Q3 2021 Canadian Imperial Bank of Commerce Earnings Call
It looks like your steel <unk> it was due.
[music].
Okay.
Hum.
[music].
Greater to start the conference then press Star one system, Tony will be heard when you request has been accepted to cancel your question Press Star two.
So your specialty coffee house come off Hot soup, the buff bowls in guests still want to use it well.
My dad had that data.
The Motorhomes and done that you did you see Stan Goff Yamaha because I told them one day. They exited the planned new data looks like it's still at two years. So it was the.
Yeah.
Please standby your meeting is about.
Can fit in.
Good morning, and welcome to the CIBC quarterly financial results call. Please be advised that this call is being recorded I would now.
Turning to me now 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.
It speaks from Victor <unk>, our President and Chief Executive Officer, followed by her entrepreneur Sheehan, our Chief Financial Officer, and Shawn Beber, Our Chief risk Officer also on the call today are a number of our group heads, including might Catheti. These U S region, Harry Culham capital markets, Laura Detore Athanasiadis personal and.
Remark banking, Canada, and Jonathan Palace, commercial banking and wealth management, Canada. They will all be available to take questions. Following the prepared remarks.
During the Q&A to ensure we have enough time for everyone to participate we ask that you. Please limit your questions and re queue as noted on slide two of our investor presentation. Our.
Business 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.
This quarter, we reported record revenue of just over $5 billion, which is up 7%.
Over our prior year, driven by strong growth in all of our business units.
Pre provision pretax earnings of $2.2 billion were also up 7%.
And earnings per share of $3.93 were.
We're up 45% from last year.
Our return on equity was 17, 9% and our capital position remains strong.
Wrong with a CET one ratio of 12, 3%.
Over the course of the quarter, we saw the operating environment improve.
Driven by the easing of Covid related restrictions.
And Asian programs across North America continued to rollout.
As a result rebound in consumer activity and increased optimism from our commercial and corporate clients.
<unk> contributed to both volume growth and higher client activity from new clients and our existing clients.
Our strong results underscore the strength of our client focused strategy and the successful execution of our three strategic priorities.
Those priorities are number one to further strengthen our Canadian consumer.
Franchise.
Two to maintain and grow our resilient North American commercial banking wealth management and capital markets businesses, and the third being to accelerate our ongoing investments in growth initiatives into the future.
On the first priority, we're delivering we continue to strengthen our Canadian consumer franchise.
With market share gains driven by strong client acquisition and improved retention.
We also continued to see solid growth in our mortgage portfolio and momentum in franchising, our new clients.
On a year to date basis, CIBC ranked number one in market share growth and personal loans.
As economic activity rebounds.
Rebounds, consumer spending accelerated and overall purchase volumes have returned to pre pandemic levels.
And as the economy continues to normalize our goal is to ensure we have both a strong travel and.
And non travel card presence to capture market share as consumer spending increases.
Now turning to advice, our proprietary financial planning platform CIBC gold planner continues to resonate with our clients.
In the first year, our advisors have helped our clients create more than 100000 personalized plants.
Driving record mutual fund net flows along with significantly improved client experience scores.
Now moving onto our second strategic priority again, we're delivering on that one as well and.
In commercial banking, we saw robust lending growth on both sides of the border driven by an improved economic outlook, among our clients as well as new client activity wealth.
Wealth management activity remains strong with nine consecutive months of record net flix.
<unk> as investors continue to look for alternatives to low deposit interest rates.
And our capital markets franchise demonstrated the benefits of our well diversified business model.
While fixed income trading this quarter was below the record highs of last year growth in foreign exchange and growth in equities trading as well as strong origination and <unk>.
<unk> activity helped offset that decline.
And project financing of North American renewable energy CIBC is ranked third for the first half of 2021 in the league tables. This.
This is a vast improvement from 26% just three years ago and reflects our strong and our growing expertise.
<unk> in the sector and our commitment to support our renewable energy clients.
To further strengthen our presence and capabilities in the United States, We announced a strategic investment of loop capital Your Chicago based financial services firm with deep relationships in key sectors across the U S market.
CIBC and Luke have worked closely in recently.
Recent years on specific transactions for our U S clients.
And our investment in their firm will enable greater collaboration on future client activity as we grow our business in the U S.
We're also executing on our third strategic priority and that is to accelerate our investments in initiatives that will drive sustainable and profit.
<unk> growth into the future.
A cornerstone of these efforts has been our technology investments.
One example of this is our recent agreement with Microsoft as we embrace a cloud first approach to modernize our platforms and build on our resiliency and agility, it's going to enable us to support faster real time data driven decisions.
And it's going to enable us to quickly launch and scale new innovations for an enhanced client banking experience.
In our consumer business, we recognize the increasingly popular buy now pay later dynamic in the marketplace.
Remember, we were first to market with our post purchase installment plan known in the marketplace of CIBC.
C patient.
To further enhance our offering we recently announced the new visa feature that will allow eligible clients to select installment options for qualifying online purposes purchases during checkout. So we have after checkout and during checkout.
Our award winning mobile banking App continues to be a market leader.
As evidenced by the highest consumer satisfaction rating in Canada from J D power, marking our second consecutive year with this honor.
We also continue to invest to advance our leadership position with the recent launch of our new digital identity verification option, which is going to offer fast easy secure onboarding for new CIBC clients.
<unk> using our banking app or website again further supporting our client acquisition efforts.
Another important strategic focus for our bankers to achieve our shared ambition for a more sustainable world working alongside our clients. This morning, we announced cibc's ambition to.
To achieve net zero greenhouse gas emissions from our operational and <unk>.
Nancy activities by 2050.
To achieve this we are establishing four areas of focus which include refining our own operations.
Leading our clients through the transition to a lower carbon economy.
Encouraging consumer behaviors that reduce climate impacts and sharing our progress with with all stakeholders.
Recognizing the importance of making near term progress towards net zero, we're committed to achieving carbon neutrality by 2024, including sourcing 100% of CIBC electricity from renewable energy sources will also be setting interim targets reduce financed emissions with reporting on their progress beginning next fiscal year.
We remain committed to working with our clients to help them achieve their climate related goals through financing and advisory services, and importantly through investments and innovation and technology, which are going to be important drivers of our reduction in <unk> emissions.
We also encourage consumer behavior, we're also going.
Going to encourage consumer behaviors through education resources and advice on a client ambition hub, which is coming soon to our website as well as sustainable investment solutions.
Portion of Cibc's revenues from managing these solutions will be donated to organizations supporting climate transition activities.
And and supportive.
Companies worldwide using carbon offsets as a tool to achieve net zero targets Ci.
CIBC is you know along with three other global banks recently announced project carbon.
Which is a voluntary carbon offset platform to bring efficiency.
Liquidity and global standards to the carbon offset ecosystem.
The transition to a low carbon global economy will take meaningful will take meaningful commitment and it's going to take action from everyone.
We will continue to play our part in addressing this critical global issue through collaboration and cooperation with all stakeholders to build an inclusive inclusive and sustainable future.
So in summary, we're very encouraged by.
Quarterly results and the progress that we're making against our priorities as the economy recovers.
And organic growth accelerates.
While many challenges and uncertainties related to the virus remain we're living that each and every day as you see in the news we're going to continue to execute on our multiyear journey to advance our strategy and strengths in CIBC.
With that let me turn it over to <unk> for a review of our financials, followed by Shawn for risk review and we'll then take questions from all of you so <unk> over to you.
Thank you Victor and good morning, everyone.
Starting on Slide 10. This morning, we reported diluted earnings per share of $3.76 for the third.
Quarter of 2021 exclude.
Excluding the amortization of acquisition related intangibles and an increase in legal provisions adjusted EPS was $3.93.
Our team executed well against our communicated strategic priorities this quarter and we are very pleased with the results we delivered for our stakeholders.
<unk>.
With our capital deployment priorities, we continue to leverage our strong balance sheet to support clients accelerated organic growth and enhance shareholder return.
Robust contributions from each of our business units drove record revenue in the quarter demonstrating the potential of each unit as well as the benefits of our diversified franchise.
And consistent.
Distant with our guidance, we continue to realize the benefits of past investments, while reinvesting across our bank to drive sustainable growth over the next business cycle.
Balance of my presentation will refer to adjusted results, which exclude items of note starting with slide 11.
This quarter, we generated net income of $1.8 billion and a return.
Turn on equity of 17, 9% helped in part by solid credit performance, which Sean will cover later in the presentation.
Pre provision pretax earnings of $2.2 billion were up 7% from a year ago or 9%, excluding the negative impact of currency translation.
When you have $5.1 billion was up 7% year over year.
Q2 growth in client balances and higher fees, driven by strong performance across all of our businesses and constructive markets.
Expenses were up 8% from the prior year largely due to performance based compensation and increased strategic investment.
12 highlights the drivers of net interest income excluding trading NII.
NII was up 7% from last year due to robust growth on both sides of the balance sheet and stabilizing margins as economic activity continues to recover we anticipate building further momentum and non trading NII.
Total bank NIM was largely stable up one basis point sequentially.
Canadian personal and commercial NIM declined two.
Basis points from the prior quarter, largely due to a shift in asset mix, partly offset by strong deposit growth going forward. We expect continued but moderating pressure on P&C NIM driven primarily by changes in balance sheet mix.
Our U S segment was down two basis points relative to last quarter as modest margin.
Compression from lower rates pricing and hedging adjustments was partly offset by loan higher prepayment fees and deposit growth.
We continue to expect the benefits from loan prepayment activity and elevated deposit levels to subside going forward.
Turning to slide 13, noninterest income of $2.
2 billion was up 9% from the prior year as higher transactional and market related fees more than offset declines in trading revenues from a particularly active trading quarter last year.
Transactional revenue has continued to improve on a broad basis with higher deposit and payment card and credit fees, reflecting increased client and economic activity.
Market related fees benefited from market appreciation and continued client momentum in our wealth management businesses as well as robust client activity in investment banking net of declines in trading revenue.
Slide 14 speaks to the drivers behind our expenses, which remained consistent with our prior guidance.
<unk> expenses were up 8% year over year with higher performance based compensation as the most significant driver. Excluding this expenses were up 3% driven by increased investments against our strategic priorities.
Going forward, we intend to continue investing in our business to build on our recent performance and we maintain our guidance for fiscal 2020.
One, namely low single digit expense growth, excluding performance based compensation and mid single digit growth overall.
Turning to slide 15, our balance sheet remains strong and we continue to have significant resources to invest in growth through the recovery period.
We ended the quarter with a CET one ratio of 12 three.
Or 12, 2%, excluding the ECL transitional benefit strong internal capital generation of 40 basis points was largely offset by higher R. W. As from accelerating organic growth and the regulatory change related to the stress for our multiplex.
We anticipate continued deployment of capital towards organic growth at an accelerated pace.
Through the economic recovery.
Average LCR declined 226% as we returned to more normalized liquidity reserves, but remains well above the 100% regulatory minimum.
Slide 16 reflects personal and business banking results driven by our focus on client growth and franchising.
Net income for the quarter was 600.
<unk> 2 million up $183 million from the prior year pre provision pretax earnings of $938 million were up 12% from the prior year driven by robust volume growth.
Revenue of $2.1 billion was up 8% from the same quarter last year as the impact of mortgage and deposit growth was partially offset by lower credit card.
40.
The third quarter last year was negatively impacted by a number of items, including the interest rate relief provided to some credit card clients.
Normalizing for those items revenue growth was closer to five 5% from a year ago.
Expenses of $1.1 billion were up 4% from the same quarter last year going.
Going forward, we expect expenses to reflect continued strategic investments in our consumer franchise to sustain the momentum generated over the past few years.
Moving on to Slide 17, net income in Canadian commercial banking and wealth management was $470 million pre.
Pre provision pretax earnings of $590 million.
Was up 19% from a year ago as both wealth management and commercial banking benefited from accelerating economic and client activity.
Banking revenue was up 14% from a year ago, driven by robust growth in both loans and deposits commercial loan growth continued to accelerate this quarter growing 6% sequentially and 9%.
From a year ago, and we expect continued strong performance.
Wealth management revenue was up 23% from the prior year, primarily driven by higher fee based assets and higher commissions from increased client activity.
Increased expenses were in large part due to higher performance.
Slide 18 shows U S commercial banking and.
Results in U S dollars, where we delivered net income of $226 million helped in part by credit performance pre provision pretax earnings were $228 million up 16% from the prior year supported by increased lending deposits and AUM excluding.
Excluding PPP forgiveness average LOE.
Growth was 3% and we originated over $900 million in loans to new clients for the second consecutive quarter.
Average deposit growth of 20% has benefited from strong origination activity as well as increased liquidity helped by our clients.
In our wealth business consolidated AUM growth of 36% benefited from strong client flows and.
Wealth Mad appreciation.
Increased expenses this quarter were driven predominantly by higher employee related expenses and going forward. We're planning further investment in this segment to improve client experience drive efficiencies and support increasing regulatory requirements as our business continues to grow.
Slide 19 speaks to our world.
Well diversified capital markets business net income of $491 million compared with $443 million in the prior year helped by a reversal in provisions for credit losses in the current quarter.
Pre provision pretax earnings of $611 million was down $48 million or 7% from a record quarter in the prior year.
And mark out by the diversified nature of our platform revenues of $1.1 billion were relatively stable from the prior year and up 4%, excluding more positive credit and funding valuation adjustments in the prior year.
Lower trading revenue in fixed income and commodities was largely offset by higher equities and foreign exchange trading robust corporate.
Banking activity and growth in direct financial services.
We will continue to benefit from the diversification in this business going forward as momentum in DFS and the corporate and investment banking pipeline help offset any further normalization in trading.
Expenses of $529 million were up 9% compared to last year.
Driven by performance based compensation as well as continued investments in growth initiatives and infrastructure.
Slide 20 reflects the results of corporate and other business unit net loss of 74 million in the quarter compared to a net loss of $54 million in the same quarter last year revenue was down 10% from the prior year largely.
And that's due to the impact of currency translation on first Caribbean.
As highlighted in the past expenses in this segment are impacted by enterprise strategic investments, which we anticipated to increase through the balance of 2021 why.
While up 5% sequentially and 4% from the prior year and this quarter, we continue to expect more.
Legal increases in the short term as the planned investments are implemented.
In conclusion, we're pleased with the strong results our teams delivered yet again this quarter through the first three quarters of fiscal 2021, our pre provision pre tax earnings are up 8% from the same period last year, and we are well positioned to build on the recent.
And material item across all of our business units going forward, we will continue advancing our strategy to balance sheet deployment and investments to accelerate our growth while doing our part to contribute to a robust economic recovery for our clients and our communities and with that I'll turn the call over to Sean.
Thank you for ACH and good morning.
Recent my third fiscal quarter of 2021, we continue to see progress in economic reopening in most of our markets.
We are of course mindful of the current reality of the Delta variant, which highlights the potential for an uneven pact a full economic recovery, but with that context I'd like to reaffirm Chi messages I shared last quarter first.
During the quality of our portfolio remains strong and credit performance this quarter continued to exceed our expectations.
Second we're watchful of the continued challenges that COVID-19 presents but our base case expectation remains for a continuing economic recovery over the balance of calendar 2021 and into 2022.
Building on the strong growth seen over the summer reopening and finally, we remain comfortable with our risk levels and confident with our current level of provisioning and we're well positioned going forward with the continued growth in our portfolio.
Turning to slide 23 in Q3, the provision for credit losses was a net recovery of 99 million.
Bill compared with a provision of $32 million last quarter.
Provisions on impaired loans decreased $138 million from last quarter to 108 million driven by lower provisions in both retail and business and government loans.
In Canadian personal and business banking mortgages and personal lending had lower provisions reflective.
<unk> of improving 90, plus days delinquencies, while credit card write offs were also down quarter over quarter.
In both our Canadian and U S commercial and wealth businesses are provisions were consistent quarter over quarter, reflecting continued strong credit performance and.
In capital markets, we recognize the net recovery.
As we experienced lower impairments and benefited from a few reversals in the oil and gas portfolio.
Partially offsetting these decreases CIBC first Caribbean experienced a higher impaired provision this quarter.
Our performing portfolio had a provision reversal of $207 million in Q3, primarily driven by improving.
Proving forward looking indicators consistent with the continued economic recovery.
Overall this was an exceptionally strong quarter for credit performance, reflecting the resilience of our portfolio and improved economic and commodity price conditions.
Slide 24 details our allowance coverage by line of business.
In Q3, our allowance coverage ratio was down from the prior quarter driven mainly by the overall overall favorable economic outlook.
The current allowance coverage ratio remains higher than the pre COVID-19 level, reflecting the performing provision build we recognized following the onset of the pandemic and ongoing uncertainty with respect to.
The speed and consistency of the economic recovery.
Turning to slide 25, we have provided our credit portfolio mix, which continues to be well diversified with strong overall credit quality consistent with previous quarters.
Our total loan balances were $449 billion over half of which are mortgage.
Mortgages, the average loan to value for our uninsured mortgage portfolio is currently 48%, which is lower again this quarter as a result of the strong housing market.
The business in government portion of the portfolio has an average risk rating equivalent to a triple B and continues to perform well.
Slide 26 provides an overview of our gross impaired loans.
Although there was a slight increase in CIBC first Caribbean overall gross impaired dollars were down in both retail and business government loans, new formations were also down in the quarter.
Slide 27 details the net write off in 90 plus.
Delinquency rates of our Canadian consumer portfolios.
Following the higher levels of write offs in Q2, driven by accounts that had been part of our proactive deferral program write offs reverted to a lower level this quarter.
Overall write off dollars were also down year over year.
We saw 90 plus day delinquencies decrease.
In the third quarter due to our COVID-19 related risk mitigating actions government support as well as prudent client payment behavior.
In closing while concerns remain over the delta variance in other variance of concern leading to some near term uncertainty our general expectation is for the economic recovery to continue as vaccination.
Explanation rates rates climb in Canada and globally.
Overall, we remain comfortable with the quality of our portfolios and we will continue to be prudent as we determine our allowance levels in 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.
And the first question is from many Raman from Scotiabank. Please go ahead.
Hi, good morning, Harry.
It shouldn't for you if I looked at your.
Your segment I see loans up 6% sequentially strikes me as a big job So I'm wondering.
A question.
What's impacting that.
Is there a seasonality is there anything unusual going on.
And just if you could comment on that big sequential jump.
Hi, good morning, many thanks for the question.
The business continues to grow.
Nicely throughout the throughout the pandemic in the early stages of the pandemic of course, we stood by our clients and ensure that we are there to deliver capital were required but across the platform across the global markets platform across the corporate banking platform delivering for our core clients. The capital required. So we're growing in the single digits.
The.
ROE book in General and the financing books in general and that should continue as we move forward and so we're seeing our clients in general in the areas that we're focused on as you think about sustainable finance key areas of importance to our clients as we transition to.
Our new economy.
We're very very involved as Victor pointed out earlier.
The loan.
Do you expect that to be sustainable I mean, I guess, if I, if I annualize that I got it.
Pretty big number there, but I should think about it in terms of.
So from an on an annual basis, given the kind of growth Youre seeing.
You saw in Q3.
Yes, many of its Raj maybe I'll jump in here I think.
Youre speaking to Harry about loan growth, but I think at this point you are looking at the commercial numbers as well.
When you talk about the 6% commercial that's in our commercial business, which would be more in John's world and so may begin John can speak a bit to that and the sustainability of that momentum as you pointed out.
Thank you thank you Manny.
I think so certainly we had a strong quarter.
And it was well diversified by industry and by geography.
50% came from real estate, 50% came from our diversified businesses and Theres. Many challenges out there you read them in the paper the real the impact every client differently inflation labor.
Many supply.
But generally business confidence is high.
And when confidence is high our clients are investing for growth.
When they invest for growth of pipeline growth and our pipeline is good.
So based on our pipeline I think our commercial banking momentum will continue and we expect to finish fiscal 'twenty one.
We're comfortably with year over year loan growth in the double digit range.
And just as a follow up if I look at the difference between Canadian commercial versus U S. Commercial definitely paydowns. So look a lot more significant in the U S, especially scaled to the size of the loan book.
What accounts for the difference there.
As you see it in terms of the differential in terms of pay downs.
What's really the difference in Canada, and the U S that explains that.
Most of the big pay downs are in the U S. So I will I will pass that question over to Mike Hepatitis Mike are you on.
I am John.
Kevin Thank you for the question.
We had a good Q3.
With 3% growth net of triple pay.
Forget this.
In the quarter, our Paydowns were mostly.
In the U S related to our institutional real estate book.
<unk>.
Which we saw significant pay downs, which we frankly viewed as a good sign about the credit quality of that book, we expect that to reverse the other.
Dynamic in the U S was given where rates were we had.
Many of our commercial climb.
Thanks.
Go to the public markets and pay down the revolvers are there term loans. We also expect that to reverse so looking forward.
We together with our new client originations and.
And NIM.
More business with existing clients.
And our revolver utilization rates increase we expect robust growth to come back.
Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Maybe Mike just sticking with you on the U S side.
Hi, Todd.
I talked about the Paydowns and robust growth coming back maybe you can just talk about the.
The commercial and the CRE market down there and what Youre kind of seeing if there is.
Maybe incremental growth on on one of them one or two of those books that are more.
Well we.
This is a very.
Diversified book in our commercial and our C&I and our real estate portfolios as I said, we expect the real estate portfolio to to come back to significant growth.
In the coming quarters as the pay downs and anticipate we have a very strong <unk>.
And in our real estate.
<unk> book that we expect to see come online in the coming quarters, and our C&I book in fact.
This past quarter.
Had we initiated a 165 new relationships and those are mostly on the C&I side.
One of the strengths of our businesses in the U S. As our specialty groups, where people come to us for our expertise and we've seen good growth.
And across the board and all our specialty lending and if you combine that which we expect it to two to continue when you combine that.
And with our more mainline commercial clients, who simply had been sitting with a lot of cash as they build inventories in the U S. Economy continues to improve we expect to see our revolver utilization rates come back to more normal levels.
And continue to see robust.
And growth in that portfolio. So we're optimistic looking forward.
Okay. Good and then maybe just going to the Canadian side.
The mortgage growth.
Was exceptional.
But the industry. This quarter I think last quarter, you are kind of in line.
Perhaps you can just maybe describe what you're seeing.
Robust housing market now in Canada and <unk>.
<unk>.
Perhaps some of the reasons that you are able to capture that incremental growth across relative to the market.
In pretty quick order.
Yeah, Hi, Scott it's Laura.
I'll take that.
Being in the housing market continues to perform well. So we as you pointed out we've seen some really strong growth, including some good market share gains. So we're really pleased with our performance in a lot of that was just the result of.
A lot of the actions and investments that we.
It took and I think thats, what Youre seeing drive our performance so happy with the progress we've made.
I'd say on a go forward basis again, when we look at our pipeline of activity.
We expect things to continue although I would just say that the pace of growth will likely moderate.
As we come off call. It the recent highs in the market. So think of it as more of a return to normal in the housing market.
And many and Scott just Victor here I, just wanted to tie together some of the themes that youre seeing across our business across our capital markets business across our commercial banking franchise in Canada.
The United States.
In our Canadian personal and business banking franchise.
Seeing deeper client relationships driving growth and youre seeing new client relationships driving growth the strategy that we've laid out of a client.
Our relationship focused bank with our existing clients and attracting new clients is working it is driving.
Giving that topline growth that youre seeing across our CIBC franchise and that is the most important message to take away from all of our activities. We are laser focused on our clients. We're laser focused on winning new business from our competition and it is paying off in all markets that we're competing in.
Okay.
Thank you for that.
Thank you. The next question is from Gabriel to Shane from National Bank Financial. Please go ahead.
Good morning.
On expenses.
I appreciate the guidance you gave for us that was helpful. But.
More of a technical one I guess on the on the variable side of things.
Sure.
Costs are moving up higher than that.
Okay RBC issue.
Wondering if.
Theres some empire.
Entirely revenue driven or is there a component that.
Tied to employment dynamics, so like incentives or retention.
Costs that are that have been moving higher because there's a lot of competition for talent out there I was wondering if.
Playing a role at all in that.
Or maybe in the fixed cost element.
Compensation.
Yeah. Thanks, Thanks for the question Gabriel and it is predominantly revenue linked still when we speak about our performance linked expenses and what Youre seeing in the variable line item go up.
Okay.
It is very much related to the areas of the business, where the compensation is variable with.
With production Okay. So that's really what's been driving it there is a little bit of noise, sometimes in there from changing on timing on things in payouts, but it is vast majority of that performance based and so we're very pleased with.
We're getting that revenue growth and performance and that's why earlier. This year, we started guiding towards the overall expense being driven higher by those factors and we continue to see that strength and performance.
Okay, and then if I.
Interpret your messaging.
Correctly.
Sure.
Excluding variable comp.
The fact of.
Remember, we saw 3% and in <unk>.
Round that level for the next little while.
In terms of growth.
Yes, I think on a full year basis.
We've been very clear that we expect all of our efforts.
Investments that were making net of the expense discipline that we have across the bank.
Jump to land us at that low single digit level, and then driven up or down from there based on performance and how those variable pieces come in and performance has been strong. So variable expenses are up and we're going to be mid single digits for the full year as we've said.
And for the full year again, excluding that we think low single digits is where.
Despite the fact that we've accelerated some investments in the current environment.
Proactively pushed more into this year in the back half of this year.
But we think it will still be in that low single digit range without that and that's the right level for our bank at this point.
No no outlook for 2022, yet.
We look at 'twenty two the same.
Well, it's a little bit early Gabriel to give you exact numbers, but we came into this year looking at the year with our pre provision earnings growth targets in mind in trying to figure out what we need to do in terms of balancing the investments versus efficiencies in the expense line to get the pre provision earnings growth. We want so we're gonna go into next year. The same way, we're finalizing our planning.
[noise] way point in time, we've got lots of good investment opportunities that we're going to undertake and we also have lots of opportunities to manage our expenses and so rather than give you an expense or operating leverage target I would say we'd come at it the same way.
We solve that puzzle and have better visibility into what the environment and the top line look like we'll.
At this time the exact plan in Atlanta on the exact numbers and we can communicate that more to you next quarter.
The rest of your summer.
Okay.
Thank you.
The next question is from Ebrahim in Pune Wala from Bank of America. Please go ahead.
Hey, good morning, I guess first just how much if you could.
Atlanta on quick follow up on that expense just bigger picture, so you've talked about accelerating the strategic investments.
We in the cycle.
Get SEC investments are here to stay but when you think about some big undertakings all the early middle of the path that are coming to the later stages, where you're trying to ramp up.
These investments.
Any perspective, there would be helpful.
Yeah happy happy to start on that Ebrahim.
The way, we look at it as an investment in our business is ongoing we wanted to position the bank for growth in the long term until we will continue investing so I wouldn't say I would look at it in terms of early mid or.
We have started investing in the business more than we did in the past we will continue investing in the business and so I don't think there is an.
A bulge here that we're getting through it is really about continuing to invest as we get the benefits from those investments to the topline we reinvest a portion of that into new initiatives and we continue.
They do that and that's the way we're looking at it. So we will manage the overall expense growth as I said by looking at the rest of the expenses outside of the deliberate strategic and growth investments that we're making and also looking at the net expense growth relative to the topline growth in any period of time to get the pre provision earnings most of the place that we need to.
But this isn't about making a bunch of investments and then going back and forward.
First thing it not investing we always invest in our bank.
Understood and I guess, just moving to the DFS business.
Victor you've talked about that as a growth Avenue in the past I was just wondering if you could.
We are seeing revenue Dell flatlined this year around the $200 million level.
Maybe you or how are you just give us some perspective on what's going on there and also any perspective on the impact to CIBC from what are you seeing on the discount brokerage side. The dealer commissions is it material is it an opportunity would love I would love to.
Sure Ebrahim.
As we've said to our investors a year ago, when we set up our DFS business. It was meant to provide transparency into some of the very important assets that we have that are dealing with the changes that are happening in the financial landscape.
Investing direct banking and Fintech.
Related businesses that were actually competing with and quite successfully so that youre going to hear more and more about over the course of the year.
We actually did see significant growth year over year. It flatlined over the last quarter, but that business has been growing nicely and I'm going to hand, it off to Harry just to remind you of some of the elements of it.
And how to deal with the some of the emerging themes in a discount brokerage.
Yeah, Good morning, Terry here.
Yes, so just just take a step back for a second as Victor said, we're combining these technology led business is really providing a cohesive set for direct banking direct investing in really with our innovative multi.
Currency payment solutions platform servicing our clients holistically. So those three businesses, they're all under one umbrella really leveraging the expertise that they bring together two to focus on further growth and we've actually seen year to date revenues up 18% year on year. So we're seeing some very good results over the over the.
Over the term.
Coming back to direct investing in our investor's edge platform, we do have a very competitive offering in the marketplace. We continue to invest in technology and the talent to enhance the client experience and grow our market share. We are focused on modernizing our core platform does that effect. If you recall a few years ago, we actually lowered our price.
Price of major competitors did not follow and we continue to be lower in price generally and so I would like to remind you that we have a premium edge offering as well for a high touch direct investing clients in the majority of our investor edge clients are multi product bank clients. So it really.
A nice basis for our bank and servicing our deepening our client relationships.
As Victor mentioned earlier.
Got it thanks, and just on that Victor any thoughts around your stock has done well you have a nice guidance you know M&A be think big beat U S Bank M&A any updated thoughts.
On that front.
Ebrahim, our focus is on organic growth and investing in our.
Business organically is priority number one youre seeing that in the results.
Our capital allocation is going to prioritize organic investment across all of our businesses you will see the results continue to get delivered because of those investments. We've in fact put more methodology in place to make sure that we know exactly when the returns will be.
Coming so that we can deliver what our shareholders are expecting.
When the regulators changed the posture on dividends and share buybacks, we will activate those levers as well and on the dividend payout side, we want to be in the mid point of our range. We're at the lower end right now because of the restrictions and that'll happen over time as well and as we've been clear to.
All of you when it comes to M&A, it's really a focus on tuck in M&A like the loop capital investment is a prime example of that it strengthens our organic growth profile. So organic growth priority number one is what you need to remember and we believe that that will deliver the earnings.
Commensurate with what our shareholders are expecting over time.
Very clear thanks for taking.
My question.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning, Victor this.
This question, let me preface it by saying it may not be entirely fair, but I'm going to go with it anyway.
It would seem to me that over the last little while.
The banks seem to be in the cross hairs Im referring to the opening open banking proposal.
Yesterday, we learned about this.
Canadian recovery dividend and potential increase in tax rate.
What I wanted to ask is what's your impression that does it feel like the banks may be a victim of their.
Their own success.
Things like <unk>.
Could could the industry have to revisit mortgage insurance.
Interchange fees banking fees more generally executive compensation because of some of the examples I just came to mind as I was thinking about it what's your perspective.
You bring up a crosshair of.
Issues and themes there Mario I'd say, a couple of things banks have always been in the cross hairs, but what you want is a healthy banking system.
A healthy banking system helps the economy grow I'm not going to comment on the campaign promises and political promises that are being made out there, but I will remind our investors and investors.
On this call and investors who are not on this call. The role that we played in the banking sector played during the pandemic.
We worked very diligently and collaboratively to make sure that.
Sir the Ciba stimulus funds were available to Canadians as quickly as possible and as efficiently as possible.
We as a bank deferred over 500000 credit arrangements with our clients to accommodate them during the very intense time at the very beginning of the pandemic.
The second thing that I'd say is most Canadians whether its through large pension plans or through their own investments have investments in banks.
And.
The benefit from those dividends that we pay and they benefit from our economic growth and that contributes to their livelihood.
And I would say that if anything I would want everybody to focus on how do we grow the economy. How can we focus on foreign direct investment how can you focus on making a more robust economy to benefit everyone our shareholders.
They all Canadians all Americans and whoever we serve as a franchise when it comes to open banking.
It's a global movement, it's a theme, it's something that's being driven by technology and quite candidly we embrace it.
It will make us stronger it'll make us better.
We're working with our industry partners here in Canada.
Canada to make sure that we all create a standard so that data can be exchanged.
Between institutions and organizations in a safe and private way based on how our clients wish to do it.
We're working with some of our global banking partners and a global open finance challenge to make sure that some.
Best ideas are coming I say bring it on and these themes will always be there, but we as a bank are very aware of them. We as a bank are very aware of how to compete with that and we will continue to deliver.
Our shareholders irrespective of what kind of headwinds appear.
Just a quick follow up.
Some of the better.
And I'm, not making a value judgment on this but it does seem like the world is shifting.
<unk> left in the political spectrum.
That shift does it concern you like could we be looking at an environment.
Few years from now five years from now.
When.
The banking.
On that.
<unk> ability.
He has managed a little bit.
Outside of the bank and environment, where it becomes more like a utility and a certain level of ROE is acceptable, but one above that isn't do you feel like we could be moving in that direction in Canadian banking, well I would like I would like that not to happen anywhere.
SEC quite candidly I think that.
What governments should be really obsessed with is making sure that their citizens are well educated.
We have access to universal health care and that they create the conditions for private capital to help everybody growth.
And to help everybody prosper and Thats that is I think where the world should be going.
Sometimes it leans left sometimes it leans right, but usually usually common sense does prevail over time.
And if you just get to the foundation elements. What every person wants is just.
Good healthcare, good education, and they want a job where they feel like they could provide for themselves for their families and for those closest to them.
And I'm like Great hope.
Is that you don't have intervention in any particular industry sector, because that doesn't actually attract foreign capital.
Need capital and we need people to come to Canada to make the country stronger and to make the country better and the best way to do that is to make sure that people see us as the best place to invest.
And the best place to live and.
And contribute to the prosperity of our country.
Thank you for your thoughts.
Thank you. The next question is from Sohrab <unk> from BMO capital markets. Please go ahead.
I'm a little bit.
Embarrass to kind of come back to that.
To some of the details here after that.
Okay. One question quickly for John <unk>, John utilization rates in.
In the commercial Canadian commercial how are they where are they relative to pre pandemic levels.
So thank you for the question there.
They went down materially at the beginning of the pandemic they've moved a bit but not a lot you had a lot of clients asked for it increases during the pandemic. The increases are still there. So we haven't seen a huge uplift in utilization.
So you would say then the growth that we're seeing is probably more new client acquisitions if you.
You will as opposed to existing clients drawing down on the it's both it's both clients clients are the reality is clients are borrowing more we also increased limits during.
During the pandemic, so while utilization rates may not be up borrowings from existing clients are up. So I think if you look at I think.
Our existing growth year over year is about 40% new client 60% existing clients.
Okay. Thank you and just very quickly for Laura I think there is obviously some good momentum in your business.
You had some statistics here around market share gains.
And what have you.
Has the low hanging fruit, if you will and you kind of getting back to the mix is dumping peaked or do you still see reason for you to be able to continue on that.
Regaining market share and maybe even picking up market share beyond your natural share.
Thanks, Laura.
Look we've been really pleased as I said earlier with the momentum and that's across all of our lines of business.
We do want to continue to deliver consistent and sustainable market, leading growth and I think that we still have that.
That ability to do that we.
We continued to make strategic investments in our business and we're working hard to be in a position to to continue to grow. So I would expect to continue to see us on a positive trend.
Thank you.
Thank you.
The next question is from Doug.
Young from Deutsche Bank Capital markets. Please go ahead.
Hi, Good morning, just on the card business just thinking about the.
Potential for growth in the revolver side.
And I don't think that's what's driving any sequential increase.
In our view.
Are you is that there could be a lag because of that and the boost from card net interest income. So I guess do you worry at all that this part of the card business doesn't return like people don't return to using revolver is the same way they did pre pandemic and if not why and I think Victor you talked a bit about the installment payment options now.
Being offered on the front end and the backend of the cards am I correct to assume that the economics from those installment options are not as attractive as they as the revolvers are just hoping to get a little bit of color around that.
Doug.
Hand, it off to Laura in a moment other other than to emphasize a couple of key things about.
Our card portfolio. One is our firm belief is you need to be strong in travel.
And non travel as we emerge from the pandemic and we are consciously aware of investing in both.
The second thing is the buy now pay later dynamic is a reality we were first to market.
In terms of offering that to clients.
Canada on an after after purchase basis, we do know how one at checkout, that's coming out and while the economics on the margin.
May not be as attractive as kind of normal traditional credit card economics. It does build deeper client relationships and our goal is to make sure that our clients have access to that full suite of credit.
Card products and that we have the offerings in place to cater to.
Our client acquisition and growth in Laura maybe you could talk about that because you're starting to see a dynamic in terms of growth in our card business and you have plans on what you want to do going forward.
Yeah happy happy to add maybe.
Just to victors point I think this is all about value propositions.
For our clients and we continue to action and to work on evolving those offerings.
When we look forward our credit card pipeline is actually quite strong our applications are up around 34%.
So.
We're really happy with that so we would expect to grow more in that non travel space. So we can continue to diversify our portfolio.
I'd just say as you pointed out earlier that notwithstanding we're seeing higher purchase volumes.
We do expect that to translate into higher revolving balances, but just.
Just given the high deposit base of our client base, it's going to be a much slower build an outstanding balances that and with some of the things we're seeing in the industry on interchange and whatnot, there will be pressure as it relates to the card business, but it continues to be a very strong.
Long business.
And cards continues to be a dominant way to pay for purchases so not going away in the short term and theres still a lot of opportunity ahead.
And maybe just to kind of clarify or.
A follow up in terms of the X. So the economics may not be as attractive, but it allows you to build the relationships. So holistically.
Your expectation is the economics wouldn't change.
As as Youre able to build out by client relationship is that the goal of this.
Yeah look I mean, we're here to serve our clients. So everything we do is about getting that right client experience in place and.
And so it's really about that value proposition so that were.
We're getting if you will consumer preference and convenience rate being in that ecosystem.
Okay, and just one last follow up just on the mortgage growth Laura at 11%.
If you could talk a bit about in origination, but I'm more interested in.
Our retention rates have gone now versus where they were before because I think that was a focus to improve that so we're just looking to get an update on that thank you.
Yeah, we're actually when.
When we look at all of our Kpis, we are trending in the right direction. So on acquisition and retention we are made.
I would say solid gains as it relates to our franchising efforts if I look just at our.
Mortgage advisor channel as an example.
We're now getting close to 70% of our new mortgage clients.
That were actually franchising with additional products such as.
Our smart banking account.
And so this is I'd say up from about 40% just two years ago. So we're really happy with the progress we're making.
I've said this before notwithstanding the momentum and the progress we're making we still have more work to do because it's really important for us that we'd be in it.
Positioned to deliver consistent and sustainable performance so trending in the right direction. Thanks for asking.
Thank you.
Thank you. The next question is from Lamar Prasad from <unk> Securities. Please go ahead.
Yes, Thanks, I hate to go down into the weeds here, but I just wanted.
To come back to a comment that credit card purchase volumes were up.
20% sequentially in personal and business banking when I look at the sub pack I'm, just not seeing that strong of an acceleration in card fees. So first of all looking at the run rate line item.
And noninterest income and then if I have it right why isn't there more.
More of a sequential pick up like perhaps the answer is that transaction volumes really contributed a small amount overall car T. So I guess any thoughts on that would be very helpful. Thank you.
Hi, Lamar its Laura I'll I'll attempt to answer that one I think some of and maybe I'll break.
So on the Outstandings are.
You're not seeing as much of it in that we get a slower build in AR standings on the revolver. So what we're seeing is our trends doctor balances that are showing the biggest signs of growth at this point in time. So you don't.
See that net interest income pick up that you would expect and then on the card fees front or noninterest income I'd say that the reason you don't see that big of an increase at least in our number part of it is the full year's impact of a decrease in the interchange fee that we had last April where.
Our interchange fees went from 150 to 140.
And then we had an increase in our points cost.
So that is a contra revenue number and that is actually a good news story because it relates to increased client acquisition for the promo offers that we give so that's why you don't.
See if you will everything we're talking about reflected in these numbers, so I hope that clarifies.
Yeah that helps thank you.
Thank you. The next question is from Nigel D'souza from very tough investment research. Please go ahead.
Thank you good morning, I wanted to turn to slide 24, where you've outlined your performing allowances relative to our total loans.
That's declined to 49 basis points in this quarter and based on my calculations here I get.
A rate of about 32 basis points in the first quarter of 2020.
Of course, it's my number right there and then second if it is right. It looks like there's still a sizable amount of.
Allowances that you can release and I was wondering if you could provide some color on what markers would accelerate.
So those balances outside of COVID-19, because COVID-19 uncertainty persists, especially globally for.
So sometimes how are you looking at unemployment or fiscal policies or vaccination rates or any color there would be helpful.
Good morning, Nigel It's Sean I'll take that question I. Appreciate the question the Ah the performing provision you. Your numbers are right. So we do have still a call. It 60.
60% of what was.
Quite in fiscal 2020 in terms of performing provisions that have not yet been released what will drive that consistent with some of your conversations in prior quarters is going to be really the trajectory of the economic.
Recovery, so as we see the macroeconomic environment play out as long as things continue.
To play out you've seen us release.
Performing provisions over the last three quarters, a smaller amount in Q1, but.
A bigger number in Q2 and sort of a similar number in Q3.
As that continues to play out and if that trajectory is maintained then we would expect to see more of our performing provisions be released.
Released over the coming quarters I've also talked about the fact that private.
When whenever we get to the other side of this whatever the other side of this might look like we do anticipate some level of higher allowance coverage. We've done parameter model updates over the course of the last call. It 14, 15 months that will impact where our ultimate landing places I.
I expect it will be a little higher when we're on the other side of this all else being equal but.
You are correct. There are there are provision releases that we would expect to see play through so long as the path to recovery is intact.
And just a quick clarification on that when you refer to.
Macroeconomic outlook are you referring to that.
Globally or is that specific to your geographic footprint in Canada and the U S.
There'll be more.
Connected to at where we operate and where are we.
Where our business has.
<unk> has exposure to it and so that's why the SLI.
We look at are geared more towards North America.
There are some elements that are global but.
A lot of the North American data points.
Alright, I appreciate that that insight. Thank you.
Thank you there are no further questions registered at this time I would like to turn the meeting back over to Victor.
Thank you operator, and thank all thank you all for your great questions and engagement today. So just a couple.
A couple of closing comments.
Progress on vaccinations, I think we all see as providing continued support from our along with continued support from fiscal and monetary policies of enabled an economic rebound in the third quarter.
We all realize that it's not going to be linear recovery.
Then make resurgence from delta or another variant could steer policy actions.
Our global economic growth, but what I really want all of you to know is that we've demonstrated that we can and.
And we are well prepared to face any challenges that arise.
Our client first approach at CIBC, a resilient and diversified business model and the actions that we've taken over the.
That several years have positioned us well to execute on our long term growth priorities.
Our balance sheet remains strong it provides significant flexibility to continue to support our clients.
To grow our business and to return capital to our shareholders.
I also wanted to let you know that we're going to be.
<unk> Investor day.
On Thursday December the night.
And at that Investor day, we're going to have an opportunity to share our vision in greater detail, our strategic direction for our bank in greater detail and showcase our CIBC leadership team.
We're planning to host this event at our new headquarters at CIBC Square.
And in person subject to the evolving health and safety protocols.
And in closing I wanted to thank our 44000 dedicated CIBC team members, who continue to help make our clients' ambitions a reality.
Contributions are key to the success of our bank and to you our shareholders and our investors I. Thank you for your.
Your continued interest in our bank and you're the support you've provided and we look forward to speaking with you in December both on the webcast.
And at our Investor day have a good day and enjoy the rest of the summer.
Thank you. The conference has now ended please disconnect your lines at this time and thank you.
For your participation.
Yeah.
This conference is no longer being recorded set coffee house NIM. Please.
At this time.
Hey, Joel.
Uh huh.
[music]. Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press Star one system tone will be heard when you request has been accepted to cancel.
Hi, Justin Press Star two.
Personalty coffeehouse come off her suitor proposing is still at T cell eight while our pika and my dad had that IDB data coffeehouse Internet. He did this is Stan Goff Yamaha because I put them onto a day exit city, Portland muted with AK steel at T cell.
Well do.
[music].
Quint.
[music].
Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press.
S. Dollar one system tone will be heard when you request has been accepted to cancel your question Press Star two.
You bet CMT.
<unk> come off Hot soup, the before they didn't get steel at T cells. It while I take it in my Dad had done it debuted data coffeehouse Internet did you sustain ghansham.
As you all know how because that's where the Monday Dx at city point you lead with like is steel at two years. So it was due.
[music].
[music].
Yeah.
[music].
[music].
[music].