Frank Guse: Well, so a couple of points. One, I wouldn’t take that as an indication that our clients are more interest rate sensitive. There are certainly some elements of mix in there. But overall, we do not see that as being a big driver. As I said before, I think we may be having models that are a little bit more sensitive to changes in that metric, but I don’t take that as an indication of a difference in credit for client profiles because we are not seeing that in other data that we clearly use to prepare [indiscernible]. From an outlook perspective, yes, I think part of the indications is if the economic environment plays out as our models predict and as we expect interest rates to come back a little later, we could expect that part of ’24 or technically all of ’24 runs a little bit ahead of 2019.
But again, there is a lot of moving parts here, and it’s certainly too early to give you a good outlook on fiscal ’24 altogether. But overall, I would say, yes, it’s certainly not an indication of credit quality. It is an indication of what we have put into our forward-looking indicators, how our models react to that. And then what we will see over time is how that plays out in reality as the economic environment evolved.
Operator: Thank you. Our next question is from Darko Mihelic with RBC Capital Markets. Please go ahead.
Darko Mihelic: Again, going back to Frank, I really appreciate the disclosures that you provide. But sometimes I think the disclosures may not actually help me. And I’m asking you this question, Frank, because your bank had a bit of balance in performing PCLs last quarter was released. So I kind of want to get to the bottom of a couple of things. And really, what I’m looking at is one of your slides, I’m looking at Slide 40, and you show the mortgages that are coming due for renewal this year, $37 billion. And then you show me the high-risk clients $330 million, which is fairly small. But when I look at the definition of what you’re calling a high-risk client, it would miebolically be different from what I’m worried about. I do not care about people who have a shallow relationship with CIBC.
What we worry about, I think, our clients with a deep relationship with CIBC that have credit cards and unsecured credit. We worry about those same clients that might have low bureau scores and clients that are facing a large increase in mortgage payment and don’t have cash resources. So that would be my definition of higher risk, not shallow relationships. So am I wrong in thinking that, that is the cohort that I’m describing would be the cohort driving the performing PCL increases and how big is this cohort not just for 2024, but also 2025. And so I realize I’m asking for a lot, and we don’t expect you to throw out some numbers right now. But maybe you can tell me where I’m wrong in thinking about what I should really be concerned about.
Frank Guse: I’ll probably not throw numbers as you indicated. What we are looking at is deep relationship clients. We know how they behave on their credit card. We know how they behave on their unsecured lines. The deeper the relationship is with us the better the behavior is. The better the actual results are. And one thing that is giving us comfort is we are actually seeing more of their client over time, and we have an opportunity to react faster than we would do on a mortgage only or on a shallow relationship. So that is why — and you’re absolutely right, we are watching those segments very, very closely, but which is why we may be a little less concerned about those segments just because we have more information. We have more opportunities to work with those clients and addressing that early.
The other point I will make is, I mean, we are very, very close monitoring our variable rate mortgage clients. We know their renewal schedules. We look very closely into what payment shocks are, again, under assumptions of where interest rates are over time. And we do feel comfortable as we disclosed on the slides here that those payment shocks, even though they are high, and they will certainly go higher over time are manageable for those clients. And a couple of points that help in that is One, a lot of those clients would have been qualified at a lot higher rates in the past. And yes, they may still go into an even higher rate. And yes, that is a real payment shortcoming but at least from a qualification perspective. Those clients were tested and underwritten at a lot higher rates.
And one thing I can tell you as well is, we had around call it, close to 100,000 clients already renewed into that higher interest rate environment, $25 billion of mortgages in the last or year-to-date. And what we are doing is we are monitoring that cohort very, very closely from a delinquency rate perspective. And in particular, if you go back to what we call the six- to eight-month performance in that book, so going back to all renewals and refis in Q1 of this year. Those clients are performing broadly in line with what we would have seen in 2019. So, there’s no areas of concern that we are seeing so far emerging because clients are absorbing higher payments in ad renewal. I don’t know whether that addresses your question, but it’s probably all I can mention here.
Darko Mihelic: No, that’s I realize I’ll have some follow-ups for you after, Frank, and some technical questions around everything you just said. So I appreciate it. I just — I scramble a little bit because if debt service ratios are climbing. And I appreciate that many of these customers were underwritten with a stress test on interest rates. But I’m not certain that the stress test also would have incorporated high inflation. And I just worry that especially not necessarily in the next 12 months, but the 12 months after, where the payment shock is really high that even if you’ve seen customers with a bit of a payment shot recently that the outlook could still be quite different. So happy to discuss off-line, Frank, but thank you very much for the answer. It is helpful.
Operator: Thank you. Our last question is from Sohrab Movahedi with BMO Capital Markets. Please go ahead.
Sohrab Movahedi: Maybe a couple of quickies. Frank, can you tell us what the loan to value on the office properties are after the allowance and how that compares to last quarter, please?
Frank Guse: Well, I can’t give you a number here. It’s certainly in line with expectations. I’m not certain what number I could give you here because the biggest driver in itself is certainly not the allowance. It is driven by whenever we get a new appraisal, we see the market evolving. And again, that is a location-by-location answer where the values can go down significantly from what we would have seen in appraisals that we would have gotten six months, nine months or a year ago. And from an LTV perspective, I think that is the biggest driver. But it’s also one where we don’t have an ongoing review of appraisals for every single file. But we order appraisals whenever we them it’s right. And as I said, that is probably the bigger driver, which is why I can’t give you real — give you one number on question.
Sohrab Movahedi: Okay. And maybe just for the broader management team, you get paid a lot of money. Was there any subjectivity exercised over the models specific to performing reserve build this quarter or the releases last quarter or are the models running the bank?
Frank Guse: Yes, there was. And yes, there was in both cases.
Sohrab Movahedi: Did you add or subtract for this quarter? Did the subjectivity add to the provision build this quarter? Or did it hold it back?
Frank Guse: A lot of moving parts, but we certainly reduce the increase that we would have seen in our Canadian personal businesses. And what we do is that expert credit judgment is essentially balancing a little bit what we talked about this call namely, what is the model predicting versus what are we seeing from a credit risk perspective. And we felt the model was going a little bit more sensitive than we would have thought. So we dampened that increase. And why do I say we do see a lot of moving parts, we certainly added a little bit on the U.S. office portfolio. So there’s always moving parts. And that is directionally what I would say, for this quarter.
