Executive Summary

This report provides a comprehensive investment analysis of Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM), the fifth-largest bank in Canada by market capitalization and assets. The analysis indicates that CIBC is in a period of strategic execution, focused on transforming into a modern, relationship-oriented bank while navigating a complex macroeconomic environment.

CIBC operates within the stable, oligopolistic Canadian banking sector, which, despite its inherent resilience, faces headwinds from a slowing economy and elevated household debt levels. Positioned as a “follower” to larger peers like Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD), CIBC’s strategy is necessarily focused on targeted growth areas. Management has clearly articulated four strategic priorities: growing its mass affluent and private wealth franchise in North America, expanding its digital-first personal banking capabilities, enhancing connectivity across business lines, and simplifying operations.

Recent financial performance demonstrates disciplined execution against this strategy. The bank maintains a robust capital position, with a Common Equity Tier 1 (CET1) ratio of 13.3% as of Q3 2024 ¹, providing a significant buffer against economic shocks and funding for strategic initiatives. Growth in wealth management has been a bright spot, with the bank achieving a leading market share in Canadian retail mutual fund net sales in 2024.² However, profitability has been pressured by a normalizing credit cycle. Provisions for Credit Losses (PCL) have risen significantly from post-pandemic lows, reflecting the impact of higher interest rates on borrowers. The bank’s loan loss ratio increased from 14 basis points in fiscal 2022 to 30 basis points in fiscal 2023.³

The primary risk factor for CIBC is its significant balance sheet concentration in the Canadian residential mortgage market, which constitutes over half of its total loan portfolio.⁴ While the portfolio is of high quality, this exposure makes the bank particularly sensitive to the health of the Canadian consumer and the domestic housing market—a key systemic vulnerability identified by the Bank of Canada.⁵ CIBC’s strategic push to grow its U.S. Commercial Banking and Wealth Management segment is a direct and necessary effort to diversify its earnings and mitigate this concentration risk over the long term.

From a valuation perspective, CIBC has historically traded at a discount to its larger peers, a reflection of its smaller scale, higher domestic concentration, and the perceived execution risk of its U.S. growth strategy. The key catalysts for the bank’s future performance and potential valuation re-rating hinge on a stable Canadian economic outlook, which would contain credit losses, and continued successful execution of its North American wealth management and U.S. commercial banking expansion.

1. Industry Context & Competitive Landscape

1.1. Current State of the Canadian Banking Sector

The Canadian banking system is globally recognized for its stability, prudent management, and robust regulatory oversight.⁶ The sector’s participants, including households, businesses, and banks, have demonstrated resilience in navigating the economic turbulence of the COVID-19 pandemic, a subsequent period of elevated inflation, and the sharpest series of interest rate hikes in decades.⁵ This strength is underpinned by strong capitalization levels, conservative lending practices, and a high degree of public confidence.⁶

Despite these foundational strengths, the near-term operating environment presents notable challenges. In mid-2024, Fitch Ratings revised its outlook for the Canadian banking sector from “neutral” to “deteriorating,” citing a soft economic forecast for Canada.⁷ Key pressures include a moderating labor market, the high debt-servicing burden on Canadian households, and tempered domestic growth expectations.⁷ The Bank of Canada has echoed these concerns, noting that while the financial system remains resilient, the adjustment to higher interest rates is ongoing and continues to present risks to financial stability, particularly related to the ability of households and businesses to service their debts.⁵

A pivotal dynamic in 2024 has been the shift in monetary policy. With inflation easing back towards its 2% target, the Bank of Canada commenced lowering its policy interest rate in June 2024.⁹ This monetary easing is expected to provide some relief to borrowers and stimulate activity in interest-rate-sensitive sectors of the economy, though the lingering effects of prior tightening continue to restrain overall growth.⁹

1.2. Competitive Landscape and CIBC’s Market Position

The Canadian banking industry is a mature and highly concentrated market, structured as an oligopoly dominated by six major institutions known as the “Big Six”: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada. The “Big Five” (excluding National Bank) alone command over 86% of the market share, while the Big Six collectively hold over 93% of the banking system’s assets, solidifying their status as Domestic Systemically Important Banks (D-SIBs).¹¹

Within this landscape, CIBC is firmly positioned as the fifth-largest bank. Based on fiscal year-end 2023 data, CIBC’s market capitalization of C59.31billionandtotalassetsofC975.7 billion place it behind the two clear market leaders, RBC (C187.21billionmarketcap)andTD(C154.21 billion market cap), as well as BMO and Scotiabank.¹³ CIBC’s domestic market share is estimated at approximately 10.5%.¹¹

This relative positioning as a “follower” rather than a market leader has significant strategic implications. Operating at a smaller scale than RBC and TD can present challenges in achieving the same economies of scale in areas like technology investment, marketing spend, and funding costs. Consequently, CIBC’s corporate strategy must be more targeted, focusing on specific client segments and service areas where it can effectively compete and differentiate itself, rather than attempting to match the sheer breadth and scale of its larger rivals. Its strategic emphasis on the “mass affluent” client segment and building a leading digital experience are direct reflections of this necessity.¹⁵

Table 1: Big Six Canadian Banks – Key Metrics Comparison (as of FY 2023)

Bank	Ticker	Market Cap (C$B)	Total Assets (C$B)	Net Income (C$B)	Employees (FTE)
Royal Bank of Canada	RY	187.21	1,980	14.86	95,000+
Toronto-Dominion Bank	TD	154.21	1,959	10.78	103,257
Bank of Montreal	BMO	93.86	1,290	4.37	55,767
Scotiabank	BNS	76.32	1,370	7.41	89,483
CIBC	CM	59.31	976	5.00	48,074
National Bank of Canada	NA	29.20	424	3.34	31,243

Source: Wikipedia, data compiled from 2023 annual reports.¹³ Market capitalization and asset figures may vary based on reporting dates.

1.3. Competitive Advantages and Moats

All Big Six banks share a powerful economic moat rooted in the oligopolistic structure of the Canadian market. This moat is built on several pillars: high customer switching costs, a massive, low-cost deposit base that provides a significant funding advantage, and a rational competitive environment that discourages aggressive price wars. This structure is reinforced by a stringent regulatory framework that creates formidable barriers to entry for new competitors.⁶

CIBC’s specific competitive advantages are centered on its strategic focus. The bank emphasizes a “modern, relationship-oriented” model, aiming to provide differentiated advice and a seamless client experience across its network of over 1,100 branches and digital channels.¹⁵ A key area of strength is its digital platform. In a 2024 J.D. Power study, CIBC Investor’s Edge was ranked number one in self-directed investor satisfaction among the Big Five banks, a testament to its investment in this area.¹⁸

In a market with high barriers to entry and sticky customer relationships, the most potent long-term threat comes not from peer institutions but from fintech disruptors that seek to “unbundle” traditional banking services by targeting high-margin niches like wealth management (e.g., Wealthsimple) and payments (e.g., Nuvei).¹⁶ From this perspective, CIBC’s focus on creating a superior digital experience is more than an efficiency initiative; it is a critical defensive strategy. By leveraging its established brand, large client base, and regulatory trust to offer a compelling digital alternative, particularly in areas targeted by fintechs, CIBC can protect its valuable fee-based revenue streams from erosion. This strategy is less about capturing market share from RBC and more about preventing revenue leakage to new, non-traditional competitors, thereby defending its franchise value.

1.4. Regulatory Environment and Upcoming Changes

The Canadian banking sector operates under the stringent oversight of federal bodies. The Office of the Superintendent of Financial Institutions (OSFI) is the primary prudential regulator, responsible for setting and enforcing capital adequacy, liquidity, and risk management guidelines.¹⁹ The Financial Consumer Agency of Canada (FCAC) ensures compliance with consumer protection measures, which were strengthened in 2022 under the new Financial Consumer Protection Framework.¹⁹

The most significant regulatory evolution on the horizon is the implementation of a national consumer-driven banking, or “open banking,” framework. The federal government intends to introduce legislation in 2024 and 2025 to establish this framework, which will allow consumers and small businesses to securely share their financial data with accredited third-party service providers through application programming interfaces (APIs).¹⁹ This marks a fundamental shift from the current, less secure practice of “screen scraping,” where consumers provide their banking credentials to third-party apps.²²

Open banking represents a double-edged sword for incumbents like CIBC. On one hand, it poses a significant threat by lowering the data friction and switching costs that have long protected the Big Six’s market position. It will make it easier for customers to use specialized fintech services for lending, payments, and investments, potentially commoditizing the core deposit-taking function of banks. On the other hand, it presents a substantial opportunity. Banks that successfully leverage their vast datasets, brand trust, and existing client relationships can position themselves as central hubs or aggregators in this new ecosystem. The institution that “owns the client interface” will be best positioned to thrive. CIBC’s strategic focus on building a seamless, digitally-enabled client experience is a direct preparation for this new competitive paradigm.¹⁵

1.5. Cross-Border Operations and U.S. Positioning

CIBC has international operations in the United States, the Caribbean, Asia, and the United Kingdom.²³ The cornerstone of its international growth strategy is the expansion of its U.S. platform. This was significantly accelerated by the 2017 acquisition of Chicago-based The PrivateBancorp, which was subsequently rebranded as CIBC Bank USA.²³ The bank’s U.S. strategy is focused on providing relationship-oriented commercial banking and private wealth management services to middle-market companies, entrepreneurs, and high-net-worth individuals.¹⁵ To facilitate cross-border activity, CIBC offers specialized solutions for Canadian clients in the U.S., including U.S. dollar accounts and mortgages that can be qualified for using Canadian credit history.²⁴

2. Business Model & Revenue Streams

2.1. Primary Business Segments and Performance Contribution

CIBC’s operations are organized into four strategic business units (SBUs), which provide a diversified platform across geographies and client types.

1. Canadian Personal and Business Banking (P&BB): This is the bank’s largest segment, serving millions of individual and small business clients across Canada with a full suite of products including deposits, lending, credit cards, and investments. In fiscal year 2023, this segment was the largest contributor to earnings, generating C$2.40 billion in adjusted net income.³
2. Canadian Commercial Banking and Wealth Management (CWM): This segment provides high-touch, relationship-based banking and wealth management services to middle-market companies, entrepreneurs, and high-net-worth clients in Canada. It also includes the bank’s direct investing platform, CIBC Investor’s Edge. This segment is a significant contributor to profitability, with C$1.88 billion in adjusted net income in fiscal 2023.³
3. U.S. Commercial Banking and Wealth Management: This is CIBC’s primary growth engine outside of Canada. It offers tailored banking and wealth services to a similar client base as its Canadian CWM counterpart but operates exclusively in the United States. In fiscal 2023, it generated C$420 million in adjusted net income.³
4. Capital Markets and Direct Financial Services (CM&DFS): This segment provides integrated global markets products, investment banking advisory services, and corporate lending to corporate, government, and institutional clients. It also includes the direct banking brand, Simplii Financial. The segment produced C$1.99 billion in adjusted net income in fiscal 2023.³

The performance of the U.S. CWM segment highlights both its potential as a growth driver and its inherent volatility. The segment’s adjusted net income saw a sharp 48% decline in fiscal 2023, falling from C810millionin2022toC420 million, reflecting the challenging U.S. economic environment and interest rate cycle during that period.³ However, as conditions stabilized, the segment demonstrated significant operating leverage, with reported net income rebounding sharply in Q2 2024 (up 73% year-over-year) and Q3 2024 (up C$142 million year-over-year).⁴ This performance underscores that while the U.S. expansion is crucial for long-term diversification away from the mature Canadian market, its earnings contribution can be more volatile and is highly sensitive to the U.S. economic cycle. Successful execution, particularly disciplined underwriting and risk management, is therefore critical for this strategy to create sustainable shareholder value.

2.2. Evolution of Fee-Based vs. Interest-Based Income

CIBC maintains a relatively balanced revenue mix between interest-based and fee-based income streams. For the first six months of fiscal 2024, the bank generated total revenue of C12.39billion.Ofthis,NetInterestIncome(NII),derivedprimarilyfromthespreadbetweeninterestearnedonloansandinterestpaidondeposits,accountedforC6.53 billion, or 52.7% of the total. Non-interest income, generated from fees and other sources, accounted for the remaining C$5.86 billion, or 47.3%.⁴

Within non-interest income, the most significant and stable contributors are fees related to wealth management. For the first half of 2024, investment management, custodial, and mutual fund fees collectively amounted to C$1.83 billion, representing over 31% of total non-interest income (excluding more volatile trading-related gains).⁴ This highlights the strategic importance of the bank’s wealth management franchise. While NII is highly sensitive to macroeconomic factors and central bank policy, fee-based revenue from wealth management is generally more resilient and recurring, driven by long-term growth in Assets Under Management (AUM). CIBC’s stated strategic priority of “growing our mass affluent and private wealth franchise” is a clear effort to increase the proportion of this high-margin, stable fee revenue.¹⁵ A successful execution of this strategy would serve to de-risk the bank’s overall revenue profile, reduce earnings volatility, and lessen its dependence on net interest margin (NIM) expansion, potentially justifying a higher valuation multiple over the long term.

2.3. Digital Transformation Initiatives

In line with industry trends, CIBC is heavily invested in its digital transformation. Digital banking has become the primary channel for most Canadians, with 70% of consumers having used a banking app in 2024, up from 65% in 2021.²⁶ CIBC has capitalized on this trend, achieving a digital adoption rate of 86% within its Canadian Personal Banking client base. Furthermore, 38% of its core retail product sales are now originated through digital channels, demonstrating the effectiveness of its digital sales funnel.²⁷

The bank’s direct digital brand, Simplii Financial, which was established in 2017 after CIBC’s partnership with Loblaw’s President’s Choice Financial ended, serves as a key client acquisition vehicle. Simplii added 180,000 net new clients in the twelve months leading up to Q1 2024, showcasing strong momentum.²³

Beyond client-facing platforms, CIBC is integrating advanced technologies like artificial intelligence (AI) into its operations. In 2024, the bank developed a new Enterprise AI Framework to govern the use of AI and is actively piloting Generative AI tools to enhance client service and improve internal productivity.²⁹

2.4. Diversification Across Sectors and Geographies

CIBC serves over eleven million clients globally across its personal, business, wealth management, and capital markets segments.²³ While its core business remains anchored in Canada, the bank has a strategic focus on geographic diversification, primarily through the expansion of its U.S. platform. The U.S. Commercial Banking and Wealth Management segment provides a crucial avenue for growth outside the mature Canadian market. The bank also maintains a presence in the Caribbean through its majority ownership of CIBC FirstCaribbean International Bank, as well as operations in Asia and the United Kingdom to support its Capital Markets clients.²³ This North American platform strategy aims to leverage cross-border connectivity, referring clients between its Canadian and U.S. operations to deepen relationships and capture a greater share of their financial needs.

3. Financial Performance & Trends (Focus on 2022-2024)

3.1. Analysis of Key Financial Metrics

CIBC’s financial performance over the 2022-2024 period reflects a resilient but pressured operating environment.

• Return on Equity (ROE): A key measure of profitability, CIBC’s adjusted ROE stood at 14.0% in Q3 2024 and 13.4% in Q2 2024.²⁵ This represents a recovery from the full-year 2023 adjusted ROE of 13.3% but remains below the 14.7% achieved in fiscal 2022 and the bank’s medium-term target of 16%+.¹⁴ The compression in ROE from 2022 levels is primarily attributable to higher provisions for credit losses and the impact of holding higher levels of capital.
• Net Interest Margin (NIM): The bank’s total NIM was 1.50% in Q3 2024, up slightly from 1.46% in Q2 2024.²⁵ The NIM excluding the more volatile trading business has shown strength, expanding from 1.65% in Q2 2023 to 1.72% in Q2 2024, reflecting disciplined pricing on loans and deposits.⁴
• Loan Growth: Loan growth has been modest, reflecting a slowing economy. Total loans and acceptances increased from C540.2billionattheendoffiscal2023toC550.1 billion by the end of Q3 2024, a year-to-date increase of 1.8%.¹

3.2. Credit Quality and Provision for Credit Losses

The most significant trend impacting CIBC’s earnings between 2022 and 2024 has been the normalization of the credit cycle. After reaching historic lows during the pandemic due to government support programs, credit losses have steadily increased as higher interest rates and inflation have strained borrower finances.

The bank’s Provision for Credit Losses (PCL) reflects this trend. For the full fiscal year 2023, CIBC’s total loan loss ratio was 30 basis points, more than double the 14 basis points recorded in fiscal 2022.³ This trend continued into 2024, with PCL totaling C

585millioninQ1,C514 million in Q2, and C$483 million in Q3.²⁵ These levels are substantially higher than those seen in 2022 and are the primary driver of the year-over-year decline in net income.

CIBC’s loan portfolio composition is a critical factor in its risk profile. As of April 30, 2024, residential mortgages constituted C274.5billion,orover51537.8 billion.⁴ This concentration in the Canadian housing market represents the bank’s most significant vulnerability. The Bank of Canada has repeatedly identified high household indebtedness and the potential for a housing price correction as key risks to the Canadian financial system.⁵ While CIBC’s mortgage portfolio remains high quality, with the vast majority of loans rated as “exceptionally low” or “very low” risk and arrears rates remaining low, the sheer size of the portfolio means that a severe macroeconomic downturn resulting in higher unemployment could lead to a material increase in credit losses.⁴ This concentration risk is a likely contributor to the valuation discount at which CIBC’s shares have historically traded relative to more diversified peers. The bank’s strategic initiatives to grow its U.S. and wealth management businesses can be viewed as a long-term effort to mitigate this dependency on the Canadian consumer and housing market.

3.3. Capital Adequacy

CIBC maintains a robust capital position that is a core strength. As of the end of Q3 2024 (July 31, 2024), the bank’s Common Equity Tier 1 (CET1) capital ratio was 13.3%.¹ This is a significant increase from 11.7% at the end of fiscal 2022 and places the bank comfortably above OSFI’s regulatory minimum requirements.³⁵ This strong capital buffer provides substantial capacity to absorb potential credit losses in a downturn, support client loan growth, and fund strategic investments while returning capital to shareholders.

3.4. Comparative Financial Performance vs. Peers (Q2 2024)

An analysis of the second quarter of 2024 results reveals a divergence in performance across the Big Six banks, with CIBC delivering a solid and relatively stable performance.

Table 2: Big Six Canadian Banks – Q2 2024 Financial Performance Comparison

Bank	Ticker	Reported Net Income (C$B)	YoY % Chg	Adjusted EPS (C$)	YoY % Chg	CET1 Ratio (%)
Royal Bank of Canada	RY	4.00	+7%	2.92	+9%	12.8%
Toronto-Dominion Bank	TD	2.60	-22%	2.04	+2%	13.4%
Scotiabank	BNS	2.09	-3%	1.58	-7%	13.2%
Bank of Montreal	BMO	1.87	+81%	2.59	-10%	13.1%
CIBC	CM	1.75	+4%	1.75	+3%	13.1%
National Bank of Canada	NA	0.91	+9%	2.54	+9%	13.2%

Sources: CIBC ⁴, RBC ³⁶, TD ³⁸, BNS ³⁹, BMO ⁴¹, National Bank.⁴³ Note: BMO’s reported net income growth is skewed by a large one-time charge in the prior-year quarter.

The Q2 2024 peer results highlight CIBC’s steady execution. Its adjusted EPS growth of +3% was modest but positive, comparing favorably to the declines posted by Scotiabank and BMO. While it lagged the strong performance of RBC, which benefited from its acquisition of HSBC Canada and record Capital Markets earnings, CIBC’s results were “clean”.³⁶ They were not materially impacted by large one-time items, unlike TD, whose reported earnings were significantly reduced by a C$615 million provision for investigations related to its anti-money laundering program.³⁸ This suggests CIBC’s core operations performed in line with, or slightly better than, the peer group average, a creditable outcome demonstrating stability in a complex operating environment.

4. Growth History & Future Opportunities

4.1. Organic Growth Drivers and Acquisition Strategy

CIBC’s growth strategy is primarily focused on organic initiatives designed to deepen client relationships and gain market share in targeted segments. The bank’s overarching ambition is to build a “modern, relationship-oriented bank”.¹⁵ This strategy is built on four key priorities that are consistently communicated to the market:

1. Growing the mass affluent and private wealth franchise in Canada and the U.S.
2. Expanding digital-first personal banking capabilities in Canada.
3. Delivering connectivity and differentiation to clients.
4. Enabling, simplifying, and protecting the bank. ¹⁴

Execution against these priorities is yielding tangible results in client acquisition. In the twelve months prior to Q1 2024, CIBC added approximately 700,000 net new clients, indicating that its value proposition is resonating in the market.²⁷ While organic growth is the priority, CIBC has used strategic acquisitions to accelerate its strategy, most notably the 2017 purchase of The PrivateBancorp in the U.S. to establish a platform for North American growth.²³

4.2. Expansion Opportunities in Wealth Management and Capital Markets

Wealth management is a cornerstone of CIBC’s growth plan. The bank has demonstrated strong momentum in this area, ranking number one among its Canadian peers in retail mutual fund net sales for two consecutive quarters in 2024.² This success is translating into significant growth in assets, with total Assets Under Administration (AUA) increasing from C

522billionattheendoffiscal2023toC640 billion by Q3 2024.¹ This focus on wealth management is strategically important as it grows a source of stable, high-margin, fee-based revenue, making the bank’s earnings less dependent on the cyclicality of net interest income.

In Capital Markets, CIBC has leveraged its client-focused model to achieve leading market share positions. In Q2 2024, the bank ranked number one among the Canadian peer group in both equity trading and advisory fees.¹⁸ A key growth vector for this segment is the U.S. market, where Capital Markets revenues increased 24% year-over-year in Q3 2024, supported by increased cross-business referral activity.²

4.3. Potential for Geographic Expansion and Market Share Gains

The most significant opportunity for geographic expansion and long-term growth for CIBC lies in the United States. The bank’s strategy is to build on the foundation of CIBC Bank USA by expanding its commercial banking and private wealth management businesses.¹⁵ Success in this highly competitive market is not guaranteed and requires disciplined execution. The strategy hinges on achieving “connectivity”—the ability to seamlessly serve clients on both sides of the border and to refer clients between the commercial bank and the wealth management platform. Management has highlighted that referral volumes between these businesses are a key performance indicator and are on track for significant growth.¹⁸

The U.S. strategy represents CIBC’s most important long-term catalyst. If successful, it will provide a crucial source of diversification and growth, potentially allowing the bank to break out of its historical position as the fifth-largest Canadian bank and command a higher market valuation. However, it also carries the highest execution risk, and its performance will be a critical determinant of the bank’s ability to generate superior shareholder returns in the coming years.

4.4. Technology Investments and Expected ROI

CIBC is making substantial investments in technology to modernize its infrastructure, simplify processes, and enhance the client experience. These investments are not only aimed at improving operational efficiency but also at building a competitive advantage in a digital-first world. The bank is actively deploying AI and data analytics to provide more personalized advice and streamline operations.²⁹ The return on these investments is expected to manifest in several ways: improved operating leverage through cost savings, increased client acquisition and retention through a superior digital experience, and deeper client relationships through data-driven insights. The bank has already realized approximately C$140 million in expense efficiencies over the last year from its simplification initiatives.²⁸

5. Capital Allocation Strategy

5.1. Dividend Policy and Shareholder Returns

CIBC has a long-standing commitment to returning capital to its shareholders. The bank targets a dividend payout ratio of 40% to 50% of earnings.¹⁴ In Q4 2023, CIBC announced an increase in its quarterly common share dividend from C

0.87toC0.90, effective for the payment in January 2024.³ As of Q2 2024, the adjusted dividend payout ratio was 51.3%, slightly above the target range, reflecting moderated earnings in the current credit cycle.¹⁴

Signaling a high degree of confidence in its capital strength and earnings outlook, CIBC announced in August 2024 its intention to launch a Normal Course Issuer Bid (NCIB), allowing it to repurchase up to 2% of its outstanding common shares.² This move represents a significant shift in capital allocation. Through 2022 and 2023, the bank was in a phase of capital conservation, building its CET1 ratio from 11.7% to over 13% as a buffer against economic uncertainty.¹ The initiation of a share buyback program indicates that management believes its capital levels are more than sufficient and that returning excess capital to shareholders is a prudent use of funds, particularly if management views the shares as attractively valued.

5.2. Acquisition Strategy and Investment in Growth

CIBC’s capital allocation balances shareholder returns with investments for future growth. The bank’s acquisition strategy is selective and focused on accelerating its strategic priorities. The 2017 acquisition of The PrivateBancorp remains the most significant recent example, providing the foundational platform for its U.S. growth ambitions.²³

Ongoing investments are directed towards technology, digital capabilities, and talent. These investments are crucial for modernizing the bank’s infrastructure, improving operational efficiency, and enhancing its competitive positioning in a rapidly evolving financial services landscape.¹⁵ The balance between investing for long-term growth and providing immediate returns to shareholders is a central element of the bank’s capital planning process, which is conducted within the constraints of regulatory capital requirements.

6. Recent Challenges & Headwinds (2022-2024 Focus)

6.1. Impact of Rising Interest Rates and Economic Uncertainties

The primary headwind for CIBC and the broader banking sector since 2022 has been the macroeconomic environment shaped by the rapid rise in interest rates. While higher rates initially benefit net interest margins, the subsequent effects include slowing loan demand, increasing funding costs, and placing significant financial pressure on borrowers.⁸ This has led to a more cautious outlook for economic growth and has been the principal driver of the challenges faced by the bank.

6.2. Credit Quality Deterioration

The most direct financial impact of this environment has been the deterioration in credit quality from the exceptionally strong levels seen during the pandemic. As households and businesses contend with higher debt servicing costs, there has been a clear and expected increase in loan delinquencies and defaults. This is reflected in CIBC’s Provision for Credit Losses (PCL), which has risen steadily. After recording a PCL of C585millioninQ12024,thebankprovisionedC514 million in Q2 and C$483 million in Q3, levels significantly higher than the prior year.²⁵ This trend of elevated PCL is the single largest factor weighing on CIBC’s recent earnings performance.

6.3. Competitive Pressures and Regulatory Charges

CIBC continues to face long-term competitive pressure from fintech companies and digital-only banks that are targeting profitable niches within the financial services value chain.¹⁶ While fintech adoption in Canada has been slower than in other developed markets, the impending implementation of open banking is expected to intensify this competitive threat.¹⁶

In addition, the bank has faced specific regulatory charges. In Q1 and Q2 of 2024, CIBC’s earnings were negatively impacted by a special assessment levied by the U.S. Federal Deposit Insurance Corporation (FDIC) on large depository institutions to cover the costs associated with the failures of several U.S. banks in 2023. This resulted in pre-tax charges of C91millioninQ1andC13 million in Q2.⁴

7. Risk Analysis

7.1. Key Risk Factors

CIBC’s operations are subject to a range of inherent risks, which are managed through a comprehensive, enterprise-wide risk management framework. The principal risks include:

• Credit Risk: This is the risk of loss resulting from a borrower’s failure to meet their financial obligations. It is the most significant risk for a lending institution. CIBC’s primary credit risk exposure stems from its substantial loan portfolio, with a notable concentration in Canadian residential mortgages. As of Q2 2024, this segment represented over half of the bank’s total loan book.

Table 3: CIBC Loan Portfolio Composition (as of April 30, 2024)

Loan Category	Gross Loan Amount (C$B)	% of Total
Residential Mortgages	274.5	51.0%
Business and Government	201.6	37.5%
Personal	46.0	8.6%
Credit Card	19.6	3.6%
Total	541.7	100.0%

Source: CIBC Q2 2024 Report to Shareholders.⁴ Figures are based on gross loans.

• Market Risk: The risk of loss arising from adverse movements in market factors, such as interest rates, foreign exchange rates, and equity prices. This risk is most prominent in the bank’s Capital Markets and Treasury operations.
• Operational Risk: The risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This includes risks related to technology failure, cybersecurity threats, fraud, and legal or regulatory compliance failures. Financial fraud and scams are an increasing concern for Canadian consumers, heightening this risk.²⁶
• Liquidity and Funding Risk: The risk that the bank will be unable to meet its financial obligations as they come due without incurring unacceptable losses.
• Regulatory and Legal Risk: The risk of non-compliance with the extensive laws and regulations governing the banking industry, which can result in financial penalties and reputational damage.

7.2. Geographic and Sector Concentration Risks

As detailed above, CIBC’s most significant concentration risk is its exposure to the Canadian residential real estate market. This makes the bank’s performance highly correlated with the health of the Canadian economy and housing sector.

The bank also has exposure to the Commercial Real Estate (CRE) sector, which has faced headwinds globally, particularly in the office subsector. On average, large Canadian banks have about 10% of their loan portfolios in CRE, with 1.3% in office CRE.⁸ Recognizing the heightened risk in this area, CIBC’s management has stated that it is actively “de-emphasizing certain areas of our institutional commercial real estate business”.² This proactive de-risking, while potentially forgoing some short-term loan growth, is a prudent risk management decision that signals a conservative approach to a well-identified market vulnerability.

7.3. Governance and Risk Management Framework

CIBC employs a formal and robust risk management framework to govern its operations. This framework is overseen by the Risk Management Committee of the Board of Directors, which is responsible for assisting the Board in defining the bank’s overall risk appetite and overseeing its risk profile.⁴⁵ The framework establishes policies, limits, and approval authorities to control the bank’s exposure to its principal risks. Key functions, including the Chief Risk Officer, Chief Compliance and Privacy Officer, and Chief Anti-Money Laundering Officer, operate with sufficient independence and authority to provide effective oversight.⁴⁵ This structured approach is fundamental to maintaining the bank’s stability and protecting shareholder interests.

8. Valuation Considerations

8.1. Comparison of Valuation Metrics to Peers and Historical Ranges

CIBC’s shares have historically traded at a valuation discount to its larger Canadian banking peers. This trend persists in the current market. Based on market data from August 2025, CIBC traded at a normalized Price-to-Earnings (P/E) ratio of 12.51x and a Price-to-Book (P/B) ratio of 1.68x. In comparison, market leader RBC traded at a P/E of 14.08x and a P/B of 2.18x.⁴⁷

This persistent valuation gap is not arbitrary but reflects fundamental differences in the banks’ business mix, scale, and perceived risk profiles. The market typically assigns premium valuations to companies with higher and more stable earnings growth, greater diversification, and a lower-risk balance sheet. RBC and TD benefit from their larger scale, more extensive and profitable U.S. retail operations, and dominant wealth management franchises, which contribute to a perception of higher earnings quality.

CIBC’s valuation, in contrast, appears to be weighed down by its higher concentration in the Canadian mortgage market, its smaller overall scale, and the market’s cautious stance on the execution risk associated with its U.S. growth strategy. The valuation gap can therefore be seen as a rational market assessment of these factors. The central question for investors is whether the successful execution of CIBC’s strategic plan—particularly the profitable growth of its U.S. and wealth management businesses—can meaningfully narrow this valuation discount over time.

8.2. Factors Supporting Premium/Discount Valuations

• Factors Supporting a Discount:

• Higher Canadian Mortgage Concentration: Greater sensitivity to a potential downturn in the Canadian housing market or a domestic recession.
• Smaller Scale: Lacks the same economies of scale and diversification benefits as RBC and TD.
• U.S. Execution Risk: The U.S. growth strategy is still in a building phase and has demonstrated earnings volatility.
• Factors Supporting a Potential Re-rating (Narrowing the Discount):

• Strong Capital Position: A CET1 ratio above 13% provides a significant safety buffer.
• Demonstrated Momentum in Wealth Management: Success in growing stable, high-margin fee income could improve the quality and predictability of earnings.
• Successful U.S. Expansion: Continued profitable growth in the U.S. would prove the diversification strategy and reduce reliance on the Canadian consumer.

9. Management Assessment

9.1. Track Record and Strategic Vision of Leadership

CIBC is led by President and CEO Victor Dodig, who assumed the role in September 2014.⁴⁸ Under his leadership, the bank has embarked on a multi-year transformation guided by a clear and consistent strategic vision: to build a modern, relationship-oriented bank for a modern world.⁴⁸ The senior executive team is composed of experienced leaders with well-defined responsibilities across the bank’s business and functional lines.⁴⁹

Management’s strategic vision is well-articulated and consistently communicated to the market through its four-pillar framework. This provides investors with a clear roadmap for how the bank intends to create value.

9.2. Execution Capability and Alignment with Strategy

An analysis of the bank’s recent performance indicates a strong alignment between its stated strategy and its operational execution. This suggests a focused and effective leadership team.

• Strategic Pillar: Grow mass affluent and private wealth.
• Execution: Achieved #1 rank in Canadian mutual fund net sales for two consecutive quarters in 2024; Assets Under Administration grew by 22.6% from fiscal year-end 2023 to Q3 2024.¹
• Strategic Pillar: Expand digital-first personal banking.
• Execution: Reached an 86% digital adoption rate in Canadian Personal Banking; CIBC’s digital platforms have won industry awards for client satisfaction.¹⁸
• Strategic Pillar: Deliver connectivity and differentiation (including U.S. growth).
• Execution: U.S. Capital Markets revenue grew 24% year-over-year in Q3 2024; U.S. Commercial Banking and Wealth Management net income has rebounded strongly in 2024.²
• Strategic Pillar: Enable, simplify, and protect the bank.
• Execution: Realized approximately C$140 million in expense efficiencies from simplification initiatives; built the CET1 ratio to a robust 13.3%.¹

This tangible, data-backed progress across all four strategic pillars demonstrates that management is not only articulating a coherent strategy but is also effectively executing it.

10. Key Catalysts & Monitoring Points

10.1. Potential Positive Catalysts

• Canadian Economic “Soft Landing”: A scenario where the Canadian economy avoids a deep recession and unemployment remains relatively stable would significantly de-risk CIBC’s large mortgage and consumer loan portfolios. This would likely result in PCLs coming in below market expectations, providing a direct boost to earnings.
• Sustained Profitable Growth in the U.S.: Continued positive momentum in the U.S. Commercial and Wealth Management segment, demonstrating consistent profitability and effective risk management, would validate the bank’s diversification strategy and could act as a catalyst for a re-rating of the stock’s valuation multiple.
• Accelerated Market Share Gains in Wealth Management: Continued outperformance in mutual fund flows and AUM growth would further shift the bank’s revenue mix towards more stable, high-quality fee income, enhancing the predictability of its earnings stream.

10.2. Potential Negative Catalysts

• Hard Landing or Recession in Canada: A significant economic downturn marked by a sharp rise in unemployment would be the most severe negative catalyst. It would lead to a material deterioration in credit quality across consumer, mortgage, and commercial portfolios, causing PCLs to spike and severely impacting profitability.
• Sharp Correction in the Canadian Housing Market: While not a direct cause of losses unless accompanied by unemployment, a significant and disorderly decline in Canadian home prices would damage consumer confidence, reduce demand for new lending, and increase the loss-given-default on mortgages that do enter foreclosure.
• Execution Stumbles in the U.S. Strategy: Any material credit issues in the U.S. loan portfolio or a failure to achieve profitable growth could undermine investor confidence in the bank’s primary long-term growth initiative, reinforcing the valuation discount.

10.3. Key Metrics and Developments to Monitor

Going forward, investors should closely monitor the following key metrics and developments to assess CIBC’s performance and risk profile:

• Credit Quality Metrics: The Provision for Credit Losses (PCL), gross impaired loan formations, and loan loss ratios are the most critical near-term indicators of the bank’s financial health.
• Net Interest Margin (NIM) (excluding trading): This metric is key to understanding the profitability of the core lending business amidst the evolving interest rate environment.
• U.S. CWM Segment Performance: The net income, ROE, and loan growth of this segment will serve as the primary barometer for the success of the bank’s strategic diversification.
• Wealth Management Metrics: Growth in Assets Under Management (AUM) and net client asset flows will indicate the progress in building a more stable, fee-based revenue stream.
• Capital Ratios: The CET1 ratio should be monitored to ensure the bank maintains its strong capital buffer, which is a key pillar of its investment case.

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