Prepared remarks
Good morning. Welcome to the CIBC Q2 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.
Thank you, and good morning. We'll start today's presentation with remarks from Victor Dodig, our President and Chief Executive Officer, followed by Harry Culham, our Chief Operating Officer; Rob Sedran, our Chief Financial Officer; and Frank Guse, our Chief Risk Officer. Additionally, we have several group heads joining us on the call, including Shawn Beber from the U.S. region, a representative from Personal and Business Banking Canada, and Susan Rimmer from Commercial Banking and Wealth Management Canada. They will be available for questions after the prepared remarks. We will conclude by 8:30, and we encourage everyone to participate by limiting your questions to one and re-queuing during the Q&A session. We are also available after the call for any follow-up questions. Please note that our comments may include forward-looking statements that involve assumptions and carry risks and uncertainties. Actual results could vary significantly. I would like to remind everyone that the bank utilizes non-GAAP financial metrics to derive adjusted results. Management evaluates performance on both a reported and adjusted basis and finds both metrics helpful in assessing the underlying business performance. Now, I will hand the call over to Victor.
Thanks, Geoff, and good morning, everyone. I'm pleased to report that we delivered strong results and continued our momentum in the second quarter. Our performance reaffirms that our strategy is working. Our resilience through heightened uncertainty showcases the depth of our client relationships, our credit quality, and the strength of our balance sheet. Before I turn to our second quarter performance, I'd like to make a brief comment on the leadership announcements we made on March 13. As you know, I'll be retiring as CEO of our bank at the end of our first fiscal year. It's been an incredible journey over the past 10-plus years, and I'm proud of what we've accomplished together across our CIBC team. I'm also proud and excited to be passing the baton to Harry Culham, the result of a thoughtful and multi-year succession planning process. As part of the transition, Harry was named Chief Operating Officer and will assume the role of President and CEO on November 1. His global experience, growth-oriented mindset, and track record for delivering results make him the ideal person to lead CIBC into the future. I look forward to working closely with Harry and our leadership team to ensure a smooth transition over the next several months. Before I continue with our second quarter highlights, I'd like to invite Harry to make a few comments. Over to you, Harry.
Well, thank you, Victor. Good morning, everyone. Let me start by expressing how honored I am to be taking on the role of President and CEO of CIBC. I would just like to take a moment to recognize Victor for his dedication and positive influence on our bank. His support over the years and his continued leadership through this transition; we will continue to operate with the hallmarks his leadership has instilled over the past decade, including the relentless client focus, connected and purpose-led culture, and consistent execution to deliver results for all of our stakeholders. Over the last few months, I've spent a lot of time meeting with our broader CIBC team and our clients and other stakeholders to gather perspectives. My takeaways reinforce my belief that we have something special. Our team members and partnerships are strong, and our clients value our differentiated advice. I'm also excited about the opportunity to work alongside our exceptional leadership team, each of whom has had a hand in crafting and executing the client-focused strategy that is driving our success. Today, we will continue to build on our momentum and drive CIBC to new heights. And with that, I'll turn it back to you, Victor.
Thank you, Harry. Let’s discuss our performance. In our adjusted second quarter results, we posted net income of $2 billion and earnings per share of $2.05, both up 17% from the previous year. Our pre-provision pretax earnings increased by 19%, bolstered by strong growth across all operating units and another successful quarter of operating leverage. Our credit position remains robust as we carefully monitor and stress test our portfolios against various scenarios. The return on equity rose to 13.9%, an increase of 50 basis points from last year, alongside a solid CET1 ratio of 13.4%. We repurchased 6 million common shares this quarter while maintaining the flexibility needed for organic growth. We achieved these results despite a challenging environment. Although the outcome of ongoing trade policy discussions is uncertain, we remain confident in our strategy and balance sheet to support our clients.
In times like these, our clients seek our guidance to help keep their goals on track. Recently, our bank received Forrester's customer-obsessed Enterprise Award for North America, highlighting our dedication to placing clients at the center of our leadership and operations, which truly reflects who CIBC is. With our client-focused approach, we are making meaningful progress on our four strategic priorities. First, we are expanding our mass affluent and private wealth franchise, with more Canadians benefiting from dedicated advisers to achieve their financial objectives. Our clients are responding positively to the personalized experiences, reflected in higher Imperial Service Net Promoter Scores that reached an all-time high this quarter. Second, we are enhancing our digital-first personal banking capabilities, responding to our clients' demand for seamless digital experiences. We also tailored our products to meet their needs, launching the CIBC Adapt to Mastercard this quarter, allowing cardholders to earn bonus points in their top three spending categories each month.
Third, we are leveraging our connected platform and team for our clients. In Canada, a significant portion of our commercial clients now have a CIBC Private Wealth relationship, and in the U.S., that figure has reached 20%, both showing growth from the previous year and reflecting our franchising progress and connected culture. Our U.S. capital markets revenue has also increased by 37% year-over-year. Finally, our fourth strategic priority is to simplify and protect our bank as we aim to improve efficiency, operational resilience, and the experiences of both clients and employees. Our technology investments, including our CIBC AI platform, have saved an estimated 200,000 hours during a successful pilot and are now being implemented throughout the organization. We are building our AI capabilities on a solid foundation of governance and transparency, and earlier this year, CIBC became the first major Canadian bank to sign the Government of Canada's voluntary code of conduct for generative artificial intelligence.
In summary, our second quarter performance shows ongoing momentum and consistency in a volatile environment. We achieved strong top line growth and operating leverage while maintaining our best-in-class defensive attributes, including prudent credit reserves and a strong balance sheet. As the economic landscape continues to shift, we will remain close to our clients and communicate transparently with our shareholders. Our strategy and diversified platform position us to excel across various scenarios. Now, I’ll turn it over to Rob Sedran for a review of our financial results. Rob, it's yours.
Thank you, Victor, and good morning, everyone. Let me start with three takeaways from our results. First, revenue growth was strong, with each business unit performing well, reflecting the consistent execution of our client-focused strategy across our bank. Second, even with more than 4% operating leverage this quarter, we continue to invest to develop competitive differentiators that drive sustainable, long-term stakeholder value. Third, we repurchased 6 million shares during the quarter, and both capital and liquidity remain strong, which positions us to support our clients and execute our strategy against an uncertain operating environment. Please turn to Slide 8. Earnings per share were $2.04 for the second quarter of 2025 or $2.05 on an adjusted basis, and adjusted ROE was 13.9%. As I noted, our balance sheet remains strong with ratios that are well above normal course operating targets.
Let's move on to a detailed review of our performance. I'm on Slide 9. Adjusted net income of $2 billion increased 17%, supported by strong performance across all business units. Pre-provision pretax earnings were up 19%, and revenues were up 14% driven by strong trading activity, expanding margins, volume growth, and higher fee income. We also continue to manage expenses relative to revenues, delivering 430 basis points of operating leverage. Total provisions for credit losses were up 18% from a year ago, largely driven by higher performing provisions, reflecting the uncertainty in the macroeconomic outlook. Impaired losses remain within our previous guidance range. Frank will discuss credit in detail in his presentation. Slide 10 highlights key drivers of net interest income. Excluding trading, NII was up 16%, driven by continued balance sheet growth and expanding margin. All bank margin ex trading was up 16 basis points from the prior year and down 1 basis point sequentially.
Canadian P&C NIM of 273 points was up 1 basis point. We continue to expect our all bank and P&C margins to be stable to gradually higher based on the current forward curve. In the U.S. segment, NIM of 372 basis points was down 6 basis points from the prior quarter, driven by normalization of our loan margins, partly offset by ongoing strength in deposits. We expect margins in the U.S. to normalize to the 365 to 370 basis point range, subject to the evolution of our business mix. Turning to Slide 11. Noninterest income of $3.2 billion was up 12% from the prior year, amid growth in trading as well as higher market-sensitive revenues that drove a 21% increase in market-related fees. Transaction-related fees were down 15%, mainly due to the revenue-neutral impact of benchmark reform, lower card, and FX fees. Slide 12 highlights our ongoing balanced approach to expense management. Excluding performance-based compensation linked to the strong revenues, expenses grew 6%, and as investments and the impact of FX were partly offset by the benefits of prior initiatives to improve efficiency and deliver a better experience for our clients and our team.
We continue to invest to harden and protect our bank modernizing our infrastructure and simplifying our processes. We 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. Slide 13 highlights the strength of our balance sheet. Our CET1 ratio ended the quarter at 13.4% and was down 10 basis points sequentially. The solid organic capital generation was more than offset by the ongoing share buyback program from which we have now repurchased 14.5 million shares. During the quarter, we returned $1.4 billion in capital to our shareholders, including roughly $500 million of share repurchases. Our liquidity position remains strong with an average LCR of 131%. Starting on Slide 14, with Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income increased 4% due to higher revenue growth, partially offset by higher expenses and a higher total provision for credit losses.
Supported by core business momentum, pre-provision pretax earnings were up 11% as our client-focused strategy continues to deliver results. 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. Our strategic investments, including in our exclusive partnerships are driving client acquisition in our targeted segments, adding over 0.5 million net new personal clients over the last 12 months. We also continue to drive growth by deepening relationships with existing clients through personalized advice and offers. Expenses were up 5% due to investments in strategic initiatives and in our team. Many of these investments are streamlining our operations and enhancing both client member and team member experiences, driving record Net Promoter and team engagement scores. On Slide 15, we show Canadian Commercial Banking and Wealth Management, where net income and pre-provision pretax 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 on both increased client activity and market appreciation despite the market slowdown in Q2. Commercial Banking revenues were up 12%, driven by robust volume growth. We continue to focus on referrals within our business as well as strengthening our partnerships and connectivity across our bank. Expenses increased 11% from a year ago, mainly from higher compensation linked to the strong wealth management revenues. Across Commercial Banking and Wealth Management, we have been modernizing our processes and technology while maintaining our commitment to client relationships, advice, and credit discipline. Additional details on Canadian P&C are in the appendix. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income of USD 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 pretax earnings.
Revenues were up 10% from last year. Deposit growth of 15% and loan growth of 4% resulted in higher net interest income, while most fee categories increased as we continue to deepen our client relationships. Expenses were also up 10% with the increase largely related to employee compensation. We remain committed to our three key strategic priorities in this segment: expanding private wealth management with a focus on high-touch relationships and building scale, growing commercial banking by delivering industry expertise and unique solutions, and investing in technology and infrastructure to scale our platform, drive connectivity, and improve resilience. Turning to Slide 17 and our Capital Markets segment. 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. We had strong performance in all global markets businesses, which saw increased client activity on the back of higher volatility.
Solid corporate and investment banking revenues benefited from higher volumes and margins in Corporate Banking, and higher debt underwriting activity in investment banking. We are leveraging our investments to deliver a differentiated cross-border and highly connected platform. Our Capital Markets segment is a well-diversified business with a growing presence in the United States that contributed 37% of segment revenue this quarter. Expenses were up largely due to higher performance-based and employee-related compensation, continued investments in growth initiatives, and higher volume-driven expenses. Slide 18 reflects the results of the corporate and other business units. Net loss of $15 million compares with a net loss of $9 million in the prior year and is inside the range we project for this segment of a loss of between $0 and $50 million. In closing, we delivered another quarter of strong results.
While there continues to be an increased level of volatility in the operating environment, owing particularly to trade-related uncertainty, our results have been built upon a resilient and consistent strategy: the strength of our balance sheet, our diversified business mix, our disciplined resource allocation, and our team. As always, we focus on the things we can continue to control to deliver profitable growth. With that, I'll turn it over to Frank.
Thank you, Rob, and good morning, everyone. Our credit performance in Q2 was strong and continues to trend at the lower end of our guidance despite the ongoing uncertainty in the global economy. While the macro environment continues to evolve, we are actively monitoring our portfolio and maintaining close relationships with our clients to effectively navigate through the uncertainties. We continue to build on our already strong allowance this quarter with coverage there positions as well to manage potential risks or challenges ahead. Turning to Slide 22. Our total provision for credit losses was $605 million in Q2 compared to $573 million last quarter. Our allowance coverage increased quarter-over-quarter by 1 basis point to 77 basis points, and year-to-date, our allowance is up by $341 million or 8%. Our performing provision was $142 million this quarter, driven by an unfavorable change in our overall economic outlook including an increase in uncertainties related to the trade environment, partially offset by a release driven by portfolio movements.
Our provision on impaired loans was $463 million, up $17 million quarter-over-quarter. This was due to higher provisions in the Canadian Personal and Business Banking and Canadian Commercial Banking portfolios, partially offset by lower provisions in Capital Markets, U.S. commercial and CIBC Caribbean. Turning to Slide 23. Overall, Q2 portfolio performance remained in line with our expectations with our impaired provisions ratio increasing slightly this quarter to 33 basis points. Consistent with our prior guidance, Personal and Business Banking impaired PCL trended up, mainly due to higher write-offs and an allowance increase for impaired balances. In Canadian commercial, we saw an increase in impaired provisions driven by a small number of new impairments across unrelated sectors. We continue to see no systemic risk in any specific sector. Our capital markets portfolio continues to perform well with solid results in Q2.
In U.S. commercial, we saw improved performance again this quarter, mainly attributable to lower provisions in the commercial real estate sector. Slide 24 summarizes our gross impaired loans and formations. Our gross impaired loan ratio was flat at 57 basis points with a modest increase in retail, offset by a decrease in our business and government loans. While mortgages experienced a slight increase this quarter, the current loan-to-value ratio for impaired balances remained low at approximately 60%, and we do not expect any material increase in net write-offs. In addition, new formations in the portfolio trended lower in Q2 attributable to both retail and business and government lending. Slide 25 summarizes the net write-off and 90-plus day delinquency rates of our Canadian consumer portfolios. Our credit card and personal lending write-offs trended higher quarter-over-quarter, which continued to be impacted by elevated unemployment rates, along with some seasonality this quarter.
In our mortgage portfolio, there was a slight increase in 90-plus day delinquencies. We do not expect meaningful losses given the strong average loan-to-value in the book. We remain comfortable with the overall strength of our Canadian consumer portfolios. In closing, despite the economic challenges, our impaired losses continue to be at the low end of our guidance supported by the strong performance of our credit portfolios. We will continue to monitor the developments surrounding trade policy and other macroeconomic changes while prioritizing our efforts to assist clients in navigating through the ongoing headwinds. We are pleased with our strong performance in the first half of the year and remain comfortable with our full-year guidance on impaired losses. I will now ask the operator to open the line for questions.
Questions and answers
Our first question is from Matthew Lee at Canaccord Genuity.
The performing PCL you put through in the quarter on a basis points basis, looks a little lighter than the peer group. Whilst we dig in a bit on your assumptions to 1% Canadian GDP growth, 7% employment. I think data coming out recently suggest that forecast might be a bit optimistic. Do you think that your expert credit judgment overlay kind of prepare CIBC for a more challenging environment? Or could we see more performing builds those assumptions change?
Yes, Matthew, thank you for your question. I think you are highlighting a couple of elements that go into our performing allowance on top of the QIF live forecast that you see in the disclosure. One, is the scenario weighting, so how much weight is being put on the base case with the downside side versus 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.
Okay. That's helpful. And then maybe if I could sneak one more in. On the C&IB 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 has positioned any differently than any of the Canadian peer group in general?
It's Harry. I'll take that question. The first thing I'd say is we are seeing very strong growth across all of our businesses under the capital markets umbrella. This is part of our long-term strategy as we build a North American platform, with activity both north and south of the border in a diversified manner. This exemplifies our franchise in action as we experience elevated activity during volatile times when our clients rely on our advice and execution. The results reflect our deep client focus that we've maintained for many years along with a consistent strategy. We differentiate ourselves by not trying to serve everyone but instead focus on developing deep relationships with our clients, who depend on us during these times. We aim for the 7% to 10% target we set at Investor Day several years ago, and we have been achieving the higher end of that range recently.
The following question is from John Aiken from Jefferies.
Rob, as you're pretty well aware from your former life on the sell side that strong results, hugely big questions, and I'm focusing in terms of the success you've had on your operating leverage. Basically, what I'd like to hear from you is where we stand in terms of the momentum that being built up from a cost-cutting regime? And what the outlook is moving forward? I know you gave us the mid-single-digit expense growth for the second half of the year. But I would like to hear where you think that you are in terms of what inning are you in, in terms of the previous cost-cutting initiatives? And then how replicable is that on a go-forward basis based on the investments you've been making to date?
Thank you, John. I would express it a bit differently regarding our view on operating leverage and efficiency. We adopt an always-on approach, aiming to achieve significant efficiency gains while also encouraging the entire organization to identify smaller efficiency opportunities. We don’t see this initiative as having a deadline or diminishing over time; it’s integrated into our planning process. We don’t plan for high revenue growth alongside equally high expense growth. Instead, we try to balance both, allowing us to respond if the revenue environment improves by increasing expenses and accelerating some investments. We anticipate continuing to realize efficiencies and plan for annual operating leverage. While we set targets quarterly, we do not guarantee they will be met each quarter, but we are confident in our annual operating leverage strategy. As I mentioned, there is no expiration date on these initiatives.
If I can just build on Rob's comment, which was exceptional, given that you played both sides of the market in terms of the sell side now being our CFO. The results that we have is a reflection of what we've been doing over the past decade. We've been transforming the base foundational technology of our bank. We've been transforming the user experience at the front end of our bank. And I think the next iteration of efficiency is going to come from embracing data, embracing artificial intelligence, embracing how that can actually transform and quite frankly, make life more pleasant for our employees and for our clients. And that I think you'll see in every single business, and I think it will be reflected in our financial results as well. So this is part of a plan that we've had, a plan that we have going forward, and I'm very confident about how we can repurpose our legacy costs and reinvest it for future growth in our business.
The following question is from Ebrahim Poonawala, Bank of America.
Frank, following up with you, I see you maintain confidence in your impaired PCL guidance. You've indicated that reserve builds have occurred over the last couple of quarters. Can you share what you're observing regarding the current situation of Canadian consumers and businesses, the level of stress they're experiencing, and how this impacts your visibility on credit? What gives you confidence that in three months the impaired PCL outlook won't deteriorate significantly from your current expectations?
Yes. And thank you for the question, Ebrahim. I mean everything I said is built on a very thorough assessment of the portfolio. And even if you look into our or one leading indicator a little bit could be our delinquency rates. And while we did see a little bit of an increase in net write-offs, on the PBB side, we did see delinquency rates come down in Q2, and there is always a little bit of seasonality in the Q2 numbers. So overall, we feel very confident and comfortable with the credit quality. And as I said, a lot of analysis and a lot of different angles of how we are looking at is going into, of course, our guidance in our commentary. But I would take a look at the delinquency rates that we disclosed and them coming down, and that should give us some comfort of what we are seeing in the portfolio.
Got it. And I guess, again, tied to that, maybe Victor, for you, you've been very vocal in terms of policies the administration should take to kind of get Canada, Canadian economy going. Just give us a view of your optimism around that? And should you expect proof points on that over the next 3, 6, 12 months? How should we think about that as we think about how the banks could grow over the next year?
Predicting the economy is one thing, predicting politics is another, although I will say that I do think that in the region that we primarily operate in, there's a bias to economic growth. In Canada specifically, I think that the government that's come in place is looking to do that through interprovincial trade barriers being dropped through incentives on the housing front by getting Canada's natural resources to market. I do think that there's two areas that I would encourage them to focus on to drive further growth aside from those three policies and actually getting to a better place with our trading partners in the United States and Mexico and reigniting CUSMA 2.0. One is, can we put policies in place to actually develop a base of more risk capital in the country to make sure that we can deliver growth in a diversified set of industries beyond the family business, which are natural resources agriculture beyond housing and into technology, into health care, into a diversified manufacturing base.
I think there's plenty of capital in the country. I think there's some incentives needed to be developed for not only our pension plans, but also affluent Canadian investors to help make sure that economic base is diversified. The second thing I'd ask him to think about is doing something for young people. Young people may be thinking about how you can raise the tax exemption threshold for young people so they can actually generate more income if it's tied to a savings and putting money into TFSAs, RSPs, and first-time homebuyer plans and helping them achieve the dream of homeownership through their hard work and effort over time. And I believe that over time, we will have some sort of data on the trade front. The strongest economic region in the world today is the North American region. I think governments are increasingly recognizing that. It will look different than it did late last year going forward, but I still think that there will be an integrated approach to economic growth across three countries.
The following question is from Gabriel Dechaine, National Bank Financial.
So Victor, I guess you've got next year on a Q3 call, so I'll save my best wishes for them. Just a question for Frank on credits. If I recall correctly, your guidance was for a full year impaired loss rate of mid-30s and it would grade down over the course of the year. Correct me if I'm wrong there. Regardless, I just wanted to get a sense for if you can prognosticate on peak PCLs, I know that's a term that comes up every now and then, and it seems to have been a moving target the last few years. And I'm wondering if we look at 2026, we could have a similar year to this year where the impaired loan losses stay elevated because businesses aren't hiring today, letting people go and there's just a bit of a lagged effect of what's going on today that could filter into next year?
Yes. And Gabriel, thank you for the question. Again, I would reiterate our guidance, which was in the mid-30s for the full year. It's probably a little bit too early to talk about what 2026 brings. And what the rest of the year brings, I mean speaking about and reiterating our guidance, even being at the lower brand, we could expect some increases in Q3 potentially. But then we expect it to moderate for the last quarter of the year in our plans. But a lot of that will be driven by the ongoing macroeconomic development, some of the trade uncertainties that we are seeing, unemployment will continue to be a headwind. Some of the interest rate decisions will be a tailwind. So we will see a lot of that play out in the next couple of quarters. And over time, I think we will see some clarity on the macroeconomic and trade policy front, and that will certainly help getting us more closer to a comfortable '26 forecast as well.
Okay. So mid-30s, I may have misspoke there. And maybe more look at it a different way. These are still good numbers. You're coming below your guidance. And we're seeing a few other banks where impaired loans are coming down, not going up, which was the expectation. Is it possible that there may have been a cohort of borrowers that was kind of put to the side during the pandemic and then never came back? So what we're seeing really is a higher grade overall just by higher-quality borrower overall because of that phenomenon. I don't know if that's a valid theory?
Well, I think what is important to keep in mind is a little bit anchoring us back to our strategy. We are focused on building client relationships. We are focusing on getting to the mass affluent client. And I think that's what you're seeing. That's what you're seeing in our business and government portfolio, which is performing exceptionally well. As we said in the past, those portfolios can be episodic. So you could see something happening there at some point, but there's nothing to semi going on. We don't see any factors or areas of particular concern. And you also see it in our retail portfolios, which also are performing very, very well. So as you said, those are very strong results, and we feel very comfortable with those results.
The following question is from Mike at Scotia Bank.
Just a quick numbers question for Rob. I know there's been a lot of good momentum on NIM at the all bank level. And the way I'm looking at it just to clarify, I'm taking out the trading-related NII from the numerator and trading-related securities from the denominator. I'm not sure if you guys look at it the same way, but I think it had been outperforming quite a bit the last few quarters. And looks like it was flattish this quarter. I'm wondering if there's any change. I'm sorry if I missed this in your prepared remarks, but any updates on your view on how the hedging is playing out? And what's your expectation of the all-bank level going forward?
Mike, it's Rob. I've been providing guidance over the last few quarters indicating a flat to gradually higher trend, and it has indeed been increasing over the past several quarters. I always mention the flat aspect of our guidance because business mix can affect results at times. This quarter, we noticed that non-trading securities increased slightly, which positively impacts net interest income, though it doesn't necessarily enhance the margin. The changes in our business mix this quarter included a slight decline in the U.S. and modest decreases in Canadian commercial and wealth segments, which impacted the overall performance. Looking ahead, our guidance remains positive. Given the forward curve, we anticipate continuing benefits from our strategy designed to maintain stable net interest margin over time, which we are achieving. Therefore, we expect a gradual increase moving forward as long as the forward curves remain favorable.
That's very helpful. And then a quick one for Hratch, just on the mortgage business. Obviously, a flat result this quarter sequentially. It's not that different from the peers. I'm guessing it might have helped your margin a little bit in the quarter. But just in terms of the revenue contribution, I'm just going to I just want to see if you're comfortable providing a similar type of guidance that you have in the past, I think it's been a couple of years since it was provided. But I believe it was somewhere around 1% of your segment's revenue, this goes back a couple of years again. Is that still within the realm of what the mortgage business contributes, not just the spread, but the fees earned around volumes and originations, is that still a number we could use as a rough proxy on how much mortgages actually contribute to your top line in the segment?
Mike, thanks for the question. Maybe I'll start by taking a bit of a step back. As we've talked about in the past, and it links a bit to Frank's comments and the comments made by Rob, we have a strategy that's focused on our clients. and a strategy of building the best relationship-focused bank in the country for retail consumers and small businesses, and that's what we're following. We don't have specific product-based strategy. And so for us, mortgages are just one of those key products that our consumers need. And we're always going to be there for them. That said, as we're focusing on leading with best-in-class experiences in everyday banking, leadership and advice across our franchise and some of the economics, frankly, of the mortgage business, the mortgage business is becoming a smaller and smaller part of the contributors to revenues. And we're focusing more on those deep relationships.
And as I've said, in a few of the calls recently, on mortgages, our approach is very simple, where we have key relationships with clients, we want to have their mortgage. We want to have a fulfilling relationship with clients. It creates a virtuous cycle of us knowing the client better, being able to offer better advice improving the economics of the relationship for both the client and us, and it leads to some of the better risk results that Frank actually touched on, and that's what we've been doing on mortgages. If we don't have a relationship with a client, we're always taking an eye to could we have a fulfilling relationship for the client and a profitable relationship for us over time with that client, in which case, again, we'll compete for that business on the mortgage. Outside of that, we're only looking at the economics of the mortgage. And by taking that strategy over time, what has happened is the margins over the last year in the mortgage business have improved by about 25%.
The number of mortgages that have other products for us with us are at an all-time high. So the number of single product mortgage clients is coming down. And when you look at the economics of the mortgage business, while they are still strong, it is a much smaller contributor for us. us today than it is. So going forward, I would see more of the same. I would see us focus on the products that are allowing us to grow high single-digit revenue despite a slower market. that's demand deposits were growing double digits. That's cards where we're growing high single digits. That's investments where we've been leading the Fix tables, and that's how we're going to keep driving our strategy. I would say you could focus less on mortgage going forward, but it still is a key product that if clients need it, we'll be there for them.
I wanted to ask in a different way about the diminishing contribution you mentioned. Is it significantly different from what it would have been a couple of years ago? I'm considering the downturn in the mortgage sector, where tariffs seem to have an impact, and people might be holding back. There might be some pent-up demand that could emerge later in the year. However, it appears to be a potential revenue headwind. Can we use your previous guidance as a reference for what it will contribute to your top line, even if it’s at a reduced level?
Yes. So as I said earlier, it is a lower contributor. So your 1% number today would be significantly higher than where we are. Some of that has been margins. Remember, margins on mortgages in the portfolio have come down significantly. So today, it's a higher percentage of our earnings than it was a year ago, and that's because margins on the portfolio are expanding. But margins and volume both play, obviously, a role in revenue. So today, I would say it's a significantly smaller portion of our revenues. And like I said, margins may go up. But in terms of our focus I would not expect it to become a materially larger portion over time.
The following question is from Sohrab Movahedi, BMO Capital Markets.
Hratch, if I can just stay with you. Can you just talk a little bit more broadly about the margin dynamics between deposit margins and I guess asset yields? I think you covered mortgages here, but just more broadly, what are you seeing and what are you expecting?
Yes. Thanks for the question, Sohrab. And we've covered this before. I think there's a number of things that are helping margins in our business. And part of it is environment, but part of it is also our strategy. And so I'll start with our strategy. And I won't repeat what I just said in the other question. But our strategy is one that leads to, we believe, a more profitable business and a higher margin business. And I think you've been seeing that come to bear recently. Even though the balance sheet has been growing on both sides of the balance sheet slower. We're growing more, and we're gaining share in the areas that we're focused on. So demand deposits, we grew double digits over the last year. But on the GIC front, there was a 9% decline in balances on a year-over-year basis. That mix shift is margin accretive. Part of that is client behavior. Clients coming out of GICs that are paying 5-plus percent and looking for alternatives, when those deals are no longer available on GICs.
And this is where our advice comes in. When a client has any type of a financial need, we take a step back with the client. We look at the planning that we've done with them. We look at all of their assets, they look at the financial goals and ambitions into the future. And we come up with the right solution for that client. And our team has been doing that. I'm very proud of the way they've managed through some of the changes in market. So what that's actually transpired over the last year. Most of those deposits coming out of GICs are going into demand or going into our mutual fund sales, which is what's driving the strength there. We talk a lot about our Imperial Service, but I also have to highlight the success of our personal banking team outside of Imperial Service. Yes, Imperial Service is about twice the volume we get out of the rest of the business, but both parts of our business have been contributing to that growth in demand deposits and growth in investment sales.
On the asset side of the business, again, we're focused on margin management and delivering for our clients and on products like mortgages, we've been selective. I think that allowed us to increase margins in the mortgage itself. And then the mix is also playing a role with cards and other areas growing faster than mortgages over time. And so that's what all comes together to lead to margin increase over 20 basis points over the last year, three basis points quarter-over-quarter. And I think that's going to continue. So we expect to see a few basis points a quarter roughly plus or minus going forward. Some of that is coming from rates, which will be for the foreseeable future. But some of that is our strategy, and that will be with us on a continued basis.
The following question is from Mario Mendonca, TD Securities.
This might be best for Rob, maybe Hratch as well because you just addressed it a moment ago, this tailwind from the tractors, which exists for an asset-sensitive bank. We're observing this across the group. It seems that if rates were to stay where they are, this tailwind could turn into a headwind by mid-next year and possibly become a significant headwind by late next year. Can you address this, or is it too detailed a point for this call?
Mario, it's Rob. I'll give it a try, and if we need to discuss it further, we can definitely do that later. When we examine the forward curves, we've noticed a steepening in the 5- and 10-year segment, which should continue through '26 and into '27 before those lines begin to align. It won't serve as much of a headwind but will start to stabilize. Hratch mentioned product margins extensively, and the business mix obviously influences margin discussions. Regarding the benefit from tractors, it appears to level off around '27, based on the forward curves. Although I'm not providing extensive commentary from CIBC, our observations about margins align with this perspective.
Could you direct me to the U.S. curves or the Canadian ones? Because it seems like the Canadian ones don't quite reach 2027. I understand the comments regarding the U.S. What would you suggest I look at?
Yes, the Canadian I'm talking mainly about the Canadian curves, but we see it on both. But like I said, we can certainly take it offline if we want to compare notes.
Slightly different question, Frank, over to you. So along the same lines as Gabriel was asking, I think a lot of us on this call spend time looking for correlations. One in particular is what economic growth and unemployment means to loan growth and PCLs on PCLs for a moment. It would appear that those long-standing correlations could break down here. And I want your view on this. What might cause those long-standing relationships between, call it, unemployment or economic growth? And what that means to credit losses why might those correlations break down this time? Is it something to do with excess deposits, changing spending behavior, government support sort of akin to what we saw during COVID? Do you have a view on this Frank? Could these correlations break down? Or are they breaking down?
I wouldn't say we are seeing them break down as of yet. I mean, unemployment is up as our impaired losses, and we continue to expect impaired losses being driven by the unemployment rate. I think a lot of the elements you mentioned changes to employment insurance, other forms of economic stimulus, some of the excess deposits that we continue to see with our clients are slightly changing the correlations. I wouldn't necessarily say they are breaking down the correlations. Unemployment will continue to be a big driver for our loan loss expectations on the retail side, for sure. And we continue to see that. And I think there are a couple of dampening or slightly lowering the correlation factors. And as you said, it is excess deposits, it's some of the economic stimulus that some of the changes we are seeing to programs.
So I guess the bottom line is use the correlations, but do it with some care in and the judgment because they're not perfect?
Yes, I agree.
The following question is from Lemar Persaud, Cormac Securities.
Could Rob or Victor share some updated insights on your capital deployment? Specifically, what is your targeted CET1 ratio given the current uncertain macroeconomic environment, how do you feel about continuing the buyback strategy, and what are your thoughts on potential tuck-in mergers and acquisitions?
Sure, thank you for the question, Lemar. I'll begin and then pass it over to Rob for more details. We have consistently taken a four-pronged approach to capital management. Our goal has been to maintain a strong capital level so that we can utilize all four strategies as needed. The first and foremost is dividend and dividend growth, which we review annually based on our earnings projections. The second approach is organic growth. Our core business is to support our clients in their growth efforts, which is our daily focus. While we are experiencing some slower loan growth due to trade policy uncertainties, I believe once those issues are resolved, we'll see an increase. The third strategy includes share buybacks. We have been active and intend to maintain that approach in our buyback program as a strategic option moving forward. Lastly, we also consider tuck-in mergers and acquisitions, particularly in capital-light sectors that can improve our return on equity over time. Rob, do you have anything else to add?
Yes. Just maybe just quickly, Victor, thank you. When we announced the buyback last year, the CET1 ratio was sitting at 13.3, we bought back around 15 million shares on that buyback now, and we're sitting at 13.4. So we use that buyback as just the method to manage our share count, manage our capital position, stable, steady, predictable, consistent, all those words that we love around here is how we like to run the bank, how we like to run the strategy, and it's how we like to run the buyback as well. So the capital deployment, we're trying to be as predictable as we can, and you should expect that consistency to continue from us.
And all of it's tied to an ambition of getting ROE over 15% over the medium term, and we're making progress on that.
And what's the targeted CET1 ratio that you'd allow the bank to go down to, Rob?
We have previously mentioned that we have a couple of benchmarks when considering our target CET1 ratio. Our goal is to maintain a margin of 75 to 100 basis points above the regulatory minimum, which currently would place that in the 12.5% range, and sometimes a bit higher depending on the level of uncertainty. The second benchmark is influenced by the competitive landscape, as we aim to avoid being a negative outlier compared to our peers, as this can generate unnecessary distractions from the consistent execution of our strategy. Given the current regulatory minimums, we feel assured that we have a significant cushion of excess capital.
Following question is from Doug Young, Desjardin Capital Markets.
Victor, back to the comment you just made on target ROE, 15% plus this quarter. adjusted ROE was 13.9%. And kind of where I'm going with this is, is there anything in this quarter that leaned in your favor? Or is this kind of a reasonable way to think about the starting point? And is everything set for essentially to achieve that target in a normal credit environment? Or do you need to pull some levers on expenses or whatnot improve different business lines to kind of drive it? And can you hit that target with, call it, a 13% CET1 ratio over the medium term?
I think the way to assess the dynamics in ROE is by looking at the improvements we are seeing year-over-year. This is fundamentally linked to our strategy. By fostering deeper relationships with our clients across all sectors, including Personal and Business Banking, Canadian Commercial Banking and Wealth, as well as U.S. Commercial Banking and Wealth, we are consistently enhancing our ROE. We see significant opportunities for growth within each of these sectors and for further strengthening those relationships. Additionally, our focus on efficiency has been instrumental. Currently, our NIX ratio places us at the upper end of our peers, and we are diligently managing our bank's investments, eliminating outdated costs, and preparing for future investments. If executed well, these efforts will positively impact our ROE. Moreover, we plan to utilize any excess capital either for growth initiatives or share buybacks, as we are operating within a 12.5% range, which should further enhance our ROE over time. We are committed to this direction, as we've outlined in our Investor Day and reaffirmed our targets. With Harry's leadership, we aim to sustain this trajectory, ensuring we achieve a competitive ROE in the market, meet our earnings expectations, and secure the premium valuation we believe is attainable for our shareholders.
Appreciate it. Just one quick number question. Rob, you talked about higher severance in the expense section. Can you quantify that? And is there anything else unusual in the expense side? I don't think it back that out, if I recall.
No, there were no adjusting items this quarter, Doug, correct. We haven't quantified the number. We see severance as one of those ongoing items that is embedded in our operating philosophy. We are taking the opportunity to adjust the employee network and make some changes, especially when revenues are strong. So we haven't specified it, and I think we will likely continue that approach.
The following question is from Shalabh Garg, Veritas Investment Research.
Can you walk us through the risk mitigation activities undertaken in the cards portfolio? And is that in any way linked to the decline in card fees year-over-year?
Well, I can walk you through the risk mitigations. And generally, I would say we constantly work on risk strategies. We constantly work on risk mitigations. We have taken actions like we do in a lot of parts of our book, fairly early when we expected unemployment to rise so I would say, over a year ago. And that would include technical changes to how you treat pre-delinquent clients, investments into our collections efforts and so on. And then maybe over to Hratch or Rob. But in a nutshell, it is not related to changes in our fees, but over to you, Hratch.
Thank you, Frank. Maybe I'll address it quickly. So our cards portfolio continues to have strong momentum. Sometimes it is impacted by elements of transaction volumes and so forth. And so nothing to call out that would be risk mitigation related as of this quarter. The other thing I would say is that card fee line item that you see includes revenues and contra revenues that are expenses against the generation of cards points, etc., and there can be noise in there. So this quarter, mostly, I would point out some noise relative to last quarter and relative to last year. So if you look through the last few quarters, that's probably a good average to take as a run rate, but we expect that to grow over time from there.
Our last question is from Sohrab Movahedi, BMO Capital Markets.
Okay. Hopefully, Frank, you can address this quickly. You've adjusted your allowance to about 77 basis points for credit losses and you've been in that mid-70 basis point range for the quarters as shown in your slide. Is this level appropriate, or do you anticipate needing to adjust it upwards or downwards?
Yes, Sohrab, very quickly, the right level. It's a prudent coverage for everything we know so far. I mean we will have to assess, as you know, every quarter based on all the information that is available. But it is a good level to be at where we are in everything we know right now.
I would now like to turn the meeting over to Victor.
Thank you, operator, and thank you all for joining us this morning. I know you all have a call to get to in about 2 minutes. So I want to quickly reiterate what you heard from our team this morning. Number one, we've got a diversified business model that's driving strong top line results and positive operating leverage. Number two, we have a strong, strong balance sheet with resilient credit quality. And finally, and equally importantly, number three, we have a strategy that's working. And supported by a dedicated leadership team, a dedicated frontline, a dedicated back office, an entire CIBC team that's dedicated with a strong execution track record to continue to deliver. And while market conditions will continue to evolve each day, we're going to stick to our game plan. We're going to stay close to our clients, and we're going to leave for all our stakeholders. So with that, I'd like to thank our CIBC team for putting our clients at the center of everything we do each day. I want to wish you a great summer, and we'll talk to you at the end of August and many conversations in between. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.