Canadian Imperial Bank of Commerce Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Second Quarter Performance: Delivered net income of $2 billion and earnings per share of $2.05 both up 17% from prior year. Pre provision pre-tax earnings up 19% supported by broad-based growth across operating units and operating leverage. Credit remains resilient. Return on equity 13.9%, up 50 basis points year-over-year. CET1 ratio 13.4%. Repurchased 6 million common shares during the quarter.
• Leadership Transition: Victor Dodig will retire as CEO at end of first fiscal year, passing baton to Harry Culham who was named Chief Operating Officer and will assume role of President and CEO on November 1. Harry will continue the client-focused strategy instilled by Victor.
• Strategic Priorities:
  • Grow mass affluent and private wealth franchise: Imperial service Net Promoter Scores at all-time high.
  • Expand digital first personal banking capabilities: Launched CIBC Adaptive Mastercard.
  • Bring all of CIBC to bear for clients: 32% of Canadian commercial clients and 20% of US commercial clients have relationships, US region capital markets revenue up 37%.
  • Enable, simplify and protect the bank: CIBC.ai platform saved 200,000 hours during pilot and rolled out across organization. Signed Government of Canada's Voluntary Code of Conduct for generative artificial intelligence.

Segment Performance

• Personal and Business Banking: Adjusted net income increased 4% due to higher revenue growth, partially offset by higher expenses and a higher total provision for credit losses. Revenues were up 8%, helped by volume growth on both sides of the balance sheet and a 23 basis point increase in the net interest margin. Expenses were up 5% due to investments in strategic initiatives. Over half a million net new personal clients added over the last 12 months.
• Canadian Commercial Banking and Wealth Management: Net income and pre provision pre-tax earnings were up 13% and 14% from a year ago respectively. Revenues were up 13% from last year. Wealth Management growth was driven by higher average fee based assets. Commercial Banking revenues were up 12% driven by robust volume growth. Expenses increased 11% from a year ago, mainly from higher compensation linked to strong wealth management revenues.
• US Commercial Banking And Wealth Management: Net income of $125 million was up $46 million or 58% from the prior year, mainly from lower loan loss provisions and a 10% increase in pre provision pre-tax earnings. Revenues were up 10% from last year. Deposit growth of 15% and loan growth of 4% resulted in higher net interest income. Expenses were also up 10% with the increase largely related to employee compensation.
• Capital Markets: Net income was up 34% year-over-year. Revenues of $1.5 billion were up 32% driven by strong results across the capital markets platform. Had strong performance in all global markets businesses, with US region capital markets revenue up 37% from the prior year.

Guidance

• Net income and earnings per share both up 17% from prior year. Return on equity 13.9%, up 50 basis points year-over-year. CET1 ratio 13.4%.
• Expect to deliver positive operating leverage on a full year basis and to manage expense growth to the mid-single digits for the balance of fiscal 2025.
• Repurchased 6 million common shares during the quarter and continue to maintain flexibility to drive organic growth.

Risks

• Uncertainty around trade policy which could impact results.
• Macro-economic uncertainties that may affect credit quality and portfolio performance.
• Potential changes in economic outlook that could impact impaired provision for credit losses.

Question and Answer

Q: The performing PCL you put during the quarter on a basis points basis looks a little lighter than the peer group. And I wanted to dig in a bit on your assumptions, 1% Canadian GDP growth, 7% unemployment. I think data coming out recently suggests that, that forecast might be a bit optimistic. Do you think that your expert credit doesn't overlay kind of prepare CIBC for a more challenging environment or could we see more performing build if those assumptions change?

A: I think you are highlighting a couple of elements that go into our performing allowance on top of the QIFY forecast that you see in the disclosures. One is the scenario waiting. So how much of wait is being put on the base case versus the downside versus the upside case. And then in addition, of course, in times like this with a lot of uncertainty, expert credit judgment does play a meaningful role. So I wouldn't necessarily expect any changes to those FLIs translating one to one into changes in our allowances, because we did reflect some of that uncertainty through our expert credit judgment.

Q: On the CNIB side, I think CIBC was the only bank that really showed progress there. I might have missed it, but was there any single large deal in the quarter that drove that? And should we be thinking about CIBC's investment banking team as positioned any differently than any of the Canadian peer group in general?

A: It's Harry. I'll take that question. The first thing I'd say is we are seeing very strong growth across all of the different businesses that we have under the capital markets umbrella. It really is part of that long term strategy where we're building a North American platform. So we're seeing it north of the border, south of border in a very diversified manner. I think this is a good example of our franchise in action as we see elevated activity on the back of volatile or uncertain markets or times where our clients really rely on our advice and execution. And so you're seeing the results of that deep client focus that we've had for many years and a consistent strategy. So I don't think we're where we are different is we're not trying to be all things to all people. We're very focused on building deep relationships with our clients and they rely on us in these times. We target the 7% to 10% target that we put out at Investor Day several years ago. We've been achieving at the high end of that, of course, for the recent