Earnings Call Transcript - CM Q1 2025

Operator, Operator

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

Geoff Weiss, Senior VP, Investor Relations

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

Victor Dodig, President and CEO

Thank you, Geoff, and good morning, everyone. Today, I'd like to share some insights on the operating environment. We've had a strong start to fiscal 2025, and our bank is well-positioned as we navigate economic and political challenges alongside our clients. As many are aware, trade tensions between Canada and the United States have caused disruptions in some economic sectors, and it remains uncertain whether these tensions will escalate into new or increased tariffs. Our leadership team maintains a strong belief in free and fair trade, recognizing the long-term advantages of USMCA for our clients on both sides of the border. We encourage our political leaders to work towards strengthening the North American economy. Even before these issues drew media attention, we were already discussing potential impacts with our clients and how the CIBC team could assist. Against this backdrop, CIBC has delivered robust performance in the first quarter, aligning with our strategy and the messages communicated to our investors. Our bank's organic growth strategy is effective and positions us well for all economic cycles. In uncertain times, our advisory services, the connectivity of our CIBC team, and our commitment to our clients set us apart from competitors. This is further highlighted by the recent Ipsos satisfaction survey, where we improved our ranking to second place after achieving our best quarter ever. Now, looking at our first quarter financial performance, we reported revenues of $7.3 billion, an increase of 17% from the previous year, with record results across all business units. Adjusted earnings per share reached $2.20, marking a 22% rise from last year, and our adjusted return on equity was solid at 15.3%. In capital management, we repurchased 3.5 million common shares and increased our CET1 ratio to 13.5%, up from 13.3% last quarter. We also acted prudently by increasing our provisions for performing credit. Results like these confirm our confidence in being well-prepared for both short-term challenges and long-term success, reflecting our commitment to executing a client-focused strategy. To summarize, our strategy focuses on four key priorities. First, we aim to grow our mass affluent and private wealth franchise. Second, we seek to enhance our digital-first personal banking capabilities. Third, we strive to provide connectivity and differentiation by bringing our entire bank to our clients. Lastly, we endeavor to achieve all of this while enabling, simplifying, and protecting our bank as we continue to build the bank of the future. With a consistent approach to these priorities, we remain intensely focused on positioning our bank to sustainably deliver a premium return on equity over time. At CIBC, we emphasize a client-focused strategy that offers differentiated advice and customized solutions. This commitment ensures we maintain pricing discipline when utilizing our balance sheet. That discipline translates to our non-trading margins, which increased by 17 basis points compared to the previous year. We are delivering our entire bank to every client, resulting in additional fee income from deeper relationships. Our non-trading fee income rose by 11% from the prior year to reach a record high this quarter. We are also prioritizing efficiency as part of our strategy to enable, simplify, and protect our bank. The first quarter marks our sixth consecutive quarter of positive operating leverage, and we aim to continue achieving that moving forward. We are confident in the quality of our credit portfolios throughout the cycle. Our provision for credit losses ratios are above historical averages, and we anticipate some normalization in the lending environment. From a capital perspective, we expect our CET1 ratio to decrease slightly as client activity increases. At the same time, we will pursue organic growth and return capital to shareholders, ensuring that progress in all these areas supports a premium return on equity. Now, let’s briefly discuss the highlights from our various business segments, all of which are performing exceptionally well. In Canadian Personal and Business Banking, we are providing modern banking experiences and fostering meaningful client engagement. Our Imperial Service platform is central to meeting the needs of our mass affluent clients in Canada, who are growing at a rate 4.5 times faster than our overall client base. This segment typically includes multiple product relationships, greater credit resilience, and higher per capita deposits. Our recent industry data shows that we ranked among the top two in our peer group in Canada for market share growth and demand deposits. In North American Commercial Banking, we are maintaining strong risk control while growing our portfolios. Commercial banking loans and deposits in Canada increased by 8% and 10%, respectively, driven by expansion in diversified markets. In the United States, we have grown our loans and deposits at rates above the market while carefully managing our institutional commercial real estate portfolio. Our balance sheets on both sides of the border reflect ongoing risk discipline, and Canada continues to have industry-leading credit metrics, while credit losses in the United States have decreased from their previous elevated levels. Turning to North American Wealth Management, our platform is benefiting from improved market sentiment, attracting both new and existing clients. Based on recent industry results, once again, we ranked number one in Canada for long-term mutual fund net sales in the first quarter. This was our second-highest quarter ever for long-term mutual fund net sales. Additionally, in the U.S., we recognized solid asset management fees this quarter, supported by strong annual performance fees and recent growth in assets under management. Moving to Capital Markets, our first quarter exemplified our commitment to delivering risk-controlled growth for our clients. Our global markets business achieved the highest trading revenue on record without a significant rise in VAR, showcasing our unwavering risk discipline and dedication to client service. We continue to make progress on our strategic priorities, with double-digit growth in the U.S. region, and we are purposefully focusing on the private economy. Our pipelines are robust, and our diversified platform is ready to support our clients as M&A activity resumes. In summary, we have momentum in our business, strengthened by a solid foundation. Our strategy is crafted to provide both offensive and defensive capabilities, and it is clearly working. This is evident in our first-quarter results, including record earnings, prudent credit reserves, and a strong balance sheet. Now, I'll hand it over to Rob for a more detailed analysis of our financial results.

Rob Sedran, Chief Financial Officer

Thank you, Victor, and good morning, everyone. Let me start with three highlights from our results. First, the record revenue was broad-based and continued our momentum from last year, with each business unit showing strong gains, helped by constructive markets and an improved net interest margin. Second, expense growth was elevated from the low prior year quarter partly owing to expenses linked to the strong revenues, partly from FX translation and partly from some items affecting the results. Nevertheless, we managed to solidly positive operating leverage again this quarter. And third, both capital and liquidity ratios strengthened, which combined with strong absolute and relative credit quality positions us well for whatever may come in the market and economic environment while still allowing us to advance our strategy and support our clients. Please turn to Slide 11. Earnings per share were $2.19 for the first quarter of 2025 or $2.20 on an adjusted basis, and adjusted ROE was 15.3%. It was a record quarter in several areas, including revenues, pre-provision pre-tax earnings and net income. Let's move on to a detailed review of our performance. I'm on Slide 12. Adjusted net income of $2.2 billion increased 23%. Pre-provision pre-tax earnings were up 19% and revenues were up 17%, supported by improved spread income, strong trading activity and continued growth across our fee-based businesses. We also continue to manage expenses relative to revenues, delivering 190 basis points of operating leverage. Total provisions for credit losses were down from a year ago as an improvement in impaired losses was only partly offset by a prudent build in our performing provisions, reflecting growing risks in the macroeconomic outlook. Frank will discuss our strong credit performance in detail in his presentation. Slide 13 highlights key drivers of net interest income. Excluding trading, NII was up 19%, driven by expanding margins and continued balance sheet growth. All bank margin ex trading was up 17 basis points from the prior year and 3 basis points sequentially on a combination of higher deposit margins and business mix. Similarly, Canadian P&C NIM, up 272 basis points was up 7 basis points, driven by deposit volume growth and favorable business mix. In the US segment, NIM of 378 basis points was up 15 basis points from the prior quarter, largely due to higher deposit volumes. Our loan margins remain elevated, helped by rate cuts in November and December, as we signaled last quarter. We continue to expect our US margin to migrate to normalized levels, absent further interest rate cuts. Turning to Slide 14. Non-interest income of $3.5 billion, was up 17% from the prior year, amid growth in trading as well as continued momentum in market-sensitive businesses that drove a 28% increase in market-related fees. Transaction-related fees were down 11%, mainly due to the impact of benchmark reform, offset in net interest income. Slide 15 highlights our balanced approach to expense management. Excluding performance-based compensation linked to the strong revenues, expenses grew 9% from an unusually low Q1 of 2024. Of that 9%, one-third was due to a legal provision and the impact of foreign exchange translation. We continue to invest to harden and protect our bank as well as in tools to better serve our clients, both digitally and for in-person interactions. We expect to deliver positive operating leverage on a full year basis and excluding revenue-linked expenses, see year-over-year expense growth moderating from here. Slide 16 highlights the strength of our balance sheet. Our CET1 ratio at the end of the quarter of 13.5% was up 17 basis points sequentially. Solid organic capital generation was partially offset by RWA increases and the ongoing share buyback program from which we have now repurchased 8.5 million shares. Our liquidity position remains very strong, with an average LCR of 132%, supported by continued deposit growth. Starting on Slide 17, with Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income increased 7% amid higher revenue growth, partially offset by higher expenses and a higher total provision for credit losses. Supported by core business momentum, pre-provision pre-tax earnings were up 11%, revenues were up 9%, helped by volume growth on both sides of the balance sheet and a 22 basis point increase in the net interest margin. Expenses were up 7%, due to higher employee-related costs and spending on strategic initiatives as we enhance our data, AI and digital capabilities to scale advice, sales and engagement across our clients and teams. On Slide 18, we show Canadian Commercial Banking and Wealth, where net income of $591 million and pre-provision pre-tax earnings of $850 million were up 13% and 15% from a year ago. Revenues were up 19% from last year. Strong wealth management growth of 26% was driven by higher average fee-based assets on both increased client activity and market appreciation. Commercial Banking revenues were up 9%, driven by higher volume. Expenses increased 22% from a year ago, mainly from higher compensation linked to those strong wealth management revenues as well as investments in platform technologies that will help productivity and improve the adviser and client experience. Additional details on Canadian P&C are in the appendix. Turning to US Commercial Banking and Wealth Management on Slide 19. Net income of US$180 million was up $131 million from the prior year, mainly due to lower total provisions for credit losses as impaired losses were partially absorbed by a performing release and a 19% increase in pre-provision pre-tax earnings. Revenues were up 16% from a year ago. Strong deposit growth of 18%, loan growth of 4% and expanded margins supported higher net interest income, while in our wealth business, particularly strong annual performance fees and market performance helped fee income growth. Excluding the performance fee in both periods, revenues were up 12%. Expenses were up 14%, reflecting seasonal employee-related costs, performance-based compensation, and ongoing technology and infrastructure investments. Recognizing some seasonal or one-time items this quarter, we expect revenue and expense growth to moderate from here for the balance of the year in this segment. Turning to Slide 20 and our Capital Markets segment. Net income was up 28% year-over-year. Revenues of $1.6 billion were up 25%, driven by seasonally strong global markets business activity. Corporate and investment banking benefited from stronger corporate banking and debt underwriting activity, partly offset by lower advisory revenues. Expenses were up 19%, largely due to higher performance-based and employee-related compensation and higher volume-driven expenses. Slide 21 reflects the results of the Corporate and Other business unit, a net loss of $60 million compared with a net loss of $23 million in the prior year as the legal provision referenced on the slide, more than offset favorable treasury revenue and higher revenue from CIBC Caribbean. We continue to project a loss of between $0 and $50 million for this segment. In closing, our results reflect our focus on controlling what we can control to deliver another quarter of profitable growth. Our operating momentum and strong balance sheet give us significant flexibility to respond to an uncertain environment. With that, I'll turn it over to Frank.

Frank Goose, Chief Risk Officer

Thank you, Rob and good morning everyone. Our credit performance in Q1 was strong with impaired loan losses remaining stable, performing better than our full year guidance despite the macroeconomic challenges. We continue to monitor our portfolios and remain close to our clients to effectively manage through the uncertainties ahead. Our allowance coverage has increased this quarter as a result of proactive steps we've taken to reflect the evolving macroeconomic environment. Turning to Slide 25, our total provision for credit losses was $573 million in Q1 compared to $419 million last quarter. Our allowance coverage increased quarter-over-quarter by 3 basis points. Our performing provision was $127 million in this quarter, driven by an unfavorable change in our overall economic outlook, including judgment related to additional weight being put on our downside case that reflects the uncertainties of the trade environment. The portfolio also experienced some credit migration and model updates this quarter. Our provision on impaired loans was $446 million, up $29 million quarter-over-quarter. This was due to higher provisions in the U.S. commercial portfolio, Canadian Personal and Business Banking, and CIBC Caribbean, partially offset by continued strong performance in our Canadian Commercial Banking and Capital Markets portfolios. Turning to Slide 26. Our impaired provisions ratio was 31 basis points this quarter. In line with our guidance, our impaired PCL trended slightly higher in Personal and Business Banking. We anticipate this trend to continue as we head into Q2. Our Canadian Commercial Banking and capital markets portfolios continued to perform well in Q1, both trending downward quarter-over-quarter. In US commercial, we saw a slight increase quarter-over-quarter as a result of one larger office loan moving to impaired with a small impact on total provisions given the corresponding performing relief. That one loan accounted for approximately half of the impaired provision. On the backdrop of trade uncertainties, we have performed a thorough bottom-up analysis on our wholesale credit portfolios, identifying industries and clients who could be more materially exposed to tariffs. Portfolio performance remains strong and we are ready to work with our clients should these headwinds persist. We remain pleased with our credit portfolio. They continue to perform in line or better than our expectations despite market uncertainties. Slide 27 summarizes our gross impaired loans and formations. Gross impaired loans were up by five basis points this quarter, primarily due to an increase in our Canadian residential mortgages and US commercial portfolios. In mortgages, current LTVs for impaired mortgages remain low at approximately 60%, and we do not expect any material increase in net write-offs. The increase in US commercial is not attributable to any specific sector and is reflective of our diversified portfolios. Slide 28 summarizes the net write-off and 90-plus day delinquency rates of our Canadian consumer portfolios. Our credit card and personal lending write-offs were down quarter-over-quarter, while elevated unemployment rates remain a driver of the 90-plus day delinquency performance for these portfolios. In our mortgage portfolio, we see continued strength overall were negatively amortizing mortgage balances down from $38 billion in Q1 2024 to $6 billion this quarter. Our clients continue to show strong average liquid asset balances and the impact of payments at renewal remains muted given the current rate environment. We remain comfortable with the strength and resiliency of our Canadian consumer portfolios. In closing, while uncertainties persist, we believe we are in a position of strength with a portfolio that continues to show resilience. We are focusing on what is within our control, staying engaged with our clients being proactive, wherever possible to address the potential impact of macroeconomic developments and ensuring we have prudent coverage for potential headwinds. We remain pleased with this quarter's greater performance, and I will now turn the call back to the operator for your questions.

Operator, Operator

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

Matthew Lee, Analyst

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

Hratch Panossian, Chief of Personal and Business Banking, Canada

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

Matthew Lee, Analyst

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

Hratch Panossian, Chief of Personal and Business Banking, Canada

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

Operator, Operator

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

Meny Grauman, Analyst

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

Victor Dodig, President and CEO

Good morning, Meny, and thank you for your question. I believe this is on everyone's mind. First, clients nationwide are feeling cautious about making commitments as they await more certainty. This sentiment is present on both sides of the border, as businesses and personal clients prefer stability to proceed confidently. The sooner we achieve that certainty, the better. Secondly, we enter this situation as a robust bank in terms of capital, liquidity, and credit. Over the last decade, we have established a relationship-focused banking model that allows us to understand our clients and the risks they face, which is reflected in our expected credit losses. Moreover, clients have shown more resilience than many realize. Business banking clients have dealt with currency fluctuations, rising interest rates, supply chain disruptions, and labor issues over the past five years, yet they have navigated these challenges successfully. Our loan losses over the last three years mirror those of the past decade because of our intentional strategy in building the client portfolio, paired with our clients managing their risks prudently. Regarding sectors that have been most affected, such as forestry, auto parts, aluminum, steel, and agriculture, we are well-positioned, and our market share remains below what we consider our natural share. Overall, we feel positive about our client engagement as we move forward. If I could provide three suggestions to governments on necessary actions, I believe we are already addressing the immediate needs effectively, especially concerning border protection and security, where Canada is taking steps. However, there are a couple of issues to consider. The digital services tax lacks long-term viability, and we should work to eliminate it. Additionally, if aluminum and steel are being unfairly dumped into North America, particularly via Canada, we need to take action to stop it. Addressing these concerns would help resolve issues raised by our American trading partners. Lastly, it's well known that the USMCA will be renegotiated, which is an important medium-term consideration. In the long term, we must strategize for a strong Canadian comeback, which I believe is achievable. There are many ideas in this regard, and while we won't cover them all today, I want to stress that we share in our clients' experiences and maintain our strength as a bank with a solid portfolio.

Meny Grauman, Analyst

Thanks for the detail.

Operator, Operator

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

Ebrahim Poonawala, Analyst

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

Victor Dodig, President and CEO

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

Shawn Beber, Head of U.S. Region

We are very pleased with our performance this quarter, particularly in U.S. loan and deposit growth, both of which are strong. Loan growth is robust despite a more subdued environment and is widespread across our business segments. While the pipeline remains healthy, it may not be as strong as it was in the fourth quarter of last year due to ongoing uncertainties around trade discussions and the interest rate environment. These factors have influenced loan growth and deposit deployment. We've actually seen higher deposit levels than anticipated. Last quarter, we mentioned that some short-term deposits we expected to be deployed sooner have remained in place, which has positively affected our net interest margin. We do anticipate changes in this area over time, but we are closely engaging with our clients. We are satisfied with our performance, credit quality, and as clarity improves, our pipeline looks promising. The timing of our execution will depend on this emerging clarity.

Harry Culham, Head of Capital Markets

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

Susan Rimmer, Head of Commercial Banking and Wealth Management

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

Victor Dodig, President and CEO

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

Ebrahim Poonawala, Analyst

Yes, that is very comprehensive. Thanks.

Operator, Operator

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

Gabriel Dechaine, Analyst

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

Rob Sedran, Chief Financial Officer

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

Gabriel Dechaine, Analyst

No, I could go to buyback.

Rob Sedran, Chief Financial Officer

Yes. The primary focus for us is on organic growth, as Victor highlighted. However, we do plan to keep utilizing the buyback. We intend to use the full amount of the authorized buyback at this time. The advantage of the buyback is that if the market conditions change, we can halt it. Based on our current outlook, we plan to proceed with it.

Operator, Operator

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

Doug Young, Analyst

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

Frank Goose, Chief Risk Officer

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

Doug Young, Analyst

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

Frank Goose, Chief Risk Officer

Certainly. A significant portion of the new formations in the consumer space is coming from mortgages, where we have strong collateral. Our impaired loan-to-value ratios for mortgages are around 60%, reflecting very strong collateral. Therefore, we do not anticipate meaningful write-offs from the mortgage side, even over time. Similarly, on the business and government side, there is collateral as well, though it may take some time for that to reflect in provisions for credit losses. Overall, we are very satisfied with the current performance of the loan portfolio.

Operator, Operator

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

Mario Mendonca, Analyst

Good morning. Victor, you mentioned a normalization of the credit picture early in your remarks. I understand that in the context of your medium-term ROE drivers, credit normalization is important. This quarter, impaired PCLs were about 31 basis points, and looking long-term, CIBC is likely looking at around 35 to 36 basis points. Can you elaborate on what you mean by normalization? Are you indicating that CIBC's loan mix has changed? CIBC is significantly different from what it was two decades ago, so what does "normal" mean in 2025?

Victor Dodig, President and CEO

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

Mario Mendonca, Analyst

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

Rob Sedran, Chief Financial Officer

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

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