Good morning, and welcome to the CIBC Quarterly Financial Results Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Geoff Weiss, Senior Vice President, Investor Relations. Please go ahead, Geoff.

Thank you, and good morning. We will begin this morning's presentation with opening remarks from Victor Dodig, our President and Chief Executive Officer, followed by Hratch Panossian, our Chief Financial Officer; and Shawn Beber, our Chief Risk Officer. Also on the call today are a number of group heads, including Mike Capatides, U.S. Commercial Banking and Wealth Management; Harry Culham, Capital Markets; Laura Dottori-Attanasio, Canadian Personal and Business Banking; and Jon Hountalas, Canadian Commercial Banking and Wealth Management. They are all available to take questions following their remarks. During the Q&A, to ensure we have enough time for everyone to participate, we ask that you please limit your questions and requeue. As noted on Slide 2 of our investor presentation, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially. With that, I will now turn the meeting over to Victor.

Thanks, Geoff, and good morning, everyone. Fiscal 2021 was a very good year for our bank, one in which we delivered strong financial results, and importantly, we positioned our bank well for future growth. On our call today, I want to cover 3 things: first, highlight certain areas where we've made strong strategic progress over the fiscal year; second, provide you with our view on the economic environment as we enter this coming fiscal year; and third, after Hratch and Shawn's review of our fourth quarter results, I'd like to share some insights into our strategic priorities going forward that we believe will build on the strong momentum we've established and enable further growth going forward. Our primary strategy over the past number of years has been to build a modern relationship-oriented bank with a strong core franchise and a diversified earnings mix. You can see that on this slide. Our success in executing on our strategy is reflected in our earnings growth in each of our business units, improved client experience scores and further earnings diversification. In fiscal 2021, our laser focus on executing our strategic priorities delivered record results with adjusted earnings per share of $14.47, which is up 49% from 2020 and ROE of 17% and positive operating leverage. Our capital position remains strong, ending the year with a CET1 ratio of 12.4%. These results exceeded 2021 key performance targets and our rolling 5-year total shareholder return of 92% outperformed the S&P TSX Banks Composite Index. Our strong results support the announcement this morning of our share buyback program of 10 million common shares, which is just over 2% of our outstanding and $0.15 dividend increase to our common shareholders, while maintaining our dividend payout ratio target of between 40% and 50%. Our results were driven by…

Thank you, Victor, and good morning all. I'll begin my remarks with a review of our fourth quarter results on Slide 13 before covering highlights of fiscal 2021 and providing some color on our expectations for 2022. Capping off the successful 2021, our fourth quarter results reflect strong performance across our diversified client franchise with solid top line growth in all of our business units contributing to record revenues. Combined with strong credit performance, this allowed our bank to generate robust earnings growth over the prior year and maintain the resilience of our balance sheet. Reported earnings per share of $3.07 for the quarter included a number of items of note detailed in the appendix of our presentation. Excluding these items, adjusted earnings per share was $3.37. The balance of my presentation will refer to adjusted results, starting with Slide 14. Adjusted net income of $1.6 billion for the quarter was up 23% from the prior year, while ROE of 14.7% improved by 120 basis points over the same period. Pre-provision pretax earnings of $2.1 billion was up 6% from a year ago or 8% excluding the impact of currency translation as record revenue more than offset the increase in strategic investments across our business. Revenue of $5.1 billion was up 10% year-over-year, driven most notably by solid momentum across our Wealth Management and P&C banking businesses, benefiting from broad-based volume growth as well as higher market and transaction-related fees. Expenses were up 13% from the prior year, largely due to performance-based compensation and the increase in business and enterprise investments we had previously communicated. Slide 15 highlights the drivers of our continued improvement in net interest income. Excluding trading NII was up 8% from last year, helped by double-digit growth in client business on both sides of the balance…

Thanks, Hratch, and good morning. Throughout fiscal 2021, we saw significant progress in economic reopening supported by vaccine campaigns and lifting of the more restrictive public health measures that had been in place at various stages during the pandemic. While some of the goods industry sectors experienced supply chain disruptions that continue today, service sector activity has partially recovered, supported by job growth, higher savings from fiscal measures in 2020 and low interest rates. Both business and consumer credit quality also showed improvement over the year. We've had a strong fourth quarter and fiscal 2021. And as we enter a new fiscal year, we remain comfortable with our risk levels and are well positioned to continue to support our clients and for portfolio growth. Turning to Slide 27. In Q4, the provision for credit losses was $78 million compared with a provision reversal of $99 million last quarter. Provision on impaired loans remained near historic lows $112 million in Q4. In Canadian Personal and Business Banking, the impaired provision remained low and stable quarter-over-quarter. In Canadian Commercial and Capital Markets, impaired provisions were up slightly quarter-over-quarter as Q3 benefited from a few reversals. Partially offsetting these increases, our U.S. Commercial and CIBC FirstCaribbean experienced lower impaired provisions this quarter. We had a provision reversal of $34 million in Q4 in our performing portfolio, primarily driven by favorable portfolio credit migration, partially offset by an unfavorable change in forward-looking indicators and an unfavorable impact due to normal course model parameter updates in retail. Overall, we've had another strong quarter of credit performance, reflecting the resilience of our portfolio and improving economic conditions. Slide 28 details our allowance coverage by line of business. As mentioned earlier, we had a reversal in performing provision and a low level of impaired loan losses. These…

Thanks, Shawn. So as we wrap up a successful 2021, I'd like to share our thoughts on CIBC's strategic focus for 2022 and beyond. As we assess our position today, we believe we're a bank built for growth. Our newly launched branding introduced in September is not a promise of something we're trying to be. It's a statement of the bank that we've worked hard to become. Our evolution as a bank is also evident in our financial performance. And our new headquarters, CIBC Square is going to be the hub for innovation, inspiration and continued value creation, and we look forward to continuing to welcome back our colleagues here in short order. The foundation we built has positioned us well and allowed us to navigate through challenges and disruptions to emerge as a winner. Going forward, our first priority is to continue to elevate the customer experience in an increasingly digital world across all of their interactions with our bank, by: one, simplifying processes and creating seamless and end-to-end client experiences; two, providing technology-enabled advice solutions for our clients; and three, creating more personalized client experiences and strengthening client-facing services. For our CIBC teams, we're investing in leading technologies to make it easier to deliver on our brand promise and build lasting relationships with our clients. Our second priority is to focus on higher growth high-touch client segments where relationships really matter by one, prioritizing our affluent and high net worth consumer offerings; two, focusing on advice-led corporate relationships where we can offer specialized expertise; and three, scaling our commercial and wealth platform that is aligned to the fast-growing private economy. We will leverage our differentiated business model with strong cross-bank connectivity, again, a competitive advantage for our bank to meet the complex needs of our clients on both sides of the border and capitalize on their growth opportunities. And our third priority is to invest in our future differentiators within faster-growing market segments, and these would be Direct Financial Services, our innovation banking unit and our energy transition and sustainability franchise where we have unique assets, competitive advantages, and significant opportunities to build on leadership positions and grow our business and grow our client relationships. In closing, we have engineered our organic growth plan to be flexible so that we can adjust to the economic reality of the day. In an environment that's robust and constructive with strong GDP growth on both sides of the border, we will continue to invest at a more elevated level. We are a bank built for growth, and we are a bank on the ascent. We have a balanced strategy to compete on all fronts and the right resources in place to grow. We are confident in our ability to earn business, to attract talent and to deliver for our shareholders. With that, I'd like to open the call up for questions and pass it on to the operator.

. Our first question is from Gabriel Dechaine from National Bank Financial.

First is a bit of a housekeeping 1 for Shawn, Stage 2 classification is the higher-risk performing loan category, up 25%. You mentioned the model parameter updates. Is that the main driver there, not negative migration? And if that's the case, can you give me some broad strokes on maybe what sort of assumption changes you made?

Yes. Thanks for the question, Gabriel. So you're absolutely right. It's the model parameter updates that have driven the lion's share of those -- the shift from Stage 1 to Stage 2. So this is part of our normal course review of our models. We are continuously updating them as part of annual review cycles. So we are looking at a variety of different underlying drivers and items like delinquencies, utilization rates, et cetera. And that's long time series data that goes into those models. So -- this isn't a reflection of a particular view on credit deterioration, more a function of the models and then the impact that IFRS 9 has in terms of when we make those types of changes. So from an outlook perspective, I still feel very good. And as I said in my opening remarks, from an impaired loss perspective, we're looking at sort of low to mid-20s as the economy reopens and activity normalizes.

And Hratch, the expense operating leverage commentary. You made continued investments in the business in 2022. It sounds like we're going to keep going with elevated expense growth perhaps medium-term objective of positive operating leverage, does that mean next year we might not have that outcome? It sounds like maybe first half will be a little bit soft. Second half, you'll get back into positive territory. And if you can clarify like what you're targeting for absolute expense growth, is it mid-single-digits, is it fixed this year on an adjusted basis, but 2/3, I guess, from variable comp. Maybe clarify a few of those points, if you can?

Sure. Thanks, Gabriel. Thanks for the question. And it's a good opportunity to elaborate a bit on the comments I had in our opening remarks, which I think on an important point. And I'll start by saying the way we've been managing our investments and the growth of our expenses on a net basis, we think, is working for us. We are continuously investing in our business and our strategy is to generate positive operating leverage but to do so through the top line growth rather than containing expenses or underinvesting. And so this year, we did that. And we had signaled we'd be at the low single-digit level with respect to expense growth and without performance-based compensation and mid with, and we achieved that. And at the same time, we achieved positive operating leverage because we are already starting to see some of the benefits of those investments. So operating leverage for the year was positive, almost 1%. Next year, we'll continue to invest. And in fact, as I referenced, we do see our year-over-year investment against the strategic initiatives bucket, which we will provide more and more transparency to you as we've started. We see that increasing. And those are investments that will drive benefit and returns for our shareholders. We also see that it's probably driving about half our growth last -- next year and so more proportion of the expense growth than it did this year. And so that will be half of it. The rest of it and why the picture next year maybe is a little bit different than the low single digits without performance-based comp this year is because we also see some inflationary impacts out there. We do see impact of the world returning back to normal travel business development activities and…

Okay. revenue growth this quarter and nothing to sneeze at. So yes, clearly, the expenses are -- investments are helping out, paying off.

Following question is from Meny Grauman from Scotiabank.

Victor, in Slide 4, you show the improvement in terms of geographic earnings mix that you've been able to achieve at 21% coming from the U.S. I'm wondering, as you think about the future, where would you ideally like to get that mix?

Well, Meny, thank you for your question. Slide 4 reflects the bank that we're -- we've been building over time and the bank that we will continue to build. We have always said that we're focused on diversifying our revenue streams beyond Canada. We've achieved that. You look at this slide, in 2016, we were generating $86 million in net after-tax profits in 2016. And this year, it's well over $1 billion. It's $1.2 billion. That is a dramatic change. We made a smart investment in the PrivateBank that has continued to prove that we are a client-focused bank that can grow. We've retained our clients. We've retained our team and CIBC's footprint in the U.S. continues to grow in that regard. We've also done the same thing in Wealth Management, where we've pulled together 3 separate investments that has grown from zero to $100 billion in assets under administration and become the fourth ranked wealth manager according to Barron's, in the United States. And we also are growing our capital markets business and have almost doubled it over this period of time in the United States. As we go forward, our goal is to continue to strengthen our hand in Canada. It's our home market and we don't plan on seeing any territory. In fact, we plan on growing market share across all of our businesses, including some of our new and emerging businesses. And in the U.S., we're at 21% today, I would see us going over 25% over that 4- to 5-year period of time. And I believe we can do that largely through organic growth with some smart tuck-in acquisitions here and there. We're really pleased with what we've achieved. Everything that we've outlined to our areas we have delivered on, and we plan on doing that going forward.

And that's what I was trying to get at that -- I mean, you highlighted the success you've had in the U.S. And I was wondering, given that success that we clearly see in the U.S. Why not look at more significant acquisitions? And it doesn't sound like your views have changed on that, but just wondering why that is, just given the kind of performance you've been able to generate from PrivateBank?

Well, we're seeing really, really good organic growth. I can pass it on to my colleague, Mike Capatides in a moment. And because we see really good organic growth, we're going to be investing in our U.S. franchise in terms of our platform and our infrastructure, so we can drive even more growth and press on our competitive advantages. But the highest and best use of capital for us is to continue to invest organically and deliver the kind of returns and Gabriel just said it before he got off this call, 10% year-over-year growth this quarter is the highest in the industry here. And we plan on delivering on that going forward. I don't know if you want to add anything from a U.S. perspective.

Yes. Thank you, Victor. So just to add that we have been -- I'll use the word pleasantly surprised, but not surprised because it's been -- it has been our focus and our ability to generate organic growth in all of our U.S. businesses. That's the commercial lending, that's the wealth franchises with a seamless connection to our Capital Markets colleagues in the U.S. And the growth has been across the board. We built out our network of offices across the U.S. And our focus has been bringing our full capabilities CIBC to each of those major cities. So looking forward, we're just very optimistic on all our businesses in terms of lending growth, AUM growth and Capital Markets connectivity to all our clients. And frankly, we're making investments in those platforms, as Victor mentioned, this year and next year. And again, we're looking at a robust growth in all those businesses in the U.S.

Our following question is from Ebrahim Poonawala from Bank of America.

I guess just following up on this theme around investments, Victor. Remind us, as we think about your messaging around investments. One, are there certain gaps in your franchise relative to some of the bigger competitors that you think you need to catch up on? So one that? And secondly, as we think about your competitiveness with your larger peers. Just give us a sense of how you see the bank is competitively positioned? Do you need to be more aggressive on price in order to get business? Or is your digital offering at par or better? So any perspective there would be helpful.

Thanks, Ebrahim. And good question. So overall, the overarching theme at our bank and our strategic focus as a leadership team is to continue to invest to grow market share at the expense of our competition. We don't have any evident competitive gaps relative to our competition. We just want to press on our technology advantages, both with our clients as well as to our relationship managers, so it's easier for them to do business. And that's effectively what we're doing. You look business by business by business. You look at Personal and Business Banking. It is rejuvenated. It is in growth mode. We are winning market share. And Laura, you can comment on that in a moment. You see that in the investments we've made in our credit card portfolio, our financial planning portfolio, our CRM portfolio as well as in our Direct Financial Services business, which is there to attract the digital savvy clients. You see that investment being made in our Commercial Bank and Wealth Management businesses in the U.S. and Canada. We call that the private economy focus of our bank. And the fact is the world is shifting more and more to private markets. And we're capitalizing on that by investing in the business, investing in our wealth platforms and investing in our relationship management. And in Capital Markets, the leadership positions that we have and foreign exchange, for example, has been a deliberate focus on investing in the foreign exchange platform and in our derivatives platform. And then we have our unique growth engines. Our unique growth engines are Direct Financial Services and you're going to hear more about that at our Investor Day. Our focus on innovation banking where we bought the Wellington Financial business, it had $152 million in venture loans. And today, we have more than $3 billion in deposits and almost $5 billion in authorized loans and a leading technology bank that's focused on the recurring revenue aspect of technology as well as the emerging life sciences sector. And then finally, on energy, we're the #3 renewable energy lender in North America. That shows leadership. That shows investment not only in renewables, but also our commitment to the nonrenewable energy sector through the transition strategy that we have. Laura, maybe you want to highlight on the retail side, how we've been winning.

Well, thank you, Victor. I think you said it all, though. I don't know that I have much more to add. I think we've done a great job setting our strategic priorities and the rest, quite frankly, is just relentless execution and doing it with a sense of urgency. So we just continue to be, as you said, Victor, focused on putting our clients first in everything that we do and just trying to remove as many pain points as we can in our client journeys. And we're starting to see the results of that. And so I think we still have a lot to do, but we're incredibly pleased with the progress that we've made to date. And as you said, we strongly believe that we can continue to deliver some really good momentum and growth in our business.

Got it. And just a quick follow-up, Hratch. Not sure if you mentioned your outlook for the Canadian and U.S. margins. And if anything, around the U.S. PPP that we should be mindful of in terms of the resetting of that margin going forward?

Thanks, Ebrahim. I had a few comments in the remarks around margin outlook, but happy to provide a bit more color. And so what you've seen in our Canadian P&C business over the last little while is a bit of stabilization while we have been declining quarter-over-quarter. That decline has gotten smaller, and you see that 2 basis points just this quarter. And that's because the impact of lower interest rates is starting the trough and the impact of the business mix changes that we saw in the reduction in card balances and slowdown and reduction in unsecured credit. Those things are starting to also trough. And so as we look forward, we do think in the Canadian P&C business, even before we talk about the Costco portfolio, we think that NIM will trough here in the next couple of quarters and then stabilize from there and start turning positive. And with the Costco portfolio, given the margins on that product, that would add even further and that would add several basis points to that. In the U.S., NIM, it's been reasonably stable at these elevated levels, but we've been very clear all along. There is some level of prepayments activity and forgiveness activity on the PPP portfolio. That is coming into margins and elevating that. That's -- it's moved around a bit, but this quarter, it was about USD 7 million and change, or CAD 10 million. And so that's about 10 basis points on the margin. So as that plays through, and we think that will happen and end in the next couple of quarters, you can see margins coming back to the . And then from there, it all depends on the liquidity in the system and the deposits and the trajectory of deposit growth. But core product margins there and deposits and loans are holding very strong, in fact, in some places, getting stronger. And the impact of interest rates will provide small tailwinds over time as well. So we think all of that bodes well for margins and it bodes well for NII growth for the bank.

Following question is from Scott Chan from Canaccord Genuity.

Laura, I just wanted to go back to you on the Canadian side and specifically on mortgages and I think, Victor, you talked about getting to peer levels this quarter. So now that you're there, is it something that you want to kind of kind of press the button and continue and perhaps punch above peers as we look into next year or you're satisfied where you are right now?

Well, thanks, Scott. Look, we're really pleased with what we've managed to do from a growth perspective. And we continue to have a really good pipeline of activity. But never pleased, there's always more to do. So our intention is to continue to deliver I'd say, really broad-based quality client growth. And so revenue growth and volume growth. And of course, as we continue to sell across the board, we continue to really focus on franchising or differently said, deepening our client relationships. We had I'm going to say, a fantastic year this year. So not only did we perform incredibly well when it came to new client acquisition, we did better on client retention and we did better on client franchising. And so we've made a lot of really good progress, and we see a lot of great opportunity ahead of us to continue to deliver strong market-leading growth.

Right. And just my second question, just on the real estate charge. I know you took on several quarters ago. Maybe you can just describe what that charge related to and if there's any kind of future charges on the real estate side?

Yes, happy to do that. Thanks for the question. And so this is really relating to our -- the final stage, I would say, of our move into the first tower in our headquarters in Toronto. And so you remember, we did take 1 that was a few million dollars higher last Q4. And that was related to the number of buildings we exited and the leases we exited last year. And this is the bulk of the remaining exits as we start moving in. And today, we're talking to you from CIBC Square. So as we start moving into our new headquarters, those leases that were exit. Now I will remind you, as we said last year, Visa has positive payback over a number of years. And so while we are taking the charges, we are saving ongoing real estate costs. And so this year, the occupancy line item did actually benefit from last year's exit. And what you'll see with this new charge as well is that we will get both those charges benefiting on the occupancy line next year. And so with respect to our Toronto headquarter cost, if you will, or corporate real estate costs, what that allows us to do is moving into our new headquarters actually keep the net cost flat from 2020 onwards. And overall, occupancy includes a number of other items, obviously, and it's including our retail network. So there will be some noise in that. But with respect to our headquarters costs, we've moved into the new building while retaining those expenses relatively flat with those exits.

The following question is from Sohrab Movahedi from BMO Capital Markets.

I just wanted to go to Harry for a second, please. A few years ago, when you had set the franchise was around $1 billion or so in earnings annually. In the past couple of years, you've rolled in the DFS, which I think is probably rough numbers, a couple of hundred million dollars add. So let's say, relative to a baseline of at $1.3 billion -- $1.3 billion, $1.4 billion. You did very well this year. Where do you think your franchise is going forward? And maybe you could talk us through, Harry, the geography of the income statement because presumably adding DFS will put a little bit more pressure on your PCL line, but you'll pick it up on the pretax pre-provision. I'm just trying to kind of get a feel for what's the franchise capability from here on? And how it's going to be contributing to some of the broader metrics that Hratch and the team have talked about vis-a-vis the total bank operating leverage and so on and so forth?

Good morning, Sohrab, and thank you for that question. The short answer is we see continued growth as we move forward in both revenue and PPE in a very diversified manner. You've seen the delivery of strong performance in absolute and relative terms over the last several years, as you point out. This has been a consistent strategy that we continue to enhance, and we really are I think, pleased with our leading PPE and add to the growth this year and for the previous several years. So this is a differentiated platform as Victor has said in his opening remarks. We remain very disciplined around our resources as a starting point, but we're continuing to build our leading Capital Markets platform for our core clients in Canada. And we continue to grow market share. And you've seen growth in rankings in most league tables and I think, truly enhance client relationships across our platform. We're also growing our U.S. platform, as Victor mentioned, and the doubling of the size of the platform since our last Investor Day until now has shown a leadership position in many of the areas that we're focused on, including the new economy, where we see the intersection of private capital, renewable, sustainable finance. Key focus areas where we think we have a strong competitive advantage. And we're also very focused, of course -- by the way, just on the U.S., we saw 9% growth this year in U.S. dollar terms as well, which is, therefore, leading to a doubling over the last 4 years, just about. And then, of course, the area of connectivity we talk a lot about, really diversifying our franchise by delivering Capital Markets products and solutions to commercial wealth and retail clients. And that connectivity has been further enhanced by the inclusion of Direct Financial Services within the capital markets franchise. And we're seeing revenues from nontraditional Capital Markets clients grow significantly 27% year-over-year this year. So we may see some normalization of markets over the next little while. We expect to see continued robust activity, however, across our corporate and institutional client base, and you've seen some significant increases in our underwriting advisory and lending capabilities, and we continue to see growth in our Global Markets platform as well which has great diversification across products, industries and geographies. We think that we can see -- we can deliver pre-provision earnings growth next year again and revenue growth in the higher single-digit area as we go forward. This is well above pre-pandemic levels, as you will note. So in terms of geography, continued focus on the U.S. A 25% of our income is approximately the level we come from with respect to the U.S. platform, and we expect to see further resources deployed into the United States.

Harry, just to be crystal clear, relative to, let's say, '18 or '19, you're maybe $800 million higher on pretax pre-provision at the end of this year. And you think you can grow off of this year's pretax pre-provision, which is, I think, around $2.4 billion, if I've done my math right.

Yes, that's correct. It's right around $2.4 billion. If you think back to pre-pandemic levels, we were in the 400 -- mid 400s, call it, pre-provision earnings per quarter. And we think we can generate north of $600 million per quarter on an average basis this year going forward.

The following question is from Darko Mihelic from RBC Capital Markets.

I just wanted to go down the line of questioning of your future priorities and expenses a little bit more. So I think my questions are actually though for Victor and for Laura. The first 1 have to do with, Victor in your remarks, your prioritization of spending and investing, it made it sound like on the retail side, that it was more about relationships. And there, I just want to understand, I mean, or more of the personal experience. And I'm just trying to think my way through what that means because from a branch perspective, been very stable, very close to the next 2 largest banks in Canada in terms of number of branches. It's hard to tell sometimes with our employees because each bank sort of reports differently, but I tend to think of the employee count as being relatively similar. So I'm just trying to understand what specifically the investment is to further enhance the personal experience in Canada? And when I think further with the question earlier about gaps relative to peers, I can think of a couple like auto lending, for example, or maybe small business, I don't know, but maybe you can just touch on what it is you're investing on in the personal franchise to really enhance that experience? And how -- and where I should look for the impact? Should I look for the impact of continued growth in mortgages? Or should I look for the impact somewhere else? That would be very helpful for me.

Well, thanks, Darko. Why don't I start? And then Victor can take it from there. So more specifically to the Personal and Business Banks, the investments we're going to continue to make are all about supporting the strategic priorities that I believe we've shared previously. So that includes where we want to increase our sales force effectiveness, our productivity. We want to continue with our digitization and end-to-end straight-through processing. And then we want to increase all of our client engagement, so call that personalization. So you're going to see us continue to invest in our frontline tools. So that's where we continue to roll out some of our modernized platforms like our client relationship manager. We're going to roll that out to all of our frontline roles in the Personal and Business Bank, and we think that's going to help us continue to increase our sales force productivity, and we think it will also help us with better client engagement. And then we've talked a lot about this as it relates to digital first. So we're going to continue to build out our digital self-serve capabilities and all of our digital experiences. So I think you saw we released this year our digital identity verification tool. We had virtual card issuance for debit and credit cards. We released CIBC Insights. Just to name a few. And we're going to continue to build upon that. So all of it just to ensure that we can continue to deliver sustainable performance and all of it to allow our clients to engage with us in the way they're most comfortable. And maybe with that, I'll hand it back to Victor to elaborate more.

Sure. So Darko, it's a good question. What we've seen is every dollar of investments that we're making is generating an uplift in our pre-provision earnings because we're laser-focused on making sure that our investments are working hard for our clients, are working hard for our shareholders. You referenced auto lending, while we're the smaller one, we're the growing market share faster than anybody else's. We've invested in that business. We're investing in relationships. Laura has articulated that. The investment we've made in CIBC GoalPlanner our CRM investments for our relationship managers, better client experiences is driving a better result. You see that in a higher client experience score for us. Quite frankly, a record score for us, and we still have headway to make against our competitors, and we're going to make that headway. We're going to close that gap through these further investments. The other thing that we're going -- and these investments that we're making are not only in technology, they are in our people, our Imperial Service continues to remain a competitive advantage in the marketplace. Larger average account size at the retail level than many of our competitors because of the competitive advantage we have there. We will continue to invest in our banking centers because they -- I believe they continue to be a focal point for building relationships alongside the technology investments we're making. And we will invest in this emerging direct segment where we see fintech competitors starting to nibble away of business. We know open banking is coming. Our DFS business was set up to defend but to more importantly, get that 85% of the market that we don't own, that's going to go after the direct client while we manage our relationships through the Personal and Business Bank. I don't know, Harry, if you want to add anything else on the DFS side, but we're going to see more client acquisition growth particularly in a Simplii direct bank, where you've been adding capability.

Yes. Thank you, Victor. Clearly, Direct Financial Services is on a very nice growth path. Just a reminder for everybody, we've got the 3 businesses within Direct Financial Services. We've got Investor’s Edge. That's direct investing for the do-it-yourself clients. We've got Simplii our direct no-fee banking for digital savvy and value-conscious clients, and we've got the alternative solutions group, which is really our institutional fintech business built on leading FX technology. And we believe as the economies continue to progress through the pandemic, we see an opening up in terms of travel. We see a movement in interest rates that these businesses will have some very good tailwinds. So we're quite optimistic about the future in terms of obtaining market share and growth generally.

Yes, actually, I did have a follow-up on that. I'm glad you sort of weaved or moved the discussion to the direct. And I'm glad you touched on it because I do have a question on it. With respect to the direct business, the 1 thing that we can see, which you guys do provide us is the revenues in the direct business. And it's up. I mean if I look at annually anyway, it's up almost 17% in 2021. And so the question is, what's driving that? Is it Investor’s Edge? Is it Simplii? Or is it the Alternative Solutions Group in 2021? And what are you most excited about in 2022 for that business?

I'll take that. Thank you for the question again. So obviously, Investor’s Edge benefited from directed trading volumes in the second half of fiscal '20 and throughout 2021. We do expect a normalization of trading volumes, but expect our franchise to grow. We expect to take market share. So we've been making some significant investments, as Victor pointed out, we're investing in talent. We're investing in technology, and we're protecting our market share, but we believe we can grow our market share and increase our penetration with our CIBC clients. Our teams are working very closely together to make that happen. The largest area of growth perhaps could be our Alternative Solutions group next year. This is our fintech, as I mentioned, built on leading FX and payment solutions. And our focus on investments pre and during the pandemic or really are paying dividends as we see outsized growth with the opening of the global economies. We're seeing increased travel, of course, international students arriving and attending universities, which is all part of that business. And that business can grow in the double digits, perhaps north of 20% next year. And then, of course, our Simplii franchise, we expect to grow over the medium term as interest rates normalize, as we cross-sell to existing clients and onboard new clients. So we're really encouraged with the results that you've seen, but we're more confident that we can deliver value to our clients and grow these businesses as we move forward.

Darko, when you visit us on June 16 for Investor Day, will get even more details on the business.

And to be clear, are you at zero trading commission and Investor’s Edge?

No. We build relationships, Darko. We're very competitively priced, more competitively priced than most of the competition out there.

Following question is from Mario Mendonca from TD Securities.

I want to go to a very different topic. The legal provisions, we saw a second one this quarter that -- so $40 million this quarter, $85 million last quarter. I know it's not appropriate to get into the details like what this actually relates to. But could you talk about -- are these provisions related to the same matter? And what do you believe going forward? Could we see further meaningful provisions related to this?

Yes. Thanks for the question, Mario. It’s Hratch, I'll take that. While we don't speak about these in detail, as you said, and specifically to matters, I'm happy to give you a bit of color. And I'll start saying legal liabilities do arrive in our business as part of the normal course, and we don't treat them all as items of note. And so we've had some this year that we haven't. What you're seeing is the ones that we truly think are unusual in nature and therefore are treated as items of note based on their nature and based on their quantum. And I think what I would point you to is if you look at Note 23 to our statements in the annual report, you've got a listing of all of the ongoing matters. And you'll notice some of them have had some changes and updates to them, including ones where we have noted that we've got agreements to settle them. And so that's as far as all goes related to those matters. And so the good news is, to your question about the future, the charges we've taken and you referenced in these 2 quarters, related to matters that are behind us.

That's helpful. And then probably sticking with you, Hratch. On the capital ratios, it sounds like the bank through growth and buybacks, we'll see the CET1 ratio trend a little lower. Do you have a bogey in line? Like how much lower can you go? Could you see the bank breakthrough 12% and sink into something like 11.8% or 11.9% capital ratio to support growth in buybacks? Or is 12% an appropriate level?

Yes, I'm happy to start with that, Mario. I think we have very solid capital position to start. We also have very solid generation. Like you noticed this quarter, we had 27 basis points of generation, but that was impacted by the charges that were fairly significant this quarter. And so on an ongoing basis, we feel comfortable generating over 30 basis points of capital. And we're starting from that 12.4%. As I mentioned in my remarks, we are deliberately planning to draw down on that ratio. And that's because we continue to believe the highest and best use of our capital given our marginal returns across all of our businesses is to organically invest that capital to support our clients and for the benefit of our shareholders. So we will continue to do that to the extent that we can and to the maximum extent that we can within risk-adjusted measures. And so as we do that, plus take on the Costco portfolio, and we talked about the Costco portfolio when we announced that, that's going to be just north of 20 basis points of impact. So those things will draw down on the capital. But between the generation and the strong place we're starting from, I think that will still leave us in that sort of 12% plus range. And from that point on, it's about what we do with the rest of the capital and our levers remain unchanged. We've announced the 10% dividend increase this quarter. We will continue to assess our dividend and continue to try to remain in the middle of our range. And as needed, we will adjust the dividend. And beyond that, we will look at potential share buyback. We announced our intention to start an NCIB program that gives us a lever. We might look at tuck-ins in terms of acquisitions. We've talked about that. But beyond the 12%, I think the laser focus is going to be shareholder returns and generating shareholder value. And if returning capital at that point, we believe is the better thing to do, we may return more of that capital through the buyback and go below the 12%. If we believe keeping it for future organic growth is the thing to do for shareholders, then that's what we'll do. And we will treat acquisitions with the same lines, financial and strategic value for our shareholders.

Do you expect to go back to raising dividends twice a year? Or do you think you'll go through the annual like several other banks that are thinking?

Yes. Mario, I wouldn't look at it as annual or twice a year or frankly, we look at it on an ongoing basis. We assess every quarter where we're trending relative to our targets. We assess where we are with respect to our expectations of future earnings and we'll adjust it as needed to stay at the level that we want to stay at.

The following question is from Doug Young from Desjardin Capital Markets.

I'll hopefully keep this relatively quick. So Shawn, just there was a small pickup in new retail gross impaired loan formations quarter-over-quarter, year-over-year. It doesn't look like that's in Canada and the U.S., but maybe I'm wrong. Hoping to get a little bit of color on that. And then I assume as well that the performing loan build in small business banking. I assume that's related to the earlier discussion about the parameter changes, but if not, then a little color on that.

Yes. Thanks, Doug. So yes, it's -- the slight build in performing was in our PBB segment and relates to those model parameter updates. We had some deterioration in the FLIs, but that was more than offset by releases of management overlays from prior quarters. So the uptick this quarter was really reflective of that parameter update. And our outlook for performing sort of remains similar to what we talked about in prior quarters and so much as we've -- we recognized significant performing build in 2020. We've released about 44% of that so far. And as long as the economic activity sort of plays out in alignment with our outlook, then we expect to continue to see releases as we saw each quarter in fiscal '21 and releases of performing provisions as we move through 2022.

Okay. And then just second in the U.S. Wealth Management, obviously, Victor, you've said that's a focus, but we did see decline quarter-over-quarter in just Wealth Management loans. And I don't know if there's a restatement there or something is going on, but just curious.

I didn't see any decline at all, Doug. In fact, the business has been growing on net flows, on market appreciation, on deposits and on mortgage growth in the U.S. So maybe there's some sort of recategorization that we can refer to you after the called cap. I mean I think you're seeing the same thing, right?

Yes, absolutely. On our Wealth Management businesses on AUM growth has been robust. And as we continue to build out our private banking capabilities across our platform, we anticipate growth looking forward.

Yes. It just relates to the -- I can take it offline. It just relates to….

Doug, it's FX-related. So, okay?

Okay.

The following question is from Nigel D'Souza from Veritas Investment Research.

I wanted to follow up on a lot of question on your forward-looking variables here. And when I turn to your disclosure on Page 44 of your presentation and I look at your downside case, it looks like the variables there are a bit optimistic. And I say that within the context of the emergence of the recent COVID-19 variant. So is there a risk that you'll have to revise those assumptions lower? And would that limit the potential for future releases of performing allowances.

Nigel, thanks for the question. So look, these were set as of a particular date. So before Omicron was on the horizon. That said, they were set at a time where the Delta variant activity was front and center, and we did increase slightly the weighting to our downside scenario in coming up with our ECL numbers this quarter. So I'd say part of that activity is reflected. But to your point, we have to see how the economic activity plays out. We feel good about where we are right now. But we're all watching with great interest in terms of transmissibility, severity and the efficacy of vaccines against this newest emerging or variant of concern. But we did increase the downside slightly in our ECL calculation this quarter. So that should provide some level of coverage depending on how things play out.

That's helpful. And I can just quickly follow up on the same topic here. It looks like you're disclosing the household DSR assumptions, the debt service ratio assumption in your forward-looking information. And correct me if I'm wrong, I don't think you've disclosed that in the past. So could you just provide some color? Is that something you've always considered? And something you're highlighting now? And how does that feed into your expected credit loss modeling?

Yes. So it's one of the drivers of our ECL activity, and we thought it was relevant to to include it in our disclosures, it really drives the consumer part of our consumer businesses.

Okay. And your base case assumes 2 rate hikes in 2022, I assume?

Correct.

Our last question is from Lemar Persaud from Cormark Securities.

Just a point of clarification on some of the earlier discussion on expenses, for Hratch. Is the mid-single-digit outlook on expenses inclusive of performance-based comp? Or is that excluding performance-based comp?

Yes. Thanks for the question, Lemar. And next year -- we had a very strong year this year, and performance-based compensation for that reason was up. Next year, we also plan to have a strong year. But because we're starting from a strong year on a year-over-year basis, performance-based compensation, we don't expect it to be a major factor. And so I think you end up in that mid-single-digit range with and without. And I think -- and I'll take the opportunity to sort of stress some of the -- there's a lot of discussion on expenses and investments. But our approach to investments and the way we construct our portfolio, investing in growth for the short term, medium term and long term across all of the areas we've covered today. But we construct the portfolio in order to contribute to earnings as we go along. And so while we will have higher expenses without that performance-based compensation next year with mid-single digit versus low-single-digit this year. We do expect our investments and our expenses to pay off in year. And so there's a few percent positive contribution to pretax pre-provision earnings from our strategic investment portfolio next year.

Okay. I just want to continue along the lines of the expenses here. Just I want to circle back to the commentary suggesting that operating leverage at the start of 2022 may be challenged. Is there an element of timing of expenses? So maybe you're talking about a step up in the first half and then a decline in the back half of the year? Or is the improvement in operating leverage in the back half of the year more related to the expectation of acceleration of revenue growth rather than a step down in expenses? The reason I ask is because revenue growth, as I mentioned, it was very strong in the back half of 2021. I think it was 7% last quarter. And then as I mentioned, 10% in Q4. So any thoughts there would be helpful.

Yes, happy to offer them, Lemar. And we -- as we've said, we've got a bank that's built for growth, and we're in a dynamic industry, and we're not standing still. So we are continuing to invest and we don't manage the business on a quarterly basis. We're managing the business for the long term, and we look at our operating leverage over the long term. So there's a number of factors that are playing in. One, we continue to invest in a number of areas. And a lot of these times, you're investing for technology build, you're investing to hire people who will generate revenues or to service our clients. And so Costco was one example I mentioned, we are hiring ahead we are building technology ahead and revenues come after the fact. In the U.S., we are continuing to invest. We're investing in the infrastructure. We're investing in frontline people. And again, all of those things, we are continuing to invest because we believe in the returns we've got very solid business cases and a rigorous process for tracking execution and holding ourselves accountable to deliver the benefits. That's worked for us so far. And so we've got the confidence to invest for those revenues. And the last part I'll say is the environment. We've talked about the constructive environment and some of the loan growth continuing and accelerating potentially in the commercial businesses. We've got the interest rate environment looking better. And so all of those things will generate the revenues we expect. It is not an expense reduction in the back half of the year. We are taking a very consistent approach to our expenses and our investments. And if the top line starts looking different, I mentioned this before, we have levers we can pull. We've got a portfolio that's contributing positively next year. But the pace of some of the things that are more long-term investments can be adjusted if we need to, so that we invest more slowly if the top line is less robust.

I would now like to turn the meeting back over to Victor.

Thank you, operator. I'm going to do the unorthodox thing and throw a minute over to my colleague, Jon Hountalas, is one of our 4 strategic business unit leaders that didn't have a chance to speak today, but he can give you a perspective on how things are looking in the Canadian private economy, Canadian wealth economy. Jon, over to you, and then I'll make my some closing remarks.

Thank you, Victor. Business confidence is good. The back half, particularly on the commercial side, was strong. Economies opening up. You talk to entrepreneurs, I know there's risks out there, but they're coping with them. The top line is growing. There's some operational challenges, but it's been strong. And all they're talking to us about is growth. Our pipeline is good. So we're feeling pretty confident. On the wealth side, we have good investment performance. We've made some investments in tools and people and some technology. So again, we see momentum. So we had a strong year in '21. I think you'll see another strong year out of the SBU in '22.

Thank you, Jon. I appreciate that. And I think you see the strong growth across all of our business units. So before we wrap up, and I know we went over time today, thank you for indulging us. I wanted to thank our 45,000 CIBC team members globally for their continued support of our clients. Are their purpose-driven, client-first focus is a critical component to the success of our bank. And you're seeing that in our top line revenue metrics. You're seeing that in the client experience metrics and you're seeing that in our full year financial results. So as we look at the head to 2022, I hope that you got the sense from every business leader from Hratch, from Shawn, that we've got everything in place to harness the strong momentum that we've created in this past year. We have a balanced strategic agenda. It's aligned with continued growth and we're excited about the prospects in the coming years. We're looking forward to reporting on our progress again at the end of February. Lastly, I want to -- as I said earlier, our Investor Day is going to be on June 16, 2022. We moved it there because of the Ontario government guidelines, in terms of health restrictions, and we're going to watch out what happens with this new variant, but that's our plan currently. And that will also give us an opportunity to invite all of you to meet our leadership team face-to-face at CIBC Square, so we can share our strategic vision and direction for our bank in more granular detail because I know you're all interested in that. We're going to post more information as we get closer to the date. In the meantime, I wanted to wish all of you a happy holiday season. Thank you for your interest in our bank. Thank you for your very good questions, and we look forward to engaging you in the New Year. Have a good day.

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