Canadian Imperial Bank Of Commerce /Can/ Q1 FY2026 Earnings Call

Thank you, and good morning. We will begin this morning's call with opening remarks from Harry Culham, our President and Chief Executive Officer; followed by Rob Sedran, our Chief Financial Officer; and Frank Guse, our Chief Risk Officer. Also on the call today are a number of our group heads including Christian Exshaw, Capital Markets, Kevin Lee, U.S. region, Hratch Panossian, Personal and Banking, Canada, and Susan Rimmer, Commercial Banking and Wealth Management, Canada. They're all available to take questions following the prepared remarks. 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 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.

Thank you, Geoff, and good morning, everyone. We are pleased to start the fiscal year on strong footing with exceptional first quarter results. Our performance was driven by our team's collective focus on accelerating our proven client-focused strategy and unlocking further value through disciplined execution. Before I comment on our quarter 1 results, I want to offer some perspective on how our clients are managing through today's dynamic environment. We are staying close to them as they navigate a fluid operating backdrop with heightened focus on trade developments and geopolitical tensions. From my conversations with CEOs and industry leaders over the past few months, clients are generally managing near-term uncertainty well and remain optimistic about the longer term. Our roots as the Bank of Commerce are very relevant today. Our bank was formed in 1867 to help capital flow to businesses that were building our nation. Today, we stand ready to help our clients advance their agendas, including key infrastructure initiatives. We have a long history of being a trusted partner to the businesses and families we serve, and we remain focused on helping them grow in 2026 and beyond. Now turning to our quarter 1 results. On a reported basis, earnings per share of $3.21 were up 47% from the prior year and included income tax recoveries, which we have treated as an item of note. The remainder of my comments will focus on adjusted results. We reported adjusted earnings per share of $2.76, which were up 25% from the prior year, driven by a robust top line. Revenues of $8.4 billion were up 15% from the prior year. Importantly, our revenue growth is well diversified with record revenues across each of the business units. Expenses were up 12% from the prior year. We delivered operating leverage of 3.6%, marking the tenth consecutive quarter in which we delivered positive operating leverage. Our credit portfolio remains resilient. Provisions for credit losses this quarter were largely aligned with our expectations. We continue to proactively stress test our portfolio for a wide range of scenarios to ensure our bank can navigate all market conditions. We are well prepared should we see a downturn in the environment while also being well positioned to grow with our clients. Our return on equity was 17.4% this quarter on the foundation of a robust 13.4% CET1 ratio. We returned roughly 78% of earnings to shareholders in the first quarter in the form of dividends and 8 million common share buybacks. These results reflect our unwavering commitment to delivering sustainable value for our shareholders and maintaining a solid foundation for future growth. Let me provide some highlights across each of our 4 strategic priorities that underscore the momentum we've achieved across our bank. Our first strategic priority is to grow our mass affluent and private wealth franchise. Across our managed mass affluent offering, we are connecting clients with dedicated advisers to help them achieve their goals. However simple or complex. It's clear that this approach is working. Managed clients in Personal Banking are generating roughly 4 times the revenue of an unmanaged client with Net Promoter Scores that continue to hit all-time highs. Within the past year, qualified clients in our managed offering grew by 6%, helping deliver money and balance growth of 12%. And from here, we are prioritizing client acquisition and growth with key client segments. We are also unlocking efficiencies to scale adviser capacity with mass affluent clients per adviser up 7% from the prior year. Our second strategic priority is to expand our digital-first personal banking capabilities. 48% of our retail products sold during the first quarter were through digital channels. That's up 5% from the prior year. As we implement continued enhancements through digital, we're putting more power in the hands of clients to deepen their relationships with our bank. We're also equipping our advisers with digital tools to create efficiencies for them, enabling them to spend more time with clients. Our third strategic priority is to deliver connectivity and differentiation to our clients. We built a highly connected culture that drives steady referral business across the bank, supported by an innovative suite of products designed to deepen relationships with our client base. Record revenues in Canadian Commercial Banking this quarter were fueled by single-digit volume growth on both sides of the balance sheet, robust margin expansion, and strong connectivity across our teams. That collaborative momentum is also fostering greater cross-business engagement. This quarter, our Capital Markets platform captured elevated volume from client-driven demand, complemented by healthy referral activity from our Commercial and Wealth businesses. Earlier this month, we confirmed our role as a partner of the Defense Security and Resilience Bank Development Corp Group. As new opportunities emerge in Canada's key sectors, we are ready to work alongside our clients and industry leaders. Our fourth strategic priority is to enable, simplify, and protect our bank by investing in technology, data, and AI to drive operational excellence and further modernize our bank. We frame AI value through three pillars: revenue growth through better client experiences, operational efficiency, and risk mitigation. These pillars guide where we invest and how we prioritize use cases. From a revenue perspective, these capabilities are enabling us to engage clients more intelligently, bringing the right insight adviser offer at the right moment. We're also using AI to accelerate and improve the consistency of credit decisions, supporting growth while maintaining discipline. On efficiency, we're simplifying our bank by reducing manual and repetitive work, so our teams can focus on higher-value activities. This includes automation, faster issue resolution, and meaningful productivity improvements for our technology teams. And from a risk perspective, AI is helping protect our bank by strengthening fraud prevention, credit monitoring, and AML functions. We've deployed these capabilities with governance built in from the start, ensuring transparency, control, and regulatory alignment. Culturally, we see AI as an opportunity to rethink how work gets done, not just to automate existing processes. Our teams are encouraged to challenge legacy workflows, supported by training and clear policies for responsible AI usage. Having every CIBC team member doing this will propel us forward not just today, but also with future upcoming technologies. Rather than leading with a single enterprise value number, we focus on what is observable and repeatable such as scaled adoption, operational outcomes, and improved risk performance. Over time, these benefits flow through to revenue, efficiency, and returns in a disciplined and sustainable way. In closing, the positive momentum across our bank continues to build. We're focused on accelerating our execution in 2026 to drive robust, well-diversified growth by proactively preparing for uncertainty and staying close to our clients, we are well-equipped to successfully navigate evolving market environments. And with that, I'll now turn it over to Rob for a deeper look at our financial results. Over to you, Rob.

Thank you, Harry, and good morning, everyone. Let's start with three key points. First, the year has begun strongly with another record earnings quarter, and our return on equity exceeded our medium-term target. Second, our robust and broad-based revenue growth, along with solid operating leverage, reinforces our confidence in our strategy and highlights our focus on disciplined execution. Third, thanks to strong earnings, our CET1 ratio increased, even as we accelerated our capital return strategy through the repurchase of 8 million shares this quarter. For the first quarter of 2026, earnings per share were $3.21, which included income tax recoveries treated as an item of note. Without those recoveries, our effective tax rate aligned with expectations. On an adjusted basis, earnings per share were $2.76, a 25% increase from a year earlier, with an adjusted return on equity of 17.4%, up 210 basis points from the same quarter last year. Let's review our performance in detail. Adjusted net income rose to $2.7 billion, a 23% increase, with pre-provision earnings up 19%. Revenues benefited from balance sheet growth, improved net interest margins, and higher fee income, while we managed expenses prudently relative to revenue, achieving 360 basis points of operating leverage. Impaired losses remained within our expected range; Frank will discuss credit in his remarks. Excluding trading, our net interest income increased by 13%, benefiting from continued balance sheet growth and expanding margins. Our bank's margin, excluding trading, rose by 17 basis points from the prior year and 6 basis points sequentially due to higher deposits, shifts in business mix, and improved product margins. These factors also contributed to a Canadian personal and commercial NIM of 300 basis points, up 10 basis points sequentially. In the U.S. segment, NIM of 401 basis points rose by 17 points from the previous quarter, bolstered by strong deposit growth, which was partly seasonally driven. After accounting for the typical seasonal drag on margin seen in Q2, we maintain our expectation for stable to gradually increasing net interest margins over time. Noninterest income reached $4.1 billion, an 18% increase, showing growth across payments, institutional trading, and consumer fees. Market-related fees also rose by 18%, benefiting from favorable market conditions, with particularly strong growth in trading, underwriting, advisory, and mutual fund fees. Transaction-related fees increased by 10%, primarily due to higher credit and FX fees. Our expenses saw a 12% increase driven by heightened business activity, revenue-linked costs, and technology investments across our organization. These expenses were in line with robust revenue growth, allowing us to deliver positive operating leverage again. Our CET1 ratio at the quarter's end stood at 13.4%, up 5 basis points from the previous quarter, supported by strong organic capital generation, despite an increase in risk-weighted assets and accelerated share buybacks. As previously indicated, we expect a roughly 30 basis point benefit to our CET1 ratio in Q2 associated with a reduction in operational risk weights. Our liquidity position remains very strong, with an average LCR of 133%. In Canadian Personal and Business Banking, we reported adjusted net income growth of 25% and pre-provision earnings growth of 19%, driven by a 13% increase in revenues, which were aided by margin expansion, loan growth, and higher fee-based revenue. The net interest margin improved by 34 basis points year-over-year and 9 basis points sequentially. Our focus on cultivating deep, profitable client relationships and making selective balance sheet decisions is yielding tangible results. In Canadian Commercial Banking and Wealth Management, net income and pre-provision pretax earnings increased by 9% and 16%, respectively, with revenues up by 13%. Commercial Banking revenues grew by 9%, supported by volume growth and margin expansion, with commercial loan and deposit volumes increasing by 7% and 8%, respectively. Wealth Management saw revenue growth of 16% driven by higher average fee-based assets and increased client activity leading to higher commissions. AUA and AUM grew by 14% and 15%, respectively, compared to Q1 of '25. In U.S. Commercial Banking and Wealth Management, net income rose by 19% from the previous year, primarily due to lower loan loss provisions, and pre-provision pretax earnings grew by 7%. Revenues grew by 6% year-over-year, while net interest income increased by 10% due to enhanced loan and deposit growth and wider deposit margins. Fee income growth faced challenges from lower annual performance fees in our Asset Management business, and expenses also increased by 6% driven by higher employee compensation, including severance and strategic initiative costs. In our Capital Markets segment, net income experienced a 42% increase, while revenues rose by 28% compared to the previous year, with growth seen across most products in Global Markets. Investment Banking benefited from higher underwriting and advisory activity, and revenues from Corporate and Transaction Banking rose due to volume growth and higher fees. Corporate and Other showed a net loss of $100 million compared to a net loss of $60 million the prior year, with both revenues and expenses affected by some unusual items this quarter. In conclusion, we achieved strong revenue growth, delivered positive operating leverage, returned significant capital to shareholders, and strengthened our balance sheet. It's been a solid start to the year. I will now turn it over to Frank.

Thank you, Rob, and good morning, everyone. Through the first quarter of 2026, our credit portfolio performance has remained aligned with our expectations given the fluid operating environment. Amid ongoing tariff-related headwinds and negotiations, we remain vigilant and proactive in managing our credit portfolios to address both expected and unexpected changes. Our increases in allowances over the past 12 months show a strong coverage against the economic environment, and we maintain a high level of confidence in the overall quality and stability of our credit portfolio. Turning to Slide 22. Our total provision for credit losses was $568 million in Q1, down from $605 million last quarter. Our allowance coverage remains robust at 79 basis points. Our performing provision was $48 million this quarter, reflecting the impact of credit migration and the evolving economic environment. Our provision on impaired loans was $520 million, up $23 million quarter-over-quarter. Higher provisions in our Canadian and U.S. Commercial Banking segments were partially offset by lower provisions in Capital Markets and Canadian Personal and Business Banking. Turning to Slide 23. In Q1, impaired provisions moved slightly higher with the impaired loss rate at 35 basis points. Impaired provisions in Canadian Personal and Business Banking and Capital Markets were down this quarter. Canadian Commercial Banking impaired was up in Q1, driven by losses across unrelated sectors. The losses in this portfolio are attributable to a small number of impairments, and the overall portfolio remains strong, and we do not expect losses to remain elevated to this degree through the balance of the year. Impaired provisions in U.S. Commercial Banking were up in Q1, but remained lower compared to the same period last year. Slide 24 summarizes our gross impaired loans and formations. Our gross impaired loan ratio was 64 basis points, up 3 basis points quarter-over-quarter. New formations were down in Q1, with a decrease in business and government loans, partially offset by an increase in consumer loans. While the impaired loan ratio on mortgages increased modestly this quarter, given continued softness in the housing market, our loan-to-value ratio for the mortgage book remains strong at 57% for the overall book and 68% on impaired balances. Overall, we do not expect material increases in losses within our mortgage portfolio. Slide 25 outlines the 90-plus day delinquency rates and net write-offs of our Canadian consumer portfolios. The 90-plus day delinquencies in our Canadian consumer portfolios increased quarter-over-quarter primarily reflecting the current macroeconomic backdrop. Our consumer net write-off ratio increased modestly, mainly driven by the credit card portfolio, which continues to be affected by elevated unemployment and ongoing economic uncertainty. While we closely monitor evolving economic conditions, we remain confident in the overall strength and stability of these portfolios, which are aligned with our client-driven strategies. In closing, while impaired loan losses were slightly higher in Q1, our credit performance remains stable and resilient, reflecting our prudent risk management and disciplined portfolio oversight. We will continue to foster strong client engagement and proactively assess our portfolios, ensuring they remain robust amid the evolving market conditions. Our strong allowance levels continue to provide prudent coverage for changing economic conditions. And notwithstanding the higher impairments in our Commercial Banking portfolios this quarter, we remain comfortable with our full-year guidance. I will now ask the operator to open the line as we welcome your questions.

Our first question comes from Ebrahim Poonawala with Bank of America.

I guess maybe first question for you, Harry or Rob. When we look at sort of the margin expansion that occurred this quarter and just the overall profitability, I think the ROE at 17.4%, appreciating, we can't run rate 1Q as the go-forward ROE profile. But just talk to us as we think about over the medium term, like why our margins, even with the 13.5% or higher CET1, should not earn somewhere between a 16% to 17% ROE and if the capital ratios were to decline, maybe even better. Like what would be the argument against that statement?

Ebrahim, nice to hear from you. I'll kick it off and maybe I'll pass it over to Rob in a moment. But the first thing I'd say is that our strategy has been consistent, and we believe we have unique competitive advantages that really position us well to deliver profitable growth. We target the right client segments where we can deepen relationships and be meaningful to our clients. We have the right product focus. If you think about deposits, investments, transaction accounts across each of our businesses, we have the right technology. As I mentioned earlier, we've invested in AI-enabled technology, and perhaps you'll hear from Hratch later around what he's doing in the retail space because it's excellent. And we have the right culture; our team members are focused on delivering the entire connected bank to our clients. And so we're very confident in our ROE trajectory and that journey that we're on. And maybe, Rob, if you want to quantify some of the drivers, that would be great.

Thanks, Harry and Ebrahim. Last quarter, we indicated that we would exceed 15% for the full year. The year has started off very strong, and while we are less focused on a specific target, we realize there is a need to update our target. However, as I mentioned last quarter, once we surpass 15%, it won't feel like we have achieved everything. We believe we have the right strategy, investments, technology, and people to achieve what we consider a premium return on equity. Therefore, we expect to keep pushing this figure higher. Given the current levels of buybacks and capital, we are not making any unusual moves to get there. I also want to emphasize that the path we take to get there is important to us. We frequently talk about disciplined execution and maintaining balance. When we assess our return on equity, we also consider earnings per share growth. We are not sacrificing earnings growth in pursuit of a higher return on equity because there are many unnatural ways to artificially elevate your return on equity in the short term. For us, achieving balance means we can secure both earnings growth and return on equity expansion over time, which we have been doing successfully lately. Our priority is to focus on controllable factors and continue our current approach, which we believe will lead to higher return on equity over time.

Understood. And maybe, I guess, question for Hratch. I mean we've not seen this play out in the Canadian banks as much, but there's been obviously a lot of concern around AI, AI disruption risk. Perhaps you spent a lot of time around just the consumer franchise thinking about this. One, talk to us kind of your perspective on how you think about the opportunity versus the disruption risk for consumer deposits and banking, and then maybe just your strategy as you kind of lead the business?

Yes. Thank you, Ebrahim. Thanks for the question. And look, I think the short answer is we think it's an opportunity, as with any other technology. The way we look at it is how do we adopt the available technologies that are emerging in order to further our business strategy? And keying off a bit of what Rob was saying, right, our business strategy in retail is to continue to generate value for all of our stakeholders. That's how we believe the balance is achieved. And you're seeing that in the results. I'm very proud of what the team has delivered once again at 13%. Growth is there, top market revenue growth. But at the same time, after several years, we're inching back to the 30% ROE level. I think that's because of everything that we've done in the business, and we'll continue to do. So on the AI front, it does support our strategy. As we've talked about before, we've been very, very focused on where we're trying to grow and create differentiation. In the retail business, there are three priorities for us: lead in everyday banking solutions for all of our clients, lead in investments and advice in the mass affluent segment, and continue to drive the efficiency and simplification of our business, which benefits both our team and how easy it is for them to do their work as well as the shareholders through the efficiency. And we've been using, frankly, AI. You saw Harry's slide at the enterprise level. We've been using AI across all three of those things. But maybe one example I can give you, which I think is a good one that cuts across all of them is our Cortex platform that was referenced on the slide before. The reason I think this is a good one, it highlights that AI itself and a lot of the attention there is right now on models and LLMs and some of our peers talk a lot about that. But the differentiation isn't really in the models. It's about how you build your business processes and change your business model to actually leverage what AI can do. And some of that is built on years of foundational investments. So Cortex is built on foundational investments in the quality of our data that we've made for many years. Foundational investments in our eCRM platform, which cuts across all of our channels, whether it's the front line and the branches, the contact centers, or digital, foundational investments in our martech stack as well as many others. And now what AI allows us to do is to use some traditional, I'll call it, machine learning models to begin with in Cortex to allow us to understand on a personalized level, what clients need, get that to the right place, whether that's the digital channel or our advisers to be actioned and start leveraging even LLMs on top of that to help our advisers prepare for that conversation. Over time, even having conversational interfaces to bring that LLM interface to clients directly. We're also building Agentic flows on top of that to start processing things in the back end for our clients. When you put all of that together, we focused Cortex particularly. We launched at the end of last fiscal. This quarter, we focused particularly on the savings side and deposits. And what we're seeing is that 44% conversion rate uplift that you see there. That's relative to controls if we didn't follow the personalized approach that Cortex allows us to do. And that's just the beginning. We're going to rise from there. If you look at the impact of that in units for the first quarter in the products that we applied the Cortex use cases to, about 10% of unit sales actually came out of Cortex results.

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

I know, Rob, you gave some color on NIM, but I just want to maybe understand how much the quarter-over-quarter expansion in Q1 was seasonality versus some of the deposit portfolio benefits and other? And then how much of a reversion should we expect throughout the year?

It's Rob. I've talked before about margin in three main areas: hedging and positioning, the tractoring strategy, and product margin which is influenced by competition. This quarter, the margin improvement has been roughly equal across those three categories. The hedges are functioning as expected, and the tractoring strategy will proceed as we have previously mentioned. We saw positive contributions from both deposit volume and mix, with a bit more noninterest-sensitive deposits and slightly less term products. The deposit volume was strong, particularly in the commercial sector. Looking ahead, we often see a seasonal decrease, similar to what occurred last year in Q2, where net interest margin dipped slightly. Checking account balances tend to decrease a bit, credit card balances also drop, and commercial balances may decline seasonally as clients use funds for various purposes like bonuses, tax payments, or inventory restocking. So, a slight dip in Q2 wouldn't be surprising. However, the overarching margin trend remains stable with a gradual increase as we've indicated over time.

Our next question comes from the line of John Aiken with Jefferies.

Frank, when I take a look at the 90-plus day delinquency rates in the Canadian portfolio, I understand that your confidence in terms of your own portfolio, your credit adjudication, and everything else like that. But when I look at the upward trend in these numbers, how concerned should we be? Do you think that we're at or near a peak in terms of these levels? Do we think they may actually inflate a little bit more? And what do you think the impact could be in terms of your broader portfolio?

Thank you, John, for the question. I believe there is some seasonality in those numbers, particularly with credit cards, which typically show a higher trend in the first quarter due to seasonal patterns. Overall, I think these numbers align well with our expectations considering the current macroeconomic environment. This is why we feel confident in our guidance since it is factored into those expectations. Despite some ongoing softness in the economy and fluctuations in unemployment that seem to have plateaued, we are facing USMCA negotiations, which bring some uncertainty. However, I'm not overly worried about the numbers. We have solid strategies in place for both business and risk management to proactively handle our portfolios. As I mentioned earlier, the figures generally reflect our expectations going into the quarter.

And if I could, Rob, you to make some commentary about service in the Caribbean, where it actually does look like the gross impaired loans are heading in the right direction. Is there anything you can comment about that region?

No. I mean they are headed. As you said, there is a little bit of a trend there, but nothing really to call out.

Our next question comes from the line of Doug Young with Desjardins Capital Markets.

Just wanted to go back to Harry. I think you said 10 consecutive quarters of positive operating leverage. Just looking at your expense ratio, it's improved quite a bit. Maybe can you unpack a little bit about what you're benefiting from, maybe Harry or Rob, what could throw a wrench into this? And then Hratch, maybe if you can kind of tag in, like it looks like you brought your expense ratio down in Canadian Personal and Small Business Banking quite a bit. How do we think about it going forward?

The revenue visibility has been strong for us recently. We have capitalized on the chance to accelerate some spending that would have occurred later this year or even next year to invest in future growth. Although revenue-related expenses have been increasing, we have been effectively managing the balance between revenue and expenses. We aim for positive operating leverage and target it each quarter, though we do not guarantee it every quarter. It's great to have achieved a 10-quarter streak, and we plan to keep it going, but we primarily focus on annual targets. Given the current environment, our expenses have been slightly higher in absolute terms and as a percentage, but this spending has been deliberate to support the bank's priorities. Looking ahead, if revenue decreases, we are confident we can reduce some spending to maintain that operating leverage. I’ll now pass it to Hratch for the second part of your question.

Yes, sure. Thanks, Doug. Look, it's an area of focus for us, right? We talk about the bank-wide operating leverage. But as you see in the trend, the same applies in the retail business. Our approach has been all along to try to grow our revenues in that 7% to 10% plus range that we've targeted, and we've exceeded that and to generate positive operating leverage on top of that. How do we do that? It's focusing on scaling the businesses where we already are carrying some of the expenses on, and we've done a good job of doing that. As we scale and take advantage of a lot of the investments we've made over the last while. Even without the revenue side, I think the expense side is something that we've been very sharply focused on. We're applying the same approach in retail as we do elsewhere in the bank. We have to continue investing in the business. What you do over time is you create a flywheel of making the investments, and a lot of the investments are also driving efficiency on the cost side and time for our team side. That allows you to increase productivity and make more room for us to invest in, so we can continue investing while keeping expenses more modest. For the rest of this year as well, you will see some of our expense growth moderate without our investment levels going down, actually continuing to increase. Part of it is we could talk about AI here as well and automation. There's a lot of opportunity for us over time. If I touch just on our front line, who is a big part of the resources that we have at our disposal. We set a goal a couple of years ago to try to get to 1 million hours saved for the front line through automation and some of the new use cases and now Gen AI as well. We reached that goal this year, a year ahead of schedule. We've now looked at multiples of that going forward to create more hours for our team, as Harry referenced in his remarks, to spend time with clients. We're doing the same thing with several use cases in our contact centers, where AI is allowing us to either divert calls, take calls through our AI voice bot that we've highlighted in the results, or when a human has to pick up the phone. We've got some workflows in the back end that are leveraging AI that also help them. I think there's efficiency there. And then there's the back end. We're looking at a lot of our processing of products, whether it's origination or servicing. As I spoke about before, I think what the Agentic workflows you can create today allow you to do is to create far more automation, which is good for everybody. It's good for clients. It's good for our team, not having to handle some of those exceptions; it's good for the shareholder and it's good for operational resilience, frankly, from a regulatory perspective. All of that creates opportunity to continue generating positive operating leverage, which we will continue to focus on and continue to get that mix ratio to a better and better place. Obviously, ROE continues to trend to the 30% level it is now and higher.

So just one follow-up for us. Like where do you think you can take that expense ratio?

I think, in the long-term at this point, I'll say directionally, we'd like to see it trend downwards. We've talked about the business, and we think the potential of our franchise is to continue to grow above market, which we have been doing, and continue to take the profitability metrics, whether that would be the mix ratio or the ROE, to a premium level relative to the peer group. I think we've got some room to go.

Our next question comes from the line of Mario Mendonca with TD Securities.

Maybe this is for Rob. Could you help me interpret Slide 33? I'm referring to the interest rate environment where you show the roll-on and roll-off rates. Is it as straightforward to say that this chart will remain unchanged if everything were static, indicating that margin expansion continues through to the end of 2026 and possibly into the first half of 2027, leading to the two lines crossing and coming to an end? Is it really that simple?

Well, Mario, yes, I mean, listen, when you think about the part of the margin expansion story that has been related to the balance sheet positioning, I mean, yes, it pretty much is that simple. By the time we get into the middle of '27, you can see those lines start to intersect and it becomes more of a neutral. That's based on the current forward curve, right? But based on the current forward curve, you can see that benefit start to slowly migrate towards neutral in '27. Now the other things that have been driving the margin, whether it's business mix and the focus on what we're doing in Retail Bank to focus on bringing the money in, like the deposit side, all of those things should continue to benefit the net interest margin beyond that period. But the structural benefit we've been seeing does start to roll off in '27.

It may seem like an easy question, but can you explain why CIBC has outperformed other banks in terms of margin over the past two years, or perhaps the last 18 months? I have compared CIBC's margins to those of its peers, and the difference is substantial. While I understand that you don't focus on Royal's performance, I'm curious about why CIBC's margin expansion is significantly larger than that of its competitors.

Well, I'll try to handle it in a way that speaks more about what CIBC is doing rather than what others might be doing. We do manage for margin stability as best we can over time, which means that this benefit from the higher interest rates is bleeding in slowly. I can't speak to what the others have done or didn't do. But that benefit has been rolling in over time. And you've heard Hratch speak repeatedly on these calls about how we're looking at the mortgage business and how we're looking at our business mix generally in retail and where we're focused, those transaction accounts, the credit card businesses, the checking and savings accounts being more of a focus than say, the mortgage business has been helping the margin. Particularly in a period where mortgages haven't been growing very rapidly, it's been NII accretive as well. For us, it comes down to executing on that treasury strategy of maintaining margin stability over time. The business strategies have been focused in the right areas, and we're going to continue to focus that way.

We're still observing very strong growth in financial institutions, particularly in business and government lending. What is CIBC doing in this space? I'm asking directly because this trend seems familiar to me. While it's not specifically about CIBC, I've seen this pattern with Canadian banks where a certain lending category grows significantly faster than others, and then a couple of years later, we discuss what went wrong. Could you elaborate on the source of growth in your financial institutions group and how you ensure this won't become a negative narrative in two years?

Mario, this is Christian. So let me, I would say, try to unpack this. If you look at that line item, we actually grew dramatically in the second half of last year. What we're trying to do now, as I said on last call, is to moderate this growth. So whilst the growth year-over-year is substantial, if you were to look at it on a quarter-over-quarter spot basis, then that growth is moderated to roughly 2%, which is in line with what I said, which was high single digit by the end of this fiscal. This is a business we're very comfortable with. It leads to a number of other products that we can market to those clients. We discussed the business consistently with our colleagues in risk management, just to make sure that as you said, we don't have any issues going forward. We're not in the storage business; we are in the moving business. There’s a lot of velocity in some of these books. We’re very comfortable with the risk. But I'll probably pass on to Frank, if Frank has anything else to add.

Yes. Thank you for the question. As Christian said, we do feel comfortable with the books. We have the right guardrails in place. We have the right strategies in place on how we think about the various businesses that actually fit in our financial institutions line, and we don't have any material concerns on that business. As Christian said, we do see the growth moderating.

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

Okay. Rob, Harry, I mean, I heard you balanced, disciplined, profitable growth. I just wanted to look at Hratch's business and Christian's business. I mean, they are giving you similar ROEs over the last, say, 5 quarters, you're allocating more or less similar equity to each one of these businesses, and earnings are within 10% of each other. So is this what balanced growth looks like? Is capital markets going to be as big as Canadian Personal Business Banking?

Sohrab, it's Rob. I would consider that balance will emerge over time. The market environment we're currently in is favorable, and capital markets are performing well. We are leveraging the businesses we've developed over many years, which are aligning with our risk appetite and overall business strategy. I don't envision the scenario you've described becoming a reality, nor is it our objective. Instead, we believe that each of our businesses can grow at a similar rate over time. Even within the capital markets, our long-term targets indicate an earnings growth rate of around 7% to 10%, which is the same goal for our bank and retail bank. Currently, we are experiencing a cyclical benefit in capital markets, but we expect that growth to stabilize so that all our businesses expand in harmony with one another. When we refer to balance, we are talking about growth rate rather than size.

Sohrab, it's Harry. I would say that the answer to the last question is no. We take a very balanced approach to capital allocation. Our strategy is focused on our clients, directing resources where there is strong client demand and long-term value creation. This is evident at this time. The capital markets are quite interesting as we navigate this cycle, and we believe we are well positioned to serve our clients during this period. We are providing capital markets products to the entire organization, including our commercial bank, wealth clients, and retail clients, all of whom benefit from these solutions. This is a well-diversified business within capital markets as part of the overall diversified bank that we manage.

Our last question comes from the line of Gabriel Dechaine with National Bank Financial.

I just want to revisit that margin discussion in a slightly different angle here. For a while now, you've been guiding to something, I forget the language exactly stable to positive bias or upward bias, whatever it is. And you've been exceeding your guidance. I'm just wondering, what drivers are doing better than you expected? Is it the mix that's shifted a lot more favorably? Is it the shape of the yield curve that's been a positive surprise? Just to give a sense of why you keep outperforming our expectation in that area?

Gabe, it's Rob. So it does come down, I think, largely to mix and product margin as well. When we think part of mix is client preference, right? Like if mortgages were growing more rapidly in the industry, our mortgages will be growing more rapidly; that's positive for net interest income. It's not necessarily positive for NIM. So when we think about client preference, at one point, it was client preference for GIC, which was a bit of a margin headwind. Some of that is rolling off, and now it's becoming more of a margin tailwind, like that mix is something that can fluctuate over time. What doesn't fluctuate is where our focus is and what our strategy is in offering solutions to clients as opposed to a product-level strategy, but clients often choose different things in that strategy. With the mix evolving in a positive way, the margin has been doing better. The other part that we can never really forecast is the competitive set and product-level margins have been relatively stable, where we often in our guidance assume there's going to be a little bit of price competition or a little bit of margin compression sometimes from some of the margins that we see in the market. The hedging strategy has been doing exactly what we thought it would do. The mix and the product margins are behaving well and in line with what our strategy is. But we don't always guide to exactly what clients are going to do because we never are positive on that going into a quarter. Overall, though, controlling what we can control, as I've said before, is what gives us the constructive view on margins. So we do think it's going to continue to migrate higher over time based on the things that we're doing.

Yes. Thanks, Gabriel. I'll jump in. It's Hratch here. So it's been a factor, but the mix is a much bigger factor than the inflow-outflow differential, if you will. If you look at over the last year, that differential between inflows and outflows had been, call it, a couple of basis points a quarter to the PBB margin positive. It is getting a little bit more muted. I would expect going forward, it’s still a positive. We’re still seeing, as you see on the chart, a bit of a differential there, maybe not as big as it was. For the next several quarters, I would still expect in the order of a basis point a quarter help from that. The bigger factor is, as Rob said, the mortgages growth versus cards growth. We've seen muted market on the mortgage side; we were expecting sort of mid to low single digits this year, and that would have been part of our guidance, and the market has been a bit slower than that. Now it's more low single-digit growth on mortgages. We continue to do really well in our cards franchise, both because of our co-brand portfolio as well as our premium travel portfolio and some of our new everyday rewards cards. If that mix continues, that will be a bigger factor than the mortgage repricing.

There are no further questions at this time. I would now like to turn the meeting over to Harry.

Thank you, operator, and thank you all for joining us this morning. I wanted to reiterate three key messages, which I hope resonated with you all today. One: we're delivering robust profitable growth. We continue to demonstrate that our ability to outperform is sustainable through different market environments. Two: we're focused on accelerating our execution. The cumulative effect of delivering strategic progress each quarter is significantly improving our capabilities across the bank. And three: we are well positioned to continue delivering high-quality financial results. We have a strong balance sheet and deep client relationships to continue growing organically. We are excited for the many opportunities ahead across each of our businesses. Before I close, I wanted to thank the entire CIBC team for putting our clients first each and every day. Thank you, everyone, and have a good morning.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.