Q1 2021 Canadian Imperial Bank of Commerce Earnings Call
[music].
This conference is being recorded physical sales at all of his history.
Please standby your meeting is about to begin good morning, and welcome to the CIBC quarterly financial results call. Please be advised that this call is being recorded.
I would like the turning the meeting over to Geoff Weiss Senior Vice President Investor Relations. Please go ahead Jeff.
Thank you and good morning, we will begin this morning's presentation with opening remarks from Victor noted, our president and Chief Executive Officer, following Victor for entrepreneurs, and our Chief Financial Officer, who will review our operating results Shawn Beber, our chief risk Officer will close out the prepared remarks with the risk management update.
We are joined in the room by Cibc's business leaders, including Harry Culham, Laura Detore, Attanasio, and John and tireless as well as might capitate is who is joining us remotely from the U S.
And they are all available to take questions. Following the prepared remarks, when we get to the Q&A to ensure we allow enough time for everyone to participate I ask that you. Please limit your questions and re queue.
As noted on slide two of our Investor presentation. Our comments may contain forward looking statements, which involve assumptions that have inherent risks and uncertainties.
Actual results may differ materially with that I will now turn the meeting over to Victor.
Thank you, Jeff and good morning, everyone. Thanks for joining us and we hope you're all keeping well.
And in an environment, where pandemic related challenges continue the impact the economy our diverse there is.
Diversified business model delivered a record adjusted net income of $1 $6 billion, which is up 11% from last year.
We also continued to build and our capital strength closing the quarter with the CET one ratio of 12, 3%.
Since the onset of the pandemic, we've clearly demonstrated our preparedness and our ability to manage the crisis at hand, while investing for the future.
And we know that the economic recovery won't be of straight line, but we will emerge from the pandemic and the CIBC team is well positioned to deliver growth as the recovery takes hold.
As we execute on our strategy, we remain very connected to how the pandemic is affecting the lives of our clients and our team.
Their wellbeing remains our top priority.
Our strong performance is being driven by the execution of our client focused strategy, which has three key priorities.
First over the past year, we've made significant enhancements to our Canadian consumer franchise as we accelerate growth.
This includes adding new leaders and investing and our people as well as continuing to innovate and enhance our products and our platforms.
During the quarter, we made further investments to our market, leading CIBC dividend card expanding the number of categories eligible for cash back rewards and increasing the flexibility to redeem those rewards.
This further strengthens our offer for clients and the important and growing every day rewards market.
Another area, that's driving the improvement of our results. This quarter is our continued momentum and our mortgage business the.
And the improved volumes, we've delivered at the end of last year have continued into this quarter with year over year of spot balance growth of 8%.
And sequential growth of 3%.
These results reflect the enhancements to the end to end client experience as well as strong results from our focus on retention.
In addition, our efforts to improve mutual fund sales were rewarded this quarter with record net flows.
Overall, we made significant progress this quarter to reinvigorate our Canadian consumer franchise, which is very much in line with our strategy. We're confident that the strategic technology and talent investments. We've made will continue to support growth into the future.
Now, let me turn to our second priority, which is to accelerate the transformation of our bank.
Over the past five years, we have focused on streamlining our operations and eliminating the inefficiencies to reduce our cost base.
Through these efforts, we've achieved cumulative cost savings of more than $800 million.
Importantly, these savings have been and reinvested and the growth of our business as well as strengthening the foundation of our bank.
We've added resources to our revenue generating workforce and strategic areas identified as high growth opportunities are.
Our technology transformation is embraced cloud services.
And I and machine learning as we build the leading edge data management and analytics function to support strategic decision, making across our bank.
And we've also launched client facing platforms, such as CIBC gold planner, which has been performing very well since its launch in November.
And another example of how we're investing in technology to enhance the client experience is the recent launch of CIBC insights. This new feature uses AI and machine learning to provide our mobile banking clients with tailored information and insights into their spending to help them make more informed every day financial decisions.
We're also continuing to focus on risk mitigation activities, such as cyber security and anti money laundering, which are fundamentally important to protecting our clients and to protecting our bank.
And fiscal 2021, we expect to realize over $260 million of incremental run rate cost savings and we will strategically and reinvest most of it back into the business and support of furthering our strategy.
Our third strategic priority is maintaining and growing our resilient north American commercial banking and wealth management businesses and our capital markets franchise.
On both sides of the border or commercial banking and wealth management businesses continued to benefit from deep client relationships and the strong culture, we built around referrals, which is driving high quality loan and deposit growth is.
And as well our award winning investment performance.
With our emphasis on advice is supporting strong fund flows in both Canada and the United States.
And our capital markets franchise continued to deliver record results driven by robust client activity and the key markets, where we operate.
Equally core to our business strategy is our bank commitment.
The sustainable economic growth.
And this is fundamental to our long term strategy and to our purpose and of guides everything we do.
Over the past few years, we've made considerable advances and our ESG strategy and our efforts were recognized by <unk> third party organizations this quarter.
The first CIBC was named to the Dow Jones Sustainability Index, and North America for the 16th consecutive year.
And we've been included and Bloomberg's gender equality index for the sixth consecutive year and.
And thirdly, we ranked among the top tier of global banks for climate change actions by CDP, which is formerly known as the carbon disclosure project.
We're pleased to be recognized for our commitment towards building a more sustainable future and we will continue to strengthen our commitment to sustainability as well as further our support for our corporate clients and this area going forward.
And closing February as Black history month, and I'm pleased to share with you that we are doubling our annual investment and the next generation of leaders and change makers from the black community working and consultation with the CIBC Black employee network and our external partners, including the Black North initiative. This increased investment will be earmarked for.
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Skills training and Mentorship initiatives as.
And as well, we've launched the new banking program for Black oil and businesses and Canada designed to remove barriers for entrepreneurs front of the Black community. These efforts are all part of our commitment to and inclusive economy, which is key to our long term growth now with that and going to turn the call over to <unk> for a detailed view review overview of our financial.
Results over the of rich.
Thank you Victor and good morning, everyone. Starting on slide six this morning, we reported diluted earnings per share of $3 55 for the first quarter of 2021, excluding the amortization of acquisition related intangibles and adjusted EPS was $3 and 58.
The quarters results highlight our progress against the key objectives, we set out at the onset of the COVID-19 pandemic, we've demonstrated the resilience of our balance sheet and continued to build our capital and liquidity positions over the last year.
Our Q1, CET, one ratio of 12, 3% and LCR of 142% remained significantly above regulatory requirements. This.
This quarter helped by constructive markets and strong execution of our strategy, we achieved record results and and adjusted ROE of 17, 2%. We are on track to deliver pre pandemic levels of profitability as the environment normalizes and.
And finally as Victor mentioned, our financial results are starting to reflect the improvements we've made to our competitive position across our businesses through the focused strategic investment.
Turning to slide seven and the balance of my presentation will refer to adjusted results, which exclude items of note.
Record pre provision pre tax earnings of $2 3 billion and net income of $1 6 billion were up 5% and 11% respectively from the prior year or 14% and 28% from the prior quarter. These.
These results reflect the positive momentum and our business as well as tailwind related to strong markets and lower credit losses.
Revenue of $5 billion was up 8% sequentially or 2% year over year benefiting from robust capital markets and wealth management flows continued strength and our commercial business and accelerating growth and Canadian personal banking. These factors were partially offset by reduced client activity due to continued economic restrictions and some of our key markets.
And the impact of lower interest rates.
<unk> were comparable to the prior year as the benefits of recent efficiency initiatives offset ongoing strategic investments and higher revenue driven variable expenses. We remain committed to the continued transformation of our cost base to find long term investments against our strategic priorities.
Distant with prior guidance, we expect this to result in net expense growth and the low single digit range and fiscal 2021.
Before I review of the results of our business segments I will touch on some of our key revenue drivers slide.
Slide eight highlights the drivers of net interest income, which accounted for over 50% of revenues in Q1 excludes.
Excluding stronger trading activity NII continued to improve sequentially and was comparable to the prior year and solid volume growth on both sides of the balance sheet offset the continued impact of lower rates deposit growth remained robust across our business, we saw improved growth and personal mortgages and Canadian commercial lending.
And we maintain the momentum and other credit portfolios.
Total bank NIM declined two basis points sequentially due to changes and both individual business margin and mix.
Canadian personal and commercial NIM declined five basis points from the prior quarter due to changes and asset mix and the impact of lower interest rates, partially offset by strong deposit flows.
Going forward, we expect continued pressure on P&C nims as we absorb the full impact of recent changes and interest rates and further changes and asset mix.
NIM and narrow U S segment was up 23 basis points relative to last quarter benefiting significantly from loan prepayments, including PPP forgiveness, as well as growth and client deposits consistent with prior guidance, we anticipate core margin and this business to be relatively stable and expect the incremental benefit from ongoing prepayment activity.
And elevated deposit levels to normalize later in 2021.
Assuming we see the economy opens back up and the back half of 2021, we anticipate positive momentum and non trading NII and volume growth offset ongoing margin compression from lower interest rates.
Turning to slide nine noninterest income of $2 1 billion was up 17% from the prior quarter and 1% from the prior year the.
The strong sequential performance was driven by robust transactional and market related fees across all of our business segments strong market related revenues reflect robust client activity and capital markets as well as market appreciation and strong flows in the wealth management, while we continue to see improvement and some transactional fee categories from last year's levels.
Activity and cards and payments continues to be below pre pandemic levels as economic restrictions are lifted we expect client activity and transaction fees to continue recovering.
Turning to slide 10, our capital position continued to strengthen ending the quarter with the CET one ratio of 12, 3% or 12, 1%, excluding the ECL transitional benefit strong internal capital generation out of 37 basis points. This quarter and was partially offset by higher <unk> from organic growth.
Average LCR of 142% was relatively stable from the prior quarter and well above the 100% regulatory minimum.
We remain well positioned to deploy our balance sheet resources and support of our strategic growth initiatives with over $8 billion of capital and excess of the regulatory requirement.
Slide 11 reflects our personal and business banking results, where we continued to see positive trends as we revitalize the business.
Net income for the quarter was $652 million up 13% from last year helped by sequential improvement and pre provision earnings as well as lower provision for credit losses, while down 3% from the prior year revenues of $2 billion improved 1% sequentially as solid volume growth on both sides of the balance sheet and the ons.
Boeing recovery on noninterest income begins to offset the economic impact of the pandemic.
Expenses of $1 1 billion were comparable to the prior year and up 1% from the prior quarter, we anticipate expense growth to accelerate as we continue to invest and our frontline digital capabilities and client offerings and this business.
Moving on to Slide 12, net income and Canadian commercial banking and wealth management was $354 million up 5% from a year ago, driven by accelerating client activity across both commercial banking and wealth management commercial banking revenue was up 1% from a year ago, driven by higher fees and strong deposit volume.
<unk> of 26%, which more than offset the impact of lower rates.
This quarter also marked the return to sequential growth and commercial loan balances, which were 2% higher than the prior year.
Wealth management revenue was up 4% from the prior year, primarily driven by higher fee based assets as a result of both market appreciation and robust client flow increased noninterest expenses were impacted by the higher revenue performance.
Slide 13 shows the U S commercial banking and wealth management results and U S dollars net.
Net income of $155 million was up 12% from the prior year and we continued to grow market share through increased breadth and depth and our client franchise.
Revenues were up 15% due to strong client and origination activity, which drove growth and client balances assets under management and fees. Despite moderating in recent quarters, partly due to PPP forgiveness average loans grew 10% from a year ago, while deposit growth of 42% continues to outpace loans.
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And our wealth business solid AUM growth of 20% benefited from both client flows and market appreciation non.
Noninterest expenses were down 2%, reflecting the results of our efficiency initiatives and the continued impact of pandemic restrictions on business development activity.
Slide 14 covers capital markets, where we continued the recent momentum delivering record results with solid contributions from across the business net income of $493 million was up 30% from the prior year, largely driven by pre provision pre tax earnings, which increased 37% sequentially and 27%.
<unk> year over year.
Revenues of $1 2 billion were up 17% from the prior year, driven primarily by growth across most global markets businesses as well as increased activity and corporate and investment banking and our direct financial services business non.
Non interest expenses were up 6% compared to the same quarter last year, largely due to higher performance based expenses.
Slide 15 reflects the results of the corporate and other business unit net loss of 59 million and the quarter compared to net income of $11 million and the same quarter last year. The segment's revenues continued to be impacted by pandemic related headwinds and our Caribbean business as well as elevated cost of liquidity reserves and Treasury. We expect these factors to persist.
Through 2021 and moderate when the recovery period takes hold.
Expenses in the segment are impacted by the timing of enterprise strategic initiatives and we anticipate and increase later in 2021 as we continue investments across our bank.
In conclusion I'd like to reiterate three key messages one the strength of our balance sheet continues to provide us with significant flexibility to support our clients grow our business and return capital to our shareholders, while maintaining the resilience to absorb any future headwinds.
We remain well positioned to continue creating value for our shareholders and the immediate term and to return to pre pandemic levels as the environment normalizes and three while we are pleased with the early results from our improved competitive position, we will continue to invest and our bank to build on this momentum.
With that and we'll turn the call over to Sean.
Thank you for ACH and good morning.
And our first fiscal quarter of 2021, we've seen positive signs of the point to and improving economic outlook and economic recovery and the second half of this year and into 2022.
Credit performance this quarter was strong and better than we expected due in parts of continued low insolvencies and ongoing government support programs.
That said and consistent with our views last quarter, we expect to see impaired losses increase from here and peak and the middle of this year before reducing again over subsequent quarters as economic performance improves.
Overall government support programs continue to help blunt the economic impacts of the pandemic and our clients continue to exhibit disciplined behavior and view of the economic uncertainty.
Turning to slide 18 provision for credit losses was $147 million and Q1 down from $291 million and the prior quarter with lower provisions and performing loans, partially offset by an increase and impaired loans.
The provision on impaired loans of $236 million was up $58 million from last quarter, largely due to higher provisions in both retail and business and government loans.
And Canadian personal and business banking this quarter saw a sequentially higher provision and personal lending from the unusually low levels and Q4, partially offset by lower write offs experienced and credit cards.
And our business and government portfolio, we experienced higher provisions and the utilities sector of our capital markets business and and CIBC first Caribbean, partially offset by a small decrease and both us and Canadian commercial.
This quarter, we have a provision reversal of $89 million and our performing portfolio.
Approximately one third of this reflects the net transfer of performing provision to impaired provision for loans that became impaired this quarter.
And the balance of the reversal reflects our improved outlook and portfolio movement.
While credit outperformed our expectations. This quarter, we continue to expect additional negative credit risk migration across the portfolio over the next few quarters and for impaired losses to peak mid year.
The earnings impact from these losses are expected to be somewhat offset through the transfer of performing provisions to impaired losses.
Turning to slide 19, we provide the details of our allowance coverage by line of business, our allowance coverage ratio remained relatively flat quarter over quarter.
We continue to feel comfortable with the current level of coverage and remain focused on monitoring the credit quality of our portfolios for potential future adjustments.
On slide 20, we show our credit portfolio mix, which remains well diversified and consistent with last quarter.
Nearly two thirds of our outstanding loans are the consumers the majority of which are mortgages and the balance of our portfolio is and business and government lending with an average risk rating for the portfolio of equivalent to a triple b.
Again this quarter. We've included in the appendix of the additional details on specifically affected industries, which are performing in line with our prior outlook and expectations at this time.
Slide 21, and provides an overview of our gross impaired loans gross impaired dollars were up mainly driven by business and government loans. The increase was mainly and the real estate and construction sector and the U S.
While new formations trended higher this quarter. This increase was expected and we've seen some accounts affected by COVID-19 moving to impairment.
Slide 22 shows the net write offs and 90 plus day delinquency rates of our Canadian consumer portfolios.
Over the past two quarters, we experienced lower insolvencies and flow write offs as a result of government support programs and bank relief offerings.
The flow write offs continue to remain low and Q1, while and solve the insolvencies showed a slight increase off the lows and Q4. Both of these movements are in line with the Canadian National trend.
Delinquencies and both credit cards and personal lending increased this quarter in line with our expectations.
As we've discussed on prior calls and fiscal 2020, we proactively enabled payment deferrals for a portion of our credit card clients, who were already showing vulnerability at the onset of the pandemic.
The increase and the 90 plus day delinquencies. We saw this quarter is driven largely by clients who have exited the bank relief program and continue to have financial difficulties.
Those that remain delinquent will write off of 180 days, which will occur in Q2 and will result in higher losses, and we've reflected those expected higher losses in our performing provision.
In closing, we had strong performance across our credit portfolios and Q1 and better than we had expected at the start of the fiscal year.
Subject to the usual caveats around the uncertain environment based on what we've seen and our current outlook, we expect and peer provisions to trend higher and peak and the middle of 2021, but expect to outperform our guidance from last quarter.
And finally, we remain comfortable with the quality of our portfolios and we will continue to be both prudent and responsive to the performance of our portfolios as we determine our allowance levels and coming quarters I'll now turn the call back to the operator for questions.
Thank you.
Please press star one at this time, if you have a question.
And the first question is from John Aiken from Barclays. Please go ahead.
Good morning, and <unk> the <unk>.
Expense performance and the quarter was so it was quite good for my from my perspective.
I was wondering given the fact that you gave us some indications that you expected expense is to increase particularly the domestic P&C. I think you said you expected accelerated what of what outlook of what are you budgeting for in terms of the operating leverage through the remainder of the year.
Sure good morning.
I'd be happy to cover that and so part of the color. We wanted to get was that this quarter was a particularly good quarter with the expenses being flat and there was a number of reasons for that and that we don't think we will we will continue and that way so one.
We had some timing differences as we mentioned so this is related to the acceleration of investments against our strategic priorities and as we plan those initiatives out some of those activities are increasing and the P&L impact of those will be increasing through the year. The second is Q1 itself has a.
And on a year over year basis over the last year as the benchmark, that's pre pandemic and so and that basis. Once we get to Q2 and later in the year. We didn't have those decreased expenses due to decreased travel and business development advertising as the restriction set and so on a year over year basis, those are tougher comps and so those are the things I would watch.
[noise] out for and when you put all of that together, what we're reiterating here is that that low single digit range for core expense growth. We think is the right level, we're committed to continuing to find investment opportunities and we're committed to find initiatives on efficiencies to fund that and at the same time, we're seeing some pretty good revenue performance. So I would say.
And that core we think is low single digits and that can get pushed up if the revenue linked expenses and up higher if we continue performing beyond our expectations. So that's the guidance I would give on expenses and the operating leverage yes, it's a tough year for operating leverage we're working towards the positive operating leverage that.
That we can sustain I think this quarter's operating leverage as I spoke about if you go through that dynamic on expenses I wouldn't look for that to sustain through the rest of the year, but as we come out of the end of this year and accelerate on the revenue side as the economy opens up and we're looking for that positive operating leverage.
Thanks, Roger and just as a quick follow on when you talk about the strategic initiatives spending as we drill down into technology spend would.
Would you say that your technology spend is accelerating and maintaining the same or decelerating.
But we are accelerating on the technology front.
And there's a number of things and that its defensive investment for the bank its offensive and digital capabilities on the sales and service side its across the board, but we do see when we talk about that transformation of the bank, we see technology, playing a big role and not and so there is investment on the technology side and that will help us take out non technology sides and.
On the non technology side expenses and get more efficient and that way.
Thanks, Raj and I'll re queue.
Thank you Steve.
Next question is from many common from Scotia Bank. Please go ahead.
Hi, good morning, Sean It sounds like Youre talking about impairments of increasing but and.
The slower pace than what you thought when you talk to us and Q4 I'm wondering if you could just translate that into the.
And the guidance you gave on the PCL ratio of the PCL ratio on unimpaired, and I think you've talked about 40 basis points.
And it was 22 this quarter. So I'm just wondering what the outlook is you still hold to that 40 or is it lower and your mines.
Sure Good morning Manny.
Our credit outperformed this quarter as I mentioned, particularly in the retail side it's.
It's a combination of government support.
The bank relief programs that we had instituted last year of prudent client behavior and also our activity in terms of proactively reaching out to clients who have shown.
As shown early signs of stress. So we still expect to see the peak and the middle of the year, but.
Subject to the the uncertainty of caveat is typical.
We're now looking at our impaired loss ratio coming in towards the mid <unk>. So that would be down from where we were in Q4, and that's really driven by a number of elements of the benefit of and another quarter of data, what we've seen and the portfolios and our updated outlook.
Thanks for that.
Thank you.
The next question and Jim gave me on the Shane from National Bank Financial. Please go ahead.
Good morning, a question on excuse me the.
The mortgage business has been on fire for everybody and I think the $17 billion of origination okay. Thanks of the highest ever for your bank.
And.
And a lot of that from the pent up demand phenomenon and buying second homes and stuff like that I'm. Just wondering is there a bit.
Because we're missing the.
The demand from Canada, the immigration trends over the past few years. So is there a maybe a big drop off and.
For the mortgage business that you could see next year.
Immigration levels don't return to all of them.
Other pre COVID-19 level.
And this isn't the CIBC specific obviously.
A bunch of Gabriel.
I'll take that question. So yes, the market remains hot I'd like to believe the the good performance you're seeing from CIBC also has a lot to do with the.
A lot of the hard work that our team members have been putting into turning our performance around.
I would tell you from our side from an outlook perspective.
We're continuing to expect high single digit mortgage growth.
And so we'd expect that for the remainder of 2021, we do expect immigration at some point is going to open back up too, which will help and we're mostly focused on 2021.
And I'd say that the rest of the year is looking good.
Does that answer your question yeah. So.
I guess.
On the this year.
And I look as I think we feel pretty good but you know what.
Happens of immigration doesn't come back and and the next year or two.
Gabriel for Victor here, I don't know, where its going but I'm pretty certain that the government's announced the policy the increase immigration to well above 400000 people.
Alright, I think that that will continue to provide a tailwind for us.
The important thing to note about our mortgage growth is we've closed the gap from where we were a year ago. Just like we said we would yes, we did that through investments and technology investments and our mobile advisor force and continuing to be competitive in the marketplace and we've won back share on a relative basis over this past year.
And I fully accept expect that our team will continue to leave that that trend and as Morgan is immigration opens up we will continue to capture more than our fair share.
Certainly it's been a good turnaround and good performance in line of business.
Thank you.
The next question is from Ebrahim and putting them all up from Bank of America Securities. Please go ahead.
Good morning.
Okay.
And just the moving many of the commercial side.
It appears that the.
The demand probably slowly and the first half of the book and Canada and the U S.
And just talk to us in terms of yards of view of your competitive position of in both markets on the commercial lending side and also in the U S. We saw the retirement of line.
And that change anything in terms of strategically that you may or may not do and the U S.
Good morning, Ebrahim. So couple of things there are commercial businesses are performing well.
In terms of both deposits and loan growth of the U S business is performing particularly well because of the economy is more opened up than it is in Canada with the Canadian economy opening up we would expect our performance to continue to capture again more than our fair share and that growth in terms of.
Personnel changes Larry became share last year might <unk> has been running the business for a year.
It's all well and handle area decided to retire he's a good friend of the bank and you can read the press release youll be helping us from the Shadows and his retirement as we continue to grow the business, but to give you more color on our commercial banking business. Let me start to start off with John and <unk> for Canada, and then we'll hand, it off to Mike hepatitis and the U S.
So good morning, and thank you Victor.
Start with saying that our clients.
And I'm, probably more optimistic than it had been and a few quarters because of our clients are more optimistic and.
Talking to them I think the speed of the use of recovery has surprised over the last few months and most of Canada is kind of mid market and even smaller businesses. The growth was coming from the U S. So entrepreneurs are optimists, they see the US opening they are ready to go.
Couple that with private company M&A is pretty reasonable.
Good real estate clients are active.
And we're prudently following them.
Utilization rates have started to kind of bottom out and <unk> been on the drop for probably for quarters for sure. So you combine all of that with the investments we've made over the last year and people and technology, we're ready we're ready to support our clients through difficulties in March and April were ready when they are ready to grow and we.
We're looking forward to getting back and calling on our prospects. It feels it feels better than it did a few months ago.
Mike can I pass it over to you.
Yes, Thank you John well and the U S. We continue to see healthy loan growth from our clients, which is moderate a bit as part of the forgiveness process on the first round of the Triple P loans.
Significantly over half of our loan generation came from our new offices or new products or new initiatives that reflect the investments of the other.
Past several years, and we added 210, new strategic clients and the past quarter alone and in fact, we could do more for where.
And not compromising on our margins or our credit.
Also wanted to add that.
The buildout of our wealth and private Bank bank.
And platform, which has a very healthy well for all.
But for all numbers between our commercial bank is also starting to come on line and helping fuel growth and and all of these areas.
Looking forward, we have a strong price.
The pipeline and you know again moderated by by the Triple P. Forgiveness, what we do and expect our growth and our performance to continue into the second half of this year and.
Our clients continue to come online and <unk>.
And that equity starts to accelerate the deployment of the large amounts of cash.
They have available for for transactions.
Thank you.
Yes.
Thank you the next.
The question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning, a quick question on the small business lending I know, it's a small portion of your overall lending, but we are seeing what the skies and spiked and the at least.
Pretty good spike and small business lending and also.
So perhaps connected and increase and credit fees could you just talk to what's happening and small business lending at the bank and if it in fact, it is connected to the increase youre seeing and credit fees.
Okay.
Hi, Mario and Laura it's a bit hard to hear the last part of your question I believe it had to do with what we're seeing and and.
And our small business banking, yes.
So I would tell you we're not seeing.
A lot of lending or requests from.
Our client acquisition or a deposit growth perspective, though.
And is actually.
Looking positive now a lot of that has to do with the various and government funding programs that are in place and so deposit growth has actually been strong for us its been up about 25% year over year. What's interesting is we're seeing.
Our accounts open activity is actually up quite a bit of about 50%. So we see I would say small business are managing very prudently holding on to their.
And monies they receive from the government.
As many wait for the economy to reopen and so we think theres a measured opportunity on the business lending side.
And as things start to open up again.
So the I had just observe that it was up sequentially, but again from a small base, maybe if you could just turned the credit fees and if anyone could speak to the.
What's happened and the last couple of quarters of credit fees and they've moved materially higher.
And.
And with loan growth only now showing some momentum and I was a little surprised to see the move and credit fees back to well above the pre pandemic level.
Hey, good morning, and Mario It's Raj I'll take that on the credit fee side and there is a number of things and that credit fee line that are driving it and one of the things I would point out is.
Is there the BBA related activity and so when you see clients and the commercial bank, particularly in Canada as they grow.
Or are they draw their facilities via the A's and that does tend to skew by industry. So on the real estate side tend to be utilized more.
That shows up there rather than showing up into the NII. So that's a big that's a big part of it when you look at the credit fees and the other side of it is syndication fees and so and our U S business. We continue to have very strong syndication activity and that is driving that as well and so when you look at that quarter over quarter for.
For us it was 22 year over year of $33 million, a large part of that is coming from those two items right. The <unk> and commercial banking about half of the year over year number U S commercial about a quarter of it and the rest of it is sort of on the corporate banking side with fees on on some of the lending and standby of facilities that had the.
And put in place.
Thank you that's helpful. Yes.
Yes.
Thank you. The next question is from Doug Young from Deutsche Bank Securities. Please go ahead.
Okay.
Hi, Good morning, just maybe starting on credit.
Decent bump and the commercial non gross impaired loan formations I think you mentioned real estate, but it looked like there was some and oil and gas and education utilities, maybe you can just unpack a little bit more of what youre seeing and.
And there thank you.
Sure. Good morning, Doug. So we did see a handful of accounts go impaired this quarter and nothing out of out of our.
Our expectations in terms of how things have been progressing there were.
Couple in the real estate sector, there were a couple of and the utilities sector, they're a bit chunky. So they would have moved the.
Gross impaired loan number up this quarter and you've seen it.
The reflected now and our impaired and earned.
Paired the provision number.
And the.
And they don't kick off the particularly large losses are impaired losses are continuing to perform well quarter over quarter and by historical so.
I would say normal portfolio activity, a handful of names that are contributing to that and not outside of our expectations.
Okay, and then if I can just sneak a quick one and then just on U S. Nims.
And they were much higher than what we expected it seems like the and this is across the group not just for yourselves, but the the peak Triple P. Repayment activity is having quite a big impact on Nims can you quantify what that would be.
For the quarter.
And how you see that evolving over the next year.
Yes, certainly and good morning, it's Raj.
I would say the core of dynamic and the U S. NIM continues to be what we expected and and what we had guided to and so just quickly to cover that and I'll get specifically to your question and the second and so on the core of dynamic we as you know have and the high 90% of our assets there are LIBOR linked.
And so LIBOR didnt move much this quarter it was down about a basis point. So the loan yields are pretty stable. The spreads on the loans are pretty stable and you look at the deposit side. We've continued to see growth and we've continued to see the repricing activity. So we had said that we expect the core dynamic as we reprice deposits to be slightly up but net of those two things.
Pretty stable to slightly up and so we saw that so you see on the slide we had the deposits nine basis point help that we had two basis points roughly of that nine was that repricing and the rest of the growth and and we've continued to see that good growth on deposits on the prepayment side, you're right and that contributed we had on the slide 14 basis points.
Right and that's not just the PPP program. So we had the start of prepayment of PPP. This quarter and that was just a little bit over half of that 14 basis points number.
<unk> from the PPP prepayments this quarter.
So going forward, what do we expect as I said in my remarks, we still think that core dynamic is the same stable to slightly up we think the deposit levels will stay elevated for a while here and may continue to grow that further but the.
Those are going to decline later in the year as deposits and start getting deployed for growth and our client's balance sheets and then on the prepayment side theres going to be some noise right. So we expect the PPP prepayments of forgiveness to really accelerate here going into the next quarter or so and then we're going to have the second the wave of the PPP that has already started coming.
And so and the short term I expect some continued activity there that will help the NIM, but the way I would think about it is if you strip that away of that core dynamic is stable to up as deposits growth.
Helpful. Thank you.
Thank you. The next question is from silver having all of the heavy from BMO capital markets. Please go ahead.
Okay. Thank you.
Victor and maybe a bit of that.
And.
Higher level of management question it looks like.
And then you obviously have and investment schedule and you've got some plans to make the investments this year of probably next year. It looks like it's hard it's obviously hard to make the call but for.
Feels like it's going to be and abnormally low for the industry abnormally low provisioning.
Provisioning here. If you will is there an opportunity is there any discretion at the <unk>.
You can the around the timing of the future period expenses.
It could actually be loaded into this year two of them.
And to allow for a better growth trajectory into 2022.
Sort of that's a great question, you always ask of the big.
Picture questions, which I appreciate I think it is important to note where we've come from.
And I look at the bank over the last several years and what we've been able to do with our Nix ratio, what we've been able to do to transform our business is from the technology standpoint, what we've been able to do from deploying capital and create a diversified durable bank that's prepared for growth irrespective of the environment. That's ahead of us and better.
<unk>.
For competitive performance and then we've delivered over the last year of let's just say as.
As we look at the year ahead of the plans that we have the investments that we're making we're very comfortable that that will continue to deliver superior performance and all of our core business lines. If we see the economy pick up at a more rapid clip than prognostic prognosticators are projecting we would have the.
The ability to continue to invest and maybe a more rapid clip, but I'm very comfortable with the investments that we're making today and the backbone of our technology and the client user experience of our technology and and our product portfolio and I believe that what we have today. So we'll deliver that superior performance you see.
Being that across every single business line at CIBC.
And we said that we're going to grow at market or above market and youre seeing it everywhere.
Not only emerging this past quarter, it's emerged and the last couple of quarters, and I think youre going to be able to see that and the quarters ahead.
Okay. Thank you I'll requeue.
Thank you the.
The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good morning, perhaps you talked about overall expenses and.
And increases on the on the Canadian side, but on the U S side.
<unk> expenses were down 2% year over year.
And revenue growth was up 15, so how do you.
Kind of you expenses on the U S side.
The specialty calling out reduced business development spend but.
I think John commented that you actually added 210, new clients and the quarters. So maybe kind of talk about dot com and as Paul.
Sure Good morning, Scott and happy to take that and I can also pass on afterwards to Mike if he wants to add anything on what the two.
And the happening and the business, but and.
The core dynamic and the U S is still that we are growing the business. So we are hiring on the front lines. We are developing client relationships and we are serving our clients. Some of what has happened though is the the way you do that has changed since the pandemic restrictions have come in and so thats what youre seeing there is some of the client development activity.
And that travel the entertainment and so for us the advertising the sponsorship and events and all of those things have taken a bit of a back seat and so the way client development is done now is different we haven't stopped we continue to cover our clients and we continue to invest and the business as well. So the net of those at this point is providing of Bennett.
But we do see expense growth overall growing this year, particularly as we see the economy opening up and that client development going back to being done and the way it was always done and.
And it's gonna be and the back half of the year hopefully at the U S continues on the trajectory it is on.
The year over year basis, youre going to be comparing a period of restrictions on travel and so forth to period with no restrictions and so we do expect that to accelerate and on the net basis like I said expenses being up year over year, but maybe Mike can give you a bit more color on client development.
Yes, Thank you rach.
Just to go back to.
And our basic approach and the U S. We are we are a relationship oriented bank and bought the commercial banking area and then the and the.
The wealth area as well and the team has done a fantastic job over the course of the past year.
Bringing in new strategic relationships and large part through referrals from other parts of the of the of.
The U S SBU and our Canadian and capital markets, our colleagues and so we have done a good job we have expand the dominoes and those are significant.
The client relationships, but at the end of the day because of our relationship oriented bank and we have to get back out and see our clients. So that's what we're talking about and the back half of the year going out and again sitting down with our clients talking about new business, new business opportunities and also.
And going out and prospecting for new clients again, I'll go back to the build out of our private banking network and the U S, which has had a.
Spectacular success, and we can see hope to continue to build on that and the all of that is going to.
Entail us going out and visiting with our clients. So that's that's why we talk about increase.
The increase and no.
And those types of expenses and the back half of the year.
Alright that makes more sense for me now thank you very much.
Thank you.
The next question is from Lamar Prasad from <unk> Securities. Please go ahead.
Thanks can you comment and what Youre seeing in terms of narrowing the performance GAAP on domestic mortgage renewals. It looks like to me this quarter of lot of it could have just been due to strong originations, but I'm just looking for an update and I think other performance gaps on the resin side that could cause your mortgage growth to actually outperform peers.
Good morning Lamar.
I'll take that one.
As I said earlier I think a lot of the.
The changes that we've made Victor talked about the investments that we made to our mortgage platform.
We've also put new people and roles. We've made a number of process improvements a lot of things that have helped to increase our advisor productivity and our turnaround times. So not only are we seeing and increase in new originations that are up just under 100% on the year over year.
We're seeing that we're doing better on the client retention front, so we're being more proactive with our reach out and so you've got increased points of contact all aimed at better anchoring our clients. So we're doing better on client retention.
I'd say a year ago, our retention numbers, we're sort of in the <unk>.
<unk> plus percent.
Area and now we're at retention.
We're just at 90%. So we are making I would say really good progress. We've got some strong performance indicators that we track weekly to ensure that we're headed and the right direction. So.
So yes, the fact that the market is up and the market is hot is certainly helping it it's what we're seeing and the industry.
But we are making changes to how we do things.
And such a way that I believe that we're going to be able to deliver and going.
Say more consistent and sustainable performance over the long term.
Does that answer your question. It does it does thanks I'll re queue. Thanks.
Thank you. The next question is from Darko <unk> from RBC capital markets. Please go ahead.
Hi, Thank you and good morning, and I apologize if you kind of gone over this my phone and kicked out.
While you were doing your opening remarks Victor so.
And I apologize if you've already covered this but my question is theres two questions. The first one.
And they're both related the <unk>.
First question is what happens with first Caribbean now.
Is it still for sale would you consider it the only it again.
And if not do you have to make some investments there.
And and what's your expectation there leads into the next part of the question, which is with corporate.
But I'll leave that second question.
For as a follow up after I hear your answer to this first one okay. So let me let me take the first one sorry about your phone service Darko.
[laughter] first Caribbean as you know we highlighted the complexity of the regulatory review process earlier to all of you and.
You all know that the regulator made the decision to turn down the change in control of transaction there was a.
Think it's.
And it's affected by the Covid pandemic, and the particularly the acute impact and the economy and the Caribbean region.
Our plan was to sell it to.
The regional investor to transform and the bank and to get more regional scale of.
Our alternate plan today, which was always there was always the plan b for US is to continue to transform our bank. It's a good franchise, we've been in there for 100 years.
We have a plan to improve performance improve profitability and make it the durable franchise for the long term that I know it is I'm going to pass it onto hurry because he oversees that business with our team down there and he can shed some additional light and then I'll take your second question. Thank.
Thank you Victor Yes, Hi, Darko good morning, and.
As Victor said, we have a long history and the Caribbean, we have a strong team.
Thats, leading our business and the region.
For the great client franchise I might add and so now the focus is truly on optimization of our business and really positioning SCID for a post COVID-19 world successfully and I believe that we have the path forward now and execution to make that happen. So I'm, rather optimistic on the team and on the client franchise and Thats the plan.
And as Victor said upon and on the path forward.
Okay, great. Thank you for that and and my second question. It takes first Caribbean and and really one of the.
As trash about is the grade of the corporate segment.
All of things and there that I'm curious about one is you do mentioned theres going to be higher expenses because of the strategic enterprise wide can you give me. The example, I mean why would corporate.
How is a lot of the strategic spend why wouldn't the strategic spend be pushed out into the segments that are actually.
And doing the spend and then secondarily, so and Mike and Mike can take I mean, I've always maybe erroneously thought that you've tried to work hard and the past and get corporate and other down too.
Minimal sort of loss, but it sounds like what youre, saying is the the loss and corporate will be larger from here and maybe you can give me a hand with the model.
If it if we're not getting more revenue from Treasury and first Caribbean is it purely just higher expenses from here on and and as the loss going to be similar to last year's kind of quarterly run rate of losses and the corporate segment.
Sure Good morning, Darko happy to take that and.
Okay. You are right on the philosophy, we've historically guided to the segment is a small loss, but I would break that down and say there is a number of different components to it and that happened to come up to that so number one is the first Caribbean business and that's the business. So overall that has and that is a profitable business for profitability.
Of that business was in the segment Treasury, we manage treasury not as a profit center. So we managed treasury as the utility and so we aim overall for net around zero profitability for the Treasury.
And the reason for fluctuations, it's really always just noise noise because of market factors and transfer pricing not catching up with the speed of movement in rates and so forth and things like that but I would say noise that normalizes over time and that's why the treasury has ran historically and the plus or minus range and so what ends up happening is you've got the expense side and then last is the third.
Ponant and historically, what we had is the profitability of the first Caribbean and actually offsetting almost entirely of the expense side of what's not allocated and stays and corporate and other and Thats. Why you had the result that you had but the dynamics of each of those components is changing right. So if we look at the expense side. It is accelerating and just to give you. Some of the examples of the types of the <unk>.
You are right most of the things that are directly attributed to businesses, we allocate out there as some of the other corporate and other expenses that are related to enterprise kind of head office and and overhead type costs that stay there that aren't allocated and the normal course and when it comes to project. There is enterprise wide initiatives, whether it's through of defense type technologies.
And so forth that kind of across the entire enterprise. Some of those types of things are kept in the center or anything else that we deem as not directly sort.
Of driving business results and those kinds of things would be staying in and the center to some extent. So that's that's what's driving that and Darko and so when we look forward I see that accelerating a little bit as we go through this year, not nothing drastic, but accelerating a little bit and.
And then the decline and both Treasury and CIB that has happened.
Is going to be with us for a little of island. So net net that's going to drive the loss and this segment of little bit higher than where it's been again I think you had you had last quarter out of 110 this quarter at 68 somewhere between those two and is where I would guide you is the range. So this isn't a big shift and we're talking about.
But it's driven by those two items on the revenue side being a bit more unusual and they will normalize over time.
That's great thanks for that.
Very helpful. Thank you very much.
Thank you. The next question is from Nigel D'souza from Veritas. Please go ahead.
Thank you good morning, I wanted to touch on deposits and it sounds like you expect.
Deposits to normalize and to give back some of the benefit youre seeing on margins, but the.
Offset that with the loan growth so I'm trying to get a sense of timing do you expect the bulk of that loan growth.
Lag deposit normalization or do you think or do you expect loans to.
And I'll pick up and grow at the same time deposits normalize.
Okay.
Let me take a crack at that Nigel good morning.
I expect that as the economy opens up.
The deposits right of the license you outlined.
And I would expect that our personal and business bank, we will see an uptick.
And credit card balances as consumers begin to spend while continuing to maintain and grow market share and the mortgage segment I expect that the notable changes and our commercial bank, particularly in Canada as the economy opens up we'll see an uptick and loans.
And the corporate Bank I think we will continue to behave as its behaving today of corporate clients are tapping the debt capital markets and we're participating meaningfully there and <unk>.
Growing the bank debt kind of it.
I think at the same level that you've seen over the past year. So I would see the most notable impact and the credit card balances and I would see that also and the Canadian commercial bank as the as the economy begins to open up.
Got it I appreciate the color.
Thank you. The next question is from Mike crews Vanwyck from Credit Suisse. Please go ahead.
Hi, Good morning, a question probably for lower on maybe Raj I wanted to talk about the Canadian P&C net and thanks for the added color is on slide eight of your presentation and I guess when I look at the chart on the bottom last and what surprises me is the magnitude of the impact from business mix and I'm guessing that's the mortgage growth that we're seeing that's coming back and so.
Going back to maybe Laura's comment earlier, where you do continue to expect to see that gravitate toward industry levels.
And Youre still about 200 basis points below your peers in terms of year over year of growth and so if I was to normalize for rates and maybe maybe assumed the rate impact of five beach goes to zero and deposits growth maybe doesn't provide the boost that you had this quarter sequentially.
And sort of indicate.
And correct me if I'm thinking about this the.
The way, but you could see some pretty.
Sizable margin compression just on business mix alone at the other two factors sort of wash each other out.
Could you could you may be see like of 10 basis point decline over the course of the rest of this year, maybe on an aggregate basis and that is that too high or like what would mitigate that business mix impact that you continue to see this book growth.
Yeah sure. Thank you.
It's Raj I'll start and then Lora and maybe provide color on the business. Afterwards, so you've touched on some of the key elements. When you look at the margin and we had it right. There on the slide it's impacted by business mix and it's impacted by rates and it gets helped by deposits because as deposits grow you get the NII, but you don't have and an increase and your interest earning assets. So the deposit.
And do have quite a bit of leverage on NIM because of that dynamic.
So if I go through each of those components number one rates you touched on it. So we knew rates, we're going to be a headwind on this business. We had said in the past that if rates alone and the low single digit range. If you will.
And our quarter over quarter basis, as we continue to track through the repricing over the longer term part of the balance sheet and that dynamic is largely the same it's a little bit better now and you've seen quite of bit of steepness and you look at the three to five year swap rates and theyre materially up I mean, they're up even more than 10 basis points since quarter end to and Hal So that helps so that takes a bit of of staying off but.
That's a few basis points of maybe it's a little bit lower now than what we expected. The other element of the rates is the short term rate re pricing and that happens fairly quickly. So after Q2 Q3, when we did see those rates drop there is I'd say about half of the rate impact that that business is feeling now is that short term repricing so that impacted the <unk>.
Margin year over year, but that goes away once we get past Q2, and Q3, so the rate impact think of it as getting to about half of what it is now and continuing unless rates continue to improve.
And then the asset mix component again has two pieces to it. So one is the mortgage is growing but the other one and it's really the decline and card balances and so when you look at the card balance side, you had a significant decline again from Q2 levels last year, but it has stabilized and we're not seeing growth again and card outstanding balances, but it stabilized so once again and once you get.
And through Q2, and your comp on a year over year basis becomes a margin with the current call. It and then may be similar market balances.
Balances of cards and that impact will be smaller too. So net net of all of that I expect a few basis points of quarter for the remainder of the year, but as you get to the tail end of the year and.
The cards accelerates you could see it be even better than that.
Okay. So a couple of basis points per quarter through the rest of the year and then.
Some stability I think the that her and to what Youre seeing in terms of the current a bit more than a couple and it's probably the next couple of quarters here and then better and maybe after that yes. Okay.
Okay perfect. That's very helpful. Thanks very much.
Thank you.
This will conclude the question and answer session and I'd like to turn the meeting back over to Victor.
Thank you operator, I put my mic on.
For our results this quarter demonstrate the strength of our core franchise and the benefits from our diversified business mix and our client focused growth strategy.
And we're delivering for our stakeholders and we're delivering by executing against our strategy I hope that came through and the questions that you asked and the answers that we provided our.
Our balance sheet position remains strong.
Again soon stay safe.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
This conference is no longer being recorded so it goes the homes.
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