Canadian Imperial Bank of Commerce (CM) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CIBC first-quarter results conference call. Please be advised that this call is being recorded. To reduce the audio interference within the boardroom and over the conference call line, please turn your BlackBerry off for the duration of the meeting.

I would like to turn the meeting over to Mr. John Ferren, Vice President Investor Relations. Please go ahead, Mr. Ferren.

Thank you and good morning, everyone. Thank you for joining us today. This morning, CIBC's Senior Executives will review with you CIBC's first-quarter results that were released earlier this morning. The documents that will be referenced on this call including CIBC's Q1 news release, investor presentation, and financial supplement, as well as CIBC's Q1 report to shareholders can all be found on our website, 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; David Williamson, our Chief Financial Officer, will follow with a financial review; and Tom Woods, our Chief Risk Officer, will provide a risk management update. After the presentations, there will be a question-and-answer period that will conclude by 9.00 a.m. With us for the question-and-answer period are other CIBC business leaders.

Before we begin, let me remind you as usual that any individuals 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, John, and good morning, everyone. Before I begin, let me remind you that my comments this morning may contain forward-looking statements.

Today, CIBC reported strong results for the first quarter of fiscal 2011. Net income was CAD799 million and cash earnings per share were CAD1.94 or CAD1.97 adjusting for items of note. Return on equity for the quarter was also strong at 23.3%.

Turning to our business results, CIBC Retail Markets, reported another solid quarter. Results were up with net income of CAD627 million up 19% from a year ago. Revenue was CAD2.5 billion, up 6% over the same period, supported by volume growth in all of our Canadian segments including personal banking, business banking, and wealth management.

Loan losses of CAD275 million were down 25% from a year ago. During the quarter, retail markets continued to deliver strong financial advice and expand access and choice for our clients. We extended our leadership in mobile banking with the launch of CIBC Home Advisor App, a customized tool that enhances the experience for our Canadian clients who are searching for a new home.

We also expanded full-service Saturday banking to an additional 36 branches, enabling clients to bank six or more days a week at close to 500 branches or about half of our network. And we continue to announce new sponsorship initiatives as part of our overall brand strategy. Sonia Baxendale is here this morning to talk about our progress in retail markets.

In wholesale banking, we delivered a strong result this quarter. Net income was CAD136 million or CAD185 million after items of note. After a softer back half of 2010, industry conditions were better this quarter and we had broad-based performance across our capital markets and corporate and investment banking businesses. These are traditionally strong client-focused businesses that have performed well for CIBC over many years.

As the environment continues to improve, the pipeline has become active for these capabilities and we saw strong evidence of this this quarter.

In investment banking, we continued to win major assignments across several industries of strategic importance for CIBC including the energy and mining sectors, where we have been historically strong. Richard Nesbitt is here this morning to talk about our progress in wholesale banking.

Our strong earnings this quarter contributed to further growth in our capital ratios. Our Tier 1 ratio increased to 14.3% from 13.9% at the end of Q4 and our tangible common equity ratio increased to 10.2% from 9.9%. Driven by earnings growth, we have built our common equity to a position that we believe already meets the minimum requirement of 7% on a Basel III pro forma basis. Given that the phase-in of this requirement does not begin until 2013, we feel we are very well positioned.

In summary, we are off to a strong start to the year with our core earnings in Q1 approaching peak levels of the previous cycle. Importantly, we are achieving these earnings with higher levels of investment and a capital base that is much stronger.

And the strategic backdrop for these results is quite good. In the area of capital deployment, first we will grow our core businesses within our risk appetite with a continued focus on sustaining our strong businesses and strengthening those that may be lagging. Second, we will continue to emphasize capital strength with a particular focus on building the common equity component of our Tier 1 capital. And third, we will pay dividends in line with our target payout range of 40% to 50%.

Let me now turn the meeting over to David Williamson for his financial review. David?

Thank you, Gerry. I'm going to refer to the sites that are posted on our website starting with slide number 5, which is a summary of results for the quarter.

We reported strong results this quarter. They were helped by higher wholesale banking revenue, volume growth, and CIBC retail markets, and loan loss performance, which continues to be strong and is well down from levels of a year ago. Earnings per share this quarter were CAD1.92 or CAD1.94 on a cash basis.

We had two items of note which are listed on the top right of the slide totaling CAD0.03 per share. Our cash EPS excluding these items was CAD1.97, well up from a year ago and the prior quarter.

The first item of note was a net loss of CAD0.12 per share from structured credit runoff, a topic I will come back to in a few moments.

Second item was a gain of CAD0.09 per share on the sale of CIBC Mellon Trust issuer services business. CIBC Mellon is a 50-50 joint venture between CIBC and Bank of New York Mellon. This gain represents our share of the overall gain on the transaction.

As Gerry said, our capital position continues to strengthen with a Tier 1 ratio of 14.3% and a tangible common equity ratio of 10.2%.

Slide 6 provides a summarized statement of operations on a reported basis, showing net income for the quarter of CAD799 million.

Let's turn to slide 7. Turning to our business results starting with CIBC retail markets on slide 7, revenue for CIBC retail markets in the quarter was CAD2.54 billion, up CAD134 million or 6% from the same quarter last year. Solid year-over-year revenue growth was supported by particularly strong growth in wealth management and by continued growth of personal banking and business banking.

Looking at the results of the specific business lines on this slide, personal banking revenue of CAD1.68 billion was up CAD81 million or 5% from the same quarter last year due to solid volume growth in most products including the benefit from the MasterCard acquisition in the fourth quarter. Business banking revenue of CAD348 million was up CAD17 million or 5% from the same quarter last year primarily due to strong volume growth of 10% partially offset by narrower spreads.

Wealth management revenue of CAD393 million was up CAD47 million or 14% from the same quarter last year due to higher asset values and trading volumes. FirstCaribbean revenue of CAD129 million was down CAD28 million or 18% primarily due to the impact of a stronger Canadian dollar, lower volumes, and lower spreads. Other revenue was up CAD17 million primarily due to higher treasury allocations.

As shown on slide 8, net income this quarter from CIBC retail markets was CAD627 million, up CAD100 million or 19% from the first quarter of 2010. Revenue was up CAD134 million for the reasons we just previously just discussed in the last slide and the provision for credit losses of CAD275 million was down CAD92 million from the same quarter last year as a result of the improved economic conditions.

Credit losses were up CAD33 million from the prior quarter as a result of lower reversals in FirstCaribbean and the expected increase in losses as the MasterCard portfolio seasons. Tom Woods will further discuss credit quality in his remarks.

Noninterest expenses were CAD1.4 billion, up CAD99 million or 7.5% from the first quarter last year due to the following points -- higher performance related compensation, due in part to improved wealth management results; higher benefits expenses, which is primarily driven by the impact of lower interest rates on pension costs; and the continued impact of the implementation of HST; and then the servicing fees that we referred to on the MasterCard portfolio, which will decline after conversion.

The last item on the chart shows retail net interest margin or NIM, which was essentially flat versus the prior quarter as a result of competitive pricing on deposits and lending being offset by the benefit of the MasterCard's portfolio.

Turning to wholesale banking, revenue this quarter was CAD471 million, up CAD233 million or 98% compared to the prior quarter. Excluding items of note, wholesale banking revenue was CAD521 million, up CAD130 million or 33% on the same basis.

During the first quarter, our wholesale banking businesses of capital markets and corporate and investment banking generated revenues of CAD500 million, up CAD146 million or 41% compared to the fourth quarter of 2010. The improvement was as a result of better performance across most business lines including fixed income, equity derivatives, equity new issues, and advisory services.

In the Other segment, revenue of CAD10 million was up CAD100 million from the prior quarter, primarily due to lower losses in structured credit runoff. Wholesale banking net income was CAD136 million this quarter, up CAD192 million from the prior quarter. Excluding all items of note, net income for this quarter was CAD185 million, up CAD119 million from the prior quarter on the same basis.

Revenue was up CAD233 million from the fourth quarter for the reasons previously noted. The reversal in the provision for credit losses of CAD2 million compared to a provision of CAD8 million in the prior quarter. This was the result of lower losses in the US real estate finance and recoveries in the US non-core portfolio.

Noninterest expenses were CAD303 million, down CAD24 million from the fourth quarter mainly due to lower professional fees, litigation provisions, and severance costs.

This next slide summarizes our structured credit runoff results. We had a net pretax loss of CAD68 million this quarter versus a loss of CAD177 million last quarter. Results this quarter were driven primarily by the loss on row 2 of CAD70 million on purchased credit derivatives, hedging loans and receivables. This loss is largely attributable to a timing issue resulting from the rate of improvement in the market value of our underlying loans being greater than the rate at which the loans on our balance sheets are amortizing to par.

On row three, we had loss of CAD11 million resulting from the termination of CAD1.5 billion of securities and written protection and CAD0.5 billion of purchase protection for a total reduction in notionals of approximately CAD2 billion.

And we had loss on row four of CAD14 million, which is the net effect of gains and losses on unhedged positions, the change in the value of our hedge on the US RMM portfolio, and other items. These losses were partially offset by the lower CVA shown on row one, resulting from improvements in the underlying value of holdings hedged by financial guarantors.

In summary, our first-quarter results were strong with broad-based performance across our core businesses. Compared to the prior quarter, we enjoyed strong revenue growth in our retail -- sorry, Canadian retail and wholesale banking businesses. Our loan-loss experience continued to be strong and expenses declined. Our capital position continued to grow even while we continued to invest for future growth including the recent acquisition of the MasterCard portfolio.

Thank you for your attention. At this point, I will hand over to Tom.

Thanks, David. Good morning, everybody. With respect to credit risk on slide 18, specific loan loss provisions in Q1 were CAD226 million, up CAD11 million versus Q4. This was due primarily to FirstCaribbean, which benefited from reversals last quarter, and loan losses in the MasterCard portfolio we acquired from Citicorp in Q4.

As discussed in the last webcast, the MasterCard portfolio included only accounts above a prescribed high quality standard. We will experience normal course migrations in 2011 on this portfolio as delinquencies reach expected levels.

General loan losses were a recovery of CAD17 million or 2%, largely attributable to our Visa credit card portfolio reflecting improving delinquencies. Gross impaired loans were down CAD7 million in Q1. New formations were down for the sixth consecutive quarter.

Slide 19, our cards portfolio loss rate in Q1 was 4.5% versus 4.1% last quarter and the peak of 7.1% in Q3 '09. Losses were up CAD 16 million versus Q4 as expected, due mainly to the MasterCard portfolio, as just discussed.

The near-term outlook for losses for cards as a whole continues to be positive although we expect losses in Q2 to be higher than in Q1 because of MasterCard.

Slide 20, our US commercial real estate finance business has CAD1.9 billion of net drawn exposures and CAD789 million of undrawn exposure. In Q1, we had loan-loss provisions of CAD5 million down from CAD8 million in Q4 2010. We had CAD186 million of net impaired loans here.

Losses have trended down now from three successive quarters. The outlook for losses in fiscal 2011 continues to be positive, however, as I have said in previous webcasts because losses in this area are dependent on a number of factors, we could see a higher loan-loss rate in the rest of the year versus Q1.

Our US leveraged finance runoff book has CAD191 million in net drawn exposures and CAD284 million in undrawns. There were net recoveries of CAD5 million in Q1 in this portfolio.

Our European leveraged finance runoff book has CAD694 million in net drawn exposures and CAD138 million in undrawns. In Q1, there was no provision for credit losses in this portfolio. At the moment, the outlook for loan losses in both leveraged finance runoff portfolios continues to be positive.

Turning to market risk, slide 22 shows the Q1 distribution of revenue in our trading portfolios. In Q1, all but four trading days or 94% of the time had positive results. During Q1, OSFI approved enhancements to our value at risk model which increased our degree of risk capture and in turn increased our VAR measure. Still, our VAR levels are within our risk appetite and well below peer levels.

Slide 23, our Tier 1 ratio was 14.3% at Q1, up 40 basis points from 13.9% at the end of Q4. Our tangible common equity ratio increased to 10.2% from 9.9% last quarter. The higher Tier 1 ratio was mainly due to earnings net of dividends and equity issued in our Dividend Reinvestment Plan, partly offset by a small increase in risk weighted assets.

The agreed-upon text of the Basel III guidelines was published on December 16, largely in line with previous expectations. Our pro forma Basel III common equity ratio as at January 31, 2011, is estimated to be just in excess of 7%, exceeding today announced Basel III 2019 minimum capital requirement.

I will now hand things back to John Ferren.

Thanks, Tom. So we will open up the phone lines for questions.

(Operator Instructions) Steve Theriault, Bank of America Merrill Lynch.

Thanks very much, a few questions. First for David, did I note in the report to shareholders that you transferred some of the structured credit runoff business into the banking book? I thought that that ship had sailed with respect to reclassifications. So can you talk about what drove that and how much of a net positive impact that might have been to risk-weighted this quarter?

Sure, it's Brian O'Donnell answering that question. You are right, the portion of the structured credit book would've moved to banking book back a couple of years ago and this is really just moving the remainder of the portfolio to banking book. In keeping with the June 2009 requirements under the new securitization rules that would have all banks moving the rest of those portfolios by Q1 2012. So we just thought doing that in the same quarter where we did our enhanced VAR -- our updates was good practice.

Would that affect earnings volatility going forward at all?

No impact on earnings volatility. A small increase in risk-weighted assets this quarter, maybe a couple hundred million dollars.

Okay, then for Gerry, I suspect, Gerry, OSFI's advisory on hybrid debt was disappointing. To what extent might that affect your capital planning? Does it lend you to thinking more constructively in any way to buybacks or special dividends or anything of that sort?

As we look forward to Basel III implementation, there is a similar dichotomy in our capital structure today as will exist under Basel III. That dichotomy is that we have strong levels of total common equity and extremely strong levels of Tier 1 capital.

The greater emphasis on total common equity means that the excess of Tier 1 capital beyond requirement from total common equity, if it's large enough would indicate that that's the first area that we should go to in terms of addressing our balance sheet going forward.

Translating that, it means that all non-common equity depending on the efficiency of the process should be looked at because we do have quite an excess there. So preferred shares, convertible preferreds, hybrids, all of those are being looked at in terms of potentially redeeming or moving them from the balance sheet. The terms and conditions which are public are indicative of the order in which we would proceed.

On to the second part of your question, which was buybacks and special dividends, I would not anticipate that we would be involved in either at this time. Instead I would say that our target payout level is 40% to 50%. We are at this time getting into that level. We were well into it this quarter and I think therefore the topic of general dividend increases will be something we will be discussing during 2011.

That's helpful. And just lastly, probably for David, what did the Citi Card acquisition add to earnings this quarter? How much of the card PCL was attributed to the new Citi portfolio?

Steve, so we are not -- MasterCard is now part of the family, so we are not carving it out separately. Certainly it helped revenues and it also had an impact on loan losses as you spoke to, so that gave a signal to I think last quarter where we bought a cards portfolio that had no delinquencies and it will season, and hence the retail loan-loss growth we saw this quarter largely attributed to that move in the MasterCard's portfolio as it does season.

Thank you very much.

John Aiken, Barclays Capital.

Good morning. A question for Sonya. Given the results that we saw on the retail banking side, what does this do to your confidence in achieving the CAD3 billion 2013 target? How are each of the separate lines within your businesses progressing against your expectations?

So, John, I think our tracking against the CAD3 billion target we would say we are very much in line with that. When we look at each of our various businesses, I would say that both personal banking and business banking are tracking pretty much consistently with where we would expect them to be. And at this point in time, wealth management is overachieving. As you know, that can be a little more volatile and driven by market conditions. So that would in theory put us a little ahead of where we would expect to be, but I wouldn't necessarily assume that that's sustainable over the full cycle.

Great, thank you. And I apologize if I missed it, but Tom, can you give us a little bit more color the FirstCaribbean portfolio experience this quarter?

Well, Q4 we had quite low numbers there and I think I mentioned that in Q4's webcast. In Q1, we were up to normal levels, I believe it was around CAD15 million or CAD16 million per quarter, so it was normal. I have in past webcasts said that the volatility around that CAD15 million per quarter run rate is potential volatility is probably higher than in most of our other books, but I think -- let's say we had a quarter with CAD20 million. That would not be material in CIBC's overall context. So FirstCaribbean had a normal quarter this quarter.

Okay, thank you.

Peter Routledge, National Bank Financial.

Thanks, a question I guess for Richard. The wholesale banking result, very strong this quarter. In your view -- and leave aside the structured credit noise -- in your view, how repeatable is this quarter, i.e., is this a good indicator of what will see for the rest of the year? And does your outlook change at all in light of recent events particularly in the Middle East?

Yes, thanks, Peter. We had a very, very, very strong quarter in Q1 and I would say we are off to a steady start, a good steady start here in the beginning of the second quarter. I really don't think -- you know, we are a very client-oriented business and so the effects of going on in the Middle East and the volatility in the markets in some ways that's good if it causes clients to do more things for us. We have very little proprietary activities and therefore we are not really subject to any sort of problems or opportunities based on that.

So I'd say that the current events don't really cause me any concern. I'm assuming they're going to stabilize at some point here. So it really depends on how active the clients are in the financing markets going forward and this year has been off to a very good start.

Okay. Gerry, just for you, if wholesale banking earnings hold out, you are sitting now at least by our calculations well within your target payout range. You are above the Basel III 7% guideline by 2013. So I guess the question is what would hold CIBC back from raising the dividend early this year or in the first half this year?

Well, the payout ratio is 40% to 50% and I think we'd like to see further quarters and where we lie within that range before we actually made any changes. But we are now examining it each quarter at a management level and it will become a Board topic when we feel that we should be raising it.

If you look at our history, what we tended to do in the last cycle was raise it when we got down very much to the lower end of the range and that's because when you are in a recovery or an expansion, you may be in the lower end of the range, but in the down part of the cycle due to credit considerations and business declines, you find that you are up in the upper part of the range or above the upper part of the range.

So that would indicate that you would tend to move it when you were working your way towards the lower part of the range. And that's what we have done in the past. The good news is that as of this quarter, we were working our way into the lower part of the range. But I would like to see a little bit more consistency on that before we got too aggressive here.

However, you are on the right track. We just need to look at this for a little longer.

Thank you, very helpful. That's it.

Gabriel Dechaine, Credit Suisse.

Gerry, just another dividend question and specifically on the target payout range. What is your thinking towards moving up that payout range or is that something that's not reasonable within the context of OSFI looking at prudent earnings retention?

Second question is given your capital strength and your capital position vis-a-vis Basel III, what aside from dividends and stuff like that, what strategic initiatives do you have in mind for leveraging your capital advantage?

And then lastly, just a quick numbers here, commercial loan growth in quarter, could you tell me what it was sequentially and year-over-year?

Okay, so you may have to remind me about the questions because I wrote as fast as I could, but I couldn't keep up with you. First of all, the first question if I got it correctly was we are currently paying out in the 40% to 50% of earnings level and what are our considerations around raising our target payout level?

The first thing I would say is that while on dividends targets, we would always discuss those with the regulator. The absolute levels of capital and the sustainability of that is the area that has tended to be the emphasis in the past. So these things are always discussed as are ongoing operations, but the elements of consideration here are primarily management driven and internally driven.

So having said that, it's not -- the first issue is not one at a regulatory level. I would move on to the management considerations. The management considerations on the payout range are several. The first would be normal considerations about the economic cycle and sustainability of dividends with high, high degree of confidence.

A 40% to 50% has a tried-and-true track record of a high degree of sustainability along with reasonable prospects for growth as we go forward. That is where we are today. We are still in the 40% to 50% in our planning horizon and in our thinking because we think that's the most prudent level with also the prospect of reasonable growth.

We believe that we will have uses for capital in terms of reinvesting our core businesses and -- but that will be something will be on an ongoing basis.

I am now going to shade into the next part of the question because the two do relate to each other, which is uses of capital that relate to changes from Basel II, Basel III, and other considerations because that obviously over the course of the next couple of years will affect one's thinking in terms of the total package of capital dividend increases and all the rest of it.

As you know, Basel III does bring down capital levels for all of the banks and has targets that leave almost all the banks in our case in less of a surplus position to capital requirements than would have been under Basel II.

All that having been said, the surplus that we have in capital requirements is extremely high in the areas of non-total common equity capital. Therefore, we are giving a very high degree of consideration to early redemption options around non total common equity capital. And as I said in an earlier question, the pace as well as where we go on these will be driven by to a certain extent the terms and conditions of the underlying instruments.

There are a number of instruments that are fairly efficient from either a redemption or a conversion viewpoint over the course of the next year or so and therefore, we are looking at those and the probability of a decision there is quite high.

So I would say that that would be the area that I would look to for the first levels of activity is the non total common equity areas of our balance sheets that are surplus under both Basel II as well as Basel III and there are convertibles. We may see a combination of conversion and redemption because of the high value put on total common equity, but our objective is to be an early complier with Basel III to provide you with the transparency as to the outlook of our requirements to meet capital requirements. And under the circumstances that we foresee, we would want to be able to look forward and say we have met the requirements and therefore all of our excess earnings are available for either dividend increases or investment in the business.

So let me pause there because the third question was a little different from the first two. And just ask you if the -- that was adequate on the first two, and then I will pass to Sonia to answer the third part.

Very thorough. But just a clarification I guess my fault for not asking it the right way, do you think that moving your payout ratio to 45% to 55% theoretically would go -- would be at odds with OSFI's guidance for earnings -- conservative earnings retention strategy? Would they see that as --?

I would not speak for OSFI. Instead, the way I would phrase it is that in my outlook, if I was to consider the prospects of changing our payout ratio, I would tell you that the vast majority of the considerations on that are management-oriented. We have had many discussions with OSFI and they would not lead us so far to believe that a small change in dividend payout ratio would be the area of the highest sensitivity provided your outlook as to compliance with Basel III and other requirements was well in hand.

But again, I don't want to speak for OSFI. I can tell you the management consideration is what's driving me to stay at 40 to 50.

Great answer.

Okay, so I'll turn it over to Sonia.

Thank you, Gerry. So on commercial lending or business banking more generally, as I've talked about on previous calls, this is a significant area of priority and a focus for growth for CIBC. So we did have -- in line with that, we did have some good progress quarter-over-quarter and year-over-year, so our total growth, I think you were asking for both, 12% year-over-year and 2.5% quarter-over-quarter. That's combined our small-business lending as well as our larger commercial lending portfolio and the growth rate was a little higher on the specifically on the larger commercial lending portion of the book. But both had very strong performance this quarter.

That's commercial excluding Richard's stuff, yes?

That's correct.

Thank you.

Michael Goldberg, Desjardins Securities.

Gerry, what gives you confidence in your position regarding the ongoing Enron-related tax dispute? And what consideration should investors give to the potential billion dollar hit from an adverse decision? And what do you think the timing of ultimate resolution is?

We continue to be confident in our position. The timing is subject to a variety of processes and we do not believe a decision is imminent and as a matter of fact, it does appear to be down the road a fair bit. And the matter here has -- we haven't had any change in our position on this, so we do continue to be confident that we are in the right spot.

Okay, let me get back to your comment about organic growth being I guess your primary focus for capital deployment. What growth should we be expecting in your risk-weighted assets over the coming year or two?

We haven't provided guidance of that sort in terms of growth in our risk-weighted assets in the past and I'm not prepared to start here. It's something that we can discuss general growth levels in line with the past that sort of thing, but my primary area of interest is that we devote the capital to the right areas and that would be our core business. We have had in the past, as has happened throughout the financial services industry, there are at times are growth in risk-weighted assets that are not necessarily in the core areas of the business. And we are finding that this cycle because our strategy is very pointed in this matter that we are concentrating our capital and risk-weighted asset changes in the core area of the business.

But we haven't provided forecasts on this in the past and the primary reason for that is there's a lot of drivers in here that are not necessarily under the control of management and therefore we try to stay more general than that.

Okay, thank you.

Cheryl Pate, Morgan Stanley.

Good morning. I have a question for Sonia regarding the mortgage book. I'm just wondering if you can share with us any thoughts on the mortgage changes that are coming in beginning in March, anything in terms of color of what percent of originations maybe in 2010 were in that sort of longer amortization bucket or percent of the portfolio that might be in that bucket?

Secondly, any impact you've seen of those changes in terms of potentially some increased demand coming ahead of that.

Sure, Cheryl. I would say on the mortgage changes one, given the environment I think they are reasonable and appropriate in terms of the level of caution and prudence we should have in the marketplace right now. The impact on us will be modest. It will have some impact on first-time homebuyers, but beyond that, we would not expect any significant change in our forecast for mortgage growth throughout the remainder of 2011. And we saw -- we have been seeing and I think the industry in general has seen a modest uptick in advance of those rules coming into play, but even that I would say hasn't been substantive.

Okay, I would just like to thank you for putting out slide 13 with the market share and the broader breakdown of balloon portfolios. I think that will be certainly helpful in tracking towards the CAD3 billion target. I am just wondering if there's any way we can get sort of historical data since it is a little bit different breakout than we had seen historically.

We will take a look at that and see what we can do going forward.

John Reucassel, BMO Capital Markets.

Thank you, just a follow-up with Sonya. Sonia, you talked about the commercial lending growth. Could you talk about the competitive situation in commercial lending? I guess David talked about tighter spreads there. Can you give us an indication of how much tighter and are you having trouble attracting commercial bankers? Or do you have your complement of commercial bankers to achieve your growth targets?

Sure, John. As you saw, we did have strong growth this quarter. We also had good growth last quarter. We have made a lot of changes over the last 12 months and attracted some very strong new additions in terms of our relationship management and risk staff in addition to what I think was already a very strong complement. So on the people front, I would say we are very well positioned. Our market share is growing.

There has been some -- it is a competitive space. I think as you've talked to all of our competition, they are all heavily focused in this area. I think we are particularly well positioned, have a strong team and have made the operational and risk changes that we needed to make to position ourselves well. And the margin compression is in -- is certainly in a reasonable level that does not give us any enormous concern at this point in time. And it's still a very positive growth story for us.

Sonia, just a follow-up to two things. The forecasts -- I would be interested what your forecasts are for residential mortgages. I guess everyone continues to think this will slow down but the numbers hold up pretty well. So can you share your forecast with us?

On the slide 13, your personal lending, this is unsecured personal lending or would the HELOCs be in here as well? Are you able to break that out for us?

So on the first question, our economists forecast for mortgage growth is 3.8% and we would say that we think things are tracking to be pretty much in line with that. I do think the latter part of the year we will have a modest decrease in growth in our mortgages. So I think that sounds about right to me. And on the personal lending front, the number does include both secured and unsecured and we do not split the two.

Okay, last question for Gerry. Gerry, on your TCE under Basel III, that's over -- just over 7%. Once you have met the target and let's say an opportunity, acquisition opportunity comes up in the future here, has OSFI required you to always stay above the 7% range if you do a deal? Or does it -- or would they allow you dip below the targeted threshold for awhile as you climb out, but still within the timeframe outlined by the Basel committee? Have you had that discussion with them?

We have not on this topic or I have not on this topic had other than industry level discussions and I can't speak for OSFI but my current understanding and let's keep in mind that there has been until recently quite a bit of movements in terms of how this is all being worked out and there may still be elements. I'm talking about movement on the international stage. There may still be elements on this that are yet to be worked out.

However, we do have a lot of detail as to what's expected in terms of the final rules, and then the expectations of our local regulator. And magically again not without speaking for OSFI and not particular to CIBC, I think that the expectation of the Canadian industry is that you would not take action that would prevent you from being on side as of the first adoption date.

Now, that may sound a little bit complicated, but what it means is that there is an international phase-in period. All of the banks have certain activities that they are engaged in and the expectation is that we get there reasonably on time for 2013 and that we not engage in activities such as buybacks that would prevent us from being there.

All that having been said, those are very thematic general expectations and I think they are also -- there's been some public discussion of that and there is some flexibility in there. But the general expectation is that provided ongoing operations permits you to do so, that you do get there after the first possible dates within the phase-in period.

So what does that translate into? I will tell you at a CIBC level what we have chosen to see this as is we see it as an opportunity to provide you with a lot of transparency around our expectations of our free capital levels in the future.

What I mean by that is I think it makes a lot of sense to get to the Basel III levels as we have to be there, to maintain that, and to be above that so that you know that our future earnings are free for things like dividend increases or accretive investments both organically or inorganically. And by inorganically, I mean not necessarily acquisitions. We may within our existing businesses see M&A opportunities such as we saw in the cards business this year. So we are looking at that.

We're very focused on our core businesses but I would expect that CIBC will continue to maintain our targets, which we haven't formally set, but in general we are seeking to be at the guidelines and stay at them so that we can provide you with that transparency that you don't have to calculate how much we are setting aside each year.

That's great. Thank you very much.

Robert Sedran, CIBC.

Good morning. David, when I look at the margin at the all bank level -- and I'm sorry if I missed this early in the call -- but when I look at the margin at the all bank level and for that matter even in the retail segment, I would have expected the MasterCard transaction to be accretive and I have the margin being down slightly. Was it something in the business or is it perhaps something from the treasury allocation that might have taken it down? Was it unusual or should we expect it to bounce back a little bit next quarter?

I think the signal has been that we kind of expect margins to stay pretty close to where they are at now. You are right, they are down just 1 point, so they have stayed close. You are also right the MasterCard was accretive to margins and hence the comments earlier in the call where we talked about competitive pressure on lending and deposit margins. But all of it is staying -- causing us to be a bit close to home.

You also referred to treasury margins. It didn't move a lot, but they did come -- did get slightly worse this period, so that's also a factor in there.

So in aggregate, margins only moved 1 point quarter-over-quarter. On the good news side you had MasterCard and offsetting that was a bit of treasury and a bit on the lending and deposit side.

And then there's FirstCaribbean that also had a slight impact as well on the margins, so overall a number of factors but all in all, we are 1 point off from last quarter.

But it sounds like the treasury impact was basically normal quarterly volatility.

Yes, that was. That was just a movement in average interest-earning assets and so forth, so pretty normal course.

Okay. Thank you.

Brad Smith, Stonecap Securities.

Thanks, I have two questions. I think they are both for Sonia. First, with respect to the deposit market share in your slide 13, I'm just noting that your deposits I think at CAD106 billion, your personal and GICs were largely unchanged from the prior quarter. I was just wondering if you might talk a little bit about where you see deposits trending and how that market share changed in your deposit book from the prior quarter?

Then the second question was just with respect to -- I've noticed that you have been moving into extended hours mode in your branches, just wondering if you can give us a sense for the early returns are showing from that and if it's encouraging enough to cause you to extend that as the year unfolds.

Okay, sure. So on deposits, I'd say there are a couple of things happening. One, we are seeing some cash moving into -- back into equity markets and into mutual funds, so we have seen some shift overall in the general growth of deposits, which as you know will have been broadly speaking very strong over the last couple of years. So we have seen a bit of that activity over the total portfolio.

Also we are seeing some shift in terms of our market share. We had been particularly strong and out early and raised CAD12 billion, as you will recall, through our high interest savings account, which we sold through our brokerage channel. We are seeing some of that money move out of there back into higher earning vehicles. Through our regular banks channels, we are seeing more stable and still slightly growing trends on our deposit portfolio.

GICs, which is sort of part of that broad base, while industrywide that is still not a growth portfolio, we are still -- we are seeing -- we did grow market share in that space and we are seeing a little bit of come back into the GIC space, although modest.

On the extended hours, our strategy on hours is to evaluate branch by branch, market by market what we think the opportunity is to do more business and where we think our clients require that greater flexibility. Hence our entry into when we lead the market on Sunday hours, a couple of years ago, we have found that to be very helpful to us in specific markets and specific locations, so we continue to do that.

The same with Saturday and evening hours. So we do not have a strategy of blanket across the board. We would like all of our branches to have those hours. We evaluate it on a branch by branch basis.

So the fact that you are continuing, though, means that in the branches that you have evaluated, it's had a positive impact, I take it?

That's correct.

And can you put that in terms of just overall branch productivity or unit contribution? Like is it a 2% improvement, 5% net-net of all the costs associated?

It really is more variable than that. In some cases, it has a greater impact on our advisory side of the business and therefore it takes more time to see some of those changes. In some cases it's purely customer convenience, but net-net, we would see I would say that in all cases we would see growth in productivity coming out of branches where we have extended hours.

Terrific, thank you very much.

Brian Klock, KBW.

Good morning, gentlemen, and Sonia. This question actually is for Tom. Tom, you had some good trends in the GIL formation in the quarter. The one thing I wanted to ask you about is the past due loans but not impaired. On the business side, those went up about 30% un-annualized in the first quarter, so for the business and government has to but not impaired. How should we be thinking about that? Is that something you guys are concerned about leading to GIL formation down the road?

So that is on page 24. Not really concerned about that. We had a couple of accounts in the real estate space in the US and one or two in FirstCaribbean. All of that is in -- well, most of it is in the less than 31 days and some of it is in the 31 to 90 days, so not particularly concerned about that.

Having said that, we have had the last couple of quarters fairly low provisions in both US real estate and FirstCaribbean. I have tried to be transparent with you in saying I think that is not likely to continue at those low run rates. But it's not directly attributable to the uptick in past due but not impaired. It's just a number of situations we have under renegotiation that could go either way. So I'm not concerned about that slide.

Okay, so I guess it does tie in with your guidance that US commercial real estate and the FirstCaribbean should see some sort of maybe return to earlier 2010 sort of levels (inaudible).

Well, just don't know. All I'm saying is we've had a couple of quarters of quite low levels and I just want people to be aware that there's a dozen situations which we could have provisions in the back end of the year. And these are not big numbers, but I think they will more likely go up than go down.

Okay. And then just one question for Dave. I guess when we look at the fee income, obviously we've talked about the strong underwriting and advisory, the capital markets business was solid. With the securitization income, ex the gain, is this a sort of recurring level we should expect going forward? It seemed like the first quarter and fourth quarter were relatively flat, actually slightly up if you take the gain out. But is that a number that's sustainable going forward?

There's a few things in the securitization space that make it a little hard to model. On the securitizations which were in the corporate and other, in that space we are capturing the impact of the securitization, be they card or mortgage-related. So -- and then we are not having that volatility in the business lines.

So as a result, depending on what new issues we are doing on mortgage securitizations, you're just going to get inception gains and then also on replacement sales into existing securitization vehicles, there's also some volatility that you get in those quarterly results.

In addition to that, we have just had activity on securitizations recently with the MasterCard acquisition which is putting more securitized assets onto the balance sheet. So that's -- if you look at our level of securitized assets, they've gone up the last couple of quarters. So there's nothing in there that is really odd in nature, but I just would highlight that securitizations and the impact on earnings just have that volatility aspect to them.

Okay, just one other quick question. And again, it is another volatile line but I guess in the other revenue line when you back out the gain and the structured credit write off, it was up about CAD40 million sequentially and CAD117 million versus CAD62 million. That's been all over the place. But was there anything in there that's seasonal that we should adjust for in the first quarter?

Yes, the line item there when you strip out, as you say, the gain, one of the bigger factors in there is just some success on the hedging of the mortgage commitments, so that's just better performance there this quarter relative to last quarter.

Great, thank you very much.

Mario Mendonca, Canaccord Genuity.

David, maybe just to follow up on that. The success you are referring to on the mortgage commitments, you're referring to the other line in noninterest income, correct?

That's correct, yes.

And maybe if you could just talk on the fair value option revenue, this one obviously very volatile. You referred to lower losses. Is there anything you can offer there? Now I'm referring to the CAD98 million loss on page three of the supplement, and again your press release referred to lower hedging losses on your -- on instruments designated as fair value.

Yes, so the factor in there as you just said, we've got the unhedged US RMM and the hedge in relation to it. So what's showing in there is just the hedge impact, the Cerberus transaction.

Okay, so if we adjust for that, that line doesn't go away entirely, but you are saying it doesn't look quite as low.

That's right. That's exactly right.

Okay, I follow. Sonia, if I might just ask you one thing, you referred to the growth in commercial lending sequentially as being 2.5% this quarter. Is that right?

That's correct.

The disclosures, there have been some disclosures in the past and that number if I recall last quarter was a fair bit lower. We can certainly take this off-line, but I thought the growth sequentially was something closer to 5%. Am I just using the wrong numbers or did you change some classifications?

We didn't change any classifications that I am aware of and we should probably just take it off-line.

I appreciate your help. Thank you.

Thank you. This concludes today's question-and-answer session. I would now like to turn the meeting over to Mr. Williamson.

Thank you, operator. Before we conclude the call, I would just like to acknowledge John Ferren, as today's call is his last official duty as the Head of Investor Relations. John has done a great job representing the bank with the investment community as head of IR over the past five years. He is now moving onto a key role in our human resources group as part of our giving top talent new opportunities for continued growth.

I would like to take the opportunity to say to John that you did a terrific job and we really appreciate everything you did for the bank while leading investor relations.

I would also like to take the chance to introduce Geoff Weiss, who is currently our VP Finance in our retail market CFO team and I'm sure you will find that you will get the same level of service that you had before and hope that many of you take the opportunity over the next while to get to know Geoff better and welcome him into his new role as our new Head of Investor Relations.

A couple of other comments, our annual general meeting will be April 26 in Winnipeg this year and in advance of that meeting, we will be sending out our annual report and proxy circular around about mid-March. So that concludes our call for today. Thank you for joining.