Canadian Imperial Bank of Commerce (CM) Earnings Call Transcript & Summary

Okay, ladies and gentlemen, we're kicking off the Canadian content version of the -- our Global Financial Services Conference. Very happy to have Hratch Panossian, from CIBC, CFO. Hratch, thank you very much for joining us.

Thanks for having me, John. Thanks, everybody.

So just going to start off basically with discussion in terms of what you're seeing in terms of CIBC's outlook. You outlined your strategy in your Investor Day. And I know that we're a little bit of early days since you presented it, but I wanted to see if you'd be willing to discuss how things are going, what -- how you've been able to manage to move the strategy forward. And given even though we're only a couple of months away from June, is there any change to your outlook in terms of what you presented on the June Investor Day strategy? And how does that -- what are the implications for the near term, but more importantly for the longer-term outlook for the strategy?

Yes. Thanks for the question, John. And you're right, it's been a short period of time since June, right? But it is certainly not a short period of time since we've been on the path of the current strategy and executing it. So I think there has been good results so far, and we've got a good sense of the outlook. So happy to elaborate on all of that. I'd like to start with stepping back for a second. One of the things we tried to do at Investor Day is very clearly articulated what are at the end of the day, our objectives. And why is our strategy constructed in a way to credibly deliver on those objectives. And so in a nutshell, we focus on value creation for all of our stakeholders and for our investors that really comes down to total returns over time. And what we specifically focus on and we were very explicit about this at our Investor Day is we focus on the tangible elements of total return that we can control. So growth in earnings, ROE, dividends and creating tangible value. And our goal is very simple, right, to outperform in terms of tangible value creation for our shareholders over the long term sustainably. And our strategy, as we described at Investor Day, is deliberately constructed to enable us to deliver on that. And it's been a strategy that's been in the works for several years. We've been refining it, we've been putting it more, I would say, to the forefront publicly. But it's constructed in a way that allows us to focus on specific client segments, higher growth, higher value client segments across our franchise, where we believe we have strong capabilities. And so if you will, those client segments themselves are growing faster than overall market. They are very profitable. They allow us to build deep relationships because of the way those client segments actually operate and choose to interact with their financial institution. And they're very aligned with areas where we have very specific capabilities and strengths, and we've proven over the years that we can deliver. And those are the affluent client base in Canada within our retail business, what we call the private economy, which is a higher touch relationship businesses that are mostly private businesses in the commercial bank, private banking, private wealth, which is the high net worth and affluent individuals. And that's a business in terms of the private economy we operated in both in Canada and the U.S. and very specific parts of corporate and institutional focused clients within our capital markets business, which is focused primarily in Canada and the U.S., but also has some operations outside of Canada to serve again, primarily those clients as well as other clients. So our strategy is constructed for us to deliver share gains in those areas. We've also got a very strong focus in terms of our client experience and improving the client experience across the board. And again, in those specific segments that are relationship-based experience matters. So we're investing heavily in terms of, in some cases, the physical footprint that we have, opening offices, creating better spaces for our clients and evolving the banking center on the retail side of things, but we're also investing in digital. So that's better client experience in terms of the digital sales and service experience, better operational capabilities in the background to make origination and servicing for clients simpler. And we're investing in tools, again, for client advisers. So when you look at the private wealth private banking space, you look at the mass affluent in retail, we're putting tools in the hands of our advisers, CIBC GoalPlanner. -- we've talked quite a bit about in the U.S. We've got a consolidated wealth platform coming into place where our wealth advisers. These are all things that will allow our advisers to serve clients better and improve the client experience. And finally, we've got a segment of our strategy that's focused on future differentiators. And so we've talked quite a bit about our DFS business, which is a differentiated direct focused business that includes banking, it includes investing, it includes payments and other services as well. We're the sustainable finance initiative, we have to undergo our innovation banking business. So these are capabilities where they're very aligned to the client base that I spoke about, but they're also aligned to our ability to innovate at CIBC that we've proven over time, and they're aligned to the future. They're aligned with where we think growth will be in market, and there will be engines that continue to drive the growth of our company going forward. And so far, we've delivered on that. If you look at trailing 12 months, we've said that this will lead to accelerated share gains and revenue growth. We have grown revenue in the high single-digit, double-digit range. We've been investing heavily. So our expenses have been in a similar trajectory, operating leverage has been around neutral over that period of time. And as a result of that, we've delivered market-leading pre-provision pretax earnings growth. And we believe that, that trajectory can continue. Now, in terms of the outlook and how that's changed, we did lay out at our Investor Day some targets, right? And those targets, starting with what I said, ROE and earnings were rooted first in updated and higher earnings growth and ROE targets, which we believe are completely achievable with the strategy we have in place. So we said 7% to 10% medium-term EPS growth, earnings growth and ROE becoming 16% less over time. And we believe that those are still very achievable. In terms of targets, CAGRs through 2020-2025, we also gave some color on that over the 3 years. And we said high single-digit revenue growth, positive operating leverage and therefore, the high single-digit growth in earnings we think is achievable. And the way we're looking at the world now, certainly those CAGRs through 25 haven't changed. We still think we can deliver that. And when we look at '23 specifically, there's lots of uncertainty out there, but we feel generally positive about '23, right? And we're striving hard as we finalize our plans now. Our goal is to try to produce similar results for the fiscal year of '23 as those 3-year CAD.

Hratch, we're going to do is actually a lot to unpack after that, but thank you very much. But one of the things I wanted to talk about, within your Canadian portfolio, the retail bank has done exceptionally well, and this has led to some of those market share gains that you've been talking about. And I'm sure we're going to get into the mortgage market and the outlook for residual housing. But I just wanted to talk about the Costco credit card portfolio that you purchased recently. Now -- sorry, I've got the note here that it was a relatively big move for the bank. It really wasn't, but it's a differentiating factor for the bank at least in my opinion. I was wondering if you could talk about what the partnership brings and what your expectations are for the ability for that portfolio to benefit other parts of the bank?

Yes. Thanks for the question, John. And you're right. It is in the scale of the bank, not a large acquisition, but it's certainly a core part and an important part of our strategy and particularly within our personal and business banking business in Canada and that focus on the affluent client base. It is a core part of how we believe we will make further inroads in that segment. And we've been doing well, right? So if you look at the portfolio itself, it represents over 2 million -- almost 2.5 million clients that are cardholders and a strong growth profile of members applying for the card going forward when we look at the forecast and certainly expected that when we signed up for the partnership. And if you look at our own representation in that market, somewhere in the 11% to 15% is our market share, and we actually on the affluent side, we've got some opportunity for improvement and to drive better share towards our natural share. And so if you take that 2.5 million client portfolio, about, call it, something in the 85% range of that would not be clients of ours today. And so it gives us an opportunity to franchise that client base. And that's the thing that really excites us about this portfolio. The portfolio itself and the card over time is accretive to ROE accretive to earnings and the economics of the bank through the life of the contract. But the real exciting thing for us is that franchising opportunity. So how are we doing early days. There's been lots of puts and takes, right, but generally positive. When I look at the card itself generally around our expectations in terms of what we took on the books. When we look at the behaviors going forward, we're actually seeing transaction volumes a bit better than what we had anticipated. And we haven't seen the earning balances yet, but we do anticipate with the transaction volumes that the interest-earning assets as well will outperform potentially our initial expectations. In terms of new client acquisitions, we're seeing very strong results. The retention through the migration was very strong as we had expected. But then in terms of the acquisition of new clients, it's actually been almost double what we were expecting in terms of the new client growth. So I think the pool of clients we'll have to franchise will be even better than what we anticipated upfront. And then on the franchising side, clearly early days. But again, some very promising signs. And the last data is looking at we've managed to franchise and extend the relationship beyond the card for more than 20,000 clients already, and that's ahead of our expectations when we had in the business case. And so if I go to the financial side for a second, we feel that, that will translate to good economics. In the original business case that we had put together is that you go through all the integration expenses taking on the ongoing expense of the portfolio and so forth, it's sort of neutral to economics in the first year or 2 of the program and then starts contributing positively beyond that. And it gets to an ROE, like I said, the card alone will be -- we'll earn an ROE over our cost of capital and then adding in the franchising and have a very strong ROE. So given what we're seeing so far, we think we can meet all of those and, in fact, over time, maybe even do better than that.

Then the early wins or the success that you have, does that mean that potentially that time frame of 1 year, 1.5 years to positive contribution make short? I'm not asking for months or days, but is that basically with the expectation?

I think materially in that time frame, not that different, right? You might have a few million dollars better or worse one quarter earlier or later and so forth. But I think in the grand scheme of things, those are not going to be material to the bank, so materially similar in terms of the time frame that we're expecting. But those franchising opportunities are the ones that over time will really start benefiting, right?

Part of the runway is a little bit longer, a little bit better than what you had modeled in originally.

Correct. And one of the things we talked about, right, this is one of the things we did, which was a deliberate and this -- maybe you can call this quasi organic, it's not quite organic. But we had talked coming out of the pandemic about the fact that we had excess capital in excess liquidity. And our strategy was deliberately to deploy that through organic growth because we had strong returns in our organic capital deployment. And this is one of the things we deployed capital. And so when you talk about ROE and getting good returns on capital, that's where that franchising becomes important as well, right? ROEs of the card portfolios generally are good. Co-brand portfolios tend to be a little bit lower on ROE. But when you look at the ROE on the other products, when the cross-sell is around deposits and mortgages and some of the other higher ROE products, it really can help the ROE be materially better over time as you outperform on the franchising assumption.

That's great. Well, before I open up to the audience, can we start with the first polling question, please? And for those of you that are on the web, I will read out the question. What do you believe is the biggest catalyst for CIBC's relative valuation expansion. One, making a follow-up acquisition to support U.S. growth, 2, strengthening domestic consumer spending, 3, return capital to shareholders or, 4, shifting away from a low-risk strategy. My apologies about that but should have been following through on your Investor Day strategies, so…

And I didn't plant these with John.

No, these are all mine. So this is all the selling informatic layers or mine as well. So making a follow-up acquisition to support the U.S. growth strategy and strengthen the domestic consumer spending was actually tied. I'm not surprised about number 2, but I was wondering if you could briefly talk about number one, given the fact that I believe that CIBC's messaging has been that sure you look at tuck-in acquisitions for the U.S., but it's not necessarily needed to grow earnings and profitability.

Yes, absolutely. And that's right, John. That basically summarizes it, right? But again, I'll take it back to what we're trying to accomplish, being deliberate around our strategic choices, including what we build and what we buy. And so going back to why we entered the U.S. business that we did, right, we -- in order to generate tangible value for our shareholders, right, we were in a position before we bought the private bank and before we expanded in the U.S. that we generated more capital that we can put to use. And so we were fairly active in terms of returning capital with buybacks to our shareholders. But when you have the ability as a management team, and we do see this as our job is to generate value above cost of capital. And so if you have avenues where you can find opportunities to deploy that capital, have good risk-adjusted returns well above cost of capital than that, we think, is a win for our shareholders, and that's our role as management. And so we were looking for areas in the U.S. where we could credibly and sustainably do that. And we deliberately stayed away from some of the areas like retail banking and mass market in the U.S. because we just didn't believe that was the case in that business. And so we focus specifically on a business where scale matters a lot less. In fact, if you look at the space that we're focused on, which we call the private economy, right, mid-market commercial banking, some of the other areas of commercial, specialties, private wealth and private banking, some of the most successful franchises are smaller in that area. And so -- and those -- going back to what I was saying, those relate to capabilities in Canada where we have particular strengths in over decades and decades, we've proven that. So we believe that was a good area to enter in and we believe that doesn't take scale. We needed to acquire something upfront to be able to have a platform. And so that's what the private bank acquisition was. We beat our expectations in terms of returns and an accretion time frame on that. So it's been a very successful acquisition, partly because the organic growth potential has been even higher than what we thought. And so we continue to see that. We've had double-digit -- strong double-digit growth in loans and deposits through that franchise, we've continued to grow revenues, we're growing AUM very strongly and we continue to add advisers, we continue to add RMs in terms of organic capabilities. And like I said, we're investing in tools for them. We're expanding in key MSAs. We're in 9 of 10 top MSAs right now, and we're particularly focused on areas where mid-market commercial business and high net worth individuals are focused in those M&As. And we're building out the breadth of our platform. We've got a couple of more offices we're opening. We're opening branches to allow for private banking, private wealth as well as commercial banking to all come together. And all that's happening organically. And given the share of the market we represent, even in those MSAs that we're in, we have a tremendous amount of opportunity to just keep growing the team and growing the business. So acquisitions aren't necessary for us. If you look at why you would do acquisitions and this goes back to why I covered some of the type of business we got into, right, some of the more infrastructure-heavy, branch-heavy businesses like retail banking, there can be a tremendous amount of expense synergies and do acquisitions. In our business, given our model, that's less of the case. You always have some head office synergies and so forth, but expense synergies are a much smaller part of the story. So what we think is better is to focus on specific capabilities that we can bring in that add potentially the revenue side of our capabilities. And so if we can add it in a team of advisers and we've talked about wealth tuck-ins in an area where we already do commercial banking business and there is an ability for us now with those advisers to bring in new commercial companies that the client base of those advisers could be involved with their own personal business or otherwise and then vice versa. Those are the kind of things that are more attractive to us. And so we would look to that. But those are smaller tuck-in acquisitions, I think nature that we would be looking at, at this point.

Before I carry on, do we have any questions from the audience? Okay, well, I'll carry on. Perhaps you talked about the U.S. expansion, a lot of it having to do with the commercial side of the wealth and bringing those together. A lot of the concerns that I have when I'm talking with clients and investors is the macroeconomic outlook and all of the massive things that are just so uncertain, how much does that impact your planning or your outlook for the business? Or is it almost agnostic where this is the route we're going to take, we're very comfortable with our client base and almost demerits, we're moving full speed ahead?

Yes, you certainly can't take it down the torpedos approach in this business ever, John, and certainly not when -- at the very least, right, there's uncertainty out there. I think we're in a period of higher uncertainty. We've been there since the pandemic hit. We're in unchartered territory in terms of monetary and fiscal policies being applied across the globe, frankly, particularly Canada and the U.S., which are our 2 major operating areas. And some of that will have to play out. But we feel generally, like I said, generally pretty confident about the outlook at this point. We are planning, assuming some of those assumptions, our base case assumptions, and I'm not an economist, I don't try to be and so we rely heavily on collaboration with our own economics team at the bank. And with their help was constructed as a base case, which underlies what drives our allowance levels, what drives our business planning and investment plans for next year and so forth is an environment that generally would be slower, slower in terms of GDP growth and economic growth in the back half of this year than it was in the front end, both Canada and the US, and slow for next year, but still some level of moderate growth. Unemployment levels that may range up a little bit, but generally would be largely unchanged. And so that correlates to sort of a soft landing type environment, right, and success from the central banks and Canada, the Fed and so forth, in order to achieving the inflationary targets they have without significantly impacting the economy. So that's our base case. But there's uncertainty on the horizon as well, right? So we're certainly planning for a number of different scenarios. We're planning for a couple of downside of various severities. We're also actually planning for potential upside, which could happen if things get catalyzed more quickly than we think. So -- and I'm not going to predict the environment, but what we've done is try to come up with areas where we say we believe in our strategy, certainly. We believe in our clients. We've been very prudent in terms of our underwriting and the quality of clients that we're onboarding as we've grown the business over the last couple of years, and that will continue. But what we will rightsize is how we are investing in the business as that top line environment changes. And we just think that's a prudent thing to do at this point in time. And so in our base case, like I said, we feel comfortable being able to deliver something that looks like our 3-year CAGR targets we put out there. In the downside scenario, if revenues -- we're looking at cases where revenues might be a bit more muted, there might be less growth environment, and we're trying to decide how we would adjust some of the pace and the prioritization and the sequencing of our initiatives rather than changing strategy. Our strategy is the right one. We think all of our initiatives, we covered this at Investor Day in depth. We've got a very robust capital allocation framework we've put in place. Every single discretionary material, discretionary investment we make across the bank, whether that's in operating expenses, whether it's in capital, whether it's in funding or other resources, as a business case we believe in and has return -- tangible returns for our stakeholders that we've signed up for it. So as long as those are the case, we will continue executing on those. But we'll pace ourselves to try to continue to generate operating leverage in an acceptable range in those different environments.

Well, I'd love to say I was smart enough to play in this through, but it actually dovetails in quite nicely with our second polling question. So if we could go ahead with that, please. With Canadian housing prices down 5% from a year ago in July, how much further do you think prices have to fall flat to up from here? No more than 5%, 10%, 20% or the floor is just being pulled on pricing? I think we actually have nationality attached to how are you going to answer this question. No more than 5%, that was not the answer that I was expecting as you've talked about potentially a slowing growth environment but still positive. And I was trying to get the audience as the housing question because I hate asking it. But in this context, I believe I know institutionally CIBC is not worried about housing. I know I'm not worried about housing, but it's a very different cell down here in the U.S. than it is in Canada. Can you talk about in terms of what you're seeing, what expectations are for both volume growth but also, I'm going to say credit, even though we don't -- there's no losses on Canadian residential mortgages.

Yes, certainly. And that wasn't interesting. That's not what I was expecting either in terms of the answers from…

I didn't state anybody's name.

It's encouraging, right? But it certainly aligns with our expectations. I think the data is a little bit different, right? If you look at various parts, I mean, you are seeing a bit of a divergence already in that, some of the big markets, for example. If I look at Toronto proper, it seems to be still holding around its peaks, where some of the suburban areas are the ones that are a little bit further down. So maybe it's a bit of that COVID dynamic of people stretching to the suburbs, starting to revert a bit. But overall, we do expect that activity in terms of sales will be moderating and it has a lot. And as part of that, volumes will be moderating in the market. And pricing may adjust a little bit here and there, hard to tell exactly where it will land, but I think that's a reasonable view in your poll. And with that, I think that correlates from a mortgage volume perspective and growth perspective to something that's not quite the robust double-digit mortgage growth that we saw across the industry, and we certainly saw with slight share gains that we had through earlier parts of this year. That will moderate. We've said on the consumer side of the business, we're looking for balance sheet growth that's more in the low, maybe low to mid-single-digit range, not double digit. And I think that type of a housing market would correlate with that kind of volume growth on that side of it. And just because we get this question a lot, I'll answer it, John, right? It's not -- mortgages are a big part of our business because they're a big part of our clients' needs and their portfolio and particularly the affluent client base we're going after as well, as well as all of our clients. They have the mortgage needs, they have housing needs, and our purpose as a bank is to enable their ambitions and to make their ambitions reality part of that, sometimes is home ownership, and that gives you a relationship with the client for the next generally 5 years in Canada with the ability to continue building a deeper relationship with our client and offering them advice. So that's why it's an important product for us. The profitability of it got a lot of zero attached to it, right? But it's surprising sometimes to people how -- maybe it's not as concentrated in terms of a driver of revenue growth as people think. So for that reason, in Q2, we had offered some additional disclosure in terms of the driver of our revenue growth in the PPP business, and it was only represented despite all that robust growth, it only represents 8% of our revenue growth. So our revenue and our business mix is very diverse in the personal bank. And sometimes it's centered on a mortgage relationship, which is how it starts. Sometimes it's centered on a deposit and investment. But because we franchise a client and we try to deepen the relationships, the overall revenue mix and the growth of revenues is pretty diverse. So while we might see a slowdown in terms of volumes -- and we are seeing this is discussed quite a bit across the industry the last number of quarters, some tightening of mortgage margins as well across the industry, we still expect good revenue growth in that business overall as that's flowing down. So more moderate but I think in terms of impacting overall our strategy and our revenue growth potential in that business, less than maybe people would anticipate. On the credit side, just sorry to that as well. That's actually where I was going. So -- that's great. It's not -- we don't see anything at this point that concerns -- so our allowance currently, we're looking at the macro forecast that we would have, right, and the indicators on the economic front, would expect some level of normalization. We really are seeing low levels of delinquencies, low levels of impairments. And some of that may normalize. And all of that's built into our allowance expectations. But we feel very good about the credit of the portfolio. Like I said, we've been disciplined around the underwriting of the portfolio. Our LTVs are very strong. We've had -- our overall LTVs for the portfolio have continued to come down. Our uninsured book that is sitting around 45% at this point in time. The large markets that everyone seems more focused on GVA, GTA, right, that's Toronto area and Vancouver area for those that aren't familiar with the acronym, -- those are actually lower for us. They're sitting in sort of the 42 range in terms of LTVs. And in terms of our new originations, new originations of uninsured have been in that sort of mid-40s in terms of LTVs as well. So we've got lots of room. When we look at the client base, FICO scores, LTVs, everything combined, those that we would consider at high risk -- that's still a small group and everything that we see, frankly, at this point says that what we've got in our base case in terms of credit is probably about, right? And nothing that would be concerning.

Just to expand a little bit further 2 points on credit. I guess, I'm assuming that your focus on the affluent gives you a much better degree of confidence in terms of your credit loss outlook given who you lend to typically who your clients are. But also, can you talk to expectations on the commercial side. So given where we are with unemployment levels, everything else like that, is there more focus on commercial versus consumer? Is it about the same? Or am I off base?

Our focus -- look, there are different businesses, right? And we're focused on both, as we've said. Commercial is a big part of our business as part of that private economy focus. It has been very robust in terms of growth, right, well into the double digits. In terms of the last 12 months, we do see that moderating as well, but we think there's still growth. In fact, our assumptions on the commercial side would be that balance sheet growth across the market for commercial will be a bit more robust than the numbers that I described for the consumer side of the business, and we'll continue to focus on it. But in terms of intensity of focus, we're focused on gaining share and adding clients and retaining clients in both of those businesses. The commercial side certainly is a focus across the business. There's particular areas like innovation banking and so forth, we've talked about where we're trying to emphasize more. And then within the retail business, emphasizing the affluent side of the client base. But to answer your question around credit quality, we look at all originations and underwriting in the same way and try to maintain the credit quality. Certainly, when you look at clients that have deeper relationships with us, which tends to happen on the affluent side as well, we have better information on the clients and we have better data. And that allows us to manage risk more proactively as well. And we see some encouraging data, right? One of the things that we looked at, which was interesting is the building up of deposit balances that we saw through the pandemic. And this might be, to some extent, counterintuitive. But we looked at that and segmented clients who have mortgages with us and clients who don't have mortgages. And you actually saw increases in deposits that were somewhat higher as well in the population with mortgages. And so that might be counterintuitive why people do that. And part of it has to do maybe with the cost of leverage at that point in time. And so -- but from a risk perspective, what that means now is, even as rates increase and debt service costs potentially go up for those clients, we're looking at this at a client segment level but also individual client level. And there's some ability from those deposit balances that have been built out to cushion the blow. And the other part that's really important, which again we see strong I think in the particular segments we're focused on, it was strong through pandemic, it continues to be very, very strong is employment levels. And so long as the employment levels continue to stay around where we expect them to be the consumer balance sheet on the affluent and frankly, generally, right, is stronger than it was before coming in through the pandemic. And the way the structure of the products and the rolling of the mortgage portfolio is constructed is, it will take some time for the burden of higher cost and higher interest rates that come in and the consumers have to react to it. And we're seeing good signs of people taking steps and reacting to it. So as long as the time is there and the income is there, we think there is nothing too concerning.

So, Hratch, I've done this in the way that I usually have conversations with investors, where it's, okay, let's look at the worry points, the negative outlook or the problems. But then it always boils down to, okay, but interest margins. We've -- it appears that we've hit the inflection point. Can you talk to the experience that the bank is seeing? And to your point about deposits, what are the deposit betas, what about substitution for higher cost but still maintaining it within the bank, and what impact that has on the margin and the outlook?

Yes, absolutely. Good question. And I think…

I was due for one.

They've all been good questions. The margin has certainly been on the market's mind I think the last quarter or so. Right now there was a hot topic in the Q3 reporting. And our view on margins has been unchanged, right? We've been very consistent in terms of how we manage our structural interest rate risk position. We position with a longer duration for equity, we hedge our structural position, and so we're generally positioned to benefit from rising interest rates, but do so more gradually over time. And we've added some disclosure over the last number of quarters incremental, right, to our interest rate sensitivity disclosures. We've always disclosed the 12-month NII impact from a 100 basis points increase in shock, we started also disclosing how much of that is short term versus long term. And it's been roughly in the range of 40% short term, 60% long term. So that means when the short end of the curve changes, and you've got a Bank of Canada increase, for example, or a Fed increase, then as short rates reset on the balance sheet, 40% of that NII impact just comes in, and that generally happens in a quarter or overlaps potentially 1 to 2 quarters. The rest of it comes in over time over several years as a longer-term balance sheet reprices and that's a 60% sensitivity. So that's how we manage the overall bank. That's the case where our U.S. margin and our Canadian margin. And what that will do is it positions both our Canadian P&C and our U.S. segment margins and frankly, overall bank margins as a result to gradually increase and benefit from rates over quarter after quarter. And if the forward curve has currently contemplated gets realized, that continues for some time now. So there's some upside on margins. That's the interest rate impact, right? So what are the deposit impacts to your point and mix changes and beta assumptions and so forth, are they contributing to that? The short answer is not much yet. Generally, we don't see anything in those that would be different than what we would assume in the disclosures of our interest rate sensitivity, which was just over $350 million upside for 100 basis point shock, right, in the last Q3 disclosure. So if you look at what's happened so far with rate increases, call it, the 300-ish basis points that we've seen, right, in Canada, then take that, multiply that by the sensitivity we've had, multiple by what that means on about $800 billion of interest-earning assets average we had as of Q3. And that's kind of in the range of you'd expect about a 15-ish basis points, plus or minus, right, upside in NIM that, that creates for the bank overall over the next 12 months. And so that's here a few basis points a quarter and we'll continue to see that trajectory. The betas that are assumed in that are generally holding, right? In some areas, we might actually be doing even better. We had some disclosure again incremental in Q3 around this where we showed we have 25% of our deposit base is not interest-sensitive and that it's been generally stable from a year prior. We have about 25% of our deposits now that are in term product. And that's been the one that's moved up a couple of basis points, right? And this is -- some of it may have come from balances that may have been in interest-bearing but not term, right? Some of it may have come -- we're seeing some folks flight to quality, right, and coming out of the markets with the market volatility. And then there is a good yield curve now. So there is a premium for liquidity. So I think you're seeing some more interest in some of those term products, right? And those are higher costs if they're coming out of some of the other areas like non-interest-bearing, but if they're coming out of the market, then it's still incremental NII to the bank, right? So net-net, nothing material from that shift. And when I look at the remainder of the 50%, of which only about half of it is really sensitive to beta assumptions, so 25% of our overall deposits, I think we've generally been holding as we expected. And so I don't expect anything different than what's in our disclosure so far.

It's good to hear. We're bumping up against time. So last chance for anyone from the audience. We have one.

Thanks. So kind of going back to the managed smart and interest rate sensitivity. Thinking about that 60-40 exposure. We've heard from the U.S. banks to consider kind of adjusting their portfolios for a declining rate environment. Is that kind of split something that CVC was doing in a like lowering rate environment? Or would you guys be positioning the portfolio differently if you expected rates to decline?

Yes. Like I said, our approach is more passive and long term. So we manage our structural duration of equity fairly statically. There is on the edges, there will be some execution and tactical things our treasury team might do. But we don't look to move around. We've looked at this in the past, right? Generally, we find trying to maintain asset sensitivity or trying to manage too much up or down, you might be right, you might be wrong, right? Sometimes you call the markets right, sometimes you call markets wrong, but that's not what our treasuries in the business of doing is. Our treasuries and the business is stabilizing margins and protecting margins in the business and therefore managing NII to stable and growing over time. So we wouldn't look to position in any major way around a change in outlook on interest rates.

Hratch, we're bumped up against time, so thank you very much. We really appreciate it.

Thank you, John, and thank you all. Thanks for the interest in our bank.