Q3 2023 Canadian Imperial Bank of Commerce Earnings Call

August 31, 2023

Okay.

All participants please stand by. Your conference is ready to begin.

All participants please standby your conference is ready to begin <unk>.

Good morning. Welcome to the CIMC Curly Financial Results call. Please be advised that this call...

Good morning, 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 Jeff Weiss, CSPP Investor Relations. Please go ahead, Jeff.

And I like to during the meeting over to Geoff Weiss.

<unk> is VP Investor Relations. Please go ahead Jeff.

Thank you and good morning. We will begin this morning's presentation with opening remarks from Victor Dodig, our President and Chief Executive Officer, followed by Haraach Pinocian, our Chief Financial Officer and Frank Goose, our Chief Risk Officer.

Thank you and good morning.

This morning's presentation with opening remarks from Victor <unk>, our President and Chief Executive Officer, followed by <unk>.

Our Chief Financial Officer and Frank.

Our chief Risk Officer also on the call today are a number of our group heads including Sean.

Also on the call to there are a number of our group heads, including Sean Bieber, US region, Harry Colum, Capital Markets and Direct Financial Services, and John Huntalis, Canadian Banking. They're all available to take questions following the prepared

Harry Culham capital markets in direct financial services and Jonathan.

Banking.

All available to take questions following the prepared remarks.

As noted on slide two of our investor presentation, our comments may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially. With that, I will now turn to the next speaker.

On slide two of our Investor presentation, our comments may contain forward looking statements, which involve assumptions.

Risks and uncertainties actual results may differ materially with that I will now turn the call over to Victor.

Thank you, Jeff, and good morning, everyone. I hope you've all had a nice summer. I'll begin with a few brief comments about our third quarter results, including progress updates against their strategic priorities. I'll then turn the call over to Horace, followed by Frank, to review our performance in greater detail before we take your questions.

Thank you, Jeff and good morning, everyone I hope you've all had a nice summer I'll begin with a few brief comments about our third quarter results, including progress updates against our strategic priorities. I'll, then turn the call over to Raj followed by Frank.

Our performance in greater detail before we take your questions.

This quarter we delivered solid core business performance by continuing to execute on our client focus strategy while building capital expanding margins

This quarter, we delivered solid core business performance by continuing to execute on our client focused strategy while building capital.

Expanding margins and prudently managing expenses.

Net earnings of $1.5 billion, or $1.52 per share, were lower than the prior year and reflect higher provisions for credit losses, while pre-provisioned, pre-tax earnings were up 5% during the same period.

Net earnings of one $5 billion or $1 52 per share were lower than the prior year.

And reflect higher provisions for credit losses.

Provision pre tax earnings were up 5% during the same period.

Due to changes to our forward-looking economic indicators, as well as the continuing normalization of credit conditions, we increased provisions in our consumer lending portfolio.

Yeah.

Changes to our forward looking economic indicators as well as the continued normalization of credit conditions, we increased provisions in our consumer lending portfolios.

The increased provisions in the commercial segment mainly relate to our US office portfolio which represents less than 1% of our overall loan.

The increased provisions in the commercial segment, mainly relate to our U S office office portfolio, which represents less than 1% of our overall loan book.

We have a robust balance sheet, ending the quarter with a CET-1 ratio of 12.2%.

We have a robust balance sheet ending the quarter with a CET one ratio of 12, 2%.

Going forward, we're focused on continuing to build our capital levels to ensure that we remain well positioned for any changes, as well as for any opportunities. We remain focused on- and we're focused on continuing to build our capital levels to ensure that we remain well positioned for any changes.

Going forward, we're focused on continuing to build our capital levels to ensure that we remain well positioned for any changes as well as for any opportunities.

We remain focused on three key strategic priorities.

growing our high-growth, high-touch segments, including our Imperial Service platform and North American private wealth franchise.

Our high growth high touch segments, including our Imperial service platform and North American private wealth franchise.

focusing on our future differentiators, which includes delivering leading digital banking solutions to Canadian consumers, and enabling and simplifying our bank.

Focusing on our future Differentiators, which includes delivering leading digital banking solutions to Canadian consumers.

And enabling and simplifying our bank.

Now let me give you a few highlights on our progress.

Our Canadian consumer franchise continues to experience robust growth. Over the last 12 months, we've added over 650,000 net new clients to CIBC, which includes 165,000 clients in our Simply Friends.

Our Canadian consumer franchise continues to experience robust growth over the last 12 months. We've added over 650000 net new clients to CIBC, which includes 165000 clients and are simply franchise.

We also continue to make good progress on our strategic focus to deepen high-touch, high-growth relationships in the affluent.

We also continue to make good progress on our strategic focus to deepen high touch high gross relationships.

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Imperial service, our unique advice-based relationship offer for a mass affluent client, self-funds manage growth of $14 billion a year to date, driven by successful client acquisition, as well as our focus on ensuring clients are in the right offer to get the advice and solutions they need from CIBC.

Imperial service, our unique advice based relationship offer for a mass affluent clients self funds managed growth of $14 billion year to date, driven by successful client acquisition as well as our focus on ensuring clients are in the right offer do you get the advice and solutions they need from CIBC.

Imperial service is an important and differentiated asset for CIB.

Imperial service is an important and differentiated asset for CIBC.

We recently appointed dedicated leadership to directly oversee this key business platform and we expect to see further momentum in this business.

We recently appointed a dedicated leadership to directly oversee this key business platform and we expect to see further momentum in this business.

We're also focused on delivering leading digital banking solutions.

We recently earned a number one ranking in customer satisfaction from mobile banking apps in Canada from JD Power.

We recently earned the number one ranking in customer satisfaction for mobile banking apps in Canada from J D power and <unk>.

continue to see increasing client engagement in our digital channel.

Continued to see increasing client engagement in our digital channels.

32% of our core retail products were so digitally and our digital adoption rate has increased to 84%.

32% of our core retail products were sold digitally and our digital adoption rate has increased to 84%.

Looking at our North American commercial banking and wealth management businesses, higher volumes and organic client acquisition drove top line growth in commercial banking this quarter. Although the pace is moderated peak levels a year ago.

Looking at our North American commercial banking and wealth management businesses higher volumes and organic client acquisition drove top line growth in commercial banking this quarter, although the pace has moderated a peak level of peak levels a year ago.

as expected demand for loans is cool as business owners take a more conservative approach deborowing in a higher rate environment and slower economy.

As expected demand for loans as cool as business owners, taking a more conservative approach to borrowing at a higher rate environment and slower economy.

In wealth management, our top-ranked advisors continue to provide high-quality advice to help our clients achieve their ambitions. Our high-touch, personalized advice model, supplemented by digital tools, supported AUM growth this quarter with positive net flows on both sides of the border in our private world.

In wealth management, our top ranked advisers continue to provide high quality advice to help our clients achieve their ambitions are high touch personalized advice model supplemented by digital tools supported AUM growth this quarter with positive net flows on both sides of the border in our private wealth business. We also continue to benefit from referral activity driven.

We also continue to benefit from referral activity driven through a focus on connectivity throughout our bank.

Through our focus on connectivity throughout our bank.

Capital markets are well-diversified business model and highly connected team across their bank delivered another solid growth quarter Driven by strong performance in their global market

In capital markets, our well diversified business model and highly connected team across our bank delivered another solid growth quarter, driven by strong performance in our global markets business.

Our strategic focus on our sustainability, renewables and energy transition franchise was also recognized by Global Finance as the best investment bank in Canada and for outstanding leadership and sustainability.

Our strategic focus on our sustainability renewables and energy transition franchise was also recognized by global Finance is the best investment Bank in Canada.

And for outstanding leadership in sustainable infrastructure finance.

We also continue to invest in optimizing our technology infrastructure and processes enhanced productivity.

We also continue to invest in optimizing our technology infrastructure and processes to enhance productivity.

This includes leveraging the cloud to drive scale and speed to market, as well as automation of manual processes to reduce costs, and improve cycle time and accuracy.

This includes leveraging the cloud to drive scale and speed to market as well as automation of manual processes to reduce costs and improve cycle time and accuracy. Our efforts have resulted in significant cost savings. So far this year and are having a positive client impact with a 40% improvement in our client net promoter scores compared to last year.

Our efforts have resulted in significant cost saving so far this year and are having a positive client impact with a 40% improvement in our client and their promoter scores compared to last.

So in closing, we have a deep and experienced leadership team to make strategic decisions that position us for success. Even in the face of challenging conditions. So in closing, we have a deep and experienced leadership team to make strategic decisions that position us for success.

So in closing we have a deep and experienced leadership team to make strategic decisions that position us for success, even in the face of challenging conditions.

As we laid out in our prior calls, we have a clear momentum in the segments we've identified as strategic growth areas for our bank and will continue to focus on the growth areas and continue to focus on the growth areas.

As we laid out on our prior calls we have a clear momentum in the segments, we've identified as strategic growth areas for our bank and we'll continue to focus on them.

We've moderated our expense growth to the mid-single digits while realizing the benefits of the investments we've made heading into this fiscal year. We've continued to build our capital, and we've driven...

We've moderated our expense growth to the mid single digits, while realizing them best are the benefits of the investments we've made heading into the into this fiscal year.

We've continued to build our capital.

And we've driven improved margins across our bank.

Our business momentum, coupled with prudent risk management, and our strong capital position, offers us the flexibility to adeptly navigate changing market conditions, adjusting our investments as needed throughout the economic cycle.

Our business momentum, coupled with prudent risk management, and our strong capital position offers us the flexibility to have definitely not navigate changing market conditions adjusting our investments as needed throughout the economic cycle.

Now before I turn the call over to Haraj, I'd like to extend our care and concern to those affected by the devastating wildfires in British Columbia and the Northwest Territory.

Now before I turn the call over to Raj I'd like to extend or a care and concern for those affected by the devastating wildfires in British Columbia in the northwest territories.

We are making available financial relief, advice, and support to our affected clients, including donations to CIBC Foundation's relief funds for the two provinces.

Making available financial relief advice and support to affected clients, including donations to CIBC foundations relief funds for the two provinces. Our thoughts are with you all as you begin the process of recovery and rebuilding and with that let me turn the call over to Raj.

Our thoughts are with you all as you begin the process of recovery and rebuilding and with that, let me turn the call over to her.

Thanks Victor and good morning all. Thank you for joining us late in earning.

Thanks, Victoria and good morning, all thank you for joining us late in earning season.

I'll start my remarks on slide seven. This quarter's results reflect the strength of our client franchise, as well as TeamCIBC's ability to proactively manage through a dynamic operating of.

I'll start my remarks on slide seven this quarter's results reflect the strength of our client franchise as well as team CIBC the ability to proactively manage through a dynamic operating environment. We will continue leaning on these differentiators to sustainably deliver value to our stakeholders improve.

we will continue leaning on the differentiators sustainably deliver value to our sake.

Improving margins, solid trading results, and disciplined expense management allowed us to maintain revenue growth momentum, deliver peer-leading operating leverage, and continue to drive strong organic pre-provision earnings.

Improving margins solid trading results and disciplined expense management allowed us to maintain revenue growth momentum deliver peer leading operating leverage and continue to drive strong organic pre provision earnings growth. That's helped partially offset higher credit provisions and a higher share count to deliver diluted earnings per share of $1 40.

This helped partially offset higher credit provisions and higher share count to deliver deluded earnings per share of $1.47 for the quarter.

Seven for the quarter.

recruiting items of note adjusted EPS was $1.52 and ROE was 11.9 percent.

Excluding items of note adjusted EPS was $1 52, and our ROE was 11, 9%.

We also continue to strengthen our balance sheet, ending the quarter with capital and liquidity ratios, well and excessive current regulatory requirements.

We also continued to strengthen our balance sheet, ending the quarter with capital and liquidity ratios well in excess of current regulatory requirements.

The balance of my presentation will refer to adjusted results, which exclude items of note starting with sliding.

The balance of my presentation will refer to adjusted results, which exclude items of note starting with slide eight.

Adjusted net income of $1.5 billion was down 15% from the prior year, driven by an increase in credit provisions, which Frank will discuss in more detail.

Adjusted net income of $1 5 billion was down 15% from the prior year driven by an increase in credit provisions, which Frank will discuss in more detail.

Revenues of 5.9 billion were up 6 percent year over year, benefiting from strong PNC margins, balance sheet growth, and client trading.

Use of $5 9 billion were up 6% year over year benefiting from strong P&C margins balance sheet growth and client trading activity.

Expenses were also about 6% from the fire year, as inflationary pressures moderate, and we continue to focus on both expense discipline and strategic investment.

<unk> were also up 6% from the prior year as inflationary pressures moderate and we continue to focus on both expense discipline and strategic investment.

As a result, pre-privission pre-tax earnings of 2.6 billion increased 5% over the prior.

As a result pre provision pretax earnings of $2 6 billion increased 5% over the prior year.

Slide 9 and 10 highlight the trends driving our net interest income. Excluding trading, NII was up 8 percent over the year due to continued balance sheet growth and a disciplined margin management approach which prioritizes stability and long-term performance.

Slide nine and 10 highlight the trends driving our net interest income excluding trading NII was up 8% over the year due to continued balance sheet growth and a disciplined margin management approach, which prioritizes stability and long term performance.

Total Bank NIMM, excluding trading, was up two basis points sequentially, benefiting from strong margin expansion in our P&T.

Bank NIM, excluding trading was up two basis points sequentially benefiting from strong margin expansion in our P&C businesses.

robust Canadian Piancine of 267 basis points reflects the high quality of our Canadian friends.

Robust Canadian P&C NIM of 267 basis points reflects the high quality of our Canadian franchise, NIM was up 10 basis points sequentially, including help from nonrecurring items exclude.

NIM was up 10 bases points sequentially, including help from non-recurring eyes.

Scouting this, the key driver was the positive margin expansion in the quarter supported by higher rates, which more than offset moderating pressure on mortars.

Excluding this the key driver was deposit margin expansion in the quarter supported by higher rates, which more than offset moderating pressure on mortgage margins.

We have provided incremental disclosure on the factors impacting PNC margin in the opinion.

We provided incremental disclosure on the factors impacting P&C margin in the appendix.

NIM and our U.S. segment was 346 basis points, up 10 basis points year over year, and 5 basis points from the prior corridor.

You May now our U S segment was 400 346 basis points up 10 basis points year over year and five basis points from the prior quarter.

The sequential increase was largely due to higher deposit margins and interest income on a recovery, partially offset by lower asset margins and...

Sequential increase was largely due to higher deposit margins and interest income on our recovery, partially offset by lower asset margins and prepayments net.

Net of the one-time benefits I just referenced, we expect both Canadian PNC and U.S. segment margins to remain relatively stable in the near term, and we maintain our recent guidance of 165 to 170 base points for overall bank margin.

Net of the one time benefits I just referenced we expect both Canadian P&C and U S segment margins to remain relatively stable in the near term and we maintain our recent guidance of 165 to 170 basis points for overall bank margin.

Moving on to slide 10, loan balance is averaged 537 billion this quarter, an increase of 5% from the prior year supported by all business.

Moving on to slide 10 loan balances averaged 537 billion this quarter, an increase of 5% from the prior year supported by all businesses.

growth in our high quality deposit franchise outpaced loans increasing six percent from the prior year with an underlying stabilization of the recent makeshift from notice and demand product the term process

Growth in our high quality deposit franchise outpaced loans, increasing 6% from the prior year with an underlying stabilization of the recent mix shift from notice in demand products that term product.

We continue to be focused on growing our balance you prudently and profitably, with an emphasis on stable client deposits and lending focused on priority clients with stronger...

We continue to be focused on growing our balance sheet prudently and profitably with an emphasis on stable client deposits and lending focused on priority clients with strong returns.

Turning to slide 11, non-interesting government 2.6 billion was up 13% from the prior year, supported by growth in trading income and higher transaction-related fees.

Turning to slide 11, noninterest income of $2 6 billion was up 13% from the prior year supported by growth in trading income and higher transaction related fees.

Market related fees, excluding trading, increased 1% year over year. Stronger underwriting and advisory and investment management and custodial revenues were largely offset by lower revenue from ancillary investments and treasury assets.

Market related fees, excluding trading increased 1% year over year, a stronger underwriting and advisory and investment management and custodial revenues were.

Offset by lower revenue from ancillary investments in treasury activities.

Turning to slide 12, expense growth continue to slow in line with our guidance, increasing 6% from a year ago as we proactively paced steady strategic investments and emphasize efficiency against the backdrop of slowing revenue.

Turning to slide 12 expense growth continued to slow in line with our guidance, increasing 6% from a year ago, as we proactively pace steady strategic investments and emphasize efficiency against the backdrop of slowing revenue growth.

On a sequential basis, expenses were up 2%, with more than half of the growth resulting from the impact of more days in the quarter.

On a sequential basis expenses were up 2% with more than half of the growth, resulting from the impact of more days in the quarter.

Our balanced approach has allowed us to revert to positive operating leverage and deliver a solid next ratio of 55% to this quarter. We continue to manage to mid-single digit expense growth for the full fiscal year 2023, and we will continue to target positive operating leverage over the mid-

Our balanced approach has allowed us to revert to positive operating leverage.

And deliver a solid nix ratio of 55% this quarter.

We continue to manage to a mid single digit expense growth for the full fiscal year of 2023, and we will continue to target positive operating leverage over the medium term.

On to slide 13 to discuss our balance sheet, another area that has benefited from our focus on disciplined resource allocation and efficiency.

On to slide 13 to discuss our balance sheet. Another area that has benefited from our focus on disciplined resource allocation and efficiency.

Our CET-1 ratio improved from 11.9 to 12.2% sequentially, primarily driven by organic capital generation and share issuance against relatively stable RWA, excluding the impact of current.

Our CET one ratio improved from 11.9 to 12, 2% sequentially, primarily driven by organic capital generation and share issuance against relatively stable. Our W. Eight excluding the impact of currency fluctuations, we will continue to be disciplined on capital deployment and expect our CET one ratio to continue trend.

We will continue to be disciplined on capital deployment and expect our C-H-U-N ratio to continue trending high.

Higher.

Our liquidity position remained well above regulatory requirements throughout the quarter, resulting in a sequentially higher average LCR of 131.

Our liquidity position remained well above regulatory requirements throughout the quarter, resulting in sequentially higher average LCR of 131%.

While we remain cautious in the face of economic uncertainty, our strong balance sheet positions us well to accelerate growth when the economic outlook.

While we remain cautious in the face of economic uncertainty, our strong balance sheet positions us well to accelerate growth when the economic outlook improves.

Starting on slide 14, we highlight our strategic business unit.

Starting on slide 14, we highlight our strategic business unit results net income in Canadian personal and business banking was $527 million down 17% from the same quarter last year due to a higher provision for credit losses.

Net income in Canadian personal and business banking was $527 million, down 17% from the same quarter last year due to a higher provision for credit.

Pre-provision pre-tax earnings were up 8% from the prior year and 14% sequentially, reflecting strong growth as a result of our focused strategy.

Pre provision pretax earnings were up 8% from the prior year and 14% sequentially, reflecting strong growth as a result of our focused strategy.

Revenues of 2.4 billion, we're up 6% year over year, helped by robust margin expansion and volume growth.

Revenues of $2 4 billion were up 6% year over year helped by a robust margin expansion and volume growth on a sequential basis revenue was up 7% driven by the same factors as well as additional days in the quarter.

sequential basis, revenue was up 7% driven by the same factors as well as additional days.

expensive 1.3 billion, we're up 4% from the same period last year, resulting in 2% positive up.

Expenses of $1 3 billion were up 4% from the same period last year, resulting in 2% positive operating leverage.

Moving on to slide 15, net income for Canadian commercial banking and wealth management was 467 mil.

Moving on slide 15, net income for our Canadian commercial banking and wealth management was 467 million revs.

Revenues of a billion 350 were up 1% from a year ago, benefiting from 6% low and growth and 8% deposit growth in commercial banking, partly offset by a decline in wealth management revenue. Expenses increased 1% from a year ago.

Revenues of a billion 350 were up 1% from a year ago benefiting from 6% loan growth and 8% deposit growth in commercial banking, partly offset by a decline in wealth management revenue.

<unk> increased 1% from a year ago and operating leverage was neutral.

While wealth management revenues have been impacted by markets, this quarter highlights the quality of our Canadian PNC banking franchise, where we delivered pre-provision, pre-tax earnings growth of 8% from the prior year, supported by strong margin performance and over 2% operating leverage.

While wealth management revenues have been impacted by markets. This quarter highlights the quality of our Canadian P&C banking franchise, where we delivered pre provision pretax earnings growth of 8% from the prior year supported by strong margin performance and over 2% operating leverage and while we've been selective recently in commercial.

And while we've been selective recently in commercial loan growth, we have the ability to accelerate support for existing and new clients as the environment improves to provide further momentum to our domestic PNC.

Bone growth, we have the ability to accelerate support for existing and new clients as the environment improves to provide further momentum to our domestic P&C growth.

We've included slides for the PNC segment in the appendix to this presentation.

We've included slides for the P&C segment in the appendix to this presentation.

Net income of 62 million US in US commercial banking and wealth management was down 62% from the prior year due to higher credit provisions largely in our office port both.

Net income of 62 million U S and U S commercial banking and wealth management was down 62% from the prior year due to higher credit provisions largely in our office portfolio.

Revenues were up 5% over the same period, driven by a 10% increase in net interest income, partially offset by a 5% decline in fees that are impacted by market concern.

<unk> were up 5% over the same period driven by a 10% increase in net interest income partially offset by a 5% decline in fees that are impacted by market conditions.

and I benefited from 7% loan growth and strong net interest

NII benefited from 7% loan growth and strong net interest margins while average deposits.

While average deposits decreased 4% sequentially, outflow and remixing trends stabilized through the course.

Cause it's decreased 4% sequentially outflow and remixing trends stabilize through the quarter.

Fences were stable year over year, resulting in positive operating leverage of over 5%, and we expect more moderate expense growth going forward as compared to the recent time.

Expenses were stable year over year, resulting in positive.

Operating leverage of over 5% and we expect more moderate expense growth going forward as compared to the recent past.

We maintain focused on balanced and profitable growth to scale our U.S. business, and our uniquely differentiated franchises well positioned to meet client needs as the local competitive environment evolves.

We maintain focused on balanced and profitable growth to scale, our U S business and our uniquely differentiated franchise is well positioned to meet client needs as the local competitive environment evolves.

Turning to slide 17 are a capital markets business. Net income of 494 million was up 11% year over year. Revenues of 1.4 billion were up 13% over the prior year, driven by our differentiated capability.

Turning to slide 17, our capital markets business net income was $494 million was up 11% year over year revenues of $1 4 billion were up 13% over the prior year driven by our differentiated capabilities highlights. This quarter include 18% growth in global markets and continued double digit.

Highlights this quarter include 18% growth in global markets and continued double-digit growth and direct financial services, which grew 26%, largely due to marginally...

Growth in direct financial services, which grew 26% largely due to margin expansion and simply we also saw increased activity in underwriting and advisory and continued growth in corporate banking.

We also saw increased activity in underwriting and advisory and continued growth in court.

reflecting the capital market seasonality we've seen in recent years we expect two four revenues to be lower sequentially in this segment with growth reverting to mid to high single digits over the prior

Selecting the capital market's seasonality we've seen in recent years, we expect Q4 revenues to be lower sequentially. In this segment with growth reverting to mid to high single digits over the prior year.

Expenses of 673 million were up 13% compared to the prior year, largely due to investments in key growth initiatives undertaken in late 22. We anticipate sequential expense growth to continue moderating.

Spencers of $673 million were up 13% compared to the prior year largely due to investments in key growth initiatives undertaken in late 'twenty two.

We anticipate sequential expense growth to continue moderating.

Slide 18 reflects the results of the corporate and other business unit.

Net loss of 98 million compared with a net loss of 50 million in the prior year largely due to less favorable treasurer revenue and higher corporate expenses partly offset by higher revenues from international banks.

Net loss of $98 million compared with a net loss of $50 million in the prior year largely due to less favorable treasury revenue and higher corporate expenses, partly offset by higher revenues from international banking, we continue to maintain our medium term guidance of 75 to 125 million quarterly loss in this segment.

Operator: All participants, please stand by, your conference is ready to begin.

Continue to maintain our meeting term guidance of 75 to 125 million quarterly loss in this.

Geoffrey Weiss: Good morning, welcome to the CIBC Quarly Financial Results call. Please be advised that this call is being recorded.

We delivered another quarter of steady, profitable franchise growth as a result of our agility and an unwavering focus on our differentiated stride.

Summary, we delivered another quarter of steady profitable franchise growth as a result of our agility and an unwavering focus on our differentiated strategy, our strong margins moderating expense growth and disciplined approach to resource allocation give us significant flexibility to respond to changes in the environment and to seize opportunities.

Geoffrey Weiss: Oh, not long to do in the meeting over to Geoff Weiss, SVP Investor Relations.

strong margins, moderating expense growth, and discipline approach to resource allocation give us significant flexibility to respond to changes in the environment, and to seize opportunities that present.

Geoffrey Weiss: Please go ahead, Geoff. Thank you and good morning. We will begin this morning's presentation with opening remarks from Victor Dodig, our President and Chief Executive Officer, followed by Hratch Panossian, our Chief Financial Officer, and Frank Guse, our Chief Risk Officer. Also on the call to there are a number of our group heads, including Shawn Beber, US Region, Harry Culham, Capitol Markets, and Direct Financial Services, and Jon Hountalas, Canadian Banking. They're all available to take questions following the prepared remarks. As noted on slide two of our investor presentation, our comments may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially.

Changes that present themselves.

we will continue to manage proactively through a fluid environment to support our clients, maintain our balance sheet strengths, and emphasize profitability. With that, let me turn the call over to Frank.

We'll continue to manage proactively through a fluid environment to support our clients maintain our balance sheet strength and emphasize profitability with that let me turn the call over to Frank.

Thank you Raj and good morning, everyone.

This quarter, overall output volume, performed within our X-Tick.

This quarter overall, our portfolio performed within our expectations.

We saw it built in performing in Lawrences this quarter, reflecting a prudent outlook based on the macroeconomic environment.

We saw a built in performing allowances this quarter, reflecting a prudent outlook based on the macroeconomic environment.

Our impaired loans continue to normalize and remain within expectations.

Our impaired loans continued to normalize and remained within expectations.

Victor Dodig: With that, I will now turn the call over to Victor. Thank you, Geoff, and good morning, everyone. I hope you've all had a nice summer. I'll begin with a few brief comments about our third quarter results, including progress updates against their strategic priorities. I'll then turn the call over to Hratch, followed by Frank, to review our performance in greater detail before we take your questions. This quarter we delivered solid core business performance by continuing to execute on our client-focused strategy while building capital, expanding margins, and prudently managing expenses.

We saw sustained headwinds in the US office sector. However, our exposures remain relatively small at less than 1% of our total loan portfolio. And our experienced real estate team is managing the portfolio on a loan-by-loan basis, working closely with our-

We saw sustained headwinds in the U S office sector. However, our exposure remains relatively small at less than 1% of our total loan portfolio.

<unk> real estate team is managing the portfolio on a loan by loan basis working closely with our clients.

Our other portfolios continue to perform well with demonstrated resilience in the Canadian consumer lending port.

Our other portfolios continue to perform well with demonstrated resilience in the Canadian consumer lending portfolio.

Turning to slide 22, our total provision for credit losses was 736 million in Q3 compared to 438 million last quarter.

Turning to slide 22, our total provision for credit losses was $736 million in Q3 compared to 438 million last quarter.

Victor Dodig: Net earnings of $1.5 billion or $1.52 per share were lower than the prior year and reflect higher provisions for credit losses, while pre-provisioned pre-tax earnings were up 5% during the same period. Due to changes to our forward-looking economic indicators, as well as the continuing normalization of credit conditions, we increased provisions in our consumer lending portfolios. The increased provisions in the commercial segment mainly relate to our US office portfolio, which represents less than 1% of our overall loan book.

Total allowance coverage increased from 66 basis points in Q2 to 73 basis points this quarter.

The 258 million performing provision is quarter, 211, or 80%, are driven by changes to our forward-looking indicators, with remaining due to portfolio growth, credit migration, and other moves.

The 258 million performing provision this quarter 211, or 80% are driven by changes to our forward looking indicators with remaining due to portfolio growth credit migration and other movements.

The business quarter was primarily a result of high debt service ratio forecasts for the consumer.

This quarter was primarily a result of higher debt service ratio forecast for the consumer books.

After nearly 18 months of retax, our forecast expect servicing pressures of higher interest rates and rising unemployment.

After nearly 18 months of rate hikes are forecast expect servicing pressures of higher interest rates and rising on a rising unemployment.

Victor Dodig: We have a robust balance sheet, ending the quarter with a CET-1 ratio of 12.2%. Going forward, we're focused on continuing to build our capital levels to ensure that we remain well positioned for any changes, as well as for any opportunities. We remain focused on our three key strategic priorities, growing our high growth, high-touch segments, including our Imperial Service platform and North American Private Wealth franchise, focusing on our future differentiators, which includes delivering leading digital banking solutions to Canadian consumers, and enabling and simplifying our bank.

Provision on impaired loans was $478 million, up $99 million quarter over quarter.

Provisions on impaired loans was $478 million up 99 million quarter over quarter.

This increase was driven by our U.S. commercial portfolio, the bulk of which was attributable to our office commercial real estate.

This increase was driven by our U S commercial portfolio, the bulk of which was attributable to our office commercial real estate exposure.

We also experienced high-impact losses in our retail put.

We also experienced higher losses in our retail portfolio.

Overall, our impaired losses continue to perform within our H.

All our impaired losses countries continue to perform within our expectations.

By 23, summarizes our gross impaired loans and formations. Overall, balances were up in Q3, mainly driven by business and government.

Slide 23 summarizes our gross impaired loan formations overall balances were up in Q3, mainly driven by business and government loans.

Victor Dodig: Now, let me give you a few highlights on our progress. Our Canadian consumer franchise continues to experience robust growth. Over the last 12 months, we've added over 650,000 net new clients to CIBC, which includes 165,000 clients in our simply franchise. We also continue to make good progress on our strategic focus to deepen high-touch, high-growth relationships in the affluent segment. Imperial Service, our unique advice-based relationship offer for our mass affluent clients, self-funds manage growth of $14 billion a year to date, driven by successful client acquisition, as well as our focus on ensuring clients are in the right offer to get the advice and solutions they need from CIBC.

New formations were also up in Q3. Over $515 million is related to our U.S. office exposure.

New formations were also up in Q3 were try $415 million is related to our U S office exposure.

Slide 24 outlines the net right off of a 90 plus day delinquency rates of our Canadian consumer portfolio.

Slide 24 outlines the net write off of a 99 day 90, plus day delinquency rates of our Canadian consumer portfolios, which overall continues to remain stable this quarter and in line with our expectations.

which overall continue to remain stable this quarter and in line with our expectations.

Communicator in prior quarters, we expect right off anti-linquencies to continue to revert towards pre-pandemic levels.

Munich Ada in prior quarters, we expect write offs and delinquencies to continue to revert towards pre pandemic levels.

Like 25, provides an overview of our Canadian real estate secured personal lending portfolio, which makes up 54% of our total loan balance.

Slide 25 provides an overview of our Canadian real estate secured personal lending portfolio, which makes up 54% of our total loan balances.

Our overall rates pay for the link when see remain low, especially when compared with pre-pandemic levels.

Overall late stage delinquencies remain low, especially when compared with pre pandemic levels.

Victor Dodig: Imperial Service is an important and differentiated asset for CIBC. We recently appointed dedicated leadership to directly oversee this key business platform and we expect to see further momentum in this business. We're also focused on delivering leading digital banking solutions. We recently earned a number one ranking and customer satisfaction for mobile banking apps in Canada from JD Power, and continued to see increasing client engagement in our digital channels. 32% of our core retail products were sold digitally and our digital adoption rate has increased to 84%.

Variable rate mortgages, account for one third of our mortgages.

Remember right mortgages account for one third of our mortgage book. These continue to display strong credit quality and performance.

This continues to display strong credit quality and performance.

As a result of the interest rate hike, this passed quarter, the portion of non-emortizing variable rate mortgages has increased to 50 billion up from 44 billion last quarter.

The interest rate hikes this past quarter the portion of non amortizing variable rate mortgages has increased to 50 billion up from 44 billion last quarter.

We continued our proactive client outreach and see good responses. With around 8,000 clients increasing their monthly payments and just over 1,000 clients making lump sum payments, removing themselves from negative amortization status.

We continued our proactive client outreach and see good responses with around 8000 clients, increasing their monthly payments and just over 1000 clients, making lump sum payments removing themselves from the negative negative amortization status.

Victor Dodig: Looking at our North American commercial banking and wealth management businesses, higher volumes and organic client acquisition drove top line growth in commercial banking this quarter, although the pace has moderated peak levels a year ago. As expected, demand for loans is cool, as business owners take a more conservative approach to borrowing in a higher rate environment and slower economy. In wealth management, our top ranked advisors continue to provide high quality advice to help our clients achieve their ambitions.

We'll continue to work closely with our clients through this high interest rate environment and other market developments.

On slide 26, we'll provide further disclosure on our US office exposure.

Slide 26, we provide further disclosure on our U S office exposure.

As mentioned, this represents less than 1% of our total loan.

As mentioned this represents less than 1% of our total loan book.

Given the sector headwinds, we increased our allowance coverage from 4.1% to 7.6% quarter over quarter.

Given the effect of headwinds, we increased our allowance coverage from 421% to 7.6% quarter over quarter.

While our maturity profile is weighted more towards fiscal 23 and 24, we've already seen $1.5 billion in net outstanding being renewed, reduced, or paid out over the past few quarters.

Well, our maturity profile is weighted more towards fiscal 'twenty, three and 'twenty four we've already seen $1.5 billion in net outstandings being renewed reduced or paid out over the past few quarters.

Victor Dodig: Our high touch personalized advice model supplemented by digital tools supported AUM growth this quarter with positive net flows on both sides of the border and our private wealth business. We also continue to benefit from referral activity driven through a focus on connectivity throughout our bank. In capital markets, our well-diversified business model and highly connected team across our bank delivered another solid growth quarter driven by strong performance in our global markets business.

We worked with the balance of maturities. We expect to see losses in and around the current levels for the portfolio for the next few quarters, which is consistent with what we noted last quarter.

We worked through the balance of maturities, we expect to see losses in and around the current levels for the portfolio for the next few quarters. We're just consistent with what we noted last quarter.

I want to close by noting that our overall credit quality and coverage remains robust.

Victor Dodig: Our strategic focus on our sustainability, renewables and energy transition franchise was also recognized by global finance as the best investment bank in Canada and for outstanding leadership and sustainable infrastructure finance. We also continue to invest in optimizing our technology infrastructure and processes to enhance productivity. This includes leveraging the cloud to drive scale and speed to market, as well as automation of manual processes to reduce costs and improve cycle time and accuracy.

Given the economic headwinds and sustained pressures in the U.S. office space, we expect our fiscal 23 loan losses unimpaired to be at the high end of our guidance of 25 to 30 basis points for impaired loss.

Given the economic headwinds and sustained pressures in the U S office space, we expect our fiscal 'twenty three loan losses unimpaired to be at the high end of our guidance of 25 to 30 basis points for impaired losses.

We believe our additional provisions this quarter continue to provide prudent coverage for market conditions that will evolve. I will now turn the call back.

We believe our additional provisions this quarter continued to provide prudent coverage for market conditions that Willie balls.

I will now turn the call back to the operator.

Thank you, Frank. Please press star 1 at this time if you have a question. Our first question is from Ibrahim Poonawalla with Bank of America. Please go ahead.

Thank you Frank Please press star one at this time if you have a question. Our first question is from Ebrahim <unk> with Bank of America. Please go ahead.

Victor Dodig: Our efforts have resulted in significant cost saving so far this year and are having a positive client impact with a 40% improvement in our client net promoter scores compared to last year. So in closing, we have a deep and experienced leadership team to make strategic decisions that position us for success, even in the face of challenging conditions. As we laid out on our prior calls, we have a clear momentum in the segments we've identified as strategic growth areas for our bank and will continue to focus on them.

Hey, good morning.

I guess maybe a question for Frank starting with you on just the performing PCLs. Clear what you said. But as we think about, you mentioned, I think 80% of the build this quarter was a forward looking indicators.

I guess maybe.

A question for Frank starting with you on just the performing PCL is clear.

What you said, but as you think about you mentioned I think 80% of the base. This quarter was a forward looking indicators.

And what I'm trying to understand is how much of that is just the model output versus your expectation around the macro and how that is also talked to us fundamentally how you see credit playing out in the consumer book if rates they hire for longer I'm assuming are base cases for unemployment to go higher within the consumer book where do you see the loss drivers and just how

And what I'm trying to understand how much of that is just the model output versus your expectation around the macro and how that divorce. So talk to us fundamentally how you see credit playing out in the consumer book, if we need to stay higher for longer I'm, assuming obese keeps us on the unemployment to go up.

Victor Dodig: We've moderated our expense growth to the mid-single digits while realizing the benefits of the investments we've made heading into this fiscal year. We've continued to build our capital and we've driven improved margins across our bank. Our business momentum coupled with prudent risk management and our strong capital position offers us the flexibility to adeptly navigate changing market conditions, adjusting our investments as needed throughout the economic cycle. Now, before I turn to call over to Horace, I'd like to extend our care and concern to those affected by the devastating wildfires in British Columbia and the Northwest Territories. We are making available financial relief, advice and support to our affected clients, including donations to CIBC Foundation's relief funds for the two provinces.

They tend to consumable where do you see the last gave us and just how quickly things you can do it.

Yeah, a couple of things to unpack there. So what I would say is it is driven by our model outcomes. It is driven by our forward looking expectations, as I said, by about 80% of the overall performing

Yeah.

Couple of things to try and pick their so what I would say is it is driven by our model outcomes. It is driven by all forward looking expectations I'm as I said by by about 80% of the overall performing build.

What we saw this quarter is a higher interest rate expectation. We saw two rate hikes in the market, one of which I would say was not necessarily widely expected. And we see that playing out in that service ratios.

What we saw this quarter is a higher interest rate expectation, we saw two rate hikes in the market one of which I would say it was not necessarily widely expected and we see that playing out in debt service ratios that have any impact on all of our consumer lending product.

Hratch Panossian: Francis, our thoughts are with you all as you begin the process of recovery and rebuilding and with that, let me turn the call over to Hratch. Thanks, Victor, and good morning all. Thank you for joining us, late in earning season.

that have an impact on all of our consumer lending products. Probably the biggest one playing out in our unsecured personal books.

Hratch Panossian: I'll start my remarks on slide seven. This quarter's results reflect the strength of our client franchise, as well as team CIBC's ability to proactively manage through a dynamic operating environment. We will continue leaning on these differentiators to sustainably deliver value to our stakeholders. Improving margins, solid trading results, and disciplined expense management allowed us to maintain revenue growth momentum, deliver peer-leading operating leverage, and continue to drive strong organic pre-provision earnings growth. This helped partially offset higher credit provisions and higher share count to deliver diluted earnings per share of $1.47 for the quarter. Excluding items of note, adjusted EPS was $1.52, and ROE was 11.9%. We also continue to strengthen our balance sheet, ending the quarter with capital and liquidity ratios well in excess of current regulatory requirements.

Probably the biggest one I'm playing out and in our unsecured personal books and again those are forward looking expectations. What I would also say if there was a forward looking expectations for the next couple of years and I don't want to get too technical but I first nine in stage two is asking for a lifetime expect.

And again, those are forward looking expectations.

What I will also say is those are forward locking expectations for the next couple of years. And I don't want to get too technical, but I first, mine in stage two, is asking for lifetime expected losses. The average lifetime in our consumer lending books is a couple of years. So what we see as a build discord, is certainly a reflection of what we would expect to play it, see to play out over a couple of years. So it's not an imminent change in our outlook. It is an outlook change.

Losses be average lifetime, and all consumer lending books is a couple of years. So what we have to build this quarter is certainly a reflection of what we would expect to play fee to play out over a couple of years. So it's not an imminent change in our outlook is little changed over those couple of years.

And I think what I would say as you asked for, it is playing out in the unsecured books where we do see stress, but we see that stress playing out as indicated as a normalization of net write-offs that we expected, that we are seeing playing out.

And I think what I would say is if you ask for it is playing out in the unsecured loan books, where we do see strength, but we see that.

It's playing out as indicated as normalization off net write offs that we expected.

Hratch Panossian: The balance of my presentation will refer to adjusted results, which exclude items of note starting with slide eight. Adjusted net income of $1.5 billion was down 15% from the prior year driven by an increase in credit provisions, which Frank will discuss in more detail. Revenues of $5.9 billion were up 6% year-over-year benefiting from strong PNC margins, balance sheet growth, and client trading activity. Expenses were also up 6% from the prior year, as inflationary pressures moderate, and we continue to focus on both expense discipline and strategic investment. As a result, pre-provision pre-tax earnings of $2.6 billion increased 5% over the prior year.

The other point I will make on performing allowances overall, there is a large increase this quarter. If you normalize that over the last couple of quarters, if you normalize it year over year, it is certainly something that is not unexpected. It is prudent to increase our coverage ratios this quarter, and that's what we're doing.

The other point I would make on performing allowances overall.

As a.

Large increase this quarter, if you normalize that over the last couple of quarters. If you normalize it year over year. It is certainly something that is not unexpected.

To increase our coverage ratios this quarter and that's what we've seen play out.

This is it and maybe one question just because This is the first time since some of the articles around the mortgage and the lighting sources in the press maybe Vickia for you. I mean, I think you spend a lot of time under your leadership

Understood and maybe one question just because Oh. This is the first time things are some of the articles around the mortgage underwriting.

Maybe Victor for you I mean, I think you've spent a lot of things under your leadership.

culturally turning around things at commerce, from a risk management standpoint, to just to the extent not to make too much of what was out there in the press, but give us your sense, both in terms of the risk framework at the bank, to the extent you can discuss that, and also culturally in terms of leadership, in terms of what should we make from the outside when we see some of these leaks coming through and making their way through the press. How should we interpret this?

Culturally you're turning it on things Etsy at Commerce from a risk management standpoint.

Hratch Panossian: By 9 and 10, highlight the trends driving our net interest income. Excluding trading, NII was up 8% over the year, due to continued balance sheet growth and a disciplined margin management approach which prioritizes stability and long-term performance. Total bank name excluding trading was up 2 basis points sequentially, benefiting from strong margin expansion in our PNC businesses. Robust Canadian PNC name of 267 basis points reflects the high quality of our Canadian franchise. NIM was up 10 basis points sequentially, including help from non-recurring items. Excluding this, the key driver was deposit margin expansion in the quarter supported by higher rates, which more than offset moderating pressure on mortgage margins.

To the extent not to make too much out of what was out there in the past, but give us your sense. Both in terms of that is clean look at the bank.

To the extent you can discuss that in also.

Actually in terms of leadership in terms of like what should we need from the outside when do you see some of these leaks are coming through and making their way to depict how should we interpret that good morning, Ebrahim and thank you for your question. So let me just first of all say that our regulators play an incredibly important role in ensuring strength and stability in the financial system.

good morning you know you bram and thank you for your question so let me just first of all say that our regulators plan incredibly important role in ensuring strength and stability in the financial system in Canada and i think they've done that uh... over a century and a half

Canada, and I think they've done that.

Over a century and a half and they do it well. So as you can appreciate I can't comment on the specific regulatory matters.

So as you can appreciate, I can't comment on the specific regulatory matters. I can tell you that we maintain an ongoing...

Can tell you that we maintain an ongoing transparent engagement with all of our regulators in all of the jurisdictions that we operate and with our board. We've also got effective controls to ensure compliance with supervisory expectations and we continue to manage all of our businesses, including our mortgage business prudently and with a client for.

transparent engagement with all of our regulators, in all of the jurisdictions that we operate, and with our board.

Hratch Panossian: We have provided incremental disclosure on the factors impacting PNC margin in the appendix. NIM in our U.S, segment was 346 basis points up 10 basis points year over year, and 5 basis points from the prior quarter. The sequential increase was largely due to higher deposit margins and interest income on a recovery, partially offset by lower asset margins and prepayments. Net of the one-time benefits I just referenced to we expect both Canadian PNC and U.S, segment margins to remain relatively stable in the near term.

We've also got effective controls to ensure compliance with supervisory expectations. We continue to manage all of our business.

including our mortgage business, prudently with a client focus. So what I will say about articles like that, it's disappointing to see when things are being reported publicly that are presented in a way that simply does not reflect the way we actually operate.

So what I will say about articles like that it's just disappointing to see when things are being reported publicly they presented in a way that's simply does not reflect the way we actually operate there's always going to be a healthy tension in running a large complex business, but I can tell you. This we've got strong governance, we got an incredibly strong culture.

There's always going to be a healthy tension in running a large complex business, but I can tell you this. We've got strong governance. We've got an incredibly strong culture. We've got really strong employee engagement scores, and a team that cares about how we build our business going forward. And that is investors you need to know. And we're happy to engage with you on anything that's on your mind to the extent that we can. But I can tell you, we run it well. We run it prudently. We run it with good governance. And we run it very transparently.

Hratch Panossian: And we maintain our recent guidance of 165 to 170 basis points for overall bank margin. Moving on to slide 10, loan balance has averaged 537 billion this quarter, an increase of 5% from the prior year supported by all bids. Ebrahim Poonawala, Edmond Ho, Edmond Ho, Edmond 15 Net Income for Canadian Commercial Banking and Wealth Management, with 467 William, Revenues of a billion 350 were up 1% from a year ago, benefiting from 6% loan growth and 8% deposit growth in commercial banking, partly offset by a decline in wealth management revenue.

We got really strong employee engagement scores and a team that cares about how we build our business going forward and that as investors you need to know and we're happy to engage with you on anything that's on your mind to the extent that we can but I can tell you we run it well we run it prudently we run it with good governance and we run it very transparently.

Yeah.

So, thanks for taking my questions. Thanks, Hebrew Ham. Have a good day.

Got it thanks, Victor Thanks for taking my questions. Thanks, Ebrahim and have a good day.

Thank you. Our next question is from Gabrielle Deschein with National Bank Financial.

Thank you. Our next question is from Gabriel machine with National Bank Financial. Please go ahead.

Good morning, a couple of questions here. Thanks for the margin guidance, Ratch. And I'm wondering if this could be like...

Good morning, a couple of questions here thanks for the.

Margin guidance Raj and I'm wondering you know if this could be like a maybe.

maybe some bouncing around to use that term. The US in particular, I'm thinking about the impact it might have because deposits are down quite a bit sequentially and that may require you to use more FHLB deposits or wholesale funding. And how does that play into your outlook then? If that's an issue.

Maybe some bouncing around.

I use that term.

The U S. In particular I'm thinking about the impact it might have because deposits are down quite a bit sequentially and that may require us to use more S. H L b deposits or wholesale.

Wholesale funding and.

And how does that play into your outlook then button issue.

Yeah, thank you, Abe. Thank you for the question, Gabe. Like, I think everything is playing out in terms of margins as we had guided, right? And as I said in my remarks, we have strong franchises both in the US and Canada.

Yeah. Thank you. Thank you for the question Gabe like I think everything is playing out in terms of margins as we had guided right and as I said in my remarks, we have strong franchises both in the U S and Canada.

That plays into it. You've got a strong deposit franchise in the US

That plays into it you've got a strong deposit franchise in the U S. We've got a strong strategy that focuses on the right clients and for our focus is on profitability and we have a strong a L. M framework, we've talked about this before we manage the U S balance sheet. The same way, we do the parent balance sheet, where we stabilize.

We've got a strong strategy that focuses on the right clients and focuses on profitability and we have a strong ALM framework. We've talked about this before. We manage the US balance sheet the same way we do the parent balance sheet where we stabilize for rate fluctuations and we manage for overall margin stability over time. And so that's really what you're starting to see play out. When you have a rate cycle like the one we did and this applies to broader than the US, right?

For rate fluctuations and we manage for overall margin stability over time, and so that's really what you're starting to see play out when you have a rate cycle that one we did and this applies to broader than the U S. Right rates went up.

very quickly and intensely. And so that plays out a bit different up front because you did see quite a bit of fluctuation in non-interest deposits going to interest-bearing war to term.

Very quickly and intensely and so that plays out a bit different upfronts, because you did see quite a bit of fluctuation in noninterest deposits going to interest bearing warranted.

And that actually did not allow as much margin expansion as you would have otherwise expected in what you would compute from doing our interest rate sensitivity calculations based on the disclosure. And so that was muting a little bit the results in margins and all the businesses, including the US, but that is fabled out.

And that actually did not allow as much margin expansion as you would have otherwise expected and what you would compute from doing our interest rate sensitivity calculations based on the disclosures and so that was muting a little bit the results and margins in all the businesses, including the U S. But that it's stabilized and I think that goes to the stability of the client franchise.

And I think that goes to the stability of the client franchise and you know, Sean can speak to more details, but we did see the demand deposits and the non-interest deposits stabilize this quarter. We saw the mix shift stabilize. So I don't expect us to need any funding that will lead to higher costs as you alluded to.

And Sean can speak to more details, but we did see the demand deposits and non interest deposits.

Stabilized this quarter, we saw that mix shift stabilize so I don't expect us to need any funding that will lead to higher costs. So as you alluded to and so we go back to our guidance with respect to the U S. There was a little bit of one time noise as I mentioned in my remarks, we had a recovery on alone and the interest on that recovery comes into NII.

And so we go back to our guidance with respect to the US. There was a little bit of one-time noise, as I mentioned in my remarks. We had a recovery on a loan, and the interest on that recovery comes into NII. So we've got to adjust for that, a couple of basis points. But outside of that, I would expect stable to slight upwards momentum in the US.

So you'd have to justify that a couple of basis points, but outside of that I would expect stable to a slight upward momentum in the U S from here.

Okay, and my next question is on the capital, you know, very little RWA inflation this quarter.

Okay and my next question is on the capital are no very little R. W. A inflation this quarter.

and I think very little last quarter as well. I'm wondering how close are you to the output floor? And especially if we look at the Q124, could we trigger that and see a little RWA inflation?

And I think a very little last quarter as well I'm wondering how close are you to you know the output floor and especially if we look at the Q1 'twenty four.

You know could we trigger that and see a little RW inflation.

And then I guess also might as well mention the fundamental review of the trading book and that the you know context.

And then I guess also it might as well I mentioned the.

Fundamental review of trading book in that.

The.

Context does that mean.

Back there yes.

Yeah, thanks, Gabe. Let me comment on capital more broadly and I'll address your questions. Again, we've been very clear about our goals on capital and how we've been managing to it and what we've guided to in terms of forecast. Frankly, we're ahead of that. We're ahead of schedule and we're very pleased with that.

Yeah. Thanks, Gabe let me, let me comment on capital more broadly and I addressed your questions again, we've been very clear about our goals on capital and how we are managing to it and what we've guided to in terms of forecast frankly, we're ahead of that we're ahead of schedule and we're very pleased with that so let me remind you of how we look at capital we look at our capital.

Hratch Panossian: Expenses increased 1% from a year ago in operating leverage was neutral. While wealth management revenues have been impacted by markets, this quarter highlights the quality of our Canadian PNC banking franchise, where we delivered pre-provision pre-tax earnings growth of 8% from the prior year, supported by strong margin performance and over 2% operating leverage. And while we've been selective recently in commercial loan growth, we have the ability to accelerate support for existing and new clients as the environment improves to provide further momentum to our domestic PNC growth.

So let me remind you how we look at capital. We look at our capital levels with respect to where regulatory requirements are, where our own needs are, and we like having a bit of capital for flexibility well above those regulatory requirements.

Level with respect to.

Where regulatory requirements are where our own needs are and we like having a bit of capital for flexibility are well above those regulatory requirements.

We looked at the peer group and so forth. And so with all of that, as we looked at the environment, we managed to try to get to above 12% at the end of this year, as we said, where I had a schedule, I think, into the mid 12s is what we're forecasting at this point that we would like to get to getting into the next year.

When you look at the peer group and so forth and so with all of that as we looked at the environment, we managed to try to get to above 12% at the end of this year. As we said we're ahead of schedule I think into the mid <unk> is what we're forecasting at this point that we would like to get to getting into the next year and.

Hratch Panossian: We've included slides for the PNC segment in the appendix of this presentation. Net income of 62 million US in US commercial banking and wealth management was down 62% from the prior year due to higher credit provisions largely in our office portfolio. Revenues were up 5% over the same period, driven by a 10% increase in net interest income, partially offset by a 5% decline in fees that are impacted by market conditions. And I benefited from 7% loan growth and strong net interest margins, while average deposits decreased 4% sequentially, outflow and remixing trends stabilized through the quarter.

And we are very well positioned to do that. How we've been doing that, we've been prudent with how we're allocating our balance sheet. And as I mentioned in my remarks, the balance sheet is important, our ROE is extremely important to us. Costs have gone up, cost of capital is up, RWA requirements are up, capital requirements are up. And so all of that is reflected when we deploy capital to support our clients.

And we are very well positioned to do that how we've been doing that we've been prudent with how we're allocating our balance sheet and as I mentioned in my remarks right. The balance sheet is important our aro is extremely important to us cost have gone up cost of capital is up our WLAN requirements are up capital requirements are up and so all of that is reflected when we.

We deploy capital to support our clients and so we're not necessarily conserving capital, but we're prudently allocating our capital where we are now we can continue growing our business I don't see constraints on our ability to grow our business to still get to that goal of mid 12% over the next few quarters here.

And so we're not necessarily conserving capital, but we're prudently allocating our capital.

Where we are now, we can continue growing our business. I don't see constraints on our ability to grow our business to still get to that goal of mid 12% over the metric quarters here.

Hratch Panossian: Expenses were stable year over year, resulting in operating leverage of over 5% and we expect more moderate expense growth going forward as compared to the recent past. We maintain focused on balanced and profitable growth to scale our US business and our uniquely differentiated franchise is well positioned to meet client needs as a local competitive environment evolves.

And from a regulatory perspective, I would guide you to net-

And from a regulatory perspective, I would guide you to net all the impacts that are coming at US. The next few quarters, a net slight positive from all the changes, including where we're working on our U S. Transitioning to the advanced approach, which will be a positive one comes in net of everything else are in that.

All the impacts that are coming at us, the next few quarters, and net slight positive from all the changes, including...

We're working on our US transitioning to the advanced approach, which will be a positive. One fact comes in, net of everything else, and net, net slight positive is what I would expect.

And that's quite positive is what I would expect so.

So maybe a dip, but then, I mean, these are my words, but just trying to visualize, you might see a dip early in 2024.

So maybe a dip but then I mean these are my words, but just trying to visualize you might see a dip early in 'twenty 'twenty four.

Hratch Panossian: Turning to slide 17, our capital markets business net income of 494 million was up 11% year over year. Revenues of 1.4 billion were up 13% over the prior year driven by our differentiated capabilities. Highlights this quarter include 18% growth in global markets and continued double-digit growth in direct financial services, which grew 26% largely due to margin expansion and simply. We also saw increased activity in underwriting and advisory and continued growth in corporate banking.

If you could touch upon those two items, I ask about that. That'd be great. And then after the conversion of the IRB in the US, more than office. Yeah, there's a few things there, Gabe. I think you've got the CVA and the FRTB changes. You've got the change related to the negative amortization mortgages coming. You've got the floors, obviously, which not a factor for us at this point in time.

And if you could touch upon those two items I ask about that'd be great.

After after the conversion of our ERP in the U.

Well.

There's a few things there I gave I think you've got a you've got the C V. A R. T be changes you've got the change related to the negative amortization mortgages coming you got the floors, obviously with which which not not a factor for us at this point in time, Okay, and then you've got the U S. Frank.

And then you've got the US frankly the timing of the reg changes is known the timing of the US going to advance There's not known and so depending on how that comes in Up and then a down you could have net neutralizing in the same quarters You could have a little bit of a dip and then going up But we'll see Thank you a lot and enjoy

Hratch Panossian: Reflecting the capital market seasonality we've seen in recent years, we expect 2.4 revenues to be lower sequentially in this segment with growth reverting to mid to high single digits over the prior year. Expenses of 673 million were up 13% compared to the prior year, largely due to investments in key growth initiatives undertaken in late 22. We anticipate sequential expense growth to continue moderating.

The timing of the rate changes as you know the timing of the U S going to advanced is not known and so depending on how that comes in you know you could have a little bit of up and then a down you could have net neutralizing in the same quarters, you could have a little bit of a dip and then going up a penalty.

Thanks, a lot and enjoy labor day weekend.

Thanks Kim.

Thank you. Our next question is from many Roman with the Scorsher Bank. Please go ahead.

Thank you our next.

Hratch Panossian: By 18 reflects the results of the corporate another business unit net loss of 98 million compared with a net loss of 50 million in the prior year, largely due to less favorable treasure revenue and higher corporate expenses partly offset by higher revenues from international banking. We continue to maintain our meeting term guidance of 75 to 125 million quarterly loss in this segment.

Question is from many women with Scotiabank. Please go ahead.

Hi, good morning. I want to go back to credit and follow up on something he was talking about just in terms of.

Hi, Good morning, I wanted to go back to a credit and a follow up on something he Breen was talking about just in terms of.

The volatility of your PCL line, especially the performing bucket and especially Canadian personal business banking, the performing line and definitely seeing quite a bounce to a quarter to quarter from recovery to

The volatility of your PC airliners, especially the performing bucket and an especially Canadian personal.

Personal and business banking, the performing line and I'm definitely seeing quite a bounce around quarter to quarter from recovery to two.

Hratch Panossian: In summary, we delivered another quarter of steady profitable franchise growth as a result of our agility and an unwavering focus on our differentiated strategy. Our strong margins, moderating expense growth and discipline approach to resource allocation give us significant flexibility to respond to changes in the environment and to seize opportunities that present themselves. We will continue to manage proactively through a fluid environment to support our clients, maintain our balance sheet strengths, and emphasize profitability.

279 million build this quarter. And I'm just wondering, how should investors interpret that? And is...

279 million build up this quarter and I'm just wondering.

How should investors interpret that and is there anything you can do to temper that kind of volatility or is anything you want to do to temper that kind of volatility.

You can do to temper that kind of volatility or anything you want to do to temper that kind of volatility.

So great question. So how do we look at it? One, we look at coverage ratios, we look at how we are building coverage ratios over time, and we think given the macroeconomic uncertainties that is a prudent approach to...

So so great question. So how do we look at it one we look at coverage ratios. We look at how we are building coverage ratios over time, and we think given the macroeconomic uncertainties that is a prudent approach to take.

Frank Guse: With that, let me turn the call over to Frank. Thank you, Horace, and good morning, everyone. This quarter, overall our portfolio performed within our expectations. We saw it built in performing allowances this quarter, reflecting a prudent outlook based on the macroeconomic environment. Our impaired loans continue to normalize and remain within expectations. We saw sustained headwinds in the US office sector. However, our exposures remain relatively small, at less than 1% of our total loan portfolio, and our experienced real estate teams is managing the portfolio on a loan by loan basis, working closely with our clients.

You're absolutely right and I mentioned that a little bit. We had a...

You're absolutely right in and I mentioned that a little bit we had a.

slightly more optimistic outlook. Last quarter, the drove a release, in particular, as it related to interest rates, where they would peak and how long they would say at that peak, there was a little bit more optimistic.

Lightly more optimistic outlook last quarter that drove a relief in particular as it related to interest rates, where they would peak and how long they would see at that peak there was a little bit more optimistic that has reversed we we we do not like to feed that volatile.

that has reversed. We do not like to see that volatility, but part of the IFRS 9 is

But part of the our first 90 days you have to incorporate those forward looking indicators and you have to.

You have to incorporate those forward looking indicators and you have to

run those outcomes. If you can imagine it is a very tightly governed process, we have lots of discussions around that. We look at those drivers, we look at the outcomes of those drivers.

Run those outcomes as you can imagine it is very tied to the government process. We have lots of discussions around back we look at those drivers we look at the hour.

Frank Guse: Our other portfolios continue to perform well, with demonstrated resilience in the Canadian consumer lending portfolio. Turning to slide 22, our total provision for credit losses was 736 million in Q3 compared to 438 million last quarter. Total allowance coverage increased from 66 basis points in Q2 to 73 basis points this quarter. The 258 million performing provision this quarter, 211 or 80% are driven by changes to our forward looking indicators. With remaining Q2 portfolio growth, credit migration, and other movements.

So all of those drivers and again in particular this quarter I would I would stress it is prudent to take that economic uncertainty into our colleagues and to to reflect that in our provisions.

And again, in particular, this quarter, I would stress it is prudent to take that economic uncertainty into account and to reflect that in our provision.

The other thing I would stress is pointing back to our actual credit results. The Canadian Consumer Book is holding up very strong. We see impaired loss of normalizing, but we see them normalizing well within our expectations.

Other thing I would stress is pointing back to our actual credit resolved.

Adrian Consumer book is holding up very strong, we see impaired losses, normalizing, but we see them normalizing well within our expectations and again Ben It is a little bit of a question of how that plays out and that was what are you pregnant, you're probably asking about it well I mean that is the uncertainty ahead of us.

And again, then it is a little bit a question of how that plays out. And that was what, Ephraim, and you probably are asking about as well. I mean, that is the uncertainty ahead of us, but everything we are seeing is pointing towards very strong credit quality, quite a good resilience in the Canadian consumer books. And again, if you look at delinquency rates, if you look at impairment rates and so on, we are pleased with that resilience because it is performing better than our...

Frank Guse: The built this quarter was primarily a result of higher debt service racial forecasts for the consumer books. After nearly 18 months of rate hike, our forecast expects servicing pressures of higher interest rates and rising unemployment. Provision on impaired loans was 478 million up 99 million quarter over quarter. This increase was driven by our US commercial portfolio, the bulk of which was attributable to our office commercial real estate exposure. We also experienced higher impaired losses in our retail portfolio, and overall our impaired losses continue to perform within our expectations.

But everything we are seeing is pointing towards very strong credit quality quite a good resilience in the Canadian consumer books and again, if you look at delinquency rates. If you don't get any impairment rates and so on we are we are pleased with the resilience because it is performing better than our expectations.

And Manny, if I could just build on Frank's comments, but also take us a step back. I think it's really important to focus on the earnings fundamentals of the core bank this quarter, which represent client growth, very robust client growth, translating to revenue.

Manny if I could just.

Build on Frank's comments, but also take a step back you know I think it's really important to focus on the earnings fundamentals of the core bank.

This quarter, which represent you know client growth very robust client growth translating to revenue growth.

Frank Guse: By 23 summarizes our growth impaired loans and formations. Overall balances were up in Q3, mainly driven by business and government loans. New formations were also up in Q3, over 550 million is related to our US office exposure. By 24 outlines the net write-off and 90 plus state delinquency rates of our Canadian consumer portfolios, which overall continue to remain stable this quarter and in line with our expectations. Communicated in prior quarters we expect write-offs and delinquencies to continue to revert towards pre-pandemic levels.

Margin expansion, which suggests that not only are we conscious of our margins and where we want to take them, but we're also pricing business appropriately with a client and shareholder lens in mind. Pre-prevision earnings that are at the top end of the pre-group in terms of year-over-year growth.

Margin expansion, which suggests that not only are we you know.

Conscious of our margins and where we want to take them, but we're also pricing business appropriately with a client and shareholder lens in mind pre provision earnings that are at the top end of the peer group in terms of year over year growth expense management that we were way ahead of the curve in terms of getting that expense management, our investments have been made.

expense management that we are way ahead of the curve in terms of getting that expense management our investments have been made last year the year before so we are in a good place now we will continue to manage those expenses to a good place. When it comes to credit I think Frank said it all I think on a year-to-date basis when you compare our provisioning on the side we are very much in line with our peer group when you factor in mixed differentials across businesses so fundamentally.

Last year the year before so we are in a good place now and we will continue to manage those expenses to a good place when it comes to credit I think Franks set at all I think on a year to date basis. When you compare our provisioning on the performing side, we're very much in line with our peer group when you factor in mix differentials between cross.

Frank Guse: By 25 provides an overview of our Canadian real estate secured personal ending portfolio, which makes up 54% of our total loan balances. Our overall late stage delinquencies remain low, especially when compared with pre-pandemic levels. Vervos, Variable Rate Mortages, Account for one third of our mortgage book, these continue to display strong credit quality and performance. As a result of the interest rate hikes this past quarter, the portion of non-amortizing variable rate mortgages has increased to 50 billion up from 44 billion last quarter.

Businesses so fundamentally.

I feel like our business is in a very good place. We don't like the volatility in the models. We'll work toward looking at variables that are more predictive as we go forward because we understand that our investors want consistency and believe me. We want to deliver that consistency as well. So fundamentally we're delivering it. We'll continue to deliver it going forward across all aspects of our P&O.

I feel like our business is in a very good place we don't like the volatility in the models will work toward looking at variables that are more predictive as we go forward because we understand that our investors want consistency and believe me we wanted to deliver that consistency as well. So fundamentally we're delivering it will continue to deliver it going forward across all aspects.

Some of our P&L.

Yeah.

Thank you Victor.

Thank you.

Our next question is from Mike Bishvanovic with KBW Research. Please go ahead. Hi, morning. Just a quick question for her atch on the nonintersteryn deposits. I think sequentially last quarter, the outflow sort of flat one.

Frank Guse: We continued our proactive client outreach and see good responses with around 8,000 clients increasing their monthly payments and just over 1,000 clients making lump sum payments, removing themselves from negative, negative amortization status. We will continue to work closely with our clients through this high interest rate environment and other market developments. We continued to reduce or paid out over the past few quarters. We worked through the balance of maturities, we expected to see losses in and around the current levels for the portfolio for the next few quarters, which is consistent with what we noted last quarter.

Our next question is from Mike.

With a K B W. Research. Please go ahead.

Morning, just a quick question for Raj on the noninterest bearing deposits.

Sequentially last quarter that the the outflow sort of flatlined.

And now it's sort of picked up. I'm guessing it's because of the 2 rate hikes we had during the quarter. And I'm wondering in your margin guidance, or just your outlook overall, like, what do you, what do you see on the NIB runoff if rates do stay higher for longer? And let's say we don't get any rate relief until maybe mid 2024. How do you see that NIB runoff trajectory from here?

And now it's sort of picked up on I'm guessing, it's because of the the two rate hikes, we had during the quarter and I'm wondering in your margin guidance or just your outlook overall, what do you what do you see on the NID run off.

Let's do stay higher for longer and let's see if we don't get any rate relief until maybe mid 2024, how how do you see that and I be run off trajectory from here.

Morning Mike, thanks for the question. Yeah, look, it's a very good question, right? As I mentioned, we've gone through a cycle that we haven't before in terms of the speed of rate rises. And so I don't think anybody can predict exactly where we go from here.

Hey, Mike Thanks for the question Yeah. Okay. So it's a very good question right as I as I mentioned, we've gone through a cycle that we haven't seen before in terms of the speed of rate rises and so I don't think anybody can predict exactly where we go from here.

But what we are definitely seeing in the trends is a stabilization. And so if you look at this year, we've had tremendous growth in term product and inter-spairing product, and it did come partly the expense of a reduction in our overall demand to pause the balance. As in we've seen on a year over year base, we've seen a reduction in our overall demand to pause the balance.

But what we are definitely seeing and the trends is a stabilization and so if you look at this year, we've had tremendous growth in term product in interest bearing product and it did come partly at the expense of a reduction in our overall demand deposit balances and we've seen on a year over year basis.

Frank Guse: I want to close by noting that our overall credit quality and coverage remains robust. Given the economic headwinds and sustained pressures in the US office space, we expect our fiscal 23 loan losses unimpaired to be at the high end of our guidance of 25 to 30 basis points for impaired losses. We believe our additional provisions this quarter continue to provide prudent coverage for market conditions that will evolve.

demand deposits will be down and they'll be down a substantial percentage over the last little while. If you go from the beginning of the rate cycle to now we've seen about a 10% shift but that is stabilizing. You're right this quarter we did see a few billion dollar reduction in demand deposits but it's a lot more stable than what we've seen over the prior quarters.

And deposits will be down and they'll they'll be down a substantial percentage over the last little while if you go up in the beginning of the rate cycle to now we've seen about a 10% shift but that is stabilizing you're right. This quarter. We did see a few billion dollar with accident reduction in demand deposits, but it's a lot more stable.

Frank Guse: I will now turn the call back to the operator. Thank you, Frank.

What we've seen over the prior quarters, and we're seeing that in the U S as well as in the Canadian franchise, and so if rates stay where they are now I think we will continue to see this stability play out.

Operator: Please press star one at this time if you have a question. Our first question is from Ibrahim Punewala with Bank of America. Please go ahead.

And we're seeing that in the US as well as in the Canadian franchise. And so, it's right today where they are now. I think we will continue to see this stability play out.

Frank Guse: Good morning. I guess maybe a question for Frank starting with you on just a performing PCLs. Clear what you said. But as we think about you mentioned, I think 80% of the build this quarter wasn't forward looking indicators. And what I'm trying to understand is how much of that is just the model output versus your expectation around the macro and how that evolved. So talk to us fundamentally how you see credit playing out in the consumer book.

If grades go further, you could see a little bit further fluctuation, right?

If rates go further you could see a little bit further fluctuation right. If you look at it on a historical basis, we were actually starting to converge on the mix of term to non term products that we've typically had over the last several years and even if you go back to prior areas of very high rates are we're starting to get.

If you look at on a historical basis, we were actually starting to converge on the mix of term to non-term products that we've typically had over the last several years, and even if you go back to prior era of the very high rates.

We're starting to get to within that range. So if there is more remixing to go

Two within that range. So if there is more remixing to go at.

It would be more muted and less than the 10% or so that we've seen so far, but I think it does stabilize around.

It would be more muted and less than the 10% or so that we've seen so far but I think it does stabilize around here okay.

Frank Guse: If rates they hire for longer, I'm assuming our base cases are unemployment to go higher within the consumer book. Where do you see the loss drivers and just how quickly can things deteriorate? Yeah, a couple of things to unpack there. So what I would say is it is driven by our model outcomes. It is driven by our forward looking expectations as as I said by by about 80% of the overall performing build.

Okay, that's very helpful. And just a quick follow up. So in a scenario where rates are, in fact, declining, let's just pick mid 2024 as a sort of talking point. Is it fair to assume that you don't see this number start to reflect? Like you'd have to, is it fair to say that you'd have to have a significant drop in rates

Okay. That's very helpful and just a quick follow up so in a scenario where rates are in fact declining let let's just pick a mid 2024.

Sort of I'm talking point is.

Is it fair to assume that you don't see this number start to reflate like you'd have to is it fair to say that you'd have to have a significant drop in rates before you could potentially get a better mix here. It does it sort of just stabilize and stays roughly at those levels, what I'm, what I'm sort of getting at yeah. I think that's right Mike right and I think are again at the speed It makes a big difference.

Yeah, I think that's right, Mike, right? And I think, again, the speed makes a big difference, right? If you go back to our interest rate sensitivity disclosure, which is human static balance.

Frank Guse: What we saw this quarter is a higher interest rate expectation. We saw two rate hikes in the market, one of which I would say was not necessarily widely expected and we see that playing out in that service ratios that have an impact on all of our consumer lending products. Probably the biggest one playing out in our unsecured personal books. And again, those are forward looking expectations. What I will also say is those are forward looking expectations for the next couple of years.

Right. If you go back to our interest rate sensitivity disclosures, which assume a static balance sheet that hasn't played out the cycle on the way up right. We had a tremendous increase in rates, but very quickly and what you actually saw as more than half of that the big driver that is netted off interest rate increase benefits, we would've otherwise had and our margins have.

That hasn't played out this cycle on the way up, right? We had tremendous increase in rates, but very quick.

And what you actually saw is more than half of that, the big driver that has netted off interest rate increased benefits We would have otherwise had in our margins has been this deposit

Ben this deposit remixing more than half of the benefit you would've gotten has eroded away through this remix it now on the way back down I think it all depends right. It depends again at the speed at which it happens and when it happens and how the markets are and therefore, a little money flow to the markets will it flow to to demand accounts et cetera, So lots of factors to consider.

more than half of the benefit you would have gotten has eroded away through this remix it now on the way back down i think it all depends right it depends again at the speed at which it happens and when it happens and how the markets are in there for a little money flow to the markets will it flow to uh... to demand accounts etc so lots of factors to consider but i think your assumptions right as a base case is it probably stays more stable for a while if it's a gradual decrease

Frank Guse: And I don't want to get too technical, but I first mine in stage two is asking for lifetime expected losses. The average lifetime in our consumer lending books is a couple of years. So what we see as a build this quarter is certainly a reflection of what we would expect to play it see to play out over a couple of years. So it's not an imminent change in our outlook. It is an outlook change over those cups.

But I think your assumption is right as a base cases, it probably stays more stable for a while if it's a gradual decrease.

Okay. That's very helpful. Thank you for the color.

Thank you. Our next question is some of the more pursued with the cool marks securities. Please go ahead.

Thank you our next.

Next question if some of them are Prasad with Cormack Securities. Please go ahead.

Yes, thanks. Just for Frank. Question on the US office, Florida.

Yeah. Thanks.

Frank Guse: I think what I would say, as you asked for, it is playing out in the unsecured books where we do see stress, but we see that stress playing out as indicated as a normalization of net write-offs that we expected, that we are seeing playing out. The other point I will make on performing allowances overall, there is a large increase this quarter. If you normalize that over the last couple of quarters, if you normalize it year over year, it is certainly something that is not unexpected, it is prudent to increase our coverage ratios this quarter, and that's what we are seeing play out.

Frank a question on the U S Oh over here.

I appreciate the 7.6% ACL coverage ratio and the increase from 4.1% last word. Can you talk to us about how you see that number evolving? Like,

Yeah.

6% D C L a coverage.

Coverage ratio increased from four 1% last part can you talk to us about how you see that number evolving like it's the point that you think like we're done Delta here just given a strong.

Is the point that you think like we're done building here just given the strong coverage ratio and significant maturities through the end of the year or do you see the risk of future material builds like perhaps that 7.6 percent to go to north of 10.

Coverage ratio and significant maturities through the end of the year or do you see the risk of future material bills.

Haps that seven 6% to go to north of 10.

How should we think about that? Yeah, so what I would say is, as I guided in my prepared remarks, we expect provisions to remain elevated in the US office sector specifically.

How should we think about that yeah. So what I would say is as we guided in my prepared remarks, we expect provisions to remain elevated in the U S off effect of specifically, how exactly that will play out from a performing worse as an impaired perspective, and then write offs overtime.

How exactly that will play out from a performing versus an impaired perspective and then write offs over time is a little bit uncertain. What I would want to reiterate is overall our credit portfolio is performing very well in the US, so it is isolated to the office sector, everything that we are seeing.

<unk> is a little bit uncertain, what I would draw and I'd reiterate is overall our credit portfolio is performing very well in the U S. So it is isolated to the office sector of everything that we are seeing and as I said in my prepared remarks, we have worked through 40% by end of year, we will have worked through 50% off.

Victor Dodig: And to the extent you can discuss that, and also culturally in terms of leadership, in terms of what should we make from the outside, and we see some of these leaks coming through and making their way through the press. How should we interpret that?

And as I said in my prepared remarks, we have worked through 40% by end of year. We will have worked through 50% of the entire book. But we are doing so on loan by loan basis. We are doing so on a very, very granular and very intense basis. And we have a dedicated team doing that. But then again, coming back to your question, how exactly that will play out is a little bit more uncertain. And it is very hard to predict or it's very hard to give you concrete guidance on.

Entire book, but we're doing so on loan by loan basis, we're doing so on a very very granular and very intense basis, and we have a dedicated team doing that but then again coming back to your question how exactly that will play out is a little bit more uncertain and it is very hard to predict or very hard to give you concrete guide.

Victor Dodig: Good morning, Abraham, and thank you for your question. So let me just first of all say that our regulators play an incredibly important role in ensuring strength and stability in the financial system in Canada, and I think they've done that over a century and a half, and they do it well. So as you can appreciate, I can't comment on the specific regulatory matters. I can tell you that we maintain an ongoing, transparent engagement with all of our regulators, in all of the jurisdictions that we operate, and with our board.

Fine.

Okay, and then just sticking with you.

on the change that the depth service ratio will drill via a performing build this quarter. Was it all related to the, I guess, the unexpected rate hike? So I guess it's as simple as that or was it a combination of the higher rates and changes in other expectations, like lower income expectations or something along those lines?

The change in the debt service ratio drove the performing build this quarter was it all related to the I guess the unexpected rate hike.

Victor Dodig: We've also got effective controls to ensure compliance with supervisory expectations, and we continue to manage all of our businesses, including our mortgage business, prudently with a client focus. So what I will say about articles like that, it's disappointing to see when things are being reported publicly that are presented in a way that simply does not reflect the way we actually operate. There's always going to be a healthy tension in running a large complex business, but I can tell you this, we've got strong governance, we've got an incredibly strong culture, we've got really strong employee engagement scores, and a team that cares about how we build our business going forward.

It's simple as that or was it a combination of the higher rates.

Changes in other expectations like lower income expectations or something something along those lines.

I guess where I'm going is you suggested there was two rate hikes, one of which was unexpected. It just seems like a relatively sharp build for one of unexpected rate hikes.

That's right right.

There's two rate hikes, one of which was unexpected it just seems like a relatively sharp failed for want of unexpected rate hike.

Yeah, and I did comment a little bit about model sensitivity. So to answer your question, it is mainly driven by dead service ratio. It is mainly driven by the interest rate high. We actually see income still trending higher. And that would impart offset, but not fully offset dead service ratios. So it is driven by that.

Yeah, and I did comment a little bit about modeled sensitivity to so to answer your.

It is mainly driven by debt service ratio. It is mainly driven by the interest rate hikes, we actually fee income I'm still trending higher.

Victor Dodig: And that is investors you need to know, and we're happy to engage with you on anything that's on your mind to the extent that we can, but I can tell you, we run it well, we run it prudently, we run it with good governance, and we run it very transparently. Thanks, Victor. Thanks for taking the question. Thanks, Abraham. Have a good day.

And that would in part offset but not fully offset debt service ratios. So it is driven by that.

And well, as I said, it's coming back to dead service ratios and it is coming back on how that place out for Canadian consumer portfolios.

And well as I said, it's a well it's coming back to debt service ratios and it is coming back on how that plays out for for our Canadian consumer portfolios and from an expectations perspective.

Operator: Thank you.

Gabriel Dechaine: Our next question is from Gabrielle Deschein, with National Bank Financial. Please go ahead. Good morning, a couple of questions here.

Okay I appreciate the time.

Thank you. Our next question is from Mario Mendonca with TD Securities. Please go ahead. Good morning. Sorry, a little technical difficulty there. Can you hear me okay?

Thank you.

Next question is from Mario Mendonca with TD Securities. Please go ahead.

Hratch Panossian: Thanks for the margin guidance, Raj, and I'm wondering if this could be like maybe some bouncing around to use that term. The U.S., in particular, I'm thinking about the impact it might have, because deposits are down quite a bit sequentially, and that may require you to use more SHLB deposits or wholesale funding, and how does that play into your outlook, then, if that's an issue. Thank you for the question, Gabe. I think everything is playing out in terms of margins as we had guided.

Good morning, I'm, sorry, a little technical difficulty, but can you hear me okay.

Yes.

So I want to go back to US commercial real estate. There's no doubt you can look at your supplement, look back a few years, the bank grew US commercial loans, commercial real estate in particular. There was some robust growth there.

So I want to go back to the.

U S commercial real estate, there's no doubt you can look at yourself and look back a few years that the bank grew U S commercial loans commercial real estate in particular.

There was some robust growth there for a period.

So while I think it's fair to say US commercial real estate losses might be messy quarter to quarter that I can impact the bank's capital line meaningful way. So what matters more to me now is

Well.

I think it's fair to say U S commercial real estate losses might be messy quarter to quarter, they're not going to impact the banks capital in a meaningful way.

So what matters more to me now is.

Hratch Panossian: As I said in my remarks, we have strong franchises both in the US and Canada. That plays into it. You've got a strong deposit franchise in the US. We've got a strong strategy. That focuses on the right clients and focuses on profitability and we have a strong ALM framework. We've talked about this before. We manage the US balance sheet the same way. We do the parent balance sheet where we stabilize for rate fluctuations and we manage for overall margin stability over time.

Does this change CIBC's strategy in the US? Now that you've seen...

Does this change Cibc's strategic strategy in the U S now that you've seen.

sort of the uncomfortable side of all that growth. Does this sort of have you revisit your growth strategy?

Are they the uncomfortable side of all of that growth does this sort of have you revisit your growth strategy in the U S.

Marywood Sean, thanks very much for the question. So I'll come back to that question specifically, but just stepping back for a minute for some contact.

Mario It's Sean Thanks, very much for the question. So I'll come back to that question, specifically, but just stepping back for a minute for some context, a other than the office portfolio. Our U S business continues to demonstrate strength and solid performance notwithstanding the current environment, we generated strong quality loan.

Other than the office portfolio, our US business continues to demonstrate strength and solid performance.

Hratch Panossian: That's really what you're starting to see play out. When you have a rate cycle like the one we did and this applies to broader than the US. Rates went up very quickly and intensely. That plays out a bit different upfront because you did see quite a bit of fluctuation and non-interest deposits going to interest bearing or to term. That actually did not allow as much margin expansion as you would have otherwise expected and what you would compute from doing our interest rate sensitivity calculations based on the disclosures.

Notwithstanding the current environment, we generated strong quality loan growth.

Please with our deposit performance, this Ratch talked about seeing that stabilizing with the rate environment stabilizing.

Growth.

Pleased with our deposit performance as Raj talked about seeing that stabilizing with the rate environment stabilizing we had NIM improvement year over year and our outlook for Nims are stable.

We had NIM improvement year over year and our outlook for NIMs are stable.

And while we continue to invest in our business as you've seen the rate of growth in our expenses is moderated significantly and that combined with really realizing on the investments we've been making over the last couple of years and staying really focused on the connectivity and bringing all of our businesses and our capabilities across capital.

As you've seen, the rate of growth in our expenses has moderated significantly, and that combined with realizing on the investments we've been making over the last couple of years, and staying really focused on the connectivity and bringing all of our businesses and our capabilities across capital markets, wealth management, and commercial to our clients, generated double digit pre-tax pre-prevision earnings. What we are seeing and credit...

Hratch Panossian: That was muting a little bit the results in margins and all the businesses including the US, but that is stabilized. I think that goes to the stability of the client franchise and Sean can speak to more details but we did see the demand deposits and the non-interest deposits stabilized this quarter. We saw the mixed shifts stabilized so I don't expect us to need any funding that will lead to higher costs as you alluded to.

Markets wealth management and commercial to our clients generated double digit pre tax pre provision earnings what we are seeing in credit.

general matter is performing well. So where we are seeing the issues is in commercial real estate and in particular in the institutional office.

As a general matter is performing well, so where we are seeing Ivy issues is in commercial real estate and in particular.

Hratch Panossian: We went back to our guidance with respect to the US. There was a little bit of one time noise as I mentioned in my remarks. We had a recovery on a loan and the interest on that recovery comes into NII to adjust for that. A couple of basis points but outside of that I would expect stable to slide upwards momentum in the US from here.

And the institutional office space.

It's a part of the business we're de-emphasizing. And as that transition continues, you'll see CRE wind up being a smaller percentage of the overall US portfolio as our commercial and industrial and our wealth businesses continue to grow.

It's a it's a part of the business, we're deemphasizing and as that transition continues youll see CRE, a wind up being a smaller percentage of the overall U S portfolio as our commercial and industrial in our wealth businesses continue to grow.

And Mario, just to build on those comments from Sean, we absolutely feel good about the strategic investment thesis that we laid out years ago about investing in the United States. Our investment has been a very good investment. On top of that commercial banking investment, we've built a...

And Mario just to just to build on those comments from Sean we absolutely feel good about the strategic investment thesis that we laid out years ago about investing in the United States. Our investment has been a very good investment on top of that commercial banking investment. We've built a really strong wealth management business that we're going to we're going to.

Hratch Panossian: My next question is on capital. Very little RWA inflation this quarter and I think very little last quarter as well. I'm wondering how close are you to the output floor and especially if we look at the Q124 could we trigger that and see a little RWA inflation. And then I guess also might as well mention the fundamental review of the trading book and in that context there's any impact there. Yeah, thanks Kate but let me let me comment on capital more broadly and I'll address your questions.

really strong wealth management business that we're going to continue to grow now, especially when our technology gets implemented this fall. Our capital markets business, as you see in some of the slides that Harry's business has, are growing. And Harry, it might be worthwhile commenting on the capital markets business in the US.

To grow now, especially when our technology gets implemented this fall our capital markets business as you see in some of the slides that Harry's business has are growing in a hurry it might be worthwhile, commenting on the capital markets business in the U S. We've grown up our U S earnings our pretax pre provision from what was 2% many years ago to over <unk>.

We've grown up, our US earnings, you know, pre-tax pre-provision from what was 2% many years ago to over 20% today. And we plan to continue to grow that because I think we think it's a good diversifier for our bank.

Hratch Panossian: Again, we've been very clear about our goals on capital and how we're managing to it and what we've guided to in terms of forecast. Frankly, we're ahead of that. We're ahead of schedule and we're very pleased with that. So let me remind you how we look at capital. We look at our capital levels with respect to where regulatory requirements are where our own needs are and we like having a bit of capital for flexibility well above those regulatory requirements.

20% today, and we plan to continue to grow that because I think we think it's a good diversify or for a bank and it's a well diversified well managed portfolio aside from the noise of the U S. Commercial office real estate piece, which we will work through Harry maybe you want to build on that.

And it's a well-diversified, well-managed portfolio aside from the noise of the U.S. commercial office real estate piece, which we will work through.

Good morning. I just add that the US part of our capital markets business is really well.

Yes, good morning, I, just add that the U S part of our capital markets business is really well connected to sean's world and commercial and wealth like it is in Canada to John's World and commercial and wealth and our retail franchise and so we're really focused on delivering for clients in the U S. That's working really well.

Sean's world in commercial and wealth, like it is in Canada to John's world in commercial and wealth.

Hratch Panossian: We look at the peer group and so forth and so with all of that as we looked at the environment we managed to try to get to above 12% at the end of this year as we said where I have a schedule. I think into the mid 12 is what we're forecasting at this point that we would like to get to getting into the next year and we are very well positioned to do that.

So we're really focused on delivering for clients in the US. And that's working really well. We're very, very well diversified. We're specific in the industries we operate in. We're very focused on the new economy. We've got a great team in the US, and we're delivering other sized regions.

We're very very well diversified were specific in the industries. We operate in we're very focused on the new economy. We've got a great team in the U S and we're delivering outsized returns and you see the numbers are year on year. So we're very pleased with the results are very highly connected franchise. It really a differentiated platform and it's working well so.

And you see the numbers a year on year. So we're very pleased with the results. A very highly connected franchise. They're really a differentiated platform.

Hratch Panossian: How we've been doing that we've been prudent with how we're allocating our balance sheet and as I mentioned in my remarks right the balance sheet is important our ROE is extremely important to us. Costs have gone up cost of capital is up RWA requirements are up capital requirements are up and so all of that is reflected when we deploy capital to support our clients. And so we're not necessarily conserving capital but we're prudently allocating our capital.

I appreciate all those comments they they certainly.

Resonate with me, but I want to go back to this for a moment. So even even if these credit losses and US commercial real estate other than causing some lumpy quarters

Present with me, but I want to go back to this for a moment so even even if these credit losses on U S commercial real estate other than causing some lumpy quarters.

and and assuming they don't affect capital which I strongly suspect they won't There are still an implication here. What I'm getting at is

And and assuming they don't affect capital, which I strongly suspect they won't there are theres still an application here, but what I'm getting at is.

Hratch Panossian: Where we are now we can continue growing our business. I don't see constraints on our ability to grow our business to still get to that goal of mid 12% over the next few quarters here. And from a regulatory perspective I would guide you to net all the impacts that are coming at us the next few quarters and net slight positive from all the changes including we're working on our US transitioning to the advanced approach which will be a positive. Once that comes in net of everything else and net and that slight positive is what I would expect.

commercial real estate and construction lending in the US is the single largest category of loan.

Commercial real estate and construction lending in the U S is the single largest category of loan.

in the US business and government loans. And if you're deemphasizing that, maybe this is going to shine, if you're deemphasizing.

In the U in the U S business and government loans, and if Youre deemphasizing that and maybe just to go onto Sean if you're deemphasizing that.

Doesn't that necessarily point to slower growth in the US over the next couple of years as you deemphasize that?

Doesn't that necessarily point to slower growth in the U S. Over the next couple of years as you deemphasize that business.

Yeah, I think it's fair to say relative to the rate of growth that we saw over the last couple of years. Part of that is environment and part of that is going to be strategic choices. And is that portfolio transitions? That'll mute growth certainly on the CRE side, but we are still looking at, you know, our outlook is still for single mid-single digit loan growth in the business. And it's going to be driven primarily through our CNI business and our wealth management.

Yeah, I think it's fair to say relative to be the rate of growth that we saw over the last couple of years part of that is environment and part of that is going to be strategic choices and as that portfolio transitions that will mute growth certainly on the CRE side, but we are still looking at you know our outlook is still for single mid single digit.

Hratch Panossian: So maybe a dip, but then, I mean, these are my words, but just trying to visualize, you might see a dip early in 2024 and if you could touch upon those two items I asked about that would be great. And then after the conversion of the IRB in the US more than often. There's a few things there. I think you've got, you've got the CVA and if RGB changes, you've got the change related to the negative amortization mortgages coming.

Our loan growth in the business and it's going to be driven primarily through our C&I business and our wealth management business.

businesses that I think if you look at the mix out five years, there'll be more capital light in nature, there'll be more ROE enhancing in nature, and part of our business model is this connectivity concept that Harry touched on that drives a better ROE. So while that aspect, the real estate aspect, may slow down, I think the team's got a good handle on how we can grow the rest of the business. Maybe something quick on U.S. margin. I feel like...

Businesses that I think if you look at the mix out five years there'll be a more capital light in nature. They are more be more ROE enhancing in nature and part of our business models is connectivity concept that Harry touched on that drives a better ROE so while that may.

Hratch Panossian: You've got the floors, obviously, which, which not a factor for us at this point in time. And then you've got the US. Frankly, the timing of the reg changes is known. The timing of the US going to advance is not known. And so depending on how that comes in, yeah, you could have a little bit of up and then a down. You could have net neutralizing in the same quarters. You could have a little bit of a dip and then going up, but we'll see.

Aspect the real estate aspect may slow down I think the team has got a good handle on how we can grow the rest of the business. It just maybe something quick on U S margin.

Feel like like I've watched these Canadian banks carefully I watched the U S banks carefully I think CIBC might be the only bank, where U S margins were actually up in Q3, it's a surprise given what what played out for everybody else.

Like I watch these Canadian banks carefully, I watch the US banks carefully, I think CNBC might be the only bank where US margins were actually up.

It's a surprise given what played out for a video.

Operator: Thank you a lot and enjoy Liberty weekend. Thank you.

Now I also observe that the deposits are down. So what I'm kind of wondering is...

Now I I also observed that the deposits are down so what I'm kind of wondering is.

Meny Grauman: Our next question is from many Roman with the Scorscher Bank. Please go ahead.

If there's going to be a quarter where C-I-B-C decides it needs to protect us deposits there. And we actually see the margins come under pressure like we're seeing virtually every other bank. So what it appears to me is that C-I-B-C is protecting the margin but willing to give up some deposits there. Am I reading the T-leaves correctly?

If there's going to be a quarter, where CIBC decides it needs to protect us deposit share.

Frank Guse: Hi, good morning. I want to go back to credit and follow up on something he bring was talking about just in terms of the volatility of your PCL line, especially the performing bucket and especially Canadian personal business banking, the performing line and definitely seeing quite a bounce a quarter to quarter from recovery to 279 million build this quarter. And I'm just wondering, how should investors interpret that and is there anything you can do to temper that kind of volatility or anything you want to do to temper that kind of volatility?

And we actually see the margins come under pressure like we are seeing for virtually every other.

Every other bank. So what it appears to me is that cibc's protecting the margin, but willing to give up some deposit share.

Reading the tea leaves correctly in that.

a myrochon uh... so i would say is are not in despairing deposits held uh... pretty steady uh... this quarter and you're right on a average basis quarter on quarter deposits were down but frankly on a spot basis they're actually up

I'm here with John.

So what I'd say is our.

Just bearing deposits held them pretty steady there.

This quarter and you're right on a average basis quarter on quarter deposits were down, but frankly on a spot basis, they're actually up somewhat.

And so we've had in our deposit betas on our interest bearing our higher than they've been through the cycle. So we've been paying for deposits with our, but it's a very client-focused strategy. We're working with our clients to price those deposits.

And so we've had a.

Frank Guse: Yeah, so great question. So how do we look at it? One, we look at coverage ratios. We look at how we are building coverage ratios over time. And we think given the macro economic uncertainties that is a prudent approach to to take. You are absolutely right. And I mentioned that a little bit. We had a slightly more optimistic outlook last quarter that drove a release in particular as it related to interest rates, where they would peak and how long they would say at that peak that was a little bit more optimistic that has reversed.

Our deposit betas are on our interest bearing are higher than they've been through the cycle and so we've been paying for deposits with her but it's a very client focused strategy and we're working with our clients to price. Those deposits were also making investments in our deposit franchise in terms of additional capabilities and new products, we'll be launching those just to enhance our <unk>.

We're also making investments in our deposit franchise in terms of additional capabilities and new products. We'll be launching those just to enhance our overall deposit franchise, but it's not been seeding deposits, like seeding share for margin. Our margins have held in on the asset side. Spreads have been a help offsetting some of the...

Overall deposit franchise.

But it's not been seeding deposits like ceding share for margin or our margins have held in on the asset side. Our spreads have been you know our help in offsetting some of the the cost of funds pressure and on the deposit margin side, we've had the benefit of them.

pressure and on the deposit margin side, we've had the benefit of both the rising rate environment but also the impact of the hedging program that Haratch spoke about earlier.

Frank Guse: We do not like to see that volatility, but part of the IFRS 9 is you have to incorporate those forward looking indicators and you have to run those outcomes. As you can imagine, it is a very tightly governed process. We have lots of discussions around that. We look at those drivers. We look at the outcomes of those drivers. And again, in particular, this quarter, I would stress it is prudent to take that economic uncertainty into account and to reflect that in our provisions.

Both the rising rate environment, but also the impact of the hedging program that has that <unk> spoke.

Spoke about earlier.

So that combined to that, you know, couple basis points, as Herat mentioned, there was a bit of noise in the corridor. You take a couple to a few basis points off of that increment, but the two basis points.

So that combined to that are you know a couple of basis points as Raj mentioned, there was a bit of noise in the quarter you pick a couple to a few basis points off of that.

Increment, but the two basis points.

is not one time, it's a function of all those elements that I just went through.

We are it is not one time, it's a it's a function of all those elements that I just went through thank you very much.

Thank you. Our next question is from Mindel de Shusa with very test investment research. Please go ahead.

Thank you. Our next question is from Nigel D'souza with Veritas investment Research. Please go ahead.

Frank Guse: The other thing I would stress is pointing back to our actual credit results. The Canadian consumer book is holding up very strong. We see impaired loss of normalizing, but we see them normalizing well within our expectations. And again, then it is a little bit a question of how that plays out, and there was what E-Prayman you probably are asking about as well. I mean, that is the uncertainty ahead of us, but everything we are seeing is pointing towards very strong credit quality, quite a good resilience in the Canadian consumer books. And again, if you look at the link when see rates, if you look at impairment rates, and so on, we are pleased with that resilience because it is performing better than ours.

Thank you. Good morning. I wanted to follow up with Frank on the death service ratio. And should we read into the impact of that CIVC has a more interest rate sensitive borrower? And then in terms of the outlook, when I look at your forecast for the death service ratio,

Thank you good morning, I wanted to follow up on the <unk>.

On the debt service ratio and should we read into the impact that that that the CIBC has a more interest rate sensitive.

And then in terms of the outlook when I look at your forecast for the debt service ratio.

you know, next 12 months you expect it to run materially above where it was at in 2019 and kind of remain at the 2019 level for the rest of your forecast period. And you're also forecasting unemployment rate to roughly be at 2019 levels, maybe a little bit higher. So given that context, wouldn't it be reasonable to expect that your credit losses...

Next 12 months, we expect that the run materially above where it was that in 2019 and kind of remain at the 2019 love level for the rest of your forecast spirit.

Also forecasting unemployment there roughly.

19 levels, maybe a little bit higher so given that context wouldn't it be reasonable to expect that our.

Losses.

Next here are the next 12 months with Drone Above. The losses we saw in 20.

Last year over the next 12 months would run above.

Victor Dodig: And many, if I could just build on Frank's comments, but also take us a step back, you know, I think it's really important to focus on the earnings fundamentals of the core bank, this quarter, which represent, you know, client growth, very robust client growth, translating to revenue growth, margin expansion, which suggests that not only are we, you know, conscious of our margins and where we want to take them, but we're also pricing business appropriately with a client and shareholder lens in mind, pre-provision earnings that are, you know, a top end of the pre-group in terms of year-over-year growth, expense management that we are way ahead of the curve in terms of getting that expense management, our investments have been made last year, the year before, so we are in a good place now, we will continue to manage those expenses to a good place, when it comes to credit, I think Frank said it all, I think on a year-to-date basis, when you compare our provisioning on the performing side, we're very much in line with our peer group when you factor in mixed differentials across businesses, so fundamentally, I feel like our business is in a very good place, we don't like the volatility in the models, we'll work toward looking at variables that are more predictive as we go forward because we understand that our investors want consistency and believe me, we want to deliver that consistency as well, so fundamentally we're delivering it, we'll continue to deliver it going forward across all aspects of our P&O. Thank you, Victor.

The losses, we saw in 2019.

Oh Wow.

Well, so a couple of points. One, I wouldn't take that as an indication that our clients are more interest rate sensitive. There's certainly some elements of mix in there.

So a couple of points one I wouldn't take that as an indication that our clients are more interest rate sensitive and there's certainly some element of mix in there.

But overall we do not see that as being a big driver.

But overall, we do not see that as being a big driver.

As I said before, I think we may be having models that are a little bit more sensitive to changes in that metric, but I don't take that as an indication of a difference in credit or client profiles, because we are not seeing that in other data that we clearly...

As I said before I think we maybe are having having models that are a little bit more sensitive to changes in that metric, but I don't take that as an indication of a difference in credit or client profiles, because we are not seeing that in.

We usually use to compare ourselves.

From an outlook perspective, yes, I think part of the indications is the economic environment plays out as our models predict. And as we expect the interest rates to come back a little later, we could expect that part of 24 or technically all of 24 runs a little bit ahead of.

From an outlook perspective.

Yes, I think part of the part of your indications is the economic environment plays out as all models predict and as we expect interest rates to come back a little later, we could expect that part of 'twenty four or technically all of 24 runs a little bit ahead of our 2019, but again there was a lot of.

But again, there is a lot of moving parts here and it's certainly too early to give you a good outlook on

Moving parts here and it's certainly too early to give you a good outlook on fiscal 'twenty four altogether.

all together but overall I would say yeah it's certainly not an indication of credit quality it is an indication of what we have put into our forward-looking indicators how our models react to that and then what we will see over time is how that plays out in in reality as the economic environment evolves

But overall I would say yeah. It's it's certainly not an indication of credit quality. It is an indication of what we have put into our forward looking indicators, how our model to react to that and then what we will see over time is how that plays out in reality, if the economic environment.

Operator: Thank you.

Mike Bishpanovic: Our next question is from Mike Bishbanovic with KBW Research, please go ahead.

The walls.

Okay. That's helpful. That's it for me thanks.

Yeah.

Thank you. Our next question is from Darkroom Healidge with RBC Capital Markets. Please get on. Teeth go ahead.

Thank you.

Our next question is from Darko <unk> with RBC capital markets. Please go ahead. Please go ahead.

Mike Bishpanovic: By morning, just a quick question for Herach on the non-interest bearing deposits, I think sequentially last quarter, the outflow sort of flatline, and now it's sort of picked up, I'm guessing it's because of the two rate heights we had during the quarter, and I'm wondering in your margin guidance or just your outlook overall, what do you see on the NID runoff, if rates do stay higher for longer, and let's say we don't get any rate relief until maybe mid 2024, how do you see that NID runoff trajectory from here? Morning, Mike.

Hi, thank you. Good morning. Again, going back to Frank, I really appreciate the disclosures that you provide. But sometimes I think the disclosures may not actually help me. And I'm asking you this question, Frank, because you know, your bank, you know, you know, had a bit of a balance in performing.

Hi, Thank you good morning, again going back to Frank I really appreciate the disclosures that you provide but sometimes I think the disclosures may not actually helped me.

And I'm asking you. This question Frank because you know your bank.

You know I had a bit of a bounce in the for me.

PCL's last quarter was a release so I kind of want to get to the bottom of a couple of things and really what I'm looking at is one of your slides

P C. LS last quarter. It was released so I kind of want to get to the bottom of a couple of things and really what I'm looking at is one of your slides.

I'm looking at slide 40.

Mike Bishpanovic: Thanks for the question. Yeah, look, it's a very good question, right? As I mentioned, we've gone through a cycle that we haven't before in terms of the speed of rate rises, and so I don't think anybody can predict exactly where we go from here, but what we are definitely seeing in the trends is a stabilization. And so if you look at this year, we've had tremendous growth in term product and interest bearing product, and it did come partly the expense of a reduction in our overall demand deposit balances, and we've seen on a year over year basis, demand deposits will be down, and they'll be down a substantial percentage over the last little while.

And you show the mortgages that are coming up for due, they're coming due for renewal this year, 37 billion. And then you show me the high risk clients, 330 million, which is fairly small. But when I look at the definition of what you're calling a high risk client, it would diabolically be different from what I'm worried about.

And you show the mortgages that are coming up for you.

I mean do who renewal.

This year 37 billion and then you show me a the.

The high risk.

Clients.

$330 million, which is.

Fairly small, but when I look at the definition of what you're calling a high risk clients with diabolically different from what I'm worried about.

I do not care about people who have a shallow relationship with CIBC. Well, we were...

I do not care about people, who have a shallow relationship with CIBC well, we worry about I think our.

are clients with a deep relationship with CIBC that have credit cards and unsecured credit.

Our clients with a deep relationship with CIBC that have credit cards and unsecured credit.

We worry about those same clients that might have low bureau score.

Worry about client those same clients that might have low Bureau scores.

Mike Bishpanovic: If you go from the beginning of the rate cycle to now, we've seen about a 10% shift, but that is stabilizing. You're right, this quarter, we did see a few billion dollar reduction in demand deposits, but it's a lot more stable than what we've seen over the prior quarters, and we're seeing that in the US as well as in the Canadian franchise. And so, if rates stay where they are now, I think we will continue to see this stability play out.

and clients that are facing a large increase in mortgage.

<unk> clients that are facing a large increase in mortgage payments.

and don't have cash resources. So that would be my definition of higher risk, not shallow relationships. So am I wrong in thinking that that is the cohort that I'm described?

And don't have cash resources, so that would be my definition of higher risk not shallow relationships. So am.

Am I wrong in thinking that that is the cohort that I'm describing would be the cohort driving the performing PCL increases and and you know how big is this cohort not just for 2024, but also 2025 and so.

would be the cohort driving the performing PCL increase.

And, you know, how big is this cohort not just for 2024, but also 2025? And so I realized I'm asking for a lot and don't expect you to throw out some numbers right now, but maybe you can tell me where I'm wrong in thinking about what I should really be concerned about.

Mike Bishpanovic: If rates go further, you could see a little bit further fluctuation, right? If you look at on a historical basis, we were actually starting to converge on the mix of term to non-term products that we've typically had over the last several years, and even if you go back to prior areas of very high rates, we're starting to get to within that range. So, if there is more remixing to go, it would be more muted and less than the 10% or so that we've seen so far, but I think it does stabilize around. Yeah.

I realize I'm asking for a lot and don't expect you to throw some numbers right now, but maybe you can tell me where I'm wrong in thinking about what I should really be concerned about.

Yeah, so, so, Darko, thanks, thanks for the question. I'll probably not throw numbers as you indicated.

Yeah. So so darko. Thanks, thanks for the question I'll, probably not throw numbers if you indicate that.

What we are looking at is deep relationship clients. We know how they behave on their credit card. We know how they behave on their unsecured lines. The deeper the relationship is with us, the better the behavior it is. The better the actual results are. And one thing that is giving us comfort is, we are actually seeing more of that client over time. And we have an opportunity to react faster. Then we would do on a mortgage only or on a shallow relationship.

What we are looking at is deep relationship clients, we know how they behave on their credit card, we know how they behave on their unsecured lines. The deeper the relationship is with us the better the behavior of the bed.

Hratch Panossian: Okay, that's very helpful. And just a quick follow up. So in a scenario where rates are in fact declining, let's just pick mid 2024 as a sort of talking point, is it fair to assume that that you don't see this number start to reflect like you'd have to is it fair to say that you'd have to have a significant drop in rates before you could potentially get a better mix here. It doesn't sort of just stabilize and stays roughly at those levels.

The actual results are and one thing that is giving us comfort is we actually feel more of that client over time, and we have an opportunity to react faster than we would do on a mortgage only or on the shallow relationship.

Hratch Panossian: What I'm sort of getting at. Yeah, I think that's right, Mike, right? And I think again, the speed makes a big difference, right? If you go back to our interest rate sensitivity disclosures, which assume a static balance sheet, that hasn't played out this cycle on the way up, right? We had tremendous increase in rates, but very quickly. And what you actually saw is more than half of that, the big driver that has netted off interest rate increased benefits.

So that is why, and you're absolutely right. We are watching those segments very, very closely, but we just why we may be a little less concerned about those segments, just because we have more information, we have more opportunities to work with those clients and addressing that early.

That is why and you're absolutely right. We're watching those segment very very closely.

But we're just why we maybe a little less concerned about those segments just because we have more information we have more opportunities to work with those clients and addressing that early.

The other point I will make is, I mean, we are very, very closely monitoring our very, very rate mortgage clients. We know they are renewal schedules. We look very closely into what payment trucks are. Again, under assumptions of where interest rates are over time.

The other point I will make is I mean, we are very very closely monitoring our variable rate mortgage clients. We know their renewal schedules. We look very closely into what payment trucks are again under our assumptions of where interest rates are overtime.

Hratch Panossian: We would have otherwise had in our margins, has been this deposit remixing more than half of the benefit you would have gotten has eroded away through this remixing. Now on the way back down, I think it all depends, right? It depends again at the speed at which it happens and when it happens and how the markets are and therefore will money flow to the markets, will it flow to demand accounts, et cetera. So lots of factors to consider. But I think your assumptions right as a base case is it probably stays more stable for a while, if it's a gradual decrease. Okay, that's very helpful.

Hratch Panossian: Thanks for the color.

And we do feel comfortable as we disclose on the slides here that those payment trucks, even though they are high and they will certainly go higher over time, are manageable for those clients. And a couple of points that help in that is...

And we do feel comfortable as we disclose on the slides here.

Operator: Thank you.

That those payment chalks, even though they are high and they will certainly go higher over time are manageable for those clients and a couple of points that help in in that is.

One, a lot of those clients would have been qualified at a lot higher rates in the past. And yes, they may still go into an even higher rate. And yes, that is a real payment draw coming. But at least from a qualification perspective, those clients were tested and underwritten at a lot higher rates.

Won a lot of those clients would have being qualified at a lot higher rates in the past and yet they may still go into an even higher rate, yes that is a real payment shortcoming, but at least from a qualification perspective, those clients were tested and underwritten at a lot higher rates.

Frank Guse: Our next question is from the more pursued with school market securities, please go ahead. Yeah, thanks. Just for Frank question on the US office. I appreciate the 7.6% ACL coverage ratio may increase from 4.1% last word. Can you talk to us about how you see that number evolving? Like, it's the point that you think like we're done building here, just given the strong coverage ratio and significant maturity through the end of the year, or do you see the risk of future material bills, like perhaps that 7.6% can go to north to 10.

And one thing I can tell you as well is we had around, call it close to 100,000 clients already renew into that higher interest rate environment, $25 billion of mortgages.

And one thing I can tell you as well is we had around call. It close to 100000 planes already renew into that higher interest rate environment $25 billion of mortgages.

in the last or year to date. And what we are doing is we are monitoring that cohort very, very closely from a delinquency rate perspective. And in particular, if you go back, so what we call the six to eight month performance in that book, so going back to all renewals and refi's in Q1 of this year, those clients are performing broadly in line with what we would have.

In the last Ah or year to date and what we are.

We are doing is we are monitoring that cohort very very closely from a delinquency rate perspective and in particular, if you go back and so what we called the six to eight months' performance in that book, so going back to our renewals and Refis in Q1 of this year those clients are performing broadly in line with.

Frank Guse: How should we think about that? Yeah, so what I would say is as we as I guided in my prepared remarks, we expect provisions to remain elevated in the US office sector specifically. How exactly that will play out from a performing versus an impaired perspective and then write offs over time is a little bit uncertain. What I would want to reiterate is overall our credit portfolio is performing very well in the US, so it is isolated to the office sector, everything that we are seeing.

What we would have seen in 2019.

There is no areas of concern that we are seeing so far emerging because clients are absorbing higher payments in an entry.

No areas of concern that we are seeing so far emerging because clients are absorbing them higher payments in and at renewal.

I don't know whether it addresses your question, but it's probably all I can.

I I don't know whether that addresses your question, but that's probably all all I can mention here.

No, that's thanks. I realize I'll have some follow-ups for you after Frank and some technical questions around everything you've just said. So I appreciate it. I just, you know, I just, I scramble a little bit because if debt service ratios are climbing.

No. That's thanks, I realize I'll have some follow ups when you after Frank and some technical questions around everything you've just said so I appreciate it I just Oh, you know I I, just I I scramble, a little bit because the debt service ratios are climbing.

Frank Guse: And as I said in my prepared remarks, we have worked through 40% by end of year, we will have worked through 50% of the entire book. But we are doing so on loan by loan basis, we are doing so on a very, very granular and very intense basis, and we have a dedicated team doing that.

And I appreciate that many of these customers were underwritten with a stress test on interest rates, but I'm not certain that the stress test also would have incorporated high inflation.

And I appreciate that that many of these customers were underwritten with a stress test on interest rates, but I'm not certain that the stress test also would have incorporated high inflation.

Frank Guse: But then again, coming back to your question, how exactly that will play out is a little bit more uncertain and it is very hard to predict or very hard to give you concrete guidance on.

And I just worry that especially not necessarily the next 12 months, but the 12 months after.

And I, just worry that especially not necessary. The next 12 months with 12 months after where the payment shock is really high that even if you've seen customers with a bit of a payment shock recently that the outcome could still be quite different.

Frank Guse: Okay, and then just speaking with you on the change that the debt service ratio of the drill, the performing bill, this quarter, was it all related to the, I guess, the unexpected rate hike? Is it as simple as that or was it a combination of the higher rates and changes in other expectations, like lower income expectations or something along those lines? I guess we are going to suggest that there is two rate heights, one of which was unexpected, it just seems like a relatively sharp build for one unexpected rate height.

where the payment shock is really high that even if you've seen customers with a bit of a payment shock recently that the output could still be quite different.

So happy to discuss offline Frank, but thank you very much for the answer. It is helpful.

So happy to discuss offline Frank but thank you very much for the answer it is helpful.

Thanks, Docker and looking forward to your follow up questions.

Thank you. Our last question is from Saurabh Movahidi with BMO Capital Markets. Please go ahead.

Thank you. Our last question is from the surrounding over Haiti with BMO capital markets. Please go ahead.

Okay, I know we've gone over, thank you for squeezing me and maybe a couple of quickies. Frank, can you tell us what the loan to value on the office properties are after the allowance? And I...

Okay I know we've gone over thank you for squeezing me in maybe a couple of quick ease and.

Frank Guse: Yeah, and I did comment a little bit about model sensitivity, so to answer your question, it is mainly driven by debt service ratio, it is mainly driven by the interest rate hikes, we actually see income, still trending higher, and that would impart offset, but not fully offset debt service ratios, so it is driven by that. And well, as I said, it's coming back to debt service ratios, and it is coming back on how that plays out for Canadian consumer portfolios in from an expectations perspective. Okay, appreciate that.

Frank can you tell us what the loan to value on the office properties are.

The allowance.

And how that compares to last quarter.

Well, I can't give you a number here. It's certainly in line with expectations.

Well I I I can't give you a number here, it's certainly in line with expectations I'm.

not certain what number I could give you here because the biggest driver in itself is certainly not the allowance.

Not certain what number I could give you here because the biggest driver in itself, it's certainly not be allowance.

Frank Guse: Thank you.

It is driven by whenever we get a new appraisal, we see the market evolving. And again, that is a location by location answer, where the values can go down significantly from what we have.

It is driven by whenever we get a new appraisal we feed the market evolving and again that is a location by location answer the values can go down significantly from what we would've seen in.

appraisals that we would have gotten six months nine months for a year ago.

Appraisals that we would've gotten six months nine months or a year ago.

Mario Mendonca: Our next question is from Mario Mendonca with Judy Securities, please go ahead. Good morning, sorry, little technical difficulties, can you hear me okay? Yes. So, I want to go back to US commercial real estate, there's no doubt you can look at your supplement, look back a few years that the bank grew US commercial loans, commercial real estate in particular. There was some robust growth there for a period. So, while I think it's fair to say US commercial real estate losses might be messy quarter to quarter, they're not going to impact the bank's capital on a meaningful way.

And from an LTV perspective, I think that is the biggest driver. But it's also one where we don't have an ongoing review of appraisals for every single file, but we order appraisals when...

And from an LTV perspective, I think that is the biggest driver, but it's also one where we don't have an ongoing review of appraisals for every single file, but we are the appraisals when whenever we feel it's a it's right and as I say that is probably the bigger driver and which is why I can't give you a real good.

right and as I said that is probably the bigger driver and which is why I can't give you a real

One number on on your question.

Okay, and maybe just for the broader management team, you get paid a lot of money. Is there any subjectivity exercised over the models?

Okay, and maybe just for the broader management team you get paid a lot of money was there any subjectivity exercised over the models specific.

specific to performing reserve films this quarter, or that releases last quarter, or are the models running the bank? Yes, there was, and yes, there was in both cases.

Specific to perform language films this quarter or was that released as last quarter.

Mario Mendonca: So what matters more to me now is does this change CIBC's strategy in the US? Now that you've seen sort of the uncomfortable side of all that growth, does this sort of have you revisit your growth strategy in the US? Mario, it's Sean, thanks very much for the question.

Or are the models running the bank.

Yes, there was and yes, there was in both cases.

Did you add or subtract from this quarter.

Did the subjectivity.

Add to the provision built in this culture or did it hold it back?

To that provision build for this culture or did it hold it back.

lot of moving parts but we certainly reduce the increase that we would have seen in our

Shawn Beber: So, I'll come back to that question specifically, but just stepping back for a minute for some context. Other than the office portfolio, our US business continues to demonstrate strength and solid performance. Notwithstanding the current environment, we generated strong quality loan growth. We're pleased with our deposit performance as Raj talked about seeing that stabilizing with the rate environment stabilizing. We had NIM improvement year over year and our outlook for NIMs are stable.

A lot of moving parts, but we certainly.

Reduce the inquiries that we would've seen in.

Canadian personal businesses.

And what we do is that expert credit judgment is essentially balancing a little bit what we talked about this called, namely what is the model predicting, versus what are we seeing from a credit written?

And what we what we do is that expert credit judgment is essentially balancing a little bit what we talked about this call, namely what is the model predicting versus what are we seeing from a credit risk perspective, and we felt the market was growing a little bit more sensitive than we would've thought so we dampened that increase.

And we felt the model was going a little bit more sensitive than we would have thought. So we dampened that ink.

Shawn Beber: And while we continue to invest in our business, as you've seen, the rate of growth in our expenses has moderated significantly. And that combined with realizing on the investments we've been making over the last couple of years and staying really focused on the connectivity and bringing all of our businesses and our capabilities across capital markets, wealth management and commercial to our clients. Generated double digit pre-tech pre-provision earnings. What we are seeing and credit as a general matter is performing well.

Why do I say we did see a lot of moving parts? We certainly added a little bit on the US office portfolio. So there's always moving parts.

Why do I say, we do feel a lot of moving parts.

I did a little bit on the U S office portfolio. So there's always moving parts.

and that is directionally what I would do.

And and and that is Directionally, what I would say for for this quarter.

And maybe I'll add on that, Sora. Right, as you know, this isn't just management, judgment, and gut instinct, right? There's an accounting standard. There are requirements under the accounting standard. We manage to an appropriate allowance that follows the IFRS-9 guidelines, which require us to provision and have an allowance based on the expectation, based on stage one for one year and lifetime for anything that's in stage two.

And maybe I'll, maybe I'll add on that sorry up right. As you know look this isn't just management judgment and gut instinct right. There was an accounting standard.

Our requirements under the accounting standard we hate we manage to an appropriate allowance that follows the ifr S nine guidelines, which require us to provision and have an allowance.

Shawn Beber: So, where we are seeing the issues as in commercial real estate in a particular in the institutional office space. It's a part of the business we're deemphasizing. And as that transition continues, you'll see CRE wind up being a smaller percentage of the overall US portfolio. As our commercial and industrial and our wealth businesses continue to grow. And Mario, just to build on those comments from Sean, we absolutely feel good about the strategic investment thesis that we laid out years ago about investing in the United States.

Based on the expectation based on stage, one for one year and lifetime for anything that's in stage two it's a very government process as Frank has said the models produced the results, we look at that versus expectations apply the credit judgment.

A very governed process, as Frank has said, the models produced the results. We look at that versus expectations, apply the credit judgment. However, is required to get to the right answer and the appropriate prudent allowance number. And then we go through our governance processes in order to finalize that.

However is required to get to the right answer and the appropriate prudent allowance number and then we go through our governance processes in order to finalize that.

Okay. Thank you for squeezing me.

Shawn Beber: Our investment has been a very good investment. On top of that commercial banking investment, we've built a really strong wealth management business that we're going to continue to grow now, especially when our technology gets implemented this fall. Our capital markets business, as you see in some of the slides that Harry's business has, are growing and that Harry might be worthwhile commenting on the capital markets business in the US. We've grown up our US earnings, you know, pre-tax pre-provision from what was 2% many years ago to over 20% today.

Okay. Good and thank you sorry for that question as I said earlier, we are going to continue to work on refining our models so that they deliver.

Okay, good, and thank you, Sora, for that question. As I said earlier, we are going to continue to work on refining our models so that they deliver even greater consistency quarter to quarter. Again, on a year-to-date basis, I think it's important to know where we stand relative to the peer group and very much in line on the performing standpoint when you factor and mix differentials. And as I also said during the call, it's really important to focus on the earnings fundamentals of our business.

Even greater consistency quarter to quarter again on a year to date basis, I think it's important to know where we stand relative to the peer group and very much in line on the performing standpoint, when you factor in a mixed differentials and as I also said during the call. It's really important to focus on the earnings fundamentals of our business.

We had solid results on those earning fundamentals. Do the strength and diversity of our business model in all of our business units. In Canadian banking.

We had solid results on those earning fundamentals are due to the strength and diversity of our business model in all of our business units in Canadian banking.

Shawn Beber: And we plan to continue to grow that because I think we think it's a good diversifier for our bank. And it's a well diversified well-managed portfolio aside from the noise of the US commercial office real estate piece which we will work through. Harry, maybe you want to build on this. Yes, good morning. I just add that the U.S, part of our capital markets business is really well connected to Shawn's world and commercial and wealth like it is in Canada to John's world and commercial and wealth and our retail franchise.

in our US region and our capital markets. And we've got prudent risk management. I think that stance we have is prudent with little less volatility, it'll even be better. We continue to demonstrate steady organic growth. We have clients building relationships with our bank. It's fueled by a client focus strategy, and it's supported by an increasingly digitized infrastructure which, in fact, quite frankly, is allowed us.

And our U S region, and our capital markets and we've got prudent risk management I think that that stance. We have is prudent with little less volatility it'll even be better. We continue to demonstrate steady organic growth. We have clients building relationships with our bank. It's fueled by a client focused strategy and it's supported by an increase.

[noise] singly digitized infrastructure, which in fact quite frankly has allowed us to start reducing our costs in certain areas, including head count, which you see on a year over year basis, and that again stands up differently from our peers.

Shawn Beber: And so we're really focused on delivering for clients in the U.S, and that's working really well. We're very, very well diversified. We're specific in the industries we operate in. We're very focused on the new economy. We've got a great team in the U.S, and we're delivering us high as returns and you see the numbers a year on year. So we're very pleased with the results. A very highly connected franchise. They're really a differentiated platform and it's working well.

to start reducing our costs in certain areas, including headcount, which you see on a year over your basis, and that, again, stands out differently from our peers. I think our achievements are testament to the unwavering dedication of our team, whose hard work and commitment have contributed to us.

Our achievements are a testament to the unwavering dedication of our team whose hard work and commitment have contributed to our success.

And I want to extend my sincere appreciation to each CIBC team member who is driving better a client that promoters scores and deeper relationships. We've implemented initiatives that not only address our clients evolving needs, but also align with the long-term strategy to deliver sustained value to our shareholders.

I extend my sincere appreciation to each CIBC team member, who is driving better client net promoter scores and deeper relationships, we've implemented initiatives that not only address our clients' evolving needs, but also aligned with the long term strategy to deliver sustained value to our shareholders. As we continue to navigate a dynamic economic landscape we remain steadfast.

Victor Dodig: I appreciate all those comments. They certainly resonate with me, but I want to go back to this for a moment. So even if these credit losses and U.S, commercial real estate, other than causing some lumpy quarters and assuming they don't affect capital, which I strongly suspect they won't. There's still an implication here. What I'm getting at is commercial real estate and construction lending in the U.S, is the single largest category of loan in the U.S, business and government loans.

As we continue to navigate a dynamic economic landscape, we remain steadfast in our dedication, the purpose of helping our clients realize their ambition and to deliver value for our shareholders. So I thank you for your trust and continued support. And for your questions, and I look forward to our ongoing engagement with our team as frequently as you would like. Thank you. Have a good day and a good Labor Day Week.

And their dedication to the purpose of helping our clients realize their ambition and to deliver value for our shareholders. So I. Thank you for your trust and continued support and for your questions and I look forward to our ongoing engagement with our team as frequently as you would like thank you have a good day and a good labor day weekend.

Victor Dodig: And if you're de-emphasizing that, maybe this is going to Shawn, if you're de-emphasizing that, doesn't that necessarily point to slower growth in the U.S, over the next couple of years as you de-emphasize that business? Yeah, I think it's fair to say relative to the rate of growth that we saw over the last couple of years. Part of that is environment and part of that is going to be strategic choices. And is that portfolio transitions?

Thank you, everyone. The conference has now ended. Please disconnect your lines of the time, and we thank you for your participation.

Thank you everyone. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

Yeah.

Victor Dodig: That'll mute growth certainly on the CRE side, but we are still looking at, you know, our outlook is still for single mid-single digit loan growth in the business and it's going to be driven primarily through our CNI business and our wealth management business. Business is that I think if you look at the mix out five years, there'll be more capital light in nature. There'll be more ROE enhancing in nature and part of our business model is this connectivity concept that Harry touched on. That drives a better ROE. So while that may, that aspect, the real estate aspect may slow down. I think the team's got a good handle on how we can grow the rest of the business.

Harry Culham: Maybe something quick on U.S, margin. I feel like I watch these Canadian banks carefully. I watch the U.S, banks carefully. I think C.A.B.C, might be the only bank where U.S, margins were actually up in Q3. It's a surprise given what played out for everybody else. Now I also observe that the deposits are down. So what I'm kind of wondering is if there's going to be a quarter where C.A.B.C, decides it needs to protect us deposits there.

Harry Culham: And we actually see the margins come under pressure like we're seeing virtually every other bank. So what it appears to me is that C.A.B.C, is protecting the margin but willing to give up some deposits there. Am I reading the tea leaves correctly enough? [inaudible] But it's a very client-focused strategy. We're working with our clients to price those deposits. We're also making investments in our deposit franchise in terms of additional capabilities and new products.

This conference is no longer being recorded. This conference is no longer registered.

This conference is no longer being recorded so it closely Hosni. Please also as you see.

Harry Culham: We'll be launching those just to enhance our overall deposit franchise. But it's not been seeding deposits like seeding share for margin. Our margins have held in on the asset side. Spreads have been a help offsetting some of the cost of funds pressure and on the deposit margin side. We've had the benefit of both the rising rate environment but also the impact of the hedging program that Horat spoke about early. So that combined to that couple of basis points, as Hratch mentioned, there was a bit of noise in the corridor, you take a couple to a few basis points off of that increment but the two basis points is not one time, it's a function of all those elements that it just went through.

Operator: Thank you very much.

Operator: Thank you.

Mindy D'Souza: Our next question is from Mindel D'Souza with Veritas Investment Research. Please go ahead. Thank you.

Frank Guse: Good morning. I wanted to follow up with Frank on the debt service ratio and should we read into the impact of that CIPC has a more interest rate sensitive forward. And then in terms of the outlook, when I look at your forecast for the debt service ratio, you know, next one month to expect that the run mysterially of where it was at in 2019 and kind of remain at the 2019 level for the rest of your forecast period.

Frank Guse: And you also forecast an unemployment rate to roughly be at the 2019 levels, maybe a little bit higher. So given that context, wouldn't it be reasonable to expect that your credit losses next year or the next 12 months would run above the losses we saw in 2019?

Frank Guse: Well, so a couple of points. One, I wouldn't take that as an indication that our clients are more interest rate sensitive. There's certainly some elements of mix in there, but overall we do not see that as being a big driver. As I said before, I think we may be having models that are a little bit more sensitive to changes in that metric, but I don't take that as an indication of a difference in credit or client profiles because we are not seeing that in other data that we clearly use to compare ourselves.

Frank Guse: From an outlook perspective, yes, I think part of the indications is if the economic environment plays out as our models predict, and as we expect interest rates to come back a little later, we could expect that part of 24 or technically all of 24 runs a little bit ahead of 2019. But again, there is a lot of moving parts here, and it's certainly too early to give you a good outlook on fiscal 24 altogether.

Frank Guse: But overall, I would say, yeah, it's certainly not an indication of credit quality. It is an indication of what we have put into our forward-looking indicators, how our models react to that, and then what we will see over time is how that plays out in reality as the economic environment evolves.

Operator: Yes, that's helpful.

Operator: That's it for me.

Operator: Thank you.

Darko Mihelic: Our next question is from Darko Milich with RBC Capital Market. Please go ahead. Hi, thank you. Good morning. Again, going back to Frank, I really appreciate the disclosures that you provide. But sometimes I think the disclosures may not actually help me, and I'm asking you this question, Frank, because your bank had a bit of a balance in performing PCL's last quarter was released. So I kind of want to get to the bottom of a couple of things, and really what I'm looking at is one of your slides.

Darko Mihelic: I'm looking at slide 40. And you show the mortgages that are coming up or do, they're coming due for renewal this year, 37 billion. And then you show me the high risk clients, 330 million, which is fairly small. But when I look at the definition of what you're calling a high risk client, it would biabolically be different from what I'm worried about. I do not care about people who have a shallow relationship with CIBC.

Darko Mihelic: What we worry about, I think, are clients with a deep relationship with CIBC that have credit cards and unsecured credit. We worry about those same clients that might have low bureau scores and clients that are facing a large increase in mortgage payment and don't have cash resources. So that would be my definition of higher risk, not shallow relationships. So am I wrong in thinking that that is the cohort that I'm describing would be the cohort driving the performing PCL increases.

Darko Mihelic: And you know, how big is this cohort, not just for 2024, but also 2025. And so I realize I'm asking for a lot and don't expect you to throw out some numbers right now. But maybe you can tell me where I'm wrong in thinking about what I should really be concerned about.

Frank Guse: Yeah, so so Darko, thanks. Thanks for the question. I'll probably not throw numbers as you indicated. What we are looking at is deep relationship clients. We know how they behave on their credit card. We know how they behave on their unsecured lines. The deeper the relationship is with us, the better the behavior is. The better the actual results are. And one thing that is giving us comfort is we are actually seeing more of their clients over time.

Frank Guse: And we have an opportunity to react faster than we would do on a mortgage only or on a shallow relationship. So that is why in your absolute right, we are watching those segments very, very closely. But which is why we may be a little less concerned about those segments just because we have more information, we have more opportunities to work with those clients and addressing that early. The other point I will make is, I mean, we are very, very closely monitoring our very, very rate mortgage clients.

Frank Guse: We know they are renewal schedules. We look very closely into what payment trucks are. Again, under assumptions of where interest rates are over time. And we do feel comfortable as we disclose on the slides here that those payment trucks, even though they are high. And they will certainly go higher over time are manageable for those clients. And a couple of points that help in that is, one, a lot of those clients would have been qualified at a lot higher rates in the past.

Frank Guse: And yes, they may still go into an even higher rate. And yes, that is a real payment truck coming. But at least from a qualification perspective, those clients were tested and underwritten at a lot higher rates. And one thing I can tell you as well is, we had around close to 100,000 clients already renew into that higher interest rate environment, 25 billion dollars of mortgages in the last or a year to date.

Frank Guse: And what we are doing is we are monitoring that cohort very, very closely from a delinquency rate perspective. And in particular, if you go back, so what we call the six to eight months performance in that book. So going back to all renewals and refives in Q one of of this year, those clients are performing broadly in line with what we would have. I've seen in 2019, so there's no areas of concern that we are seeing so far emerging because clients are absorbing higher payments in an entry in UL. I don't know whether it addresses your question, but that's probably all I can mention here.

Frank Guse: No, that's thanks. I realize I'll have some follow ups for you after Frank and some technical questions around everything you've just said. So I appreciate it. I just, you know, I just, I scramble a little bit because if debt service ratios are climbing, and I appreciate that many of these customers were underwritten with a stress test on interest rates, but I'm not certain that the stress test also would have incorporated high inflation.

Frank Guse: And I just worry that especially not necessarily the next 12 months with 12 months after where the payment shock is really high, that even if you've seen customers with a bit of a payment shock recently, that the output could still be quite different. So happy to discuss offline, Frank, but thank you very much for the answer. It is helpful. Thank you. Thanks, Darker, and looking forward to your follow up questions.

Sohrab Movahedi: Thank you. Our last question is from Sorob Movedi with BMO capital markets. Please go ahead. Okay. I know we've gone over.

Frank Guse: Thank you for squeezing me in maybe a couple of quickies. Frank, can you tell us what the loan to value on the office properties are after the allowance and how that compares to last quarter piece? Well, I can't give you a number here. It's certainly in line with expectations. I'm not certain what number I could give you here because the biggest driver in itself is certainly not the allowance. It is driven by whenever we get a new appraisal, we see the market evolving.

Frank Guse: And again, that is a location by location answer that the values can go down significantly from what we would have seen in appraisals that we would have gotten six months, nine months or a year ago. From an LTV perspective, I think that is the biggest driver, but it's also one where we don't have an ongoing review of appraisals for every single file, but we order appraisals whenever we theme it's right. And as I said, that is probably the bigger driver, which is why I can't give you a real, give you one number on your question.

Frank Guse: And maybe just for the broader management team, you get paid a lot of money. Was there any subjectivity exercised over the models specific to performing reserve builds this quarter or that releases last quarter? Or are the models running the bank? Yes, there was and yes, there was in both cases. Did you add or subtract from this quarter? Did the subjectivity add to the provision built in this quarter or did it hold it back?

Frank Guse: There's a lot of moving parts, but we certainly reduced the increase that we would have seen in our Canadian personal business. And what we do is that experts credit judgment is essentially balancing a little bit what we talked about this call, namely what is the model predicting versus what are we seeing from a credit risk perspective. And we felt the model was going a little bit more sensitive than we would have thought.

Frank Guse: So we dampened that increase. And why do I say we did see a lot of moving parts. We certainly added a little bit on the US office portfolio. So there's always moving parts. And that is directionally what I would say for this quarter.

Victor Dodig: And maybe I'll add on that. Sorry, as you know, this isn't just management judgment and gut instinct. Right. There's an accounting standard. There are requirements under the accounting standard. We managed to an appropriate allowance that follows the IFRS 9 guidelines, which require us to provision and have an allowance. Based on the expectation based on stage one for one year and lifetime for anything that's in stage two, it's a very governed process.

Victor Dodig: As Frank has said, the models produce the results. We look at that versus expectations apply the credit judgment. However is required to get to the right answer and the appropriate prudent allowance number. And then we go through our governance processes in order to finalize that.

Operator: Okay. Thank you for squeezing me. Okay. Good. And thank you so much for that question.

Victor Dodig: As I said earlier, we are going to continue to work on refining our models so that they deliver even greater consistency quarter to quarter. Again, on a year-to-date basis, I think it's important to know where we stand relative to the peer group and very much in line on the performing standpoint when you factor and mix differentials. And as I also said during the call, it's really important to focus on the earnings fundamentals of our business.

Victor Dodig: We had solid results on those earning fundamentals, do the strength and diversity of our business model in all of our business units in Canadian banking and US region and our capital markets. And we've got prudent risk management. I think that stance we have is prudent with little less volatility. It'll even be better. We continue to demonstrate steady organic growth. We have clients building relationships with our bank. It's fueled by a client focused strategy and it's supported by an increasingly digitized infrastructure which effect quite frankly has allowed us to start reducing our costs in certain areas, including headcount, which you see on a year-over-year basis. And that again stands out differently from our peers.

Victor Dodig: I think our achievements are testament to the unwavering dedication of our team, whose hard work and commitment have contributed to our success. And I want to extend my sincere appreciation to each CIBC team member who is driving better client net promoter scores and deeper relationships. We've implemented initiatives that not only address our clients evolving needs but also align with the long-term strategy to deliver sustained value to our shareholders. As we continue to navigate a dynamic economic landscape, we remain steadfast in our dedication to the purpose of helping our clients realize their ambition and to deliver value for our shareholders. So I thank you for your trust and continued support.

Operator: And for your questions and I look forward to our ongoing engagement with our team as frequently as you would like. Thank you. Thank you, everyone. The conference has now ended. Pleases connect your lines at this time, and we thank you for your participation. . This conference is no longer being recorded.

Q3 2023 Canadian Imperial Bank of Commerce Earnings Call

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