Q2 2021 Canadian Imperial Bank of Commerce Earnings Call
So again.
All participants please standby your conference is ready to begin good morning.
And to the CIBC quarterly financial results call.
Please be advised that this call is being recorded.
I would now like to turn the meeting over to Geoff Weiss Senior Vice President Investor Relations. Please go ahead Jeff.
And good morning, we will begin this morning's presentation with opening remarks from Victor <unk>, Our President and Chief Executive Officer, Following Victor <unk>, Our Chief Financial Officer, who will review our operating results Shawn Beber, our chief risk officer will of closeout of the prepared remarks with of risk management update.
We're joined by Cibc's business leaders, including Mike Capitate. These Harry Culham, Laura Dettori at the nausea, and John and Palace Theyre all available to take questions. Following the prepared remarks, when we get to the Q&A given we have a hard stop before 830 to allow you to get to another call. Please limit to 1 question and this should provide everyone with.
And opportunity to participate we are pleased to follow up after the call with any additional questions and lastly, as noted on slide 2 of our Investor presentation. Our comments may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties actual results may differ materially with that I will now turn the meeting over to Victor.
Thank you, Jeff and good morning, everyone. Thanks for joining us and we hope you're all keeping well.
And I'd like to start off our call by extending my deep appreciation to our entire CIBC team. Thank you for your continued professionalism and dedication and serving our clients.
And you play a critical role not only and helping our clients navigate.
Pat and Emmick related challenges, but also identifying new opportunities as we look to brighter days ahead.
And I know you're listening on this call this quarter and proud to share that we received our highest net promoter scores ever and the second quarter Ipsos customer satisfaction index and this is a good leading indicator of our performance trajectory going forward. This.
This achievement is a testament to the unwavering commitment of our CIBC team displays and serving our clients each and every day every day and thank you team.
Today I'll briefly review of the state of our economy discuss our fiscal second quarter performance highlights and provide an update on execution against our strategic priorities.
So it's been well over a year since COVID-19, first became part of our lexicon and while we're not on the other side of this pandemic yet Theres every reason to believe it to be optimistic as the vaccine rollout builds momentum and North America and around the world and.
Assuming effect of mass vaccination programs continue over the spring and summer, we expect of stronger global recovery and the latter half of this year with 2021 real GDP forecast of 5.7% domestically and.
And 6.6% and the United States.
Our neighbors to the sales are slightly ahead of us on their vaccine rollout and are enjoying and economic boost that we have yet to fully experienced share in Canada.
And that's a tailwind we can look forward to and the second half of this year.
This quarter and CIBC delivered record earnings per share of $3.59.
A return on equity of 17, 3% and of common equity tier 1 ratio of 12, 4%.
We achieved these results despite the challenging backdrop, including a spike in Covid, 19 cases, which resulted and restrictions across several of our major markets.
These results underscore the tangible value, we're delivering from our long term client focused approach to growing our CIBC franchise as well as the resilience of our diversified business model and the discipline and our risk management approach <unk>.
Supporting these results we continue to drive great traction against 3 strategic priorities, which we've been very clear on 1 of the reinvigoration of our Canadian consumer franchise to maintaining and growing our wood of resilient North American commercial banking wealth management and capital markets businesses and 3 importantly transfer.
<unk>, our bank to re enable investment for future growth.
Volume growth and I need to stress this across all business units contributed to our record results this quarter.
And our focus on reinvigorating, our Canadian consumer franchise is paying off on.
On a year to date basis CIBC was ranked number 1 among the big 6 Canadian banks, and both secured and unsecured lending growth.
We also delivered record mutual fund net flows over the same period.
Our focused efforts and acquiring new clients deepening relationships with existing clients, adding mobile mortgage advisors and key markets and enhancing our cards value proposition with a focus on the increasingly important non travel rewards segment have all been effective and capturing market share.
And while we are encouraged by recent results, we remain laser focused on consistent execution and capturing profitable growth going forward.
Our capital markets business unit had a record quarter supported by strong underwriting activity solid client related trading and higher direct brokerage brokerage volumes.
The results are also supported by improvements to our league table rankings across most of our businesses.
Our differentiated capital markets business model generates both traditional and recurring revenue streams through value added solutions for clients across our bank.
Our commercial banking and wealth management franchise and <unk>.
Both sides of the border delivered a strong quarter.
We reported record investment fund flows across all of our platform.
And this was driven in large part by our solid investment performance and engaged client relationships.
And as expected commercial banking deposit activity remains strong on both sides of the border wall momentum continues to build and loan growth. Our clients progress of focused strategy has been a driving force as we remain focused on helping our existing clients.
And adding new clients.
The consistent and positive momentum we have built is being fueled fueled by the ongoing transformation of CIBC and our reinvestments and growth.
As I mentioned on our last analyst call, we've reinvested over $800 million into growth initiatives over the last 5 years and those reinvestments are a key element and the results youre seeing today.
Good example is our CIBC gold planner platform that we launched last quarter, our proprietary financial planning tool Leverages insights to help our clients achieve their long term ambitions and all and a digital format. The.
Quality advice and convenience is resonating with our clients.
For those who completed of plan.
Net promoter scores improved over 20 points and funds managed were up on average 8%.
Another good example of how we re investing in our North America is our North American innovation banking business.
Since its launch 3 years ago, we have opened new offices and hired strong talent and to serve clients and the high growth Tech and innovation ecosystem. We now have 11 offices across Canada, the United States more than doubling the number of bankers in this space.
Loan and deposit balances have grown multiple fold and the business is self funding.
And we continue to see opportunities for growth within the innovation economy going forward.
As we enter the second half of fiscal 2021, we're going to build and our foundational work to date and accelerate our ongoing transformation efforts as we reinvest and initiatives to drive sustainable and profitable growth.
I'd like to now turn to environmental social and governance of consideration, which continue to play an important role and our long term strategy as we remain steadfast and our commitment to a sustainable future.
During the quarter, we signed onto the partnership for carbon accounting financials initiatives and joined Rmi Center for climate of line finance.
Demonstrating our commitment to helping our clients.
<unk> practical practical and scalable solutions to reach their own GHT emission reduction goals and addiction. In addition, we're taking a leadership role and the sustainability with the creation of our energy infrastructure and transition group within our capital markets business. This is comprised of a 100 investment banking professionals globally.
We're providing targeted advice and solutions to help our clients navigate to a lower carbon future.
From a diversity equity and inclusion perspective, we're proud to of Chi of achieved gender parity on our board this year and for the first time and our company's 154 year history. Our board is chaired by of talented woman Kate Stevenson our.
Our focus on inclusion has also has also earned a spot and Canada's top 100, best diversity employers for the 11th consecutive year.
At CIBC.
Matters are increasingly important and we are committed to playing a key role and creating a more inclusive and sustainable future going forward.
So in closing our CIBC leadership team has never been more energized and excited about the future.
We remain focused on executing our strategy investing strategically to accelerate our growth and consistently delivering strong results for all of our stakeholders and with that I'll turn the call over to <unk> for a detailed review of our second quarter financial results <unk> over to you.
Thank you Victor and good morning, everyone.
Starting on slide 9 this morning, we reported diluted earnings per share $3.55 for the second quarter of 2021.
Excluding the amortization of acquisition related intangibles and adjusted EPS was $3.59.
Reflecting positive momentum across our business and continued tailwind from strong capital markets and credit performance.
Before we review of results I'd like to highlight 3 key drivers underlying our financials.
1 our strong balance sheet continues to provide us with significant flexibility to deploy capital in support of our clients' fuel organic growth and enhance shareholder returns.
2 recent investments have improved our competitive position across all business units, while advancing differentiated capabilities and key focus areas.
And 3 we remain committed to continued investments to further transform our bank and drive top line growth as the recovery takes hold.
The balance of my presentation will refer to adjusted results, which exclude items of note.
And our team delivered a strong second quarter as highlighted on slide 10, we generated net income of $1.7 billion and our return on equity of 17, 3% helped in part by strong credit performance.
Pre provision pretax earnings of $2.2 billion were up 14% from a year ago.
Revenue of $4.9 billion was up 8% year over year as continued strength and the capital markets and growth in client and across our businesses overcame the impact of lower interest rates and renewed economic restrictions and Canada.
Expenses were up 3% from the prior year due to higher performance based compensation and ongoing strategic investments.
I'll now provide some color on our pre provision earnings and Sean will speak to credit provisions later in the presentation.
Slide 11 highlights the drivers of net interest income, which accounted for 56% of revenue this quarter, excluding the impact of fewer days and a weaker U S. Dollar non trading NII continued to recover from last year's lows driven by strong growth on both sides of the balance sheet, which offset the ongoing impact of lower rate and.
And as economic activity picks up we anticipate building further momentum and non trading NII.
Total bank NIM increased 1 basis point sequentially, primarily due to actions taken to reduce the liquidity on our balance sheet offset partly by lower P&C net.
Personal and commercial NIM, and Canada declined 4 basis points from the prior quarter due to a shift and asset mix and the impact of lower interest rates, partly offset by strong deposit growth and favorable pricing across our commercial book going forward. We expect continued but moderating pressure on TNT NIM driven primarily by changes.
And balance sheet mix.
And then in the U S segment was down 2 basis points relative to last quarter, driven by lower prepayment fees net of tailwind from deposit growth and improving loan yields.
We expect the transient benefit from prepayment activity and elevated deposit levels to subside over a number of quarter.
Turning to slide 12, noninterest income of $2.2 billion was up 3% from the prior quarter and 20% from the prior year.
Market related fees were particularly strong this quarter, reflecting robust client activity and capital market as well as strong flows and market appreciation and our Canadian and U S wealth management business.
While transactional fees improved over the prior year the sequential decline in certain categories reflects seasonality and headwinds related to the latest pandemic response measures and Canada.
As economic restrictions are lifted we expect to see an increase and client transaction activity.
Slide 13 speaks to the drivers behind our expenses as.
As we've laid out in the past, we manage our cost base of 3 distinct components are operating baseline our investment and performance based compensation.
Higher performance compensation due to stronger results was the most significant driver of the year over year increase this quarter offset in part by the impact of of weaker U S. Dollar outside of these factors recent efficiency initiatives provided a substantial offset the increased investment against our strategic priorities helping contain net.
Hence growth.
Going forward, we intend to accelerate investment and our business to build on the recent momentum but remain committed to further productivity improvements to provide an offset.
Consistent with our prior guidance, we expect this to result, and low single digit expense growth in fiscal 2021, excluding performance based compensation.
We anticipate our strong performance to continue through the back half of the year, that's driving total fiscal 'twenty 1 expense growth to the mid single digit range.
Turning to slide 14.
Our balance sheet remains strong and we continue to have significant resources to invest and business growth through the recovery period. We ended the quarter with of CET, 1 ratio of 12, 4% or 12, 2%, excluding the ECR transitional benefit.
Strong internal capital generation of 37 basis points was partially offset by higher <unk> from accelerating organic growth net of continued credit improvement and our retail portfolio.
We anticipate deploying capital towards organic growth at an accelerated pace and as the recovery takes hold and client borrowing activity picks up.
Average LCR declined to 134% as we managed down excess liquidity reserve, but remains well above 100% regulatory minimum.
Slide 15 reflects our personal and business banking results, where we are starting to see our revenues benefit from the positive market share and momentum across the business.
Net income for the quarter was $603 million up $439 million from the prior year, mainly due to lower provisions on credit line.
Pre provision pretax earnings of $883 million were up 2% from the prior year, driven by robust volume growth and lower expenses.
Revenue of $1.9 billion was comparable to the prior year as strong mortgage and deposit growth offset the impact of lower interest rates and credit card balances.
Expenses, which were down 1% from the same quarter last year benefited from a non recurring items, we anticipate the expense base to grow off of last quarter's run rate as we continue investing and this business.
Moving on to slide 16 net income.
And Canadian commercial banking and wealth management with $399 million pre provision pre tax earnings of $527 million were up 13% from a year ago benefiting from improved sales momentum and stronger margin.
Commercial banking revenue was up 5% from a year ago, driven by higher credit fees and strong deposit growth of 19% offset in part by the impact of lower rates.
Commercial loan growth continued to accelerate this quarter growing 3% sequentially and we expect the pipelines and strengthened through the economic recovery.
Wealth management revenue was up 15% from the prior year, primarily driven by higher fee based assets, resulting from market appreciation and strong client flows.
Slide 17 shows U S commercial banking and wealth management results and U S dollar, where we delivered net income of $184 million and double digit Roe.
And part by lower provisions for credit losses.
While we expect credit provisions to normalized returns on marginal growth continue to be well into double digits, and we will drive further ROE improvements as we scale the business.
Pre provision pretax earnings of $223 million were up 27% from the prior year fueled by a 15% increase in revenue and we continue to grow funds managed with new and existing client.
Average loan growth of 4% over last year was driven by new PPP loan.
And I alone net of lower utilization rates.
This quarter, we originated over U S $900 million and loans and new clients, the highest level and the past 5 years and our pipeline remains strong.
Money and momentum remains robust with year over year growth of 34% and average deposits and 44% and <unk>, which benefited from strong client flows and market appreciation.
Slide 18 covers capital markets, where we continued to see strong client activity across the business and delivered net income of $495 million compared with $177 million and the prior year.
Pre provision pretax earnings of $656 million were up 38% from the prior year on the back of strong top line growth.
Revenues of $1.2 billion were up 23% year over year benefiting from growth across trading corporate and investment banking and DFS.
While at the same quarter last year included negative credit and funding valuation adjustments non.
Non interest expenses of $538 million were up 9% compared to last year, largely due to the higher performance.
Slide 19 reflects the results of corporate and other business unit net loss of $60 million and the quarter compared to a net loss of $138 million and the same quarter last year revenue was down 6% from the prior year, but improved 13% sequentially benefiting in part from the reduction and excess liquidity.
As I mentioned last quarter expenses and this segment are impacted by enterprise strategic initiatives and are expected to increase through 2021. This quarter, they were up 6% sequentially and 9% from the prior year.
In conclusion, we're pleased with this quarter's results and believe they position us well for the future we have significant balance sheet capacity to deploy for the benefit of our stakeholders. The profitability of our diversified franchise of substantially recovered and we are and a stronger competitive position to generate sustainable earnings growth going forward.
And we remain committed to the continued transformation of our bank by increasing the pace of investments in the coming quarters and strengthen our growth trajectory momentum.
Ex business cycle.
With that I'll turn the call over to Sean.
Thanks, Rich and good morning, and the second fiscal quarter of 2021, we saw a continuation of the trend of increasing vaccine distribution in both Canada and the U S and further economic reopening and the U S market.
While much of Canada remains under various restrictions to help control case counts and provide more time to administer vaccines. We're hopeful that we will see a similar reopening and Canada over the next several months.
With that context, I'd like to share 3 key messages first our credit performance. This quarter was strong and continues to exceed our expectation.
Second we're mindful of the continued challenges that COVID-19 presents that said our base case expectation is for and accelerating economic recovery and the latter half of calendar 2021 and into 2022 and finally, while we are optimistic that a recovery of insight we're comfortable with the quality of our portfolio. We are confident with our current level of <unk>.
Revisioning and are well positioned going forward.
Turning to slide 22 provision for credit losses was $32 million and Q2 down from $147 million and the prior quarter with a larger quarter over quarter reversal and provisions for performing loans, partially offset by increases and impaired loans.
Provisions on impaired loans of $246 million was up $10 million from last quarter, largely due to higher provisions in retail as we had expected partially offset by lower provisions and our corporate and commercial loan and.
And Canadian personal and business banking, we recognized a higher provision and credit cards, mainly attributable to a portion of the balances that were previously part of our proactive payment deferral program and then ultimately remain delinquent and written off this quarter.
We had recognized additional performing allowances last year through management overlays to address this cohort, which we transferred from stage 2 of the stage 3 as part of our performing provision reversal this quarter.
Our business and government portfolio performed well with lower impairments and a few reversals overall in Q2.
This quarter, we had a provision reversal of $214 million and our performing portfolio.
More than half of this reflects the net transfer of performing provision to impaired provision for loans that became impaired this quarter, including the transfer and respect of our cards portfolio that I previously mentioned.
The balance reflects the net impact of forward looking indicator improvements.
Expert credit judgment, and other movements, including portfolio growth parameter updates as well as credit migration.
While our models indicated of larger reversal and performing provision, we continue to exercise judgment and offsetting a portion of those reductions reflecting ongoing uncertainty.
Turning to slide 23, we have provided details of our allowance coverage by line of business.
Our allowance coverage ratio was down from the prior quarter driven mainly by the expected write offs and credit cards. However, the allowance overall is still flat to a year ago when performing allowance increased meaningfully in response to the onset of the pandemic and we continue to feel comfortable with the current level of coverage.
On slide 24, we show our credit portfolio mix, which is well diversified and consistent with last quarter.
Our total loan balances were 432 billion and the overall credit quality of our portfolio is strong nearly 2 thirds of our outstanding loans are to 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.
Slide 25 provides an overview of our gross impaired loan.
Gross and peer dollars were down in both retail and business and government loans and new formations were also down quarter over quarter.
Slide 26 shows the net write off and 90 plus day delinquency rates of our Canadian consumer portfolios.
As expected, we experienced a higher level of write offs and credit cards. This quarter driven mainly by a portion of accounts that had been part of our proactive deferral program over.
All right off dollars were up slightly year over year.
90, plus day delinquency rates were down this quarter again, the decrease and cards was driven by the write offs of accounts from the deferral programs, while the decrease and mortgages was driven by portfolio growth.
Personal lending and also experienced a slight decrease this quarter.
In closing while near term uncertainty remains with respect to COVID-19, emerging variance and the pace of vaccine Rollouts. We continue to expect the strengthening of the economic recovery and the second half of the year.
The impaired provisions for the consumer portfolios were higher this quarter as expected and we enjoyed strong performance and our corporate and commercial portfolios we.
We anticipate corporate and commercial and peer provisions could trend higher in coming quarters and should that occur we would expect to see more of our performing allowance transfer from stage 2 to stage 3 providing a partial offset the losses in future periods.
Overall, we remain comfortable with the quality of our portfolios and we will continue to be prudent as we determine our allowance levels and coming quarters and with that I'll turn the call back to the operator for questions.
Thank you.
Please press star 1 of at this time, if you have a question and there will be a brief pause from other participants register thank you for your patience.
The first question is from Ebrahim <unk> with Bank of America. Please go ahead.
Good morning.
So I guess, you had pretty strong volume growth and 1 Q I was wondering if you can just address and accelerating economy means different things for different loan buckets, if you could address.
And look for mortgage and credit card growth and Canada, and then and commercial loan growth what side of the border in terms of how strongly do you think momentum builds and relative to the commercial growth you had this quarter. Thank you.
Good morning, Ebrahim as Victor here I'll answer a high level question I'm going to hand, it off to John and Laura and and to Harry for perspective on the economy going forward.
So overall, we see the factors of pent up liquidity, we expect that with the economy opening up particularly in the domestic market youre going to see heightened consumer activity on the credit card front you may see.
<unk> and mortgage growth and I'll, let Laura I'll elaborate on that our clients are telling us that they're getting ready for the reopening and a very meaningful way and I think youre going to continue to see good loan growth on both sides of the border and the commercial bank as well as and our capital markets business. So why don't floor of why don't you take the first part of that and then hand, it off to our colleagues and.
Sure Thanks, Victor and.
Good morning Ebrahim.
And on mortgages and.
<unk> seen growth continues to be strong I would tell you we have a good pipeline of activity.
So that gives us confidence that we're going to continue to have a good momentum.
And the back half of 2021.
And on cards as Victor pointed out a lot of that will really depend on the opening up of the economy, but when we look at purchase volumes that have started to come back to pre pandemic levels. It does feel like there's positivity on the horizon and maybe over to John for a word on commercial.
Thank you Laura so last quarter I spoke about entrepreneur's feeling optimistic.
This continues to be the case.
Across our client base, we're seeing many positive signs sales activities up.
Utilization starting to rise there is more talk of capital expenditure and we are seeing more private company M&A.
So while there are some challenges.
Youre hearing supply chain labor to a lesser extent overall, we think the good news is better than the bad news.
You take that environment, you take a very healthy pipeline and we see good growth over the next couple of quarters, I think we did 1% quarter over quarter and Q1, 3% this quarter that feels like the right zone and we'll be targeting the higher end of that over the next couple of quarters, and maybe I'll pass it over to cash.
Thank you John much of that is echoed in the United States.
With the addition that the U S economy has clearly started to open up and is picking up steam and our clients are ramping up for that.
And they too.
The results and the ramping up is muted a bit by supply change and labor shortage challenges, but having said that there is a lot of liquidity and the system and our clients are ready to deploy it and we see continued growth and a very very healthy pipeline for Q2.
Back half of the year.
We think we're going to see.
Very good growth, even net of Triple P.
Forgiveness. So it's a positive story and looking forward, so with that I'll hand, it to Harry.
Thanks cap and just.
Just a quick comment on our corporate and institutional business. Obviously this business is well diversified our clients are very active and the pipeline is robust as we move forward.
A key part of our strategy of serving our commercial wealth and retail clients across our platform and the tailwind I think as you've heard from my teammates are in place now for economic resurgence and inside of the case, we should see a good tailwind and this business from a capital markets perspective as well.
Got it thank you.
Thank you the net.
Question is from Doug Young with Chardan capital markets. Please go ahead.
Hi, Good morning, just on the credit side I think last quarter. It was guided to on the impaired PCL side for.
For fiscal 'twenty, 1 of 30 basis points and I think the acquired before it was higher so obviously, you guided that down and and and you didn't give an update just wanted to see obviously I would assume it's going to be lower but any thoughts and updates on that and then kind of.
Attached to that.
As you start to release performing loan.
Allowances.
Where can the coverage ratio go to and my question is like if you look at 12 months can you revert back to the average of fiscal 18 fiscal 19 and or is there going to be probably of buffer that youre going to maintain and for a prolonged period above where you were on a coverage ratio basis.
<unk> versus pre Covid. Thank you.
Thanks, Doug so in terms of impaired outlook, but we're very pleased with the performance this quarter and consumer we did see an increase and credit cards that was expected, but the overall performance.
Exceeded our expectations, particularly in light of the insolvency write offs remain at historical lows and we saw similarly, and corporate and commercial strong performance and some recoveries this quarter and they said losses and that portfolio can be lumpy over the course of time, but based on the overall performance and.
Our outlook I would expect we have every reason to expect that our performance will continue to exceed our earlier our earlier guidance for the balance of the year in terms of performing provision releases and where we'd end up.
That's going to depend on a lot of things clearly, we expect as the economies reopen and Eze and <unk>.
Economic activity picks up that we would expect to move back down from a performing allowance perspective, where that ultimately ends up is going to be a function of a number of things portfolio mix will be and the impact there certainly what we've learned from this pandemic and the and the.
The adjustments that we've made to our models of the parameter impacts that we've talked about over the course of of.
The last several quarters those will be continuing so I would expect we'd get back down to lower levels.
Cash sitting here today is we probably wind up at a level that's somewhat higher than we were pre pandemic, but certainly the trend would be back down towards.
Towards those types of levels as adjusted and it will be dependent on those factors that I mentioned in terms of where that ultimately shakes out.
Thank you.
Thank you and the next question is from it and then with Scotia Bank. Please go ahead.
Yeah, Hi.
Just a question about rate sensitivity, we see the published rate sensitivity, but just wondering from your perspective, how do you think about it.
Is there upside to that are published rate sensitivity and and where could it.
Where could it come from.
Okay.
Thank you many thanks for the question of its Raj I'll take that.
You're right, we do publish our sensitivity and I'll clarify a few things a few things about that and give you a bit of color of where we stand now and the context of where we've come from and where it could go from here. So our sensitivity of their model and there is lots of assumptions in there, but they generally do holds right so going into it last spring our.
And he was about $280 million for 12 months of NII for a shock of 100 basis points and we did see the market move 150 on the short and closer to 1 of 100, and Canada and the longer and and commensurate with that we've seen the impact. So we have had some impact to NII as we've gone through we have about as of this.
It was probably about $60 million year over year impact to us versus an expectation before we hit that decline and the yield curve of being up year over year. So do you see that that range of the numbers do actually hold when they look at where we stand now and we've got that disclosure for 100 basis point of.
And over 39, and again, we would expect that would hold that's maybe a little bit different than.
Some of the assumptions and our periods of said they've made around that so for us and that includes the impact of the deposits that we're currently carrying and we know we're carrying some excess deposits relative to relative to what we had before this and some of that May go away and if you take some of that away of that that 440 ish.
Could be somewhere between 300 and 440, depending on how much of that actually sticks around through this but theres still material sensitivity upside to rising rates.
And what's happened so far is we've actually seen a bit of a recovery so going from that significant year over year impact that we have now <unk> seen that mute, particularly and this last quarter that we've seen the yield curves.
And the yield curve steepen, and we've seen and Canada anywhere kind of call. It 20 to 60 basis points, depending on where on the curve youre looking at on the swap curve and that's brought US 2 of plant, where we stand now based on the current forwards.
Rates forward as we roll of the balance sheet or a small negative, but not a material factors and we're close to neutral and so from there. If you see any further movement you can apply that sensitivity and it'll give you also a sense of on a year over year basis, what that will do to NII and NIM.
Great. Thanks for that especially on the deposits color. Thank you.
Thank you and the next question is from Scott Chan with Canaccord Genuity. Please go ahead.
Hi, Good morning, guys. So just on the U S mall side. The 1 thing that stuck out to me was that that and AUM was up 43% year over year and <unk> was up.
37% and kind of led to that noninterest income up 42.
Maybe can you maybe if you can talk about the asset growth I'm, assuming that was all organic.
And does that clearly tie into that non engine and non interest income line or is there other factors that.
That can that can affect it.
And that's a good question, Scott and I'll, let <unk> comment on a few things in a moment, but I will just remind everyone that the buildout of our U S wealth business has been a.
Our process for us and it's been quite successful we started off with zero and AOA and 2014 and now we're approaching the numbers you see on the slides and that's a function of 3 acquisitions Atlantic Trust and.
Part of the private banks wealth management business and Geneva advisors.
Also due to market appreciation, but net flows continue to be quite strong they.
And they continue to be quite strong from our and.
Our high net worth clients and United States as well as some of the connectivity to the rest of our <unk>.
Wealth management franchise, we have very good asset management capabilities embedded within our U S wealth business and they're starting to manage some of the money that exists across our platform, including in our Canadian business. So.
Maybe you can give some additional color to the strength of our wealth business and the net flows that youre seeing and what you expect to see going forward, including our private banking capabilities.
Thank you Victor maybe I'll start with going back to that.
It was always our plan from day, 1 to build a.
And complementary.
Virtual banking business and of wealth franchise, such as asset management and private banking.
And on the on the wealth side, we had a simply seeing.
A significant positive flows month after month, which are drawn to us.
For a variety of reasons.
1 there is there is just good business development activity by our development professionals number 2 we've had tremendous.
<unk> and number.
3 people, particularly.
Particularly during the pandemic.
We're drawn to the strength of CIBC.
And you add all of that up together you see month after month of positive flows.
It's been part.
Organic and part of market, if I had to look back over the past.
Here, it's about 50.50.
But we've seen tremendous.
Growth and all of our businesses as we started to build out a network of businesses and offices across the country that have our commercial banking businesses, both C&I and real estate.
Our asset management businesses, and we put private bankers and which in many cases are the glue that help deepen the relationships with the clients and we've seen again record referrals back and forth across those business segments, and I think youre seeing all of that and the.
And the fee income line.
Okay. Thank you very much.
Thank you.
The next question is from and Gabriel day, Shane of with National Bank Financial. Please go ahead.
And sorry, if I missed this in my opening remarks, and I hopped on late but we're.
Talking about the expense guidance of it.
I am.
And investors.
Mid single digit full year I get it.
Now moving variable compounds and influence there.
And with factor and the revenue equation because of the expense growth of gummy high because of all of last year, but you have the same story and the revenue line.
Especially Q4 of last year quite a bit.
So notwithstanding youre going round and some normalization of expense growth.
Also of normalization of revenue growth, which we've seen over the past couple of quarters.
$4.9 billion range.
Do we maintain positive operating leverage or does it turn negative.
Over the next couple of quarters and what's your outlook there.
Good morning, and Gabriel It's Raj I'll take the question and I think youre thinking about it the right way. So let me start with a reminder of our expenses of the way we look at our expenses together with our balance sheet. They really are the key resources that we have to invest to grow our business and that's the way we come at it so we manage that and <unk>.
Investment to solve for the PPE trajectory of that pre provision earnings trajectory that we wanted to get out of the business and for positive operating leverage over time, and we've been consistent with that messaging, so and doing that we've talked about the 3 different components of our expenses and the way we think about it and performance based compensation is a big factor and it is a big fat.
We're here this quarter, but outside of that what we come into every year looking to do is to manage those 2 other elements to balance the investments and the business for the long term with the short term impacts from irrespective of pre provision earnings growth and with respect to operating leverage and a lot of that depends on the top line environment, which you are touching.
4 right so 2.
2021 is a good example, so maybe let me touch on what's happened so far and what we expect going forward on that basis. So we'd signalled coming into the year that we were aiming to produce pre provision earnings growth year over year, and what we thought would be a tough environment and that we would look to contain operating leverage from.
And from being too negative and that's why we thought that the right level based on our expectations at the time of that top line growth that would mean low single digit growth and expenses and that's what we've been doing and you see that and the Little chart. We provided in our Investor presentation, we've done that and Q1, and we did and again in Q2 as we've invested but we've also found it.
<unk> seeks to contain that net expense growth. So overall the year has turned out better on the revenue front I'd say its been the case and the front half and we believe it will be the case and the back half as you've mentioned that's been because of the environment markets are strong, but its also a lot of what we're doing is the momentum and the retail business system momentum across our commercial businesses.
Wealth businesses and and capital market. So it's a result of the investments we've made and the investments are paying off and we're seeing that top line benefits of that investment. So the first half of 9% pre provision earnings growth, 3% positive operating leverage year to year to date and so both of those elements are exceeding our full year guidance.
And so we've taken that into accounts and we look at the back half and when we look at the back half we still feel very comfortable that we're going to beat those targets of pre provision earnings growth and contained operating leverage for the year because of the performance continuing into the back half, but as the revenue line ended up being higher performance based compensation will go along.
And with not particularly and the market businesses and Thats whats going to take us to that mid single digit so ex that.
We still think that low single digit expense that we were solving for is what we will do but even underlying that we've increased our investment levels and we've increased our efficiency relative to what we would have expected coming into it into this year and that's the way we're going to continue thinking about investing in the long term finding efficiencies and building on the momentum that we have.
But also contain that operating leverage impact and produce and growth.
And the first half of 3% op leverage closer to flat and the second half.
And I think I think for the full year, we're looking to contain it around the flat level is the way I would look at it Okay and then a quick 1 on and.
And you shouldn't.
How are you factoring and inflationary pressures on your.
Underwriting practices.
Everything is an obvious area of it.
Equation and so on.
The commercial side you've got.
Business is dealing with higher input costs.
Increasing risk there as well I would imagine.
Yes, let me comment on inflation overall, and then I'll hand, it off to Sean on the underwriting practices piece, which remained consistent and of high quality I would add so I think we're all seeing the price pressures that are out there I think we all know it's a function of basically 3 things supply chain disruptions labor market friction and commodity prices.
And people classify it as transitory or episodic our belief is that that.
It is likely the case, our belief is that central banks will start acting youll see what the bank of Canada has done on their tapering messages and what the fed has started to signal as of this week.
So while it's difficult to predict where inflation is going.
Our belief is that central bankers will act prudently and things will settle down over time.
And that will hopefully result in a more normalized environment normalized inflation and normalized interest rates, which are all good which is all good for the banking sector from.
From an underwriting perspective, let me hand, it off to Sean we've been consistent as I said from the very outset in terms of credit quality and a focus on that so sean over to you.
And so Gabriel thanks for the question and.
We're focused on it as well we've made certain changes to our practices just when we look at certain of our regions with very high growth, we do certain amount of.
Risk overlay as I call. It in terms of how we're looking at those particular markets, but from an underwriting perspective, we continue to see stable.
And that service metrics, which is 1 of the keys in terms of our underwriting practices on the resin side and and.
Early.
And as price appreciation for the overall portfolio is a net tailwind and so much of ltvs, but the real focus is on is on the income and on the debt service ability and we feel comfortable with.
From an overall portfolio perspective, and from a new originations perspective.
Alright.
A much deeper discussion for an earnings call and thanks for that.
Thank you.
Next question is from Mario Mendonca with TD Securities. Please go ahead.
Good morning, Laura if you could go back to your comment about credit card spend and returning to pre pandemic levels I imagine there is a bit of of lag on when we'll see that.
Play out and the actual credit card revenue because the numbers, obviously are still lower today than they were pre pandemic. So what do you.
How do you see this evolve and do you expect to get back to pre pandemic revenue levels and cards and the near term or should we really think of this as of 2022 story.
Hi, good morning Mario.
Think of a bit of of longer term story and that purchase volume.
Have come back so we're up like 2021% year over year. So we're seeing continued signs of recovery there that said and in the categories of big spend transportation travel.
Restaurants that still is much lower.
And so we need to see that come back and then the outstanding balances those continue to remain.
I'd say below pre pandemic levels sort of like down 10% to 15% on a year over year basis. So it's starting to come back.
And we've held up I'd say relatively well relative to industry and.
And because we continue to have improvement in our market share but.
But I do think it will take time for that part of the business to come back for us to see.
Increases and the outstanding so does it feel more of like 2022 event.
And you suggest.
Okay, and then if I can just go to card volumes.
Francis as you were talking about.
Sequentially the balances declined a little more abruptly than I expected I think there was some seasonality here. So if I go back I do see that Q2's generally cards are lower but it was it was a bit more pronounced was there anything in particular this quarter that would've caused that sequential decline.
No nothing other than seasonality as you mentioned, so nothing nothing to highlight.
Alright, and then just the final 1 on credit card.
Losses harassed.
Sean I think.
We know wide credit card write offs quite so much this quarter.
That was obviously, a little more than I would of expected.
Does it start to normalize from here or was that essentially is that of catch up quarter and everything should be a little more normal around the 3% range going forward.
Yes, Doug and thanks for the question and yes.
Oh, sorry, sorry, sorry Mario.
Yes. So you are spot on and this was a catch up quarter to address those write offs that were coming through that we had anticipated and so going forward, we would expect to see that normalize.
Thank you Mario if I could just comment on above just build on Lora and Sean's comments that credit card franchise that we've been building as a franchise thats, becoming increasingly more robust and ready for the environment that we're evolving into 1 that's got a travel rewards card and both the Aeroplan and the Avon share of fly anywhere of fly 1 airline.
But also importantly, the non travel rewards program and Laura and her team have been very focused on that non travel segment, which we see as an important segment going forward. So the durability of the overall credit card portfolio is going to play.
To our advantage over time.
Got it thank you.
Thank you and the net.
Question is from Sohrab <unk> with BMO capital markets. Please go ahead.
Yeah. Thank you.
Excuse me I just wanted to go back to Laura.
Fast forward 12 to 18 months, maybe 2020.2 even into 2023, obviously, it's got good momentum here and mortgage volume growth, but when you think about and mix of your business.
Sometime in the future, but not 5 years out quality of our and a half of 2 years out.
Are you going to be of 2 product franchise mortgages and cards or are there opportunities to have.
And more balanced.
Offering here beyond just mortgages and clients.
Good morning, Sarah.
So are our retail business is really about our clients and it's about providing our clients with what they need and so.
If that some mortgage and it'll be a mortgage if it's a credit card of credit card, but we're really looking as I said to provide our clients.
And with what best suits their needs dependent upon where they are in their life journey and so we have a strong focus on advice and I would say the full suite of products and so our strategy is really been to work hard to grow and we do want to.
Growth in all of our different businesses, so that that includes <unk> and <unk>.
It includes assets under management and the full suite of products that we sell and so I would expect.
And that you will see us as we have been doing.
Continuing to grow and all of those businesses.
Okay. So.
And you don't have any views around maybe getting into other lending products auto lending or any other type of ship.
Consumer lending.
Weighted.
Well, we'll continue to look as as the market.
And grows and evolves, we will continue to be part of that ecosystem. So if there are different offerings that we think makes sense for our clients will certainly be there to offer them.
<unk>.
Okay. Thank you.
Sure just just building on Laura's comment of full service relationship bank for the modern World right technology enables our relationship matters of managers enables our clients, but it's all about the relationship and you start seeing that and the Ipsos survey, where we had the highest <unk>.
Rank ranking we've ever had the largest increase of all of the banks over the last 7 years clients are not just mortgage clients and checking account clients or card clients. They are broad deep relationship clients. We're focused on the mass affluent and we're seeing improvements and client acquisition all of those are playing to the strength of their.
And the investments that we've made and you should expect to see that going forward.
And so Victor that should generally be therefore, a lot more additive to row, because it's a less balance sheet intensive climb.
Clients kind of driven growth well, yes.
Asserted and see that and the managed money side of things where you had.
And 5 consecutive record months of mutual fund net inflows, you're starting to see that on both sides of the border all of those things are enhancements to our ROE.
And we're very very focused on making sure that ROE gets to the 15 plus percent range on a consistent basis as the economy begins to normalize.
Perfect. Thank you.
Thank you and the next question is from Nigel D'souza with Veritas investment Research. Please go ahead.
Thank you good morning, I wanted to follow up on the release of allowances for performing loans and if I heard you correctly I think there was and management overlay that.
Tempered.
The release.
Of occurred it just based on your ECL model.
And that was related to uncertainty. So I'm wondering if you have any goalposts around what level of uncertainty of risk you're comfortable with with that coincide with a full reopening and North America 90 to 120 days after full reopening of North America or do you need to see.
The COVID-19 pandemic on a global level of.
Those risks subside and be in the rearview.
And thanks for the question, we'll be looking at all of those elements I mean every quarter, we review our performing allowance run our models and take into account.
The current state of affairs, both in North America, where most of our operations are.
And globally and so we will be looking for as we move forward sustained reopening and <unk>.
Particularly in North America with the virus activity looks like how the various.
<unk> are playing out and so we'll continue to look both in North America I would say.
More focused but globally as well in terms of how we ultimately look at our performing releases over time.
Okay. Thanks for that.
Thank you.
The next question is from Lamar Prasad with Cormack Securities. Please go ahead.
Thanks, just continuing on the discussion on non performing releases Shawn can you give us a sense of what those releases and what have been had you not ex ex exercise of the expert credit judgment.
And so we don't generally.
Break that down that much what I'd say is.
There was a.
Certainly less overlay than we've had historically.
The early part of the of the pandemic, we were exercising of significant amount of judgment. So it was it was prevalent this quarter, but.
From a from an overall perspective I'd say within.
And within <unk>.
A reasonably small band of this quarter, but we haven't really broken that out over time, and we'll look to see how the economic backdrop improves over the course of time to determine how much overlay we need to continue if at all and coming quarters.
Okay. Thanks, and then just a quick 1 from Laura I'm wondering if you could talk about your thoughts on the impact of the more stringent stress test on your domestic mortgage book.
Yes sure.
And when we look at that.
And again, we think we've got a solid pipeline.
And as we look to the future of that said the impact could be.
5 maybe 10% on origination.
I don't I don't expect it to.
I have too much of an impact I don't know of Sean would like to add to that.
Yeah. So we've looked at our originations to this point and and you know over the last little while and compared it to that and so as Laura said, 5% or less would be.
And sort of the range that I would expect for new origination.
In terms of impact.
Thank you.
Thank you.
And there are no further questions registered at this time I will now turn the meeting over to Victor.
Lamar I'd just also add that.
Respective of the impact Youll continue to see us.
Growth and deepen client relationships and move forward on market share, which is something that's notable across our franchise consistently quarter after quarter. That's what we're focused on.
Throughout the pandemic, our client focused strategy diversified portfolio and disciplined risk management has positioned us well to deliver strong results for all of our stakeholders I said this at the beginning of the call.
I Hope you got that feeling from the leadership team because that's absolutely what we're focused on our client focused culture has enabled the successful execution against our strategic priorities and we've been very clear on the 3 priorities that we have.
Hi, and my leadership team have deep confidence that our bank will continue to perform at our highest level and the next phase of our transformation journey.
As we invest to accelerate long term sustainable earnings growth that is the focus.
For your continued support and your interest and CIBC. We are truly just getting started we look forward to speaking with you and in 3 months time and I'd encourage you all and enjoy the summer months. Thank you.
Thank you.
Conference has now ended please.
Please disconnect your lines at this time and we think.
And for your participation.
Thank you.
France has now and.
Indeed.
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