Canadian Imperial Bank of Commerce (NYSE:CM) Q4 2025 Earnings Call Transcript

Canadian Imperial Bank of Commerce (NYSE:CM) Q4 2025 Earnings Call Transcript December 4, 2025

Canadian Imperial Bank of Commerce beats earnings expectations. Reported EPS is $1.57, expectations were $1.49.

Operator: Good morning. Welcome to the CIBC Q4 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.

Geoffrey Weiss: Thank you, and good morning. We will begin this morning’s presentation with opening remarks from Harry Culham, marking his first earnings call as our President and Chief Executive Officer; followed by Rob Sedran, our Chief Financial Officer; and Frank Guse, our Risk Officer. Also on the call today are our group heads, including Hratch Panossian, Personal and Business Banking Canada; and Susan Rimmer, Commercial Banking and Wealth Management. I’d like to take a moment to introduce two new members of our executive leadership team, Christian Exshaw from Capital Markets; and Kevin Lee from our U.S. region. Christian and Kevin have served with our bank for over 17 years and 23 years, respectively, and bring exceptional leadership, a proven track record of performance and exemplify our purpose-led and collaborative culture.

Please join me in welcoming them to our new group heads. We have a hard stop at 8:30 and would like to give everyone a chance to participate this morning. So as usual, we ask that you please limit your questions to one and requeue. We’ll make ourselves available after the call for any follow-ups. As noted on Slide 1 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. 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 will now turn the call over to Harry.

Harry Culham: Thank you, Geoff, and good morning, everyone. I’m excited to be speaking with you today as President and CEO of our bank. I’m energized by the opportunities ahead of us, building on our strong performance we’ve delivered in fiscal 2025. Our performance reflects our momentum and the execution of our client-focused strategy right across our team. When we announced our CEO succession in March of this year, I stepped into the role of Chief Operating Officer and spent the last 8 months listening and engaging with our stakeholders. And these discussions have reinforced my confidence that our client relationships are strong, our team is proud and our bank is being recognized for delivering consistent, strong financial performance.

Building on this foundation, we have united our leadership team and employees globally around an evolved ambition to be a client-focused, highly connected and performance-driven bank, delivering industry-leading shareholder returns. And this ambition is underpinned by the same strategic pillars that have driven our success and strength through the cycle performance over the past several years. So let me be clear. Our strategy remains consistent. It is working, and we are committed to delivering on what we set out to achieve. Our focus now is to accelerate the execution of our strategy to deliver relative outperformance. And to sustain our momentum, we have aligned our team around 3 key enablers: One, we’ll sharpen our client focus and double down on our connectivity.

Two, we’ll drive efficiencies and modernization; and three, we’ll elevate our focus on human capital by fostering a culture of engagement, development and accountability. And with that, let me provide an overview of our adjusted results for fiscal 2025. We reported net earnings of $8.5 billion and earnings per share of $8.61, up 17% and 16%, respectively, from the prior year. Record revenues of $29 billion were up 14%, driven by double-digit revenue growth across each of our businesses. We delivered positive operating leverage and managed our enterprise efficiency ratio lower, both for a third consecutive year. Our top-tier credit quality remained resilient with an impaired PCL ratio of 33 basis points, delivering at the favorable end of our guidance range.

Our robust CET1 ratio of 13.3%, coupled with the earnings power of our bank gave us confidence to announce a 10% increase to our quarterly dividend to common shareholders. We also delivered a return on equity of 14.4%, which was up 70 basis points from the prior year. Our strategy and unique competitive advantages position us well to further our momentum and deliver for our clients. Our first strategic priority is to grow our mass affluent and private wealth franchise. We’ve cultivated a unique ecosystem to win in this segment, including our distinctive Imperial service platform, strategic Costco partnership, industry-leading Wood Gundy brand and our high-quality RIA in the U.S. In Imperial Service, our advisors are passionate about our clients and they’re engaged.

Our NPS scores continue to hit all-time highs each quarter. Over the past year, our client-focused distribution channels have supported our market share gains in mutual funds, assets under management in Canada. In 2025, CIBC ranked in the top 2 of the big 6 banks for total mutual fund net sales. And we’re going to continue to lean into these strengths to generate capital-light fee-based revenue, gather high-value personal deposits and drive wealth referrals. These are intentional outcomes directly aligned to our strategy and all accretive to our ROE profile. Our second strategic priority is to grow digital-first personal banking. Our leadership in digital banking is recognized industry-wide. This past quarter, we received the 2025 Mobile Banking Award by Service Corp.

Leveraging our award-winning digital capabilities in Canada, we also launched a new digital banking platform for the U.S. market as well. So collectively, these efforts are enabling us to further attract and build new and deeper relationships through data-driven insights, adding value for clients and driving growth. Our third strategic priority is to leverage our connected platform, one of our greatest competitive advantages. Our culture of connectivity enables us to deepen and broaden our client relationships, expand our U.S. franchise and strengthen cross-business referrals. By connecting our commercial banking, wealth management and capital markets teams, we have built a strong internal referral system across our businesses that results in greater agility and more innovative solutions for our clients.

And as a result, cross-business referrals in our U.S. Commercial and Wealth franchise were up 23% from the prior year. A connected capital markets footprint requires a strong presence across North America. In fiscal 2025, revenue and net income in our Capital Markets U.S. franchise were up 39% and 50% from the prior year, respectively. We expect the rate of growth in U.S. capital markets will continue to outpace Canada and other regions over the medium term. And finally, our fourth strategic priority is to enable, simplify and protect our bank. Our performance-driven approach requires continually realizing expense and balance sheet efficiencies, modernizing our technology and scaling our data and AI infrastructure. Building on our history of innovation, we launched CIBC real-time experience, which we call Cortex for short.

This is a proprietary AI-enabled client engagement engine that seamlessly integrates with our existing platform and shapes data-driven personalization. In fiscal 2025, we made significant strides in further embedding AI as a core capability across our bank. We are well positioned to accelerate our AI adoption with a focus on Agentic AI and continued investment in talent and partnerships to continue to transform the banking experience. Looking to the operating environment in the year ahead, ongoing trade negotiations present uncertainty in Canada and abroad. Our outlook assumes that trade deal is extended, an outcome we strongly believe is in the best interest of the North American economy. We expect targeted fiscal policy relief for sectors affected by trade as well as stimulative monetary policy to support moderate economic growth across our geographies in 2026.

We are also supportive of nation-building initiatives in key sectors of Canada’s economy to help create a more prosperous future. We have deep client relationships in these sectors and we’ll be there to support Canada’s growth. Regardless of how the environment evolves, we will continue to stay close and proactively engage with our clients. So in closing, we’re setting our sights higher — to build on the clear momentum we’ve established, we have built an engine to deliver sustainable, relative outperformance and a road map to generate profitable growth over the long term. We believe our unwavering client focus, the bench strength of our team and accelerated execution of our strategy will drive value for our stakeholders through the cycle. It’s an exciting time at CIBC, and I’m honored to have the opportunity to lead our team.

With that, I’ll now turn it over to Rob for a detailed review of our financial results. Over to you, Rob.

Robert Sedran: Thank you, Harry, and good morning, everyone. Let’s start with three takeaways. First, our consistently strong results and increasing ROE reflect the disciplined execution of our client-focused and connected strategy. In other words, the results were on strategy. Second, our record results this quarter are revenue driven, providing good momentum as we head into 2026. And third, our balance sheet — our strong balance sheet has allowed us to grow with our clients and return capital to our shareholders. In fiscal ’25, we returned over $5 billion or approximately 2/3 of our net earnings through dividends and share repurchases. These achievements reinforce our confidence in our ability to deliver long-term value and underpin the dividend increase Harry referenced in his remarks.

Please turn to Slide 8. For the fourth quarter of 2025, earnings per share were $2.20 or $2.21 on an adjusted basis. Adjusted ROE of 14.1% was up 70 basis points from the same quarter last year. For both the quarter and the full year, the only adjusting item was the amortization of intangibles. Let’s move on to a detailed review of our performance. I’m on Slide 9. Adjusted net income of $2.2 billion increased 16%. Expanding margins, volume growth and higher fee revenues allowed us to maintain revenue momentum, deliver the 9th consecutive quarter of positive operating leverage and continue to drive pre-provision earnings growth in a strong range at 20%. Total provisions for credit losses were up 44% year-over-year largely due to higher performing provisions as impaired losses were at the low end of our 2025 guidance range.

Frank will discuss credit trends and the outlook in his remarks. Slide 10 highlights key drivers of net interest income. Excluding trading, NII was up 14% with continued balance sheet growth and expanding margins. All bank margin ex trading was up 14 basis points from the prior year and up 6 basis points sequentially. Canadian P&C NIM of 290 basis points was up 9 basis points sequentially driven by loan margin expansion as well as the impact of favorable mix. In the U.S. segment, NIM of 384 basis points was up 6 points from the prior quarter due to continued strength in deposits as well as loan fees that were higher than normal. In both Canada and the United States, we expect margins to move gradually higher from these levels, albeit at a slower rate than what we saw in fiscal ’25 based on the current forward curve.

Turning to Slide 11. Noninterest income of $3.4 billion was up 15%. Market-related fees increased 18%, helped by constructive markets with particularly strong growth in trading, underwriting and advisory and mutual fund fees. Transaction-related fees were up 8%, driven mainly by higher credit fees, partly offset by lower card fees. Slide 12 highlights our expense performance. Expenses increased 10% as investments and seasonal costs, including higher severance, were only partly offset by the benefits of prior initiatives to improve efficiency. We continue to invest in technology and AI to both surface efficiencies and develop an enhanced client experience through faster and more personalized service. We intend to manage expense growth to the mid-single digits for 2026 and continue to manage to positive operating leverage on an annual basis.

Slide 13 highlights the consistent strength of our balance sheet. Our CET1 ratio at the end of the quarter was 13.3%, down 7 basis points sequentially and stable year-over-year. We delivered solid organic capital generation, offset by deployment in risk-weighted assets and our ongoing share repurchase program. Please note that in addition to ongoing organic capital generation, in Q2 of ’26, an adjustment to our operational RWAs will add roughly 25 basis points to our CET1 ratio. Our liquidity position remains very strong with an average LCR of 132%. Starting on Slide 14 with Canadian Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income was stable to the prior year as strong revenue growth was largely offset by higher provisions for credit losses and higher expenses.

Supported by core business momentum, pre-provision pretax earnings were up 14%. Revenues were up 12%, helped by margin expansion and favorable business mix. Net interest margin was up 33 basis points year-over-year and 11 basis points sequentially. Beyond the benefit from our tractoring strategy, we continue to see tangible results from our focus on deep and profitable client relationships, product mix and disciplined pricing decisions. Expenses were up 10% due to investments in technology and other strategic initiatives as well as higher employee-related compensation, a software write-down and a legal provision. On Slide 15, we show Canadian Commercial Banking and Wealth Management, where net income and pre-provision pretax earnings were up 9% and 13% from a year ago.

Revenues were up 15% from last year. Wealth Management growth of 18% was driven by higher average fee-based assets resulting from market appreciation and increased client activity driving higher commissions. Commercial Banking revenues were up 9%, driven by volume growth and margin expansion. Commercial loan and deposit volumes were up 10% and 9%, respectively, from a year ago. Expenses increased 16% from a year ago, mainly from higher compensation linked to the strong revenues, higher spending on technology and other strategic initiatives. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income was up 35% from the prior year, mainly due to lower loan loss provisions. Revenues were up 9% from last year. Net interest income was helped by deposit growth of 8% and wider deposit margins.

Fee income growth was broad-based, reflective of our strategy to deepen client relationships. Expenses were up 18%, partially due to higher performance-based compensation as well as strategic initiatives. Turning to Slide 17 and our Capital Markets segment. Net income was up 58% year-over-year. Revenues were up 32% across our Capital Markets businesses. Global Markets saw growth across most products. Corporate Banking was up from higher average balances and fees and investment banking saw higher debt underwriting and advisory revenues. Our focus on the U.S. continues to deliver strong results with year-over-year revenue growth of 48% and 38% of segment revenues coming from that market this quarter. Expenses were up 9%, largely due to continued investments in business and technology initiatives, higher compensation and higher volume-driven expenses.

Slide 18 reflects the results of Corporate and Other, a net loss of $42 million compares with a net loss of $7 million in the prior year. We maintain our medium-term guidance of a quarterly loss between $0 and $50 million for this segment. Slide 19 highlights our full year performance. 2025 was a record year for CIBC. We delivered double-digit growth across all of our metrics, growing revenues by 14%, pre-provision earnings by 18% and EPS by 16%, all well ahead of our medium-term targets. ROE for the year was 14.4%, an increase of 70 basis points from the prior year. We are confident that our strategy, connected culture and financial strength position us well to build on this momentum, drive EPS growth and deliver a premium ROE. On that ROE, we remain committed to an improving ROE above 15%, and based on our current outlook, expect to achieve that target in fiscal ’26, helped by EPS growth that is at the high end or higher than our 7% to 10% medium-term target range.

In closing, we believe this year’s performance reflects the impact of the focused investments we have made in technology, talent and client experience, investments that combined with disciplined execution are now translating into strong financial results. With that, I’ll turn it over to Frank.

Frank Guse: Thank you, Rob, and good morning, everyone. Despite economic uncertainties, our credit performance remained resilient throughout 2025, ending the fiscal year at the low end of our full year guidance. We continue to focus on developing deep client relationships across all our segments and invest in risk strategies to drive strong credit outcomes. Trade headwinds in recent quarters have led to higher provisions in our performing allowance. Our build this quarter, leveraging expert judgment positions us well to navigate uncertainties that may persist into the coming year. We remain confident in the quality and consistency of our credit performance as demonstrated over the past year. Turning to Slide 22. Our total provision for credit losses was $605 million in Q4, up from $559 million last quarter.

We continue to strengthen our allowance coverage this quarter by 2 basis points to 80 basis points with our year-over-year total allowance up by $625 million or 15%. Our performing provision was $108 million this quarter, mainly a reflection of the evolving economic environment and the impact of some credit migration. Our provision on impaired loans was $497 million, up $16 million quarter-over-quarter. Higher provisions in our Capital Markets and Canadian Commercial Banking segments were partially offset by lower provisions in our other portfolios. Turning to Slide 23. In Q4, ’25, impaired provisions increased slightly with the fiscal ’25 loss rate at 33 basis points. Canadian Personal and Business Banking and U.S. Commercial impaired provisions were down this quarter.

Impaired provisions in our Capital Markets business was up in Q4, mainly driven by two names. These names represent loan exposures in different geographies. And overall, this portfolio continues to perform well. In our Canadian Commercial Banking portfolio increases this quarter were not attributable to any notable sector. We remain pleased with the strong performance across our portfolio, especially in our commercial portfolio this year. Slide 24 summarizes our gross impaired loans and formations. Gross impaired loan ratio was 61 basis points, up 5 basis points quarter-over-quarter. The increase in business and government loans was largely driven by one new impairment in our Capital Markets portfolio. While mortgages experienced a moderate increase this quarter, our current loan-to-value ratio for the mortgage book remains prudent at 55% for the overall book and 65% on impaired balances.

Notwithstanding the softness in the housing market, we continue to not expect any material increase in losses in our mortgage portfolio. Slide 25 summarizes the 90-plus day delinquency rates and net write-offs of our Canadian consumer portfolios. Our Canadian consumer portfolios performed as expected throughout fiscal ’25, reflecting the evolving economic conditions. The 90-plus day delinquencies in our credit cards and residential mortgages portfolios increased quarter-over-quarter, driven by challenging macroeconomic conditions, while personal lending remained flat. Although our net write-off ratio was down slightly quarter-over-quarter, we remain focused on unemployment levels, which will remain a key driver of this metric. While we continue to see the impact of elevated unemployment and ongoing macroeconomic uncertainties, we are pleased with the overall resilience and strength of these portfolios.

In closing, while the economic environment was more challenging in 2025, we were pleased with our credit performance this past year. We will continue supporting our clients to navigate through the dynamic environment and taking proactive actions to effectively mitigate risk. Looking ahead to 2026, despite ongoing headwinds, we anticipate that the gradual improvement in the macro economy will lead to impaired provisions stabilizing in the mid- to low 30 basis point range, a slightly improved outlook over our mid-30 basis point guidance for fiscal 2025. The increase in performing allowances over 2025 reflects our proactive approach to maintaining prudent reserves, ensuring we are well positioned to manage uncertainties that may persist in the year ahead.

I will now ask the operator to open the line for your questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Ebrahim Poonawala from Bank of America Merrill Lynch.

Ebrahim Poonawala: I guess Rob’s prepared remarks set this up, but maybe both from Harry and Rob for both of you. When we think about — you mentioned the 15% ROE, which I think is better than expected for this year. I guess, Harry, for you, I think the question is when you look at the franchise and hear you loud and clear, there’s no big dramatic change in the strategy. But when we think about the Canadian banks, there are banks that are clearly earning much superior ROEs, 17%, 18%, and there are others who are trying to catch up to get closer to that. Given kind of your guidance for 2026 and what you see within the franchise. Just talk to us in terms of is there an opportunity for commerce to have a best-in-class ROE? Or are there structural disadvantages the bank faces to get to that point? And if so, what do you need to do differently to get there?

Harry Culham: Thank you, Ebrahim, I’ll take it first, and I’ll pass it over to Rob. It’s Harry here. So as I said in my opening remarks, we are on a journey here. Our strategy and our unique competitive advantages that really position us well to deliver profitable growth. And that will lead to a premium ROE. We’re targeting the right client segments where we can deepen relationships and be meaningful to our clients. We have the right product focus. We’re focused on deposits, investments, transaction accounts across each of our businesses. And we believe we have the right technology. We’ve invested in AI-enabled technology, such as Cortex, which I mentioned at the outset, in the retail and our cash management systems in corporate and commercial.

And I believe we have the right culture to take us to the next level. Our team members are focused on delivering all of our connected bank to our clients, and that will lead to this trajectory that we’re forecasting moving forward to move higher from an ROE perspective. Rob, do you want to jump in with some more specifics?

Robert Sedran: Yes. Thanks, Harry. I mean, Ebrahim, we can all — you can all do the math, but maybe I’ll try to tie it together for you in terms of some of the levers that we think we have at our disposal. But I would reiterate what Harry said, when we cross 15%, we’re not going to be hanging mission accomplished banners at CIBC Square. Like we do think the strategy will continue to push the ROE higher over time. And just because we’re not changing our target at this time, it doesn’t mean that our ambition isn’t for a higher ROE. And we don’t see any disadvantages that can’t allow us to continue to push that ROE higher. When you think of some of the things that are going to get us there, you start off just even normalizing credit losses.

I mean the performing provisions that we took this quarter around $450 million, that alone is about 60 basis points. We don’t plan for that to happen every year as that normalizes, and that’s even before considering the potential for impaired losses to come down. That’s an ROE tailwind that we expect. Operating leverage is just — is an operating philosophy for us. You think about a couple of hundred points of operating leverage, which is not necessarily fiscal ’26 guidance, but it is a target that we shoot for sort of through the cycle. A couple of hundred points of operating leverage is another, call it, 30 or 40 basis points of ROE expansion that we can — we expect to see. When you think about our capital position, we optimize the balance sheet as best we can, call it, a basis point is basically a basis point.

So if the capital CET1 comes down by 40 or 50 basis points, the ROE goes up by 40 or 50 basis points, excess capital doesn’t expire. We’re not in a rush to get rid of it. But we do have a buyback active and we do see opportunities to deploy profitably over time. So there’s a number of levers that are adding up to our confidence that the ROE trajectory is going to continue beyond next year.

Operator: Our next question comes from the line of Matthew Lee from Canaccord Genuity.

Matthew Lee: NIM continues to be a big story for you. I know you’ve talked about persistent NIM increases and provide some color directionally, but can you maybe break down the NIM improvements based on product mix, deposit mix and tractors. Just trying to get a better understanding of which of those factors are having the biggest impact? And then what levels of sustainability there is beyond 2026?

Robert Sedran: Matthew, it’s Rob. I’m going to get started and then hand it to Hratch because I think a lot of the story from a business mix perspective is unfolding in Personal and Business Banking. The tractoring strategy has been a persistent tailwind for us. We think that tailwind is going to continue through ’26, albeit perhaps starting to moderate a little bit. But the tractoring is something that is largely based on the forward curve, and provided the rates hang around where they have been. We expect to see that benefit persist in both Personal and Business Banking and at the all bank level. When it comes to business mix, it’s probably better to hand it off because it is very much on strategy, and I’ll let Hratch talk a little bit about what he’s seeing.

Hratch Panossian: Yes. Thanks, Rob. Matthew, thanks for the question. I’ll start by saying, look, we’re very proud of what the team has been able to accomplish on the retail side, right? What you’re seeing, as Rob said, is really the result of strong execution, pricing discipline and strategy. Yes, rates in the environment are helping, but that’s actually been a smaller part of the story as we look through this year. So I think we’ve talked about this before. When you look at the rate help in the business, it’s a few basis points a quarter. And when you look at the full year this year, full year ROE is about 30 basis points higher on a year-over-year basis, and a lot of that has been driven by the strategy. And we’ve been very clear about our strategy.

We’re focused on our clients. We’re focused on being that everyday bank for our clients and have them highly engaged. That means focusing on the everyday products and winning share there. And I think we’ve done that well this year. You look at our demand deposits that actually grew double digits before we did some work to optimize margins. We actually ran off some high interest deposits deliberately that were negative margin. So without that, demand deposits that were profitable are up double digits for the year. We’ve increased our cards business 6%. That helps. We’ve been very deliberate on the mortgage business. We’ve been doing business with the clients that are franchised with us. We price sharply, but we price for the overall relationship.

We will not price mortgages individually. And by doing that, we’ve been expanding margins in the mortgage business as well. And so if you look at this quarter’s 11 basis points, it’s a lot of the same drivers, right? It’s those products that are growing that are higher margin, it’s the margins in mortgages going up, it’s the margins and deposits going up. And I think that’s what has allowed us as a team to deliver from what I can see right now this quarter’s street-leading revenue growth. And I think there is a lot more momentum to go as we continue to execute on our strategy. The interest rate, right, will slow down. I think the interest rate help through ’27 will slow down, but we can continue to execute on our strategy and accreting to margin and accreting to ROE in this business.

Operator: Our next question comes from John Aiken from Jefferies.

John Aiken: Rob, we just drilled down NIM. I’d like to take a little — closer look on expenses if we can. Obviously, you’re looking for positive operating leverage next year. But as we look at the investments that you’re making in terms of your platforms, technology, everything else like that, are there any of the segments that you would expect to have greater or lesser operating leverage as you look out to 2026?

Robert Sedran: John, it’s Rob. So good question. And we tend not to focus too much on operating leverage at the individual segment level in any given year. There is some differences between them, some investments that we’re making and some strategic initiatives that can pop up. You saw a little bit of that in Q4, right? So if you look at some of the Q4 expenses, we had pretty good visibility coming into the quarter on revenue growth, pretty good visibility on operating leverage, and decided to take the opportunity to advance some of the — those strategic initiatives that we often talk about. As we think about the coming year, all — we ask for positive operating leverage from all of the businesses. But a year like what Capital Markets had as an example, this year, it’s going to make it a little bit harder for Capital Markets to deliver positive operating leverage next year.

We don’t let them completely off the hook, but it’s just something that we don’t necessarily assume is going to happen. The other businesses, we’re targeting positive operating leverage. But again, we’re going to manage it through the year and really aiming to deliver it at the all bank level rather than the individual segment level.

John Aiken: And just as a follow-on, when we look at technology spend in particular, are we looking at this in totality accelerating, leveling off or staying reasonably the same?

Robert Sedran: No, I think we need to assume that technology spend continues to grow, right? There’s a lot of talk about AI, a lot of talk about the different operating models. But AI isn’t pixie dust. It requires investment. We’re making those investments. And we are going to continue to add resources there and reshape the workforce as well over time. We think we’ve been managing through it so far, and we’re going to continue to accelerate those investments. We spent time putting governance structures around our technology spend, putting in a really deep dive on how we allocate those technology spends. We think we’ve been smart and purposeful on those investments. That’s going to continue, but particularly with a robust revenue environment that we’ve had, we would expect to continue to invest in technology. It’s the way forward for the industry. It’s certainly the way forward for our bank.

Operator: Our next question comes from Doug Young from Desjardins Capital Markets.

Doug Young: Just a few things on capital, Rob. First, you said there’s a 20 basis point benefit you’re getting in Q2 of ’26. What’s driving that? And is there anything else coming down the pipe to think about? And then like the focus for excess capital, I assume it’s buybacks and tuck-ins. And then like thinking about capital and you’re looking at a 15% plus ROE. Like what CET1 are you triangulating to for fiscal ’26?

Robert Sedran: Okay. Thanks, Doug. It’s Rob. So it was 25 basis points. And you will recall in Q1 of ’23, we had an operational risk charge that showed up in our results in Q2 of — showed up in operational risk weights, excuse me, in Q2 of ’23. The rules allow for the potential exclusion of that 3 years forward, and we did receive approval to remove that from our operational risk weights. So 3 years later, it will be Q2 of ’26. So we’ll be adding the 25 basis points of CET1 back at that time. When we think about the level of capital at which we’re looking to operate, obviously, it’s — we’re running with significant excess common equity. We would say that we aim for about 100 basis points above the regulatory minimum. That would be around 12.5%.

A second gate though, on that is the competitive dynamic and where our competitors are. What is assumed in our capital plans for the coming year, is basically the ongoing buyback that we have, ongoing robust capital deployment, which we expect to see risk-weighted asset growth. So we’re not seeing a huge drawdown in our capital ratio, but we do expect the capital ratio to move a little bit lower in line with the buyback. And from a deployment perspective, the story really hasn’t changed. We think we’ve got four growth businesses that over time can absorb that excess common equity, profitable growth across all of our businesses. We are always looking around for tuck-in acquisitions that could advance and accelerate our strategy. I wouldn’t say much more beyond that from an acquisition perspective at this point.

It is largely of a tuck-in variety. And so it’s more of the same from what you’ve heard from us in the past.

Operator: Our next question comes from Mario Mendonca from TD Securities.

Mario Mendonca: I think Rob and Harry, when you were referring to the potential ROE improvement, one segment that was left out was the U.S. And what I’m observing there for the quarter and for a few years now is that expense growth has been very elevated. And I appreciate it’s things like comp and tech spending and — but it seems like there’s a major project going on in the U.S., perhaps it’s compliance-related spending. Can you talk about what’s going on there and when you expect that spending to become a little more in line with the revenue growth, so that business can contribute as well?

Robert Sedran: Maybe I’ll start — it’s Rob. Maybe I’ll start, and I’ll pass it off to Kevin to give a little bit of color. We have said and we’ve been saying for a while, I guess, on the U.S. side that we are building for the bank we want to be, not necessarily the bank we are. And regardless of the direction of travel on regulatory requirements in the short term, it does require us to invest in that infrastructure to support the growth profile that we expect to see coming in the coming quarters and years. So we’ve been going through an awful lot of that. I do think — we do think the path from here is not quite at the same level of growth. There was some strategic spend in Q4 as well that makes it look a little bit on the high side, and maybe that’s a good place to hand it off to Kevin to talk a little bit about what happened in Q4 and a little bit about how we seize the outlook.

Kevin Lee: Right. Thanks, Rob, and Mario, thanks for the question. Very happy to be here today. So the elevated expenses in the quarter were due to a number of factors. Number one, performance-based compensation was a large part of it. But — and Rob referenced this a little bit, there was a charge of about USD 10 million relating to the optimization of our branch network. Also important to note that there is going to be a corresponding annual savings to that is almost at the same level. And in addition to that, there were really a number of just other smaller seasonal items. So important to take away that we expect expense growth to normalize and be in the mid-single digits next year exactly in line with the broader bank.

Mario Mendonca: Okay. That’s helpful. Let’s drill down something else. The capital markets business, the loan growth there has been exceptional. By my math, 22% year-over-year this quarter. Last couple of quarters have been running very hot. Can you speak to what’s growing there and address the notion that sometimes growth in this area just leads to grief 2, 3 years later. We’ve seen this at banks in the past. So talk about what’s going on there and maybe address the concern that this is going to be an issue 2 or 3 years from now.

Christian Exshaw: Thanks for the question, Mario. This is Christian. So I’ll just take it back to the U.S. strategy. So as Rob mentioned, the U.S. has been growing quite considerably for us. The U.S. now is roughly 34%, 35% of the Capital Markets revenue. It’s roughly double what it was actually 5 years ago, and we continue to, I would say, invest in this business. When you look at, I would say, the corporate credit book, it actually generates now more revenue in the U.S. than it does in Canada. And that just means that we’ve been onboarding many, many more, I would say, clients, so just in line with our strategy. And remind you that when it comes, I would say, to looking at this loan book, it really is about having an anchor product, so we can actually cross-sell, whether it’s advisory services or hedging product.

The other area, which has been growing considerably, as you noted, has been the business that we call global credit financing business. We created this business a number of years ago. And for risk purposes, we put all these businesses together. So it encompasses businesses such as repos, ABS, MBS, securitization, CLOs and loan warehousing. And we actually like this business very much, I would say, because it scores strongly on three metrics. Number one, as I said, is that it is client-driven and therefore, aligned with our strategy. And we — in that business, you deal mainly with the highest quality sponsors, pension plans, asset managers, insurers and some wealth firms. And we deepen the share of wallet with those clients with, call it, 8 to 10 different products, as I said, from advisory to hedging products.

Number two, returns strong balance sheet returns. We, on average, make comfortably over 20% ROE in these businesses. And then number three, which, as you pointed out, we actually like the risk in these businesses. Transactions are written in most of the business to a single A or AA equivalent. In securitization, it’s more AA to AAA. So we like this. Well, in the loan warehousing facilities or CLO businesses we’re always second loss, so obviously, it protects the bank. Now what’s also very important is the quality of the people looking after these businesses. Most of the senior leaders have over 20 years of experience, and they either have a credit risk management background. So they actually originally had this in their experience, in their CV.

And number two, if not, they are, I would say, highly experienced traders.

Mario Mendonca: So would I be correct in suggesting that the growth is being driven by the nondeposit-taking financial institutions business, the stuff that has become very topical recently?

Christian Exshaw: Yes, that’s correct.

Operator: Our next question comes from the line of Sohrab Movahedi from BMO Capital Markets.

Sohrab Movahedi: Rob, just looking at your Slide 13, you’ve given us the capital waterfall here. We’ve just talked a little bit about the good loan growth that comes across all the businesses. And as you think about next year, as you think about that ROE kind of build, could we see a situation where your RWA growth is exceeding your internal capital generation? .

Robert Sedran: Sohrab, it’s Rob. Thanks. It’s a good question, and it’s not certainly how we expect it to roll forward. We continue to see quarterly capital generation — organic capital generation, something in the area of 10 basis points a quarter. If we think earnings net of dividends ballpark it at around 35, more typical of risk-weighted asset growth before credit migration would be around 25. That’s kind of how you get to the 10 basis points a quarter. This quarter, we saw a little bit elevated credit migration related to the housing market being a little bit sluggish. We don’t expect any losses on that, but we did have to set some capital aside, but we still anticipate a positive internal capital generation.

Operator: Our next question comes from Gabriel Dechaine from National Bank.

Gabriel Dechaine: First for Frank. Your outlook for impaired provisions lower than losses than we saw this year. I get that. Just wondering what the influence of USMCA difficulties would be, how that would affect that outlook? And then about the capital deployment strategy. No mention of M&A. And I’m just bringing this up to kind of check a box on the list, but just to feel the pulse given the new leadership. What’s your appetite for M&A? It can spice things up but can also lead to heartburn.

Frank Guse: Thanks For the question. So as I said, entering fiscal 2026, we expect impaired provisions to remain broadly stable in comparison to 2025. And then our base case would say that economic environment should strengthen throughout the year and in particular, the back half of the year, which is why we believe it should actually end up at the slightly lower end of our previous guidance, and that’s why we call it mid- to low 30s on a go-forward basis. What we are, of course, looking closely at is although the trade negotiations, but even more so, what happens to interest rates, higher unemployment, and some of the other uncertainties that we are facing. And I think what came through in my prepared remarks is we remain very confident in the strength of our position, where we are from a credit perspective, sorry.

And continue to monitor that portfolio performance quite well. It’s hard to say where we would end in different scenarios. But what I can say, we have given a little bit of a broader range to reflect a variety of scenarios that we clearly looked at.

Gabriel Dechaine: Probably not — you wouldn’t get the back half improvement if the negotiations break down perhaps?

Frank Guse: I think that’s a fair assumption, yes.

Harry Culham: And Gabriel, it’s Harry here. Thank you for that question. And just around our deployment priorities when it comes to capital, just to reiterate what Rob said and maybe elaborate a little bit. We continue to have that four-pronged approach to capital deployment. And we have the ability to activate all four levers when needed. We’re really focused on growing organically, supporting our clients, and we think we have ample opportunity to deploy our capital over time in this respect as we deepen our relationships across our platform. Dividend and dividend growth, and we do that once a year, as you know, in line with our earnings expectations. And you heard Rob speak about that earlier. Our buybacks, which we’ve been doing and we’ll continue to be active in.

And this is a method to manage our share count, manage our capital position, but it — and we have the flexibility to pick up the pace to slow it down if the operating environment changes. And of course, as you alluded to M&A, which would — as Rob said, would be in capital-light businesses, really opportunistic tuck-ins that are strategically and very importantly, culturally complementary to our existing platform and accretive to ROE over time. So all four levers of this strategy really are tied to our goal of delivering a premium ROE over the medium term. And hopefully, you’re hearing that we’re running our bank and our strategy in a stable steady, predictable and consistent manner. And that’s how we like to run our capital deployment as well.

Operator: And our last question comes from Darko Mihelic from RBC Capital Markets.

Darko Mihelic: Just wanted to follow on the question that Mario asked. Christian, you gave a lot of detail, and thank you very much for Slide 44 on essentially private credit sort of exposures. It does elicit a couple of questions for me, though, just to help build the mosaic around these exposures. The first question, Christian, is it’s been great growth. It’s been very low losses. I suspect you probably would tell me that a stress test loss will also be relatively low. So what is your risk appetite here? You did say it’s client-driven. So if this continues to be an area that’s hot, how far are you willing to push the envelope and make this a bigger part of your total balance sheet?

Harry Culham: It’s Harry, Darko. I’m just going to jump in quickly because I think this — the support of our clients in this segment, the nonbank financial institutions, touches all of our SBUs, but I’ll pass it over to Christian to answer your question in a second. The first thing I’d say is, this business reference is really core to our client-focused strategy. We are delivering robust risk-adjusted returns, and it’s really aligned to our client activity as clients move from public to private markets, which we’re all seeing. This is a broad-based portfolio. And as Christian pointed out, it’s highly diversified across geographies, business segments and products and clients. And the underlying loans and structures have a meaningful risk mitigants that we are very comfortable with.

We have grown at a very rapid pace over the last while. We came from a very small franchise over years to deepen these relationships with the most prominent players in the space. But Christian, why don’t you just take it from there, please?

Christian Exshaw: I think, Harry, you’re right. Thank you for the question. As Harry stated, that number I would say, encompasses the entire space of what it is we do at CIBC. You are not going to see, I would say, so much growth going forward. As Harry said, we have been playing a catch-up. We are building a number of businesses in the U.S., power trading. We’ve applied for primary dealership. We’re building a futures trading capability. So we need, I would say, to diversify the resources. We don’t want from a risk perspective to concentrate all of our funding, all of our capital in one area. So we’re pretty happy where it is. And we should see, I would say the, I would say, low to — sorry, high single-digit growth in this year.

Operator: I will now turn the call back over to Harry for closing remarks.

Harry Culham: Great. Thank you, operator, and thank you all for your engagement this morning. I do recognize it’s a very busy morning. But I do want to close today’s call by thanking our incredible CIBC team. Having engaged with thousands of team members during our leadership transition, the pride and the confidence of our team as in our bank is very clear. Thank you for bringing our purpose to life and for everything you do for our clients, our team and our communities and, of course, our shareholders. So as we enter the giving season, I want to recognize our team’s tremendous commitment to our communities as our team generously gives their time and dollars to make a meaningful difference. From the CIBC Run for the Cure in October to CIBC Miracle Day just yesterday, I’m very proud of our culture of care and the difference our team makes in our communities.

And on that note, I also wanted to acknowledge Sandy Sharman, our current Group Head of People, Culture and Brand, who will be retiring from CIBC at the end of 2026. Through Sandy’s 19 years at the bank, her contributions have been instrumental in reinvigorating our brand and building out the client focused connected and caring culture that differentiates us today. And I would also like to welcome Richard Jardim and Yvonne Dimitroff to the executive leadership team at CIBC. Richard will assume the role of SVP, Chief Technology and Information Officer; and Yvonne will assume the role of EVP, Chief Human Resources Officer. Finally, in closing, wishing you and your families a safe and happy holiday season, and I look forward to catching up in the new year.

Thank you very much.

Operator: This concludes today’s conference call. You may now disconnect.