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Canadian Imperial Bank of Commerce (CM)

Q1 2025 Earnings Call· Thu, Feb 27, 2025

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Transcript

Operator

Operator

Good morning. Welcome to the CIBC Q1 Quarterly Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Geoff Weiss, Senior Vice President, Investor Relations. Please go ahead.

Geoff Weiss

Management

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 Rob Sedran, our Chief Financial Officer; and Frank Goose, our Chief Risk Officer. Joining us on the call are our group heads, including Shawn Beber from the U.S. region; Harry Culham from Capital Markets, Global Asset Management and Enterprise strategy; Hratch Panossian from Personal and Business Banking, Canada; and Susan Rimmer, Commercial Banking and Wealth Management. They are all available to take questions following the prepared remarks. We have a hard stop at 8:30, so as usual please limit your questions to one when we get to the Q&A. We are available after the call to any follow-ups. As noted in our investor presentation, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results may differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results, management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I'll now turn the call over to Victor.

Victor Dodig

Management

Thank you, Geoff, and good morning, everyone. Today, I'd like to make a few comments on the operating environment. Our strong start to fiscal 2025, and the strength of our bank as we navigate this economic and political volatility together with our clients. As we all know, trade tensions between Canada and the United States have already led to disruption in some sectors of the economy, and it remains unclear if these tensions will ratchet up in the form of new or increased tariffs. We, as a leadership team, reaffirm our belief in free and fair trade. We see the long-term benefits of the USMCA for our clients on both sides of the border and we would encourage our political leaders to work to strengthen and secure the North American economy. Well before these topics were in the headlines, we were already in dialogue with our clients about potential impacts to their businesses and personal lives and how we, our CIBC team could help. Against this backdrop, CIBC delivered robust performance in the first quarter, consistent with our strategy and the message we've been delivering to our investors. Our bank has an organic growth strategy that's working and positions us well through the full economic cycle. In periods of uncertainty, our advice, the connectivity of our CIBC team and our dedication to our clients are competitive differentiators and competitive advantages. This is further evidenced by the most recent Ipsos satisfaction survey, where we improved our ranking in the eyes of our clients to second place after recording our best quarter ever. Now, turning to our first quarter financial performance. We reported revenues of $7.3 billion, which is up 17% from the prior year with record top line results across all of our business units. Adjusted earnings per share of $2.20…

Rob Sedran

Management

Thank you, Victor, and good morning, everyone. Let me start with three highlights from our results. First, the record revenue was broad-based and continued our momentum from last year, with each business unit showing strong gains, helped by constructive markets and an improved net interest margin. Second, expense growth was elevated from the low prior year quarter partly owing to expenses linked to the strong revenues, partly from FX translation and partly from some items affecting the results. Nevertheless, we managed to solidly positive operating leverage again this quarter. And third, both capital and liquidity ratios strengthened, which combined with strong absolute and relative credit quality positions us well for whatever may come in the market and economic environment while still allowing us to advance our strategy and support our clients. Please turn to Slide 11. Earnings per share were $2.19 for the first quarter of 2025 or $2.20 on an adjusted basis, and adjusted ROE was 15.3%. It was a record quarter in several areas, including revenues, pre-provision pre-tax earnings and net income. Let's move on to a detailed review of our performance. I'm on Slide 12. Adjusted net income of $2.2 billion increased 23%. Pre-provision pre-tax earnings were up 19% and revenues were up 17%, supported by improved spread income, strong trading activity and continued growth across our fee-based businesses. We also continue to manage expenses relative to revenues, delivering 190 basis points of operating leverage. Total provisions for credit losses were down from a year ago as an improvement in impaired losses was only partly offset by a prudent build in our performing provisions, reflecting growing risks in the macroeconomic outlook. Frank will discuss our strong credit performance in detail in his presentation. Slide 13 highlights key drivers of net interest income. Excluding trading, NII was up…

Frank Guse

Management

Thank you, Rob and good morning everyone. Our credit performance in Q1 was strong with impaired loan losses remaining stable, performing better than our full year guidance despite the macroeconomic challenges. We continue to monitor our portfolios and remain close to our clients to effectively manage through the uncertainties ahead. Our allowance coverage has increased this quarter as a result of proactive steps we've taken to reflect the evolving macroeconomic environment. Turning to Slide 25, our total provision for credit losses was $573 million in Q1 compared to $419 million last quarter. Our allowance coverage increased quarter-over-quarter by 3 basis points. Our performing provision was $127 million in this quarter, driven by an unfavorable change in our overall economic outlook, including judgment related to additional waiting putting on our downside case that reflects the uncertainties of the trade environment. The portfolio also experienced some credit migration and model updates this quarter. Our provision on impaired loans was $446 million, up $29 million quarter-over-quarter. This was due to higher provisions in the U.S. commercial portfolio, Canadian Personal and Business Banking, and CIBC Caribbean, partially offset by continued strong performance in our Canadian Commercial Banking and Capital Markets portfolios. Turning to Slide 26. Our impaired provisions ratio was 31 basis points this quarter. In line with our guidance, our impaired PCL trended slightly higher in Personal and Business Banking. We anticipate this trend to continue as we head into Q2. Our Canadian Commercial Banking and capital markets portfolios continued to perform well in Q1, both trending downward quarter-over-quarter. In US commercial, we saw a slight increase quarter-over-quarter as a result of one larger office loan moving to impaired with a small impact on total provisions given the corresponding performing relief. That one loan accounted for approximately half of the impaired provision. On…

Operator

Operator

Thank you. [Operator Instructions] The first question is from Matthew Lee with Canaccord Genuity. Please go ahead.

Matthew Lee

Analyst

Hi, good morning. Thanks for taking my question. Really good margin expansion in the PMD business was a pretty nice driver of NII growth this quarter. If I'm reading it correctly, it looks like it's largely driven by a move from term to demand on the deposit side. Is the assumption here that money coming out of GIC eventually gets moved into the Vault business? Or are there a lot of people sitting on the sidelines given the uncertainty here? And then maybe how does that dictate your view on NIM going forward?

Hratch Panossian

Analyst

Good morning, Matthew, it's Hratch. I'll take that question. Yes, we're seeing some shift in the market. But I think what you're also seeing in our margins is the impact of our strategy. And as we've spoken about before, our strategy is focused on doing business in a way that benefits both our clients and our shareholders. And I think you're seeing the results of that across the entire business. We're seeing volume growth that has been more muted in the 2% range, but as you pointed out, strong margin expansion across all of our products, strong mix change. And because of that, the quality business is what's driving double-digit NII growth and the overall 9% revenue growth, which we're pleased to see being top of market. And so we're very proud of what our team is doing to execute against this, and it really comes down to advice. And so specifically to the space on liquid assets and investable assets, we're seeing clients come out of GIC portfolios with rates that were above 5%. And needing a device on what to do with those funds. And what our team has done really well, leveraging a lot of the investments in technology and planning tools that we've given them and leveraging the investments in the increased team with additions that we've made across the board in our mass affluent franchise as well as other advisers is to get in a timely way in front of those clients and serve them the solutions that they need and we're pleased to see that two things are happening. We are seeing a shift from GICs into demand. And we've done very well in you would have noticed our number two position. We've grown demand deposits 9% year-over-year and we're seeing really good margins on those deposits. And so that's contributing to NIM expansion. When you look beyond NIM to overall revenues, we're also benefiting by a very substantial portion of those deposits going into investments. So it really depends. It depends on the client situation, but whether it is a demand deposit or whether it's an investment solution, that's the right one for the client. We've got the tools and we've got the best advisers in the field to give the client that advice and to keep the funds with bank. And overall, that's contributing to revenue growth, and it's contributing to client value.

Matthew Lee

Analyst

So you'd expect the deposit mix to stay relatively stating from here?

Hratch Panossian

Analyst

We're continuing to be focused on the same strategy, Matthew. It's hard to tell exactly where things go. We are seeing the GIC portfolio stabilize a bit, but I think it will depend on what rates do. I think it will depend on how good markets are and it will depend on the individual client situation. So we're always there to advise clients. I think on a NIM perspective, our strategy will continue to deliver benefits from a NIM and margin expansion perspective.

Matthew Lee

Analyst

All right. Thanks. It's very helpful.

Operator

Operator

Thank you. The next question is from Meny Grauman with Scotiabank. Please go ahead.

Meny Grauman

Analyst

Hi. Good morning. I wanted to ask the first tariff question. We don't know if tariffs are coming down the pipeline, but we do know that tariff uncertainty is here. So I'm wondering how that tariff uncertainty is playing out across your footprint right now? And how do you expect that to evolve? And so really just focusing on that uncertainty in and of itself, ignoring whether tariffs do come in on.

Victor Dodig

Management

So, good morning, Meny, and thank you for that question. I think we're all -- we all have that on our minds. I will say, a couple of things. Clients across the board, across the country are feeling a little more tentative in terms of commitments going forward until there's more certainty. I think that holds true on both sides of the border. Businesses and personal clients like certainty to move forward. So the sooner we can get that certainty, the better. The second thing is that we go into this situation as a strong bank from a capital perspective, from a liquidity perspective, but as Frank pointed out earlier, from a credit perspective. We have worked diligently over the past decade to build a relationship-oriented bank where we understand our clients. We understand risks and we manage that through with them and you see that in our PCLs. The third thing, I'd say is, clients are more resilient than one gives them credit for. When you think about what business banking clients have gone through over the past half decade, you've seen currency volatility, particularly when US CAD exchange rates, rates, you've seen a surge in interest, you've seen supply chain disruption. You've seen labor supply issues, yet they've been able to manage through all of this. And we see that the last three years are no different for us in the last 10 years in terms of loan losses. It's a deliberate effort to build the client portfolio that we'd like to build, and it's our clients managing prudently alongside that. And then when it comes to exposures for the most acutely affected sectors, should it get to that point, forestry, auto parts, aluminum and steel and agriculture. We're well positioned there and our market share is, in…

Meny Grauman

Analyst

Thanks for the detail.

Operator

Operator

Thank you. The next question is from Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala

Analyst

Hey, Victor. Good morning. I guess they should have you negotiate the deal with United States. So I appreciate the color. Just talk to us, I think in your prepared remarks, you also mentioned client activity picking up. So if you don't mind identifying where you're seeing strength in terms of driving that client activity and then appreciating the macro uncertainty, remind us how you're managing capital relative to the 13.5% CET1 stock cheap? Like would you still flex in? And could we see the pace of buybacks pick up from what you did in the first quarter? Thanks.

Victor Dodig

Management

Thank you and good morning. I'm going to start with the last part of your question on capital. We've been pretty clear that we're managing north of 12.5%. We're currently at 13.5%. We've been pretty clear that we are going to deploy capital in terms of returning capital to shareholders through our buyback activity, you will see that continue. We also go into this period of time with capital so that it can be deployed should things turn upwards. And we want to make sure that we're there for our clients to help them grow organically. In fact, if you talk to any of our business leaders, all of them will say that clients, once the certainty comes in, they're ready to start moving, they're ready to start investing, they're ready to start growing. I think it's pretty clear that all of our businesses are doing well. Hratch talked about our Personal and Business Banking franchise. I'd like to turn it over to Shawn, Harry and Susan, only because I'm seeing them around table this way, to just give a brief overview of why they feel confident in the businesses that they're running, the results that you're seeing and how we manage going forward. So Shawn and Harry and Susan.

Shawn Beber

Analyst

So very briefly, we're very pleased with the performance this quarter in the U.S. loan growth and particularly deposit growth, both strong. Loan growth strong in the context of more muted environment, but that growth is quite broad-based across our businesses. I'd say the pipeline is healthy, as Victor mentioned earlier, maybe not as strong as it was in the fourth quarter last year, the uncertainty around trade discussions around the rate environment persists. And we've seen -- that's had to knock-on effects, both in terms of loan growth, but also in terms of deposit deployment. So we've actually had higher deposits than we expected. We thought last quarter, we talked a little bit about this, that some of the short-term deposits, we thought would be deployed sooner. They've actually been around, that's had an impact -- a positive impact on net interest margin. We do expect that to change over the course of time, but we're staying very close to our clients. We're pleased with our performance. We're pleased with the credit performance and our clients are, as Victor said, as certainty comes to the four, the pipeline is healthy. The execution of that timing is going to be, I think, a function of this certainty, the path towards certainty. Harry?

Harry Culham

Analyst

Yes, I would just add a few things on the capital markets business, good morning. We just continue to focus on executing on the strategy we laid out many years ago. This is a differentiated cross-border diversified really highly connected platform and are delivering in excess of our Investor Day targets. I would say, that we're really well aligned to the long-term macro trends that we're seeing, and so you're seeing a very well-diversified business and a differentiated platform delivering across the spectrum. And I expect, although a seasonally strong quarter, I expect that the pipeline will shine through as we move forward and we can continue to serve our clients in a meaningful way and some in certain times and deliver for our shareholders. So I'm actually optimistic on the pipeline that will be delivered. Susan?

Susan Rimmer

Analyst

Yes. Thank you, Victor. And three things from my corner this morning. It's Susan speaking. Number one, our strategy is working. Number two, we're a relationship bank. We serve our clients through the cycle. We're very proud of our Q1 performance. In particular, on the commercial bank, our loan and deposit balances grew by 8% and 10%, respectively, year-over-year. Our portfolio is well diversified. And again, credit performance has been very strong. But based on what we know today, I would say, on the commercial banking side, we guide to a mid-single digits growth for the balance of the year. That's really respecting the uncertainty that we see. We're very close to our clients. We're in daily dialogue, and we're helping them navigate.

Victor Dodig

Management

Great. Thank you, Ebrahim, hopefully, that answered your question?

Ebrahim Poonawala

Analyst

Yes, that is very comprehensive. Thanks.

Victor Dodig

Management

Thank you.

Operator

Operator

Thank you. The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.

Gabriel Dechaine

Analyst

Good morning. On the margin question or topic that was brought up earlier, just to reiterate, the Canadian banking margin performance, you're suggesting that's primarily from growth in demand deposits. I'm trying get a sense of that the wave of term deposit repricing and how beneficial that is this quarter and going forward. And then in the U.S., also good margin performance. Is there any timing issue there related to your deposits repricing ahead of your loans? And I'll sneak another one in there on the buybacks. You have been active we know what the environment is, will you remain as active? Thanks.

Rob Sedran

Management

Hi, Gabe, it's Rob. Maybe I'll get started. I think the margin story on both sides of the border is really one about deposits. It's a combination of volume, the mix of deposits and also just the hedging and positioning of our balance sheet, the tractoring strategy that continues to play out as expected. So, on the Canadian side, Hratch, kind of, gave you a pretty good idea of what's happening in the GIC and in the demand deposit side. These trends, we do expect to continue, perhaps not quite as strong as it was this quarter, but the deposit side remains a tailwind, and we're still optimistic on the direction the margin is going to take. That's stable to gradually higher is consistent with what we've been saying and expect that to continue. On the U.S. side, there is a little bit of timing simply because the deposit volumes. We do think there's a seasonal component to that. So, companies that have a calendar year-end, they're going to make their bonus payments, they're going to make their tax payments. So, we expect some of that deposit volume to come off a little bit. So, absent further interest rate cuts, we do kind of see that margin settling back in the U.S. into the $3.50 to $3.60 range as a bit of a normalized view. Maybe I'll stop there. If you have anything else on that. And otherwise, I'll answer the buyback question.

Gabriel Dechaine

Analyst

No, I could go to buyback.

Rob Sedran

Management

Yes. So, the buyback, the first priority clearly is organic growth, as Victor mentioned. And so -- but we do intend to continue to use the to use the buyback. It remains our intent at this point full amount of the authorized buyback. The nice thing about the buyback is if the environment turns, we turn it off. So, for what we can see right now, we do intend to use it.

Gabriel Dechaine

Analyst

Great. Thank you.

Operator

Operator

Thank you. The next question is from Doug Young with Desjardins Capital Markets. Please go ahead.

Doug Young

Analyst

Good morning. Just wanted to go to Slide 28. And Frank, just it looks like the consumer, I think you mentioned this in your prepared remarks, but the consumer net write-offs and the delinquency trends around credit cards and unsecured lending is down, which is a bit surprising and it seems to be a bit different than what we're hearing from some of the other banks. And so I'm just hoping you can dig into and provide a little bit of color around what you're seeing in the consumer credit card, consumer unsecured lending, specifically in Canada?

Frank Guse

Management

Yes, sure. And I mean, as a couple of folks already said, our strategy is working. We focus on the mass affluent segment in those and those continue to show good resilience. I mean that is an area that we are watching very, very closely. And as you said, it is moving in a good direction. But it's also one where we have a little bit of a cautious outlook. As I said in my prepared remarks, we expect and continue to expect it to trend up gradually a little bit over time as we would have seen this quarter as well if you look at total PCLs, so we keep a cautious outlook there. But as I said, we are really pleased with the resilience of the book. It is also driven by some of the underlying investments that we made in risk infrastructure, in our segmentation approaches, in our delinquency approaches, and in our collections activity. And all of that is coming together to help us manage through some of the uncertainties that we are seeing in the market.

Doug Young

Analyst

And if I can just follow-up, just separately on credit. Yes, your gross impaired loan formations picked up quite a bit sequentially in retail and commercial. We're not seeing to kind of go through the impaired PCL side, I assume it's because you've got good collateral and good coverage. But just hoping to get a kind of a put and take between those two kind of items like the gross impaired loans going up. You're not seeing it hugely coming through on the impaired PCLs. But can you dig a little bit into what you're seeing there?

Frank Guse

Management

Yeah. And sure, I mean -- and as I said, a large part of what we are seeing in the new formations in the consumer space is indeed coming from mortgages, where we do have very strong collateral. I did say that our impaired LTVs on impaired mortgage LTVs are in and around 60%, and that is current LTV, so very, very strong collateral. And that is why we do not expect on the mortgage side those to translate into meaningful write-offs over -- even over time. And similarly on the business and government side, yes, there is collateral and it may take a little while of that working into PCLs. But we are very pleased with the current performance of the book.

Doug Young

Analyst

Thank you.

Operator

Operator

Thank you. The next question is from Mario Mendonca with TD Securities. Please go ahead.

Mario Mendonca

Analyst

Good morning. Victor, early in your prepared remarks, you referred to a normalization of the credit picture. I think it's in the context of your medium-term ROE drivers there is credit normalization. So in the quarter, impaired PCLs were around 31 basis points, looking over the very long-term. For CIBC, we're probably looking at 35, 36 basis points. So what do you mean by normalization? Are you suggesting that CIBC's loan mix is different? CIBC is such a different bank than it was over the last 20 years ago that normal is what 2025 [ph]?

Victor Dodig

Management

Thanks, Mario. Good morning. CIBC is a different bank. We've built a different bank, and we started with first principles of focusing on our clients, connect our entire bank to serve our clients, investing in technology and being really prudent about how we originate loans, how we manage loans and how we understand the risks well within our risk appetite. When we put these ROE drivers up on slide 4, they're meant to show you how we're going to get to that 15% plus that we talked about, that premium ROE. And each and every one of them will be a contributor over time. Some are contributing immediately, some will go through a bit of an up and down cycle. When it comes to credit, we feel good. I think Frank has done a great job in explaining it, it, helping the team manage through and said, look, clearly, we did 31 basis points of impaired in the first quarter. We're still talking about mid-30s because of the uncertainty out there. And even if the uncertainty comes alive, that mid-30s feels like something we can manage toward. But in the medium-term, when things do get normal again, we could see a world where you're getting down to 25 to 30 again. Now how soon that will happen is really up for grabs right now, but we do see credit normalization over the medium-term being a net contributor to ROE.

Mario Mendonca

Analyst

Real quickly then on this provision, this legal provision, I've learned over time not to ignore these sorts of things, because they can sometimes evolve as something big. Is there anything you can tell us about that legal provision that would help us make our own assessment on how meaningful this could be over time?

Rob Sedran

Management

Hey, Mario, it's Rob. Good morning. This is not a down payment on something. This covers the full amount. It's a closed issue for us with respect to the P&L. It's still something that we are looking into, but there's no more to be taken on this file.

Mario Mendonca

Analyst

Got it. That’s helpful. Thank you.

Operator

Operator

Thank you. The last question is from Lemar Persaud with Cormark Securities. Please go ahead.

Lemar Persaud

Analyst

Yeah. Thanks for squeezing me in there. Frank, you mentioned you did a bottom-up stress test on the wholesale portfolio for the implication of these tariffs. Was that captured in the Q1 performing, Or would you have bumped up the Q1 performing provision after doing that kind of more detail review, like my question is really around timing. And if that bottom-up analysis was accounted for specifically in the $127 million you put through on performing? And then finally, when you scrub the wholesale portfolio, what industries gave you the most concern?

Frank Guse

Management

Yes. So a couple of things there. I mean, our performing allowance build is building on what was known on January 31. So there is a little bit of timing in these numbers. But what we did there was applying judgment to how much weight we want to put on our downside scenario, and that is what we did. On the bottom-up analysis, I do think and I do want to reiterate that we are starting from very solid footing. We are in a good position. We have seen low single-digit loss rates in our commercial banking portfolio and in our capital markets portfolios over the last couple of quarters. So a very strong starting position. From an industry's perspective, I mean, it would be in the industries that have been talked about. It is, of course, we see a little bit of softening is in the manufacturing sector, it would include agriculture, it would include forest products. But even in those industries, what I would tell you is based on the bottom-up analysis, not all of the clients in those industries would be exposed to trade uncertainties, and in fact, if you do that and if you run a variety of scenarios, you see it's actually a very small fraction of our client base that would have direct and material impact to those trade uncertainties. And then, of course, in the scenarios, you would see secondary impacts and tertiary impacts coming over time. but that would develop over time, of course. And the one last number or the one last piece of information I want to leave you with is we have built allowances over time. For our Canadian commercial portfolio, for instance, our allowance right now stands at four times our last 12 months impaired losses, so a very, very strong position even from a performing allowance perspective. And that looks different than some of the other books, but it is strong across the board.

Lemar Persaud

Analyst

So bottom line, you would have perhaps built a little bit more, but you're not overly concerned. Is that kind of the bottom line?

Frank Guse

Management

Well, I'm -- well, I don't think we would have built more, particularly based on what was known in at January 31, and what is known today. I do think we have to wait for what transpires, what is getting put in place. And then we will come and have to come back with an assessment for our Q2 number based on the information that is coming forward.

Lemar Persaud

Analyst

Appreciate it. Thank you.

Victor Dodig

Management

Okay. Great. Thank you, operator, and thank you all for joining us this morning. As you heard this morning, our strategy and our focused execution is continuing to deliver results for all our shareholders -- all our stakeholders, rather. You've heard that from all our leaders here today. Our diversified business model and balance sheet strength, they position us very well to navigate through this continuing, changing market condition that we're all living through. We've been in business for 158 years. We've got a proven track record. And I think over the past decade, we particularly been able to reflect that in the business that we're leading and running and engaging with our clients. And before I do close, I want to thank the entire CIBC team, those in the front lines, those who lead support functions and supporting our clients each and every day, and particularly at this time. So thank you, everyone, for joining us. Have a good morning, and enjoy the next two calls.

Operator

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.