Q4 2023 Canadian Imperial Bank of Commerce Earnings Call
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Thanks, Dan.
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All participants please standby your conference is ready to begin.
Good morning, and welcome to D. C I B C quarterly financial results Conference call.
Be advised that this call is being recorded.
I'd now like to turn the meeting over to Geoff Weiss Senior Vice President Investor Relations. Please go ahead Jeff.
Thank you and good morning.
We'll begin this morning's presentation with opening remarks from Victor <unk>, our President and Chief Executive Officer, followed by <unk>.
Promotion, our Chief Financial Officer, and Frank <unk>, our Chief risk Officer.
Also on the call today are a number of our group heads, including Shawn Beber U S region, Harry Culham capital markets in direct financial services and John on towers Canadian banking, they're all available to take questions. Following the prepared remarks, we do have a hard stop this morning at 830. So during the Q&A. Please limit your questions to one.
To ensure you all get a chance to participate we will make ourselves available after the call for any follow ups.
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'll now turn the call over to Victor.
Thank you, Jeff and good morning, everyone I realize it's a busy one for all of you. So with that in mind. There are really three key messages I want to leave with you today.
The first message is that we made strong progress executing on our strategic growth priorities in 2023, and we delivered solid financial results Despite normalizing credit losses.
Our solid results are reflected in a healthy net interest margins are positive operating leverage and our strong capital and liquidity.
The second message is that we're advancing our competitive advantage.
By focusing on four key strategic priorities, which I'll elaborate on in a moment.
And the third message is that while global economic growth is expected to continue to slow our client focused strategy.
Disciplined resource allocation and our experienced leadership team will deliver profitable growth in fiscal 2024 and beyond.
Now turning to our results fiscal 2023 demonstrated our bench strength and resiliency amid a challenging economic backdrop with high interest rates and all of that inflation all of which affects our clients to varying degrees guided by our purpose, we support our clients with advice to navigate the challenging environment and to help make their ambition.
It is real.
We continued to benefit from our organic investments over the past several years delivering record revenue of $23 $4 billion, which was up 7% and pre provision pretax earnings of $10 2 billion, which were up 8% from last year.
We achieved revenue growth across all of our businesses, while we prudently grew volumes.
Disciplined on our pricing to protect margins and we generated incremental fee income through deeper relationship with our clients.
Adjusted net earnings of $6 $5 billion were down 2% as a result of higher provisions for credit losses as credit continues to normalize.
Earnings per share of $6, 72% 72 cents were down 5% from the prior year.
By an increased number of shares outstanding primarily due to the dividend reinvestment plan discount in effect since the first quarter.
Adjusted operating leverage was positive one 2% in fiscal 2023 in line with our guidance as we harvest the investments we've made to deliver strong revenue growth, while prudently managing our expenses.
We proactively improved our capital position in every quarter of fiscal 2023 to the end of the year with a 12.4% CET one ratio and have multiple levers available to continue accretive capital.
As we communicated with our second quarter results, we have adopted an annual review of our dividend payment during the fourth quarter earnings moving forward. So today, we've announced a three cent dividend increase to our common shareholders.
Our adjusted <unk> was <unk>.
13, 3% for the year and was impacted by normalizing provisions for credit losses, and higher capital levels.
We continue to prioritize investments that support capital light fee.
Fee based and deposit generating businesses that'll be accretive to capital accretive to Roe.
Our client focused strategy is working.
Steady execution has enabled us to make good progress and we have built momentum far bank on a number of fronts.
So as we go forward, our four key strategic priorities I'll build on our momentum and what events are real competitive advantage.
These four priorities are first we're committed to growing our wealth franchise in Canada and the U S.
In Canada, we're well positioned with a differentiated myself one coverage models from Imperial service, we have a great private wealth business in the U S. We have a high quality scalable private wealth program that we want to grow.
Second we're further enhancing our digital banking offering we're a leader here today, and we intend to build on our market position.
Third we'll continue to leverage our connectivity for commercial and capital markets clients, we're uniquely positioned to bring this differentiated approach to the market and our clients tell us that this sets sets us apart.
Our model creates value by deepening client relationships it generates recurring revenue and it enhances our returns.
Finally, our efforts to enable simplify and protect our bank or building the operational excellence and efficiency required to drive higher returns for our stakeholders.
With that let's get into the segment results.
In Canadian personal and business banking, we've been a leader in growing our client retail client base on a trailing 12 month basis. We grew over 650000, net new clients across CIBC and simply brands, including successfully attracting many new comers and students to our bank.
We're leveraging our highly differentiated imperial service offerings to serve clients in the mass affluent segment. This year, we introduced a dedicated leadership structure to sharpen our focus on growing this business.
Our success in client growth in franchising has been a product of our relentless focus on enhancing our client relationship experience CIBC continued to maintain a leadership position with our digital offering for the third time since 2020, we ranked number one in the 2023 J D power, Canada banking mobile App satisfaction study.
In Canadian commercial banking the effect of rapidly rising interest rates and inflationary pressures slowed growth across the Canadian commercial market.
Against the backdrop of moderating economic growth, we achieved our third consecutive year of increasing client net promoter scores and in fact hit a record this year.
We continue to improve the client experience and deliver our whole bank to each client as evidenced by the $17 billion of referrals since fiscal 2019 across commercial banking and private wealth management.
And in our CIBC Wood Gundy franchise, we ranked among the leaders for big six banks and the investment Executive brokerage report card survey of advisors.
In the U S higher interest rates also cooled lending demand. However, a highly connected franchise and the investments we've made to scale our footprint have enabled us to attract new clients and a tempered economic environment deposit volumes in the U S have stabilized and we're focused on strengthening and diversifying our deposit base.
Our efforts to build a best in class U S. Private wealth franchise was recognized again by Barron's, who ranked us in the top 10 of all firms in the United States for the fourth consecutive year.
Now looking ahead, we will continue to grow our U S. Commercial banking franchise organically with a focus on industries that value high touch service and specialized expertise will also be expanding our U S. Private wealth platform by leveraging our talent and technology investments and expanding into fast growing affluent markets like southern Florida.
In capital markets and direct financial services, our differentiated platform continues to generate consistently strong performance.
Our double digit revenue growth was enabled by our strong client focus and increased activity in global markets as we help clients address their short and long term needs in a rising rate environment.
With our strategy more than 20% of total capital markets revenue was originated from the U S region.
Where we've almost tripled our capital markets revenues since 2017.
We also further expanded our DFS business to generate growing recurring revenue and to attract new clients seeking convenient digital banking and investing solutions.
Through continued growth is simply financial and our leading edge Sx and remittance capabilities do you have us revenues of $1 $2 billion increased 26% year over year.
Collectively the strength of our diversified platform and strategic connectivity positions us well for a more fluid market conditions in the year ahead.
We closed out 2023, and a position of strength as a result of strategic investments in all of our core businesses. Looking ahead to 2024, we expect slowing consumer spending and continued softness in global economic growth and response to monetary policy tightening.
Amid this backdrop, we will continue to prioritize financial strengths and risk discipline, while advancing our purpose driven culture and our growth strategy. We're confident that this approach combined with our client focused strategy and strong execution will deliver relative outperformance and top tier shareholder returns over the years to come.
And with that I'll turn it over to my colleague <unk> for a detailed review of our financial results. Thanks, Victor and good morning to you all.
We delivered a solid fourth quarter to cap off 2023 as laid out on slide 10.
Echoing the themes, we demonstrated throughout fiscal 'twenty three our fourth quarter results reflect the resilience of our business our ability to proactively manage through a dynamic environment and the strength of our balance sheet.
Supported by our revenue momentum across all of our business units and a continued focus on productivity, we generated robust operating leverage strong pretax pre provision earnings growth and diluted earnings per share of $1 53, which was up 22% over the prior year.
Excluding items of note adjusted EPS was $1 57, and ROE was 12, 1%.
Our capitalization and liquidity continued to improve during the quarter coming in ahead of or in your guidance on both fronts with a period end CET one ratio of 12, 4% an average LCR of 135%.
The balance of my presentation will refer to adjusted results, which exclude items of note starting with slide 11.
Adjusted net income of $1 5 billion increased 16% from the same quarter last year revenue of $5 8 billion was up 9% supported broadly by higher NII trading revenue and fee income and we grew pre provision pretax earnings 18%, but by containing expense goes to 3% and generating over six.
Per cent operating leverage.
Provisions of $541 million were up 24% from a year ago, which Frank will discuss in more detail.
Slide 12, and 13 highlight key trends and drivers of net interest income.
Trading income was 26% higher year over year in aggregate, we continue to see a shift in trading revenues from interest to noninterest income due to higher rates, excluding trading NII was up 8% over the year driven by continued balance sheet growth and solid margins.
Total bank NIM, excluding trading was up six basis points from the prior year or down one basis point sequentially last quarters margin included a couple of basis points from nonrecurring interest as we disclosed at the time and underlying these quarterly fluctuations we continue to see gradual margin expansion.
Gideon P&C NIM of 267 basis points was up 20 basis points from the prior year and was stable sequentially at.
Modest expansion in core margins offset the one time interest last quarter.
We have once again provided incremental disclosure on P&C margin drivers in the appendix.
NIM of 344 basis points in our U S segment was down five basis points year over year and two basis points from the prior quarter.
Quench will decrease was largely due to interest on our significant loan ricard recovery in the prior quarter.
As shown on slide 13 average client loans and deposits continued to grow over the prior year. Despite the market wide slowdown experienced this year deposit mix has largely stabilized and aggregate balance growth in deposits picked up late in the quarter, resulting in 4% growth sequentially on a spot basis.
We remain focused on growing our balance sheet prudently and with strong returns and we anticipate this to drive continued momentum and non trading NII based on current market interest rate expectations.
Turning to slide 14, non interest income of $2 6 billion was up 20% from the prior year due to growth in trading revenues as well as higher market related and transactional fees, excluding trading market related fees increased 8% year over year, driven by higher investment management, and custodial revenues as well as recovery from <unk>.
Treasury income in the same quarter last year.
Transaction related fees were up 6% year over year, driven by growth in credit as well as deposit and payment fees, while market factors can significantly impact. These revenues are a strategic focus on deep relationships as well as advice and differentiated solutions for our key client segments will continue supporting ongoing growth in noninterest income.
Slide 15 highlights our continued success and maintaining robust investment in our bank. While also containing overall expense growth in Q4 year over year expense growth moderated to 3% as investments were partly offset by the benefits of prior initiatives to improve efficiency and deliver a better experience.
For our clients and our team.
We've also demonstrated the impact of this approach over the longer term for the full year. This approach allowed us to meet our targets containing expense growth to 6% and generating operating leverage are positive one 2%.
And despite the significant increase in strategic investment over the last few years.
<unk> neutral operating leverage in aggregate, while positioning ourselves to improve on that going forward by leveraging these foundational investments, we intend to manage expense growth to around or below mid single digits for fiscal 'twenty four and we continue to target positive operating leverage over the medium term.
Slide 16 is focused on our balance sheet, which continues to benefit from our focus on disciplined resource allocation and an emphasis on returns over balance sheet growth.
We improved our CET one ratio to 12, 4% over the quarter driven by organic capital generation and share issuance, partially offset by higher R. W. A driven in part by credit migration and model changes.
Late in the quarter. We also received regulatory approval to apply the internal ratings based approach to the majority of our U S Bank portfolio, which we intend to implement in Q1 'twenty 'twenty four.
On a pro forma basis, we estimate this implementation net of the other regulatory changes coming into effect in Q1 results in us starting fiscal 'twenty four with a CET one ratio over a 12, 5%.
Our already strong liquidity position improved further throughout the quarter as loan growth slowed and deposits rebounded, resulting in a sequentially higher average LCR of 135%.
Despite an evolving environment and regulatory landscape throughout 2023 we demonstrated our ability to absorb unexpected headwinds and strengthen our balance sheet, while maintaining support for our clients and deploying capital to generate solid topline growth.
Positions as well as the environment continues to be fluid.
Starting on slide 17, we highlight our strategic business unit results net income in Canadian personal and business banking with 639 million up 32% from the same quarter last year.
We grew pre provision pretax earnings 19% from the prior year by driving 9% revenue growth through this strategic priorities Victor outlined earlier.
Revenue was supported by 19 basis point increase in margins and volume growth on both sides of the balance sheet.
And we delivered operating leverage of 8% by containing expense growth to 1% from the same period. Despite continued investment against our strategic priorities.
Turning to slide 18, net income in Canadian commercial banking and wealth management was $490 million revenue of $1 4 billion was up 4% from a year ago benefiting from mid single digit loan and deposit growth in commercial banking as well as higher fee based revenues from market appreciation and net flows in wealth management.
We also delivered positive operating leverage as we manage expenses two 3% increase year over year.
Our strategy continues to create momentum across our combined Canadian P&C banking franchise with <unk>.
Net income was up 22%, while pre provision pre tax earnings were up 15% fueled by 8% revenue growth and over 6% operating leverage and we expect this momentum to continue.
We've included more details on this segment in the appendix of our presentation.
Turning to U S commercial banking and wealth management net income of $39 million in U S dollars was down 69% from the prior year due to higher credit provisions predominantly in the office portfolio.
Revenues were up 2% over the same period, driven by 5% increase in fee income and a 1% increase in net interest income expenses were up 11% year over year, including higher severance in the quarter.
Excluding one time charges expenses were up 6%, reflecting investments across our business and infrastructure, which we expect to continue into 'twenty 'twenty four as we expand our U S platform, we remain focused on prudent and profitable growth to scale. This business across both commercial banking and wealth management.
Turning to slide 20, and our capital markets and DFS business net income of 383 million was up 1% year over year.
Revenues of one 3 billion were up 9% over the prior year, driven by 20% growth in global markets and 12% growth in direct financial services expenses.
Expenses of $734 million were up 12% year over year, partly driven by charges in the quarter, including higher severance. Excluding these charges expenses grew 8% and we anticipate them to moderate.
Slide 21 reflects the results of the corporate and other business unit net loss of $48 million compared with a net loss of 197 million in the prior year largely due to higher revenues from treasury in international banking as well as lower corporate expenses going forward do we now anticipate a quarterly loss of $50 million to $100 million.
In this segment.
In summary, notwithstanding a more challenging environment throughout 2023 we took proactive steps to make meaningful progress against our strategy, while staying on track relative to our medium term objectives, extending the momentum we demonstrated in 2022 we grew revenue by 7% and pre provision pretax.
<unk> earnings by eight 5% in line with our in year guidance and medium term targets, we delivered positive operating leverage through cost discipline and efficiency improvements to balance continued investment in our bank and we overcame significant headwinds to enter the new year with a strong CET one ratio of over 12, 5%.
On a pro forma basis.
EPS growth and ROE were below our medium term targets. This year largely due to the impact of higher credit provisions and increasing capitalization, but we remain focused on working towards these targets. Despite external headwinds, we expect credit provisions and capital ratios to start stabilizing in 2024, and we will drive further EPS in <unk>.
ROE improvements through our strategic focus by emphasizing growth in key client segments with strong returns maintaining discipline in our resource allocation with a focus on returns over balance sheet growth and leveraging our capabilities to drive simplification and efficiency to generate ongoing operating leverage with that let me turn the call over to Frank.
Yeah.
Thank you Raj and good morning, everyone.
During 'twenty three if we navigated economic uncertainties, we saw our loan loss performance generally in line with our expectations with retail credit normalizing and sector specific issues materializing in the business and government portfolio.
Over the past few quarters the headwinds in the U S office sector have translated into higher impairments in our U S commercial real estate portfolio.
While the Canadian consumer remains resilient to a higher interest costs, we are seeing excess savings accumulated during the pandemic decline.
Clients have dropped to a variety of inflationary pressures.
Notwithstanding our allowance increase throughout fiscal 'twenty three positions us well and will ensure we are prepared for uncertainty in the year ahead.
Turning to slide 25, our total provision for credit losses was 541 million in Q4 compared to 736 million last quarter.
Total allowance coverage increased to 76 basis points this quarter up from 73 basis points in Q3.
Oh performing provision was 63 million in Q4, mainly attributable to changes to our forward looking indicators somewhat of a paramount your updates portfolio growth and some credit migration provision.
Provisions on impaired loans was 478 million, which were flat quarter over quarter.
And this was largely due to higher impairments in the U S commercial and Canadian retail portfolios were partially offset by lower impairments in the Canadian commercial portfolio in CIBC first Caribbean.
While our impaired losses over the full year continue to perform in line with our expectations, we have seen elevated losses in the back of your fiscal year.
Slide 26 summarizes our gross impaired loans informations balances were up this quarter, mainly driven by business and government loans in the U S and that's specifically attributable to the office sector.
Overall, new formations remained relatively stable with the increase in retail, mostly offset by a reduction in business and government loans.
On slide 27, we show the trends in our Canadian consumer portfolios.
Write offs and 90 day, plus delinquency rates for personal lending have moved higher over the past year, reflecting the impact of higher rates.
This was expected given the interest rate sensitivity of the portfolio.
Our residential mortgage and credit card portfolios continue to perform well and remain below pre pandemic levels.
Slide 28 provides an overview of our Canadian real estate secured personal lending portfolio.
Which makes up 55% of our total loan balances.
Late stage delinquency rates of residential mortgages continue to trend higher as expected if they return closer to what we experienced prior to the pandemic.
Remember eight mortgages account for one third of all mortgage book and the portfolio quality remained strong.
Non amortizing variable rate mortgages was down quarter over quarter over quarter from 50 billion in Q3 to 43 billion in Q4.
Banks are choosing to increase their payments converting to fixed rates, making one time prepayments and all of which bring the loan back to amortizing status.
This quarter, we are also providing a scenario highlighting the credit quality and payment increases for our mortgages coming up for renewal in the coming years.
Overall these cohorts, so very low ltvs of between 40 and 60% in the next five years.
The average monthly payment increase is roughly between 350 and $700 for these cohorts, which represents an increase of about 3% to 5% based on the origination income.
I also want to note that in this scenario, we assumed an interest rate of 6% across the next five years M.
M. P analysis also assumes income remains where it was at origination.
I want to acknowledge that this high rate environment paired with cost of living pressures puts pressure on our clients. We are actively working with clients experiencing financial hardship to help drive to the best possible outcome.
But overall, we feel comfortable with the resilience and reserve levels of our mortgage portfolio.
Turning to slide 30, as we previously guided our U S office portfolio continues to see elevated losses 23, we had 2.1 billion maturing, we're just slightly more than 50% of the portfolio.
Although these maturities around 54% qualified for extension or negotiated renewal.
115% was repaid and the remaining 31% went into non accrual.
Our allowance coverage continued to increase this quarter and now stands at 9.1% reflective of the headwinds that persist in the office sector.
In closing despite the headwinds in the U S office sector, our credit performance remained within our expectations and guidance for fiscal 'twenty three.
As we head into the new fiscal year, we expect uncertainty to persist in certain areas and we will see impaired losses trend above our previous guidance of 25 to 30 basis points more in the mid 30 range.
We will continue to proactively manage portfolio exposures and we work with our clients to mitigate risks.
Additional allowances, we saw throughout 'twenty, three will provide prudent reserves for headwinds in the new year.
I will now turn back the call to the operator.
Thank you.
We will now take questions from the telephone lines. Please press star one at this time, if you have any question.
Yeah, well, we have we fall small participants register for questions.
We thank you for your patience.
My first question is from Doug Young from Desjardins Capital markets. Please go ahead.
Yeah.
Hi, good morning, maybe ratchet if.
We can talk a bit about expenses it sounded like you had some restructuring charges in the U S.
In capital markets.
Can you quantify what those were can you confirm that was not backed out of the Kashi yes.
And I do understand your.
<unk> about looking to drive positive operating leverage over the medium term I'm trying to get a sense of you know is that something that you think you can achieve you did obviously very well. This quarter is that something you think you can achieve through fiscal 'twenty four and 'twenty five thank you.
Yeah.
Morning, Doug. Thank you for the question happy are happy to take that so let me start with your immediate question and we did disclose that right. So we had a we had about $114 million in cyber and so it was a few other things this quarter that I referred to in terms of one time charges that were in those businesses, we gateways relating to some matter some real estate some sort.
Software et cetera across the bank, but that severance number that we disclosed was the majority of it in terms of how it breaks down I'm not going to get into a lot of detail, but you know there was the predominant pieces of it were in the corporate and other segment and in capital markets and that was a piece of it in the U S. The one time in the U S and given what I said in terms of.
That growth excluding the one time you can back into it it it's sort of about in the 10% of that number or range that you had this quarter.
And all of that is part of our journey and it ties to the second part of your question as we've said we want to continue optimizing the bank as we go making continuous improvements investing having the ability to move that team around in our resources around so that's how we've delivered not just this quarter for the full year, 1.2% operating leverage as we've shown.
Over three years and five years around neutral despite significantly increasing investment levels over that period of time and with that foundational capability now built we have the ability to take out 1% to 2% of our expenses every year. This year. It was more around the 1% range going forward.
Got now visibility into the pipeline of efficiency savings, we're getting that's getting to that 2% number a year in 'twenty four and beyond so that's what allows us to manage our expenses to around mid single digits, plus or minus as we said, we will do and the plus or minus depends on the topline environment. So next year, we think it might be a tougher environment.
On the top line and so as I said in my guidance. We are now managing to the minus side of mid single digit on the expenses, but we can do that well actually investing and gross having expenses grow above mid single digits through those investments funding everything we've laid out in those four priorities that Victor spoke about.
Including further efficiency improvements through enabling and simplifying our bank and so that's what allows us to continue generating that operating leverage on an ongoing basis.
All adhering to my one question limit so thank you very much.
Thank you.
Our following question is from hip I am putting Hawaii from Bank of America. Please go ahead.
Hey, good morning, I guess, maybe on the macro and credit for maybe Victor and Fang. It means just talk to us.
Going back to your commentary on the impaired PCL outlook into mid thirties for next year.
One.
Assuming that the bank of Canada and rates have done going higher for this cycle, just give us a sense of your expectations on.
Weakness in the economy and the consumer that you expect over the coming quarters and.
And whereas the downside just like what should we what are you paying attention to to ensure that impaired PCL, but not meaningfully above the.
The guidance that you provided.
Sure and in that guidance I mean, as you can imagine there is a couple of moving parts I'm. If I said, we continue to expect some further normalization in in our consumer portfolios are something we have seen and something we expect to continue to see.
And then there is some others, where we expect office to moderate in the next year are in line with our maturity profile and then give and take that should lead us to that mid thirties, a range that we feel very confident with I mean, if asking about downsides and again, we have inquiry.
And unemployment factored in and I know a forward looking information if there is a more rapid chalk to unemployment that of course would change our outlook on on impaired loan losses, but otherwise given that we have started the fiscal year already and it's hard to have a fairly good line of side into the <unk>.
Next few quarters, we feel very confident with our base case outlook, even though there is a if you've had risks to the downside and in particular any sharp trucks through the economy, a sharp increase in unemployment a sharp drop in G. D P.
Would certainly bring us closer to the downside.
Victor a little jump in just a really quick because I know there are a lot of questions around tight time, so like our we've architected CIBC to deal with the economic environment that might come in 2024, if things go slow we'll manage accordingly, if things turn better than it was a very good chance that we have this quote unquote soft landing, we will capitalize on that as well.
Thanks Ebrahim.
Thank you.
<unk> question is from Gabriel to Shang from National Bank Financial. Please go ahead.
Good morning, just a question on capital here and you converted the U S. Small book to IRB, that's gonna add 20 basis points next quarter.
That's great I'm, just wondering how does that affect the.
Proximity of your you know the risk weighted assets to triggering the.
Oh quick floor, because you know the IRB fleets yard to the art of the U S.
I would think that might bring you closer to that.
Yeah. Thanks, Thanks for that question Gabe.
I'll take that so first let me clarify that the 20 basis points approximate number that we disclosed as pro forma net of everything.
That is that we have more than that and benefit from the transition to IRB. Its netted off by some fairly modest negatives from the combination of that far to be implementation in CVA changes.
As well as the negative amortization mortgages as well as taking into account any floor impact Hello.
And we don't see at this point, even post the IRB floor being an impact in the foreseeable future and so naturally would have that to that 20 basis points. This quarter and don't anticipate any other impacts because of that in the short term. Okay. So not a 'twenty 'twenty four issue.
But not it's not a material issue 'twenty four 'twenty five even I am not going to be on that alright.
Alright, Thanks, a lot.
Thank you all following question is from many grauman from Scotiabank. Please go ahead.
Hi, good morning.
Frank.
On to slide 29, very helpful. Just a question in terms of you know the ltvs that youre showing.
What are you assuming in terms of home prices to calculate those is there any sort of change in home prices that's being reflected.
So those are all occurring the LTV calculations were based on externally published indices are we adjust house prices to do our best predictor in off of current Ltvs.
So that would include the more recent moderation we have seen in house prices. It does not include any forward looking further moderation or a recovery in the house prices. It's our current LTV calculations, there showing on the slide.
Got it and then just in terms of some of the dynamics impacting.
The performing PCL line.
Especially in Canada, just wondering the role of expert credit judgment this quarter determining that number is that.
Notable from a modeling perspective as well.
Into that.
A lot smaller number this quarter as we discussed last quarter, we adjusted our indicate a forward looking indicators and our expectations too to a more conservative scenario last quarter. This quarter I wouldn't call out anything specific it's a smaller number or a number of smaller items.
Impacting that number it's all modeled results, it's our expert credit judgment and it's going through all the processes that we go through every quarter to land in the right spot for our allowances so nothing to call out specifically I would say.
Okay, great. Thank you.
Thank you.
I don't think question is from Darko Mellick from RBC capital markets. Please go ahead.
Alright. Thank you very much I'll be brief Frank I'll, probably have a lot of follow up later, but and I do appreciate.
The extra disclosure I have a question on the negatively amortizing a variable mortgages.
Coming down from $50 billion to 43, you're showing some success, there and getting people out of.
Negatively amortizing, but what I'm interested in is the opposite effect, which is.
Of the 50 billion, how many of you contacted.
And you know.
Clearly, we could see a 14% reduction.
But how many people are electing not to increase their payments are reduced and what would be the main reason for them not.
Two to move into a positively amortizing.
Situation. Thanks Yep. Thank you. Thank you Darko for the question. So we have had a proactive outreach program to all our clients for quite some while we started that early we have now reached out or or a contact.
Most of our clients in their portfolio and we do see strong results and we've seen those results quarter over quarter in this quarter alone AR 13000 clients took action to remove themselves from a negative amortizing status for the most part by increasing them.
Monthly payments on a voluntary basis to remove their accounts off of negative amortization.
Why why are your clients not electing there's a couple of reasons for that summer, just saying well I'm aware of the status I do not have to take action on it right now I expect interest rates to come down and I just want to wait for that there may be other reasons for that but in general we are very pleased with the outcome.
So we are seeing so far we continue to expect seeing those outcomes and we continue to expect that number to coming down if we keep up our outreach efforts and and and having conversations with our clients.
Okay. Thank you.
Thank you.
Blowing question is suddenly more per song from Cormack Securities. Please go ahead.
Hi, Thanks for taking my question a question for Frank.
Can you talk about what gives you the confidence in your P. CLO outlook. Despite the continued increase in delinquencies and Canadian consumer like does that.
Normalization and delinquencies to the Q1 'twenty right, you're showing here. So the 34 basis points or is it are you assuming something above that 34 basis points, you're showing in your slide 27.
Yeah, well I would say that every fab before theres a couple of moving parts. So we do expect some further normalization and it's probably a little bit more product specific we talked a little bit about mortgages in our prepared remarks, where we expect normalization, but we are very confident with.
With.
The quality of those books and that those renewals will will remain very manageable for us card's performance continues to be very good there is in part our co brand portfolio.
That is supporting strong credit quality, but there was underlying investments in risk management that we did in in the cards book that is helping drive real change in credit quality as well and then in personal lending again, there is a little bit a mix of different things but.
We are seeing strong credit quality, there, but theres also a certain pockets like our unsecured lines book, where you see normalization and we should expect to see normalization. So that gives us confidence with our base outlook because it's based on a bottoms up assessment of all of those moving parts.
Thanks, I'll adhere to the one question.
Thank you.
Question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Okay. Thank you capital ratio is going to look pretty strong.
Maybe a question for Victor and or Rach.
Can I get a sense of what are the priorities.
And at what children levels are you comfortable running the CAC ratios for the bank.
Given the type of outlook that you've kind of presented to us.
And I guess implicit in that's where ACH and Victoria is whether or not you.
<unk> intends to continue to keep the drip on.
Thank you.
Good morning. So thanks for that question, we've been as a leadership team very focused on a accretive capital over the course of the year and as I said in my opening remarks, we've done that every quarter through organic capital generation.
Through our drip as well as through a strategic risk transaction, we continue to focus on our strong capital level, we look at it through three lenses.
What is the regulatory stance today vis vis the buffer that asks he's put in place.
How do we compare against our peer group and three is how do we view the macroeconomic environment. Our goal is to continue to maintain a strong level of capital and liquidity I'll hand, it over to Raj to take us through the numbers, how we think about the buffer how we think about the drip, but you can rest assured that that focus of ours as a leadership team on capital is Paramount.
Thanks for the question Sarah Let me just add a little bit to what Victor said.
First of all we have very strong capital generation on an ongoing basis, and we do not need the drip on in order to continue growing our business and delivering on the EPS targets that we've laid out if you look at any given quarter, we generate 25 to 30 basis points of capital net of our dividend payments and our R. O a.
Such that that allows us to grow our risk weighted assets in the high single digits and continue growing our business alongside with that and.
And so what that means is over the drip program over this year has been to absorb the headwinds and to drive our capital ratio up and we talk about how much we've driven the capital ratio up year over year 70 basis points, but that is after having absorbed a significant amount of headwinds through some of the legal charges.
Some of the regulatory changes and so forth that have happened. So that's what the drip has allowed us to do we're in a good place now if you look at those three factors Victor spoke about there's still a little bit of uncertainty around regulatory requirements, where they stabilize around the peer group and where it stabilizes. We're in a very good place entering north of 12, five and creating from there and.
'twenty 'twenty four and you know, we'll look at as we get more certainty on those factors once were satisfied that we're stabilizing around these levels on a relative and absolute basis, we're able to shut down the drip and able to continue growing our business through our strong organic generation.
Thank you.
Thank you I'm. Following question is from Nigel D'souza from favorite tests investment research. Please go ahead.
Thank you. Good morning. This is another question for Frank.
Performing credit losses this quarter.
A couple of factors here first it doesn't look like you're a whole lives are fully reflect the recent.
Softening macroeconomic outlook and specifically on home prices, but what I understand your economics team has negatively revised the outlook for our house prices for 2024, So just wondering how sensitive your performing.
Sales would be due that downward revision in home prices and maybe some comments on.
Why you elected not to apply imagine, although they could build more provisions given the challenging macroeconomic backdrop.
Yeah. So thanks for the question Nigel overall as I said, we feel very comfortable with our with our allowances. We reflected some of those adjustments last quarter and didn't feel like there was anything that we had to add materially this quarter four for those outlooks.
Generally and in across all product I I I would say.
It's probably debt service ratios Ah unemployment G. D. P that is more sensitive to two actual pcl's house prices of course would play a role in the mortgage allowances, but that is an area, where we actually have built quite quite a lot of reserves and then again.
We are reflecting a variety of outcomes and have have have adequately reflected that in our allowance.
Okay.
Thank you.
Thank you.
Our following question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning.
On this new Canadian mortgage charter I've gone through it and.
I am having a little difficulty finding stuff Thats brand, new Oh, just high level from your perspective is there anything in there.
That's new that affect CIBC that could affect earnings or capital. That's my first question.
Youre right, its very well aligned with our previous guidance and expectations. It's something that we do we work with clients in financial hardship and we try to get to the best possible outcomes with our clients wherever possible.
So there's nothing new that I would say that sticks out and would impact us as we already have established practices of how we work with clients in financial hardship. Two quick follow ups on that then so the the notion that banks can't charge interest on interest.
Presumably that only applies to mortgages that fall under that relief category under the charter it doesn't apply to existing mortgages that are negative.
They're not appropriate that fare.
It is our understanding and then finally on the hardship when mortgages fall into hardship.
Does that necessarily increase the capital requirements and is that meaningful.
Well it does increase capital requirements, but it is a very small part that would actually be captured under under the financial hardship rewards. So overall, it is not material or meaningful but it would impact capital requirements for sure. Thank you.
Thank you we have no further questions registered at this time I would now like to turn the meeting back over to Victor.
Thank you operator, and thank you for the questions today, we're gonna give it back some time I know you've got another call at 830 in another call today I want to thank you all for your engagement with us throughout the fiscal year.
This past year on our quarterly calls and in other forums, where we get to engage with you I said at the outset of my remarks that we have the right strategy at CIBC.
We also know how to operate in a fluid and uncertain environment.
Our proactive advantage management in a more challenging environment. This past year is an example of that a year in which we generated positive operating leverage a year in which we protected net interest margin in a year in which we strengthened our balance sheet throughout the year.
While continuing to make strategic investments to ensure our bank is well positioned for the future.
I have full confidence in our leadership team has full confidence in the deep bench of talent within our businesses.
And our experienced leadership team is there to deliver on our strategic priorities that we've laid out here and all of our businesses in the upcoming year.
Before we close the call I'd also like to recognize our entire CIBC team for their contributions as they delivered on our purpose for our clients our communities and for one another and of course for our shareholders. This purpose comes to life. Each year, that's CIBC Miracle day, taking place next week next Wednesday to raise fund.
For children's charities I'm looking forward to the event, it's a big deal for US It's a big deal for the community. It's something we started over three decades ago and I Hope you all participate wishing you all the best for the holiday season. Thank you.
Thank you <expletive>.
The conference has now ended piece.
Please disconnect your lines at this time and we thank you for your participation.
Yeah.
Yeah.
Yeah.