Canadian Imperial Bank of Commerce Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Client-Focused Strategy: Core results were strong, with adjusted net income of $1.9 billion and EPS of $1.93. Adjusted ROE improved to 14%.
• Canadian Consumer Franchise: Welcomed 640,000 net new personal clients over 12 months. Launched banking bundles for students and skilled trades. Imperial Service money in balance growth almost double year-over-year, with net promoter scores improving.
• Commercial Banking: Canada client sentiment improving, with average loans up 2% sequentially. U.S. focusing on deepening client engagement and rebalancing portfolio.
• Wealth Platform: Canadian wealth AUA up 20%, with retail mutual fund net sales ranking number one. U.S. investing in wealth business, added relationship managers and target markets. CRM tech improving client net promoter scores.
• Capital Markets and DFS: U.S. capital markets revenues up 24%. Connectivity revenue up 11% year-to-date. Piloted CIBC AI and GitHub Copilot, recognized for Gen.AI Initiative Technology Award. Committed to AI innovation and Indigenous reconciliation.

Segment Performance

• Personal and Business Banking: Net income was $633 million, up 20%. Revenues were $2.6 billion, up 6%. Expenses were $1.4 billion, up 7%.
• Canadian Commercial Banking and Wealth Management: Net income and pre-provision pre-tax earnings were stable to a year ago. Revenues were $1.4 billion, up 7% (strong wealth management growth of 15%). Expenses increased 13%.
• U.S. Commercial Banking and Wealth Management: Net income was $163 million, up significantly. Revenues were up 6% (non-interest income up 28%). Expenses were up 19%.
• Capital Markets and DFS: Net income was $476 million, down 4% year-over-year. Revenues were $1.5 billion, up 9%. Expenses were up 14%.
• Corporate and Other: Net income was $96 million, compared with a net loss of $98 million in the prior year, driven by higher market-related treasury revenues and CIBC Caribbean.

Guidance

• Adjusted net income of $1.9 billion and EPS of $1.93. Adjusted ROE improved to 14%.
• CET1 ratio ended at 13.3%, LCR at 126%, both well above minimums. Announced normal course issuer bid for 2% of outstanding shares.
• Expect mid-single-digit expense growth. Full-year impaired PCLs guidance in mid-30s.

Risks

• Macro environment uncertainties, including potential impact of unemployment on credit performance.
• Uncertainty around CRE portfolio stress and potential reversion to higher losses in that business.
• Volatility in interest rates and their impact on client borrowing sentiment and portfolio performance.

Question and Answer

Q: Good morning. Maybe going back, Victor, to your opening remarks around sentiment improving pipeline strong in Canada. Give us a sense of -- have we moved past the concerns around higher rates impacting the Canadian consumer, how to market, and economic activity? And are things looking -- are we on the other side of that? We'd love your perspective as you talk to your bankers, clients, around how likely it is that we do see the GDP rebound next year? And maybe Frank, we'd love your perspective on how that informs reserving in your outcome credit?

A: Good morning, Ibrahim. Thank you for your question. I would say that we're in the transition to getting to a better place. You know, we've only had one rate cut. So I think that sentiment will continue to prove both on the consumer side, as well as on the business side, as we continue to see more and more rate relief, which we are expecting both in Canada and the United States. I think the -- our commercial clients are feeling more buoyant, I think our retail clients, our consumer clients are feeling a little more tentative when it comes to borrowing, but with two or here rate cuts and you know five-year fixed mortgage is getting to a better rate a price point maybe slightly below 4% I think you'll see that sentiment become more solidified and we would see that as encouraging for the business going forward. Frank? Frank Guse: Yes, and Ebrahim thanks for the question. From a credit perspective, we continue to maintain a prudent outlook on credit performance overall. I think unemployment continues to be a headwind for a little while. It's very hard to say when exactly that will peak and get better. We don't expect it to go up dramatically, and that's what you see in our outlook and in our provisioning. But we continue to expect this to be a headwind. And then over time, interest rates will have a positive impact and will mitigate some of that pressure. But that will be lagging a little bit as well. So as I said, a more cautious or still prudent outlook on credit, but we also don't expect any material increases or substantive increases in those portfolios.

Q: Hi, good morning, guys. Thanks for taking my questions. Maybe first on the Canadian banking loan growth side. Deposit growth is 5%, loan growth is just 1%. Is that a function of being more selective with customers or are there may be some other person takes to consider there?

A: Good morning, Matthew. Thanks for the question, it’s Hratch, I'll take it and I'll speak mostly to the personal side and happy to have Jon speak to the commercial side of Canadian banking. Look on the personal side, I will just remind everybody, we have a very clear strategy. Victor spoke about this for the whole bank. It is the same in our personal bank. We have a focused strategy. We've always talked about building a relationship oriented bank. We're building the relationship oriented bank of the future. And that means selecting certain clients, who need a deeper relationship and value a deeper relationship with the bank, winning with those clients, having the best solutions, leading with differentiated advice, leveraging our data and analytics and leveraging our imperial platform and our digital capabilities to build deeper relationships with those clients. And we're digitizing the business to drive efficiency in the front lines and the back end. That's our strategy. And we've talked about what that strategy will deliver. We believe that strategy would deliver aligned with Victor’s comments, growth that's above market. We've talked about high-single-digits revenue growth in our business and we've been delivering that. Operating leverage over time, again, we have been delivering that. And improving mix and ROE, which are going to help the bank's profitability overall improve. And so that’s the strategy we have been following rather than trying to grow loans or deposits. So what does that mean today? I think what you're seeing on our balance sheet and on our income statement is a direct result of that. Yes, long growth has been slow. Overall consumer growth has been low-single-digits on the loan side. When you look at Canada, we've been a bit lower than that. We've been about stable on mortgages on a year-over-year basis. We've been about 1% on loans overall, as you said. But we're winning where it matters. We're winning money in. We reference the [Indiscernible] numbers in terms of long-term net sales. On deposits, when you dig into that 5% deposit number, you'll see, particularly in the last few quarters, we're starting to win in demand deposits, where margins are higher, where relationship value is higher, and we're being more selective on the GIC funds, where it's been competitive, margins are a bit smaller, and frankly, they're not that relationship oriented in terms of the business with clients. And so we're going to continue doing that. We've got an amazing team. We've got great data and technology supporting that. We're going to keep rolling tools out to understand our clients’ needs better and to enable our team to serve those. And we think with that, we'll continue winning with revenue and ROE. And I'm less concerned about the numbers on volumes, but as Victor said, we think volumes will accelerate as confidence comes back as we get into next year. So I'll pass it on to Jon on commercial. Jon Hountalas: Thanks, Hratch. And thank you, Matthew. We've spoken a little bit about this on prior calls. Our view of commercial lending over the last year was more cautious. So as a result, our loan growth was slower than market, and that was a conscious choice. At the same time, our loan losses are flatter down versus history, while industry loan losses have gone up. So net-net, we think that's a good trade-off. Going forward, we see interest rates come down, we've seen inflation more under control, our entrepreneurs' confidence level is increasing, so we have a more constructive view of the market. What I think you'll see going forward is loan growth that is higher than what we've had in the past. A quarter-over-quarter growth is an indication of that. So as you think about next year, higher loan growth, more driven by non-real estate business, in the real estate business, it continues to remain quiet.