Canadian Imperial Bank of Commerce (CM) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the CIBC Quarterly Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] I would now like to turn the meeting over to Mr. Geoff Weiss. Please go ahead, Mr. Weiss.

Thank you. Good morning, and thank you for joining us. This morning, CIBC's senior executives will review CIBC's Q3 2013 results that were released earlier today. The documents referenced on this call, including CIBC's Q3 news release, investor presentation and financial supplement, as well as CIBC's Q3 report to shareholders, can all be found on our website at www.cibc.com. In addition, an archive of this audio webcast will be available on our website later today. This morning's agenda will include opening remarks from Gerry McCaughey, CIBC's President and Chief Executive Officer; Kevin Glass, our Chief Financial Officer, will follow with the financial review; and Laura Dottori-Attanasio, our Chief Risk Officer, will close the formal remarks with the risk management update. After the presentations, there will be a question-and-answer period that will conclude by 9:30 a.m. Also with us for the question-and-answer period are CIBC's business leaders, including Victor Dodig, Richard Nesbitt and David Williamson, as well as other senior officers. Before we begin, let me remind you that any individual speaking on behalf of CIBC on today's call may make forward-looking statements that are subject to a variety of risks and uncertainties. These statements may include material factors or assumptions that could cause CIBC's actual results in future periods to differ materially. For more information, please refer to the note about forward-looking statements in today's press release. With that, let me now turn the meeting over to Gerry.

Thank you, Geoff, and good morning, everyone. Before I begin, let me remind you also that my comments may contain forward-looking statements. CIBC announced strong results this quarter. Net income is the highest on record for CIBC, both on a reported and an adjusted basis. Adjusted net income of $943 million was up 9%, and earnings per share of $2.29 was up 11% from a year ago. Return on equity for the quarter was 21.6%, and we finished the third quarter with a Basel III common equity Tier 1 ratio of 9.3%. This morning, we also announced the renewal of our normal course issuer bid to repurchase up to 8 million common shares or approximately 2% of shares outstanding over the next 12 months. I will now review the financial results and strategic developments for each of our businesses. Retail and Business Banking delivered record adjusted net income of $654 million, up 10% from the prior year quarter. Through the third quarter of 2013, Retail and Business Banking continued to make progress against our objectives of accelerating profitable revenue growth and enhancing the client experience. We continued our leadership position in mobile innovations by reaching 1 million active clients using CIBC's award-winning mobile banking app, and we achieved a significant milestone in our distribution network expansion program with the opening of our 150th new, relocated or expanded branch since 2008. As we outlined in a press release earlier this week, CIBC continues to be in discussions on a potential agreement with TD and Aimia that would allow both CIBC and TD to offer clients access to the Aeroplan travel rewards program. As part of this proposed agreement, CIBC will retain 50% of the Aerogold credit card portfolio, primarily accounts that have broader banking relationships with CIBC. There are no assurances a deal will be reached. CIBC will exercise its legal options under the provisions of the existing Aimia contract if we are unable to reach an agreement with Aimia and TD. Kevin Glass will provide a brief overview of the key financial characteristics of our existing Aerogold portfolio. Beyond that, given the ongoing nature of negotiations, we will not be commenting further at this time. David Williamson is here this morning to answer questions about Retail and Business Banking. Wealth Management delivered adjusted earnings of $103 million this quarter, up 36% from the same quarter last year, driven by growth in our asset management and retail brokerage business. We continue to experience strong sales and performance in our mutual funds businesses. Year-to-date's net sales of long-term mutual funds were $4.6 million (sic) [billion], up $1.5 billion or 48% compared to the prior year. Our retail fund business has had 18 consecutive quarters of positive long-term net sales. We were also on track with our transition plans for the acquisition of Atlantic Trust Private Wealth Management, announced last quarter, which we expect to complete in early fiscal 2014 following regulatory approvals. Victor Dodig is here this morning to answer questions about Wealth Management. Wholesale Banking delivered strong results. Adjusting for items of note, net income was $223 million, up $30 million from the previous quarter. In support of its objective to be the premier client-focused wholesale bank in Canada, Wholesale Banking acted as lender in the financing of Hyundai Capital America's USD 2.7 billion 3-year senior unsecured revolver; we acted as financial advisor to Brookfield on the sale of Longview Timber to Weyerhaeuser for $2.7 billion; and joint bookrunner on OMERS Realty Corporation's 2 bond transactions for a total of $1.4 billion. Richard Nesbitt is here this morning to answer questions about Wholesale Banking. In summary, we are pleased with this quarter. Our results demonstrate another quarter of successful execution of our client-focused strategy. Let me now turn the meeting over to Kevin Glass. Kevin?

Thanks, Gerry. My presentation will refer to the slides that are posted on our website, starting with Slide 5, which is a summary of results for the quarter. So as Gerry said, we're very pleased with our strong third quarter results and the solid contribution from all of our business lines. Adjusted net income for the quarter was $943 million, which resulted in adjusted earnings per share of $2.29. Our Retail and Business Banking franchise generated solid earnings, with good year-over-year volume growth, particularly in our CIBC-branded products. The execution of our strategy in this business continues to progress well. Our Wealth Management business also performed well as a result of higher retail brokerage and asset management revenue. And we continue to execute on our client-focused strategy in Wholesale Banking. The business delivered very strong low-risk client-based results. During the quarter, we had 4 items of note: first, an increase in the portion of the collective allowance recognized in Corporate and Other of $0.07 per share. This included the estimated credit losses relating to the Alberta floods; second, an increase in the provision for credit losses due to a revision of estimated loss parameters on our unsecured lending portfolios of $0.04 per share; third, a loss from the structured credit run-off business of $0.01 per share; and finally, the amortization of intangible assets of $0.01 per share. In aggregate, the impact of these items on our earnings netted to a loss of $0.13 per share. The balance of my presentation will be focused on adjusted results, which exclude these items of note. We have included slides with the reported results in the appendix to this presentation. Moving to the details for each of our strategic business units. I'll start with results for Retail and Business Banking on Slide 6. Revenue in the quarter was $2.1 billion, up $29 million or 1% from the same quarter last year, with gains in our core business lines partially offset by lower revenue in the exited broker mortgage business and lower Treasury revenue allocations in the Other segment. Excluding the impact of the volatile Treasury revenue allocations and the impact of lower revenue from the exited FirstLine channel, revenue grew 4% from last year. Looking at our lines of business. Revenue in the personal banking segment was $1.7 billion, up $77 million or 5% compared with the same quarter last year. Performance benefited from volume growth across most products and higher fee income, partially offset by narrower spreads. Our exit from the FirstLine mortgage broker business continued to progress well, with both conversion volumes and spreads well exceeding our targets. The CIBC brand mortgage portfolio grew 13% year-over-year, which represented the 15th consecutive quarter of outperformance versus the industry. Business banking revenue was $384 million compared to the same quarter last year due to a combination of higher volumes and fee income, partially offset by the impact of lower interest rates on deposit balances. Business banking volumes continued to grow, with funds managed up 4% year-over-year. The Other segment had revenue of $58 million in the quarter, which is down $50 million compared with the same quarter last year. The 2 main drivers of this variance are Treasury revenue, which tends to be somewhat volatile, and lower revenue from our exited broker mortgage business. Looking forward, I expect we'll see lower revenue on this line, driven mainly by lower revenue allocations from Treasury. The provision for credit losses in the quarter was $221 million, down 19% on a year-over-year basis, largely due to write-offs in the cards portfolio -- net lower write-offs in the cards portfolio and lower losses in the Business Lending portfolio. This represents the lowest level of losses in almost 5 years. Each of our consumer lending portfolios in Canada continued to perform well. Laura Dottori will discuss credit quality in her remarks. Our noninterest expenses for the quarter were $1 billion, in line with the prior year. While we continue to invest in strategic growth initiatives and hire more frontline salespeople, we were able to harvest efficiencies and generate positive operating leverage in the quarter, which will continue to be our target going forward. Our adjusted net income was $654 million, up $58 million or 10% compared to the prior year. Our core net interest margin, or NIM, was 263 basis points for the quarter. This was down 1 basis point from the prior quarter, but up 6 basis points from the prior year. NIMs have been helped by the improvement in our business mix, driven by growth in higher-margin CIBC-branded products, and this was offset by lower margins in our deposit portfolio. We expect the level of NIM to remain relatively stable, with improvements in business mix helping to offset the ongoing negative impact of lower interest rates that have been felt throughout industry. With regards to our current Aerogold portfolio, CIBC Aerogold credit cards currently account for approximately $6 billion of CIBC's outstanding cards receivables and generated approximately $0.95 of EPS over the past 12 months ending July 31. While I appreciate everyone's desire for more information related to this negotiation and potential outcome, as Gerry mentioned, we are in the middle of the negotiation and it would be inappropriate to comment further at this time. Turning now to Slide 7 and the results for Wealth Management. Revenue in the quarter was $458 million, up $57 million or 14% from the same quarter last year, with good performance from all business lines. Retail brokerage revenue of $267 million was up $21 million or 9% compared with the prior year. This was primarily driven by higher fee-based and commission revenue. Asset management revenue of $159 million was up $29 million or 22% from the same quarter last year. This was due to a combination of market depreciation, higher net sales of long-term mutual funds, as well as a higher contribution from our investment in American Century Investments. Noninterest expenses of $324 million were up $25 million or 8% from the prior year, mainly as a result of higher performance-based compensation. Adjusted net income in Wealth Management was $103 million, up $27 million or 36% from the same quarter last year. Slide 8 reflects the results of Wholesale Banking, where we continued to deliver strong performance. Revenue this quarter was $603 million, up $52 million or 9% compared with the prior quarter. Capital markets revenue of $349 million was up $37 million or 12% from the prior quarter, primarily due to higher foreign exchange and fixed income trading revenue, which was helped by a reversal of the credit valuation adjustment against exposures to derivative counterparties of approximately $14 million. Corporate and investment banking revenue of $243 million was up $17 million or 8% from the second quarter, largely due to higher revenue from our corporate lending portfolio, partially offset by a lower CMBS gain in the quarter. The provision for credit losses was $14 million for the quarter, up $14 million from the prior quarter driven by a higher provision in our exited European leveraged finance portfolio. Noninterest expenses were $302 million in the quarter, up $5 million or 2% compared with the prior quarter, primarily due to higher performance-based compensation and project expenses. On an adjusted basis, net income for Wholesale Banking was $223 million for the quarter, up $30 million or 16% from the prior quarter on the same basis. CIBC's capital position remained strong, with a common equity Tier 1 ratio of 9.3%, well above regulatory limits. This is down from 9.7% in the prior quarter, as the impact of higher risk-weighted assets more than offset the capital generated by net earnings. RWAs increased by $8 billion this quarter, driven by a combination of very strong business growth and updates to our model parameters. To wrap up, we are very pleased with our performance this quarter. CIBC generated record earnings, and every segment grew earnings compared to last year, demonstrating the strength of our diversified business model. Our strong capital position provides us the opportunity to return capital to shareholders through the normal course issuer bid announced today. We remain well positioned as a lower-risk bank, and our strategy continues to deliver consistent and sustainable earnings. Thanks for your attention, and I'd now like to turn the meeting over to Laura Dottori.

Thanks, Kevin. I'll be referring to the risk section, which begins on Slide 22. You'll see that loan losses in the third quarter were $320 million, and that's on a reported basis, or $262 million after adjusting for the 2 items of note that Kevin described earlier. On an adjusted basis, although loan losses increased by $18 million quarter-over-quarter, we continue to have very good performance in both retail and wholesale lending. If you turn to Slide 24, you'll see that 72% of our Canadian residential mortgage portfolio is insured, and over 90% of that insurance is being provided by CMHC. If you look at our uninsured mortgage portfolio, the average loan-to-value of that is 54%, and that's based on June house price estimates. Turning to slide -- I apologize, I've taken you to Slide 24. I'll come back to Slide 23. So if we continue on Slide 25, you can see again for our Canadian residential mortgage portfolio by region, so that portfolio is $144 billion. Approximately 46% of that is in Ontario. British Columbia accounts for about 20%, and Alberta is at 16%. The credit quality of this portfolio continues to be high, with a net credit loss rate of about 1 basis point per annum. Turning to Slide 26. You can see our Canadian residential condo mortgage exposure. The condos account for about 12% of our total mortgage portfolio, and about 72% of that is in Ontario and B.C. 74% of this portfolio is insured. And again, the average loan-to-value on the uninsured portfolio here is 54%. As for our condo developer exposure, drawn loans to construction projects were $928 million or approximately 2% of our business and government portfolio. Slide 27 will show you the distribution of revenue in our trading portfolio. We had positive results 95% of the time in the third quarter, and that's compared with 98% of the time in the second quarter. So our average trading VaR was $4.3 million, and that compares with $4.9 million in the second quarter. So our low VaR level reflects our continued conservative market positioning. And the slide that I jumped, 23, is our cards portfolio. And if you turn quickly to that slide, you can see that the portfolio continues to perform well. In the third quarter, our net credit losses remained stable at $142 million and our cards delinquency rate continued to improve. So with that, I'll turn things back to Geoff.

Thank you. That concludes our prepared remarks. We'll now move on to questions. [Operator Instructions] Operator, can we please have the first question.

[Operator Instructions] The first question is from Gabriel Dechaine from Crédit Suisse. Gabriel Dechaine - Crédit Suisse AG, Research Division: So just on the RWA increase, I'm just wondering if there's anything prompting this model refinement, I guess, because I think the OSFI is requiring the banks to harmonize their AIRB disclosures later this year. And then on the Aeroplan, I want to ask about the negotiation, but thanks for the additional color there on profit contribution. I'm just wondering, that $0.95, how has that grown over the past few years? And I suspect it's coming more from fees and interchange than NII. And franchise customers versus non-franchise customers, are they bigger spenders than the non-franchise ones?

So Gabriel, let me start with the RWA question, and I'll actually ask Laura and Richard to chime in because I think there are 2 elements to it. So I think, as I mentioned, over the quarter, RWAs increased by about $8 billion on an all-in basis. So of that, 68% of it related to model parameters, and Laura can chat a bit about that. But importantly, just about 40% of it resulted from good business growth, and Richard should probably cover that. So let me just hand that off to Laura.

Yes. Thanks, Kevin. I want to start by saying that all of our credit portfolios are performing well. As you know, we update our models on a periodic basis. That's really normal course of business. This quarter, there were a number of model parameter updates, and that was for various lines of business that were implemented. These changes primarily relate to our downturn LGD, loss given default, parameter, and I think, again, the important thing to highlight here is that the credit quality of our portfolio remains high. Large part of the increase came from a growth in our business, good news story. And perhaps, I can hand it over to Richard to elaborate on that.

Sure. And also, we've been talking in the past several years about our strategy. That remains the same. We continue to execute the risk-control and client-focused strategy around several key industries: energy, mining, infrastructure and U.S. commercial real estate. We look to deploy capital in a profitable and risk-controlled way. Really, trying to generate that consistent sustainable earnings is one of our principles. And if you look at the wholesale bank information in the SFI, you can see a shift to -- from the more market-sensitive noninterest income and towards the more stable net interest income. So this is key within -- with us focusing on our lending to our clients in Canada and lending clients abroad. You can also, in the SFI, see that the movement in the loans and acceptances has gone from (sic) [to] $22.1 billion, up from $14.7 billion in Q3 of 2011. Balance were up -- balances were up about 1 quarter -- $1 billion from the prior quarter as well. So we're going to continue on with this strategy. It's working, and if you take a look at the growth in loans and acceptances and then compare that to our revenue growth, you can see that there's a very strong correlation

Thanks, Gabriel. And maybe what we can then do -- I think there's a second part to your question, which related to -- relates to Aimia, so let me hand that off to David.

Gabriel, so a couple of comments. So you asked about trend line on the $0.95. So the underlying business is fairly consistent, but what has improved over the last little while is, that supports that number, loan loss improvement. You've seen that over the last little while. And the other driver would be funding costs. So this is recorded, as far as cost of funds, on the non-interest-sensitive rate, so it's tractor [ph] related. So over the last little while, you would have seen this business improving primarily due to those 2, call it, almost macro factors as opposed to changes in the underlying business. Now the comment regarding franchise and non-franchise, you've touched on an important point there. As you can see, the transaction being discussed involves us retaining the relationship-based customers, the deeper relationship-based customers. I think the key differentiator between those 2 types of customers is that the franchise, as you referred to it, has higher a product use count. And as we've talked about in the past, there's 2 elements that come with that. Just higher level of profit to the overall bank -- not necessarily the cards business, but to the overall bank, there's just a more profitable relationship and less attrition. It's a more stable relationship. So -- and then the third point being, strategically, as we focus on deeper relationships, this kind of split to the book fits with that approach.

The following question is from Michael Goldberg of Desjardins Securities.

So my question is about Aerogold also, not about the negotiations, it's really more about the background. In the lead up to developments with Aerogold, you had said, a couple of quarters ago I guess, was that you wanted a premier travel reward program, yet the Aeroplan's value proposition, judging from that slide that Aimia had in their presentation, had degraded significantly relative to other programs. How did you ever let that happen? And who is responsible, CIBC, Aimia, Air Canada? Or how was that shared?

Michael, I'll speak to it -- to your question. So the features and the attributes of the Aeroplan program are over to Aimia. So over the last while, the nature of the card and its features have evolved, and as you've referred to in their presentation, they continue to evolve. So I think you're on absolutely the right point. It's been a long relationship with Aeroplan, and as we go forward and over the last few months, our focus continues to be on our clients. And keeping our clients happy, as you would, no doubt, agree, is what's going to guide the long-term performance of the retail bank. So you're absolutely right, the objective is for us to have a market-leading travel card. The recent announcements that Aimia has made to their program and how it's been improved are very appealing and very much appreciated. So that's something that's now available to members of Aeroplan, and that obviously affects our thinking vis-à-vis our clients. In addition to that, we are going to be launching an enhanced travel card. That will be released over the coming months. So we will ensure that CIBC's clients are well taken care of in the travel space. But as you said, the program has evolved. That's Aimia's program to morph over time, and they have taken steps to improve it, which is an appealing development.

So I guess I'm still confused though. How is it that TD was able to negotiate an improved Aeroplan program, but in the discussions that you've had with Aimia, you haven't been able to come up with an improved program?

Michael, this is Gerry here. On this topic, I think we are where we are. The inner workings of our negotiations are between the parties, and that's not to say that I accept any of your statements. We did work very hard on product development and other issues with Aimia, and we've tried to keep you as up-to-date as we could, given the first 2 points in terms of the disclosure around our certainty or uncertainty around this deal. But the reality is that, looking forward, you have the information as to the status of where we're at today. And as I say, the inner workings of our negotiations and what was discussed between ourselves and Aimia or Aimia and TD are not something that would, I think, add to this conversation.

The following question is from Stefan Nedialkov from Citigroup.

Stefan from Citi. I've got 2 questions. First one is a follow-up on the risk-weighted assets. So it looks like corporate's RWAs went up under the AIRB approach and also residential skewed. So just wanted to get some color from you on -- do you expect more increases over the next few quarters, or is OSFI happy at this point? And the second question, back to Kevin's statements on the NIM remaining stable within the domestic business, banking that is, how does that tie in with 50% of the Aerogold portfolio going away?

It's Laura. I'll answer the first question. So as I believe I mentioned earlier, we have many models, so we're continually reviewing them. We had quite a few model changes that came into play this quarter. So no, we don't expect to see anything as material in the next quarter as you've seen in this one. I don't know if that -- Richard, did you want to take the next...

On the business side, you should expect the business to continue to grow. But I would say that the third quarter was a little higher growth than we would have expect -- that you should expect on average going forward in the near term.

Okay. And on the Aerogold versus NIM?

Yes. So Steve, let me take that question. So first, the comment that Kevin made, I'll speak about NIM performance. But if this transaction is completed along the lines of what we're talking about, then the impact on NIMs, for every $1 billion of divested assets, it'd be about a 3-basis-point adjustment. So there'll be a step change on completion of this transaction. It would be about 10-ish basis points. I think worth talking about is what Kevin was referring to, just the underlying NIM dynamics. So this quarter, we're up 6 basis points. This is the underlying business I'm talking about now, sort of all things being equal. This quarter, we're up 6 basis points. The -- I think that's the fourth quarter of year-over-year improvement in NIM. So what we've got underway is an ongoing focus on steps to move to higher-margin relationships, and the FirstLine conversion would be one of the significant steps in that particular regard. So going forward, we should see the impact, positive impact, of that continuing to offset the headwind of lower interest rates in those tractors [ph] on our deposit balances. What's of interest is recent changes in rates would indicate some of that headwind is going to alleviate, and maybe at some point in the not-too-distant future, start to reverse. So that's the underlying fundamentals, but also want to give you a sense of what the impact on absolute NIMs would be if this transaction is completed.

The following question is from Robert Sedran from CIBC.

Gerry, just want to ask you about the buyback in terms of the size and how you came up with 2% as the number, and whether there was any thoughts of perhaps putting a larger one in place to give you more flexibility, if you so wanted to. And also, the last buyback moved pretty quickly when it got announced into actual implementation. Do you expect a similar implementation this time around?

Thanks, Rob. This is in our long-term plan and we have -- both the current year plan and our forward-looking plan. This is the number that we had for next year. So the first part of the answer is, strategically, we had assumed, over a multiyear period, that, in 2014, we would be doing a 2% buyback. And we're sticking with that because the thinking at the time has not changed. So this is part of an overall strategy. It involves our dividend, the 40% to 50% targets that we have there. It involves a long-term thought process around the requirements for capital and the correct level of the buyback, and also taking into consideration that we do have the potential for acquisitions on the horizon, and that is something that we've talked about to you in the past. And we find that it's the right level, given our overall portfolio of possibilities as we look forward. In terms of the pace, I would expect it, at this time, to be fairly even, although we give no assurance on that. As I said last year, sometimes we go faster, sometimes we go slower. But my expectation at this time is that, at least for the immediate future, that it would be running at an even pace that would have it run the course of this year. Does that answer all your questions, Rob?

By this year, you mean -- because you mentioned fiscal '14, by this year, you mean over the next 4 quarters or by the end of the calendar year?

Well, I was thinking about over the next -- running through to the end of fiscal '14, but whether I'm on or off by a month...

No, I understand. I was just looking to say whether -- when you said over this year, I was just trying to understand if it meant the next 12 months or if it was something less than that. But okay, that's great.

The next -- use the next 12, Rob. That would be the simplest, that we'll run it on an even pace over the next 12. As I say, there are other elements of the timing in terms of our fiscal period, but next 12 is good enough.

The following question is from Peter Routledge from NBF.

Just a follow-up to Rob's question. I would presume if the sale does ultimately go through the Aimia portfolio, you'd have a release of risk-weighted assets and perhaps, a bit of a gain, and that might be a bit of a capital windfall on top of an already exceptional capital position. So how tolerant -- I mean one way to deal with this -- because you'll have a bit of a hit on the payout ratio for the earnings that go away, I mean, can you just do a onetime large buyback? Would the regulator, OSFI, allow that? Or is this a case of capital which sort of gets stuck on the balance sheet?

Well, the concept of a onetime is not something that we had considered up until now, and it's always -- ideas are always something that we're open to considering. However, what we generally like to do is work through our strategic process. We both have a forward-looking year and a multiyear process. And we do, as I say, have plans in terms of usage of capital, particularly in the Wealth Management area, where we've talked about the fact that we want to get to the 15% or more of earnings of the bank being in Wealth Management. And I think that at this time, we don't have anything new in the queue. Atlantic Trust is going to close in the near future. But the universe that we're looking at in terms of acquisitions is something that we think that it behooves us to stick to our strategic plan and to not do onetimes and deviate too much, because although, so far, acquisitions have been limited to the size of -- American Century was below $1 billion, we do look at outside of that universe in order to consider all the potential qualitative elements that could make the best acquisition. So strategically, when we look at that, because you don't know how you might deviate in terms of your target buys, we don't think that, on a short-term basis, you should be deviating in terms of a one-off on a capital release like this. Over time, obviously, if the targets that we are interested in don't come into a realistic purchase window and capital continues to build up, rather than just have a large amount of capital on the balance sheet that we couldn't identify a purpose for, we would have to review our long-term plan as to the level of buyback. But we prefer to go at this very steadily. 2% was something that we had in our program. We're continuing with that because we're still on the same path, and it is something that I don't think will change in the near future. But these considerations you bring up are important, and they're something that we will continue to think about and talk about.

Okay. Just quickly on the bank's interest rate sensitivity, what sort of sensitivity do you have if the yield curve stays as deep as it is right now?

So let me take that, and if necessary, I can hand you off to Peter Levitt, our treasurer. As part of the Treasury activities and our hedging activities, we constantly look at the balance sheet. There was some talk last quarter, I think, about a form of balance sheet repositioning from some of our peers. So we haven't done that. But from an earnings perspective, we currently do have a short-duration bias, and so as rates rise, that will certainly help us.

The following question is from John Reucassel from BMO Capital Markets.

David, just back to you. Clarify -- you said $1 billion reduction in loans on credit cards is 3 basis points. So that would be an 18-basis-point impact? Or did you say 10 basis point impact to NIM? I just want to clarify that. And then could you talk about what mortgage loan growth would have been like if you excluded the renewals out of FirstLine?

Certainly, John. So I'm glad that you did loop back on that so there's no confusion. So we're looking at potentially divesting half the book, so that's why you should be thinking 10 as opposed to double that number. So it's 3 basis points per $1 billion, total Aero book of $6 billion, so it'd be $3 billion coming off.

I see, okay. So the $6 billion is -- it would be half of the $3 billion that leaves -- sorry, half of the $6 billion, so it's $3 billion that leaves?

Yes. So let's talk a bit about mortgages. Our mortgage business is running quite well. We don't lead on price. You'll see that in the markets. We haven't been doing that, and we don't intend to. But our mortgage growth is up 13% year-over-year. So we haven't broken out how much of that is a tailwind from FirstLine. But even if you adjust out FirstLine, I'd say we are still running at market-leading growth in our brand, and we're doing it through our brand. We're not buying broker-originated mortgages, which maybe supports the growth in certain industry players. This is through our own channels. So probably worth talking about how that's occurring if it's not price. So there's 3 things that we're doing. One is investing in our branch network. Gerry talked about that in his opening remarks. We're also investing in our mobile adviser channel. We were underrepresented in that space and we're adjusting that, and that's giving us some lift in the year-over-year stats. We've been -- I think we've talked about before some of our -- well, one of our priorities is improve our sales and service capabilities. And I think we've spoken about our breakaway initiative, which has been rolled out across our branches, at least most of the branches at this point, and some nationwide intake programs and so forth. And we're seeing a very significant lift in sales activities through both those intake programs and breakaway. And then thirdly, we introduced Home Power Plan, the integrated HELOC and mortgage product. Now it came out the same time as regulatory constraints on HELOC at 65%, but it's still been a very well-received program. If I speak a bit just about FirstLine, that's gone particularly well, and that has supported the growth, so campaign-to-date retentions at about 45%. This quarter, we're retaining about 50% of what's coming off, and that's relative to the target retention that we've set at the beginning of this initiative, 25%. So our retention levels are well exceeding, like, doubling the initial target, and we're still maintaining margins. So again, probably good to speak about how that's happening. So we've set up a retention team that's focused on just that, retention. We introduced some advanced -- somewhat advanced analytics that look at the price sensitivity of clients based on the data we have available to us, and that's informed things such as when we call clients. So if you're identified as a price-sensitive client, our retention team calls you earlier, prior to your renewal date. And if you're less price-sensitive, our thinking is you're probably not thinking about it, so we'll call you later. And then on top of that, we're focused on getting these clients embedded into a deeper relationship with CIBC. So those retention teams have offers and leads programs that are facilitating that. So in aggregate, this quarter, the FirstLine runoff has been, for the first time, eclipsed by growth in the CIBC-branded mortgage space. So recently, the NIM expansion has been offsetting reduced volume. And this quarter, we now have NIM expansion plus volume growth in mortgages. So maybe more than you wanted, John, but the mortgage space has been one that we've made a pretty fundamental shift in, in the last little while. We didn't talk about it last quarter, so I thought maybe a deeper dive would be appropriate now.

Appreciate that, David. Just a question, I guess, for Laura to just understand what she said on the loss given default parameters, higher loss given default parameters on the real estate secured lending. I think of the $5 billion increase in RWA, 40% came from real estate secured Personal Lending, and you said that was higher losses given default parameters, I guess, in the downturn. So does that mean you're expecting house prices to react more negatively? Or how could you -- could you quantify that, what the change was?

Well, happy to take it offline, if you want to get into the details of everything that goes into sort of these parameter changes. But I mean, this is really -- as you know, the downturn LGD relates to sort of our stressed scenarios, and so we put buffers in there, in the LGD, and there's a lot of, again, different downturn scenarios. So we get pretty conservative in terms of what the downturn could look like. But again, happy to take it offline to walk you through a lot of that detail, if you like.

The following question is from Steve Theriault from Bank of America Merrill Lynch.

A couple of follow-ups. And just following on John's question, I want to make sure I understand this correctly. When I look at Page 37 of your supplemental, the bump in RWAs looks to be in the real estate secured lending, cards and the corporate line. Is that where -- are those the 3 buckets where the parameter changes are material? Or should we be excluding the corporate bump for some reason?

No, that's right. That's where the majority of the change happened. And primarily, all of it relates, as I've mentioned earlier, to the downturn LGB parameter update.

Okay. I appreciate your comments to John. But as I -- when I think of downturn LGD, as you said, I think of stress case. So is it -- can we interpret this as you didn't have a conservative enough stress case? Maybe relative to -- like, was there some -- was there any criticism from the regulator that your stress case wasn't strong enough? Or was it just -- is it a normal revisiting?

No, I wouldn't say it wasn't conservative enough. We're continually reviewing all of our parameters all the time, so it's just normal course updates that we would be doing.

Okay. But there haven't -- as I look back the last couple of years, this is the first big one in a while.

Yes. It's the first big one in a while, and I think that it just happens that we've got a whole bunch sort of in the queue. They all have different timelines. And this just turned out that we implemented a lot of these changes in the same quarter.

Okay. For Gerry, last quarter, I pushed you a little bit on the buyback, and you said you wouldn't be prepared to really discuss it until Q4. So I'm not sure -- in answer to a previous question, I'm a little confused. Are -- is the buyback starting as soon as it gets approved potentially or you're really not going to touch it until November? And should we -- I guess should we interpret this as the buybacks coming sooner than expected or not?

Well, the buyback is approved, and we'll be starting probably next week.

Okay. So you have...

We still need TSX approval, but we have all our other approvals. So pending that, which usually happens in short order, the buyback will start possibly next week. But of course, I defer to whatever the TSX might need.

Yes. So is that -- so what drove the fact that, I guess, you're moving -- last year, part of what I was suggesting was the Tier 1 common was about to cross 10, why not get a little more aggressive with the buyback. Now you've had a bit of an unexpected hit this quarter. Is there something that's changed in your thought process as to why you might go a little sooner?

Well, first of all, there was no particular reason to not go sooner. And we looked at our overall plan that we have in place strategically, and we decided that we would go sooner. So the buyback was in place, and it was a clear articulation of our intent through action. But at the same time, what we have said is that we intend to execute this at an even pace. So the -- this still syncs up with our overall strategic plan. So we're ending up in the same place, but we thought that we could give some clarity by not necessarily changing the outcome but being clear about our intent. That's why you're getting the execution implementation now but the statement that we intend to proceed at an even pace over the next 12 months. Because we give you the clarity that you seem to be seeking, and there is no particular reason to not give you that clarity, but we do end up at the same place that we had in our strategic plan through the even pacing.

The following question is from Darko Mihelic from Cormark Securities.

Just a clarification question is all. On Slide 6 of your presentation, Kevin, when you were speaking, I think you alluded to the fact that Treasury allocations can be volatile, and that explains the $50 million year-over-year decline. But then you said that you expect lower Treasury allocations on a go-forward basis. Why would that be?

I think it's -- Darko, it's all relative. So my original comments were with respect to the prior year, and there are a number of items that would drive those Treasury allocations. In the prior year, we had particularly high AFS gains. And actually -- so they were down a lot this quarter, but we did have some AFS gains this quarter. As a result of some of our Treasury activities, we did have some positioning gains that do not -- we don't anticipate necessarily reoccurring next quarter. So just guiding you that both of those could go down in the future.

So there is not a -- there isn't a change in Treasury allocation methodology?

No, not at all.

The following question is from Brad Smith from Stonecap Securities.

Just a quick follow-up with respect to the Aeroplan. I don't recall, but I was wondering if you might give us some guidance as to the number of cards that are subject to this negotiation.

Just pondering as to -- sorry, Brad, as to the level of disclosure on that. We haven't really disclosed it. It's not super-sensitive information, but because we are negotiating, I'm just hesitating to go down that path. So I think I'll hold, Brad. It's a fair question. But I think just maybe in overabundance of caution, I'll just hold back on that disclosure.

The following question is from Gabriel Dechaine from Crédit Suisse. Gabriel Dechaine - Crédit Suisse AG, Research Division: Laura, you gave the 60% RWA increased contribution from the model parameters. So I'm just going to your supplement here, Page 44, that's on the RESL, real estate secured portfolio. The LGD went from 11% -- to 11% from 9%, and then you have a similar increase in the corporate book. I'm wondering which one was more impactful to your risk-weighted asset increase. And that's pretty much it.

They were both about the same with -- I mean, if I had to split it, probably a little more than 50% of that would have been more corporate than residential. Gabriel Dechaine - Crédit Suisse AG, Research Division: Your RESL includes HELOC as well. Could you carve up, like, the risk weighting between what your uninsured mortgages are and your HELOCs? Like, what's the approximate risk rating of those 2? Because your data is not very -- well, the exposure at default includes insured mortgages and some other inconsistencies, I guess, there with other banks, to compare it?

I'm not sure I understand all the detail of your question. I can take that offline with you, if you like, if you want to go through all that.

The following question is from Robert Sedran from CIBC.

I just wanted a quick question in the Caribbean, Richard. We've looked lately at that region as stable being a good thing. And more recently, I guess earlier this week, one of your peers suggested there's reason for some optimism creeping into their Caribbean outlook. Can you perhaps share an update on how CIBC views its Caribbean footprint over the next 12 months or so?

Yes. I would say that optimism is a little strong. I would say that stability from what I would call a low base is probably what we expect. We do think that the nonperforming loans are getting -- at CIBC are getting better in terms of the number and amount of outstanding non-performing loans, and the loan losses relating to those non-performing loans is getting better as well. So that is a reason for optimism. But the general environment for creating revenue down there, it remains, I would say, probably at a low ebb, but not -- but probably not getting any worse for the -- in the short run.

The following question is from Michael Goldberg from Desjardins Securities.

Leaving aside the Treasury allocations to the Retail and Business segment, what's happening to the contribution from Treasury that is the impact of being unmatched on a consolidated basis?

Michael, I can -- that's a bit more detail than we would generally go into. I don't know if Peter has anything to add, but we'd be happy to have more detailed discussions on Treasury generally. But I think at this point, we wouldn't go into that detail.

The following question is from Steve Theriault from Bank of America Merrill Lynch.

Just a very quick follow-up. Just going -- earlier, it was suggested that if there is a sale of half the Aerogold book, it could result in a capital windfall of sorts. But if it's $3 billion, at about a 30% risk weight, isn't that only about 10 bps on capital plus or minus? Am I missing something there? Or is that right?

The risk weighting on cards is higher than 30%. It's substantially higher than 30%. Cards is a high-risk asset, so it wouldn't be down at 30%.

We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Weiss. Please go ahead.

Thank you, operator. That concludes the call. If you have any additional questions, please contact Investor Relations. Thanks for joining.