Canadian Imperial Bank of Commerce (NYSE:CM) Q4 2024 Earnings Call Transcript

Canadian Imperial Bank of Commerce (NYSE:CM) Q4 2024 Earnings Call Transcript December 5, 2024

Operator: Good morning, and welcome to the CIBC Quarterly Financial Results 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.

Geoff Weiss: 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. Also on the call today are a number of 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. Given we have a hard stop at 8:30, please limit your questions to one during the Q&A to allow everyone to participate.

We’ll make ourselves available after the call for any follow-ups. As noted on Slide 2 of our investor presentation, our comments may contain forward-looking statements, which may 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: Thank you, Geoff, and good morning, everyone. I’ll start by highlighting three key messages I want to leave with you today. Number one, we’re delivering strong, consistent financial performance. These results are a reflection of the CIBC’s team’s focus on proactively managing our bank and consistently executing our strategy to serve our clients. Number two, we have the right strategy to further our growth momentum into fiscal 2025 and beyond. Our client-focused strategy leverages the competitive advantages we’ve built over time and it emphasizes high growth and profitable client segments. This is a long-term journey, and we’re on the right track. And number three, we enter fiscal 2025 in a position of strength, with a robust capital position, strong credit quality and a dedicated CIBC team that is the driving force behind our growth.

Now turning to our adjusted results for fiscal 2024. This morning, we reported net earnings of $7.3 billion, showcasing the strength and resiliency of our diversified platform. Earnings per share was $7.40, up 10% year-over-year. Revenues of $25.6 billion were also up 10%, driven by robust margin expansion, selective balance sheet growth and higher fee-based income in our market-based businesses. Pre-provision pretax earnings of $11.3 billion were up 11%, supported by a record revenue performance and positive operating leverage. Credit quality remains resilient across our portfolios. This quarter, underpinned by our capital strength and a CET1 ratio of 13.3%, we bought back 5 million shares and announced an 8% or $0.07 increase in our quarterly dividend to common shareholders.

This increase reinforces the confidence we have to deliver earnings growth with our publicly stated targets of 7% to 10%. We delivered a 13.7% ROE which is up 30 basis points versus the prior year despite an elevated capital buffer. And we remain committed to delivering a premium ROE through the steady execution of our strategy over time. On that note, I wanted to quickly recap our strategic priorities, which play to our strengths and reflect key opportunities for growth in the market. Our first strategic priority is to grow our mass affluent private wealth franchise across Canada and the United States. In Canada, our Imperial Service achieved the number one ranking of the 2024 investment executive report card on banks for the ninth year in a row.

In the U.S., we achieved the number two ranking in Barron’s top 100 RIA firms, up from the prior year and marking our fifth consecutive year in the top 10. We have established clear momentum serving our clients in this segment, and we have the right talent and technology to win. Our second strategic priority is to expand our digital banking offerings. For the seventh time in the last eight years, CIBC was ranked number one by Surviscor for delivering the best mobile banking experience among Canada’s big banks. We have a proven track record of aligning innovation to meet client needs, which positions us to earn more business through our digital channels. Our third strategic priority is to leverage our highly connected platform to deliver all of our bank to our clients.

Our connected culture and platform is a differentiator and our strong client experience scores reflect the benefits our clients see from this approach. We have the right platforms and the right culture to continue winning more business as we build deep and profitable relationships with our clients. Finally, our fourth strategic priority is to enable simplify and protect our bank. Having the right technology, the right talent and the right governance is critical to deliver consistent performance. We’re excited by the potential of new AI technologies. Our progress here was recognized in the most recent evident AI index rankings, where CIBC achieved the greatest year-over-year improvement amongst all banks in the index. We’re finding a balance with AI, taking a thoughtful, responsible approach to innovation in ways that will help our clients and help our CIBC team members achieve their ambitions.

So, we’ve made the right investments to shape or make for the future, and we will continue to invest strategically to mitigate risk and to maximize opportunity. Now with that, let’s turn to our segment highlights. Canadian Personal and Business Banking, our efforts to deepen existing client relationships and attract new clients are supporting profitable growth in key areas. Over the past 12 months, we welcomed over 600,000 net new clients across our bank. Our welcome offers for new clients, prioritize multiproduct relationships and have driven meaningful market share gains in demand deposits over the past year. This quarter, we also expanded our cards rewards offerings through partnerships with Expedia and others to further bolster our growth.

Looking ahead, we expect mortgage growth and consumer discretionary spending to accelerate as lower interest rates spur client demand through 2025. As long-term historical growth rates return as anticipated, we will maintain our pricing discipline, and will maintain our focus on profitability. In our North American Commercial Banking businesses, client activity slowed as elevated interest rates, limited global economic growth over the past year. In Canada, our team was there for our clients to help them navigate a changing market. In the United States, despite a slower environment, our high-touch approach delivered above-market loan and deposit volume growth in our U.S. C&I portfolio. Our disciplined relationship-based lending approach has translated into strong credit metrics across our portfolios, including impaired PCLs that have trended lower.

Looking ahead, we expect Canadian and commercial — U.S. commercial loan demand to pick up in line with economic growth expectations for 2025 and beyond. So, we’re well positioned to capture growth momentum while maintaining the risk discipline that has served us so well through this credit cycle. Across our North American wealth management platform, we’re capturing new client business as financial markets benefit from a more supportive interest rate environment. In Canada, success with our investment-grade bond fund lineup has propelled us to the top ranking for FX mutual fund net flows among the big six banks, and we continue to gain market share in mutual fund AUM. In the U.S., we had new client AUM flows up 43% and which is a new record that was supported by the addition of new relationship managers.

Looking ahead, further interest rate reductions are expected to drive fund flows out of term deposits and into alternative risk assets in the face of lower yields. Our wealth businesses are already benefiting from this trend and are well positioned to continue gaining momentum through next year. In Capital Markets, our diversified platform delivered another year of consistent execution and steady growth. In Canada, we maintained a strong market share position with our strategic and focused clients with robust trading volumes and record debt capital markets revenues, both driven by strong client activity. In the United States, we delivered Capital Markets revenue growth of 21%, as we continue to expand our capabilities south of the border. Looking ahead, the lower interest rate path is supportive of higher bond issuance and investment banking activity next year.

We will continue supporting our clients with a connected approach across our North American platform with activity picks up through the years ahead. During closing, we entered 2025 with purpose, with momentum and with grounded confidence. As central banks continue to reduce rates, we expect a rebound in activity across interest-sensitive sectors. Against this backdrop, our businesses are well positioned. Our CIBC team is focused on consistent execution, and we have a strategy that is delivering and will continue to deliver its intended outcomes. Before I turn the call over to Rob, I’d like to introduce Susan Rimmer, who has joined our CIBC Executive Committee, the leader of Canadian Commercial Banking and Wealth Management business. Susan’s background in capital markets and client-focused approach will serve us well in advancing the connected culture that already differentiates our bank.

Welcome, Susan, and she’ll be available for Q&A following our prepared remarks. And with that, over to you, Rob, for a review of our financial results.

Rob Sedran: Thank you, Victor, and good morning, everyone. I’ll begin with three takeaways from our Q4 results. First, our focus on execution and risk control growth continues to produce strong and consistent results, and we are confident that we can continue to build on that momentum in fiscal 2025. Second, we repurchased shares while continuing to strengthen our balance sheet, supported by disciplined capital allocation that balances volume and margin and prioritize the core client growth. And third, we managed a positive operating leverage for the fifth consecutive quarter, while continuing to invest in growth, our infrastructure and efficiency initiatives. Let’s now move to a detailed review. I’m on Slide 10. Unless otherwise noted, results are being compared with Q4 of ’23.

We reported earnings per share of $1.90 for Q4 ’24 or $1.91 on an adjusted basis, an ROE of 13.4%. We delivered record consolidated revenue and strong credit quality across all of our business units. Please turn to Slide 11. Adjusted net income of $1.9 billion increased 24%. Pre-provision pretax earnings of $2.8 billion were up 16%, and revenues of $6.6 billion were up 13%, supported by improved spread income, higher trading revenues and continued growth across our fee-based businesses. We continue to manage expenses relative to revenues while investing to support our strategy and posted 180 basis points of operating leverage. Provisions for credit losses were again down significantly from a year ago, Frank will discuss credit in detail in his presentation.

Slide 12 highlights key drivers of net interest income. Excluding trading, NII was up 17%, driven by expanding margins and continued balance sheet growth. Total bank NIM ex-trading was up 20 basis points from the prior year and 2 basis points sequentially, mainly from higher loan and deposit margins. Canadian P&C NIM of 269 basis points was also up 2 basis points driven by favorable business mix and wider deposit and loan margins. For both the all bank and P&C margins, we maintain our expectation of a neutral to positive bias over time based on current interest rate assumptions embedded in the forward curve. In the U.S. segment, NIM of 363 basis points was up 21 basis points from the prior quarter, mainly driven by higher loan margins. When the Fed cuts rates due to contractual terms, there’s a lag before loans are repriced resulting in a temporary margin increase this quarter.

Excluding this impact, core margins were up roughly 7 basis points. Going forward, we expect margins in the U.S. segment to return to the 350 basis point range and then be stable to slightly up from there with the possibility of temporary help from time to time if and when rate cuts happen. Turning to Slide 13. Noninterest income of $3 billion was up 13% from the prior year, with strong growth in trading as well as a 19% increase in other market-related fees. Transaction-related fees were down 50% — 15% and mainly represent the permanent shift of BA-related revenues into net interest income. Slide 14 highlights our balanced approach to expense management. Excluding performance-based comp linked to the stronger revenues, expenses grew 4%. We continue to realize efficiencies while investing for the future, including in the ongoing development of our AI capabilities around our bank.

Moving forward, we target expense growth in the mid-single-digit range and plan our expense growth relative to revenues to deliver positive operating leverage on an annual basis. Slide 15 highlights the strength of our balance sheet. Our CET1 ratio ended the quarter still rounding to 13.3%, increasing 5 basis points from last quarter. Solid organic capital generation was partially offset by RWA increases and the roughly 5 million shares we repurchased during the quarter. Our liquidity position is strong with an average LCR of 129%, up from 126% last quarter. Starting on Slide 16, with Personal and Business Banking, we highlight our strategic business unit results. Net income of $748 million was up 17% due to higher revenue growth and lower credit losses partly offset by higher expenses.

Revenues of $2.7 billion increased 9% and pre-provision pretax earnings were up 13%, driven by an 18 basis point increase in margin volume growth on both sides of the balance sheet and higher fee income. These results were supported by strong net client growth and franchising success. Our focus on digital is driving market share gains in targeted segments. Expenses were up 5% due to higher employee-related and performance-based compensation. On Slide 17, we show Canadian Commercial Banking and Wealth Management, where net income was up 5% and pre-provision pretax earnings were up 7% from a year ago. Revenues of $1.5 billion were up 11%, driven by strong wealth management growth of 21% and with higher average fee-based assets on both increased client activity and market appreciation.

For the full year, CIBC Asset Management ranked first among the big six banks in both total and long-term retail mutual fund net sales. Commercial Banking revenue was stable to the prior year as higher volumes were largely offset by lower net interest margin. Expenses increased 16% from a year ago, mainly from higher compensation linked to the strong wealth management revenues and increased spending on strategic initiatives. Additional detail on our combined Canadian personal and commercial banking franchise have been included in the appendix. Turning to U.S. Commercial Banking and Wealth Management on Slide 18. Net income of $150 million was up $111 million from the prior year, mainly due to lower loan loss provisions and an 11% increase in pre-provision pretax earnings.

Revenues were up 9% and due to both higher net interest income and fee income across all products. Our strategy and focus on connectivity has allowed us to grow and deepen our U.S. client franchise, generating above-market C&I loan growth and strong deposit growth. Expenses were up 8% year-on-year as we continue to invest in growth initiatives and the infrastructure to support them. Going forward, we expect expense growth in this segment, similar to that experience this quarter and would remind you that the first quarter typically has higher expenses mainly due to seasonally elevated employee-related costs. Turning to Slide 19 and our Capital Markets and DFS segment. Net income of $428 million was up 12% year-over-year. Revenues of $1.4 billion were up 9% and driven by strong results from Global Markets and continued growth in our Direct Financial Services business as well as higher debt underwriting revenues.

Expenses were up 6% and included the impact of higher performance-based compensation linked to stronger revenues. Slide 20 reflects the results of the Corporate and Other business unit, which shows a net loss of $7 million compared with a net loss of $48 million in the prior year, driven by improved treasury and higher revenues from CIBC Caribbean. Slide 21 highlights our full year performance and outlook. Our fiscal ’24 results demonstrate our progress in executing our strategy. We grew revenue, pre-provision earnings and EPS by double digits to record levels, ahead of our medium-term targets. We delivered positive operating leverage while balancing continued investments to both grow and protect our bank, including through the rising impact of AI across our bank.

ROE of 13.7% and was up 30 basis points from the prior year but below our medium-term target, largely owing to the impact of higher capital requirements. Our medium-term targets are unchanged with the exception of incorporating the higher capital requirements into our ROE target. Our conviction and confidence in our strategy and the ROE will deliver has, in fact, grown since we set the previous target at our Investor Day in 2022. However, we must acknowledge the need to carry between 100 and 150 basis points more CET1 capital to satisfy regulatory minimums. As such, we are moving our ROE target to 15% plus, a level to which we will build with the aspiration of driving to a premium ROE in Canada. In closing, we had a strong year in 2024 and are expecting to build on that success from here.

We strongly believe that we have the right strategy the right assets supporting that strategy and the right people, connected culture and financial strength to execute on the opportunities we see in front of us. With that, I’ll turn it over to Frank.

Frank Guse: Thank you, Rob, and good morning, everyone. Our credit portfolio’s performance for 2024 was strong and ended the year at the lower end of our guidance despite the challenging macro environment. We have maintained our focus on managing our lending portfolios with prudent and effective account management strategies to mitigate risk. We remain confident in the quality and resilience of our credit portfolios. Our allowance coverage has also remained elevated and is reflective of our sound risk management. Turning to Slide 24. Our total provision for credit losses was $419 million in Q4 compared to $483 million last quarter with our allowance remaining flat quarter-over-quarter. Our performance provisions were modest at $2 million this quarter.

On a full year basis, our performing allowance grew by $244 million or 8% year-over-year, mainly from additions to Canadian retail and U.S. commercial portfolios. This quarter, our provision on impaired loans was $417 million, up $13 million quarter-over-quarter. This was due to higher provisions in the U.S. commercial portfolio, partially offset by lower provisions in Canadian Banking and Capital Markets. Turning to Slide 25. Our full year provisions for credit losses on impaired loans was 32 basis points. Our retail portfolio experienced higher year-over-year losses driven by an elevated rate environment and higher unemployment. Our teams work closely with clients through these challenging times to find solutions and mitigate potential losses.

Our Canadian Commercial Banking and capital markets portfolios performed very well despite the macro headwinds this year with no specific sectoral stress in either of these portfolios. We also entered the year working through the challenges of our U.S. office portfolio. I’m proud of our experienced team proactively worked through the various issues early, resulting in lower losses over the second half of the year. While uncertainty remains in the market, we are pleased with our credit performance in fiscal 2024, and our team remains focused to mitigate risk or potential headwinds. Slide 26 summarizes our gross impaired loans and formations. Gross impaired loans were up by 2 basis points this quarter, mainly due to an increase in our U.S. commercial portfolio.

New formations of impaired loans in U.S. commercial were still down on a year-over-year basis despite the increase this quarter. This primarily came from a few loans in the U.S. multifamily sector, where we continue to see strength in fundamentals and demand for this asset class. Slide 27 summarizes the net write-offs, 90-plus day delinquency rates of our Canadian consumer portfolios that remained stable quarter-over-quarter. Negative trends in unemployment rates will continue to be a driver of performance for our credit cards and unsecured personal lending portfolios. Our mortgage book, we continue to see positive trends overall with negatively amortizing mortgage balances, down from $38 billion in Q1 to $18 billion this quarter were recently driven by interest rate cuts.

We remain comfortable with the overall credit quality of our Canadian consumer portfolio. On Slide 28, we have vacated our disclosure on Canadian mortgage renewals sensitivity based on the current market rates. With mortgage rates that are now between 4% and 5%, clients will be able to renew at levels below what they had initially qualified at and experienced less of a payment shock. In the outer year maturity splits, some claims could see the amount payments decrease on renewal. Overall, our mortgage portfolio has performed well with losses remaining at 1 basis point, notwithstanding rates that remained elevated over the past two years. We remain confident in the continued resilience of this portfolio. In closing, we entered the year with unemployment training upwards, interest rates at peak levels and sectorial pressures impacting our U.S. office portfolio.

Despite these headwinds, we were able to deliver a strong year of results. This not only highlights our team’s ability to take decisive action to mitigate losses but also underscores how our strategic choices have strengthened our credit portfolio. This gives us confidence in our ability to navigate the economic challenges that may be ahead in 2025. As we look ahead, we expect impaired provisions in retail to trend slightly higher while experiencing lower impaired provisions in U.S. commercial. While we remain cautious about the upcoming year and continue to monitor market uncertainties, our guidance for impaired loan losses for fiscal ’25 remains in the mid-30 basis point range. It should trend towards the lower end of this guidance current economic uncertainties subside.

To conclude, we are very pleased with our solid risk performance in fiscal ’24 and are comfortable with our strong allowance coverage heading into 2025. I will now turn the call back to the operator.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Matthew Lee from Canaccord Genuity. Please go ahead.

Matthew Lee: Maybe we can start with one on the mortgage business. It just sounds like the market has been pretty competitive on that front on pricing. So maybe can you talk about how you’re balancing your objectives of profitability with making sure you maintain your share in that space, that particularly given the levels of renewals income that are coming back?

Victor Dodig: Good morning, Matthew, and good morning, everybody. Thank you for the question. Appreciate that. Look, I’d like to start by reminding everybody we’ve got a very client-focused strategy. We’re distinctly focused on acquiring the right clients where we can build long-term, long-lasting deep relationships with and provide value both for our clients and our shareholders. And so, when we look at the mortgage business, we’ve looked at it through that context and it really is a key product for our clients. However, we’ve been very surgical in how we’ve been operating in the mortgage business. We’ve talked openly about the fact that we’re not chasing share, and we’re not competing on price. We’re there to serve our clients’ needs.

We’ve operated that way this year, balancing client needs against our revenue. And when we looked at the beginning of the year, economics were a little bit more challenged, and we were more muted in our approach. So, we served our clients where we have a deep relationship, we compete hard to keep the mortgage or to consolidate the mortgage and where we have less opportunity for relationship with clients, we’re more selective and we have more of an eye towards profitability. And so, when you put all of that together for this year, we were about 1% growth and the market grew a little bit higher than that. But at the same time, we significantly improved our inflow spreads, and that allowed us to improve the portfolio spreads. And it was one of the contributors to our margin increase over the year an 18 basis point improvement in NIM that we had in the business.

And so, we’re pleased with how we operated, but we’re also looking for opportunities to accelerate. And I think you see that towards the end of the year where we saw the better economics, we leaned more towards that business, and we started being in the mix, and we were third to a month-over-month basis in share as we were kind of closing out the year. So going forward, we see that market accelerating we’re going to keep the same surgical approach going into 2025. We’ve seen some really good momentum in volumes as we enter the year, and we’re prepared to handle that. And so, from the perspective of renewals, there’s a lot of activity coming at us. We’ve disclosed those numbers. We expect about 70% more volume renewing. And we’ve got technology in place.

We’ve improved processes. We’re getting ahead of it with analytics, and we’re there to serve our clients and renew their mortgage through that period of time. We’re also looking at taking advantage of any flows around the market as others with other banks have mortgage needs and those come up for renewal. And so, we’re going to compete there where it makes sense and where we can have a relationship and lastly, we’ve also scaled up our team. We expect new sales activity to be a bit better, and we expect some volume from that as well. And so, we’re ready to handle that with a team that’s committed and there to serve our clients.

Operator: Thank you. The following question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala: I guess maybe just wanted to follow up. So Hratch, thanks for the color, but I think, Victor, you said in your prepared remarks, mortgage growth and consumer discretionary spending to accelerate in 2025. We heard a bit of a more cautious commentary from one of your peers yesterday. I think as we try to figure out where the Canadian economy is going, are we — is it safe to declare that the worst is behind us and things the cyclical rebound that the markets are discounting in these stocks is already underway, and we should feel confident about unemployment moving the right direction given your base case and the comment you made.

Victor Dodig: Well, Ebrahim, thank you for your question. I cannot tell you where the world is going, but I can tell you that I think our — the regulatory environment in the U.S. and the banking landscape will likely loosen. I would expect that our regulators would look to make our level playing field as level as possible so that we can continue to compete. The Bank of Canada is being constructive, and we can see that rates are going in the right direction. This is good for all Canadians. It will help them recover. It will increase and improve business sentiment. And I think if you take all of that together, we see that as being relatively constructive. Clearly, there are geopolitical clouds in the horizon, we don’t control those.

What we do control is our strategy and how we go to market and how we build relationships with our clients. And as Hratch quite clearly articulated, we’re not competing on price. We’re competing on relationships and that matters in the banking business today. Good technology plus good people delivered in the right value proposition helps you win. And in that regard, I think we’re well positioned to benefit from any upside that the market delivers and hold — more than hold our own.

Ebrahim Poonawala: Got it. I need to follow Victor to that around. You said the regulators might level the playing field I think the expectation on the U.S. is, you’re right, I think we will see more predictable maybe capital neutral to positive outcomes. Does that mean we should anticipate maybe the floor factor could get permanently change or the DSB buffer? Is the range is reduced? Like how should we think about where the regulators may level the playing field.

Victor Dodig: Our regulators have always been quite prudential in terms of how they managed our system and they’re very attuned to what’s happening in the rest of the world, including the regulatory environment next door. So, I won’t predict where that’s going, but I will say that I think that you can read the 2s in the United States in terms of where things are likely to go. And I’d like to think that we’ll be given the opportunity to continue to compete for business in our own economy as well as in the U.S. economy.

Operator: Thank you. Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Doug Desjardins: I know Victor or Rob, maybe both. But just can you talk a bit more about your discussions around lowering the medium-term ROE target and you talked about higher regulatory capital. I fully get that. But can you talk about what your set one assumption was back at the Investor Day what the CET1 assumption is today? And where do you think you can run this because I — when I run the math, it seems like you need to have a 12.5% to 12% to get that set on rate or that ROE back up into that 15%, 16% level. So, I’m just trying to get some context and how much may even buybacks kind of factor into this?

Victor Dodig: Yes, Doug, very good question. We’re quite clear that we believe in the medium term, we can get to 15% plus. That is more than consistent with our Investor Day forecast based on the new capital buffers I’m going to let Rob answer that question. But I can tell you strategically, we’re very, very focused on improving our ROE over the medium term, and you will see that because we’re just going to continue to execute on the strategy, which is not right, we’ll deliver that premium ROE. Rob?

Rob Sedran: Thanks, Victor, and good morning, Doug. So, we did $13.4 million this quarter and 13.7% for the full year. So, there is some work to do to get to the 15% plus. There’s no silver bullet. I break it down into a number of things that we’re looking at. So, starting with strategy, as we always do here at CIBC, it is the deepened relationships throughout our bank that should mean better balance on both sides of the balance sheet, and it should mean incremental fee income related to things like wealth management as well. We do see better margin performance, as I suggested in my prepared remarks. Based on the forward curve, we think the margin should be a tailwind for us for the next couple of years. The efficiency opportunity, we think, is significant here at CIBC.

And that’s not tactical expense cuts. That’s about taking out structural costs. and investing the proceeds some into the bottom line and some into growth. We do think loan losses are a little bit elevated and should come down over time. And then more dynamic balance sheet management, and you mentioned buybacks definitely factor in. We announced the buyback last quarter. We started using the buyback this last quarter, and we intend to deploy that capital fully. The 15% plus, you asked about the capital assumptions, at Investor Day was based on an 11.5% CET1 ratio. This guidance is closer to the 12.75% to 13% and that allows room. Should OSFI decide to use the last 50 basis points that’s available to them on the DSP. We don’t need to change our guidance for that.

And there’s upside if they decide for whatever reason to reduce that capital level. So, when you put that all together, it really just comes down to the disciplined execution of our strategy, consistent and continuing to do what we’re doing, just more of it.

Operator: Thank you. Our following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Sohrab Movahedi: I just wanted to quickly go to Shawn Beber. Shawn, your business on an adjusted basis, pretax pre-provision was about $230 million or $240 million, so call it run rate in close to about $1 billion. Is that a good number do you need for you looking ahead? Should you be able to do this around $240 million? Is most of the investing behind you now? And should we be — should we start thinking about a bit more growth out of your segment looking ahead?

Shawn Beber: Thanks for the question, Sohrab. So, our growth outlook is sort of consistent with what you’ve heard already today. There’s an uncertainty out there today, we think we’re very well positioned with our clients. And our team is ready to respond to the changing environment. But when we look at our pipeline, it’s strong with the uncertainty out there, it’s going to take a bit of time to figure out what the timing of that growth might be over the course of 2025, but we feel good about how we are positioned to continue to outperform. In terms of the quarter, we had good results this quarter. There’s some temporary benefits, as Rob talked about in terms of net interest margin that we benefited from this quarter. That will play through over the next several quarters in terms of coming back down to a more normalized level in the sort of the 350 basis point range.

But I’d say, we’re in a — from this point forward, we look at our performance from a PPPT perspective as being sort of steady growth going forward.

Operator: Thank you. Our following question is from Meny Grauman from Scotiabank. Please go ahead.

Meny Grauman: Victor, during the Q3 call, I think you gave a very detailed answer in terms of capital deployment priorities. And you talked about a bias towards organic capital deployment and return of capital, but the world has changed a lot since then. The outlook for the U.S. is very, very strong, and we have the question mark around tariffs and the impact on Canada. So, the question is, does that impact your capital deployment thinking? And maybe put it more directly, why not get bigger in the U.S. quickly and inorganically to take advantage of is likely to be a booming U.S. economy, you already have a base there, but why not get more aggressive right now?

Victor Dodig: Good morning, Meny. So, thank you for your question. Clearly, there’s a lot of fluidity going on out there in the geopolitical environment. Our relationship with the United States is long-standing and important but continues to evolve. So let me just make a couple of comments on that because people may want to know what’s on our mind. What’s on our mind is we should control the controllables, as a country. And our policymakers should do everything possible to help us drive GDP growth here because that’s as important as benefiting from GDP growth in the United States. Things like creating a free trade agreement within our country, providing the incentives for entrepreneurs and capital to be deployed in areas that matter, including AI technology, health care, defense spending within our country in a nascent defense industry, and a clear strategy of regulation that allows businesses to grow and create jobs.

So that’s my message to them. All our leaders need to be thinking about that. What we think about as a leadership team at CIBC is to continue to stay focused on our clients. We believe that there continues to be a robust amount of growth in the Canadian market. Yes, we have leadership positions in certain products and services and categories, but we’re competing to win in the Canadian market, and we will deploy capital in the U.S. market, all in a very balanced way. To be strong in the U.S., you have to be strong at home. And therefore, we’re going to focus on our Canadian business and our U.S. business and really serve those clients that meet our risk appetite and the value having a relationship with a bank that helps them achieve their growth ambitions.

Simple as that. And that will mean growth in Canada, in the consumer, commercial and capital markets and wealth management businesses as well as our presence in the United States, balance growth.

Meny Grauman: So just if I could follow up on that. I guess what you’re saying is you don’t feel an added urgency to deploy capital in the U.S. Is that correct here?

Victor Dodig: So, Meny, really, your question around capital allocation, let me just go back to our principles. Our principles are all about organic investment and investment in our platform, organic with the capital O. The second thing is to continue to grow our dividends with earnings. And I think we did that again this year as we start on the new fiscal year. The third is to use buybacks as Rob articulated already. And when it comes to inorganic, I think we’ve been quite clear that tuck-in M&A to strengthen our businesses, particularly in the U.S. wealth space would be something that we have our intent upon, but it really is about our organic growth strategy and driving a premium ROE.

Operator: Thank you. Our following question is from Lemar Persaud from Cormark. Please go ahead.

Lemar Persaud: Just a point of clarification, Rob. When you said earlier, you see margin as a tailwind for the next couple of years. Are you talking about all bank net interest margins? Are you talking more along the lines of marginal growth? And then if I could squeeze another quick one in here, just the outlook for the tax rate moving forward.

Rob Sedran: Thanks, Lamar. So yes, we think the margin at the all-bank level and at the Canadian P&C level, that’s stable to gradually higher from here, continues to make sense. We’ve talked in the past about the way we position our balance sheet and the tractoring strategy and how that’s going to play out, how we expect it to play out based on the forward curve, that consistent upward gradual trajectory is what we’re looking for. On the tax rate, so we were 22% effective tax rate this year. We disclosed in the MD&A, the impact of the global minimum tax is somewhere around 100 basis points for us. So, the guidance for next year on tax would be in the 23% to 24% range.

Operator: Thank you. Our last question is from Gabriel Dechaine of National Bank Financial. Please go ahead.

Gabriel Dechaine: Just first one on the credit guidance, that’s been reiterated. And if I’m understanding you correctly it’s that the loss rate will be higher in the start of the year and the grade down over the course of the year. It’s consistent with what another bank said and in contrast with different banks. Just wondering why your outlook might be different? I know these portfolio trends and all that stuff that play a role. Is it largely because the — that CRE office portfolio loss rate continues to decline and that’s going to offset stuff over the course of the year?

Geoff Weiss: Well, thanks, Gabriel. Thanks for the question. I think that is part of it. But part of it is also the strength we are seeing in our Canadian commercial books. The strength we have seen in our corporate books. That is certainly helping us, maintaining our guidance. And as I said in my prepared remarks, some of the economic uncertainties subside, we would expect to be at the lower end of the guidance. But it’s really a lot of moving parts going into that guidance and a lot of analysis and scenarios. And as you said, in part, we expect the U.S. to come in, in lower, but we also do expect Canadian retail continuing to trend up slightly in line with the macroeconomic developments and then come down in later.

Gabriel Dechaine: Okay. Great. And then a conceptual one, I guess, for Victor and or Rob or both. So, this ROE target, it’s I guess, one of the big moving — one of the big factors affecting it is the regulatory capital requirement, which has changed since the Investor Day. We all know that — so your — I guess, your base assumption is maintaining a 12.5% to 13% core Tier 1 ratio. Like what if the domestic stability buffer has cut back substantially, do you change that management target range or do you keep it static because it could always go back up? I’m trying to get an understanding of how fluid your core Tier 1 ratio target is because, as I just mentioned, the capital requirements could be reduced, but they can also be held back because some might just say, hey, let’s plan as if that maximum is an effect always.

Victor Dodig: Gabriel, it’s a good question. I’m not going to speculate on what our regulator will do. I will tell you, we have a good regulator that manages our banking system for strength and stability, and we will react to any policies that they put in place. As I said earlier, I think it’s really, really important for policymakers across the spectrum to be thinking about how to drive economic growth in Canada, given how the conditions are changing in the United States. We don’t want to be diverging. We don’t want to be lagging. We don’t want the GDP per capita in Canada declined relative to the U.S. And every decision that helps drive economic growth is something that’s welcome and I can tell you that our CIBC leadership team will react to any decision to drive growth in a continued positive way for our clients. Rob, anything else for you to add?

Rob Sedran: Yes. I guess the only thing because Gabe, you mentioned what do you do if that DSP changes. The reason we said $12.75 million is more — we didn’t want to come back here in six months or a year and say, well, we have to revise the guidance again because the minimum has changed. We feel like the 12.75% to 13 puts us in a position where there’s upside if it comes down, but we’re not worried that there’s downside if it goes up.

Gabriel Dechaine: Yes, no, no. I’m talking more about the upside if it goes down. Is it — so this is really a fluid management target range if it goes down? You react to a reduction if that were to happen and that’s perfectly rational, but it’s also perfectly rational to assume that the higher requirement is maintained. So, it can make managing your ROE target difficult, I guess, is what I’m saying.

Victor Dodig: I think, Gabriel, just over the medium term, that 15% plus is what we work toward delivering irrespective of the environment. I mean, if the environment gets really negative for all banks, and that will be a difficult conversation for everybody. But if we assume we have benign constructive economic environment, the CIBC leadership team will work toward delivering that 15% plus.

Gabriel Dechaine: All right. Great. Well, congrats on the full year. Take it easy.

Operator: Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Victor.

Victor Dodig: Thank you, operator, and thank you for all the thoughtful questions you’ve shared with us this morning. I hope to see CIBC story and key messages from today have resonated with you. We’re delivering strong results through consistent execution of our strategy, and we’re well positioned for the years ahead. The goal for our investor base has always been to deliver sustainable relative outperformance over any time horizon, and I believe and we believe we’re achieving this objective. Giving back to our communities is also deeply embedded in the CIBC culture. Yesterday marked the 40th anniversary of Miracle Day here in Canada where our capital markets team and Wood Gundy Investment Advisors donated their fees and their commissions for a day to raise money for children in need.

We’ve been doing this for over four — almost for four decades and have raised almost $300 million for kids. It was a huge success again yesterday, and it’s a tradition that we’re incredibly proud of support because it reflects the bank that we are. Finally, I’d like to close out by extending a sincere thank you to our entire CIBC team. I’ve always said that banking is a team sport. It is truly our whole team that is driving the momentum to deliver for our clients, for our shareholders, for our communities and for one another within our bank. I want to wish you and all your families a wonderful holiday season. I hope you get to recharge the batteries, and we look forward to catching up in the new year. Take care.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.