Q1 2020 Earnings Call
All participants please stand by your conference is ready to begin.
Good morning.
Actually I B C quarterly financial results call. Please be advised on this call is being recorded.
I would now like to turn the meeting over to Jeff White Senior Vice President Investor Relations. Please go ahead Jeff.
Thank you and good morning will begin this mornings presentation with opening remarks from Victor Dodig, Our President and Chief Executive Officer, Following Victor Garageband Ocean, Our Chief Financial Officer will review our operating results.
Lord Dettori Athanasios, our chief risk officer will close out the prepared remarks with the risk management update.
We're also joined in the room by Sea Ibcs business leaders, including my Capitated, Harry Culham, Jonathan towers in Kristina Kramer, they will be available to take questions. Following the prepared remarks.
As noted on slide two ever Investor presentation or comments may include forward, looking statements, which which involve assumptions and have inherent risks and uncertainties actual results may differ materially with that I will now turn the meeting over to Victor.
Thank you Justin good morning, everyone.
Bank reported strong first quarter results. This morning with earnings of $1.5 billion on an adjusted basis, which is up 9% over last year and a return on equity of 16.1%.
We're pleased with the performance across all our businesses, particularly strong results in capital markets as well as consistently solid deposit growth across our bank.
Well geopolitical issues and more recently the cool Corona outbreak are creating a more uncertain environment globally overall growth overall GDP growth in North America has been relatively supportive today.
As expected our credit portfolio remains strong and is well positioned in a stable environment.
Oh C.G. one ratio of 11.3% provides us with flex with the flexibility to invest in our core businesses for the long term as well as return capital to our shareholders.
During the quarter, we accelerated the pace of our share buybacks repurchasing 1.5 million shares.
Also pleased to announce an increase to our quarterly dividend of two cents to $1.46 cents for sure.
Well our efficiency ratio has improved to 55%. This quarter, we continue to challenge ourselves to be a more modern bank reinforcing a continuous improvement mindset.
And prudently managing our costs.
Got a circle back to how we're going to re purpose or Cosbys later in my remarks.
Turning to our business segments in personal small business banking recent investments in our client focused solutions and our emphasis on advice are paying off with improved growth on both sides of the balance sheet.
To further support our mortgage in small business growth, we recently announced a partnership with remarks and take our offices in Ontario in India and the Atlantic region.
This partnership provides our mortgage and financial advisors, a different avenues to build new client relationships.
Our commercial banking and wealth management businesses, both north and south of the border I didn't relationship managers in areas that we have identified and targeted for growth.
Commercial banking continued to demonstrate double digit loan and deposit growth.
Our wealth management businesses also performed well largely driven by higher fee based assets and strong net fund flows in both Canada and the United States.
Our capital markets business had a very good quarter with earnings of $335 million, which is up 63% over last year.
We have a differentiated capital markets platform with an increasing proportion of earnings coming from stable recurring revenue streams, such as our innovative foreign exchange and payment solutions.
We also continue to diversify and transform our earnings like rowing in the United States and Brean capital markets products to our clients across the rest of our bank.
These results across our bank reflect the strength of our client focused franchise.
As we look to the future and focus on the execution of our growth priorities. This morning, we announce some leadership changes in support of our growth goals.
These changes leverage the strengths and capabilities are a deep an experienced team and position us to accelerate the ongoing renewal of C.I.B.C.
First with Kevin Patterson retiring in the in May of this year I wanted to acknowledge his strong leadership in over 35 years, a service at our bank, which started a branch in Hamilton, many many decades ago.
Thanks to a steady hand, our technology and operations are well positioned for the future.
Kevin has been instrumental in building our best in class mobile banking platform, which is a legacy that Kristina Kramer is also shepherd helps shepherd to what it is today.
As Kristina step send to lead our technology infrastructure and innovation group. She brings a deep understanding of our clients and their changing needs at a time when technology underpins, our current and future banking relationships. Kristina also has extensive experience with their processes are people in our platforms, which will be key as we can.
Can you to focus on her clients experience with our bank as well as simplify and profitably grow our franchise.
Laura Dottori up to now show, who many of you on the call in the well well take on the leadership a personal small business banking.
Joined our bank in 2009, who's the head of corporate banking responsible for all credit activities in capital markets globally.
And it's also help other senior leadership roles in financial services.
As a strategic and passionate leader, who brings a disciplined approach which will be important as we continue to modernize our retail banking platform.
Sean LIBOR will become our chief risk officer.
Sean join see IVC in 2002, and there's a letter U.S. capital markets business as well those are banks legal strategy in corporate and development functions. This includes playing a central and our acquisition of the private bank.
On his knowledge not only of our cross border business, but also the regulatory environment that we operate it.
Coupled with his experience and governance matters. He is well positioned to take on the leadership of our risks team as we continue to prudently manage our bank.
Every told them, we'll continue to lead or capital markets franchise.
And we'll add accountability for oversight of Firstcaribbean as well as a direct to consumer businesses, which include simply financial direct investing and advice and our alternate solutions group.
Under his leadership our capital markets business is highly connected to our broader team and has proven its ability to deliver value to clients across our bank.
Through their leadership.
And that of our broader executive Committee, we will continue to execute against our growth strategy.
Specifically, we will continue to cultivate and engage culture focused on delivering the best service to our clients.
To optimize our cost base.
Smartly reinvest or capital delivers value to our shareholders.
Hi, its employees and the communities we operate in.
2020 is an important here for a bank on each of these fronts I wanted to provide a little more detail.
Let's see I B C. We've invested a significant effort and building a purpose driven bank with a client focused culture.
Our purpose is to help make our clients and ambitions are reality, each and every day.
We've made steady progress in embedding it into the fabric of not just what we do but also how we do it across our bank.
Our unrelenting focus on our clients is evidenced by our clients experience results that were all products.
This quarter, we achieved our highest ever Ipsos net promoter score in Canadian banking.
This builds on the very strong JD power results, we delivered last year in both Canadian banking and brokerage as well as our leading claim experience results in the United States.
When it comes to costs, we also need to continue to challenge ourselves to me it more modern bank by focusing on continuous improvement and keeping a careful eye on our resources.
Our current 55% Nics ratio is down 5% from 2015, which was achieved through re purposely resources realigning our organization and simplifying your processes.
Well, we've made steady progress since starting this journey.
We have more work to do.
This also includes reviewing organizational structure maximizing your capabilities and streamlining decision making.
All to further enable execution of our growth strategy.
At the same time, we're committed to re skilling and Upskilling, our talent to ensure our employees have the opportunity to developing grow as digitization becomes a greater enabler of our banking business.
To that end the restructuring charge, we announced this morning supports an internal enterprise wide program to accelerate delivery of our priorities, including improving our efficiency.
We're not taking these decisions lightly but the restructuring will help us re purpose our cost structure as we simplify reinvesting and position our bank to further strengthen our relationships with our clients.
Turning to capital well, we maintain a strong capital position and balance sheet discipline, we continue to thoughtfully and strategically enhance returns through effective deployment.
This is an area, where we've been making solid steady progress as we diversify our bank.
A clear example of this is our U.S. business, which represented 6% of earnings in 2015 through organic growth as well as strategic opera acquisitions. It represents 20% of earnings today.
We remain comfortable with our capital position and we'll continue to return capital to shareholders I remain primarily focused on organic growth.
So to wrap up I'm pleased with our performance. This quarter, we had solid results from our core businesses and we're seeing good progress in some areas that underperformed in 2019.
Our <unk> our performance also demonstrates the strength of our client focused strategy and the value of diversification across client segments industry sectors, and geography, and with that I'd like to turn the call over the horizon.
You are financial performance.
[noise], Thank you Victor and good morning, everyone.
My comments would refer to the slides that are posted on our website starting with slide seven.
For the first quarter fiscal 20 reported earnings of 1.2 billion and diluted earnings per share $2.63.
Oh results included two items of note a $250 million after tax charge related to the restructuring balance by Victor and 21 million after tax and amortization of acquisition related intangibles.
Adjusting for these items of note we delivered net earnings of 1.5 billion and earnings per share of $3.24 up 8% of over the prior year.
This quarter's results reflect continued progress against our client focused strategy, we increased the breadth of our client base deepened relationships and improved client experience, while continuing to invest for future growth.
In aggregate these efforts net at 5% growth and pre provision earnings and improved our OE at 16.1%.
Revenue of 4.9 billion was up 7% year over year supported by continued growth across all businesses with particular strength in our differentiated capital markets platform, and our commercial and wealth management businesses across North America.
Adjusted expenses grew 1% ahead of revenues this quarter from an unusually low Q1 last year. This growth reflects higher performance based expenses and continued franchise investments net of the productivity improvements achieved over the year.
We anticipate expense growth to moderate over the balance of fiscal 20 as continued investments are offset by the impact of the announced restructuring which will affect nearly 5% of our team and reduce run rate expenses by over 260 million.
These savings will start materializing in physical 20 contributing to improvement towards positive operating leverage by the ended the year.
The entire run rate impacted the restructuring will be reflected in our financials in fiscal 2000 do you want.
Turning to slide eight we ended the quarter with a seat you one ratio of 11.3% down from 11.6 due to a number of onetime items in the quarter.
Pro forma seats, you one ratio, including the impact to the announced that's the I'd be transaction with approximately 11.7% and remains above our target range.
Internal capital generation of 33 basis points with more than offset by the impact of the restructuring charge and higher risk weighted assets in the quarter. In addition to normal course business growth regulatory changes model parameter updates and the partial reversal last quarter's market risk reduction contributed to unusually high our double.
Hey growth over the quarter.
This quarter. We also bought back 1.5 million common shares as part of our ongoing normal course, issuer bid, which had an impact of seven basis points on C.D. one.
Going forward, we will continue prioritizing capital allocation to organic growth in our business and we will return capital to shareholders, while maintaining the strength of our balance sheet.
Let me now turn to the performance of our business units. The balance of my presentation will be focused on adjusted results, which exclude items of note.
Slide nine reflects our personal in small business banking results, where we continued to see stable margins strong growth in deposits and quarter over quarter growth in residential secured lending both imbalances and commitments.
Net income of 619 million was down 2% from last year as continued investments in the business outpaced revenue growth.
And use of 2.2 billion increase 2% year over year benefiting from 4% growth in Eni driven by expanded margins and volume growth in both loans and deposits.
Net interest margin with 251 basis points for the quarter relatively stable sequentially and up nine basis points from last year, primarily due to the benefit at favorable rates going forward, we expect them to remain relatively stable with modest downward pressure from any further impact on the yield curve and competitive pricing.
Non interest expense, the 1.2 billion were flat sequentially, but up 5% from the prior year as we continue to invest in modernizing our infrastructure distribution channels and product.
While we experienced some quarter over quarter fluctuation in expenses as we've noted before we continue to expect full year expense growth for the segment to be closer to our 3% guidance.
Slide 10 shows the results of our Canadian commercial banking and wealth management business, where we continue to see strength in commercial banking and improved performance in wealth management net income for the quarter was 336 million up 7% from a year ago.
Pre provision earnings were up 5% driven by strong revenue growth of 7% net of a 9% increase in noninterest expenses.
Expense increases reflect higher performance based compensation and investments, including continued hiring and client facing wells.
We continue to expect physical 20 expense growth to be in the mid single digit range with some variability from expenses links to top line performance.
Commercial banking revenues were up 4% from a year ago net interest income benefited from continued volume growth offset impart by the impact of market rates in pricing.
Deposit in lending balances were up 14% and 9%, respectively, and we continue to see balanced growth across all segments and geographic region.
Wealth management benefited from improvements in markets and a $2.3 billion increase in net sales over the same period last year.
Revenue for the business was up 9%, primarily driven by higher fee based assets and closer with brokerage and 13% growth in a U N.
Slide 11 shows the results of U.S. commercial banking and wealth management, where we continue to experience strong growth as we expand our business.
Net income for the quarter was 185 million up 6% over the prior year revenues were up 9% year over year as double digit volume growth and higher asset management fees more than offset the significant decline and interest rates over the year.
Average loans grew 18% from a year ago, reflecting continued momentum in client development the impact of new regional offices and expansion into new sectors average deposits grew 22% year over year due to strong growth from new and existing clients.
We also saw strong growth in our U.S. private wealth business, where a U.M. was up 20% over the prior year driven by organic client growth tighter integration with our commercial in private banking businesses and market appreciation.
Net interest margin for the segment with 302 basis points up three basis points sequentially and down 29 basis points from a year ago.
This quarter, we discontinued the treatment of integration cost and purchase accounting adjustments associated with our U.S. acquisitions as an item of note, resulting in a small benefit to the segment's adjusted income and NIM. Excluding this benefit NIM was down slightly as a result of continued decline in short term rates.
Going forward, we expect them to remain relatively stable subject to further flex fluctuations in interest rates.
Non interest expenses increased 10% from the prior year, reflecting higher performance based compensation and continued investments to drive growth.
I signaled last quarter Q1 include the seasonal increase related to the accrual of incentive compensation and benefit costs and we anticipate more modest growth for the rest of the year.
Turning to capital markets on slide 12.
Net income of 335 million for the quarter was up 63% from a year ago underpinned by 31% growth in pre provision earnings and improvements in credit provisions over the prior year.
Revenue of 871 million this quarter was up 22% from the prior year driven by strong trading activity across all products as well as higher corporate banking and underwriting revenues.
Results this quarter reflect progress against the segment strategy benefiting from continued momentum in the U.S. and further revenue growth originating from retail and commercial clients across our bank.
Non interest expenses of 419 million were up 14% from a year ago, primarily driven by higher performance related compensation as well as increased investments in growth and enterprise initiatives.
Finally, slide 13 reflects the results of the corporate and other business unit net income for the quarter was 8 million compared with 39 million for the prior year.
Reflect stronger performance NFC I'd Mehta of reductions in travel <unk> Treasury revenue and expense growth related to enterprise and infrastructure investments as mentioned previously we anticipate the sale of our controlling interests and that's the I'd be to close in the second half of Twentytwenty and will provide updated guidance for this segment at that time.
And with that I will turn the call over to Laura.
Thank you.
[noise] and good morning.
Turning to slide 15, this quarter provisions for impaired loans represented a year over year end quarter over quarter decrease.
This was primarily driven by our capital markets and Canadian commercial banking businesses.
And included an additional provision for one commercial banking account that we discussed last quarter and some reversals in capital markets.
Our provisions on performing were 17 million down from the prior quarter. This was mainly due to routine model and parameter updates overall, our forward looking indicators remained relatively unchanged this quarter.
The next slide provides an overview of our gross impaired loans, which remains stable at 47 basis points.
The slight increase in our residential mortgages was driven by continued seasoning of the loans that we originated over the past few years.
Slide 18 provides the 90 plus day delinquency rates of our Canadian consumer portfolios.
The increases in delinquencies are largely driven by our mortgage unsecured personal lending portfolios and reflect the seasoning of the mortgage book as well as some continued weakness in the oil provinces.
I continue to be pleased with the overall performance of our credit portfolios.
And well provisions for losses were low this quarter, we are maintaining our guidance of below 30 basis points on provisions for impaired loans for fiscal 2020.
With that I'll turn the call back to the operator for questions.
Thank you.
Please press star one at this time, if you have a question.
The first question is from John Aiken with Barclays. Please go ahead.
Good morning, Victor with the sea to one ratio pro forma being above the range can we expect that to be managed down back within the range or should we expect that to be.
Me, maintaining a little bit higher level, given I guess some of the uncertainty around the macro book.
Good morning, John Thanks for your question, we've always said that we're operating within 11% to 11.5% seats you one range. That's our comfort zone on a pro forma basis with the F.C. I'd be sale will be higher than not.
As we've said to our shareholders, we're gonna be using a toward the organic investment a dividend increases both of which we highlighted today and an ongoing buyback program in which we executed against more.
Repurchase of shares this past quarter and we'll continue to do so in the quarters ahead, but I'd say the messages operating within 11 until 11.5% is our range that we're comfortable.
Great. Thanks, Victor and Laura if I can very quickly you mentioned your prepared remarks, the provisions in Canadian commercial relating to the credit we talked about last quarter I. How comfortable are you that with the additional provisions taken this quarter. This is actually being put to bed.
Oh, well this is an evolving situation. So at this time, where provision that but 76 cents on the dollar.
So I'm quite comfortable today with the provision rate that said and as you can appreciate Ah things Cannavale I think the important takeaway here is that as things evolve. This ever we did have to further provision a.
There is a lot less left to write down.
Thank you over to you.
Thank you. The next question is from Ebrahim Poonawala with Bank of America. Please go ahead.
Good morning.
[laughter] I guess, so a question for Victor.
How did this seems to be this perception when you talk to investors.
Couple of fish at whole goes down.
Reinvestment in the retail franchise in Canada and does this go for widening gap relative to some of your loved your peers would love to hear your thoughts I don't want do think this is about and consumer <unk> and if so how much would it take both in terms of deferred tax expense span both in terms of dollars and time to catch up to some of those peers.
Morning, Ebrahim. So a couple of things I'd say, one is always listen to investors and investor feedback, but I have to.
Tell you all that we have a very solid personal small business banking franchise in Canada, and we also recognize the importance of our franchise to our growth strategy. So let me highlight some of our strengths.
We have a leading mobile platform that's been recognized by independent research agencies and our clients. It's been recognized by millennials, who know the under 35 classic already the JD power thinks that were the best mobile platform out there we have a functionality that exceeds some of our peers. We've been investing in that platform that continue to have elite.
We have a leading relationship management platform. The Imperial service is still an unmatched service in Canadian banking and we continue to invest there and we'll continue to invest in our vice platform in the quarters ahead, which will share with you as those investments come to life, we've been investing in our small business platform. We've got some interesting significant.
Pilots going on in the small business side, we're seeing very encouraging results we've invested significantly.
In our banking centers, we now have almost 90% of our transactions being done outside of the banking center. So that we can focus on advice and our banking centers have been repurpose not regard and Weve rejuvenated our product suite, we have the our smart plus platform. So any Canadian there has $6000 under checking account were $100000.
Any part of the C.I.B.C. pays no checking account fees and gets a free premium credit card, we've invested in smart investment solutions, which is driving our volume on the investment side. So those are our strengths and I think it's important to highlight those because they are real they are incumbent advantages that we continue to build on and we'll invest them now.
In the past year, we also recognize those areas of opportunity for improvement there was clearly an area of opportunity for improvement mortgages, we've invested in up by putting in a high higher quality and larger number of mobile advisors investing in technology. So they can simplify their way of doing business and onboarding clients for mortgages and Weve.
Dalglish this relationship with remarks, which we're very excited about as they are the leading agency and eastern part of our country.
The second thing is mutual funds last year, we had a outflow of $1.6 billion in the first quarter. This year, we had a positive inflow of $1 billion. That's a 2.6 billion dollar Delta, it's being driven by our smart investment solutions, which are market leading in terms of structure in pricing.
Investment performance on the investment side, we've got 72% of our assets under management are performing above benchmark on a five year basis, and 86% on a one year basis.
And in our cards business, we're seeing improved acquisition. Our goal is to continue to embrace the launch of the new Air Canada card and continue to invest in or aventura platform, including or Cashback card.
So our goal is to continue to invest in our business deliver positive operating leverage and continue to ensure that are solid personal small business banking franchise in Canada delivers the growth that are investors expect and we know we can deliver.
Got it Oh that it was pretty comprehensive so I guess you factor one line. It sounds like you don't see any share the investor perception that on this I think that if you actually lift up the hood and look at what we're doing look at how we're positioned to look at some of the growth trajectory in those areas where we.
But at some softness last year things are heading into right direction now as you all know it takes time right. What we said we're going to get to a market level of mortgage growth toward the end of the year, we've already turned around or our investment franchise, we're seeing client experience scores.
The highest level that we've ever seen now one quarter does not make a trend, but if you actually look out over a number of years or client experience scores have been improving we're focused on serving our clients and we're focused on being best in class.
That's helpful. Thank you very much.
Thank you. The next question is family Gapping out machine with National Bank Financial. Please go ahead.
Morning.
One.
Follow up on the capital commentary.
All of them three you're still comfortable with the pace of buybacks or are you looking on a pro forma basis.
When you're contemplating capital deployment.
Morning, Gabriel its Raj I'll take that one I would say we are comfortable for a number of reason. So one we do look at that pro forma number and we continue to feel comfortable about the probability of a of that realizing that around the midpoint of the year as we discussed two we look at the forward.
Jack Korea of capital generation, and you know outside of a onetime items this quarter as well as some of the volatility we saw between last quarter, and this quarter, which which but some are definitely they go into this quarter, we feel very confident with our net generation going forward and so between those two things that we feel comfortable that a that were published.
We continue that.
Thanks, and on the credit side of things for Laura I've asked this question of other bank I'm getting a pretty consistent who really detailed response, but.
Given the balance of factors.
Grown very rough indirect impact.
Blockade.
I have an impact on the economy.
Notwithstanding this quarter is better than expected credit performance is gonna be some upward pressure, but good contemplate in Q2, if not you on a at least from the provisions on performing no.
Yeah.
[laughter].
Well I continue to guide.
They said in my prepared remarks or to below 30 basis points as it relates to provisions on in Paris.
And as you pointed out Ah things relating to that Corona virus rail blockades, we're still sort of in early days. They are two important events and they can certainly impact our economy on a go forward basis. So we continue to monitor them closely and dependent upon what happens and length of time.
I would expect that we would see that start to represent first.
NFL line movements and so in our provisions on performing but it's still early days.
Thank you.
Thank you.
The next question is found that many grandmother with Cormark Securities. Please go ahead.
Hi, Good morning, I'm wondering if the change in leadership in the retail business or changes anything in terms of the strategy for that business.
Our strategy is as articulated a little earlier, many and we're very very confident in the solid platform that we have and our ability to invest in that platform and deliver further growth.
I think Laura well poised to take on the leadership for the business pristine as well poised to take on leadership in your role in technology infrastructure and innovation and I know the two of them.
As well as the entire team, which has been working together for quite some time well continue to focus on delivering profitable growth to our franchise.
And then just on the restructuring charge I don't think you mentioned that I'm wondering.
Where these.
Charges are concentrated in a particular area and if so what and then and then on the 260 million dollar run rate savings rach.
How much of that will be a falling to the bottom line I mean, Victor you talked about re purpose thing a lot. So I'm wondering how that geography, okay. Many let me say a couple of things about restructuring because I think it's important to get our entire narrative out to our investor base and they're going he was rushed to deal with some of the very specifics in terms of what we're anticipating.
Back half of this year as well as a 2021.
So just to remind everyone. We set out a past five years ago to create a more client focused agile and cost efficient bank. Since then I think we made solid progress on a number of fronts weve reduced our next ratio from 60% to 55%.
Think that's quite an accomplishment.
You see team.
We took a restructuring charge in 2016 to further accelerate our efficiency and the restructuring charge, we announced today is a further effort to simplify our bank.
We believe as a leadership team that the charge, we announced today is sufficient to get our bank to the operating model that's going to do a couple of things deliver improved topline growth.
Help us achieve our 53.5% to 54% 2022 target that's why the end of that year deliver positive operating leverage across our platform into the year had a cross are all our S views and get us back to that 5% to 10% EPS growth range in a stable market environment.
That's what we believe that's what we've done this and we don't anticipate doing this going forward a it is really all about now operating performance of our businesses you had some specific questions about the expenses and how we're thinking about that going forward. So Roger maybe you want to elaborate on that sure. Thank you Victor So yeah, I think as Victor said for this year.
Sure. We will continue our investments and we also see continued investment into Twentytwenty went forward a the purpose here of the restructuring was to find offsets and to find efficiencies in areas, where a work can be eliminated or done more efficiently. So that we can continue investing in front line. So with all of that for a where this year for fiscal two.
Empty and net basis, we're still comfortable with that 4% to 5% guidance full year for expenses that we spoke about and the couple of items in that our performance based expenses are trending a bit higher because of outperformance and we're pleased with that and some of the beginning of the restructuring early parts of that to 60, reflecting.
This year net dot off a bit so net net so we're still in that 4% to 5% range, but in terms of quarterly trends as Victor mentioned accelerating towards positive operating leverage at the end of the year when the full impact of the 260 comes in next year.
That will give us the ability to reduce baseline expense growth as a starting point to the low single digits now that will be the baseline off of which we will decide a reinvestment levels and our goals are Victor said, our operating leverage positive and trying to get back to that 5% to 10% earnings growth. It's early to tell what the environment looks like so we'll re sizes.
Reinvestment based on those output.
And so the exact expense growth for 21, we'll give you more guidance on later in the year.
Thank you.
Thank you.
Question is from Steve Theriault with capital. Please go ahead.
Thanks, very much Oh, I'd like to start with the Canadian commercial business or John the commercial lending growth had been very very steady around 12%. The last number of quarters, but slowed a few hundred basis points in Q1, maybe just some detail. There are you seeing any increased competition or terms you don't like in the market, what so what's driving that yes.
Thank you for the question. If you look we tend to look at the business on both sides of the balance sheet I tell you over the last eight or nine quarters.
Deposits have been double digits every quarter loans is kind of jump back and forth, sometimes they're low doubles, sometimes are high single this quarter their high single.
So that feels pretty normal when we looked at the kind of pipeline. It's in line with history.
New business in Q1 inline with history.
Like station rates were a bit them. So that's a bit different so we're watching that early days and to your comment yet we are passing on more business. We're relationship right right. We don't compete on price risk.
If we have to pass on business that doesn't fit our model, we're happy to do it we're very comfortable with what with the model. We've built long term, we think we can grow faster than market on both sides of the balance sheet in the short term if we see things in the market that don't make sense for us.
We we pause so we are passing on a few more deals in commercial banking.
Okay. That's helpful and then.
Kind of related but Victor you mentioned small business and looking at that line item its little down this quarter, but it's been flat for a while Victor So you mentioned some initiatives there.
Can you or Christina give little more detail and what's your level of confidence, we'll see some acceleration a this here in the small business line.
Thanks, Steve pass it onto you can't go ahead I'll take that question. Thank you Victor and thank you Steve the first priority as we looked at our small business segments was to focus on specific client segments Canadian Entrepreneurism professionals, and we've been focused on growing the business by meeting clients core payments and cash management needs. So.
Well, that's on the deposit side and we've seen.
The deposit growth in that space.
Last year, we added in this speaks to the reinvestment that Victor was talking about we added over 170, new specialized business advisors and support roles in targeted markets.
And we'll continue to make those investments to advance our relationship based strategy. So those new roles their growth is pacing our expectation still early days, but outpacing expectations and we're expanding into other parts of Canada. This year. So we see further opportunity on the business borrowing side has not.
And our primary focus initially, but as we expand our specialized immobile business advisor force. We believe we will increase our growth on the borrowing side and with the roles that we've already put in place, albeit again still early on we're seeing higher lending origination activity. So good.
Early results, but that's where we've been fake pfos focusing in small business segment.
Okay excellent color.
Thank you.
Next question is from Scott Chan with Canaccord Genuity. Please go ahead.
Hi, Good morning, just a quick question on the restructuring charge did it affect the U.S. business at all.
Hi, Good morning, Scott Troche I'll jump in so the way to think about this across segments that it's it's fairly broad and it affects all segments roughly proportionate to where at Ti count is if you look at it. So it is largely focused on where we can do things more efficiently across.
A number the areas and there are those types arose both in corporate and other segment in operations and so forth in other areas, but there are those types of roles across the entire banks. So look at it proportional across the segment.
Okay, that's helpful and and stick one of the U.S. segment, the commercial growth seems to be.
It continues to be very robust we've seen a lot of your peers at an industry data.
Noticed some deceleration in the quarter and potentially throughout fiscal 20, just curious to hear thoughts on a on the trajectory on a on your on your on your volume business there.
Thanks, Scott. This is a this is my Capitated I'll take that question.
As we said last quarter our growth is in part due to the new initiatives, we put in place and over the course of the past year and a half.
That's new offices, new products and increase referrals amongst our various business groups a in the U.S. last quarter. It was about 50 50 between new and same store. This quarter. It's about one third new two thirds same store. So this this healthy growth or is in large.
Part due to purposeful new initiatives, we put in place, we expect that growth to moderate or for the rest of the year, but remain a healthy probably to the high single digit low double digits and importantly, it'll be proportional between our see an eye portfolio and our real estate and private.
Taking portfolio, having said all that we're staying disciplined on pricing and credit. Although we do see a lot of competition. We too are passing on deals that do not make sense for us right now, but we're very pleased with the way that team continues to execute on a very purposeful a U.S. strategy that we put in place.
Along with the acquisition a couple of years ago.
Thank you.
The next question is from Sumit Malhotra with Scotiabank. Please go ahead.
Good morning, I'm going to stay with Mike to start like when the bank acquired PV TB a few years ago, one of the the talking points that was discussed was.
The ability of CNBC to help.
Ah accelerate the the funding profile and the low cost funding profile of of that institution is coming off a low base, but we do see or.
Your your no interest appears zero interest bearing deposits are starting to increase can you tie that into some of the initiatives that Victor talked about in terms of how the bank is engaging with clients and maybe more specifically numbers wise, how does that tie into what seems to be a constructive.
Margin outlook in the face of another step lower and the interest rate structure.
Oh, sorry, it's from a microphone I'll start off at a pass it over to Harats or the err on the deposit side, we're seeing a greater opportunities that are market space, especially related to the expansion of the C.
We see brand and we've been able to work very very effectively with our new and existing she I'd be C class to expand or that deposit base and liquidity serve services importantly, as the balance sheet has grown a we've been able to maintain a very healthy level.
Non interest bearing accounts, a checking accounts and expanded our our treasury services.
These clients are generally in the commercial and wealth sector and are somewhat price sensitive.
But as a we adjust rates, which and you know a good part of our book is long Board base, most of our book, which which is forward looking our team has worked very very hard and productively with our clients to readjust, our deposit pricing and and frankly a.
Day to day effort and a you're starting to see that in or out at our nims and you'll see it going forward.
In addition, our digital agility platform has performed very well and that's given us some flexibility in terms of art deposits that stack. So overall, we're just we're we're happy with Ah you know how our deposit strategy has rolled out it's been strong and I'll turn it over the Harats nowadays.
Give some more technical.
Information on our our Nims <unk>, Thanks, Mike and thanks for the questions humans. So I think Mike covered the business elements. The the few things I would add is.
Yeah, I'd be see acquired by that bank and we brought the ability to to help and accelerate the growth of deposits as well as the ability to manage the profitability at margins I think better to through some of our hedging program and so there's a number of things that we've done Mike talked about some of the initiatives and the business and there have been some cross segment initiatives. So.
Some deposits from our commercial clients in Canada that man that deposits there.
Some opportunities for deposits from our Geneva, and Atlantic Trust client, a historically that now with the private banking offer that we have there's some personal deposits on not so all of those are helping a generally you know puts and takes but generally helping as well and we hope over time up on the cost of deposits, which helps margins but.
Deposits overall, I would say stable to to.
Some of the initiatives, Mike mentioned, managing that more closely loan margins as well staying fairly stable some movements as the composition of the portfolio moves, but we're able to keep those stable and so the residual really has been around interest rate sensitivity on the yield curve due to the mismatches between assets and liabilities and we put a lot of hedging a capability on.
On top of that throughout central Treasury. Since then and so that stabilized margin. So we had a forecasted margins to be relatively stable. There was a bit of noise in that uptick this quarter due to the item I mentioned in my remarks, but a net of that margins were down three basis points, which is relatively stable and the short rate environment that we are.
Seeing and we expect that to continue because of all dynamics I spoke about.
Thanks for that color and I'll wrap up with a quick win for your route you mentioned that you expect first Caribbean.
First Caribbean divestitures that closed in the second half of this here.
Thinking about the the full year impact to earnings power for the bag. If you still have the disclosure out there I know, there's some differences between what they report and then how it gets picked up in the banks financials. If I was estimate approximately 40 cents a share as.
As the net.
As of that a about that a shade BC would for goes up in the ballpark of what you're expecting.
I would say that hi, sumit.
So I think I remember, there's a number components here, there's a contribution from first Caribbean a there's the portion that we will continue to recognize through earnings because of our continued stake of 24.9%. So the net of those two is a is what would be lost a there's some economics related to the loan related to the trends.
Gotcha, and you've got a net dot off as well so I would say significantly below that number and the way we're thinking about it is between the loss on steady state earnings and then capital that generated a as it released as part of the transaction once we deploy that capital and in a return to shareholders were relative.
Leap, yes neutral.
Thanks for time.
Thank you. The next question is from Merial Mendonca with TD Securities. Please go ahead. Good morning, if we could take a step back now and just look at the balance sheet in total.
The page I'm using is your average balances on page 17 of the supplement and.
What I observed this quarters that the growth in the average assets is.
Meaningful it it's a fair bit greater than what we've seen in the past and as I drill down on the various items.
Theres repos for sure I'm securities definitely cash and deposits with banks.
Could you help me understand if this is the new the new level from which CNBC would grow or was this quarter somewhat special in terms of what what the bank was presented in terms of opportunities.
Morning, Marriotts, Roger I'll take that yeah, I would say this is all normal course business. There can always be some volatility backing for it but a number of items driving that and I'll oh elaborate a little bit more so a one there's the ongoing dynamic across the balance sheet, a as we grow certain.
On a items other than drawn loans for example, our deposit books, our undrawn commitments another contingent exposures when it funding perspective, because of the new liquidity rules that increases that the liquidity or in HQ outlay requirements from that we manage and treasury for LCR purposes, another liquidity metrics and so that drives.
Continue will increase in securities that are that you will see come in in the Treasury side. So that's one element in that I would say is ongoing the second element, which is also treasury related as you can have fluctuations in liquidity and so you'll see the cash a line item as well up significantly this quarter a that I would say is transient liquidity. So some of that will.
Be volatile and not necessarily steady state and then lastly, we had an increasing security in Iraq and their capital markets business, that's related to the ongoing client business that we're doing growing that business and so again that can have some fluctuation buzz that as we grow the business I would expect that to grow both across our financing.
Business as well as somebody other desks and so those are the main drivers little bit of annoys, obviously on the IRS goes up this quarter that adds to the balance sheet, but you know nothing significant.
How much would it be fair to say then it it's hard to tell whether this will grow from there could shrink it could grow just sort of depends on whats presented next quarter or is that fair.
Yeah, I think there'll be a live volatility the longer term trend as we grow our business I would expect that to grow because of the liquidity requirements that I mentioned my and then finally, if we look at the.
Look at the increase in RW late this quarter and you acknowledged that it was it was big I understand the various pieces is there an opportunity here for for C.I.B.C. to actually shrink some of these balances and redeploy into things like buybacks.
It's just as its actually present opportunity to boost capital.
Is that anyway is that reasonable and the way the bank looks at it.
Yes, Oh, let's say if you think let me start with a quarter because they think it is important to clarify that so as I mentioned, if you look at the 36 basis points of a of normal course business RW eight growth. If you will not it's probably about 10 basis points overstated. This quarter. So I look at last quarter.
This one combined I think there's a 10 basis point that was borrowed from one quarter to the other and that's related to our trading related our WH, both across counterparty credit and market risk a those will move around between quarters and there's some volatility right because it by market movements that change at change the marks on derivatives and so forth.
And changes in market risk based on a the dynamics of bar and stress bar. So you know net net we still think that this corridor or is the same amount of capital deployment going forward now is there an opportunity to deploy less a we're always conscious of the R.R.O. ease and the returns that were getting.
On on any capital that we deploy we're focused on organic growth, but we are very disciplined.
We do not have significant areas of our business where returns of capital deployed our below a what a what what we are expected returns on well above cost of capital and hurdles, but we are continuously look at that on the margin there maybe opportunities here and there, but I think were more in the mode of deploying capital towards growth that was our.
How did you that was one of the reasons that we invested in the U.S. to give US an avenue to deploy your organic capital generation and so we're seeing the current dynamic because as the right one with small amount in that generation, but I, but a lot of business go through deployment.
Okay. Thank you.
Thank you. The next question Simon So atmel, the heavy with BMO capital markets. Please go ahead.
[noise]. Thank you just wanted to start up maybe with Harry for a second.
Very strong quarter. Harry you you had once upon a time said that you think the copper market segment.
It's probably about $2 billion a year type contributor.
To the total bank is there any reason to think.
That said that a yardstick has changed.
Hi, Good morning excellent question, Yeah, you're right I Didnt say that in the past and we've evolved I would say no. The core franchise continues to perform very well very diversified organic growth here in Canada with our core fragile, but also internationally and <unk>.
As we said in the past our medium to long term focus is to grow in the U.S. and also the same time increase our or stable recurring revenues through innovative solutions and servicing our personal and commercial clients and that's all growing double digits. So I guess the answers. Your question is we feel confident we can deliver in a slightly higher range now and I'd put it.
Sort of 250 to 300 million Maya per quarter and surpassed expectations as we did in this quarter given favorable market conditions from time to time and credit conditions. So.
The franchise is growing we think we continue to grow at this pace going forward, Okay, and maybe just that.
Credit spreads, obviously, a big factor for everyone this quarter, but even since the core trend high yield spreads of kinda widened <unk> are you seeing anything.
Noteworthy as far as the trading businesses, so far this quarter.
We had a reasonably good start to Ah to quarter exporter to obviously the markets are volatile.
They remain liquid Ah so they're constructive for client activity. There has been a little bit of gapping from time to time, but we're pretty confident that were where there for our clients were doing good client business.
A reasonable started the quarter to we'll see where the markets take us with.
The various different disruptions clients are active the pipelines pretty strong and as Victor pointed out. This is a differentiated platform. We're building businesses using technology to get through the cycles of capital markets. So therefore, I'm confident in the guidance I gave you a moment ago.
Can I sneak in one more.
Sure.
Victor or Raj lots of talk about.
But also about getting back to that 5% to 10% kinda EPS growth or.
Target range, if you're not the margin, which one comps the other one would you pursue growth or would you make the are really decision.
How about both because that's really our focus we've we've been quite clear.
Over five years ago. When we said look part of our mandate is to get our EPS to 5% to 10% and make sure that are we are always stays above 15%.
So we believe that some of the actions that we've taken on costs.
Some of the management effort, we've taken on driving the top line, we'll continue to throat show through in our EPS growth as we head into the back half of this year and early next year.
We also are all to aware of how do we get a balanced business going in terms of capital light businesses like some of the agency businesses, we have going through capital markets and the technology investments that we've made our wealth management businesses, which are showing robust net flows in both Canada, the United States and the rejuvenation of our continued.
Rejuvenation of our mortgage business, which has a lower R.W.A. density driving better growth and continued focus on deposits will all contribute to ensuring that always stays in a 15% plus range.
Thank you.
Thank you. The next question is from Doug Young Wednesday, Chardan capital. Please go ahead.
Good morning, just on the capital markets side, Victor you made a comment and I'm, just hoping to get a little more detail because I find it hard to model capital markets, but you said a growing percent of revenues are from stable recurring revenue streams and capital market, which it'd be great to understand what can you quantify that can you kind of late.
What are you a little bit more detail on that thank you I'm going to turn it over to Harry NSX, Doug, but I just want to highlight a couple of things the technology investments that we've made of not only served our capital markets clients sort of in its classic institutional and corporate sense, but there's been a higher degree of connectivity.
Through our retail and commercial businesses, we do measure that conductivity, how much business floor, we putting through our personal and small business bank as well as through our commercial wealth management franchises and that number is growing and we see that is having a higher quality level and more of a recurring nature. The second thing that we've you know created today is just.
Whole notion of direct financial services, the alternate solutions group, which you'll get more visibility to over the coming quarters, as well or so simply business and our investors edge business are all pretty profitable and growing businesses that really rely heavily on technology in the kind of technology investments that we've been making in capital markets.
I have a better result, so sorry, let me just pass it on to you in terms of highlighting anything else you'd like to highlight in that regard I will say unequivocally that the capital markets revenue streams that are coming from C.I.B.C.
Our fundamentally different than they used to be and are much more recurring and high quality in nature.
I guess I would I would add that we have diversified the franchise significantly.
Clearly the core corporate institutional franchise is very important to this business. If you just look at the pre provision earnings growth over the last five years of this business has grown in double digits. So we're confident that growth will continue with very good technology investment and continued diversification of client base or Victor mentioned servicing.
Perfect personal and commercial clients. That's very important this franchise. We think we have an edge there and really we have very good market share that we continued to grow in Canada, but also in the U.S. So very pleased with the growth of the non traditional corporate institutional clients into the personal and commercial space.
Yeah, I guess I would say care to put a number or percent on where that recurring revenue stands and where you think it would go or.
So this is Doug it's rice. This is an area that we're going to continue providing more transparency on as we go forward. So as we work towards our next Investor day with some of what was announced today as well with that with heres responsibilities around the sector, we're going to work through our disclosures to provide more out more transparency, but not at this time okay.
And just on the set one.
A lot of questions on it but if I look at it simplistically.
Looked like organic internal capital generation was negative clearly that's not the case and threats you talked a bit something borrowed from last quarter that impacted.
This quarter I guess my question is what is the organic internal capital generation set one growth that we should think about.
Is it less so than it was five three to three years ago and it's part of your issue is that you're getting good growth in the U.S. and I believe the U.S. is still under the standardized model if I'm I'm not right. There you can correct me and is there potential to change that if it is.
Yeah. So thanks for the question I'll take it so let me start with a quarter and I would reiterate so that 36 basis point, we saw this quarter and RW a growth is unusual and we don't anticipate to see that and the quarters going forward. Some of it was that quarter over quarter as I mentioned.
So take 10 off I think you're more in the ballpark of what we would expect to see going forward. So interesting that generation you know nothing has changed in the short term. So the last guidance. We provided was that we would be somewhere in the range of that sort of five to 10 at corridor or and I think that's still the right range I would probably look at it on and.
You will basis, given the quarter over quarter volatility. So you know I sort of call. It that 30 to 40 35 to 40 over a year, we still feel pretty good about that and the way we manage that goes back to the question earlier around <unk> or at least from sorry, We're we're very focused on marginal our OE forward and the I'll leave the bank because we very much.
Recognize that Oreo in that of dividends is really our ability to grow capital and as long as we maintain that capital level that equates to our gross level and at the same early that equates to our growth within our guidance range. So we continue to manage that going forward and like I said I think that 30 to 40 hasn't changed.
And that U.S. businesses standardized.
Sorry, yes. So it is that it is still on standardized yes, we do have an ability to go to advance then there is a a timeline around that so we're probably couple of years away still but we are working through it.
Thank you.
Thank you.
Now I'd like to turn the meeting over to Victor.
Thank you operator.
So we've had a good start to 2020 was strong earnings growth this quarter the reflect the strength of our client focused strategy.
The importance of earnings diversification and disciplined cost management, while maintaining a strong capital position.
We will continue our journey to transform our bank into a relationship focused modern consumer and business banking franchise with a leading north American commercial wealth platform and a differentiated capital markets business in summary, where a different bank today with tremendous opportunities available to us now that were possible a few years ago.
I've never been more excited about our future.
I'd like to thank our C.I.B.C. team for their dedication to our clients to our clients each and every day and I'd like to thank you all for joining us on our call today, we look forward to speaking with you next quarter and obviously in between that time. Thank you.
Thank you [noise].
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