Morningstar DBRS Confirms Canadian Imperial Bank of Commerce's Long-Term Issuer Rating at AA; Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the credit ratings of Canadian Imperial Bank of Commerce (CIBC or the Bank) and its related entities, including CIBC's Long-Term Issuer Rating at AA and Short-Term Issuer Rating at R-1 (high). The trend on all credit ratings is Stable. The Bank's Long-Term Issuer Rating is composed of an Intrinsic Assessment of AA (low) and a Support Assessment (SA) of SA2, which reflects the expectation of timely systemic support from the Government of Canada (rated AAA with a Stable trend). As a result of the SA2 designation, CIBC's Long-Term Issuer Rating benefits from a one-notch uplift to the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings and Stable trends reflect CIBC's diversified franchise and solid earnings, while its balance sheet and credit fundamentals remain resilient in a challenging operating environment. The Bank ranks as the fifth-largest bank in Canada by total assets and has an expanding presence in the U.S., which represented about 22% of the Bank's total revenue in Q1 2025. CIBC generates solid earnings and profitability metrics that contribute to the Bank's ability to absorb credit losses. In addition, the Bank's risk profile is sound although asset quality metrics continued to deteriorate. Further, CIBC continues to have a strong funding profile, while maintaining ample liquidity and solid capital levels.

Morningstar DBRS continues to monitor the Bank's exposure to the commercial real estate (CRE) and construction sector, including in the U.S. where CIBC recently experienced asset quality challenges in the office CRE portfolio. On a positive note, the Bank has made progress on its office sector exposures, selling a portfolio of non-performing office loans to investors while de-emphasizing this asset class. Nevertheless, Morningstar DBRS is concerned about heightened economic and geopolitical uncertainty, particularly as it relates to the U.S. trade policy and tariffs, which has increased the likelihood of a recession in Canada. A sustained decline in economic activity and prolonged high unemployment could lead to an adverse impact on the Bank's profitability and asset quality.

CIBC's IA of AA (low) has been assigned at the midpoint of the IA Range, as Morningstar DBRS views the Bank's credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
Over the longer term, Morningstar DBRS would upgrade the credit ratings if the Bank continues to significantly build scale and scope of its franchise in the U.S., resulting in a sustained improvement in earnings without a commensurate increase in risk profile.

A credit ratings downgrade would occur if there were a significant and sustained deterioration in profitability or asset quality. Material deficiencies in risk management leading to heightened operational risk or a weaker franchise would also result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Very Strong/Strong
CIBC maintains a strong franchise in Canada, offering personal and business banking, commercial banking, wealth management, and capital markets services with top market shares in certain segments. Canadian Personal and Business Banking and Canadian Commercial Banking and Wealth Management segments collectively contributed about 64% to total revenue in Q1 2025. Additionally, the Bank has a growing presence in the U.S. through CIBC Bank USA, which focuses on relationship-oriented commercial, personal, and small-business banking as well as wealth-management services to meet the needs of middle-market companies and their executives. The Bank's strategic priorities focus on growth in less capital-intensive, higher-touch, higher-growth segments, including mass affluent and high net-worth clients in Canada as well as the U.S.

Earnings Combined Building Block Assessment: Strong/Good
CIBC's adjusted net income (as reported by the Bank) grew about 12.4% year over year (YOY) to $7.3 billion in F2024, supported by higher revenue that was partly offset by higher noninterest expenses, while provisions for credit losses (PCL) remained broadly flat YOY. Adjusted Q1 2025 earnings (as reported by the Bank) were about $2.2 billion, an increase of 23.1% YOY, driven by stronger revenues, partly offset by higher noninterest expenses and PCL. Net interest income was up 17.0% YOY in Q1 2025, primarily from volume growth across most businesses and a 17-basis point expansion in net interest margin in non-trading businesses as well as higher treasury revenue and the positive impact of foreign exchange translation. Meanwhile, noninterest income grew about 17.0% YOY in Q1 2025, driven primarily by an increase in trading income, fee-based revenue, commissions on securities transactions, and treasury revenue. Noninterest expenses are well managed with the adjusted efficiency ratio (as reported by the Bank) at 53% in Q1 2025.

Risk Combined Building Block Assessment: Strong
Morningstar DBRS views CIBC's overall risk profile as sound, although the Bank experienced higher provisions and impaired loans in its CRE portfolio relative to peers in the recent past. Asset quality overall in F2024 continued to deteriorate further beyond pre-pandemic levels amid still-elevated interest rates, which resulted in rising delinquencies across most portfolios. In Q1 2025, total PCL decreased 2.1% YOY to about $573 million, driven by lower provisions on impaired loans that were partly offset by higher provisions on performing loans. PCL on impaired loans was down largely as a result of lower provisions in U.S. Commercial Banking and Wealth Management following the liquidation of U.S. office problem loans in F2024. As a result, the total PCL ratio (as calculated by Morningstar DBRS) decreased to 41 basis points (bps) in Q1 2025 from 44 bps in the same period of F2024. Meanwhile, the gross impaired loans ratio remained broadly stable YOY at 0.57% in Q1 2025. Morningstar DBRS notes that, overall, the Canadian banking sector is likely to experience higher-than-expected asset quality deterioration in F2025-26 as a result of the uncertain macroeconomic outlook for Canada, with risks tilted toward the downside and an increased likelihood of recession.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
CIBC has a solid funding and liquidity profile that benefits from substantial client-sourced deposits that are supplemented through a wide range of wholesale funding sources. The Bank's usage of wholesale funding is within an acceptable range and in line with its peers. CIBC remains focused on mobilizing core deposits to further reduce its need for wholesale funding sources. As of Q1 2025, total deposits (including capital markets deposits) accounted for about 78% of total funding and totalled $782.2 billion, up 8.0% YOY from growth in both commercial deposits and personal deposits. In the falling interest rate environment, growth of term deposits slowed to 3.7% YOY in Q1 2025, compared with 12.4% YOY in Q1 2024 and accounted for 50% of total deposits, while demand and notice deposits collectively grew at 12.5% YOY in Q1 2025. CIBC is holding elevated liquidity levels (like its peers), with a reported Q1 2025 liquidity coverage ratio of 132% and a net stable funding ratio of 113%, both comfortably above the regulatory minimums.

Capitalization Combined Building Block Assessment: Strong
Supported by significant levels of internal capital generation, CIBC's capitalization is strong and sufficient to absorb stressed levels of loan losses. At period-end Q1 2025, the CET1 ratio was 13.5%, well above the regulatory minimum of 11.5% for Domestic Systemically Important Banks. Morningstar DBRS expects the CET1 ratio to stay above 13% in the medium term, inclusive of the modest level of buybacks assumed. Meanwhile, CIBC's risk-based, total loss-absorbing capacity ratio of 31.4% and a leverage ratio of 4.3% as at Q1 2025 were also well above the regulatory thresholds of 25.0% and 3.5%, respectively. Nevertheless, Morningstar DBRS notes that the Bank's leverage ratio remains somewhat weaker than many global peers.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/454104.
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ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 4, 2024) https://dbrs.morningstar.com/research/433881. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at https://dbrs.morningstar.com

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are monitored.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see: https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Shokhrukh Temurov, CFA, Vice President, North American Financial Institution Ratings
Rating Committee Chair: Tim O'Brien, CFA, CAIA, Managing Director, North American Financial Institution Ratings
Initial Rating Date: December 31, 1980

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