TSX Quarterly - Canadian Imperial Bank of Commerce (TSX:CM) | 2022 Q1

welcome to tsx quarterly the podcast that brings you publicly available earnings calls from companies listed on the toronto stock exchange in one convenient location gone are the days of looking through confusing websites you'll find the important information right here enjoy the call [Music] good morning and welcome to the cibc quarterly financial results call please be advised that this call is being recorded i would like to turn the meeting over to jeff weiss senior vice president 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 hirachi panosian our chief financial officer and sean bieber our chief risk officer also on the call today are a number of our group heads including mike capitaines u.s commercial banking and wealth management harry collum capital markets laura tattori atanasio canadian personal and business banking and john huntaulis canadian commercial banking and wealth management they are all available to take questions following the prepared remarks during the q a to ensure we have enough time for everyone to participate and finish on time we ask that you please limit your questions and re-cue as noted on q2 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 meeting over to victor thank you jeff and good morning everyone i'll start our call today with some comments on our first quarter results and the operating environment although intended to call over to haraj to view our to review our financial performance in more detail earlier this morning we announced another quarter of record results with adjusted earnings of 1.9 billion canadian dollars or four dollars and eight cents per share which is up 14 from last year our performance was supported by top line growth of 11 which drove positive operating leverage our first quarter results also underscore the ongoing strength of our highly connected franchise an increasingly supportive economic environment and steady execution against our strategic priorities we're earning business from new clients we're deepening relationships with existing ones and we're continuing to build our cibc franchise with the long term in mind we also reported an adjusted roe of 17.6 percent and a cet-1 ratio of 12.2 percent the latter being 170 basis points above the regulatory minimum credit quality remains strong as the economy improved and our clients maintain high levels of liquidity this morning we also announced the proposed two for one stock split that will be voted at our annual meeting in april our stock price is appreciated significantly thanks to our collective focus on living our purpose and driving consistent financial results that makes now a good time to announce a split which would make our shares more accessible to many retail investors turning to our business results in our canadian consumer franchise we delivered market share gains in deposits and loans that will that will be further advanced when we officially become the exclusive provider of costco mastercards in canada this serves to grow and diversify our credit card portfolio and we're looking forward to welcoming many new clients to our bank we also continue to invest in our digital banking capabilities to meet the needs of our clients today and in the future as just one example we've recently announced the fintech partnership with encino to digitize and automate the client journey enabling a faster more efficient and more transparent experience for our business owners and earlier this week we announced an exclusive partnership with pollinate to launch till by cibc in canada till spelled tyl is a cloud-based digital first platform for small and medium-sized businesses that enables entrepreneurs to accept payments administer loyalty programs and gain insights into their business it's already operating successfully in markets such as australia and the united kingdom with very positive feedback from business owners we view this as an opportunity to bring an improved modern service to over one million merchants in canada and strengthen our cibc client offerings in business banking in our north american commercial banking and wealth management business our unique structure provides us with an aligned focus on the private economy in both traditional and emerging industries we co-locate our teams we serve our entrepreneurial clients in an integrated fashion and we drive solid business across business referrals our structure coupled with a constructive economic environment led to double-digit loan growth and solid banking growth solid deposit growth and commercial banking on both sides of the border wealth management activity also remains strong with double-digit growth in assets under management in both canada and the united states driven by market activity strong investment performance and solid net flows in capital markets robust client activity and foreign exchange and equities drove double-digit growth in our trading revenue in the us we are delivering on our objective to grow with revenue increasing 36 percent from the prior year as well our capital mark differentiated capital markets franchise a business that is highly connected to the rest of our bank continues to deliver strong results revenue from non-traditional capital markets clients increased 17 percent over the prior year within our direct financial services business we made further enhancements to our global money transfer capabilities by enabling real-time direct money transfers to eligible visa debit and credit card holders in over 80 countries this added capability comes at a time when client demand for digital and content contactless banking options continues to grow it's one of many examples of how cibc is innovating at the forefront of the digital banking experience for our clients during the quarter we also advanced our shared ambition of building a more sustainable future and creating social and economic opportunities for underserved communities including an announcement of a new 100 million dollar commitment dedicated to investing in low carbon and client climate tech funds to support new climate innovations our continued focus on enhancing environmental sustainability was also recognized by cdp who reaffirmed our a minus rating placing cibc amongst the highest ranking canadian financial institutions and in the top tier of banks globally more details on our progress on this and other important esg initiatives will be available in our march publication of our sustainability report now before i turn the call over to haraj i'd like to share my thoughts on the operating environment we can all see that there's a fair amount of uncertainty driven by geopolitical tensions supply chain disruptions and inflationary pressures these factors may have an impact on economic growth and client activity in the near term recognizing this economic backdrop the most important thing i'd like to stress is that we've demonstrated over the past two challenging years that we have a strategic playbook that will not only support our clients but also manage our risk and allow us to invest for future growth we have a well diversified resilient portfolio a strong balance sheet prudent risk management and a dedicated cibc team that will continue to deliver for all of our stakeholders and with that in mind and with those comments i'd like to turn it over to raj for his commentary thank you victor and good morning all starting on slide seven we are pleased to have delivered another quarter of strong growth and profitability while maintaining the resilience of our balance sheet this performance was enabled by the investments we've made in our client-focused diversified business and purpose-oriented team diluted earnings per share was four dollars and three cents for the quarter excluding the amortization of acquisition related intangibles and expenses associated with the acquisition of the costco credit card portfolio adjusted eps was four dollars and eight cents while adjusted roe came in at 17.6 percent strong growth in revenues and pre-provision pre-tax earnings underpin this quarter's results and credit quality remains strong as sean will cover later in our presentation the balance of my presentation will refer to adjusted results which exclude items of note starting with slide eight adjusted net income of 1.9 billion for the quarter was up 15 from the prior year while pre-provision pre-tax earnings of 2.5 billion were up 11 revenue was 5.5 billion up 11 percent year-over-year driven by broad-based volume growth resilient margins and robust fee income across our bank including strong performance in our trading and wealth management businesses expenses were up one percent sequentially and ten percent from the prior year largely due to performance-based compensation continue to increase in investments to fuel sustainable growth the impact of inflation and increasing activity including business development across our business slide 9 highlights the drivers of net interest income excluding trading nii was up 11 from last year due to robust growth in client business on both sides of the balance sheet we anticipate continued nii growth supported by volume and strong margins assuming the rising interest rate expectations embedded in the current forward curve are realized total banknim was up two basis points sequentially underlying this canadian personal and commercial banking them was largely stable up one basis point sequentially benefiting from continued deposit growth and in aggregate relatively stable margins otherwise pnc nym is positioned to continue improving assuming the current forward curve helped by growth in higher margin unsecured lending including the impact of the costco credit card portfolio nim in the u.s segment was down three basis points relative to last quarter primarily as the impact of higher interest earning assets more than offset nii contributions from deposit growth consistent with our prior guidance we continue to anticipate downward pressure on nim as loan growth outpaces deposits and ppp income subsides flight 10 provides an overview of our sensitivity to interest rate increases an instantaneous and sustained 100 basis point increase across all interest rates applied to our balance sheet as at quarter end would have an estimated benefit of around 450 million on net interest income over the next 12 months approximately 60 percent of the sensitivity is to short-term rates while the remainder is driven by the gradual repricing of our balance sheet to longer rates as a result of this continued repricing all else being equal nii would be expected to benefit by over 800 million in the second full year following this type of rate shock turning to slide 11 non-interest income of 2.4 billion was up 11 from the prior year driven by growth in market related and transactional fees robust client activity drove trading revenues 20 higher than the prior year with particularly strong growth in equities and foreign exchange growth in card credit and deposit and payment fees was also robust reflecting the rebound in economic activity over the past year our north american wealth management business continued to benefit from both market appreciation and client flows driving strong growth and mutual fund and investment management and custodial fees which in aggregate were up 16 percent from a year ago turning to slide 12 expenses were up 10 percent year-over-year with higher performance-based compensation being the most significant driver excluding this expenses were up seven percent driven in part by a higher investment related to strategic initiatives to drive our continued growth excluding these initiatives expense increases were most significantly driven by inflation increased travel and business development activity and general business growth offset in part by efficiency improvements from past investments in business and infrastructure simplification looking ahead we intend to continue balancing our ongoing investments with efficiency improvements and expense discipline to achieve our financial objectives in fiscal 22 and beyond as we said in the past we have the ability to manage the pace of investment in the face of a more challenging operating environment in order to work towards our positive operating leverage target turning to slide 13 our balance sheet remains strong as we continue to deploy our capital and liquidity resources to support organic growth across our client franchise we ended the quarter with a c-21 ratio of 12.2 percent down 13 basis points from the prior quarter strong internal capital generation in the quarter was largely offset by organic rwa growth to enable our clients ambitions capital was negatively impacted this quarter by a reduction in unrealized gains in our hqla portfolios the continued phase out of the transitional ecl addback and our share buybacks going forward we will continue to prioritize deployment of our balance sheet resources towards organic growth and return of capital to shareholders while maintaining our resilient balance sheet position starting on slide 14 we highlight our strategic business unit results net income in canadian personal and business banking for the quarter was 697 million up 7 from a year ago pre-provisioned pre-tax earnings of over 1 billion were up 11 from the prior year reflecting continued momentum in our consumer franchise and market share gains revenues of 2.2 billion were up eight percent from the same quarter last year largely due to nii supported by broad-based volume growth and double-digit growth and fee income which benefited from mutual fund commissions and improved consumer activity expenses of 1.1 billion were comparable sequentially and up five percent from the same quarter last year driven by employee related expenses and higher spend on strategic initiatives moving on to slide 15 net income in canadian commercial and wealth management was 462 million up 31 from a year ago pre-provision pre-tax earnings of 624 million were up 21 from a year ago benefiting from an improved commercial outlook stronger markets and increased client activity commercial banking revenue was up 24 from a year ago driven by 19 percent loan growth and 12 percent deposit growth over the same quarter last year wealth management revenue was up 16 percent from the prior year driven primarily by higher fee based assets and commissions which benefited from market appreciation positive net sales and increased transaction volumes expense growth of 18 percent was in large part due to higher revenue performance but also reflects increased strategic investment flight 16 shows us commercial and wealth results in u.s dollars where we delivered net income of 188 million up 21 percent from the prior year pre-provision pre-tax earnings of 242 million were up four percent over the same period as continued growth and strategic client relationships draw drove broad-based growth and funds managed revenues were up 10 percent supported by strong growth across both commercial banking and wealth management units commercial banking momentum continued to benefit from the economic recovery driving average year-over-year loan growth of 13 in the segment excluding ppp forgiveness in our wealth business solid a um growth of sixteen percent benefited from strong client flows and market appreciation despite being somewhat tempered by this market performance expenses were elevated in q1 as anticipated up 16 percent over the prior quarter ever over the prior year the increase was driven primarily by ongoing investments in our team and business infrastructure to support our us franchise as it continues to scale we expect sequential expense growth to moderate in the coming quarters slide 17 speaks to our well-diversified capital markets business net income of 543 million was up 10 from the prior year while pre-provision pre-tax earnings of 708 million were up 9 underlying this revenues of 1.3 billion were up 11 driven by strong performance across all businesses particularly in equities in foreign exchange corporate banking and direct financial services expenses were up 14 driven by employee related compensation as well as continued investments in talent and technology in support of our strategic growth slide 18 reflects the results of the corporate and other business unit net loss of 47 million in the quarter compared to a net loss of 59 million in the same quarter last year due to lower provisions for credit losses offset partially by lower pre-provisioned pre-tax earnings as highlighted in the past expenses in this segment are impacted by the timing of enterprise initiatives expenses were up seven percent from a year ago but down 22 percent sequentially as the prior quarter included higher costs associated with these initiatives including the launch of our new brand we anticipate a net loss between 50 to 100 million a quarter in this segment going forward in conclusion we've started the year with strong momentum across our business with a record quarter which demonstrates once again the competitiveness and earnings power of our diversified franchise we continue to leverage our strong balance sheet and profitability to support our clients fuel organic growth and increased distribution of capital to our shareholders all while maintaining the resilience to withstand stress in the event of deteriorating macro conditions we expect our continued strategic investments to sustain this momentum but we maintain the flexibility to adapt our pace of execution to any changes in the environment in aggregate this positions us well to drive strong shareholder returns relative to the industry in a period of elevated uncertainty with that turn the call over to sean thank you horace and good morning in our first fiscal quarter of 2022 our businesses performed well across our bank while navigating more volatile markets and changing conditions credit quality remains strong as we anticipated we're starting to see some normalization in our retail credit portfolios though our clients continue to exhibit higher savings and payment activity than prior to the onset of the pandemic at the same time this quarter saw higher case counts and hospitalizations as a result of the omicron variant the return in some areas of more restrictive public health measures and the continuation of supply chain disruptions together with geopolitical developments these conditions have contributed to higher levels of inflation and market volatility we are monitoring these developments closely and while uncertainty persists particularly given events over the last 24 hours our allowance levels are strong and provide coverage for a variety of outcomes turning to slide 21 in q1 the provision for credit losses was 75 million compared with a provision of 78 million last quarter provision on impaired loans was up modestly at 126 million in q1 impaired provisions were up in canadian personal and business banking due to higher write-offs and higher delinquencies and in u.s commercial and wealth due to higher impairments in canadian commercial and wealth and in capital markets impaired provisions were lower as a result of a few reversals in our performing portfolio we had a provision reversal of 51 million this quarter primarily driven by a favorable change in our forward-looking indicators partially offset by credit migration which we have been expecting to see increase in our retail portfolio as clients begin to revert to pre-pandemic spend patterns overall credit performed well this quarter reflecting the strength of our portfolio and underwriting discipline by 22 details our allowance coverage by line of business in q1 we had a slightly lower allowance dollar level from the previous quarter resulting from the reversal in performing provision and higher impaired losses our coverage ratio was down by three basis points quarter over quarter mainly driven by our portfolio growth we continue to feel comfortable with our current coverage which remains above pre-pandemic levels slide 23 illustrates our lending portfolio mix which remains consistent with previous quarters reflecting good diversification and strong overall credit quality our total loan balances were 483 billion over half of which are mortgages the average loan to value for our our uninsured mortgage portfolio is currently 48 with an average ltv for uninsured mortgages originated this quarter at 66 the business and government portion of the portfolio has an average risk rating equivalent to a triple b and continues to perform well by 24 provides an overview of our gross impaired loans overall gross impaired balances were up slightly in q1 impaired balances in retail remained flat while we had higher impairments in u.s commercial and wealth as mentioned earlier notwithstanding a slight increase in the gross impaired balances in the quarter compared with q4 both the gross impaired loan ratio and our new formations are still lower than our pre-pandemic run rate by 25 details the net write-off and 90-plus day delinquency rates of our canadian consumer portfolios while net write-offs in our retail portfolio remained relatively flat in q1 we are seeing an increase in the 90-plus day delinquencies on a quarter-over-quarter basis and a few portfolios we expected to see an increase in delinquencies and write-offs from the lows experienced in fiscal 2021 as the benefits of government support are removed and clients liquidity and spending patterns start to normalize the experience this quarter is aligned with our expectations and are somewhat favorable to our initial forecasts lastly as we work towards the closing of the costco portfolio in early march we've been focused on integrating the data and clients into our systems and calculations you'll see the impact of this in our q2 results overall the credit quality of the costco portfolio compares favorably to our existing cards portfolio in closing we started fiscal 2022 with continued strong credit performance against the backdrop of the uncertainties impacting markets globally our allowance levels are strong and remain above pre-pandemic levels we are monitoring developments closely as expectations for inflation the rate environment and geopolitical conditions evolve and how that may impact our outlook and we are well positioned to support our clients through the continued uncertainty i'll now turn the call back to the operator thank you we'll now take questions from the telephone lines if you have a question please press star one on your device's keypad please press star one at this time if you have a question and the first question is from john aitken from barclays please go ahead good morning wanted to dive in a little bit in terms of the domestic commercial loan growth that we saw um five percent gross sequential and is noted nineteen percent year over year just wondering if we get a little more taller in terms of what type of activities are are driving this what are you seeing that the business is doing what's the the sense of the pipeline through the through the remainder of the year particularly with the the volatility we're seeing in the economy and what type of competitive response are you seeing in terms of uh in terms of the market share growth that that presumably you're gaining thank you for the question john so for the quarter our loan growth and for the quarter and for the year diversified by geography diversified by asset class in quarter one specifically 25 percent of the growth came from our real estate business the rest came from diversified notwithstanding all the challenges you hear demand for clients products is high they can push through price increases uh supply chain chain challenges aren't really impacting when inventory comes in late clients are able to sell it so when we talk to clients they're talking about growth they're talking about investment and it's reflected in our loan growth this quarter about forty percent of the growth came from new clients sixty percent came from increases some of the m a some of it natural growth interestingly the pipeline going forward is strong it's stronger than i've seen it since 19. so continues to be good you see our credit quality very strong so overall we're feeling pretty confident and the uh the competitive environment what uh are you seeing any i think pressures on pricing or uh or people moving down the credit uh credit card nothing more than we it's a it's an aggressive market pricing uh we don't really see you know there's deals from time to time where people are stretching and when people stretch too far we're not there we know our clients well if we stretch it's for our clients so overall nothing i've seen over the last year or so that's any different from history it's a competitive market and we're winning great i appreciate the color i'll read you thank you the next question is from ibrahim punawala from bank of america please go ahead good morning i guess uh just a ratchet going back to slide 12 around expense growth uh talk to us i think there was a lot of concern last quarter or actually the stock reacted negatively to your guidance for negative operating leverage in the first half year over year the efficiency ratio was relatively flat when we think about the seven percent or the ten ten percent year-over-year expense growth uh is this the high water mark both in terms of dollar and growth rate and should we expect the trade to trend lower through the course of the year and what does that imply when we think about operating leverage either quarterly basis or fully or any color there would be helpful morning abraham thank you for the question it's a good question and we think about this topic a lot because we believe managing our resources and deploying capital prudently for our shareholders is one of the key things we do here so let me let me start with uh reminding everybody how we think about our investments and managing our cost base and as i said we are very disciplined and deliberate in terms of how we allocate capital on behalf of our shareholders and we think in this environment where the banking landscape continues to evolve and uncertainty exists it's important to allocate capital to invest to transform our bank and to create sustainable competitive advantages and that's what we've been doing and alongside our balance sheet we do see the expenses coming through our income statement is one of the key resources we have to invest and we manage it that way our overall objective as we said is always to increase investments to generate growth while reducing operational expenses through efficiency and discipline and through that overall generate top line strong top line performance and generate positive operating leverage over time and we've done that successfully if you look at the pandemic years we've invested heavily in our business and our team and our clients we're seeing great results as a part of that we're seeing the market share gains and momentum across all of our businesses we've seen the accelerated top line growth you're seeing that this quarter double digits and same with last quarter and we've achieved if you look at that two year period we've achieved slightly positive operating leverage despite the increased investment and despite some of the disruptions to revenues from the pandemic and so coming into this year was guided to do the same thing and i think where we are now looking at q1 things look like they are at or ahead of plan internally we are delivering what we expected from our strategic initiatives in fact a little bit ahead in terms of benefits realization externally we're seeing a little bit of pressure uh from inflation maybe a little bit more than what we thought that's in that 105 on the slide here and we're obviously seeing with the higher performance that performance-based compensation so i think this is all according to plan and with this 10 percent number here we achieved slightly positive operating leverage which is better than what we had guided to and that's because of that top-line performance we've seen the revenue growth outpace the higher expenses that are being driven because of that revenue and that inflation piece so when we look at it forward from here you know we do think that on a full year basis the 10 percent watermark whether it's high water mark or not that will depend on performance we think at this point performance will continue to be strong and if continued strong performance exists this year we'll probably end up high single digits i wouldn't say double digits but probably towards high single digits expenses total rather than mid single digits because of that performance but at the same time we would feel confident about delivering that positive operating leverage now if the uncertainty that we're seeing does manifest in a slower top-line environment we have levers we can pull we have identified contingency actions we can take pacing of our investments and being thoughtful around that and we will still try strive as i said in my remarks to try to get to that positive operating leverage and just clarifications on those rats one when you talk about high single digits on back of a stronger revenue backdrop are you assuming some benefit from rate hikes in canada and the us in in that statement and is some component of that 71 million dollars on that slide does that roll off or does that become part of the run rate going forward thank you yeah thank you thank thanks for the follow-up ibrahim i think uh you know when you when you think about this on the strategic investment side those are investments that we're making that are going to continue increasing so we see for the foreseeable future here we're going to have that level of investment continue and and be sort of more elevated some of that turns into ongoing ongoing revenues for us and then some of it is going to be ongoing doe but we think that investment level is going to continue better thank you thank you thank you the next question is manny grauman from scotiabank please go ahead experience the power of 5g with t-mobile with faster 5g speeds nationwide you can upload your favorite video super fast or game on the go plus t-mobile has more 5g bars and more places so you can stay connected to what matters most from almost anywhere switch to t-mobile today the leader in 5g t-mobile has america's largest 5g network fastest based on medium overall combined 5g speeds according to analysis by hubla of speed test intelligence data 5g speeds for q4 2021 c5 device coverage and access details at t-mobile.com a fortune forecast update brought to you by the ohio lottery well hey there ohio we're tracking a lot of jackpot activity over the next few days we have rolling cash 5 and lucky for life in the forecast the entire week but we also have major drawings for powerball moving in followed by scattered mega millions drawings through the week with some classic lotto drags popping up here and there as well there are big drawings every day so stay tuned to the fortune forecast center for the latest jackpot developments lottery players are subject to ohio laws and commission regulations please play responsibly hi good morning uh harry uh in your segment we're seeing the average loan balances on a sequential basis up about 10 percent and i'm just wondering what's driving that is it utilization or are there other factors pushing those balances up as well good morning manny um thank you for the question uh as you know within capital markets we provide lending solutions really to a well-diversified client franchise this is truly a client driven business so that would include loans to our personal clients in in direct banking that simply in direct investing investors edge that would also include corporate clients particularly as we grow in selected industry verticals in the us and really continue to maintain our leadership position in areas such as renewables and energy transition and of course institutional clients which include insurance companies asset managers pension plans and private capital on both sides of the border the majority of that loan growth is from corporate and institutional loan growth particularly in the u.s where we see about 70 of that growth um we have uh we have been strategically and deliberately growing our loans in the us including institutional clients where we're providing asset-based financing that have very strong returns and really are very well collateralized so to answer your question it's it's very well diversified there is some increase in utilization as well but it really is driven by our the client demand uh for this resource in particular as we deepen relationships and build our client franchise and in in terms of that personal side of the business what kind of growth are you seeing there we're seeing a single digit growth in the in the simply platform uh we have seen some some growth as well in the investor's edge portion as we uh strive to grow market share so it's very well diversified across the platform but the majority of the growth is the corporate institutional loan growth and so just as a follow-up i guess what you're saying is like this is really what we're seeing is not so much um so we're not seeing uh um accounts get getting more nervous from a risk perspective this is actually sort of positive growth rather than people drawing on their lines because they're getting more risk averse is that correct yeah that's absolutely correct we've seen very robust client opportunities over the past few quarters you've seen our strong loan growth numbers we're really happy with the results and comfortable with the risk as we grow that franchise thanks thank you the next question is from doug young from desjardins capital markets please go ahead hi good morning victor i want to go back to just a comment you made on your partnership and i probably get this wrong but with tile t-y-l that's the cloud-based platform for businesses and just i'm wondering whether you can talk about is this an anticipation of the launch of open banking in canada because i do say that because australia and uk is where two areas where open banking does exist and the sme seems like it's a tremendous opportunity for open banking so hopefully just to get a little more detail on that sure doug good morning uh let me first address open banking and it was a question that was asked in the last quarterly webcast and it's one i want to reaffirm that we're ready for open banking we welcome open banking we encourage our government policy makers to think about both the offense and the defense in open banking when it comes to our bank specifically we're well set up for it both through our personal and business banking franchise as well as through our direct financial services franchise we've got strategies that cover the map and allow us to compete very effectively today we specific well this week we specifically announced two fintech related investments that relate specifically to our business banking franchise in our personal bank one is the encino platform that'll make lending easier the till platform it's still not tyl i learned that as well on the way has been very successfully implemented by national australia bank and by nat west bank we've made an equity investment in the underlying company called pollinate that runs till we think it's a real opportunity for us to serve small and medium-sized business clients laura and her team have been working with their technology team on at the forefront of this and he's going to hand it off to her to talk about why till is an important aspect of competing as the world changes sure thanks thanks victor and thanks doug for the question we're really excited uh with this partnership we are looking forward to be able to offer our business clients more services so this is really about having more of a an integrated ecosystem for payment processing so we think this gives us a great advantage where we can combine payment processing and small business banking services under one service provider and when we think of the work we'll be doing with encino that should actually help us as we digitize i'd say to grow faster and really offer better services and experiences to our client base i appreciate the color and then just a one for garage you may have disclosed this in here and if you have i apologize but you talked about the impact of triple p forgiveness on on nims have you quantified what that impact was on usms and unconsolidated nems and and how you anticipate that to kind of run off over the next year yeah thanks uh certainly happy to take that it's embedded in that other when you look at our nii slide and the waterfall chart in the bottom right corner there you'll see there is the other bucket within that other bucket is the impact of our ppp prepayment activity and the ppp income this quarter and what i can tell you breaking that out is this quarter it was actually down a bit we started seeing that moderating so on a sequential basis it was uh it was a negative to nim but it was offset by other general prepayments and repayment activity happening which sent the overall to positive in that other bucket going forward you know i'd say there's probably a few basis points single digit low single digit basis points left in terms of help to the nim from ppp and we do anticipate it to go away here in the next quarter or so it's a little bit unpredictable but that'll go away that's the impact to the u.s nim and it really isn't a material amount of nii to total bank and so we don't anticipate it impacting total banknon appreciate the color thank you thank you the next question is from nigel de souza from veritas investments please go ahead uh thank you good morning i had a question first dawn based on my calculations it looks like you still have a sizable amount of uh allowances on performing loans remaining from what you built during the pandemic and could you give us some color on whether there's a likelihood that you may not be able to fully release those excess allowances given the headwinds that we're seeing politically economically on inflation and interest rates should we start assuming that a good portion of those allowances may not be released uh thanks for the question nigel so we did build uh provisions as you noted throughout 2020 and then have been on a trend for the last several quarters in terms of releases there are a couple of different moving parts in terms of how that performing provision behaves and and i should say from a coverage perspective you know we peaked it at 89 basis points we're down at 61 basis points and we started uh immediately prior to the pandemic at 51 basis points so as that coverage ratio has come down it's been a combination of releases as a result of the improving economic backdrop and the economic outlook continuing to improve but also as a result of portfolio growth and so you've seen you know we've had strong portfolio growth over the course of uh the last couple of years and so as we add provisions performing provisions in you know in relation to that portfolio growth that starts to if you will consume some of that performing pcl build from here i mean we've certainly got uncertainty in the environment we have talked in prior quarters about the fact that the outlook if it continued to improve we would expect to see those releases we'll assess the uncertainties today as we go quarter you know as we move forward into into subsequent quarters but that trend has been one that we've we've been witnessing over the course of the last several quarters in terms of the releases as well as the consumption through uh organic growth in the in the portfolio so you know we set that every quarter and uh as we update our flies that'll help guide in terms of what uh what ultimately happens with those uh provisions okay great and uh if i could kind of just drill down a little bit further into that when i look at your flis on fly 35 uh and your indicator on the household debt service ratio could you give us a sense of your assumptions for rate hikes that are baked into your base case forecast and does the rate consumption differ for your upside and downside case yeah so that ratio we've built in our assumption was for 100 basis points of interest rate increases and inflation based on our our economic uh our economic team's outlook which was sort of a three percentage range uh and so that's built into those into those forecasts and then from there we've we've moved it up and down across the uh the upside in downside uh cases but uh from a base case perspective 100 basis points of interest rate is part of that outlook for the next year okay so it sounds like you're basing up the economic email look rather than the bomb market pricing at least at least six great hikes but okay that's uh that's useful caller appreciate it thanks thank you thank you the next question is from sora mobility for your email capital market please go ahead thank you i just wanted to quickly uh go to laura laura the segment uh the canadian personal and small business segment improvement in efficiency ratio quarter of a quarter versus last year and probably the lowest since i don't know q120 back then you had much higher net interest margins so can you just talk a little bit about how much of this is because of management of expenses as opposed to efficiency pickups from prior investments and and where do you think this may kind of trend understanding that it's hard to talk about a particular segment but i'm just trying to understand how you how you're thinking about this good morning saurabh and thanks for the question look as haraj mentioned earlier when ibrahim asked us questions so this is a bit of a you know derivative of that a lot of what we're seeing is the the investments and the hard work that the whole team at cibc has put in which is allowing us to deliver i'd say some real quality volume growth so we're seeing great top-line growth we've put in a lot of work to ensure that that will be consistent and sustainable as swaraj mentioned we're going to continue to do that that said we do expect to to continue to spend and invest in our strategic initiatives so i would expect we're going to see uh volatility quarter to quarter as we do that um but again as shiraz said we're going to be prudent in terms of what we do we're pacing our investments we are continually looking at ways to simplify how we do things in order to deliver more bottom line to our stakeholders so hopefully that answers your question it does but can i just drill down a little bit for example fte count is up versus last year but your efficiencies have improved so is it is it is it just more of a variable comp based fte do you expect the ft trends to continue i'm just trying to kind of get a feel for how what sort of control you have over your expenses and how much of this is um because of the better revenue environment no i think we have uh really good control over our expenses a lot of what you're seeing there are increases in productivity so we've talked about in previous calls some of the great tools we've put in place for our team members whether that's ecrm our goal planner etc so we have a lot of tools that are allowing our team members to be much more productive and stuff like tail and encino these will be additive to the productivity absolutely we need to i mean we need to start by implementing them rolling them out they are as good for us from a defensive perspective in terms of keeping our existing client base happy and bringing them the tools and experiences they need and it's also about growth for us and it will allow our team members to be more productive once we have those rolled out as well okay thank you thank you the next question is from gabriel duchesne from national bank financial please go ahead hey uh thank you um question on your rate sensitivity and i i i i'm not sure if you've mentioned this in the past but when you give that are you uh you know assuming uh can you give me give me what assumptions you've made about the the surge deposit so-called surge deposits are those not included excluded from your guidance and then as far as the you know pace of rate hikes you know what do you assume as far as passing through the deposit betas uh are you assuming fifty percent seventy-five percent tomorrow or something like i mean you probably won't give me a specific number but just to kind of get a sense of where that is yeah thanks uh happy for the uh question gabriel and so i think uh to start when you look at the disclosure there are a lot of assumptions in that as you mentioned with respect to the deposits that are more transient in nature those are included in this number when we provide that now we have treated those as more transients and so we've invested and hedged them accordingly and we do anticipate some of that to moderate and so uh you know we've we've managed that appropriately and we feel confident about the nii impact from those deposits and how that will progress from here but it is included in that sensitivity in terms of the assumptions we make and this goes a bit to uh to ibrahim's follow-up question earlier right what do we assume generally as we've said before when we talk about outlook and it was all over my script we base it on the forward curve so when we talk about our outlook in terms of top line when i talk about operating leverage expectations for this year all of that assumes that the increases that are in the forward curve today you know we if you look at since the end of january and end of the quarter when we first looked at this you know ironically despite everything that happened yesterday there was a bit of disruption we're not far off where we were before yesterday and in fact rates if i just look at you know three to five you're in canada you are in the teens basis points even ahead on the swap curve where you were at the end of january and so you've seen material run up over 100 basis points and based on our sensitivity you know you can do the math and how much you would expect that 22 earnings so that is something we expect but as we said earlier if that if there's any changes to that then we can manage that and one of the changes could be the assumptions on sensitivity as you mentioned now the first thing i'll say is when you look at our deposits only about a third of it frankly is sensitive to beta assumptions some of it is not interest bearing some of it is indexed right to prime etc and so the beta assumption really comes in only about a third of the deposits we've modeled that on the basis of past experience that includes modeling in any convexity that we would have experienced in the past we think about what the future environment might look like and all of that is reflected in our outlook and it's reflected in the sensitivity that we disclose now could it be different yes there's always risk around that but that's manageable if we see a little bit of variation in betas and frankly it could have come both ways right you could have opportunities to lag on the way up in terms of deposit repricing or there could be competitive pressures that push betas a little bit further so in either direction we have the ability to manage that and we feel confident the top line will behave generally as we've outlined well that's uh a lot to chew on um my next question is on the commercial growth 18 in canada john can you talk to me about the impact of uh you know lending to private equity sponsors like the the the firm the businesses they're acquiring and you know if you do any co-investment alongside these partners because i mean i've heard about those types of borrowers being a pretty important influence on commercial loan growth from all the banks so maybe throw some numbers around there so thank you for the question uh so we don't we don't generally co-invest so let's start with that okay in terms of our growth this quarter i'd say less it's not a big part of our business right we have an 80 billion dollar loan book this would be a very small part of that it probably contributed a few points of growth but nothing material everybody's focused on it is leveraging a bit higher in some cases yes loan funds have come in they've made the market more aggressive we focus on a few sponsors we're close to them we get a big part of their business and loan books in good shape so they're active for sure there's lots of private capital as you know so pick your sponsors go deep with them follow your clients good things happen so it's not like half of that growth or anything like that right uh no no no no no not not not not even close and what's the sign up bonus going to be on the uh costco card no i'm just kidding i'll wait i'll wait for that one thanks i hope you uh you have a card gabriel my wife is the costco shop person anyway thank you the next question is from darko mihilitch from rbc capital markets please go ahead hi thank you good morning i have a question on your capital markets business and what i'm interested in understanding is is how um risk weighted assets so your market risk didn't move quarter of a quarter is a pretty big jump in trading securities and those are average balances so perhaps you know maybe there was maybe that stuff nose dive at the end of the quarter but can you help me understand why um risk weighted assets especially market risk uh didn't move quarter over quarter it's quite contra to what we saw yesterday uh at rbc where you know they had a relatively big change in in market risk and and they suggested that you know there was inventory holds and so on so i'm curious as to maybe how you're managing uh i'm also curious as to how that works going forward in this volatile environment so maybe you can just talk about the movement in in market risk for me please good morning darko um so uh clearly uh trading securities have increased quarter over quarter and year over year reasonably high percentages of 16 and 23 really do uh to market appreciation we've seen growth in our u.s platform including including our our prime services business and our equity financing businesses really supporting our clients and providing hedging solutions so we're seeing market appreciation we're seeing in those businesses very well diversified by client by geography and also by product really it comes down to providing hedging solutions uh the trading revenues were obviously significantly higher partially on the back of that um and that is commensurate with the gross growth of our client franchise there were some other uh rwa increases maybe i'll pass over to sean to to comment on that yeah darko uh so there was there was increases in uh market risk rwa as a result of var and as far but those were offset in part by changes in our incremental risk charges as a function of updates to models so that was a benefit this quarter okay and and so is basically the read through then is your actual balances are up they didn't come down like spot balances didn't come down towards the very end of the quarter um and and so maybe in this increased volatility harry can you just talk about um how trading is holding up and and um if these are securities that are there really for hedging purposes i shouldn't be concerned about trading losses is that is that a fair statement that's a fair statement um as you know darko it's a it is a it is a very well diversified business it's you know we devote our var we devote all of our resources to our clients it's a purely a client driven franchise we're building that franchise and so we're seeing more opportunities to deploy resources to our core clients and it's working well and we're seeing growth across the platform across geographies across industries into the new economy and we're very pleased with those results we're very very comfortable with the risk and we've seen more disruption in the markets and we continue to handle that very well okay great thank you very much thank you thank you the next question is from mario mandanka from td securities please go ahead good morning can you just touch on the second part of garco's question when we ask specifically if the momentum is continuing into subsequent quarters on the trading side good morning so you know i guess i'll just reiterate again um well-diversified business and as victor said earlier differentiated capital markets platform we're really focused on maintaining that leadership position in our domestic market we're growing our u.s platform specifically in the new economy around renewables energy transition private capital and the product capabilities and i mentioned prime services as an example we're deepening relationships with our u.s corporate clients and commercial clients with our partners at bank usa under mike kapatitis we've seen significant growth as a result of that and at the same time we're enhancing our connectivity across our our commercial wealth and retail client base so it's very well diversified to answer your question uh we gave you an outlook uh a quarter ago where we said we would uh we're confident we could drive 600 million dollars plus in pre-tax pre-provision pre-tax earnings and we're confident that we can continue to do that uh going forward uh with a little help from market tailwinds perhaps as we've seen this quarter let me ask in a different way then um was there anything specific this quarter on the trading side uh any sort of special circumstance that would have driven such high trading revenue that you uh maybe you haven't seen in previous quarters anything special this quarter because it's it's up about 200 million dollars more than 200 million dollars from q4 to q1 yeah quarter four tends to be a slightly weaker quarter in the industry uh quarter one on quarter one uh it's it's nice growth commensurate with the growth of franchise i would say that i go back to my earlier statement this is a well-diversified business so across a platform and in particular we've just seen a very strong client franchise interest and growth and so we're working with our clients more closely than ever i think we stood with our clients and worked with them very closely in difficult times and as we move through this pandemic we are seeing our franchise grow very nicely okay um so the answer is no nothing stood out okay let me go to um victor if i could so this quarter long growth across the franchise looks exceptional and when i see that my mind sort of races to two a couple of things either you're going to give it back on the margin and we're not seeing that um long-term losses are going to pcl's are just going to elevate because you just maybe you've changed uh your lending practices a little bit or the third option which is i suspect what you're going to highlight is that the the bank is improved it's a better bank now than it was two years ago or whatever that is so assuming that that's your position and i suspect that is um what is actually different today from what the bank looked like a year or two years ago that's allowing for this market share on a sustainable basis mario thank you for your question i think you know as you've been following our narrative and our evolution is the bank has substantially changed over a number of years and the primary focus has been the culture of the bank the collaborative nature of how we serve our clients and a day in and day out focus on making sure that we can meet our clients needs and go deeply in meeting those needs existing clients and new clients if you look back over the last seven years and i look at some proof points is what's happening well our client experience scores have improved more than anybody else in the industry and dramatically and we still aren't happy with where we are that is a reflection of how clients feel about how we're serving them that's true in every single business across the bank what you're seeing is a bank that's client focused that's bringing the entire resources of our bank to serve our clients that's managing well within our risk appetite and that is investing in the underlying technologies to to modernize our bank as well so clients can self-serve on stuff that they can do day in and day out on their own but meet with our relationship managers where we're also investing across all of our businesses in private banking in capital markets commercial banking and personal banking to manage those relationships and that is the bank that we are today that's the bank that we will continue to be and you should expect to see us continue to deliver good results to our shareholders really good client experience results and quite candidly really good employee net promoter scores which is also something that i take great pride in people feel good about our bank people feel good about our client-centric strategy and that should translate to good financial results thank you thank you thank you the next question is from scott chan from canaccord genuity please go ahead uh good morning maybe you got going back to john or or sean on the canadian commercial segment uh you kind of talked about the uh improved commercial outlook but just on the credit side um i noticed last year i think the impaired loans was just one beep and and zero beeps this quarter so uh jonathan is there like metrics like watch lists uh that you could maybe uh you know talk about in terms of um you know how you envision um any normalization and impaired loans within the segment this year or next thank you scott so again uh fiscal 21 was remarkable from a loan loss perspective and and it's a lumpy business right so 21 was excellent the start of 22 has been very good uh the watch list looks good we watch we we look at things by risk rating size of credit the numbers are down there's nothing we see that causes us any great concern i'll pass it over to sean in case he has anything to add but so far so good and confidence the underlying confidence of our clients is good and you see very few clients today going backwards revenues are up margins are good people are doing well i know it's uncertain but so far uh it's good sean i just had the the outlook is based more on a view towards some level of normalization over the course of time how quickly that normalization comes is you know a function of what the economic backdrop is going to look like there's been you know there's additional uncertainty at this stage than there would have been when we uh you know we put a pin in our fli but we'll see what that looks like uh you know next quarter but to john's point i feel very good about where the the portfolio sits today and we'll continue to monitor for that and as john mentioned it's it's lumpy so you know we're always on watching for those types of stresses to develop but no thematics at this stage and just lastly john you um you you kind of sat in the slide slide five you launched the new cipc family office um if you don't building up a team perhaps you can maybe talk about the uh the build-up and potential opportunity within that segment and and maybe how it intertwines with welfare and your commercial clientele yeah again so thank you scott it's it's a big deal for us right we put the commercial and wealth business together because we knew what was coming on the private capital side we knew kind of clients would be exiting there'd be lots of money to be made entrepreneurs who make money we've helped them make the money via the commercial bank they trust us to manage the wealth so family office was just a natural evolution of our of our value proposition and we're again it's going well uh we've had more sales i tell people the story in the last uh two or three years have been more companies sold for greater than 250 million dollars and i saw in my prior 10 years in in in banking so entrepreneurs are getting wealthy we have no structure to serve them and the family office is a piece of that and the referrals family office or not between commercial and wealth uh are up big great thank you very much thank you and the final question will be from mike rizvanovic from stifle please go ahead hey good morning a question for sean just wanted to quickly um ask about the the trend in insolvencies and maybe this is more so on the consumer side so are there any impediments right now in this environment with kovit and maybe the courts being backed up is there any sort of backlog building in terms of when things are maybe running a bit more smoothly that you get a rapid increase in insolvency so i guess what i'm asking is are there any um hindrances in your ability to petition someone into into insolvency at this point in time i think that's that was more an issue earlier on in in the pandemic we have started to see and we're not seeing it in our portfolio just yet but we have started to see a an uptick in for instance business bankruptcies as i say we're not seeing it in our portfolio as yet but we're not anticipating a significant wave of that at this stage and believe we've got you know an appropriate level of provision coverage for uh this you know the stress that we anticipate over time in the portfolio just from a normalization perspective as opposed to any deterioration okay thanks for that and then just one quick numbers question for hrach just looking at the gains on financial instruments 259 this quarter somewhat elevated versus the recent run rate but a very lumpy number i'm wondering can you comment on what drives this is i'm guessing most of this shows up in the corporate segment is this something that you just purposefully can do and sort of pull the trigger on when it's opportunistic or is it more so driven by market conditions thanks for the question mike we don't manage any of our portfolios on an opportunistic basis in the corporate and other segments we've got treasury portfolios of hqla that portfolio grows as the hqla requirements of the bank grows as the balance sheet grows we manage those for stable nii and there is time to time opportunities to rebalance those portfolios in order to optimize returns and yields and that's what we do but it's not a lever we pull opportunistically there can be noise it can be market driven it could be rebalancing driven but certainly not something we do okay thanks for the color thank you this will include the question and answer session we'll turn the meeting back over to victor all right thank you operator and all of you for asking your questions i know they're very technical in nature and i hope we answered all of them i want to take this opportunity to thank our incredible cibc team who continues to operate with a client first mentality which is a critical component to the success of our bank our strong performance this quarter highlights the momentum across all of our businesses as we continue to build on our 2021 accomplishments and execute against our very clear strategic priorities this combined with a resilient balance sheet is enabling us to invest in client focused profitable growth initiatives and continue to position cipc for the future over the past few years we have invested significant resources to enhance our banking capabilities to grow market share and to streamline our cost base i think you can see all of this in our results we've seen evidence of our strategy success in our in our past investments as we deliver profitable growth and volume growth we're a very different bank today with a collaborative culture that's on the ascent and we're going to stay focused on a client first strategy with an investment roadmap that drives profitable growth over the short over the medium and over the long term i want to thank you for your interest in cibc and we look forward to speaking with you on our next call take care thank you the conference has now ended please disconnect your lines at this time and thank you for your participation for too long we've lived in a world of cancelled and delayed no more those plans you've been making they're on thanks to ongo the number one ranked at home rapid covet 19 test so that vacation where you get to swim with the pigs it's on your friend's wedding that was pushed back four times it's on the roar of the stadium it's on too on go covet 19 test results in minutes onco is available at letsongo.com radio and amazon this product has been authorized by the fda during the public health emergency only and only for the detection of proteins from stars cove too not other viruses the claim number one ranked is supported by ecri's usability evaluation conducted in december 2021. today what business needs most is creativity so let's create ai with integrity not bias security that hunts for threats in the wild cloud management that requires less management and new ways for business to do business let's create at scale right now together let's prototype let's tweak let's test let's adapt let's create something that changes everything ibm let's create learn more at ibm.com thank you for listening to tsx quarterly if you enjoyed the cast remember to leave a good rating and remember for any additional inquiries please consult the company's investor relations section on their website see you next time [Music] you