Canadian Imperial Bank of CommerceCMNYSE
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Operator: Good morning, and welcome to the CIBC First Quarter 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: Thank you, and good morning. We will begin this morning's call with opening remarks from Harry Culham, our President and Chief Executive Officer; followed by Rob Sedran, our Chief Financial Officer; and Frank Guse, our Chief Risk Officer. Also on the call today are a number of our group heads including Christian Exshaw, Capital Markets, Kevin Lee, U.S. region, Hratch Panossian, Personal and Banking, Canada and Susan Rimmer, Commercial Banking and Wealth Management, Canada. They're all available to take questions following the prepared remarks. As noted on Slide 1 of our investor presentation our comments may contain forward-looking statements, which involve assumptions and having inherent risks and uncertainties. Actual results may differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I will now turn the call over to Harry.
Harry Culham: Thank you, Geoff, and good morning, everyone. We are pleased to start the fiscal year on strong footing with exceptional first quarter results. Our performance was driven by our team's collective focus on accelerating our proven client-focused strategy and unlocking further value through disciplined execution. Before I comment on our quarter 1 results, I want to offer some perspective on how our clients are managing through today's dynamic environment. We are staying close to them as they navigate a fluid operating backdrop with heightened focus on trade developments and geopolitical tensions. For my conversations with CEOs and industry leaders over the past few months, clients are generally managing near-term uncertainty well and remain optimistic about the longer-term. Our roots as the Bank of Commerce are very relevant today. Our bank was formed in 1867 to help capital flow to businesses that we're building our nation. Today, we stand ready to help our clients advance their agendas, including key infrastructure initiatives. We have a long history of being a trusted partner to the businesses and families we serve, and we remain focused on helping them grow in 2026 and beyond. Now turning to our quarter 1 results. On a reported basis, earnings per share of $3.21 were up 47% from the prior year and included income tax recoveries, which we have treated as an item of note. The remainder of my comments will focus on adjusted results. We reported adjusted earnings per share of $2.76, which were up 25% from the prior year, driven by a robust top line. Revenues of $8.4 billion were up 15% from the prior year. Importantly, our revenue growth is well diversified with record revenues across each of business units. Expenses were up 12% from the prior year. We delivered operating leverage of 3.6%, marking the tenth consecutive quarter in which we delivered positive operating leverage. Our critically remains resilient. Provisions for credit losses this quarter were largely aligned with our expectations. We continue to proactively stress test our portfolio for a wide range of scenarios to ensure our bank can navigate all market conditions. We are well prepared should we see a downturn in the environment while also being well positioned to grow with our clients. Our return on equity was 17.4% this quarter on the foundation of a robust 13.4% CET1 ratio. We returned roughly 78% of earnings to shareholders in the first quarter in the form of dividends and 8 million common share buybacks. These results reflect our unwavering commitment to delivering sustainable value for our shareholders and maintaining a solid foundation for future growth. Let me provide some highlights across each of our 4 strategic priorities that underscore the momentum we've achieved across our bank. Our first strategic priority is to grow our mass affluent and private wealth franchise. Across our managed mass affluent offering, we are connecting clients with dedicated advisers to help them achieve their goals. However, simple or complex. It's clear that this approach is working. Managed clients in Personal Banking are generating roughly 4x the revenue of an unmanaged client with Net Promoter Scores that continue to hit all-time highs. Within the past year, qualified clients in our managed offering grew by 6%, helping deliver money and balance growth of 12%. And from here, we are prioritizing client acquisition and growth with key client segments. We are also unlocking efficiencies to scale adviser capacity with mass affluent clients per adviser up 7% from the prior year. Our second strategic priority is to expand our digital-first personal banking capabilities. 48% of our retail products sold during the first quarter were through digital channels. That's up 5% from the prior year. As we implement continued enhancements through digital, we're putting more power in the hands of clients to deepen their relationships with our bank. We're also equipping our advisers with digital tools to create efficiencies for them, enabling them to spend more time with clients. Our third strategic priority is to deliver connectivity and differentiation to our clients. We built a highly connected culture that drives steady referral business across the bank, supported by an innovative suite of products designed to deepen relationships with our client base. Record revenues in Canadian Commercial Banking this quarter were fueled by single-digit volume growth on both sides by high single-digit volume growth on both sides of the balance sheet, robust margin expansion and strong connectivity across our teams. That collaborative momentum is also fostering greater cross-business engagement. This quarter, our Capital Markets platform captured elevated volume from client-driven demand, complemented by healthy referral activity from our Commercial and Wealth businesses. Earlier this month, we confirmed our role as a partner of the Defense Security and Resilience Bank Development Corp Group. As new opportunities emerge in Canada's key sectors, we are ready to work alongside our clients and industry leaders. Our fourth strategic priority is to enable, simplify and protect our bank by investing in technology, data and AI to drive operational excellence and further modernize our bank. We frame AI value through 3 pillars: revenue growth through better client experiences, operational efficiency and risk mitigation. These pillars guide where we invest and how we prioritize use cases. From a revenue perspective, these capabilities are enabling us to engage clients more intelligently, bringing the right insight adviser offer at the right moment. We're also using AI to accelerate and improve the consistency of credit decisions, supporting growth while maintaining discipline. On efficiency, we're simplifying our bank by reducing manual and repetitive work, so our teams can focus on higher-value activities. This includes automation, faster issue resolution and meaningful productivity improvements for our technology teams. And from a risk perspective, AI is helping protect our bank by strengthening fraud prevention, credit monitoring and AML functions. We've deployed these capabilities with governance built in from the start, ensuring transparency, control and regulatory alignment. Culturally, we see AI as an opportunity to rethink how work gets done, not just to automate existing processes. Our teams are encouraged to challenge legacy workflows, supported by training and clear policies for responsible AIUs. Having every CIBC team member doing this will propel us forward not just today, but also with future upcoming technologies. Rather than leading with a single enterprise value number, we focus on what is observable and repeatable such as scaled adoption, operational outcomes and improved risk performance. Over time, these benefits flow through to revenue, efficiency and returns in a disciplined and sustainable way. In closing, the positive momentum across our bank continues to build. We're focused on accelerating our execution in 2026 to drive robust, well-diversified growth by proactively preparing for uncertainty and staying close to our clients, we are well equipped to successfully navigate evolving market environments. And with that, I'll now turn it over to Rob for a deeper look at our financial results. Over to you, Rob.
Robert Sedran: Thank you, Harry, and good morning, everyone. Let's start with 3 takeaways. First, the year is off to a strong start with another record earnings quarter and an ROE that was well above our current medium-term target. Second, the strong and broad-based revenue growth and solidly positive operating leverage reinforce our confidence in our strategy and demonstrate our focus on disciplined execution. And third, helped by strong reported earnings, our CET1 ratio edged higher even as we accelerated our capital return strategy by repurchasing 8 million shares during the quarter. Please turn to Slide 8. For the first quarter of 2026, earnings per share were $3.21 and included income tax recoveries, which we have treated as an item of note. Absent that, our effective tax rate was in line with expectations. On an adjusted basis, EPS was $2.76, up 25% from a year ago. Adjusted ROE was 17.4%, up 210 basis points from the same quarter last year. Let's move on to a detailed review of our performance. I'm on Slide 9. Adjusted net income of $2.7 billion increased 23% and pre-provision earnings were up a strong 19%. Revenues benefited from balance sheet growth, improving net interest margins and higher fee income. We continue to manage expenses prudently relative to revenues, delivering 360 basis points of operating leverage. Impaired losses were within our guidance range. Frank will discuss credit in his remarks. Please turn to Slide 10. Excluding trading, net interest income was up 13%, with continued balance sheet growth and expanding margins. All bank margin ex trading was up 17 basis points from the prior year and 6 basis points sequentially due to a combination of higher deposits, business mix and improved product margins. Those same factors drove Canadian P&C NIM of 300 basis points, which was up 10 basis points sequentially. In the U.S. segment, NIM of 401 basis points was up 17 points from the prior quarter due to continued strength in deposits, which was partially seasonally driven. After accounting for the seasonal drag on margin, we often see in Q2, we maintain our expectation of a stable to gradual positive bias on our net interest margins over time. Slide 11 highlights fee revenue trends. Noninterest income of $4.1 billion was up 18% with growth across payments, institutional, trading and consumer fees. Market-related fees also increased 18%, helped by constructive markets with particularly strong growth in trading, underwriting and advisory and mutual fund fees. Transaction-related fees were up 10% driven mainly by higher credit and FX fees. Slide 12 highlights our expense performance. Expenses were up 12%, driven by increased business activity, revenue-linked costs and technology investments across our bank. These expenses were paced relative to the robust revenue growth, and so we once again delivered positive operating leverage. Slide 13 highlights the consistent strength of our balance sheet. Our CET1 ratio at the end of the quarter was 13.4%, up 5 basis points from the prior quarter. We delivered strong organic capital generation, helped by strong reported earnings, partially offset by an increase in risk-weighted assets and the accelerated share buybacks. As a reminder, and as we disclosed last quarter, we will see a roughly 30 basis point benefit to our CET1 ratio in Q2 related to a reduction in operational risk weights. Our liquidity position is very strong with an average LCR of 133%. Starting on Slide 14. With Canadian Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income growth of 25% and pre-provision earnings growth of 19% were revenue-driven. Revenues were up 13%, helped by margin expansion, loan growth and higher fee-based revenue. Net interest margin was up 34 basis points year-over-year and 9 basis points sequentially. We continue to see tangible results from our focus on deep and profitable client relationships, selective balance sheet deployment and disciplined pricing decisions. Expenses were up 7%, mainly due to higher spending on technology and other strategic initiatives and higher employee-related compensation. On Slide 15, we show Canadian Commercial Banking and Wealth Management, where net income and pre-provision pretax earnings were up 9% and 16% from a year ago. Revenues were up 13% from last year. Commercial Banking revenues were up 9%, driven by volume growth and margin expansion. Commercial loan and deposit volumes were up 7% and 8%, respectively, from a year ago. Wealth Management revenue growth of 16% was driven by higher average fee-based assets and increased client activity driving higher commissions. AUA and AUM were up 14% and 15%, respectively, compared with Q1 of '25. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income was up 19% from the prior year, mainly due to lower loan loss provisions and pretax -- pre-provision pretax earnings that increased 7%. Revenues were up 6% from last year. Net interest income was up 10% from improved loan and deposit growth and wider deposit margins. Fee income growth was impacted by lower annual performance fees in our Asset Management business. Expenses were also up 6% due to higher employee compensation, including costs related to severance and strategic initiatives. Turning to Slide 17 and our Capital Markets segment. Net income was up 42% and revenues were up 28% year-over-year. Global Markets revenue saw growth across most products. Investment Banking benefited from higher underwriting and advisory activity and Corporate and Transaction Banking revenues were up due to volume growth and higher fees. Slide 18 reflects the results of Corporate and Other, which was a net loss of $100 million compared with a net loss of $60 million in the prior year with both revenues and expenses influenced by some unusual items this quarter. In closing, we generated strong revenue growth, delivered positive operating leverage, returned significant amounts of capital to shareholders and strengthened our balance sheet. A strong start to the year. With that, I'll turn it over to Frank.
Frank Guse: Thank you, Rob, and good morning, everyone. Through the first quarter of 2026, our credit portfolio performance has remained aligned with our expectations given the fluid operating environment. Mid ongoing tariff-related headwinds and negotiations, we remain vigilant and proactive in managing our credit portfolios to address both expected and unexpected changes. Our increases in allowances over the past 12 months and show a strong coverage against the economic environment, and we maintain a high level of confidence in the overall quality and stability of our credit portfolio. Turning to Slide 22. Our total provision for credit losses was $568 million in Q1, down from $605 million last quarter. Our allowance coverage remains robust at 79 basis points. Our performing provision was $48 million this quarter, reflecting the impact of credit migration and the evolving economic environment. Our provision on impaired loans was $520 million, up $23 million quarter-over-quarter. Higher provisions in our Canadian and U.S. Commercial Banking segments were partially offset by lower provisions in Capital Markets and Canadian Personal and Business Banking. Turning to Slide 23. In Q1, impaired provisions moved slightly higher with the impaired loss rate at 35 basis points. Impaired provisions in Canadian Personal and Business Banking and Capital Markets were down this quarter. Canadian Commercial Banking impaired was up in Q1, driven by losses across unrelated sectors. The losses in this portfolio are attributable to a small number of impairments, and the overall portfolio remains strong, and we do not expect losses to remain elevated to this degree through the balance of the year. Impaired provisions in U.S. Commercial Banking were up in Q1, but remained lower compared to the same period last year. Slide 24 summarizes our gross impaired loans and formations. Our gross impaired loan ratio was 64 basis points, up 3 basis points quarter-over-quarter. New formations were down in Q1, with a decrease in business and government loans, partially offset by an increase in consumer loans. While the impaired loan ratio on mortgages increased modestly this quarter, given continued softness in the housing market, our loan-to-value ratio for the mortgage book remains strong at 57% for the overall book and 68% on impaired balances. Overall, we do not expect material loss -- material increases in losses within our mortgage portfolio. Slide 25 outlines the 90-plus day delinquency rates and net write-offs of our Canadian consumer portfolios. The 90-plus day delinquencies in our Canadian consumer portfolios increased quarter-over-quarter primarily reflecting the current macroeconomic backdrop. Our consumer net write-off ratio increased modestly, mainly driven by the credit card portfolio, which continues to be affected by elevated unemployment and ongoing economic uncertainty. While we closely monitor evolving economic conditions, we remain confident in the overall strength and stability of these portfolios, which are aligned with our client-driven strategies. In closing, while impaired loan losses were slightly higher in Q1, our credit performance remains stable and resilient, reflecting our prudent risk management and disciplined portfolio oversight. We will continue to foster strong client engagement and proactively assess our portfolios, ensuring they remain robust amid the evolving market conditions. Our strong allowance levels continue to provide prudent coverage for changing economic conditions. And notwithstanding the higher impairments in our Commercial Banking portfolios this quarter, we remain comfortable with our full year guidance. I will now ask the operator to open the line as we welcome your questions.
Operator: [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: I guess maybe first question for you, Harry or Rob. When we look at sort of the margin expansion that occurred this quarter and just the overall profitability, I think the ROE at 17.4%, appreciating, we can't run rate 1Q as the go-forward ROE profile. But just talk to us as we think about over the medium term, like why commerce, even with the 13.5% or higher CET1 should not earn somewhere between a 16% to 17% ROE and if the capital ratios were to decline, maybe even better. Like what would be the argument against that statement?
Harry Culham: Ebrahim, nice to hear from you. I'll kick it off and maybe I'll pass it over to Rob in a moment. But the first thing I'd say is that our strategy has been consistent, and we believe we have unique competitive advantages that really position us well to deliver profitable growth. We target the right client segments where we can deepen relationships and be meaningful to our clients. We have the right product focus. If you think about deposits, investments, transaction accounts across each of our businesses, we have the right technology. As I mentioned earlier, we've invested in AI-enabled technology and perhaps you'll hear from Hratch later around what he's doing in the retail space because it's excellent. And we have the right culture, our team members are focused on delivering the entire connected bank to our clients. And so we're very confident in our ROE trajectory and that journey that we're on. And maybe, Rob, if you want to quantify some of the drivers, that would be great.
Robert Sedran: Yes. Thanks, Harry, and Ebrahim, last quarter, we guided for the full year that we'd be above 15%. And I would -- obviously, the year is off to a very strong start. We're less worried about a specific target, though we do acknowledge the need to refresh our target. But as I said last quarter, when we talked about '26, once we cross 15%, it's not like it was mission accomplished for us. As Harry said, we think we've got the right strategy, the right investments, the right technology and the right people to drive what we think is a premium ROE, right? So we expect to continue to move this higher. And it's based on, to your point, the current level of buyback, the current capital levels, we're not doing anything particularly unnatural to get there. But I do want to maybe just stop for a second and talk about how we get there matters to us. Like we talk a lot about disciplined execution. The other word we use a lot around here is the word balance, right? And so when we think about where ROE is, we also think about it in the context of earnings per share growth. We're not over-rotating to ROE at the expense of earnings growth. Like there's a lot of unnatural things you can do to try to get your ROE higher in the short-term. That balance to us means over time, we can get both the earnings growth and the ROE expansion. And it's something that we've been doing rather successfully over the last little while. So our focus is on controlling what we can control and keep doing what we've been doing. We think that means the ROE is going to continue to move higher over time.
Ebrahim Poonawala: Understood. And maybe, I guess, question for Hratch. I mean we've not seen this play out in the Canadian banks as much, but there's been obviously a lot of concern around AI, AI disruption risk. Perhaps you spent a lot of time around just the consumer franchise thinking about this. One, talk to us kind of your perspective on how you think about the opportunity versus the disruption risk for consumer deposits and banking and then maybe just your strategy as you kind of leading the business?
Hratch Panossian: Yes. Thank you, Ebrahim. Thanks for the question. And look, I think the short answer is we think it's an opportunity as with any other technology, the way we look at it is how do we adopt the available technologies that are emerging in order to further our business strategy. And keying off a bit of what Rob was saying, right, our business strategy in retail is to continue to generate value for all of our stakeholders. That's how we believe the balance is achieved. And you're seeing that in the results, like I will say, very proud of what the team has delivered once again at 13%. Growth is there, top market revenue growth. But at the same time, after several years, we're inching back to the 30% ROE level. And I think that's because of everything that we've done in the business and we'll continue to do. So on the AI front, it does support our strategy. As we've talked about before, we've been very, very focused on where we're trying to grow and create differentiation. In the retail business, there's 3 priorities for us, lead in every day banking solutions for all of our clients, lead in investments and advice in the mass affluent segment and continue to drive the efficiency and simplification of our business, which benefits both our team and how easy it is for them to do their work as well as the shareholders through the efficiency. And we've been using, frankly, AI. You saw Harry's slide at the enterprise level. We've been using AI across all 3 of those things. But maybe one example I can give you, which I think is a good one that cuts across all of them is our Cortex platform that was referenced on the slide before. And the reason I think this is a good one, it actually highlights that AI itself and a lot of the attention there is right now on models and LLMs and some of our peers talk a lot about that. But the differentiation isn't really in the models. It's about how you build your business processes and change your business model to actually leverage what AI can do. And some of that is built on years of foundational investments. So Cortex is built on foundational investments in the quality of our data that we've made for many years. Foundational investments in our eCRM platform, which cuts across all of our channels, whether it's the front line and the branches, the contact centers or digital, foundational investments in our martech stack as well as many others. And now what AI allows us to do is to use some traditional, I'll call it, machine learning models to begin with in Cortex to allow us to understand on a personalized level, what clients need, get that to the right place, whether that's the digital channel or our advisers to be actioned and start leveraging even LLMs on top of that to help our advisers prepare for that conversation. And over time, even having a conversational interfaces to bring that LLM interface to clients directly. And we're also building Agentic flows on top of that to start processing things in the back end for our clients. And so when you put all of that together, we focused Cortex particularly. We launched at the end of last fiscal. This quarter, we focused particularly on the savings side and deposits. And what we're seeing is that 44% conversion rate uplift that you see there. That's relative to controls if we didn't follow the personalized approach that Cortex allows us to do. And that's just the beginning. We're going to rise from there. And again, if you look at the impact of that in units for the first quarter in the products that we applied the Cortex use cases to about 10% of unit sales actually came out of Cortex results.
Operator: Our next question comes from the line of Matthew Lee with Canaccord Genuity.
Matthew Lee: I know, Rob, you gave some color on NIM, but I just want to maybe understand how much the quarter-over-quarter expansion in Q1 was seasonality versus some of the deposit portfolio benefits and other? And then how much of a reversion should we expect throughout the year?
Robert Sedran: Matthew, it's Rob. So I've often spoken in the past about the margin in 3 main buckets, right? There's the hedging and positioning, the so-called tractoring strategy, there's business mix and then there's the product margin, which kind of reflects the competitive environment. And I would say this quarter, the margin uplift has been about 1/3, 1/3, 1/3 roughly in those 3 categories. The hedges work, they do what they're going to do. The tractoring strategy will continue to roll on as we've discussed in the past. Mix was positive and both from a deposit volume perspective and a deposit mix perspective. So a little bit more noninterest-sensitive deposit, a little bit less term product and this deposit volumes were strong as they often are, particularly in the commercial businesses. Now in terms of going forward, often what we see -- and you saw it last year in Q2 as well, where we had a sequential downtick in net interest margin. There's some seasonality to it. I mean checking accounts tend to go down a little bit. Credit card balances tend to go down a little bit, Those commercial balances roll off, again, just seasonally as some of the -- some of our commercial clients are using funds for whether it's bonus payments, tax payment, restocking inventory, all kinds of reasons. So last year, we saw a slight downtick in Q2 as well. It wouldn't surprise me if that happened again this Q2. But the overall margin story otherwise continues to be that stable to gradual increase that we've been guiding to over time.
Matthew Lee: Okay. So when we say stable NIM, it's kind of stable from the Q1 levels?
Robert Sedran: Yes. Like I said, beyond factoring in potential seasonality in Q2 where it might give back a basis point or 2. The story beyond that is to continue to move stable to gradually higher.
Operator: Our next question comes from the line of John Aiken with Jefferies.
John Aiken: Frank, when I take a look at the 90-plus day delinquency rates in the Canadian portfolio, I understand that your confidence in terms of your own portfolio, your credit adjudication and everything else like that. But when I look at the upward trend in these numbers, how concerned should we be? Do you think that we're at or near a peak in terms of these levels? Do we think they may actually inflate a little bit more? And what do you think the impact could be in terms of your broader portfolio?
Frank Guse: Yes. Thank you, John, for the question. I do believe there is also some seasonality in those numbers, say, in particular, if you look into the credit cards that usually tend to be a little higher in the Q1 pattern given the seasonal patterns there. But overall, I would say those numbers actually fairly well reflect our expectations against the ongoing macroeconomic backdrop. So that is why we do feel very confident with our guidance given because that would be included in those expectations. And I mean, we are seeing still some ongoing, I would say, softness in the economy. We have seen unemployment going up, going down a little bit, but having to a certain extent, plateaued. We do have the USMCA negotiations coming our way. So there's some uncertainty still ahead of us. But I'm not overly concerned with those numbers. We have the right strategies underneath both from a business perspective and from a risk management perspective to manage those portfolios very proactively. And as I said at the beginning, those broadly expect -- reflect our expectations that we had going into the quarter as well.
John Aiken: And if I could, Rob, you to make some commentary about service in Caribbean, where it actually does look like the gross impaired loans are heading in the right direction. Is there anything you can comment about that region?
Robert Sedran: No. I mean they are headed. As you said, there is a little bit of a trend there, but nothing really to call out.
Operator: Our next question comes from the line of Doug Young with Desjardins Capital Markets.
Doug Young: Just wanted to go back to Harry. I think you said 10 consecutive quarters of positive operating leverage. Just looking at your expense ratio, it's improved quite a bit. Maybe can you unpack a little bit about what you're benefiting from maybe Harry or Rob, what could throw a wrench into this? And then Hratch, maybe if you can kind of tag in, like it looks like you brought your expense ratio down in Canadian Personal and Small Business Banking quite a bit. Like how do we think about it going forward?
Robert Sedran: Doug, It's Rob. Maybe I'll get started. And we -- the revenue visibility has been pretty good for us over the last little while. And so we've taken the opportunity to advance some spending that otherwise might have happened later this year or even next year to bring it forward a little bit and invest in future growth, right? So aside of the fact that revenue-linked expenses have also been rising, we've been managing that revenue to expense gap fairly well. And that's just how we think about our expense outlook. We do like to have that positive operating leverage. We're not going to -- we target it every quarter. We're not saying we're going to deliver it every quarter. It's nice to have a 10-quarter winning streak for sure, and we intend to continue it. But we do target on an annual basis. And with the environment that we've had, our expense in terms of absolute dollar or absolute percentage has been a little on the higher side, but it's been conscious and intentional spending to advance the priorities of the bank. So when we look forward, if revenue were to slow from here, we're confident that we have the levers to pull back some of that spending to maintain that operating leverage gap. Maybe I'll hand it over to Hratch for the second part of your question.
Hratch Panossian: Yes, sure. Thanks, Doug. Look, it's an area of focus for us, right? We talk about the bank-wide operating leverage. But as you see in the trend, the same applies in the retail business. So our approach has been all along to try to grow our revenues in that 7% to 10% plus range that we've targeted and we've exceeded that and to generate positive operating leverage on top of that. And how do we do that? It's focusing on scaling the businesses where we already are carrying some of the expenses on and we've done a good job of doing that as we scale and take advantage of a lot of the investments we've made over the last while. But even without the revenue side, I think the expense side is something that we've been very sharply focused on. And we're applying the same approach in retail as we do elsewhere in the bank. We have to continue investing in the business. And what you do over time is you create a flywheel of you make the investments and a lot of the investments are also driving efficiency on the cost side and time of our team side. And that allows you to increase productivity, and that makes more room for us to invest in, so we can continue investing while keeping expenses more modest. And so I think for the rest of this year as well, you will see over the years, some of our expense growth moderate without our investment levels going down, actually continuing to increase. And part of it is we could talk about AI here as well and automation, but I think there's a lot of opportunity for us over time. If I touch just on our front line, who is a big part of the resources that we have at our disposal. We set a goal a couple of years ago to try to get to 1 million hours saved for the front line through automation and some of the new use cases and they're now Gen AI as well, and we reached that goal this year, a year ahead of schedule. We've now looked at multiples of that going forward to create more hours for our team, as Harry referenced in his remarks to spend time with clients. And so we're seeing the number of meetings with clients, the number of hours with clients each adviser is spending or each front line person is spending go up. We're doing the same thing with several use cases in our contact centers, where AI is allowing us to either divert calls, take calls through our AI voice bot that we've highlighted in the results or when a human has to pick up the phone. We've got some workflows in the back end that are leveraging AI that also help them. And I think there's efficiency there. And then there's the back end. We're looking at a lot of our processing of products, whether it's origination or servicing as I spoke about before. And I think what the Agentic workflows you can create today allow you to do is to create far more automation, which is good for everybody. It's good for clients. It's good for our team, not having to handle some of those exceptions and it's good for the shareholder and it's good for operational resilience, frankly, from a regulatory perspective. So I think all of that creates opportunity to continue generating positive operating leverage, which we will continue to focus on and to continue getting that mix ratio to a better and better place. And obviously, ROE continuing to trend to the 30% level it is now and higher.
Doug Young: So just one follow-up for us. Like where do you think you can take that expense ratio?
Hratch Panossian: I think, look, in the long-term at this point, I'll say directionally, we'd like to see it trend downwards. And we've talked about the business, and we think the potential of our franchise is to continue to grow above market, which we have been doing and continue to take the profitability metrics, whether that would be the mix ratio or the ROE to a premium level relative to the peer group. So I think we've got some room to go.
Operator: Our next question comes from the line of Mario Mendonca with TD Securities.
Mario Mendonca: Maybe this is for Rob. Could you help me interpret Slide 33. Is it a -- I'm talking about the interest rate environment where you show us the roll on and the roll-off rates? Is it as simple to suggesting that this chart will not change. If everything were static, that the margin expansion continues through to 2026, the end of '26 and even maybe in the first half of '27, and those 2 lines cross and it comes to an end. Is it really that simple?
Robert Sedran: Well, Mario, yes, I mean, listen, when you think about the part of the margin expansion story that has been related to the balance sheet positioning, I mean, yes, it pretty much is that simple. By the time we get into middle of '27, you can see those lines start to intersect and it becomes more of a neutral. And that's based on the current forward curve, right? But based on the current forward curve, you can see that benefit start to slowly migrate towards neutral in '27. Now the other things that have been driving the margin, whether it's business mix and the focus on what we're doing in the retail bank to focus on bringing the money in like the deposit side, all of those things should continue to benefit the net interest margin beyond that period. But the structural benefit we've been seeing does start to roll off in '27.
Mario Mendonca: It sounds like a little bit of a softball, but why is it that -- why has CIBC led the group in the last, say, 2 years, maybe 18 months in margin? I obviously compare all bank margin CIBC to the peers. And the gap is significant. I know you don't sit there worrying about what Royal is doing, but why would that margin be so much greater, the margin expansion be so much greater for CIBC than peers?
Robert Sedran: Well, I'll try to handle softball notwithstanding. I'll try to handle it in a way that speaks more about what CIBC is doing rather than what others might be doing. We do manage for margin stability as best we can over time, which means that this benefit from the higher interest rates is bleeding in slowly. I can't speak to what the others have done or didn't do. But that benefit has been rolling in over time. And you've heard Hratch speak repeatedly on these calls about how we're looking at the mortgage business and how we're looking at our business mix generally in retail and where we're focused, those transaction accounts, the credit card businesses, the checking and savings accounts being more of a focus than say, the mortgage business has been helping the margin. And particularly in a period where mortgages haven't been growing very rapidly, it's been NII accretive as well. So for us, it comes down to executing on that treasury strategy of maintaining margin stability over time. And then the business strategies have been focused in the right areas, and we're going to continue to focus that way.
Mario Mendonca: Last softball question, and I'll stop. We're still seeing this very, very strong growth in the financial institutions like the business and government lending. When you talk about what is CIBC up to there? And the reason I'm being so direct in asking the question is -- this is -- this pattern is familiar to me. Not for CIBC necessarily, but it's familiar to me in the Canadian banks where a particular lending loan category grows much stronger than peers. And 2 years later, we're all talking about what went wrong. So maybe just talk about where this financial institutions group growth is coming from? And how do you get comfortable this isn't going to be a sad story 2 years now?
Christian Exshaw: Mario, this is Christian. So let me, I would say, try to unpack this. And I thought we actually spoke about it on last call. So if you look at that line item, we actually grew dramatically, I would say, in the second half of last year. And what we're trying to do now, as I said on last call, is to moderate this growth. So whilst the growth year-over-year is substantial, if you were to look at it on a quarter-over-quarter spot basis, then that growth is moderated to roughly 2%, which is in line with what I said, which was high single digit by the end of this fiscal. This is a business we're very comfortable with. It leads to a number of other products that we can market with those clients. We discussed the business consistently with our colleagues in risk management, just to make sure that as you said, we don't have any issues going forward. We're not in the storage business, we are in the moving business. So there's a lot of velocity in some of these books. So we're very comfortable with the risk. But I'll probably pass on to Frank, if Frank has anything else to add.
Frank Guse: Yes. Thank you for the question. And as Christian said, I mean, we do feel comfortable with the books. We have the right guardrails in place. We have the right strategies in place on how we think about the various businesses that actually fit in our financial institutions line and we don't have any material concerns on that business. And as Christian said, we do see the growth moderating.
Operator: Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets.
Sohrab Movahedi: Okay. Rob, Harry, I mean, I heard you balanced, disciplined, profitable growth. I just wanted to look at our Hratch's business and Christian's business. I mean they are giving you similar ROEs have over the last, let's say, 5 quarters you're allocating more or less similar equity to each one of these businesses and earnings are within 10% of each other. So is this what balanced growth looks like? Is the capital markets can be as big as Canadian Personal Business Banking?
Robert Sedran: Sohrab, it's Rob. I mean I would think of it a little bit more as over time, that balance will appear. As we think about the market environment we've been in, capital markets is doing quite well. and the environment is constructive. We're taking advantage of businesses that we've been building for many, many years that are ultimately being done well within risk appetite and well within all of our just business mix appetite. So when we think about -- I don't see a world -- or certainly, it's not our goal to have the world you just described happen. We think more each of our businesses can grow and over time at roughly the same rate. I mean, even the capital markets business, when we talk about the long-term targets for it, it's a 7% to 10% earnings growth kind of business, the same thing we target for the bank, the same thing we target for the retail bank. So I think there's a bit of a cyclical benefit or cyclical tailwind for us right now in the capital markets. But over time, we would expect that to normalize and see our businesses growing more in balance with each other. So when we talk balance, it's more in terms of growth rate rather than size.
Sohrab Movahedi: Okay. And so if Christian could continue to give you good ROE, is there a finite on the capital that you're willing to allocate to him? Or is he open for business for as much capital as he needs?
Harry Culham: Sohrab, It's Harry. I would say that the answer to the last question is no. We are -- we take a very balanced approach to where we allocate our capital. And when it comes to capital allocation, really, our approach is anchored in our client-focused strategy. This is all about our clients. So we're directing resources where we've seen strong client demand and, of course, long-term value creation. And that's what we're seeing right now. Obviously, this is a very interesting business capital markets as we speak in this cycle. And we believe that we are very well positioned to service our clients as we move through this cycle. We are delivering capital markets products, I might remind you Sohrab to the entire organization. So our commercial bank, our wealth clients , our retail clients all have the benefit of capital market solutions. So this is a very well diversified business within capital markets as part of the diversified bank that we run.
Sohrab Movahedi: Yes. I wasn't debating you on it, Harry. I mean it looks like it's doing well. It's been a source of stability. I mean there's great track record over there. So I'm just curious as to why it couldn't be a bigger part of the bank but on a consistent basis. But that was my question.
Operator: Our last question comes from the line of Gabriel Dechaine with National Bank Financial.
Gabriel Dechaine: I just want to revisit that margin discussion in a slightly different angle here. For a while now, you've been guiding to something, I forget the language exactly stable to positive bias or upward bias, whatever it is. And you've been exceeding your guidance. And I'm just wondering, what's -- what drivers are doing better than you expected? Is it the mix that's shifted a lot more favorably? Is it the shape of the yield curve that's been a positive surprise. Just to give a sense of why you keep outperforming our expectation on that -- in that area?
Robert Sedran: Gabe, It's Rob. So it does come down, I think, largely to mix and product margin as well. When we think part of mix is client preference, right? Like if mortgages were growing more rapidly in the industry, our mortgages will be growing more rapidly, that's positive for net interest income. It's not necessarily positive for NIM, right? And so when we think about client preference for -- at one point, it was client preference for GIC was a bit of a margin headwind. Some of that is rolling off, and now it's becoming more of a margin tailwind like that mix is something that can fluctuate over time. What doesn't fluctuate is where our focus is and what our strategy is and offering solutions to clients as opposed to a product level strategy, but clients often choose different things in that strategy. So with the mix evolving in a positive way, the margin has been doing better. And the other part that we can never really forecast is the competitive set and product level margins have been relatively stable, where we often in our guidance, assume there's going to be a little bit of price competition or a little bit of margin compression sometimes from some of the margins that we see in the market. So the hedging strategy has been doing what we exactly we thought it would do. The mix and the product margins are behaving well and in line with what our strategy is. But we don't always guide to exactly what clients are going to do because we never are positive on that going into a quarter. Overall, though, controlling what we can control, as I've said before, is what gives us the constructive view on margins. So we do think it's going to continue to migrate higher over time based on the things that we're doing.
Gabriel Dechaine: And how important is the combination of slow mortgage growth plus the competitive dynamic based on that one graph in your slide, looks like the new inflows or renewals are still contributing to wider spreads.
Hratch Panossian: Yes. Thanks, Gabriel. I'll jump in. It's Hratch here. So it's been a factor, but the mix is a much bigger factor than the inflow outflow differential, if you will. So if you look at over the last year, that differential between inflows and outflows had been, call it, a couple of basis points a quarter to the PBB margin positive. It is getting a little bit more muted. I would expect going forward, it's still a positive. We're still seeing, as you see on the chart, a bit of a differential there, maybe not as big as it was. And so for the next several quarters, I would still expect in the order of a basis point a quarter help from that. But the bigger factor is, as Rob said, the mortgages growth versus cards growth. And we've seen muted market on the mortgage side, right? We were expecting sort of mid- to low single digits this year, and that would have been part of our guidance and the market has been a bit slower than that. Now it's more low single-digit growth on mortgages. And we continue to do really well in our cards franchise, both because of our co-brand portfolio as well as our premium travel portfolio and some of our new everyday rewards cards. And so I think if that mix continues, that will be a bigger factor than the mortgage repricing.
Gabriel Dechaine: The revolvers or proportion of revolving balances is increasing as well. Is that kind of a...
Hratch Panossian: It is. We've seen utilizations are not up that significantly, but we are seeing interest earning balances and the reward balance is growing at a healthy pace, obviously, in a responsible way from a risk perspective. We have been very prudent on the card portfolio. We've actually taken some actions going back 1 year, 1.5 years ago to tighten up a bit, and I think you're seeing that in the results of our charge-offs and cards versus some of the peers.
Operator: There are no further questions at this time. I would now like to turn the meeting over to Harry.
Harry Culham: Thank you, operator, and thank you all for joining us this morning. I wanted to reiterate 3 key messages, which I hope resonated with you all today. One, we're delivering robust profitable growth. We continue to demonstrate that our ability to outperform is sustainable through different market environments. Two, we're focused on accelerating our execution. The cumulative effect of delivering strategic progress each quarter is significantly improving our capabilities across the bank. And three, we are well positioned to continue delivering high-quality financial results. We have a strong balance sheet and deep client relationships to continue growing organically. We are excited for the many opportunities ahead across each of our businesses. And before I close, I wanted to thank the entire CIBC team for putting our clients first each and every day. Thank you, everyone, and have a good morning.
Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.