Okay. We'll start with some introductory statements here. Before we begin, I'd just like to remind you all that Victor's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections, or conclusions in these statements. Listeners can find additional details in the public filings of CIBC. With that, Victor, we can start our session off. I think I wanna do the usual run-through, which is we start with capital. In your situation, we do have a situation where we have a capital base that with the DSB being increased, and you have some charges coming in Q1. Maybe if you can just walk us through where you see your capital ratio landing. Over and above that, what do you do and how do you manage your capital if potentially the DSB is raised later on this year or even earlier? Yeah, it's a good question. Good afternoon, everybody. It's nice to see you. Happy New Year. Thank you for your interest in our bank. We, on capital, we've been very focused on the organic deployment of capital. You saw that in terms of our performance last year and our investment levels, we could talk about that a little bit later. That is gonna be the focus going forward. We know, we've been very transparent about, you know, what lies ahead in terms of charges in the first quarter. We've looked at our forecasts, including credit migration, including the DRIP that we turned on with the Q1 dividend, we'll operate within that 11.5% zone, then toward the back end of the year, start building toward what might be a new level over a period of time. What I heard today was a 0%-3% buffer, and we will be in that 11.5% zone. If something should change along the way, if it's quick, is an equity raise a potential? I mean, how do you see yourself managing through? Yeah. from another 50%? I see us working to accrete capital over time as we start off with 11.5% and build over the course of the year. Working within that 11.5% zone is, I think, the right place to be based on everything that we've heard from our regulator. If they increase the buffer, we'll take management action to be able to do that. There's a number of levers that we can use in that regard. We don't foresee any equity raise based on everything that we know today. Does it mean, so has it changed anything, though, in terms of the way you think about managing capital going forward? And specifically, since you're gonna manage within that 11.5% range, does that necessarily preclude you from deploying capital inorganically for the foreseeable future? And how do you think about potentially growing your U.S. business? Which I know you eventually want to do. Yeah. Maybe you can just touch on your focus there. Every dollar of capital that we deploy that generates a risk-weighted asset, we'll ask ourselves, does it generate a hurdle rate that will generate capital over time? Therefore, not just on the loan or the credit itself, whether that's a consumer loan or whether that's a corporate loan, but all the other activities that we get from our client relationship. That's the way we run our bank. That's the way we've run our bank for many, many years now. There's a relationship focus, a client focus, one where we understand our clients, one where we do business that's highly aligned with our risk appetite, and that will generate growth across all of our businesses. In a world where, you know, capital is precious, you think about the RWA density, and you're making sure, absolutely sure that you get that hurdle rate achieved in those more capital-dense businesses. You mentioned RWA there in your response. I mean, are there other levers here that you can, like, significant risk transfer, maybe other, there's the also the Basel IV, let's call it. Yeah, the Basel IV adjustment comes in Adjustment. In the second quarter, we've got that kind of factored in as something that would contribute as well, in addition to the DRIP, in addition to significant risk transfer, things like, you know, securitizing your credit card receivables. That's a normal course of business, and that's also an avenue for freeing up capital. You know, more of that has an impact on your earnings, so we're very mindful of that. As I said at the very outset, the clear message that you as investors should get is that we have a plan that has us in the 11.5% zone of CET1 for a period of time, and we will work toward accreting, and we'll see how the rules change if they change over time. Okay. One of the things our regulator did say is that in a downturn, the buffers are there to be used as well, and we should be mindful that it's a spectrum, right? We can work well within that spectrum, and we'll manage according to it. Based on what we know, and based on what we all heard for the foreseeable future, we're offering a 0%-3% buffer, and we're at 11.5%. Okay. One of the things that the regulator touched on was the vulnerabilities in the environment here in Canada. Mm-hmm. specifically the indebtedness of Canadians, especially recent mortgages put on the books with very low rates. Maybe we can talk a little bit about your situation. You've been growing mortgages rather at a very good brisk pace the last couple of years. Maybe we can touch upon how you see these vulnerabilities and how it's manifested itself, if at all, in your mortgage book. You know, can you talk to the variable rate mortgagors? How many are hitting the trigger rate? How many are you concerned about? What proportion of your mortgage book should we be focused on here? Right. in this high rate environment? Let me try and bring it down to as much common speak as possible. Mortgages are the largest asset on our balance sheet, but they've come with deep relationships and more affluent relationships as we've grown our bank, and you can see that in our numbers and our client profiles. A much more attractive client base as we focus on our affluent growth strategy going forward. Two-thirds of our mortgages are fixed, one-third is variable, about that. Let's look at what's renewing this coming year as an example. We've disclosed some of this, but I'll go into a little more detail. Of the fixed rate holders of mortgages, we have CAD 22 billion or so that's renewing this coming year, right? Those clients were adjudicated on a mortgage qualifying rate of 5.19%-5.39%. As our superintendent said, that was a policy that was put in place a number of years ago to deal with a, you know, a very low interest rate environment. Those clients would be renewing today at 5.45%. That's point number one. Point number two is, on those mortgages, the loan-to-value is in the 50% zone. It's all in our disclosures. In the GVA and the GTA, it's even lower, where our footprint is larger. There's buffer room there as well. The third thing is, well, what's gonna happen to their payment relative to what they're currently paying? On average, those fixed rate mortgage holders will be paying CAD 350 more a month. If you look at the liquidity in the system, and this is where you connect all of the dots, there's, you know, you hear the CAD 150 billion number of liquidity. What does that mean in terms of excess liquidity at a client level? In 2019, that fixed rate mortgage holder had CAD 13,000 in excess deposits, in deposits. Today, they have CAD 21,000. It's gone up by CAD 8,000. You can do the math of they would renew at a rate that they qualify at, they have more deposits as a result of the lockdowns and all the stimulus, and they've created value in their home over that period of time. We look at that and we say, "This is not a bank credit issue. This is an issue of consumer lifestyle." More money will have to go from interest expense from discretionary spending to interest expense. On the variable component of that, it's about CAD 8 billion renewing this year. They were also adjudicated at the same 5.19%-5.39%. Today, that variable payment will go up by CAD 700 a month, so more than the fixed rate payment. Those variable clients, their deposits have gone from CAD 21,000 to CAD 26,000 over that period of time. They've gone up as well, and therefore, there's buffer room to carry that. With the rates that are presented today, variable at 6.05% and a five-year fixed at 5.45%, they're more likely to opt for fixed. Again, not a bank credit issue. loan-to-value statistics are similar. Excess deposits, similar. Mortgage qualifying rate at time of origination, similar. We feel that that's all manageable and that, you know, the biggest impact of a higher cost of money is on the consumer, and it's likely to manifest itself in terms of more tepid economic growth going forward. That's a great run-through on the averages. What about the tail risk? We always hear averages and, you know, I sit here and I think to myself, there's gotta be some proportion of borrowers. Yeah. that are at risk. We had in our fourth quarter earnings disclosure, those clients that are uninsured, that have a that are renewing over the next 12 months, that we would deem to be in the highest risk category. And the highest risk we define as shallowest client relationships. We have a small stub of those. That added up to $336 million. It's all in the webcast presentation. Those that had a FICO score less than 650 and had a loan-to-value in excess of 70% accounted for $20 million of mortgage balances. That's the tail. Does it maybe create a sort of situation where if it's more of a consumer impact, then we should start worrying about your credit cards and any other consumer? Look, we have. You worry about everything as the economy slows down, right? Yeah. You worry about how your clients are doing, the state of your employees, everybody, including shareholders. As the economy slows down, depending on how it slows down, in our view, likely negligible growth to a mild recession, depending on how we define it, you're likely to see some of that come in through the credit card portfolio, small business lending. This is, you just walk through the streets today and you can see a lot of the retail stores that have died a quiet death. That's likely to manifest itself in the system. We've been pretty clear about what that'll mean in terms of our provisioning and how we're postured for that as well. From our own credit card portfolio standpoint, we've added the Costco credit card vintage last year. In addition to our Aeroplan and Aventura, the bulk of which accounts for most of our credit card outstandings, those clients will be considered premium clients in the credit card portfolio space and therefore would behave that way from a credit standpoint as well. Maybe just the last question here to sort of wrap up on the vulnerabilities. Yeah. There's been some concern about commercial real estate. We've been touching on the consumer so far, but can you maybe talk about commercial real estate, your exposure there, do you have any sort of concerns here on the horizon with respect to CRE or commercial real estate? Let's look at all investor-related real estate, right? On the residential mortgage side, 12% of our residential mortgage portfolio are investors. Mm-hmm. On the whole, they have a much higher FICO score. Much deeper relationships, much lower loan-to-value than the overall book. We feel good about that group of people, in addition to the immigration flows that are driving more to rental demand. That's inevitable, particularly if you have to qualify for a new mortgage under the MQR rate that exists today. When you look at the commercial real estate book overall, we have one book in Canada. It's loan-to-value is generally less than 65%. A lot of multi-family, some office. A lot of the office relates to blue-chip institutional. In the U.S., a very small stub of office, a very small stub of retail, multi-residential is most of it. You're looking at, you know, loan-to-values that are manageable, a portfolio that's well diversified. You know, CAD 1 in CAD 10 goes to office, and those are largely institutional. Again, it's not a concern. We've looked at this. We look at this regularly. So far, we don't see any significant risks emerging there. I think the world has a way of repurposing commercial real estate, as, you know, consumers and businesses put new demands to use. Sounds like there's a feeling of comfort on the credit side, and yet, PCL rates are still expected to normalize. Mm-hmm. normalize significantly- Yep ... higher from a very low base. Not sure about, you know, if we think about the timing of how that normalization process works. All the same, you know, given that you guys have provided a bit of a range for PCLs, it does look like, you know, the consensus view is that you're not gonna grow EPS this year because of an increase in rates. Now, we can talk about margins in a moment, and maybe that's a swing factor. Mm-hmm. Do you think that's a fair assessment of your earnings power here in the shorter term, given a normalizing PCL? Our goal is to improve our EPS year-over-year. You know, we could kind of dissect all of that. There's the revenue and margin component as well as the volume associated with it. There's how do you manage your investment pace given how you've been investing in the past, and how should we be thinking about your credit portfolio. We think we're adequately reserved for. We've been building at a more robust rate than our peer group since pre-COVID to where we are today. We've been pretty clear that we think our impaired PCLs will be in the mid-20s to 30 basis point range. We look at our credit book regularly. We see how it's behaving. To date, it's still quite benign given what we're seeing out there. That's what our superintendent said broadly for the industry. Operating in that 25 to 30 basis point zone is something that, you know, we foresee will be the case for a period of time when it comes to impaired PCLs, and we think we're adequately reserved for on the performing side. If you wanna talk about EPS, Darko, we could talk about EPS. I'm not gonna give you an EPS number. I will tell you that, you know, on the margin front, we saw some margin erosion late last year. Mm-hmm. Largely a function of several factors. One is a mortgage business, which is a large part of our portfolio, as you know, where margins shrunk, paydowns decreased, which contributes to margin. You know, our clients benefited from moving non-interest sensitive deposits to term deposits in a fairly robust way. We grew deposits and money in overall in terms of market share. We had a higher LCR. All of that had an impact on where our margins stood. Now, we've also been very clear about how we manage our treasury function. We manage it for stability. If you looked at how our margins behaved as interest rates were falling, they outpaced the peer group. If you look at it through the cycle, what you'll see is a bank that manages for much more stability through the cycle. What does that mean for the year ahead? You know, in the early part of the year, margins will be stable sequentially, and they'll improve as the year moves on. That is our goal. Our goal is to continue to grow volume and market share in a smart, sensible way in terms of how we deploy our RWA, and that should deliver net interest income growth. Last year, we grew ex trading revenues. Our net interest income grew by 12%. This year will probably be in the upper single digits, maybe, you know, a double digit. We'll see. It depends on what happens with rate increases going forward. That helps our revenues. The non-interest income is very market sensitive, and we will just live by the outcomes of all of that. When it comes to our investment pace, we've been very clear that we invested to grow. We grew. If you look at 2022, we grew our revenues by 9%. We grew our PPPT by 7%. We grew at the upper end of the peer group because we invested. We invested in our bank. Those investments will continue to pay dividends going forward. The peak of those investments are increasingly behind us. You'll start to see our year-over-year expense growth over the course of the year head into the mid-single digits. Then you can do the math yourself. Well, do you get operating leverage or not out of all of that? Now you could get operating leverage if revenues kind of stay above the 5%, 6% range. That's our goal. You add that to a PCL number that we just shared with you, and all you gotta do is figure out the performing, and then you get an EPS number. Our goal is to grow that EPS number over the course of the year. As I said to our investors, our fourth quarter does not reflect the earnings power of our bank. It was a bit of an inflection point, if you will, because of where the economy and interest rates went over a very short period of time. Maybe touching on some of your commentary there around margins and sort of the sequential sort of stables sort of improving throughout the year. What if rates fall later on in the year? Well, if rates fall, based on how we manage our treasury function on a relative basis, we usually outperform. You know, I don't foresee that rate falling scenario anytime soon. I see rates stabilizing as we head into the middle of the year, it'll be some time before you see any monetary easing after that. It's interesting when we have CEOs up here discussing margins and sort of how they run their businesses. I totally get where you're coming from with respect to managing the treasury for a sort of smooth outcome. But one of the things we heard today was a couple of bank CEOs are saying, "Look, we are what we are because we have a strong deposit base." Maybe another CEO suggesting, "Well, we need to work on deposits and grow some of those low-cost deposits going forward," and that might be a bit of a focus. Where do you sit on that spectrum with respect to your deposit base? Do you view it as there's room for improvement? If so, what would be your focus, and what could you do to change and grow those virtually zero cost deposits? I mean, non-interest sensitive deposits are the lifeblood of banking, right? We have a good position, and we'd obviously like to improve upon it across all our businesses. We see our money in market share, which factors in mutual funds, term deposits, and non-interest sensitive deposits growing. It grew over the past year. We continue to have a sort of market leading offer when it comes to our own checking account offer in our retail bank. We have a no-fee direct bank. We see our account acquisition is growing at a multiple of our competitors in some of the most recent Finalta data. In the retail space, there's room for improvement. There's a plan to improve, both on the personal side as well as on the small business side. We're gonna be investing in the payments technology platform this year with a technology called Pollinate that will help us continue to grow deposits in the business banking space. In commercial banking, in both Canada and United States, we've done a good job of growing deposits. Most of our clients have treasury relationships with us, where we have those non-interest sensitive deposits. We'll continue to grow those. I think in corporate Canada, there's an opportunity for us to step up our game in non-interest sensitive deposits and the other areas in wealth management. Wealth management in both Canada and United States, as we build out our private banking capability in the U.S. as well as expand it in Canada, that should be a source of non-interest sensitive deposits. This past year, we were particularly robust in offering our clients attractive rates on term deposits. Part of it was a client retention strategy, part of it was a client attraction strategy. It's paid dividends, but it's come at the cost of some margin. Our goal is to franchise those clients going forward as we move into a, you know, a more benign, maybe a more flattening of the interest rate environment going forward. Yes, always room to improve on the deposit front. Okay. I'm gonna take this opportunity now- Sure. to check- Yeah. ... a few questions. one question. A couple of them have been, sort of uploaded here. With the recent lawsuit provision, please describe how this impacts your operational RWA. Is this a significant capital issue for you in 2023? Yeah. again, the cases that we settled, which included the overtime class action last year, the Green action last year, that's all in the capital, we reported in the fourth quarter. Right? Just to be clear. It's accrued, you mean? That's. Those two. ... the legal provision for it. The most recent one is the 30 basis points that's associated with the Cerberus lawsuit. Yep. Which I've already said at the very beginning, is factored into our 11.5% operating range for the first quarter. An operational risk charge also happens with that. That's also factored into our forecast as we head into the back half of the year, depending on where that ends. We're appealing that lawsuit. Right. We've already seen the damages come down in the most recent ruling, and we will appeal it. That's all factored in, into the 11.5% range that I described earlier. Okay. Another question is: How impactful is lower mortgage growth to overall bank earnings power? In the short term, it doesn't have a dramatic effect on the bank's earnings power. The bank's earnings power comes from a the spectrum of our personal businesses, from credit cards to mortgages to deposits to manage money and wealth management. That has a small effect in the short term. It has a more notable effect over the medium term because you wanna grow clients, and usually you grow that by establishing a residential mortgage relationship with them, especially with the newcomers to Canada who are increasingly looking to buy a home. You know, maybe if I can add on to that question, 'cause it's been something that we saw last year, was we think we were seeing negative spread in some mortgages being put on. It was pretty competitive. Funding costs went up. Yeah. It- Last year, you know, what happened in a very short period of time to the Canadian interest rate environment was quite acute, right? As a result of that, you had a pockets of time, end of October, early November, where you had mildly negative mortgage margins, right? That's not affecting the back book, that's affecting the front book. Sure. That is now course correcting. A business that generally generates 60 to 80 basis points in margins was kinda hovering in the zero range for a period of time, not for us, but for the entire industry. We're still competing with, you know, formidable competitors. That's now improving. It's not where it was initially, but our view is that will occur. Our view that margin risk is a risk for the industry over the next six to eight months in terms of interest rates all settling down, the cost of funding and the pricing of mortgages. Okay, great. Thank you. Another question from the audience. In case you want to raise more capital or refinance existing debt, what is your preference for now? Common, preferred, LRCN, institutional preferred. This kinda goes along. This broadens the spectrum from just pure common equity to TLAC and so on. Do you have a preference and are there any pressures anywhere else along the capital? We're well-capitalized all across the entire capital spectrum. Okay. Yeah, we know, we have a view of where the world is going and what we need to do to continue to adjust to it. There's always buffers there on every single tranche of capital that we have. I guess a question that has come up here, and I've asked this before, and it's interesting. There are big tax disputes related to the dividend rental arrangement, about CAD 1.6 billion for CIBC. How do you view this risk and any visibility on when it will settle? That is something that is being litigated with the CRA. We don't really discuss litigation in public. Mm-hmm. That is something that's affecting the entire banking sector. I will say that our bank has operated within the confines of the Income Tax Act. You know, we continue to fight that just like every other financial institution in the country is. I think an extension of that question, though, would be sort of along the lines of when we saw that like the Cerberus thing sort of jumped out at us, it was a bit of a surprise. That was idiosyncratic to us. Right. Yeah. Yeah. Yeah. How big of an, you know, idiosyncratic risk could you manage now without having to raise capital? Another CAD 1 billion? Another CAD 2 billion? At 11.5 versus 11, we have CAD 1.6 billion in excess capital. Versus the 8% minimum, we have CAD 11 billion of capital. Capital's not the issue of the day. We have capital. We're managing against it. In this business, you always have some form of litigation that you have to deal with. I'm happy to say that, you know, we've been managing our business well. We haven't had things filed against us in many, many years, other than this TRS one, which is not idiosyncratic to us. It's an industry thing with CRA. I wanted to also ask you about credit cards. Mm-hmm. You know, there's work out there being done to lower the interchange fee. You know, I've asked this of one other CEO, but I'm curious on your take on the potential impact to you if it were drastically reduced. How would you respond? What do you think the prospects are for a drastic reduction in the interchange fee? I think any drastic reductions in the financial services sector on any front is not a good idea. You can look at any variable, it's always best to manage it with some level of predictability, whether that's capital, whether that's funding, whether that's how you adjudicate a mortgage to interchange fees. Right? If there is an adjustment, typically what happens in a country like ours, where rewards form a big part of that interchange fee, almost entirely the interchange fee, rewards would get adjusted for consumers. There's a few markets where rewards matter. Two of the largest are on this continent, right? Canada and United States, where interchange fees are much higher in the U.S. than they are here. Ours have been heading down. We'll see where that goes. We'll just manage based on how it comes out. It would be ill-advised to do any large changes. Yeah, I wonder for you in the sense that you got this Costco portfolio. Mm-hmm. That's, I guess, part of the reason for getting that portfolio is, you know, the consistency of that consumer base, of that customer base. Mm-hmm. I would say, of being so- The Costco portfolio's economics, we've been quite clear when we acquired that portfolio that over the course of the relationship, which is lengthy, we will more than earn our cost of capital just on the credit card business, that the first couple of years are an investment horizon that we're investing in, so they're not a contributor to pre-tax, pre-provision earnings. That over time, and we've already seen early signs of it's a very affluent client base, and the economics from franchising make the returns very accretive. Well, I guess where I was going with that is a big drop to the interchange fee would harm that. If there is. You know, Darko, I don't wanna speculate on where that's gonna go right now. Sure, sure. As I said, I think the best policy is in thoughtful change. Okay. Yeah. Fair enough. maybe just let me check. Any other questions? Of course, yeah. There's a lot of them here, so I can scroll through them. Your disclosure on variable rate mortgages being 39% of your book with 35-year amortization and interest only, how do you manage that book of business? I don't know about the 35-year amortization, but an interest only. Can you maybe touch on your variable rate mortgage? I mean, I think you said it was close to 1/3. Yeah. It's in that 35 to forty-something. Okay. Let's I guess effectively what this is getting at is, specifically within that book, are we seeing an extension of the amortization period to a very, very lengthy levels because of where rates have gone, and how do you manage that? Every client situation is specific, right? We have 240,000 or so variable rate holders. We've reached out to 50% of them. We find that one in six have taken action- Mm-hmm. of one form or another to deal with their specific situation. Others, because of the ample amount of liquidity they have, are just riding this out. Our most important action that we have right now is to manage our clients on a proactive basis. We are reaching out for them. We're not waiting for the renewal to occur. We're presenting them with the various options, one in six have taken action, the other five in six haven't, that's also in line with everything else you see in our portfolio. Excess deposits, employment remains robust. Many people have created value in their homes. You know, that's a big deal. Is a key part of that telling the customer, "Hey, rates are high. Don't go for a five year. Go for a one or two year, and hopefully rates go down"? What is... Look, again, it depends on-. Sure. Yeah. You know, 1.5 years ago, when the 10-year rate was at 2.2%, 1% of clients would take it, even though you present it to them all the time. Yeah. They say, "Why would I do that?" I mean, I think many people are adjusting to the reality of a world where interest rates are no longer in a precipitous 40-year decline. They are likely adjusting to a new cost of money. It depends on every individual's specific situation. Okay. You've got some mortgage holders where parents can be guarantors, or they've helped with the down payment, and they can help some more as well. There are situations like that as well. Right? Oh, don't remind me. I have kids. Maybe with that, we're running out of time. Yeah, I see that. Victor, I'd like to give the CEO the last word, so maybe you can just give us what your key takeaways are for investors and shareholders for CIBC for 2023. Yeah. Thanks, Darko. Thank you for listening to me. I know you're hearing all of us, some of it just kind of morphs into, like, some similar messages and some different messages. What I'd like to just convey is a couple things. One is CIBC is a strong bank that's completely transformed from the bank it was. Some of the things that we've dealt with more recently are legacy issues of the past, the fourth quarter was dealing with a change in the economy based on our current portfolio, we're adjusting to that. As I said to all of our investors, our bank has the ability to contribute to shareholder value and generate earnings growth. A fundamentally transformed bank, one that is investing in our business, and you see that both in terms of the pace of investment, but also in terms of our performance and top-line revenue growth and pre-provision earnings growth. We're a bank that also recognizes the economic environment that we're going into. We're expecting softness, and we are adjusting accordingly. We think we can continue to grow volume. We think we can, over the course of the year, improve our margins. We are going to, and you'll see this, continue to glide path our expenses and our investment rate to be reflective of the economy, but also where we are in the strategic investment cycle and target mid-single digits. We've got a very clear focus that we outlined on Investor Day on how we're gonna generate value. Judge us on how we're doing in the affluence segment, where we are growing at twice the rate of our, of our current portfolio. Judge us by how we're serving Main Street Canada, not only through our personal bank, but through our direct bank, which is a growth engine for us. Judge us by how we're doing in some of the other emerging areas of banking, like our Direct Financial Services business, our Innovation Bank, and how well we've diversified our bank into the U.S. When we did that at the time, the remarks were, "You pay too much. I'm not so sure this is gonna earn a return." It's been a contributor to value and diversification for our bank, and that's what you're gonna get going forward. In spite of the headwinds that exist in the economic environment, I'm encouraged by what I think our bank will deliver over the course of this year and next year and adjust any regulatory realities as new ones emerge based on what our superintendent said earlier. I feel very comfortable where we are in our capital, being able to operate at 11.5%, being able to over time, create capital. You know, our goal is to deliver for our shareholders time in and time out. I know sometimes we haven't done that. Generally, generally and more consistently, we will do that for you. Okay. Great. With that, we'll wrap up this session. Thank you again. Thanks, Darko. Victor for participating. Thank you. Cheers. Thank you.