Canadian Imperial Bank of Commerce

This conference is recorded.

All participants, please stand by. Your conference is ready to begin. 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 Jeff Weiss, Senior Vice President, Investor Relations. Please go ahead.

Thank you and good morning. We will begin this morning with opening remarks from Victor Dodig, our President and Chief Executive Officer, Rob Sedran, our Chief Financial Officer, and Frank Goose, our Chief Risk Officer. Joining us on the call are our group heads, Sean Bieber, U.S. Region, Harry Cullum, Capital Markets, Global Asset Management and Enterprise Strategy, Karach Panosian, Personal and Business Banking, and Susan Rimmer, Commercial Banking and Wealth Management. They will all be 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're available after the call for any follow-ups. As noted in our investor presentations, 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 useful in assessing underlying business performance. With that, I will now turn the call over to Victor.

Thank you, Jeff, and good morning, everyone. Today, I'd like to make a few comments on the operating environment, our strong start to fiscal 2025, and the strength of our bank as we navigate this economic and political volatility together with our clients. As we all know, trade tensions between Canada and the United States have already led to disruption in some sectors of the economy, and it remains unclear if these tensions will ratchet up in the form of new or increased tariffs. We, as a leadership team, reaffirm our belief in free and fair trade. We see the long-term benefits of the USMCA for our clients on both sides of the border, and we would encourage our political leaders to work to strengthen and secure the North American economy. Well before these topics were in the headlines, we were already in dialogue with our clients about potential impacts to their businesses and personal lives and how we, our CIBC team, could help. Against this backdrop, CIBC delivered robust performance in the first quarter, consistent with our strategy and the message we've been delivering to our investors. Our bank has an organic growth strategy that's working and positions us well through the full economic cycle. In periods of uncertainty, our advice, the connectivity of our CIBC team, and our dedication to our clients are competitive differentiators and competitive advantages. This is further evidenced by the most recent Ipsos satisfaction survey, where we improved our ranking in the eyes of our clients to second place after recording our best quarter ever. Now turning to our first quarter financial performance. We reported revenues of $7.3 billion, which is up 17% from the prior year, with record top line results across all of our business units. Adjusted earnings per share of $2.20 were also the highest on record, up 22% from the prior year. And our adjusted ROE was strong at 15.3%. On the capital front, we repurchased 3.5 million common shares, and grew our CET1 ratio to 13.5%, up from 13.3% last quarter. We also took a prudent approach by increasing our performing credit provisions. Results like these reaffirm our confidence that we're well positioned for both short-term volatility and long-term outperformance. And this is all a reflection of the consistent execution of our client-focused strategy. Now, to recap, our strategy consists of four priorities. The first is to grow our mass affluent and private wealth franchise. The second is to expand our digital first personal banking capabilities. The third is to deliver connectivity and differentiation by bringing our entire bank to our clients. And the fourth is to do all of the above while enabling, simplifying, and protecting our bank as we continue to build the bank of the future. With consistent execution across these four priorities, we remain laser-focused on positioning our bank to deliver a premium ROE sustainably and consistently over time. At CIBC, we take a client-focused approach by offering differentiated advice and customized solutions to our clients. This means we maintain consistent pricing discipline when deploying our balance sheet. That discipline is reflected in our non-trading margins. which were up 17 basis points from the prior year. We are also delivering our entire bank to each of our clients, which translates to incremental fee income through deeper relationships. Our non-trading fee income was up 11% from the prior year to a record high this quarter. We also focus on efficiency as part of our strategic priority to enable, simplify, and protect our bank. The first quarter marks our sixth quarter, consecutive quarter of positive operating leverage, and we're focused on continuing to deliver positive operating leverage going forward. We also have confidence in the through-the-cycle quality of our credit portfolios. PCL ratios are above historical averages, and we expect some normalization in the environment. From a capital perspective, our CE2-1 ratio is expected to trend lower as client activity picks up. At the same time, we will continue to grow organically, and we will return capital to shareholders. Progress in all of these areas supports a premium ROE. Now let me turn briefly to highlights from our businesses, which are performing very well across the board. In Canadian personal and business banking, we're delivering modern banking experiences and delivering meaningful client engagement. Core to serving the needs of our Canadian mass affluent clients is our imperial service platform. that mass affluent clients we serve across our personal banking business are growing 4.5 times faster than the rest of our client base. This client segment is where we generally have multi-product relationships, greater credit resilience, and higher deposits on a per capita basis. In the latest industry data, we also ranked in the top two of our peer group in Canada for market share growth and demand deposits. In North American commercial banking, we're delivering strong risk-controlled growth across our portfolios. In Canada, commercial banking loans and deposits were up 8% and 10% respectively, driven by growth in diversified markets. In the United States, we grew our loans and deposits above market rates, while continuing to de-emphasize certain areas of our institutional commercial real estate portfolio. Our balance sheet on both sides of the border was achieved with continued risk discipline. In Canada, our industry-leading credit metrics continue to perform well. In the United States, credit losses are down from elevated levels in the prior year. Turning to North American wealth management, our platform is benefiting from improving market sentiment and capturing business from new and existing clients. Based on the latest IFIC results in Canada, we ranked number one in long-term mutual fund net sales once again in the first quarter. In fact, this was our second highest quarter on record for long-term mutual fund sales, net sales. In the U.S., we also had solid asset management fees recognized this quarter, benefiting from strong annual performance fees and our recent growth in AUM. Moving to capital markets, our first quarter was a clear example of executing for our clients to deliver risk-controlled growth in a continued, consistent manner. Our global markets business delivered the highest trading revenue on record without a significant increase in VAR, demonstrating our unwavering risk discipline and focus on our clients. We continue to execute on our strategic priorities with double-digit growth in the U.S. region and a deliberate focus on the private economy. Our pipelines are healthy, and our diversified platform is ready to serve our clients as M&A activity continues to recover. So in summary, we have momentum in our business, and it's backed by a strong foundation. Our strategy is designed with a good offense and an equally strong defense, and our strategy is working. This is clearly evident from our first quarter results, record earnings, prudent credit reserves, and a strong balance sheet. And with that, I'll turn it over to Rob for a more detailed review of our financial results.

Rob. 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 on 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 relevant 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 X-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 of 272 basis points was up 7 basis points, driven by deposit volume growth and favorable business mix. In the U.S. 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 U.S. 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 24. Of that 9%, a third was due to illegal 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 CT1 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-provisioned 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 advisor and client experience. Additional details on Canadian P&C are in the appendix. Turning to U.S. commercial banking and wealth management on slide 19. Net income of U.S. $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-provisioned 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 the income growth. Excluding the performance fees 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.

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 three basis points. Our performing provision was 127 million this quarter, driven by an unfavorable change in our overall economic outlook, including judgment related to additional weighting putting on our downside case that reflects the uncertainties of the trade environment. The portfolio also experienced some credit migration and model updates this quarter. Our provision on impaired loans was $446 million, up $29 million quarter over quarter. This was due to higher provisions in the U.S. commercial portfolio, Canadian personal and business banking, and CABC 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. Aligned 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 continue to perform well in Q1, both trending downward quarter over quarter. In U.S. 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 release. 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 portfolios that continue to perform in line or better than our expectations despite market uncertainties. Slide 27 summarizes our growth impaired loans and formations. Growth impaired loans were up by five basis points this quarter, primarily due to an increase in our Canadian residential mortgages and U.S. 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 U.S. commercial is not attributable to any specific sector and is reflective of our diversified portfolios. Slide 28 summarizes the net write-offs 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, with negatively amortizing mortgage balances down from $38 billion in Q1-24 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 credit performance, and I will now turn the call back to the operator for your questions.

Thank you. Please press star 1 at this time if you have a question. The first question is from Matthew Lee with Canacurgenuity. Please go ahead.

Hi, good morning. Thanks for taking my question. Really good margin expansion in the P&B business was a pretty nice driver I grew up 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. You know, is the assumption here that money coming out of GICs eventually gets moved into the wealth business, or are there a lot of people kind of sitting on the sidelines given the uncertainty here? And then maybe how does that dictate your view on NIM going forward? Good morning, Matthew. It's Raj. 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 of 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 advisors, 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 demand. 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. And 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's situation, but whether it is a demand deposit or 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 advisors 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. You'd expect the deposit mix to stay relatively stagnant from here? We continue 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 from a NIM perspective, our strategy will continue to deliver benefits from a NIM and margin expansion perspective. All right. Nice. This is very helpful.

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

Hi, good morning. I want 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 further? And so really just focusing on that uncertainty in and of itself, ignoring whether tariffs do come or not.

So good morning, Nanny, and thank you for that question. I think we all have that on our minds. I will say a couple of things. Clients across the board, across the country are feeling a little more tentative in terms of commitments going forward until there's more certainty. I think that holds true on both sides of the border. Businesses and personal clients like certainty to move forward. So the The sooner we can get that certainty, the better. The second thing is that we go into this situation as a strong bank, from a capital perspective, from a liquidity perspective, but as Frank pointed out earlier, from a credit perspective. We have worked diligently over the past decade to build a relationship-oriented bank where we understand our clients, we understand the risk, and we manage that through with them, and you see that in our PCLs. The third thing I'd say is clients are more resilient than one gives them credit for. When you think about what business banking clients have gone through over the past half decade, you've seen currency volatility, particularly when U.S. CAD exchange rates. You've seen a surge in interest rates. You've seen supply chain disruption. You've seen labor supply issues. Yet they've been able to manage through all of this. And we see that the last three years are no different for us than the last ten years in terms of loan losses. It's a deliberate effort to build a client portfolio that we'd like to build, and it's our clients managing prudently alongside that. And when it comes to exposures for the most, you know, acutely affected sectors, should it get to that point, forestry, auto parts, aluminum and steel and agriculture, we're well positioned there and our market share is, in fact, below our natural market share. So we're feeling good about going into this. We're feeling good about our engagement with clients, and we'll see where things go next. I think there's three things that, you know, if we were to give messages to governments around what they should do, everything that we can do to respond to the very short-term nature, I think we're doing. When it comes to border protection and security, I think Canada is responding. I think there are a few things that we should think about. The digital service tax is not something that we think is – It's got a long life, so let's tackle it. And aluminum and steel that's getting dumped into North America, if it is indeed getting dumped through Canada, we should definitely halt it. And I think those facts would basically address some of the issues that our American trading partners have identified. And then, of course, we all know that the USMCA is going to be renegotiated. That's a medium-term action. And in the long term, we've just got to engineer the great Canadian comeback, which I think we can do. A lot of ideas out there. I don't think we're going to do that all on the calls today, but we go into this feeling what our clients are feeling, but it's a strong bank and a well-built portfolio.

Thanks for the discussion.

Thank you. The next question is from Ibrahim Poonawalla with Bank of America. Please go ahead.

Good morning. I guess they should have you negotiate the deal with the 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 are 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. Stocks cheap, would you still flex in, and could we see the pace of buybacks pick up from what you did in the first quarter? Thanks.

Thanks, Ibrahim. 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 as 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. 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. Raj talked about our personal and business banking franchise. I'd like to turn it over to Sean, 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, Sean and Harry and Susan.

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

I would just add a few things on the capital markets business, and good morning. We just continue to focus on executing on the strategy we laid out many years ago. This is a differentiated strategy. cross-border diversified and really highly connected platform. We 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 in certain times and deliver for our customers. So I'm actually optimistic on the pipeline that will be delivered.

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 banks. Our loan and deposit balances grew by 8% and 10%, respectively, year over year. Our portfolio is well diversified. And, again, our credit performance has been very strong. But, you know, based on what we know today, I would say on the commercial banking side, we would 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.

Great. Thank you, Ibrahim. Hopefully that answered your question.

That is very comprehensive. Thanks. Thank you. The next question is from Gabriel Duchesne with National Bank Financial. Please go ahead.

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 and demand deposits. I'm trying to get a sense of that, though. 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.

Hey, Gabe, it's Rob. Good morning. 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, Harat should kind of give 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, would you 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 350 to 360 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. No, I can go to buyback. Yeah, so the buyback, you know, the first priority clearly is organic growth. as Victor mentioned. And so, you know, but we do intend to continue to use the buyback. It remains our intent at this point to use the full amount of the authorized buyback. The nice thing about the buyback is if the environment turns, we turn it off. So for what we can see right now, we do intend to use it.

Great. Thank you.

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

Good morning.

Just wanted to go to slide 28. And Frank, just, you know, it looks like the consumer, 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 seems to be a bit different than you know, what we're hearing from some of the other banks. And so I'm just hoping you can dig in, Chief, and provide a little bit of color around what you're seeing in the consumer credit card, consumer unsecured lending, specifically in Canada.

Yeah, 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 PPLs. 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.

And if I can just follow up, you know, just separately in credit, it's Yeah, your gross and fair loan formations picked up quite a bit sequentially in retail and commercial. What I've seen is 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 and fair loans going up. You're not seeing it usually coming through on the impaired PCL. But can you dig a little bit into what you're seeing there?

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

Thank you.

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

Good morning, Victor. Early in your prepared remarks, you referred to a normalization of the credit picture. I think it's in the context of your medium-term ROE drivers here. There it is, credit normalization. So in the quarter, entire PCLs were around 31 basis points, looking over the very long term. For CIBC, we're probably looking at 35, 36 basis points. So what do you mean by normalization? Are you suggesting that CIBC's loan rate is CIBC is such a different bank than it was over the last 20 years. The big normal is, what, 25? Thanks, Mario. Good morning.

CIBC is a different bank.

We've built a different bank, and we've started with the first principles of focusing on our clients, connect to 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. You know, when we put these ROE drivers up on slide four, 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 sort of cycle. When it comes to credit, we feel good. I think Frank's done a great job in explaining it, helping the team manage through it. 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, you know, that mid-30s feels like something we can manage toward. But in the medium term, when things do get normal again, you know, 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 happening. over the medium term, being a net contributor to ROE.

Real quickly then on this provision, this legal provision, I've learned over time not to acknowledge these sorts of things because they can sometimes evolve into something kind of 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?

Hey, Mario. It's Rob. Good morning. Yeah, 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. Got it. That's all. Thank you.

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

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

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

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

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

Appreciate it.

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

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