues to be approximately two thirds C&I, one third real estate, and when you add in the legacy CIBC institutional real estate business to the U.S. SBU, you start to approach a 45% figure for CRE.

Gabriel Dechaine -- National Bank Financial -- Analyst

Okay. Thank you.

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

You're welcome.

Operator

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

Mario Mendonca -- TD Securities -- Analyst

Good morning. I had a question for Christina. You expressed confidence that you would retain these deposits. It would be helpful to understand -- when the promotion was removed, is that soaked insofar as new deposits are concerned, or are there existing deposits where that higher rate has now been lowered to something more standard?

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Thank you, Mario. It's Christina speaking. Thank you for the question. The deposit promos -- and, there were a few -- largely came off at the end of March/April timeframe, and that's why we're speaking confidently around the retention of balances.

Mario Mendonca -- TD Securities -- Analyst

Yeah, but what I was asking was were the deposit promos -- are there existing deposits where the rate has now been lowered? The reason I'm asking it that way is that would speak to retention going forward.

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

The answer is yes.

Mario Mendonca -- TD Securities -- Analyst

Okay, but obviously, you've had enough history to suggest that they're holding tight.

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Yes, and our experience -- as I mentioned to a prior question, our experience year over year in the retention of the balances has been stronger.

Mario Mendonca -- TD Securities -- Analyst

Okay. Just a real quick question on -- I think someone said -- maybe it was Kevin -- that there were 7 basis points of unusual -- the margins would have been down something like 7 basis points, but there was some unusual NII in the U.S. business. Can you just rephrase that for me?

Kevin Glass -- Chief Financial Officer

Sure. There were a couple of onetime items in the U.S. that would have had an impact of about 5 or 6 basis points, so if you take the impact of that, that would have meant a 7-basis-point overall reduction.

Mario Mendonca -- TD Securities -- Analyst

Okay. I just did the quick math. That doesn't amount to much, maybe a penny on EPS. Is that fair?

Kevin Glass -- Chief Financial Officer

Correct, that's about right.

Mario Mendonca -- TD Securities -- Analyst

Okay, thank you.

Operator

Thank you. Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Doug Young -- Desjardins Capital Markets -- Analyst

Good morning. A two-part question for Laura: I guess PCLs on the U.S. commercial book were up, and I'm hoping to get a little bit of color what you're seeing around credit in the commercial book, and I think there was mention in the MD&A that there was negative migration in the Canadian personal portfolio. Just hoping to get a little color about what that's related to and what you're seeing. Thanks.

Laura Dottori-Attanasio -- Chief Risk Officer

Sure. I guess I'll start by telling you that we're not seeing anything of concern across any of the books. We continue to have really strong quality of the books, and that's across the board. I think you wanted me to speak more specifically -- if I heard you correctly -- to PCLs as they relate to the U.S.

Doug Young -- Desjardins Capital Markets -- Analyst

That's correct.

Laura Dottori-Attanasio -- Chief Risk Officer

Again, nothing unusual there. From an unimpaired perspective, we had three losses this quarter. Again, I would classify that as business as usual when you're lending in commercial. They were across different business sectors, so, no scene is emerging there. From a performing provisions perspective with the U.S., you'll see in that segment, we had a release, and that's really due to repayments and transfers that went into impaired, if that helps. I think the second part of your question related to retail and what we were seeing in retail.

Doug Young -- Desjardins Capital Markets -- Analyst

In Canadian -- it looked like Canadian personal. There was mention of migration. I was just curious what segment that would relate to. Was that auto? Was it unsecured lending? A little more color.

Laura Dottori-Attanasio -- Chief Risk Officer

Well, more moving parts, if you will, in our provisioning on performing for retail, so in that segment, I think you saw it was up CA$7 million, and so, our SLI moves were pretty muted this quarter, so there was some credit migration, and then we had parameter updates in our cards and in our personal lending portfolio that's really related to updates to our historical loss data. So, again, nothing to report in there. I would tell you it's a bit of the gives and takes in that particular portfolio. When we look at our delinquencies and whatnot, they have been relatively stable, and in fact, from a cards perspective, I would tell you that that came in somewhat better than I would have expected. Does that answer your question?

Doug Young -- Desjardins Capital Markets -- Analyst

Yeah. Lastly, from a 10,000-foot view, 2 basis points on performing loans -- does that feel like that's something that we should be anticipating, assuming there's no other bumps? It seems like that's a reasonable expectation if you continue to grow the book and there's puts and takes, but just hoping to get some color there.

Laura Dottori-Attanasio -- Chief Risk Officer

Yeah, I always hesitate to agree to a number there because it does move, but yes, that sounds reasonable. Again, just to add things that you know, really, it'll depend on growth in the portfolio, migrations within the portfolio, and then, whatever changes we may make to our forward-looking indicators, and then, you add onto that all the probability weightings that we assign to it, whether it be the downside/upside base case scenarios, but that would be an acceptable range of a number to use.

Doug Young -- Desjardins Capital Markets -- Analyst

Fair to say it doesn't sound like anything's keeping you up at night right now.

Laura Dottori-Attanasio -- Chief Risk Officer

No, and I know I've said this on a call -- maybe one of my first calls -- it would still only be my children. Certainly, not our credit book. It is still solid credit quality. We're adequately provisioned, and so, no concerns from that perspective.

Doug Young -- Desjardins Capital Markets -- Analyst

Thank you.

Operator

Thank you. Our following question is from Sumit Malhotra from Scotiabank. Please go ahead.

Sumit Malhotra -- Scotia Capital -- Analyst

Thank you. Good morning. I want to start with Kevin. Kevin, I'd better get these capital questions in while I can, so we'll start with you. One of your counterparts mentioned yesterday that to start 2020, there would be a few implementations that would have an impact on capital. I was hoping you could provide us with an update there, and somewhat relatedly, in these periods of lower bond yields, we have seen in the past that there are pension deficit issues for capital. I didn't see it listed in the slides. Is that something that had an impact on CIBC this quarter, or something you're expecting before the end of the year?

Kevin Glass -- Chief Financial Officer

Thanks, Sumit. Let me just talk about the changes we're expecting. So, there are some accounting and regulatory changes coming through in Q1. We think that we can earn through that because overall, I think it'll be between 10-15 basis points, and the big impact there would be IFRS 16, and also, the changes to securitization. So, you put those two together, and we'd say between 10-15 basis points as what we anticipate on that front.

As it relates to pension volatility, what we've done is we've implemented a hedging program that largely immunizes our plan's exposure to rate risk. That's a part of our liability-driven approach to investing. There's a bit of residual risk because it's not 100% hedged, but to give you a sense of sensitivity right now, we'd say that a 25-basis-point declining rate is about a 1-basis-point negative impact to CET1, to give you an order of magnitude as to how we're managing that.

Sumit Malhotra -- Scotia Capital -- Analyst

What's the offset to that change in strategy? Is there an increased expense that you take through the income statement as a result of that shift?

Kevin Glass -- Chief Financial Officer

It would be part of the cost of running the pension plan, Sumit, and there are hedging overlays that we put in place. It's a cost, but it's relatively modest given the risk that we're mitigating. Clearly, as you can see from this quarter and certainly into this environment, it's working well for us.

Sumit Malhotra -- Scotia Capital -- Analyst

Okay. So, the takeaway for me is 10-15 basis points in Q1 2020 as a result of those implementations.

Kevin Glass -- Chief Financial Officer

I'd say 10-15 would have more the way I would have put it, but that's OK.

Sumit Malhotra -- Scotia Capital -- Analyst

I thought I said 10-15, but we'll make sure we're on the same page there. Relatedly, Victor, we've spoken -- and, on this call, you've spoken -- about share repurchases in the past. I think we did so last quarter. It hasn't seemed like it's been a top-of-mind priority, and that seems to be somewhat different today. Simply put, is this a reflection of valuations and what's happened to Canadian bank stocks, and CIBC more specifically, that the share repurchase lever looks more attractive to management at these prices?

Victor G. Dodig -- President and Chief Executive Officer

I'd just say that we've always been pretty consistent in our four-pillar approach. It's really hard to communicate quarter to quarter what we're going to be doing. What I want our investors to know -- and, I'm going to repeat it again, as much as I may sound like a broken record -- we've got a strategy. The strategy is to invest organically in the strength of the bank.

The bank is relatively strong relative to where it was five, six, seven years ago. When it comes to digital technologies, it's No. 1. When it comes to migration to cloud, it's a leader. When it comes to cyber and AML, it's an important file for us. When it comes to dividend growth, really important. We've heard that from our shareholders, and it's also a sign of confidence in our business. When it comes to the other two levers, buybacks today -- it's always been an active lever. We will use it, and I think I've been pretty clear that we'll start to be more active on that front because we think we've got a great company and we think it's not a bad place to put some of our capital.

Sumit Malhotra -- Scotia Capital -- Analyst

Thanks for that. My last question will be for Christina. In your segment, we've had some back-and-forth over the last couple years in terms of growth in the resi real estate portfolio for the bank. At least from an industry perspective, volumes and pricing trends in the GTA have been stronger, and we've seen some pickup in aggregate levels for the industry. It hasn't been the case for your business yet, and I was hoping you could provide an update on what your outlook is and how some of the shifts you've enacted are playing out in terms of residential real estate.

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Thank you, Sumit, for the question. It's Christina responding. We continue to be focused on our clients and delivering great advice to help them with your goals. So, as you commented, in terms of the overall market, there has been some positive momentum, and we've seen some rebound in GTA, and GVA continues to be somewhat challenged. We are seeing some positive signs on our focus on improved growth, and I'll speak to why I say that.

Our resi portfolio was roughly flat quarter over quarter on a spot basis, and this is the first quarter after several of declines. We also see continued strong retention rates with our existing book, and our pipeline has improved. So, if I compare Q3 to the same period last quarter, we see positive improvements in our pipeline, both in total units and in average dollar size. So, our teams are helping more clients with their homeownership goals, and it's early, but it's positive signs in our focus on improved growth in the space.

Sumit Malhotra -- Scotia Capital -- Analyst

Do you expect to be back into growth in the near term?

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

We expect continued improvement in our performance based on what we're seeing in the market.

Sumit Malhotra -- Scotia Capital -- Analyst

Thanks for your time, and Kevin, thanks for all of your help over the years.

Kevin Glass -- Chief Financial Officer

Thanks, Sumit.

Operator

Thank you. Our following question is from Darko Mihelic from RBC Capital Markets. Please go ahead.

Darko Mihelic -- RBC Capital Markets -- Managing Director

Hi, thank you. I wanted to follow up there on the mortgage question, Christina, and I'm going to press you for a couple of details. The first is if your originations are CA$9 billion in the quarter and you're flat quarter over quarter on a spot balance, it tells me that there's still some runoff happening, so what I'm curious about is a couple of things. The first is what's running off? Is it lower-margin product versus what you're putting on now? That's the first question on that. The second question is why is it running off? If it's not margin, there must be some sort of an issue there, and I don't know if it's not because they're not great clients, or there's perhaps a credit quality issue, but I'm just curious about what is running off, and when will that stop running off?

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Thank you for the question, Darko. It's Christina responding. We are seeing normal paydowns in the mortgage portfolio that we normally would have seen. If I take you back to prior conversations around -- on the call regarding our focus and our performance relatively, our focus was indexed on the GTA and GVA markets, so, particularly, in the at-mass affluent segments, and that's where we've seen pullback in activity. So, as we start to see some positive momentum in the markets, we're going to see -- and, I'm anticipating seeing growth in our relative performance. So, we're not seeing anything unique in terms of runoff or paydowns. It seems to be fairly consistent. But, what we're focused on is the net new sales and net new volumes to grow our total portfolio.

Darko Mihelic -- RBC Capital Markets -- Managing Director

And, the NIM versus -- it just seems peculiar that if you had last quarter's CA$6 billion of originations and your balances were flat, and this quarter, you had CA$9 billion and your balances were flat, that somehow, there isn't any runoff happening. That's just a little confusing.

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

Some of that is just seasonal that we see in the relative quarter. So, nothing unique in that to comment on.

Darko Mihelic -- RBC Capital Markets -- Managing Director

Okay. Lastly, then, I like to look at year-to-date when I look at expense growth versus revenue growth, and we've seen a bit of difficulty here for you on the expense side. Can you give us some color on whether or not Q4 will see any kind of a difference in terms of your expense growth, and just generally speaking, when you talk to your efficiency targets, are we seeing a light at the end of the tunnel, or perhaps, is it possible that the 52% efficiency ratio is at risk here? Any color on the cost side would be beneficial. Thanks.

Kevin Glass -- Chief Financial Officer

Darko, it's Kevin. Our expense growth this quarter was around 5%, and I think what we guided to for the next little while -- as we continue to invest in the business, we're probably running at about that rate. With respect to the 52%, we came pretty close -- we'll be pretty close to our 55% target for this year. The economic environment has clearly changed since we last spoke about that, but I think it'll be premature for us right now to give detailed guidance on the 52%. But, that'll give you a sense where we're at and what we see in the short term.

Darko Mihelic -- RBC Capital Markets -- Managing Director

Fair enough. Thank you.

Operator

Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Victor.

Victor G. Dodig -- President and Chief Executive Officer

Thank you, operator. I think we all know we're operating in a challenging macroeconomic environment with geopolitical tensions and global trade uncertainties, but having said that, we remain confident in our ability to manage through this environment. Our long-term client-focused strategy is going to continue to shape our decision-making, aimed at further diversifying our earnings growth, improving our operational efficiency, and deepening our client relationships.

I believe we're well positioned to be flexible in a changing market. We have enhanced our strategic position in serving the private economy this quarter through solid organic growth across Canada and the United States. We will continue to focus on building our presence in the U.S., relying primarily on our strong organic growth. On behalf of CIBC's executive committee and our board and all my colleagues, I'd like to thank our shareholders for their continued support and our entire team for their dedication to helping make our clients' ambitions a reality. Thank you, 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: 60 minutes

Call participants:

Hratch Panossian -- Global Controller and Head of Investor Relations

Victor G. Dodig -- President and Chief Executive Officer

Kevin Glass -- Chief Financial Officer

Laura Dottori-Attanasio -- Chief Risk Officer

Michael G. Capatides -- President and Chief Executive Officer, CIBC Bank USA

Harry Culham -- Group Head, Capital Markets

Jon Hountalas -- Group Head, Commercial Banking and Wealth, Canada

Christina Kramer -- Group Head, Personal and Small Business Banking, Canada

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

Meny Grauman -- Cormark Securities -- Managing Director

Steve Theriault -- Eight Capital -- Analyst

Scott Chan -- Canaccord Genuity -- Director

Gabriel Dechaine -- National Bank Financial -- Analyst

Mario Mendonca -- TD Securities -- Analyst

Doug Young -- Desjardins Capital Markets -- Analyst

Sumit Malhotra -- Scotia Capital -- Analyst

Darko Mihelic -- RBC Capital Markets -- Managing Director

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