Earnings Call Transcript - CM Q4 2025

Operator, 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, Senior Vice President, Investor Relations

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, President and CEO

Thank you, Geoff, and good morning, everyone. I'm thrilled to talk with you today as the President and CEO of our bank. I'm motivated by the opportunities in front of us, building on the strong performance we've achieved in fiscal 2025. Our results show our momentum and the execution of our client-focused strategy across the team. Since stepping into the role of Chief Operating Officer following our CEO succession announcement in March, I have spent the past eight months listening to and engaging with our stakeholders. These discussions have strengthened my confidence that our client relationships are solid, our team is proud, and our bank is recognized for delivering consistent, strong financial performance. With this foundation, we have brought our leadership team and employees globally together around an evolved ambition to be a client-focused, highly connected, and performance-driven bank, delivering industry-leading shareholder returns. This ambition is supported by the same strategic pillars that have contributed to our success over the last several years. Let me be clear; our strategy remains unchanged. It is effective, and we are dedicated to achieving our goals. Our current focus is to accelerate the implementation of our strategy for relative outperformance. To maintain our momentum, we have aligned our team around three key enablers: first, we will enhance our client focus and strengthen our connectivity; second, we will drive efficiencies and modernization; and third, we will prioritize our human capital by promoting a culture of engagement, development, and accountability. Now, let me share an overview of our adjusted results for fiscal 2025. We recorded net earnings of $8.5 billion and earnings per share of $8.61, reflecting increases of 17% and 16% compared to the previous year. Our record revenues of $29 billion rose by 14%, driven by double-digit growth across each of our business segments. We achieved positive operating leverage and reduced our enterprise efficiency ratio for the third consecutive year. Our top-tier credit quality remained robust, with an impaired PCL ratio of 33 basis points, performing at the favorable end of our guidance range. Our strong CET1 ratio of 13.3%, combined with the earning power of our bank, led us to announce a 10% increase in our quarterly dividend to common shareholders. Additionally, we achieved a return on equity of 14.4%, up 70 basis points from the previous year. Our strategy and competitive advantages position us well to continue our momentum and serve our clients effectively. Our first strategic priority is to expand our mass affluent and private wealth franchise. We have developed a unique ecosystem to excel in this segment, which includes our distinctive Imperial service platform, partnership with Costco, industry-leading Wood Gundy brand, and our high-quality RIA in the U.S. Our advisors in Imperial Service are committed and engaged with our clients, leading to record NPS scores each quarter. Over the past year, our client-focused distribution channels have supported our gains in market share for mutual funds and assets under management in Canada. In 2025, CIBC ranked among the top two of the big six banks for total mutual fund net sales. We will continue to leverage these strengths to create capital-light fee-based revenue, attract high-value personal deposits, and drive wealth referrals, all of which align with our strategy and enhance our ROE profile. Our second strategic priority is to grow digital-first personal banking. We are recognized industry-wide for our leadership in digital banking. Recently, we received the 2025 Mobile Banking Award by Service Corp. Building on our award-winning digital capabilities in Canada, we also launched a new digital banking platform for the U.S. market. Collectively, these efforts enable us to attract and deepen relationships through data-driven insights, adding value for clients and driving growth. Our third strategic priority is to leverage our connected platform, which is one of our greatest competitive advantages. Our culture of connectivity allows us to strengthen client relationships, expand our U.S. franchise, and enhance cross-business referrals. By integrating our commercial banking, wealth management, and capital markets teams, we've established a strong internal referral system that leads to more agility and innovative solutions for our clients. Consequently, cross-business referrals in our U.S. Commercial and Wealth franchise increased by 23% compared to the previous year. A connected capital markets presence across North America is essential. In fiscal 2025, revenue and net income from our Capital Markets U.S. franchise grew by 39% and 50%, respectively, compared to the prior year. We anticipate that growth in U.S. capital markets will continue to exceed that of Canada and other regions in the medium term. Finally, our fourth strategic priority is to enable, simplify, and protect our bank. Our performance-driven approach necessitates ongoing expense management and balance sheet efficiencies, modernization of our technology, and scaling our data and AI infrastructure. Building on our innovative history, we launched CIBC real-time experience, often referred to as Cortex. This AI-enabled client engagement engine integrates seamlessly with our existing platform to personalize interactions based on data-driven insights. In fiscal 2025, we made notable progress in embedding AI as a core capability across our bank. We are well-positioned to accelerate AI adoption, emphasizing Agentic AI and investing in talent and partnerships to transform the banking experience. Looking ahead, the operating environment presents ongoing uncertainty due to trade negotiations in Canada and internationally. Our outlook assumes the extension of the trade deal, which we believe is crucial for North America's economy. We anticipate targeted fiscal policy relief for affected sectors, along with stimulative monetary policy to support moderate economic growth across our markets in 2026. We also support nation-building initiatives in key sectors of Canada's economy to foster a more prosperous future. We have strong client relationships in these areas and will be there to support Canada's growth. Regardless of how the environment changes, we will remain close and engaged with our clients. In closing, we are raising our aspirations. To build on the momentum we have established, we have created an engine for sustainable relative outperformance and a roadmap for profitable growth in the long term. We believe that our unwavering client focus, the strength of our team, and the accelerated execution of our strategy will deliver value for our stakeholders throughout the cycle. It is an exciting time at CIBC, and I am honored to lead our team. Now, I'll turn it over to Rob for a detailed review of our financial results. Over to you, Rob.

Robert Sedran, Chief Financial Officer

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 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 two-thirds of our net earnings through dividends and share repurchases. These achievements reinforce our confidence in our ability to deliver long-term value and support the dividend increase Harry mentioned. Please turn to Slide 8. For the fourth quarter of 2025, earnings per share were $2.20 or $2.21 on an adjusted basis. The 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 ninth consecutive quarter of positive operating leverage, and 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. The all-bank margin excluding 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 and 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 and higher-than-normal loan fees. 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%, aided by constructive markets with particularly strong growth in trading, underwriting, 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 enhance client experience through faster and more personalized service. We intend to manage expense growth to the mid-single digits for 2026 and continue to promote 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 compared 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 grew by 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 benefits from our traction 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, with Wealth Management growth of 18% 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 increased 10% and 9%, respectively, from a year ago. Expenses rose 16% from a year ago, mainly from higher compensation linked to strong revenues, heightened spending on technology, and other strategic initiatives. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income rose 35% from the prior year, primarily due to lower loan loss provisions. Revenues were up 9% from last year. Net interest income benefited from deposit growth of 8% and wider deposit margins. Fee income growth was broad-based, reflecting our strategy to deepen client relationships. Expenses were up 18%, partly due to higher performance-based compensation as well as strategic initiatives. Turning to Slide 17 and our Capital Markets segment. Net income grew by 58% year-over-year, with revenues up 32% across our Capital Markets businesses. Global Markets experienced growth across most products. Corporate Banking saw increases from higher average balances and fees, while investment banking reported higher debt underwriting and advisory revenues. Our focus on the U.S. continues to yield strong results with year-over-year revenue growth of 48%, and 38% of segment revenues coming from that market this quarter. Expenses grew 9%, largely due to continued investments in business and technology initiatives, higher compensation, and volume-driven expenses. Slide 18 reflects the results of Corporate and Other, with a net loss of $42 million compared to 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 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. Regarding ROE, we remain committed to achieving an improving ROE above 15%, and based on our current outlook, we expect to meet that target in fiscal '26, supported by EPS growth 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. These investments, together with disciplined execution, are now translating into strong financial results. With that, I'll turn it over to Frank.

Frank Guse, Risk Officer

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 were 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.

Operator, Operator

Our first question comes from Ebrahim Poonawala from Bank of America Merrill Lynch.

Ebrahim Poonawala, Analyst

I believe Rob's prepared remarks set the stage for this conversation, but I would like to ask both Harry and Rob about the 15% return on equity, which seems better than what we anticipated for this year. Harry, when considering the franchise, it’s clear there won’t be any major changes in strategy. However, regarding the Canadian banks, some are achieving much higher returns on equity—17% or 18%—while others are working to catch up. With your guidance for 2026 and your perspective on the franchise, can you discuss whether there’s an opportunity for CIBC to achieve a top-tier return on equity? Or are there structural challenges the bank faces in reaching that goal? If there are obstacles, what steps need to be taken to overcome them?

Harry Culham, President and CEO

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 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 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, Chief Financial Officer

Yes, thanks, Harry. Ebrahim, we can all do the math, but I’ll try to summarize how we plan to achieve our goals. I want to emphasize that when we reach 15%, we won’t be celebrating prematurely. We believe our strategy will gradually improve our return on equity over time. Just because we aren’t adjusting our target now doesn’t mean we don’t aim for a higher return. We don’t foresee any barriers that would prevent us from increasing our return on equity. To achieve this, we can start by normalizing credit losses. The provisions for performing loans we took this quarter amounted to around $450 million, contributing approximately 60 basis points. We don’t expect this to happen every year, and this is even before factoring in potential reductions in impaired losses. This will be a favorable factor for our return on equity. Operating leverage is inherently part of our business approach. A few hundred basis points of operating leverage can translate into around 30 or 40 basis points of increased return on equity that we anticipate. Regarding our capital position, we aim to optimize our balance sheet optimally, where even a basis point makes a difference. If our common equity tier one capital decreases by 40 or 50 basis points, our return on equity increases by the same amount. We are not in a hurry to reduce excess capital, but we have an active buyback and see opportunities for profitable deployments over time. Overall, several factors contribute to our confidence that our return on equity will continue to rise beyond next year.

Operator, Operator

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

Matthew Lee, Analyst

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, Chief Financial Officer

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, Group Head, Personal and Business Banking Canada

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 by 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, Operator

Our next question comes from John Aiken from Jefferies.

John Aiken, Analyst

Rob, we've just discussed net interest margin. I'd like to focus on expenses for a moment. I understand you're aiming for positive operating leverage next year. Considering the investments you're making in your platforms and technology, are there any segments you anticipate will have either greater or lesser operating leverage as we move towards 2026?

Robert Sedran, Chief Financial Officer

It's good to hear from you, John. That's a great question. We generally don't concentrate too much on operating leverage at the segment level in any specific year. There are various factors at play, including investments we are making and strategic initiatives that may arise. We saw some of this in Q4. As we entered the quarter, we had solid visibility on revenue growth and operating leverage, which allowed us to push forward some of the strategic initiatives we've discussed in the past. Looking ahead to the coming year, we expect positive operating leverage across all our businesses. However, considering the year Capital Markets had, it might be a bit more challenging for them to achieve positive operating leverage next year. While we won’t completely overlook this, we don't assume it will automatically happen. For our other businesses, we are aiming for positive operating leverage as well. Nevertheless, we will manage it throughout the year and focus on achieving it at the overall bank level instead of the individual segment level.

John Aiken, Analyst

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, Chief Financial Officer

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, Operator

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

Doug Young, Analyst

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, Chief Financial Officer

Thanks, Doug. It's Rob. The benefit is 25 basis points. In the first quarter of 2023, we had an operational risk charge reflected in our results in the second quarter, specifically affecting our operational risk weights. The regulations permit the potential exclusion of that charge for three years forward, and we received approval to exclude it from our operational risk weights. So, three years from now, specifically in the second quarter of 2026, we will reinstate the 25 basis points of CET1. When evaluating our capital operating levels, we are currently maintaining significant excess common equity and aim for approximately 100 basis points above the regulatory minimum, which translates to around 12.5%. Additionally, we consider competitive dynamics and the positioning of our rivals. Our capital plans for the next year include ongoing buybacks and robust capital deployment, which we anticipate will drive risk-weighted asset growth. While we do not expect a substantial decrease in our capital ratio, it may shift slightly lower in line with the buyback activities. From a deployment standpoint, our strategy remains consistent. We believe we have four growth businesses capable of effectively utilizing that excess common equity, all demonstrating profitable growth. We continue to explore tuck-in acquisitions that can advance our strategy but do not have significant updates on that front at the moment. Overall, it's more of the same as we've previously communicated.

Operator, Operator

Our next question comes from Mario Mendonca from TD Securities.

Mario Mendonca, Analyst

I think Rob and Harry, when discussing potential improvements in return on equity, didn't mention the U.S. What I'm noticing there over the past quarter and for several years is that expense growth has been significantly high. I understand that it includes compensation and technology spending, but it seems there might be a major project underway in the U.S., possibly related to compliance spending. Can you explain what's happening there and when you anticipate that spending will align more closely with revenue growth, allowing that segment to contribute as well?

Robert Sedran, Chief Financial Officer

Maybe I'll start. We have been saying for a while that on the U.S. side, we are building for the bank we aspire to be, rather than the bank we currently are. Regardless of short-term regulatory requirements, we need to invest in the infrastructure that will support the growth we anticipate in the upcoming quarters and years. We are deep into that process. However, we believe that the growth trajectory from here won't be quite at the same level. There was some strategic spending in Q4 that may inflate our figures a bit, and I’ll pass it off to Kevin to discuss what occurred in Q4 and our outlook moving forward.

Kevin Lee, Group Head of U.S. Banking

Thanks, Rob, and Mario, I appreciate the question. I’m glad to be here today. The increased expenses this quarter resulted from several factors. Firstly, performance-based compensation played a significant role. Additionally, there was a charge of about USD 10 million related to optimizing our branch network. It's important to mention that this will lead to nearly equal annual savings. Apart from that, there were various smaller seasonal expenses. Overall, we expect expense growth to stabilize and align with mid-single digits next year, consistent with the wider banking sector.

Mario Mendonca, Analyst

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, Group Head of Capital Markets

Thanks for the question, Mario. This is Christian. I'll focus on our U.S. strategy. As Rob pointed out, the U.S. has been a significant growth area for us, now accounting for about 34% to 35% of our Capital Markets revenue. This is roughly double our revenue from five years ago, and we are continually investing in this business. In terms of the corporate credit book, it now generates more revenue in the U.S. than in Canada, indicating that we are bringing on many more clients, consistent with our strategy. It's important to note that when we examine our loan book, having an anchor product allows us to cross-sell advisory services or hedging products. Another area that has shown substantial growth is our global credit financing business, which we established several years ago. For risk management, we've consolidated these businesses together, which include repos, ABS, MBS, securitization, CLOs, and loan warehousing. We value this business highly because it performs well on three key metrics. First, it is client-driven and aligns with our strategy, as we mostly work with high-quality sponsors like pension plans, asset managers, insurers, and some wealth firms, deepening our relationships with them through 8 to 10 different products, from advisory to hedging solutions. Second, it yields strong balance sheet returns, with an average return on equity comfortably exceeding 20%. Third, we appreciate the risk associated with these businesses. Most transactions are rated single A or AA equivalent, and for securitization, it tends to be AA to AAA. Additionally, in loan warehousing and CLO businesses, we are always in a second-loss position, which safeguards the bank. The quality of our personnel overseeing these businesses is also crucial. Most senior leaders bring over 20 years of experience, primarily in credit risk management, or are highly seasoned traders.

Mario Mendonca, Analyst

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

Christian Exshaw, Group Head of Capital Markets

Yes, that's correct.

Operator, Operator

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

Sohrab Movahedi, Analyst

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, Chief Financial Officer

Sohrab, it's Rob. Thanks for your question. It's a good one, and it's not exactly how we expected things to progress. We're continuing to see quarterly organic capital generation in the range of 10 basis points each quarter. If we estimate earnings net of dividends to be around 35, more typical risk-weighted asset growth, excluding credit migration, would be approximately 25. That’s how we arrive at the 10 basis points per quarter. This quarter, we observed some elevated credit migration due to a sluggish housing market. We're not anticipating any losses from that, but we did need to allocate some capital. Nonetheless, we still expect a positive internal capital generation.

Operator, Operator

Our next question comes from Gabriel Dechaine from National Bank.

Gabriel Dechaine, Analyst

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, Risk Officer

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, Analyst

Probably not. You wouldn't see the second half improvement if the negotiations break down, perhaps.

Frank Guse, Risk Officer

I think that's a fair assumption, yes.

Harry Culham, President and CEO

And Gabriel, it's Harry here. Thank you for that question. Just to reiterate what Rob said and expand a bit on our deployment priorities regarding capital, we continue to follow our four-pronged approach to capital deployment. We can activate all four levers as needed. Our primary focus remains on organic growth and supporting our clients, as we see significant opportunities to deploy our capital over time while deepening our relationships across our platform. We manage our dividends and dividend growth annually in line with our earnings expectations, as Rob mentioned earlier. We’re actively engaged in buybacks, which help us manage our share count and capital position, giving us the flexibility to adjust the pace if the operating environment requires it. Additionally, as you pointed out regarding M&A, we are interested in capital-light businesses, particularly strategic tuck-ins that complement our existing platform culturally and are expected to enhance ROE over time. All four aspects of this strategy are aligned with our goal of delivering a premium ROE in the medium term. I hope it’s clear that we manage our bank and our strategy in a stable, steady, predictable, and consistent manner, which reflects how we approach capital deployment as well.

Operator, Operator

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

Darko Mihelic, Analyst

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, President and CEO

It's Harry. I want to quickly jump in because the support we receive from our clients in the nonbank financial institutions segment affects all of our business units, but I'll let Christian answer your question shortly. First, I want to emphasize that this part of our business is essential to our client-focused strategy. We are generating strong risk-adjusted returns, which align well with our clients as they shift from public to private markets. This portfolio is diverse, as Christian noted, with a wide range of geographies, business segments, products, and clients. The loans and structures we have in place include significant risk mitigants that we are quite confident in. We have experienced rapid growth recently, evolving from a small franchise and strengthening our relationships with leading players in this area. Christian, why don't you take it from here?

Christian Exshaw, Group Head of Capital Markets

Thank you for the question. As Harry mentioned, that figure represents our overall activities at CIBC. I would not expect significant growth moving forward. We are in a phase of catching up, building various businesses in the U.S., including power trading. We have applied for primary dealership and are developing futures trading capabilities. It's essential for us to diversify our resources since we want to avoid concentrating all our funding and capital in a single area. Overall, we're satisfied with our current position and anticipate experiencing high single-digit growth this year.

Operator, Operator

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

Harry Culham, President and CEO

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, 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, Operator

This concludes today's conference call. You may now disconnect.