Q4 2022 Canadian Imperial Bank of Commerce Earnings Call
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All participants please standby your conference is ready to begin.
Good morning, and welcome 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.
Thank you and good morning.
This morning's presentation with opening remarks from Victor.
Chief Executive Officer, followed by <unk>.
Our Chief Financial Officer.
<unk>, our chief risk officer.
Also on the call today are a number of our group heads.
Sure.
And Harry Culham capital markets in direct financial services, Laura Vittorio.
Canadian personal and business banking and John in Canadian commercial banking and wealth management.
Take questions. Following the prepared remarks with a hard stop at 830, please limit your.
<unk>.
As noted on slide two.
Your presentation. Our comments may contain forward looking statements, which include assumptions and have inherent risks and uncertainties actual results may differ materially with that I'll now turn the call over to Victor.
Thank you, Jeff and good morning, everyone.
My remarks, this morning will focus on our performance and achievements over the past year.
But before I get into these details.
Members of our CIBC leadership team, we're taking on new roles as we start a new fiscal year.
Most recently the head of our U S region has transitioned to the role of Vice Chair CIBC Bank U S. A.
More than 25 years of banking experience Mike's going to focus on developing and deepening client relationships and our U S.
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Yeah.
Most recently, our chief risk Officer, Mike.
As instrumental in the acquisition of the private bank in 2017.
Our U S business strong client focus and proven execution in senior leadership roles across our bank will continue building on our momentum and leading our U S region.
I'm also pleased to introduce our new chief risk officer.
From his most recent role leading strategy and transformation in personal and business banking.
Global expertise in all facets of risk management, coupled with a strategic perspective position them well for his new role.
These leadership changes.
An experienced internal talent.
To focus on delivering relative outperformance going forward.
Turning to our adjusted fiscal 2022 full year results revenue of $21 $8 billion was up 9% and pre provision pretax earnings of $9 4 billion was up 7% from last year.
Results were driven by robust volume growth across all of our businesses, which was a direct result of the continued execution of our client focused strategy and the investments that we're making in growth, which will benefit our business.
Fiscal 2023 and beyond.
Adjusted net earnings of $6 6 billion or $7.05 per share were down 2% from the prior year, mainly a result of more normal credit provisions coming off a year.
We're forming credit releases.
2021.
The credit quality of our portfolio remains strong with impaired provisions down 1% compared to last year.
The operating ROE leverage was negative in fiscal 2022, and it relates to the investments we made this year and our current and future growth capabilities.
While our structural expense growth remained in the mid single digits investments in strategic initiatives as well as employee related compensation and a normalization of business development activities drove year over year expense growth of 11%.
Our accelerated investments and growth were essential to strengthen our market position and to generate the strong topline results, we're seeing across our business units.
With many of our key strategic and compensation.
It related investments till now completed we're now shifting to more moderate expense growth in 2023 to the mid single digit range.
Please see convey to you.
Our capital position remains strong with a CET one ratio of 11, 7% well, while our return on equity for the year was 14, 7%.
We're also announcing a two cent dividend increase to our common shareholders, while maintaining a payout ratio between 40 and 50%.
Reflecting back on fiscal 2022, we made a lot of progress as we continued on our client focused journey.
Level, we are delivering on our three key strategic priorities that we laid out at Investor day.
On high growth high touch segments, we're all well positioned to making notable progress.
Elevating the banking experience for our clients through investments in technology, and further increasing connectivity across our bank and we're investing in future growth Differentiators, particularly in our innovation banking franchise, our fintech capabilities and renewable energy platform.
As well as support of our net zero ambition, we announced 2030 interim targets to reduce the carbon intensity of financed emissions in our oil and gas and power generation portfolios.
In Canadian personal and business banking, we demonstrated positive momentum was the strongest client growth since 2017, where we added over 350000 net new clients to our bank 38%.
Which are from the affluent segment.
Almost three times the index of our market share in that segment.
In addition to this we successfully transitioned over 2 million Costco co brand card clients and while it's still early days, we have already deepened our banking relationship with over 30000 of these new card clients to hold additional CIBC products and services again. These clients also tilt heavily.
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Our client growth and success in franchising drove year over year deposit and asset growth of 9% and 12%, respectively, which resulted in market share gains versus the big six Canadian Bank peer group.
Contributing to these positive outcomes as our relentless focus on living our purpose and that's to help make our clients' ambitions a reality and we've done that by introducing enhanced digital tools for both our retail and business banking clients underpinned by a focus on advice for the long term.
And our efforts for this were rewarded with a second place ranking in the J D power client satisfaction survey and being recognized for delivering outstanding digital client experience by digital banker.
Our Canadian commercial banking and wealth management business also demonstrated strong momentum throughout 2022 with loan and deposit growth of 20, and 12% respectively, along with higher net wealth flows.
In commercial banking, we continued to expand programs tailored to high growth industries.
And is there still systems and streamline our processes to support enriched client conversations.
Private wealth, we've added new planning professionals to further support our integrated wealth franchise, and we launched a series of exclusive private banking offers.
The net result is.
Record year of inflows net inflows for the our CIBC Wood Gundy franchise, which were up 27% compared to the prior year.
Our private wealth offering is underpinned by the strength of our investment advisors and private bankers. This year 30 of CIBC Wood Gundy advisers were named Canada's top wealth advisors list by the global Mail.
And in asset management, we incorporated a climate policy and our responsible investment policy as we continue to focus on sustainability and our investment strategies.
Despite industry challenges impacting net flows across all big six Canadian banks CIBC was ranked third in long term mutual fund net flows as a percent of AUM.
Our U S commercial banking and wealth management franchise made significant technology and infrastructure investments in the business and that is to support our above market growth now and going forward.
In 2002, 22, we had strong loan growth it was up 15% and three quarters of that was originated from new client relationships.
Our focus on the private economy and high growth client segments also drove strong client growth of 6% and wealth and private banking funds.
Our efforts to build a best in class U S. Private wealth franchise were recognized again by Barron's, who ranked as a top 10 registered investment advisor for the third consecutive year.
In capital markets, our differentiated business model continues to deliver results our focus on strong cross connectivity and growing our U S presence was rewarded with revenue growth from nontraditional capital markets clients are 14% and from the U S of 17%.
We also made strategic investments in high growth areas, including the expansion of our renewables and energy transition industry vertical.
In 2022, we were the recipient of global Financers, North American Regional awards for outstanding leadership in Green bonds and transition and sustainability bonds.
We also continued to rank in the top 10 in North America for financings in the renewables industry construct and information is most recently tables notable accomplishments in our capital markets business.
But as you look ahead to 2023 global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation.
And in response to these headwinds and as I just mentioned earlier in my remarks, we're going to continue to take actions to reposition our business to adjust to these new realities.
But also continue to grow our client franchise and moderate our expense growth in 2023 to the mid single digit range, while we can't control the environment. We can control our execution, we have successfully navigated through challenging circumstances in the past.
We are confident in our ability to do so going forward and with that I'd like to pass the call over to Roger over to you.
Yeah.
Thank you Victor and good morning to you all.
I'll begin my remarks, with a review of our fourth quarter on slide nine before covering the highlights of fiscal 2022, and providing some color on our expectations going forward.
Against the deteriorating backdrop, we reported earnings per share of $1 26 for the fourth quarter down 18% from the prior year, primarily due to higher provisions for credit losses.
The items of note detailed in the appendix to our presentation adjusted EPS was $1 39.
While market and economic headwinds impacted our financial results. This quarter, we maintained a strong balance sheet and made meaningful progress against our strategic priorities. We continue to be focused on driving long term stakeholder value and remain committed to delivering on our medium term financial targets.
And while still early days I will reference our progress against key targets laid out at our June Investor Day. During my remarks on segment results.
The balance of my presentation will refer to adjusted results, which exclude items of note starting with slide 10.
Adjusted net income of $1 3 billion for the quarter was down 17% from the prior year, driven primarily by a provision for credit losses against performing loans this quarter as compared to a provision release last year.
This was predominantly the result of a change in economic outlook as Frank will cover in further detail later in our presentation pre provision pretax earnings of $2 1 billion were down 2% from a year ago, largely due to elevated expenses, which were up 12% from the prior year, including the impact of inflation and severance charges in this quarter.
Revenue of $5 4 billion was up 6% driven by strong volume growth across all businesses and solid trading partly offset by lower market related fees.
Slide 11 highlights the drivers of net interest income excluding trading NII was up 12% from last year supported by strong loan and deposit growth across our franchise. Excluding trading total bank NIM was down seven basis points sequentially and was comparable to the prior year as.
Changes in certain product margins in Mexico off our balance sheet more than offset the benefit of rising interest rates. While we are seeing a shift in client preference towards term deposits a substantial portion of our indeterminate maturity deposits are noninterest bearing or low cost and we'll continue to benefit from rising rates, we anticipate continued.
And not in trading NII supported by volume and the continued upward trend in deposit margins if interest rates stabilize at current levels or higher.
Slide 12 details the changes in key segment margins.
Our consistent approach across Canada, and the U S is to position the balance sheet in a manner that stabilizes margins and supports more predictable net interest incomes through changes in interest rates.
Shown on this slide we have benefited from that approach through the recent period of lower rates and will continue to benefit steadily from higher interest rates going forward.
This quarter Canadian P&C NIM declined four basis points sequentially higher deposit margins benefited from the impact of rising interest rates on the more than 40% of indeterminate maturity deposits in this segment that our noninterest sensitive.
This was more than offset by lower margins on recent mortgage originations and lower mortgage prepayment activity.
NIM in our U S segment was up 13 basis points relative to last quarter or eight basis points, excluding CRA investment gains, which are episodic. Excluding these games. The core NIM increased primarily due to higher deposit margins, which benefited from higher interest rates, partly offset by lower margins on those.
We continue to anticipate a positive NIM trajectory in the medium term across both of these segments helped by higher interest rates. However, we expect some continued pressure from Canadian mortgage origination spreads and lower noninterest bearing deposit growth in the early part of 'twenty to 'twenty three.
Turning to slide 13, noninterest income of $2 2 billion was up 6% from the prior year or down 3%, excluding trading market related fees were up 5% driven by trading income and declined excluding trading predominantly due to lower fees from market sensitive businesses, which were impacted by a market deterioration.
Transaction related fees were generally stable over the prior quarter and up 5% from the prior year driven by higher volume of client activity.
Turning to slide 14 expenses were up 12% year over year, including severance incurred in the quarter as we reposition the business in response to the changing economic outlook, excluding severance year over year expense growth of 10% was lower than prior quarters in 2022, as our increase in strategic investments starts to peak.
Approximately half of the 10% growth was related to higher investment on strategic initiatives discussed in the past our base operating expenses were up 5% from fire youre, including the significant impact of inflation and they remain in the low single digit range excluding inflation.
Our approach to expense management remains consistent generating positive operating leverage in the aggregate over the medium term, while continuing to invest to advance our strategic agenda as such we've taken proactive steps over the last several months with actions that position us well for 2023, namely restricting discretionary expenses.
Is pacing our investments in repositioning our team through the incurred severance and other actions.
These actions will allow us to stabilize core expenses around this quarter's levels, resulting in mid single digit growth for the full year 2023, as we communicated in our Investor day.
Turning to slide 15, our balance sheet remains strong as we continue to focus on disciplined deployment of resources.
We ended the quarter with a CET one ratio of 11, 7% down four basis points from the prior quarter, the internal capital generation almost covered growth in risk weighted assets from organic growth and modest credit migration.
We continue to expect strong internal capital generation to fund moderating our W. A growth going forward and our current capital level positions us well in the context of economic uncertainty.
Liquidity position strengthened this quarter supported by continued growth in deposits and moderating asset growth, resulting in a higher average LCR of 129%.
Starting on slide 16, we highlight our strategic business unit results net income in personal and business banking was 485 million down 20% from the same quarter last year, primarily due to higher provisions for credit losses pre provision pretax earnings of $968 million were down 2% from last year and revenue of $2 3 billion.
<unk> was up 6% our strategic focus in 2022 resulted in strong net client growth in franchising success driving that client growth of over 350000, as Victor covered and growth in loans and deposits up 12, and 9% respectively Importantly.
A large portion of our net client growth wasn't the affluent segment, where we continue to gain share.
New clients, along with over 2 million co brand clients, who transitioned to CIBC earlier this year are fueling our momentum.
Expenses of $1 3 billion were up 13% from the same quarter last year, and 3% sequentially driven by higher strategic investments, including the impact of the acquired co brand portfolio.
Moving onto slide 17, net income in Canadian commercial banking and wealth management was $469 million up 6% from the prior year pre provision pretax earnings of $658 million were up 11% from last year benefiting from strong results in commercial banking that helped drive 28% growth in NII net.
Market headwinds to our wealth management business.
Our client focused approach and ongoing investments underpin this financial results driving over $5 billion in referrals over fiscal 'twenty two.
In support fund managed growth and net flows in private.
Slide 18 shows U S commercial banking and wealth management results in U S dollars, where we delivered net income of 125 million down 42% from the prior year due to higher credit provisions pre.
Pre provision pretax earnings of $232 million increased 3% from the prior year revenues were up 8% over this period due to an 18% growth in net interest income, partially offset by 12% decline in noninterest income largely related to the impact of market deterioration on wealth management fees over 2022.
Two our strategy allowed us to grow and deepen our U S client franchise generating above market loan and deposit growth, 13%, 17% and 7% respectively.
Well, there's strong private wealth management net flows in a challenging market.
Increased expenses were driven by ongoing investment to support our growing business and increasing regulatory requirements, we invested over $90 million in fiscal 'twenty, two to enhance our technology and infrastructure and to enable the next phase of our U S growth. We expect these investments to moderate in 2023, resulting in the core expense base.
In this segment to stabilize starting around next quarter.
Slide 19 speaks to our well diversified and differentiated capital markets business net income of $378 million was in line with the prior year, while pre provision pretax earnings of $526 million were up 9%.
Revenues of $1 2 billion were up 17% over the year driven by strong performance across all lines of business. The differentiated elements of our capital markets business and our focused strategy continued to contribute to the strength of our results throughout 2022, and our high growth E. S. S business revenue was up 18% for the full year and the Contra.
Abuse them from our U S business, which benefits from connectivity with our commercial franchise was up 17% on a full year basis.
Slide 20 reflects the results of the corporate and other business unit net loss of $197 million in the quarter compared to a net loss of $121 million in the same quarter last year in large part due to market headwinds to treasury revenues and elevated expenses in the segment this quarter.
Revenue was $147 million lower than the prior year, largely driven by higher funding and liquidity related costs and treasury, which were impacted by the increased cost of liquidity as well as significant interest rate and FX volatility experienced in the quarter revenue in CIBC first Caribbean was strong benefiting from volume growth and higher margins expand.
We're up 37% sequentially, including severance incurred in the quarter going forward, we maintain our guidance of 75 to 125 million quarterly loss for the segment, but expect to be on the higher end of that range in the short term.
Slide 21 highlights our full year financial results as Victor mentioned in his opening remarks, notwithstanding a challenging fourth quarter. Our fiscal 'twenty. Two results were generally in line with our guidance and demonstrate our progress in executing our strategy revenue growth of 9% and pretax pre provision earnings growth of 7% where both in la.
With our high single digit guidance and our medium term targets.
Operating leverage was negative 2% for the year and below our target as a result of market revenue deterioration late in the year and the proactive measures. We took this year to reposition our bank. Our intention is to offset this year's result, and generate positive operating leverage in aggregate through 2025.
Adjusted ROE was 14.7% generally in line with our target despite market pressures in the fourth quarter and a higher CET. One ratio then communicated at our Investor day as a result of the current uncertain environment.
Turning to slide 22, we've entered fiscal 'twenty twenty-three confident that we will continue to make progress against our client focused strategy and deliver a resilient financial performance given our diverse business mix conservative credit culture, and strong capital position, assuming the base economic outlook in our annual report we continue to anticipate.
<unk> financial results consistent with our Investor day targets through 'twenty, 'twenty, five, namely positive operating leverage earnings CAGR of 7% to 10% and an ending ROE of 16% plus we recognize however that the environment's uncertain and likely to be more challenging in 2023 and as a result, we've taken proactive.
To reposition our business as outlined by Victor in his remarks in aggregate, we anticipate our plans to generate continued but moderating revenue growth through share gains mid single digit expense growth and improving operating leverage for fiscal 2023, I will now turn the call over to Frank.
And good morning, everyone fiscal 'twenty or 'twenty two what's the dynamic here in terms of the macroeconomic environment starting in Q2 of the year, we began increasing our allowance levels, reflecting the deteriorating environment.
However, our credit performance remained strong throughout the year.
Slide 24, our provision for credit losses, our total provision for credit loss was 436 million in Q4, compared with 243 million last quarter.
Provisions on impaired loans was $219 million in Q4.
Experienced higher impaired provisions in both retail and business and government loans this quarter.
Retail higher impaired provisions were mainly due to an allowance increase as expected.
Victor if off higher delinquencies returning towards pre COVID-19 levels.
Business and government loans.
Provisions were largely attributable to our U S commercial portfolio, reflecting lower reversals this quarter copper with a few minor increases in Canadian commercial in CIBC first Caribbean and lower reversals in capital markets.
The provision on performing loans was $217 million in Q4, mainly driven by deterioration in our forward looking indicators.
Turning to slide 25, we remain prudent in our allowances given the economic backdrop and saw it increased four basis points to 62 basis points, mainly due to the increase in our performing allowance driven by the unfavorable change in our forward looking indicators every drops.
Mentioned as well as higher impaired provisions incurred this quarter, we're just still performing well overall.
Sorry, 26 focuses on our lending portfolio mix consistent with previous quarters, our portfolio reflect strong credit quality.
Loan balances were 529 billion of which 55% is real estate secured lending.
Mortgage portfolio accounts for a little over one third of our mortgage portfolio and show strong credit quality and performance.
Loan to value for all of our uninsured mortgage portfolio was at 48%, which is down from 49% a year ago, but up from 45% in Q2 Q3.
That was seen in the house price index drop in certain regions.
The business in government portion of the portfolio.
Average risk rating equivalent to a triple B, which has remained steady and continues to perform well.
Slide 27 details our.
Gross impaired loans.
Overall gross impaired loan balances were up in Q4 with an increase in both retail and business and government loans.
The increase is in line with our expectations.
Despite the gross dollar increase quarter over quarter, you formations remained stable and low from a historical perspective.
And both the gross impaired loan ratio and your formations remained lower than our pre pandemic run rate.
Slide 28 details the net write off and 90 plus day delinquency rates of our Canadian consumer portfolios.
As expected gross net write offs and delinquencies trended higher in Q4 with client activity continuing to revert towards pre pandemic spending patterns.
As has been noted in prior quarters, we continue to expect an increase in retail delinquencies and write offs from the lows experienced in previous fiscal years.
Within those expectations.
Slide 29 provides an overview of all Canadian real estate secured personal lending portfolio.
We continue to focus our originated efforts into segments, where clients have deeper relationships with us.
Majority of our mortgage growth over the last two years have been with clients, where we have those relationships.
88% of mortgages are owner occupied with the balance being principally investor mortgages.
Our late stage delinquency rates across these portfolios continue to remain low and stable.
The Vancouver, and Toronto portfolio was outperforming our Canadian average.
We will continue to take a prudent approach and are closely monitoring as interest rates rise and markets evolve.
On slide 30, we have included details on the portion of our mortgage portfolio that would be renewing in the next 12 months.
Over that period 20 billion of fixed rate and $8 billion of variable rate mortgages.
Directionally come up for renewal.
At this time.
Still only see a small.
Less than $20 million of mortgage balances with clients with fees.
At higher risk from a credit perspective, and who's the ltvs are in excess of 70%. These ratios are very stable quarter over quarter.
Activity monitor all portfolios and proactively reach out to clients, who are at high risk of financial stress.
Slide 31 shows our FICO score and LTV distribution in our Canadian uninsured residential mortgage portfolio.
The key takeaway is less than 1% of our uninsured mortgage portfolio of Hasbro.
Score of 650 or less and an LTV over 75%.
Overall, our mortgage portfolio is well positioned and we do not expect to see material losses.
On slide 32, we provide details of our commercial real estate exposure in both Canada and the U S.
68% of our Canadian portfolio, and 34% of our U S portfolio are investment grade.
And.
We have prudent lending standards for our theory exposures in both Canada and the U S.
This is T J focus remaining on well capitalized sponsors with strong track record and experience managing through economic cycles.
Exposure in both regions remained well diversified and continue to perform well.
In closing I hope.
Performance is well in line with our expectations. This quarter, our credit portfolios are performing as expected and we have strong coverage and if economic conditions evolve. We continue to proactively work with our clients were more at risk to provide solutions that ultimately drive positive outcomes.
Now I'll turn the call back to the operator.
Thank you.
Please press star one at this time, if you have a question that would be obese Boswell participants register for questions. We thank you for your patience.
My first question is from Ebrahim <unk> from Bank of America. Please go ahead.
Yeah.
Hey, Good morning, I guess, just following up I don't think you mentioned in your revenue growth expectations for 'twenty three when we look at the mid single digit expense growth number.
I appreciate the uncertainty around the macro but is the mid single digit expense growth down into a mid single digit revenue growth or high single digit revenue growth.
Talk to us how you're thinking about that and if there's ever any environment is worse than that mid single digit expense growth corridor.
Thanks.
Okay.
Yeah. Thank you. Thank you for the question Abraham as I said in my remarks are there is uncertainty with respect to 'twenty twenty-three.
In terms of our long term strategy and our results through 25 at our Investor day targets, we feel very confident that we'll deliver that high single digit growth to the bottom line and positive operating leverage and strong early 'twenty.
23, specifically, what I as I said in my remarks, the guidance says more to continue revenue growth, but we expect that to moderate from this series, 9% level. We didn't provide specific guidance is that mid single digits is that mid to high single digits because of the fact that there is uncertainty in the environment.
What we are confident nowadays, we will continue growth with our clients across all of our segments. We will continue to gain share. We continue to have the benefits from interest rates was tail winds and we will stabilize expenses around this quarter's levels, which will result in a full year year over year expense of around mid single digits.
And that is something that we're very focused on the revenue side can move around depends on markets and fee revenues derived from that there's lots of uncertainty. So you know between mid single digits or a little less a little more I wouldn't I wouldn't forecast that at this point or guide to it ebrahim.
If things do get more uncertain as we have done this quarter you can rely on us to continue to manage to deliver our targets and continuing to take actions to reposition the business and to try to deliver positive operating leverage over time, which is always our target.
My name is Colby.
Okay.
Sorry, I didn't Uh huh.
Yeah, I was just asking any strong views at all.
Positive operating leverage in 'twenty three.
And as I said, we are confident we will deliver an aggregate positive operating leverage and over the period of a few years, we've taken the extra step in our annual reports you may have noticed or maybe not yet to define more specifically, what we mean by our medium term targets and so we do look at them through the cycle.
Call over a three to five year period, and so we feel very confident about that in terms of 2023 as I said in my remarks, we're looking for better operating leverage than this year. We're looking for operating leverage that is improving over time and we're confident that we can do that and as always in any given year, we would prefer.
Positive operating leverage however, we know we can control the expense side and we know we have more levers we can pull on the expense side, if we need to but the revenue side could make positive operating leverage challenging in any short period of time.
Thank you.
Thank you.
Following question is from many Grumman from Scotiabank. Please go ahead.
Yeah, Hi, good morning.
Oh Geez, if I missed this but I was hoping we could get an update in terms of your views for mortgage and commercial loan growth in 2023, specifically.
Good morning, many its Laura so I will start that off and then I'll hand, it over to John for the commercial side.
When we look at our housing and economic outlook and looking at our application pipeline that is down we expect to see I'd say low single digit growth for 2020 three.
I would like to highlight them and maybe even a shout out if I may to our CIBC team members involved in mortgages because over the years, we've really delivered consistent growth.
I also want to point out we've made really good strides in our franchising of our mortgage clients. So as at October 92% of our client base that have mortgages now have deeper relationships with us. So while we will see volume come off of 2022 levels.
We do expect to continue to do really well on the franchising side.
And to grow in other areas of the bank that are I think are going to offset.
Some of the decrease that we see in the mortgage side of the business and maybe over to Jon for commercial. Thank you. Laura So 22 was a robust year for the industry in terms of commercial loan growth.
I think the industry did about 15%. This year 15 to 20, we were at the high end of that historically.
Historically the industry is in the high single low double digit range most years, 9% to 11%.
When I look at the client entrepreneur confidence when I look at the macro environment. Our feeling is that our growth rate's going to go back to historical levels high.
High single low double and will continue to be kind of in the mix hopefully outgrowing.
So let me pass it over to you.
Thanks, Don and good morning, Manny. Thanks for the question I really quickly we had strong growth in fiscal 'twenty. Two are similar to what John talked about for the Canadian commercial business as a function of the investments strategic investments, we've been making we expect that to moderate in 'twenty, three and expect for a high single digit growth in loan growth for the U S.
Segment.
Thanks for that and then I just wanted to ask on Canadian wealth management deposits are pretty big quarter over quarter decline I presume that's related to the rate environment.
The question is how much of that is being retained at CIBC, sorry, I assume these deposits are going to higher yielding places, but how much of that is you're staying at CIBC.
Thank you for the question as John the entire the entire amount that dropped in the wealth business moved over to the rest of the bank.
Thank you.
Thank you.
The following question is from Gabriel to Shane from National Bank Financial. Please go ahead.
Hi, good morning so.
I wanted to die.
Dive into one of them Victor's comments there were clients acquisition was the best since 2007.
17.
That was a period I believe from Roche.
Growing mortgages that Oh.
To work with the industry average if I recall correctly.
I wanted to draw a dog's going from that period to today as far as the impact of them, but.
Hard period of mortgage growth to be influence that has on your margins today.
Do you ever see disproportionately exposed to.
Lower renewal mortgage mortgage margins in the mortgage book, because we grew so fast five years ago.
Typically a term but.
So Gabriel I'll, just let me comment on a couple of things and I'm going to hand, it off to Lora.
This year it was a year of significant growth for our personal banking franchise in Canada. We grew our Canadian retail client base by over 25% with the acquisition of the Costco portfolio.
We're growing our affluent segment at three times the level of our market share in our personal bank. We've put in place over 1400 financial advisers that are focusing on the emerging affluent that are dealing with that.
Book of mortgages that is increasingly bringing franchise so with that that's all aligned with our strategy all of them without high touch high growth segments or maybe you can elaborate on that.
Sure. Thanks, Victor and thanks for the question Gabriel as Victor pointed out we've actually not just have we grown in mortgages, but we have grown across all of our products. In fact are leading our product for a while has been in the deposit side of the business everyday banking.
And so that's actually a really positive sign and you know it's worth pointing out like we've had an incredibly strong year. Once again this year on all of client acquisition retention and franchising.
And so when we look at our client growth as I said net client growth. We were we were at 4.1%. We're told our peer average was only at 2.5%. So we did really well and we had our best retention rates ever so above 95%. So I think that really speaks to how well we've been doing.
Not just on the franchising front, but on the client experience front franchising Ah is going quite well, but the reality is to your point on on margins I mean mortgages is a large part of our book we've done a great job growing and again across all of our products we have delivered.
Market, leading growth, but because mortgages are a large part of our asset base them. When we go through some NIM compression there. It does affect our overall results now we've shown leadership and I'm sure you've seen that on multiple occasions in mortgages when it comes to a raise.
Zing client rates. So we did that to protect our margins and we did give up some near term market share growth. However, as we've experienced like many are the pace of market rate increases far far outweighed our client rate increases that along with the slowing mortgage market.
And really intense competition SAR inflow margins I'd say come under more pressure than we've ever seen before and I tell you notwithstanding how selective we were in the market.
In that we focused really on our deeper client relationships. We had our lowest inflow margins are in October and we also had as you saw on this was probably a bigger impact, but we had a big drop in prepayment activity this quarter with the rapidly rising interest rate environment last.
Quarter, we benefited from that in this quarter itself and if this can give you. Some comfort if you will into the future and again, we've just started but when we look at November .
I would tell you that we expect our prepayment activity to remain low so we shouldn't see as much volatility sort of next quarter as we did this quarter and when we look into our November mortgage commitment pipeline.
We are seeing much higher spreads than we saw in our October lows.
So again I think just given a we have to digest the rapid increase in our cost of funding its got to work. Its way. If you will through the system that we're going to continue to see some margin pressure.
In the first and into the second quarter of 'twenty 'twenty, three but I would expect our margins to gradually improve thereafter and as I said earlier are we are growing across all of our products in the bank.
And we're doing really well in deposits and we do expect to see continued margin expansion in those products.
I hope that answered your question Gabriel.
So I could go on but in the interest of time I'll Oh, there you go.
Good day.
Thank you all following question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning.
I'm sure. What you guys are suggesting from a margin perspective, it's consistent with each other but I I was having a little trouble piecing it together.
You talked about how the banquet continue to benefit from rising rates.
It doesn't sound like Canada retail well in the near term could you perhaps around should pick up a global look at the bank and think about what margins might do in the first half of the year relative to the second half of the year because my suspicion.
Is that a look a little bit better in the second half at.
At least relative to peers can you help me think that through.
Yeah good morning.
Happy to do that and in general I would say you're right.
Think we will see better margin trajectory as interest rates stabilize because some of the factors Laura spoke about will stabilize a there's been a bit of noise given the pace of increases.
For example, the bank of Canada rates in terms of fed rates, the pace and extent and then how that re prices through our balance sheet, but you know I would start by saying look we've got a strong balance sheet. We've got strong businesses that are growing on both sides of loans and deposits are generating margins on both sides of the balance sheet and overall contributing to NIM trajectory Theres a number.
Factors that the total bank level that impact this and we've talked about that in the past. So there is a mix change or is this do you look at what happened this quarter to total bank NIM makes changes were a factor are you saw more liquidity you saw our LCR go up to 129% you would've seen our cash resources a lot of it is sitting at a bank of Cana.
You would've seen that on our balance sheet increase so some of those costs affect overall margin are those things will normalize and then the core trend of benefiting from interest rates will come in that will help total bank margin.
I go now to Canadian P&C to answer your question, we will see benefits there as well and so you will continue to see the same benefit a few basis points a quarter, we've been very consistent with this our guidance aside from interest rates, we will benefit a few basis points a quarter on an ongoing basis, which puts you in the territory of 10% to 15%.
10 to 15 basis points over CT Corp over a year over four quarters. If you will on a spot basis. So we still feel pretty good about that the factors that are impacting margins of that business or are covered in the short term right prepayments was a negative now we don't expect that impacted going forward. So I don't expect sequentially that.
Pressure in the first half of the year, but the mortgage margin piece or I spoke about I think will be a factor for a little while longer the commitment spreads are starting to go up but when those hit your book are a little bit delayed as you know a few months later and so on.
As that stabilizes and some of the other noise around the cost of funds increases pass through you will see a better trajectory in the back half than the first half.
Okay. So let me do it a different topic.
Performing loan reserve clearly CIBC pans out there a little more than what your peers are reporting what would be helpful. On those bundle what product specifically or region specifically.
The lion share of that performing loan reserve increase and maybe not where you're doing because I can figure that out for myself more what product.
Yeah.
Good morning, Mario and thank you for the question I'm, sorry, if you said well P. B V in the U S commercial and wealth, if you're asking about regions that we are the performing allowances or are being built.
And what I would say overall is despite that performing allowance build when we look at the underlying credit quality, we remain very very positive and we see strong performance in <unk>.
Their mines in delinquent fees in in our early delinquencies as well, what's driving that performing build is reading our forward looking indicators. So Canadian G. D. P D F or it's coming down and that is impacting to your question that is impacting mostly all personal lending books and old credit.
Card books in Canada, and then in the U S. It's really our U S. G. D. P article coming down and that of course, it's been having an impact on our U S book, So and in particular I'd be commercial both in the U S.
Thanks.
Please go ahead, yeah. We additionally saw smaller a bug regular model adjustments and those had a small impact as well, but as I said overall, we continue to be very comfortable with our allowance level.
So in Canada cards, and when you say personal lending, you're referring to mortgages well that right now.
That's a very limited in the mortgage space when they say personal lending, it's mostly all unsecured personal lending books.
Yeah.
Thank you that was helpful. Thank you.
Thank you. Our following question is from Sohrab more variety from BMO capital markets. Please go ahead.
Hi, Thanks, just a course correction flora and sorry to be a stickier on this when we talk about this mid single digit expense growth next year is it off your reported expenses our adjusted expenses.
Morning, sorry up it would be adjusted.
Okay.
So maybe the bigger question really Victor I think a couple of times you mentioned repositioning Huntington.
I think it's a messy quarter, there's lots of stuffs.
Stuffs.
I don't know is not uncommon to have in the fourth quarter you increased the dividend.
Can you kind of zoom it out and just remind us what you see the earnings power of the bank. Please sure Soar up. Thank you for your question. So this quarter. It doesn't really reflect the earnings power of the bank. If I look back at the full year I think that reflects the earnings power of the bank are revenue growth.
Led peers are.
Over the course of the year, our pre provision earnings Rose led peers over the course of the year what was distinctive about our strategy is.
Is that we went into fiscal 2022, continuing with our investment agenda, we invested in a large credit card portfolio.
Grew our retail client base by 25%, we continue to grow market share in capital markets and commercial banking in the U S. We continue to focus on the affluent client segment when it comes to wealth management and personal banking. So all of those markers, which we see as key indicators are working really really well if we were private.
Company, we continue to invest at those levels, but we're a public company were recognized the economy is shifting we need to deliver constructive operating leverage to our shareholders. So we're pivoting and this quarter is a bit of a pivot quarter. You know this does not reflect the full earnings power of CIBC, we feel very good about the investments that we've made.
We feel that we will get scale and leverage on those investments and as I said in my remarks, we've made our compensation investments. It's a competitive market. We want we don't want our own team to be left behind and we've made significant strategic investments and now we're at a point, where you're going to see benefit as we head into 2023.
Okay. Thank you.
RBC capital market.
So Mr. Mueller. Your line is open you May proceed with your question.
Yeah.
Oh I apologize.
[laughter] My bad good morning, everyone.
I just wanted to key in a little bit more Raj if I may.
On Oh on the that the net interest margin and sort of what we're seeing and forgetting the.
Segmented for a moment and getting back to Marios question with respect to the sort of view.
And in the short term.
Can I just ask what was the what was the deciding factor.
In this quarter that sort of.
You increased your liquidity portfolio. It looks like you increased you.
You took in a lot of deposits in the quarter can you just describe for me the thought process behind building liquidity in this quarter are at a very high cost.
And I'm.
Sorry, and just and what does that mean going forward does that does this.
Mean that we should expect CIBC to continue to build liquidity going forward in this uncertain environment and is that gonna be a further drag yet.
Yeah.
Thank you for your question Darko.
I would say that the liquidity build this quarter was predominantly in you keyed in on it right are due to our success on deposits. We continue to be focused on serving our clients' needs. Both sides of the balance sheet balanced growth and as you know deposits our cost of funding on deposits is <unk>.
Preferable to cost of funding in the wholesale markets, particularly when you've seen wholesale costs go up but you know on the longer end 100 basis points or so on credit spreads of banks on the shorter end about half of that and so the margins on deposits and the incremental funding cost benefit that deposits have whether they are term or in determinant mature.
Already to wholesale funding is larger today than it is and so we've been focused on deposit growth. We've been serving clients on that side and had had good deposit success and that built up some excess liquidity and that gets deployed over time. It just takes it a little bit of time for us to deploy it and so in the short term.
If it comes excess liquidity I would not anticipate us continuing to build excess liquidity. Our focus is on deploying those deposits to support clients to grow our strategy and to grow our margins and you know over time, you've seen that right you've seen our NII at the total bank level up 12% year over year this year.
And that's what we're focused on we will continue growing NII margins overall as I said, we will have a positive trajectory as we go forward.
Part of that will keep coming loans will keep coming in there was a little bit of sometimes timing mismatch between those two things. So I wouldn't extrapolate past this quarter on that one and on the deposit front, we will continue to see benefits of rates. So as I mentioned in my remarks, you know a large part of our client deposit base is noninterest bearing or low cost.
And we don't pass on the benefits of rising rates to those deposits I would say less than a quarter of the deposit margin expansion that we would see based on where rates are now has yet has made it into our deposits and so there is a lot more to go to benefit from rising interest rates by raising deposits and continue to deploy that to support clients on them.
Lending side.
But to be clear fracs, the big the big deposit growth that I see by segment is in your capital markets business and its up 112 to 112 billion versus 98 billion last quarter and versus even if so are those the high quality deposits, you're referencing and what what kind of deposits are those maybe you can maybe flesh that out for us.
Yeah, certainly so the one of the things I will say an alternative to Harry in a second here and remember that that segment covers across a number of different areas. We've got our D. F. S business in that segment as well there are deposits that cut across our corporate bank that we've got structured notice deposits, we've got deposits with clients across the board and there's also FX.
So I would keep in mind the FX component, we do have deposits in there that are not Canadian dollar denominated.
And some of that kind of impact that but I'll pass it onto area and he can speak to more specifics.
Thanks, Raj and good morning.
You know that both sides of the balance sheet are so important to our business of course, and we've been very focused over the last I'd say medium term and on driving our deposit growth across the product areas that are perhaps just mentioned and we are we're very focused as you know based on our investor day discussions around our growth in the U S, which has gone well.
We've actually doubled the size of that business over the last five years as you'll know and so we're focused on both sides of the balance sheet in the U S. He's our core clients, we are dealing with the work that we're showing.
All of all of CIBC, and we're delivering all of the CIBC to those clients and this is a need for.
For our clients. So we're going to continue to focus in that area and really driving the funding side as well as the asset and liability side.
Darko just strategically I know, you're you're you're you're kind of clearing on this specific space. We we've actually took a very leaned in approach to offering our clients a competitive deposit rates as they shifted their own mindset from equity markets.
Noninterest sensitive deposits to term deposits and that if you look at the the delta growth for us in that space. It's been notable I think that's going to serve us well in terms of having franchise those clients as we come out of this and get into a more benign environments. It's driven that better net promoter score is a better client experience and quite frankly, our client.
Our winning our job now is to make sure that our clients and our shareholders win and a very balanced way going forward.
Thanks, Victor I appreciate I appreciate the color.
Thank you.
Thank you.
Following question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good morning, everyone I'll keep it brief horizon on your mid single digit expense target for 2023 and in some of the conversations about why the first half and second half and in parts of your business like margins.
Do you have a sense for us on <unk>, because I know you talked about kind of keeping a flatline on $3 3 billion in fiscal Q4 like is it a straight line or is there a stop to think about in certain quarters because of seasonality or a strategic basis in terms of the Oh. This is expenses will fall right in there.
Thank you. Thank you for the question Scott. It's a you know it's never a complete straight line in our business right. There is a lot. There is variability time to time, but maybe I'll go back to reminding everybody right, where we are in terms of our expenses are in the guidance. We had all year is consistent our core expense growth can be in the low single digit.
Range in terms of be it U and that's where it was that was about another so much because of inflation. We do expect inflation to go away and so with the inflation we were around that 5%.
And then we had a we had the other roughly so much of it is our strategic investments, which year over year. It was a higher spend but those are stabilizing and so we continue to execute on our strategy. We continue to invest but there is no increase in the level of investment anymore, and so that level of investment.
Stabilizes inflation starts to backtrack and the actions that we've taken essentially can offset the rest of the low single digit structurally increase that you would've seen in a normal course, and so that gives us the confidence to say you know we can generally go stable from here, but there's going to be some pluses.
And minuses in any quarters and you can do the math right. If you take that 3.31, and you take something in that magnitude plus or minus any quarter into 'twenty. Two 'twenty three and you look at what that is just because of the growth through 'twenty two in our expenses that will give you. A result, that's a mid single digits and we're confident we can deliver that.
Okay. Thanks, a lot.
Thank you.
That's all the time, we have one question I would now like to turn the meeting over to Victor.
Thank you operator, so I just want to apologize to those of you were still in the queue. Because I know there are other calls happening and you're all backlogged I want to let you know that we are all available for any questions. You may have including myself over the next day two days next week to answer anything that you'd like to ask us and they give you confidence that we have a plan that will.
To deliver on in 2023, so before we end the call and on behalf of the board and the Executive Committee I wanted to thank all of our CIBC team members globally for your continued support of our clients. Your purpose driven client first focus is a critical component of the success of our bank and that's what you're seeing in terms of client experience client retention client acquisition.
And while there may be headwinds as we enter the new year I have confidence in our strategy I have confidence in our leadership team and I have confidence in our team members globally who've helped establish clear gross momentum for Canada for CIBC across all business lines that was a little Freudian slip because I hope Canada does win at 10 o'clock today, when they face Morocco in for that.
Have you care hope, Croatia beats, Belgium anyway, together, we built a relationship oriented bank for a modern world. We're building that bank. We're confident in the strategy that we have we're going to compete we're gonna win for business our business each and every day to grow our franchise, but were also mindful of the economic environment that we're in and we're adjusting our expense our rate of expense.
Investment growth to that mid single digit level over the course of 2023 I want to wish all of you and yours, a very first a holiday season and look forward to engaging with you in the new year. Thank you.
Thank you.
The conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.
Okay.
Yeah.
Yeah.
Yeah.