Good morning, and welcome to the CIBC Quarterly Financial Results Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Geoff Weiss, Senior Vice President, Investor Relations. Please go ahead, Geoff.
Thank you and good morning. We will begin this morning's presentation with opening remarks from Victor Dodig, our President and Chief Executive Officer, followed by Hratch Panossian, our Chief Financial Officer, and Shawn Beber, our Chief Risk Officer. Also on the call today are a number of group heads, including Michael Capatides, U.S. Commercial Banking and Wealth Management, Harry Culham, Capital Markets, Laura Dottori-Attanasio, Canadian Personal and Business Banking, and Jon Hountalas, Canadian Commercial Banking and Wealth Management. They are all available to take questions following the prepared remarks. During the Q&A, to ensure we have enough time for everyone to participate, we ask that you please limit your questions and re-queue. As noted on Slide Two of our investor presentation, our comments may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially.
With that, I will now turn the meeting over to Victor.
Thanks, Geoff, and good morning, everyone. Fiscal 2021 was a very good year for our bank, one in which we delivered strong financial results, and importantly, we positioned our bank well for future growth. On our call today, I wanna cover three things. First, highlight certain areas where we've made strong strategic progress over the fiscal year. Second, provide you with our view on the economic environment as we enter this coming fiscal year. Third, after Hratch and Shawn's review of our fourth quarter results, I'd like to share some insights into our strategic priorities going forward that we believe will build on the strong momentum we've established and enable further growth going forward. Our primary strategy over the past number of years has been to build a modern, relationship-oriented bank with a strong core franchise and a diversified earnings mix.
You can see that on the slide. Our success in executing on our strategy is reflected in our earnings growth in each of our business units, improved client experience scores, and further earnings diversification. In fiscal 2021, our laser focus on executing our strategic priorities delivered record results with adjusted earnings per share of CAD 14.47, which is up 49% from 2020, an ROE of 17% and positive operating leverage. Our capital position remains strong, ending the year with a CET1 ratio of 12.4%. These results exceeded 2021 key performance targets, and our rolling five-year total shareholder return of 92% outperformed the S&P/TSX Composite Index Banks.
Our strong results support the announcements this morning of our share buyback program of 10 million common shares, which is just over 2% of our outstanding, and CAD 0.15 dividend increase to our common shareholders while maintaining our dividend payout ratio target of between 40% and 50%. Our results were driven by strong top-line growth across all of our businesses, supported by market share gains from client acquisitions, deepening relationships with our clients, and harnessing technology to enhance the client experience. We successfully rejuvenated and further strengthened our Canadian consumer franchise through market share gains in our core personal products, accelerated growth in DFS or our Direct Financial Services business, and record net inflows from asset management. During the year, we also returned to market-level growth in our mortgage business. We also continued to invest in technology to meet the evolving needs of our clients.
The rollout of CIBC GoalPlanner to our Imperial Service clients has been instrumental in driving deeper client relationships and a better client experience. In our DFS business, we expanded our product offerings and our capabilities for our digital-savvy clients who prefer a self-directed experience. These investments resulted in double-digit revenue growth. Overall, the significant progress we've made in providing a modern experience for our clients is reflected in our best client experience scores on record and over a decade of having the leading mobile banking app in Canada based on third-party surveys. During the year, we continued to build on our areas of strength. In commercial banking, as global economic activity accelerated in 2021, so did the pace of loan growth in our commercial portfolios.
Market share gains were attributable not only to existing clients, but also to new relationships that we've established. As well, cross-border referrals between our Canadian and U.S. business for clients seeking seamless North American access remained strong. In wealth management, robust funds flow and asset management and our brokerage business were supported by award-winning advisory teams. In a new ranking by The Globe and Mail and SHOOK Research, 35 of CIBC Wood Gundy's advisors were named among Canada's top wealth advisors, by far the largest number among participating Canadian peers. Our capital markets business continued to deliver strong results with a number two ranking in both debt and equity underwriting in 2021. Importantly, our business is uniquely structured in capital markets to leverage the strong connectivity we have across our bank, driving revenue growth of 27% in this area.
This is a big differentiator for us. Throughout fiscal 2021, we continued to seek opportunities to further strengthen our competitive position and to invest for future growth. Our announcement in the fourth quarter to become the exclusive issuer of co-branded Costco Mastercards in Canada and to acquire the existing portfolio is a clear example of this. In addition to diversifying our credit card book, the Costco partnership provides us the opportunity to bring this valued client base deeper into our bank's suite of offerings. The Costco client base is highly aligned with our retail affluent strategy, and their growing membership will make this a strategically important investment in the coming years. Building on CIBC's strong history of ESG across our bank, we have released a refocused strategy that includes three key pillars. The first is accelerating climate action, which was released in August along with our net zero ambition.
The second is creating access to opportunities for underserved and underrepresented communities to enable social and economic inclusion and to help them realize their ambitions. The third is building integrity and trust to safeguard data, ensure we act responsibly, promote accountability, and enhance client experience by leveraging technology and empowering our people. We're activating our resources to create positive change for our CIBC team, our clients, our communities, and our planet, contributing to a more secure, equitable, and sustainable future. Now let me turn to our economic outlook for 2022. In Canada, our economists are forecasting domestic GDP growth of 4% and unemployment is expected to average near 6%. In the United States, real GDP is expected to grow by 4.2%, while unemployment is expected to average in the 4% range.
On both sides of the border, interest rates are expected to rise by 50 basis points in the latter half of the calendar year. In speaking with our clients, the recent inflation pressure is largely driven by both labor-related and non-labor-related factors. Supply-side disruptions that drove pricing increases are expected to abate over time. However, wage inflation may persist until these labor shortages are resolved. For our business, the most important takeaway is that we're well-positioned. Thanks to our strong capital position and importantly, the depth of our client relationships, we will continue to pursue, and we will deliver against our growth ambitions in the year ahead. Before I pass the call on to Hratch and Shawn to review our fourth quarter results, I wanted to also acknowledge the recent extreme weather conditions that devastated parts of British Columbia.
Our thoughts are with those who have been displaced and will continue to support our affected clients, colleagues, and their families as they work through these difficult circumstances. Our thoughts are with you. With that, I'm gonna turn the call over to Hratch for a financial review.
Thank you, Victor, and good morning, all. I'll begin my remarks with a review of our fourth quarter results on Slide 13 before covering highlights of fiscal 2021 and providing some color on our expectations for 2022. Capping off a successful 2021, our fourth quarter results reflect strong performance across our diversified client franchise, with solid top-line growth in all of our business units contributing to record revenues. Combined with strong credit performance, this allowed our bank to generate robust earnings growth over the prior year and maintain the resilience of our balance sheet. Reported earnings per share of CAD 3.07 for the quarter included a number of items of note detailed in the appendix of our presentation. Excluding these items, adjusted earnings per share was CAD 3.37. The balance of my presentation will refer to adjusted results starting with Slide 14.
Adjusted net income of CAD 1.6 billion for the quarter was up 23% from the prior year, while ROE of 14.7% improved by 120 basis points over the same period. Pre-provision, pre-tax earnings of CAD 2.1 billion was up 6% from a year ago, or 8% excluding the impact of currency translation, as record revenue more than offset the increase in strategic investments across our business. Revenue of CAD 5.1 billion was up 10% year-over-year, driven most notably by solid momentum across our wealth management and P&C banking businesses, benefiting from broad-based volume growth as well as higher market and transaction-related fees. Expenses were up 13% from the prior year, largely due to performance-based compensation and the increase in business and enterprise investments we had previously communicated.
Slide 15 highlights the drivers of our continued improvement in net interest income. Excluding trading, NII was up 8% from last year, helped by double-digit growth in client business on both sides of the balance sheet. We anticipate continued improvement in non-trading NII supported by volume growth and the stabilizing impact of a more constructive interest rate environment on our margins. Total bank NIM was largely stable this quarter, down 2 basis points sequentially. Canadian personal and commercial banking NIMs declined 2 basis points for the prior quarter as tailwinds from continued deposit growth were more than offset by the impact of lower interest rates and the change in asset mix due to robust mortgage growth. Going forward, we expect P&C NIMs to stabilize on the back of an improving rate environment and the resumption of growth in higher margin unsecured lending and credit cards products.
South of the border, NIM in the U.S. segment was down one basis point relative to last quarter, as modest margin compression from lower rates and moderating prepayment activity was partly offset by ongoing deposit growth. We continue to expect the benefits from loan prepayment activity to subside over the next few quarters, causing margins in this business to stabilize. Turning to Slide 16, non-interest income of CAD 2.1 billion was up 15% from the prior year, driven by continued growth in transactional and market-related fees despite modest normalization in trading revenues. Deposit and payment fees, card fees, and credit fees all trended higher, reflecting the benefit of increased transactional activity by our clients. Market-related fees and wealth management continued to benefit both market appreciation and record client flows. On a combined basis, mutual fund and investment management and custodial fees were up 20% from the prior year.
Client activity also continued to be robust in investment banking, contributing to another quarter of solid underwriting and advisory revenues, up 47% over the same quarter last year. We expect these factors in aggregate to continue contributing to fee income growth. Turning to Slide 17, expenses were up 13%, with higher performance-based compensation being a significant driver. Excluding this, expenses were up 7%, driven by increased investment against strategic initiatives as well as infrastructure enhancements and business growth. Looking ahead, our approach to investments and operating leverage remains unchanged. In fiscal 2022, we intend to build on our recent top-line momentum through continued investments in our business to drive market-leading growth while generating further efficiency improvements to manage net expense growth and operating leverage. Our medium-term goal continues to be to deliver positive operating leverage through continued growth.
Turning to Slide 18, our balance sheet remains strong. We ended the quarter with a CET1 ratio of 12.4% as strong internal capital generation was partially offset by higher RWAs from organic credit growth, net of asset quality improvements and lower market risk. Going forward, we expect to drive a modest decline in our CET1 ratio as we plan to prioritize accelerated capital deployment towards organic growth plans, take on the Costco credit card portfolio, and return more capital to shareholders. Average LCR for the quarter was 127%, and we expect to continue operating at these strong but normalized liquidity levels going forward. Starting on Slide 19, we highlight our strategic business unit results, all of which were strong momentum in this quarter.
Net income in Personal and Business Banking was CAD 606 million, up 3% from a year ago. Reflecting our progress in strengthening our consumer franchise, pre-provision, pre-tax earnings of CAD 988 million were up 7% from the prior year. Revenue of CAD 2.1 billion was up 7% over the year and increased 4% sequentially, largely due to broad-based volume growth and strong fee-generating client activity. Expenses of CAD 1.1 billion were up 6% from the same quarter last year as we continue to invest in our franchise to sustain the momentum generated over the past few years. Moving on to Slide 20, net income in Canadian commercial banking and wealth management was CAD 442 million. Pre-provision, pre-tax earnings of CAD 594 million were up 21% from a year ago.
Commercial banking revenue was up 20% over last year, largely due to robust client activity driving growth in both borrowing and deposits. Wealth management revenue was up 21% from the prior year, primarily driven by higher fee-based assets and commissions benefiting from market appreciation and increased client activity. Slide 21 shows U.S. commercial banking and wealth management results in U.S. dollars, where we delivered net income of $214 million. Pre-provision, pre-tax earnings of $226 million were up 12% from the prior year as continued growth in strategic clients drove increased lending, deposits, and AUM. Excluding PPP forgiveness, average loan growth was 7% driven by new and existing client needs. In our wealth business, solid AUM growth of 36% benefited from strong client flows and market appreciation.
Increased expenses were driven by ongoing investment in our U.S. franchise to sustain our growth and support increasing regulatory requirements as our business continues to scale. Slide 22 speaks to our well-diversified capital markets business. Net income of CAD 378 million compared with CAD 310 million in the prior year, and pre-provision, pre-tax earnings of CAD 484 million were up 2% from last year. Revenue of CAD 1 billion were up 8% over the year, driven by strong corporate investment banking activity and growth in direct financial services, partially offset by normalization in trading revenues. Expenses of CAD 528 million were up 15% compared to last year, driven by performance-related compensation as well as continued frontline and infrastructure investments to support our future growth. Slide 23 reflects on the results of corporate and other business unit.
Net loss of CAD 121 million in the quarter compared to a net loss of CAD 110 million in the same quarter last year. Revenue was in line with the prior year as improvements in Treasury and CIBC FirstCaribbean offset headwinds from currency translation and other corporate revenues. As highlighted in the past, expenses in this segment are impacted by enterprise investments, which increased this quarter as anticipated due to previously mentioned strategic investments. Slide 24 highlights our full-year financial results. Throughout 2021, our team executed with purpose against our focused priorities, allowing us to meet or exceed our strategic goals and financial targets for the year while building client momentum and organizational capabilities that will fuel our continued growth going forward. As Victor mentioned in his opening remarks, we achieved all of our strategic objectives this year.
We strengthened our Canadian consumer franchise and now have strong momentum to continue gaining share across all of our personal and commercial banking businesses. Our continued focus on expanding and deepening high-value client relationships resulted in record client flows, contributing to 24% growth in AUM across our global wealth management business. Our differentiated capital markets business delivered 13% growth in pre-tax, pre-provision earnings, supported by the connectivity across our bank and growth initiatives, including U.S. expansion and DFS. This progress allows us to deliver on the financial guidance we provided coming into the year. Pre-provision, pre-tax earnings growth of 8% or 10%, excluding the impact of currency translation, exceeded our target for the year, supported by growth in each of our business units.
ROE exceeded 16% and was robust in all of our businesses, including 11% in our U.S. segment, the highest since our acquisition of PrivateBancorp. We delivered positive operating leverage by containing expense growth to 2% excluding performance-based compensation despite significant increased investment for future growth. All in all, it was a record year with strong performance from all of our businesses. Heading into 2022, we're confident we can build on this momentum across our business to deliver strong results relative to the industry through continued top line growth. We expect continued market share gains in our P&C banking businesses, helping drive robust growth in net interest income. In parallel, we anticipate robust growth in fee revenues driven by our focus on wealth management, our diversified capital markets business, and increasing triune transaction activity.
In the context of this constructive top line outlook, we intend to continue investing to further strengthen our bank's capabilities and drive growth. While we may have periods of negative operating leverage earlier in the year, we will target positive operating leverage across our business through the course of next year and have opportunities to adjust our pace of investment in response to the environment as required. Subject to the economic outlook described in our annual report, we anticipate our efforts will generate pre-provision, pre-tax earnings growth within our target 5%-10% range next year. While we will prioritize capital deployment towards this organic growth, our strong capital position also provides us the capacity to return capital to shareholders at a higher level over the course of next year. We are very pleased with our team's achievements in 2021 and look forward to another successful year.
I'll now turn the call over to Shawn.
Thanks, Hratch, and good morning. Throughout fiscal 2021, we saw significant progress in economic reopening, supported by vaccine campaigns and lifting of the more restrictive public health measures that had been in place at various stages during the pandemic. While some of the goods industry sectors experienced supply chain disruptions that continue today, service sector activity has partially recovered, supported by job growth, higher savings from fiscal measures in 2020, and low interest rates. Both business and consumer credit quality also showed improvement over the year. We've had a strong fourth quarter and fiscal 2021, and as we enter a new fiscal year, we remain comfortable with our risk levels and are well-positioned to continue to support our clients and for portfolio growth. Turning to Slide 27, in Q4, the provision for credit losses was CAD 78 million, compared with a provision reversal of CAD 99 million last quarter.
Provision on impaired loans remained near historic lows at CAD 112 million in Q4. In Canadian Personal and Business Banking, the impaired provision remained low and stable quarter-over-quarter. In Canadian Commercial and Capital Markets, impaired provisions were up slightly quarter-over-quarter as Q3 benefited from a few reversals. Partially offsetting these increases, our U.S. Commercial and CIBC FirstCaribbean experienced lower impaired provisions this quarter. We had a provision reversal of CAD 34 million in Q4 in our performing portfolio, primarily driven by favorable portfolio credit migration, partially offset by an unfavorable change in forward-looking indicators and an unfavorable impact due to normal course model parameter updates in retail. Overall, we've had another strong quarter for credit performance, reflecting the resilience of our portfolio and improving economic conditions. Slide 28 details our allowance coverage by line of business.
As mentioned earlier, we had a reversal in performing provision and a low level of impaired loan losses. These two factors overall resulted in a lower allowance level in the quarter. We feel comfortable with the current level of coverage, reflecting the performing provision build we recognized following the onset of the pandemic, the continued uncertainty with respect to the speed and consistency of the economic recovery, as well as model parameter updates that we've implemented over the past several quarters. Turning to Slide 29, we've provided our credit portfolio mix, which remains consistent with previous quarters, both well-diversified and with strong overall credit quality. Our total loan balances were CAD 463 billion, over half of which are mortgages. The average loan-to-value of uninsured mortgages originated in the quarter was 66%, and the average loan-to-value for our uninsured mortgage portfolio overall remains low at 49%.
The business and government portion of the portfolio has an average risk rating equivalent to a BB B and continues to perform well. On Slide 30, we provided an overview of our gross impaired loans. Overall gross impaired balances continued to improve in Q4. Notwithstanding a slight increase in new formations in the quarter compared with Q3, both the gross impaired loan ratio and our new formations are still lower than our pre-COVID run rate. Slide 31 details the net write-off and 90+ day delinquency rates of our Canadian consumer portfolios. Delinquencies and write-offs in our retail portfolios continued to trend lower in Q4, driven by our clients' higher saving and payment behavior, our client engagement activities, and government support. We don't expect this very low level of delinquencies and write-offs to repeat in fiscal 2022.
As the benefits of government support begin to wind down, the economy further reopens, and our clients' liquidity starts to normalize, retail delinquencies and write-offs are likely to revert towards more historic levels. In closing, we've had a strong fiscal 2021 despite the effects of the ongoing pandemic and related impacts to the economy and our businesses over the past year. Our base case expectation remains for a continued economic recovery in fiscal 2022. While we expect the path to full recovery will continue to be impacted by some of the same headwinds we've experienced in 2021, including disruptions in supply chains, labor availability, and inflationary pressures, we expect those headwinds to abate over time with increased global distribution of vaccines, helping relieve supply chain disruptions and allowing for more targeted health measures as opposed to broader economic closures.
Based on our current economic outlook, we expect that our impaired loss rate will trend closer to the low- to mid-20 basis point range over the course of the year as credit reverts to more historic patterns. We're mindful of emerging variants of concern that it could affect this outlook, and we'll continue to monitor developments closely. I'll now turn the call back to Victor.
Thanks, Shawn. As we wrap up a successful 2021, I'd like to share our thoughts on CIBC's strategic focus for 2022 and beyond. As we assess our position today, we believe we're a bank built for growth. Our newly launched branding introduced in September is not a promise of something we're trying to be. It's a statement of the bank that we've worked hard to become. Our evolution as a bank is also evident in our financial performance. Our new headquarters, CIBC Square, is going to be the hub for innovation, inspiration, and continued value creation. We look forward to continuing to welcome back our colleagues here in short order. The foundation we built has positioned us well and allowed us to navigate through challenges and disruptions to emerge as a winner.
Going forward, our first priority is to continue to elevate the customer experience in an increasingly digital world across all of their interactions with our bank by, one, simplifying processes and creating seamless and end-to-end client experiences, two, providing technology-enabled advice solutions for our clients, and three, creating more personalized client experiences and strengthening client-facing services. For our CIBC teams, we're investing in leading technologies to make it easier to deliver on our brand promise and build lasting relationships with our clients. Our second priority is to focus on higher growth, high-touch client segments where relationships really matter by, one, prioritizing our affluent and high-net-worth consumer offerings, two, focusing on advice-led corporate relationships where we can offer specialized expertise, and three, scaling our commercial and wealth platform that is aligned to the fast-growing private economy.
We will leverage our differentiated business model with strong cross-bank connectivity, again, a competitive advantage for our bank, to meet the complex needs of our clients on both sides of the border and capitalize on their growth opportunities. Our third priority is to invest in our future differentiators within faster-growing market segments, and these would be Direct Financial Services, our innovation banking unit, and our energy transition and sustainability franchise where we have unique assets, competitive advantages, and significant opportunities to build on leadership positions and grow our business and grow our client relationships. In closing, we have engineered our organic growth plan to be flexible so that we can adjust to the economic reality of the day. In an environment that's robust and constructive with strong GDP growth on both sides of the border, we will continue to invest at a more elevated level.
We are a bank built for growth, and we are a bank on the ascent. We have a balanced strategy to compete on all fronts and the right resources in place to grow. We are confident in our abilities to earn business, to attract talent, and to deliver for our shareholders. With that, I'd like to open the call up for questions and pass it on to the operator.
Thank you. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Good morning. Morning, thanks for taking the question. First is a bit of a housekeeping one for Shawn. Stage two classification is a higher-risk performing loan category, up 25%. You mentioned model parameter updates. Is that the main driver there, not negative migration? If that's the case, can you give me some broad strokes on, you know, maybe what sort of assumption changes you made?
Yeah. Thanks for the question, Gabriel. You're absolutely right. It's the model parameter updates that have driven the lion's share of those, the shift from stage one to stage two. This is part of our normal course review of our models. We are continuously updating them as part of annual review cycles. We are looking at a variety of different underlying drivers and, you know, items like delinquencies, utilization rates, et cetera. That's long time series data that goes into those models. This isn't a reflection of a particular view on credit deterioration, more a function of the models and then the impact that IFRS 9 has in terms of when we make those types of changes.
Okay.
From an outlook perspective, still feel very good. As I said in my opening remarks, from an impaired loss perspective, we're looking at sort of low to mid-twenties as the economy reopens and activity normalizes.
Great. Thanks. Hratch, the expense operating leverage commentary you made, continued investment in the business in 2022. It sounds like we're gonna keep going with elevated expense growth, perhaps. Medium-term objective of positive operating leverage, does that mean next year we might not have that outcome? I'm not. It sounded like maybe first half will be a little bit soft, second half you'll get back into positive territory. If you can clarify, like, what you're targeting for, you know, absolute expense growth. Is it mid-single digit? Is it 6% this year on an adjusted basis but 2/3, I guess, from variable comp? Maybe clarify a few of those points if you can. Thanks.
Sure. Thanks, Gabriel. Thanks for the question. It's a good opportunity to elaborate a bit on the comments I had in our opening remarks, which I think are an important point. You know, I'll start by saying the way we've been managing our investments and the growth of our expenses on a net basis, we think is working for us. We are continuously investing in our business, and our strategy is to generate positive operating leverage, but to do so through the top line growth rather than containing expenses or underinvesting. This year we did that, and we had signaled we'd be at the low single digit level with respect to expense growth and without performance-based compensation and merit increases, and we achieved that.
At the same time, we achieved positive operating leverage because we are already starting to see some of the benefits of those investments. Operating leverage for the year was positive almost 1%. Next year we'll continue to invest, and in fact, as I referenced, we do see our year-over-year investment against the strategic initiatives bucket, which we will provide more and more transparency to you as we've started. We see that increasing, and those are investments that will drive benefit and returns for our shareholders. We also see that probably driving about half our growth next year, and so more proportion of the expense growth than it did this year. That'll be half of it.
The rest of it, and why the picture next year maybe is a little bit different than the low single digit without performance-based comp this year, is because we also see some inflationary impacts out there. We do see impact of the world returning back to normal travel, business development activities and so forth resuming. That's gonna be call it a couple of percent for us on expenses, and that's really the difference between last year and this year, the increased investment and that increased amount in the expenses from those items. All in all, that mid-single digits is, I think, the right guidance. I don't wanna get any more specific than that. As we said, we have the opportunity to dial that up or down, so I don't think more specificity would really be accurate at this point.
You know, that said, we do expect that relatively constructive top line next year that we described. Putting all of that together, we do think that we can strive for positive operating net leverage next year. If we see the environment continue to be constructive with respect to interest rates and market growth, across our products, we think we can achieve that. The front half of next year may be negative. We are making some investments, and there's some upfront investment for future revenues, right? I'll call out just our investments up front to get set up for the Costco credit card portfolio, for example, as revenues come later in the year. Some of those items earlier on will drive us negative, but for the full year we're pushing for that positive.
Okay. 10% revenue growth this quarter and nothing to sneeze at. Yeah, clearly the investments are helping out, paying off. Thanks.
Thanks, Gabriel.
Thank you. Our next question is from Meny Grauman from Scotiabank. Please go ahead.
Hi, good morning. Victor, in Slide Four you show the improvement in terms of geographic earnings mix that you've been able to achieve at 21% coming from the U.S. I'm wondering, as you think about the future, where would you ideally like to get that mix?
Well, Meny, good morning. Thank you for your question. Slide Four reflects the bank that we've been building over time and the bank that we will continue to build. We've always said that we're focused on diversifying our revenue streams beyond Canada. We've achieved that. You look at this slide, in 2016, we were generating $86 million in net after-tax profits in 2016, and this year it's well over $1 billion. It's $1.2 billion. That is a dramatic change. We made a smart investment in the private bank that has continued to prove that we are a client-focused bank that can grow. We've retained our clients, we've retained our team, and CIBC's footprint in the U.S. continues to grow in that regard.
We've also done the same thing in wealth management, where we've pulled together three separate investments that has grown from $0 to $100 billion in assets under administration and become the fourth-ranked wealth manager, according to Barron's, in the United States. We also are growing our capital markets business and have almost doubled it over this period of time in the United States. As we go forward, our goal is to continue to strengthen our hand in Canada. It's our home market, and we don't plan on ceding any territory. In fact, we plan on growing market share across all of our businesses, including some of our new and emerging businesses. In the U.S., we're at 21% today. I would see us going over 25% over that four-year to five-year period of time.
I believe we can do that largely through organic growth with some smart tuck-in acquisitions here and there. We're really pleased with what we've achieved. Everything that we've outlined to our shareholders, we've delivered on, and we plan on doing that going forward.
Thanks for that. That's what I was trying to get at. I mean, you highlighted the success you've had in the U.S. I was wondering, you know, given that success that we clearly see in the U.S., why not look at more significant acquisitions and it doesn't sound like your views have changed on that, but just wondering, you know, why that is, just given the kind of performance you've been able to generate from private bank.
Well, we're seeing really, really good organic growth. I can pass it on to my colleague, Mike Capatides, in a moment. Because we see really good organic growth, we're gonna be investing in our U.S. franchise in terms of our platform and our infrastructure, so we can drive even more growth and press on our competitive advantages. The highest and best use of capital for us is to continue to invest organically and deliver the kind of returns, and Gabriel just said it before he got off his call, 10% year-over-year growth this quarter is the highest in the industry here, and we plan on delivering on that going forward. Cap, I don't know if you wanna add anything from a U.S. perspective.
Yeah. Thank you, Victor. So just to add that we have been, I'll use the words pleasantly surprised, but not surprised because it's been a, you know, it has been our focus on our ability to generate organic growth in all of our U.S. businesses. That's the commercial lending, that's the wealth franchises with a seamless connection to our capital markets colleagues in the U.S. The growth has been across the board. We've built out our network of offices across the U.S., and our focus has been bringing our full capabilities of CIBC to each of those major cities. You know, looking forward, you know, we're just very optimistic on all our businesses in terms of lending growth, AUM growth and capital markets, you know, connectivity to all our clients.
Frankly, we're making investments in those platforms, you know, as Victor mentioned, you know, this year and next year. You know, again, we're looking at robust growth in all those businesses in the U.S.
Thank you.
Thank you. Our following question is from Ebrahim Poonawala from Bank of America. Please go ahead.
Good morning. I guess, just following up on this theme around investments, Victor. Remind us as we think about your messaging around investments, one, are there certain gaps in your franchise relative to some of the bigger competitors that you think you need to catch up on? One, that, and secondly, as we think about your competitiveness with your larger peers, just give us a sense of how you see the bank as competitively positioned. Do you need to be more aggressive on pricing in order to get business? Or is your digital offering at par or better? Any perspective there would be helpful.
Thanks, Ebrahim. Good morning and good question. Overall, the overarching theme at our bank and our strategic focus as a leadership team is to continue to invest, to grow market share at the expense of our competition. We don't have any evident competitive gaps relative to our competition. We just wanna press on our technology advantages, both with our clients as well as to our relationship managers, so it's easier for them to do business. That's effectively what we're doing. You look business by business. You look at Personal and Business Banking. It is rejuvenated. It is in growth mode. We are winning market share. Laura, you can comment on that in a moment.
You see that in the investments we've made in our credit card portfolio, our financial planning portfolio, our CRM portfolio, as well as in our direct financial services business, which is there to attract the digital savvy clients. You see that investment being made in our commercial bank and wealth management businesses in the U.S. and Canada. We call that the private economy focus of our bank. The fact is the world is shifting more and more to private markets, and we're capitalizing that by investing in the business, investing in our wealth platforms and investing in our relationship management. In capital markets, the leadership positions that we have in foreign exchange, for example, has been a deliberate focus on investing in the foreign exchange platform and in our derivatives platform. Then we have our unique growth engines.
Our unique growth engines are Direct Financial Services, and you're gonna hear more about that in our Investor Day. Our focus on innovation banking, where we bought the Wellington Financial business, it had CAD 152 million in venture loans, and today we have more than CAD 3 billion in deposits and almost CAD 5 billion in authorized loans and a leading technology bank that's focused on, you know, the recurring revenue aspect of technology as well as the emerging life sciences sector. Then finally, on energy, we're the number three renewable energy lender in North America. That shows leadership, that shows investment, not only in renewables, but also our commitment to the non-renewable energy sector through the transition strategy that we have. Laura, maybe you wanna highlight on the retail side how we've been winning.
Well, thank you, Victor. I think you said it all, though. I don't know that I have much more to add. I think we've done a great job setting our strategic priorities, and the rest, quite frankly, is just relentless execution and doing it with a sense of urgency. We just continue to be, as you said, Victor, focused on putting our clients first in everything that we do and just trying to remove as many pain points as we can in our client journeys, and we're starting to see the results of that. I think we still have a lot to do, but we're incredibly pleased with the progress that we've made to date. As you said, we strongly believe that we can continue to deliver some really good momentum and growth in our business.
Got it. Just a quick follow-up, Hratch, not sure if you mentioned, your outlook for the, Canadian and U.S. margins and if anything around the U.S. PPP that we should be mindful of in terms of the resetting of that margin going forward. Thank you.
Yeah, thanks, Ebrahim. I had a few comments in the remarks around margin outlook, but happy to provide a bit more color. What you've seen in our Canadian P&C business over the last little while is a bit of stabilization. While we have been declining quarter-over-quarter, that decline's gotten smaller, and you see that 2 basis points just this quarter. That's because the impact of lower interest rates is starting to trough, and the impact of the business mix changes with what we saw in the reduction in card balances and slowdown and reduction in unsecured credit, those things are starting to also trough.
As we look forward, we do think in the Canadian P&C business, even before we talk about the Costco portfolio, we think that NIM will trough here in the next couple of quarters and then stabilize from there and start turning positive. With the Costco portfolio, given the margins on that product, that would add even further, and that would add several basis points to that. In the U.S., NIM, you know, it's been reasonably stable at these elevated levels, but we've been very clear all along there is some level of prepayments activity and forgiveness activity on the PPP portfolio that is coming into margins and elevating that. That's, you know, it's moved around a bit, but this quarter it was about $7 million or CAD 10 million.
That's about 10 basis points on the margin. As that plays through, and we think that will happen and end in the next couple of quarters, you know, you can see margins coming back to the 3.30%s. And then from there, it all depends on the liquidity in the system and the deposits and the trajectory of deposit growth. Core product margins there in deposits and loans are holding very strong, in fact, in some places getting stronger. The impact of interest rates will provide small tailwinds over time as well. We think all of that bodes well for margins, and it bodes well for NII growth for the bank.
Sure, thank you.
Thank you. Following question is from Scott Chan from Canaccord Genuity. Please go ahead.
Yeah, thanks a lot. Laura, I just wanted to go back to you on the Canadian side and specifically on mortgages. I think, Victor, you talked about getting to peer levels this quarter. So now that you're there, is it something that you wanna kinda press a button and continue and perhaps punch above peers, you know, as we look into next year? Or are you kinda satisfied where you're at right now?
Well, thanks, Scott. Look, we're really pleased with what we've managed to do from a growth perspective, and we continue to have a really good pipeline of activity. Never pleased, there's always more to do. Our intention is to continue to deliver, I'd say, really broad-based quality client growth, and so revenue growth and volume growth. Of course, as we continue to sell across the board, we continue to really focus on franchising or differently said, deepening our client relationships. We had, I'm gonna say, a fantastic year this year. Not only did we perform incredibly well when it came to new client acquisition, we did better on client retention, and we did better on client franchising.
We've made a lot of really good progress, and we see a lot of great opportunity ahead of us to continue to deliver strong market-leading growth.
All right. Just my second question, just on the real estate charge. I know you took one several quarters ago. Maybe you can just describe what that charge related to and if there's any kind of future charges on the real estate side.
Yeah, happy to do that. Thanks for the question. This is really relating to our the final stage, I would say, of our move into the first tower in our headquarters in Toronto. You'll remember we did take one that was Canadian dollar a few million higher last Q4, and that was related to the number of buildings we exited and the leases we exited last year. This is the bulk of the remaining exits as we start moving in. Today, we're talking to you from CIBC Square. As we start moving into our new headquarters, those leases that were exited, I will remind you, as we said last year, these have positive payback over a number of years.
While we are taking the charges, we are saving ongoing real estate costs. What you'll see with this new charge as well is that we will get both those charges benefiting on the occupancy line next year. With respect to our Toronto headquarters cost, if you will, or corporate real estate cost, what that allows us to do is moving into our new headquarters actually keep the net cost flat from 2020 onwards. Overall occupancy includes a number of other items obviously in it, including our retail network. There'll be some noise in that. With respect to our headquarters costs, we've moved into the new building while retaining those expenses relatively flat with those exits.
All right. Thank you very much.
Thank you. Following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Yeah, thank you. I just wanted to go to Harry for a second, please. A few years ago, I think you had said the franchise was around CAD 1 billion or so in earnings annually.
In the past couple of years, you've rolled in the DFS, which I think is probably, rough numbers, CAD 200 million add. Let's say relative to a baseline of CAD 1.3 billion-CAD 1.4 billion, you know, you did very well this year. Where do you think your franchise is going forward? Maybe you could talk us through, Harry, the geography of the income statement, because presumably adding DFS will put a little bit more pressure on your PCL line, but you'll pick it up on the pre-tax, pre-provision.
I'm just trying to kind of get a feel for what's the franchise capability from here on, and how it's going to be contributing to some of the broader metrics that Hratch and the team have talked about vis-a-vis the total bank operating leverage and so on and so forth.
Good morning, Sohrab, and thank you for that question. The short answer is we see continued growth as we move forward in both revenue and PP in a very diversified manner. You've seen the delivery of strong performance in absolute and relative terms over the last several years, as you point out. This has been a consistent strategy that we continue to enhance, and we really are, I think, pleased with our leading PP and NIAT growth this year and for the previous several years. This is a differentiated platform, as Victor Dodig has said on his opening remarks. We remain very disciplined around our resources as a starting point, but we're continuing to build our leading capital markets platform for our core clients in Canada, and we continue to grow market share.
You've seen growth in rankings in most league tables and I think truly enhanced client relationships across our platform. We're also growing our U.S. platform, as Victor mentioned, and the doubling of the size of that platform since our last Investor Day until now has shown a leadership position in many of the areas that we're focused on, including the new economy, where we see the intersection of private capital, renewable, sustainable finance, key focus areas where we think we have a strong competitive advantage. We're also very focused, of course. By the way, just on the U.S., we saw 9% growth this year in U.S. dollar, in U.S. dollar terms as well, which is therefore leading to a doubling over the last four years, just about.
Then, of course, the area of connectivity we talk a lot about, really diversifying our franchise by delivering capital markets products and solutions to commercial wealth and retail clients. That connectivity has been further enhanced by the inclusion of Direct Financial Services within the capital markets franchise. We're seeing revenues from non-traditional capital markets clients grow significantly 27% year-over-year this year. We may see some normalization of markets over the next little while. We expect to see continued robust activity, however, across our corporate and institutional client base, and you've seen some significant increases in our underwriting advisory and lending capabilities. We continue to see growth in our global markets platform as well, which has great diversification across products, industries, and geographies.
We can deliver pre-provision earnings growth next year again and revenue growth in the higher single digit area as we go forward. This is well above pre-pandemic levels, as you will note. In terms of geography, continued focus on the U.S., you know, as 25% of our income is approximately the level we come from with respect to the U.S. platform, and we expect to see further resources deployed into the United States.
Harry, just to be crystal clear, relative to, let's say, 2018 or 2019, you're maybe CAD 800 million higher on pre-tax, pre-provision at the end of this year, and you think you can grow off of this year's pre-tax, pre-provision, which is I think around CAD 2.4 billion, if I've done my math right.
Yeah, that's correct. It's right around CAD 2.4 billion. If you think back to pre-pandemic levels, we were in the CAD 400 million, mid-CAD 400s million, call it, pre-provision earnings per quarter, and we think we can generate north of CAD 600 million per quarter on average basis this year going forward.
Very much appreciate that. Thank you.
Thank you. Following question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi. Thank you. I just wanted to go down the line of questioning of your priorities and expenses a little bit more. I think my questions are actually though for Victor and for Laura. The first one has to do with Victor, in your remarks, you know, your prioritization of spending and investing. It made it sound like on the retail side that you know it was more about relationships. And there I'm just want to understand, I mean, or more of the personal experience. And I'm just trying to think my way through what that means because you know from a branch perspective it's been very stable, very close to the next two largest banks in Canada in terms of number of branches.
It's hard to tell sometimes with employees because each bank sort of reports differently. I tend to think of, you know, the employee count as being relatively similar. I'm just trying to understand, what, you know, specifically the investment is, to further enhance the personal experience in Canada. When I think of, you know, further with the question earlier about gaps, you know, relative to peers, I can think of a couple like auto lending, for example, or maybe small business. I don't know. Maybe you can just touch on what it is you're investing on, in the personal franchise, to really enhance that experience and where I should look for the impact. Should I look for the impact in continued growth in mortgages, or should I look for the impact somewhere else?
That would be very helpful for me. Thank you.
Well, thanks, Darko. Why don't I start, and then Victor can take it from there. More specifically to the personal and business bank, the investments we're going to continue to make are all about supporting the strategic priorities that I believe we've shared previously. That includes where we want to increase our sales force effectiveness, our productivity. We wanna continue with our digitization and end-to-end straight-through processing. Then we want to increase all of our client engagement, so call that personalization. You're gonna see us continue to invest in our frontline tools. That's where we continue to roll out some of our modernized platforms, like our client relationship manager.
We're gonna roll that out to all of our frontline roles in the Personal and Business Banking, and we think that's gonna help us continue to increase our sales force productivity, and we think it'll also help us with better client engagement. We've talked a lot about this as it relates to digital first. We're gonna continue to build out our digital self-serve capabilities and all of our digital experiences. I think you saw we released this year our digital identity verification tool. We had virtual card issuance for debit and credit cards. We released CIBC Insights, just to name a few, and we're gonna continue to build upon that.
All of it just to ensure that we can continue to deliver sustainable performance and all of it to allow our clients to engage with us in the way they're most comfortable. Maybe with that, I'll hand it back to Victor to elaborate more.
Sure. Darko, it's a good question. What we've seen is every dollar of investments that we're making is generating an uplift in our pre-provision earnings, because we're laser-focused on making sure that our investments are working hard for our clients, are working hard for our shareholders. You referenced auto lending. While we're the smaller one, we're growing market share faster than anybody else. We've invested in that business. We're investing in relationships. Laura's articulated that. You know, the investment we've made in CIBC GoalPlanner, our CRM investments for our relationship managers, better client experiences is driving a better result. You see that in a higher client experience score for us, quite frankly, a record score for us, and we still have headway to make against our competitors, and we're gonna make that headway. We're gonna close that gap through these further investments.
The other thing, these investments that we're making are not only in technology. They're in our people. Our Imperial Service continues to remain a competitive advantage in the marketplace. Larger average account size at the retail level than many of our competitors because of the competitive advantage we have there. We will continue to invest in our banking centers because I believe they continue to be a focal point for building relationships alongside the technology investments we're making. We will invest in this emerging direct segment where we see fintech competitors starting to nibble away at business. We know open banking is coming. Our DFS business was set up to defend, but to more importantly get that 85% of the market that we don't own.
That's gonna go after the direct client while we manage our relationships through the Personal and Business Banking. I don't know, Harry, if you wanna add anything else on the DFS side, but we're gonna see more client acquisition growth, particularly in our Simplii Financial, where you've been adding capability.
Yeah. Thank you, Victor. You know, clearly Direct Financial Services is on a very nice growth path. Just a reminder for everybody, we've got the three businesses within Direct Financial Services. We've got Investor's Edge, that's direct investing for the do-it-yourself clients. We've got Simplii Financial, our direct no-fee banking for digital-savvy and value-conscious clients. We've got the Alternate Solutions Group, which is really our institutional fintech business built on leading FX technology. We believe as the economies continue to progress through the pandemic, we see an opening up in terms of travel. We see a movement in interest rates that these businesses will have some very good tailwinds. We're quite optimistic about the future in terms of attaining market share and growth generally.
Any follow-up?
Yes, actually, I did have a follow-up on that, and I'm glad you sort of weaved or, you know, moved the discussion to the direct. And I'm glad you touched on it, because I do have a question on it. With respect to the direct business, you know, the one thing that we can see, which you guys do provide us, is the revenues in the direct business, and it's up. I mean, if I look at it annually anyway, it's up, you know, almost 17% in 2021. So the question is, what's driving that? Is it Investor's Edge? Is it Simplii? Or is it the Alternate Solutions Group in 2021? And what are you most excited about in 2022 for that business?
I'll take that. Thank you for the question again. Obviously, Investor's Edge benefited from record trading volumes in the second half of fiscal 2020 and throughout 2021. We do expect a normalization of trading volumes but expect our franchise to grow. We expect to take market share. We've been making some significant investments, as Victor pointed out. We're investing in talent, we're investing in technology, and we're protecting our market share, but we believe we can grow our market share and increase our penetration with our CIBC clients. Our teams are working very closely together to make that happen. The largest area of growth perhaps could be our Alternate Solutions Group next year. This is our fintech, as I mentioned, built on leading FX and payment solutions.
You know, our focus on investments pre and during the pandemic really are paying dividends as we see outsized growth with the opening of the global economies. We're seeing increased travel, of course, international students arriving and attending universities, which is all part of that business, and that business can grow in the double digits, perhaps north of 20% next year. Then, of course, our Simplii franchise, we expect to grow over the medium term as interest rates normalize.
As we cross-sell to existing clients and onboard new clients, we're really encouraged with the results that you've seen, but we're more confident that we can deliver value to our clients and grow these businesses as we move forward.
Darko, when you visit us on June the 16th for Investor Day, you'll get even more details on the business.
Thanks very much for that. I appreciate it. To be clear, are you at zero trading commission in Investor's Edge?
No. We, you know, build relationships, Darko. We're very competitively priced, more competitively priced than most of the competition out there.
Great. Thanks very much.
Thank you. Following question is from Mario Mendonca from TD Cowen. Please go ahead.
Good morning. I want to go to a very different topic, the legal provisions. We saw a second one this quarter. CAD 40 million this quarter, CAD 85 million last quarter. I know it's not appropriate to get into the details like what this actually relates to. Could you talk about, are these provisions related to the same matter? What do you believe going forward? Could we see further meaningful provisions related to this?
Yeah, thanks. Thanks for the question, Mario. It's Hratch. I'll take that. You know, while we don't speak about these in detail, as you said, and specifically to matters, I'm happy to give you a bit of color. I'll start saying legal liabilities do arise in our business as part of the normal course, and we don't treat them all as items of note. We've had some this year that we haven't. What you're seeing is the ones that we truly think are unusual in nature and therefore are treated as items of note based on their nature and based on their quantum.
I think what I would point you to is if you look at note 23 to our statements in the annual report, you've got a listing of all of the ongoing matters. You'll notice some of them have had some changes and updates to them, including ones where we have noted that we've got agreements to settle them. You know, that's as far as I'll go related to those matters. The good news is, to your question about the future, the charges we've taken and you reference in these two quarters related to matters that are behind us.
That's helpful. Probably sticking with you, Hratch Panossian, on the capital ratios, it sounds like the bank through growth and buybacks will see the CET1 ratio trend a little lower. Do you have a bogey in mind? Like how much lower can you go? Could you see the bank break through 12% and sink into something like 11.8% or 11.9% capital ratio to support growth and buybacks, or is 12% an appropriate level?
Yeah, I'm happy to start with that, Mario. Look, I think we have very solid capital position to start. We also have very solid generation. Like, you noticed this quarter, we had 27 basis points of generation, but that was impacted by the charges that were fairly significant this quarter. On an ongoing basis, we feel comfortable generating over 30 basis points of capital, and we're starting from that 12.4%. As I mentioned in my remarks, we are deliberately planning to draw down on that ratio, and that's because we continue to believe the highest and best use of our capital, given our marginal returns across all of our businesses, is to organically invest that capital to support our clients and for the benefit of our shareholders.
We will continue to do that to the extent that we can and to the maximum extent that we can within risk-adjusted measures. As we do that, plus take on the Costco portfolio, and we talked about the Costco portfolio when we announced it, that's going to be just north of 20 basis points of impact. Those things will draw down on the capital. You know, between the generation and the strong place we're starting from, I think that will still leave us in that sort of 12%+ range. From that point on, it's about what we do with the rest of the capital, and our levers remain unchanged. We've announced the 10% dividend increase this quarter. We will continue to assess our dividend and continue to try to remain in the middle of our range.
as needed, we will adjust the dividend. Beyond that, we will look at potentials for share buyback. We announced our intention to start an NCIB program, that gives us a lever. We might look at tuck-ins in terms of acquisitions. We've talked about that. You know, beyond the 12%, I think the laser focus is going to be shareholder returns and generating shareholder value. If returning capital at that point we believe is the better thing to do, we may return more of that capital through the buyback and go below the 12%. If we believe keeping it for future organic growth is the thing to do for shareholders, then that's what we'll do, and we will treat acquisitions with the same lens, financial and strategic value for our shareholders.
Do you expect to go back to raising dividends twice a year, or do you think you'll go do the annual now, the way several other banks are thinking?
Yeah, Mario, I wouldn't look at it as annual or twice a year, or frankly, we look at it on an ongoing basis. We assess every quarter where we're trending relative to our targets. We assess where we are with respect to our expectations of future earnings, and we'll adjust it as needed to stay at the level that we want to stay at.
Thank you.
Thank you. Following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
I'll hopefully keep this relatively quick. Thanks for taking the question. Shawn, just, you know, there was a small pickup in new retail gross impaired loan formations quarter-over-quarter, year-over-year. It doesn't look like that's in Canada and the U.S., but maybe I'm wrong. Hoping to get a little bit of color on that. Then I assume as well that the performing loan build in Canada, small business banking, I assume that's related to the earlier discussion about the parameter changes. If not, then a little color on that.
Yeah. Thanks, Doug. Yes, it's the slight build in provisioning was in our P&BB segment and really relates to those model parameter updates. We had some deterioration in the FLIs, but that was more than offset by releases of management overlays from prior quarters. The uptick this quarter was really reflective of that parameter update. You know, our outlook for provisioning sort of remains similar to what we talked about in prior quarters, in so much as you know, we recognize significant provisioning build in 2020. We've released about 44% of that so far.
As long as the economic activity sort of plays out in alignment with our outlook, then we expect to continue to see releases as we saw, you know, each quarter in fiscal 2021, releases of performing provisions as we move through 2022.
Okay. Just second in the U.S. wealth management, obviously, Victor, you've said that's a focus, but we did see a decline quarter-over-quarter in just wealth management loans. I don't know if there's a restatement there or something's going on, but just curious.
I didn't see any decline at all, Doug. In fact, the business has been growing on net flows, on market appreciation, on deposits, and on mortgage growth in the U.S. Maybe there's some sort of recategorization that we can refer to you after the call. I mean, I think you're seeing the same thing, right?
Yeah, absolutely. You know, our wealth management businesses on AUM growth has been robust. As we continue to build out our private banking capabilities, you know, across our platform, you know, we anticipate growth looking forward.
It just relates to. I can take it offline.
Oh, yeah. It's FX related, Doug.
Yeah.
Okay.
Yeah, no. Okay.
Thank you. Our following question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.
Thank you. Good morning. Thanks for taking the question. I wanted to follow up on the line of questioning on your forward-looking variables here. When I turn to your disclosure on page 44 of your presentation, and I look at your downside case, it looks like the variables there are a bit optimistic, and I say that within the context of the emergence of the recent COVID-19 variant. Is there a risk that you'll have to revise those assumptions lower, and would that limit the potential for future releases of performing allowances?
Hey, Nigel. Thanks for the question. Look, these were set as of a particular date, so before Omicron was on the horizon. That said, they were set at a time where the Delta variant activity was front and center, and we did increase slightly the weighting to our downside scenario in coming up with our ECL numbers this quarter. I'd say, you know, part of that activity is reflected, but to your point, you know, we have to see how the economic activity plays out. We feel good about where we are right now, but, you know, we're all watching with great interest in terms of transmissibility, you know, severity and the efficacy of vaccines against this newest emerging or variant of concern.
We did increase the downside slightly in our ECL calculations this quarter, so that should provide some level of coverage depending on how things play out.
If that's helpful, and if we just quickly follow up on the same topic here. It looks like you're disclosing the household DSR assumption, the debt service ratio assumption in your forward-looking information. Correct me if I'm wrong, I don't think you've disclosed that in the past. Could you just provide some color? Is that something you've always considered and something you're highlighting now, and how does that feed into your expected credit loss modeling?
Yeah. It's one of the drivers of our ECL activity, and we thought it was relevant to include it in our disclosures. It really drives the consumer part of our consumer businesses.
Okay. Your base case assumes two rate hikes in 2022, I assume.
Correct.
Okay, great. That's it for me. Thank you.
Thank you. Our last question is from Lemar Persaud from Cormark Securities. Go ahead.
Hi. Yeah, just a point of clarification on some of the earlier discussion on expenses for Hratch. Hratch is a mid-single digit outlook on expenses inclusive of performance-based comp, or is that excluding performance-based comp?
Yeah. Thanks for the question, Lemar. You know, next year we had a very strong year this year, and performance-based compensation for that reason was up. Next year, we also plan to have a strong year, but because we're starting from a strong year on a year-over-year basis, performance-based compensation, we don't expect it to be as major a factor. I think you end up in that mid-single digit range with and without. You know, I think, and I'll take the opportunity to sort of stress some of the. There's a lot of discussion on expenses and investments, but our approach to investments and the way we construct our portfolio, investing in growth for the short term, medium term, and long term across all of the areas we've covered today.
We construct the portfolio in order to contribute to earnings as we go along. While we will have higher expenses, without that performance-based compensation next year with mid-single digit versus low single digit this year, we do expect our investments and our expenses to pay off in year. There's a few percent positive contribution to pre-tax, pre-provision earnings from our strategic investment portfolio next year.
Okay, thanks. I just wanna continue along the lines of the expenses here. Just, I wanna circle back to the commentary suggesting that operating leverage at the start of 2022 may be challenged. Is there an element of timing of expenses? So maybe you're talking about a step-up in the first half and then a decline in the back half of the year. Or is the improvements in operating leverage in the back half of the year more related to the expectation for acceleration of revenue growth rather than, you know, a step-down in expenses? The reason I ask is because revenue growth as mentioned, it was very strong in the back half of 2021. I think it was 7% last quarter, and then as mentioned, 10% in Q4. So any thoughts there would be helpful.
Yeah, happy to offer them, Lemar. You know, as we've said, we've got a bank that's built for growth, and we're in a dynamic industry, and we're not standing still. We're continuing to invest, and we don't manage the business on a quarterly basis. We're managing the business for the long term, and we look at our operating leverage over the long term. There's a number of factors that are playing in. One, we continue to invest in a number of areas, and a lot of these times, you're investing for technology build, you're investing to hire people who will generate revenues or to service our clients. Costco was one example I mentioned. We are hiring ahead. We are building technology ahead, and revenues come after the fact. In the U.S., we are continuing to invest. We're investing in the infrastructure.
We're investing in frontline people. All of those things we are continuing to invest because we believe in the returns. We've got very solid business cases and a rigorous process for tracking execution and holding ourselves accountable to deliver the benefits. That's worked for us so far. We've got the confidence to invest for those revenues. The last part I'll say is the environment. We've talked about the constructive environment and some of the loan growth continuing and accelerating potentially in the commercial businesses. We've got the interest rate environment looking better, and so all of those things will generate the revenues we expect. It is not an expense reduction in the back half of the year. We are taking a very consistent approach to our expenses and our investments.
If the top line starts looking different, I mentioned this before, we have levers we can pull. We've got a portfolio that's contributing positively next year, but the pace of some of the things that are more long-term investments can be adjusted if we need to, so that we invest more slowly if the top line is less robust.
That's helpful. Thank you.
Thank you. I would now like to turn the meeting back over to Victor.
Thank you, operator. I'm gonna do the unorthodox thing and throw a minute over to my colleague, Jon Hountalas, who's one of our four strategic business unit leaders that didn't have a chance to speak today, but he can give you a perspective on how things are looking in the Canadian private economy, Canadian wealth economy. Jon, over to you, and then I'll make some closing remarks.
Thank you, Victor. Business confidence is good. The back half, particularly on the commercial side, was strong. Economy's opening up. You talk to entrepreneurs, I know there's risks out there, but they're coping with them. The top line's growing. There's some operational challenges, but it's been strong. All they're talking to us about is growth. Our pipeline's good, so we're feeling pretty confident. On the wealth side, we have good investment performance. We made some investments in tools and people and some technology. Again, we see momentum. We had a strong year in 2021. I think you'll see another strong year out of the SBU in 2022.
Thank you, Jon. I appreciate that, and I think you see the strong growth across all of our business units. Before we wrap up, and I know we went over time today, and thank you for indulging us. I wanna thank our 45,000 CIBC team members globally for their continued support of our clients. Their purpose-driven, client-first focus is a critical component to the success of our bank. You're seeing that in our top-line revenue metrics, you're seeing that in the client experience metrics, and you're seeing that in our full year financial results. As we look ahead to 2022, I hope that you got the sense from every business leader, from Hratch, from Shawn, that we've got everything in place to harness the strong momentum that we've created in this past year.
We have a balanced strategic agenda. It's aligned with continued growth, and we're excited about the prospects in the coming years. We're looking forward to reporting on our progress again at the end of February. As I said earlier, our Investor Day is going to be on June 16, 2022. We moved it there because of the Ontario government guidelines in terms of health restrictions, and you know, we're gonna watch out what happens with this new variant, but that's our plan currently. That'll also give us an opportunity to invite all of you to meet our leadership team face-to-face at CIBC Square so we can share our strategic vision and direction for our bank in more granular detail because I know you're all interested in that.
We're gonna post more information as we get closer to the date. In the meantime, I wanted to wish all of you a happy holiday season. Thank you for your interest in our bank. Thank you for your very good questions, and we look forward to engaging in the new year. Have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.