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CIBC 2012 Performance at A Glance
CIBC 2012 Performance at A Glance
Who we are CIBC is a leading Canadian-based financial institution with a market capitalization of $31.8 billion and a Tier 1 capital ratio of 13.8%. Through our three main business units Retail and Business Banking, Wealth Management and Wholesale Banking our 42,000 employees provide a full range of financial products and services to more than 11 million individual, small business, commercial, corporate and institutional clients in Canada and around the world. Our strategy CIBCs first principle is to be a lower risk bank that generates value creation for stakeholders by delivering consistent and sustainable earnings over the long term. We have a strategic plan that is focused on four work streams: 1. We will strengthen and grow our core Canadian retail banking franchise 2. We will grow our wealth management business 3. We will grow our wholesale banking businesses in targeted and client-focused areas 4. We will strengthen our Caribbean banking operation Creating value for our shareholders At CIBC, we are committed to creating value for our shareholders. Our focus is to maintain a lower risk discipline, while generating consistent and sustainable earnings. We are investing in our clients, our employees, our communities and our core businesses. We underpin our activities with industry-leading fundamentals in capital, expenses and risk management.
Financial highlights
As at or for the year ended October 31 (Canadian $ in billions, except as noted)
2012 12.5 1.3 7.2 3.3 55.8 22.0 1.89 9.8 31.8 4.6 45.1 393.4 2.3 0.3 0.6
Financial results Revenue Provision for credit losses Expenses Net income Financial measures (%) Adjusted efficiency ratio(1) Return on common shareholders equity Net interest margin Total shareholder return Common share information Market capitalization Value measures (%) Dividend yield Adjusted dividend payout ratio(1) Balance sheet information Total assets Net income by Strategic Business Unit Retail and Business Banking Wealth Management Wholesale Banking
1.64 1.64
2.20 2.20
3.11 3.11
56.4 22.2 1.79 0.4 30.1 4.7 46.3 383.8 2.2 0.3 0.5
03 03
04 04
05 05
06 06
07 07
08 08
09 09
10 10
11 11
12 12
9.0% 9.8%
Business mix (% revenue) mix Business
(% revenue) 22.0 22.0 Corporate and Other 5% Corporate and Other 5% Wealth Management Wealth 13% Management 13% Wholesale Banking Wholesale 17% Banking 17%
Adjusted earnings per share(1) ($) Adjusted earnings per share(1) ($)
7.57 7.57 8.07 8.07
12.4 12.4
Retail and Business Retail and Banking Business 65% Banking 65%
(1)
11 12 11 12 11 12 11 12 11 12 11 12 For additional information, see the Non-GAAP measures section of the MD&A. (1) For additional information, see the Non-GAAP measures section of the MD&A.
11 11
12 12
A constituent of the Dow Jones Sustainability World Index for 11 consecutive years, and a member of the Dow Jones Sustainability North American Index since its inception in 2005
Named one of the Best Workplaces in Canada for 2012 by the Great Place to Work Institute
Balanced scorecard
Financial
Our key measures of performance(1)
Adjusted earnings per share (EPS)(2) growth
2012 results
$8.07, up 6.6% from 2011 22.0% 13.8% 17.3% 77%/23% 53 basis points 55.8% 45.1% CIBC (0.1)% Index 25.2%
Return on common shareholders equity (ROE) Capital strength(3) Tier 1 capital ratio Total capital ratio Business mix Retail(4)/Wholesale as measured by economic capital(2) Risk Loan loss ratio(5) Productivity Adjusted efficiency ratio(2) Adjusted dividend payout ratio(2) Total shareholder return Five years ended October 31, 2012
(1) For additional detail on our key measures of performance, see the Overview section of the MD&A. (2) For additional information, see the Non-GAAP measures section of the MD&A. (3) Going forward, our capital strength will be measured by the Basel III Common Equity Tier I ratio to exceed the regulatory target set by the Office of the Superintendent of Financial Institutions (OSFI). (4) Retail includes Retail and Business Banking, Wealth Management and International banking operations, (reported as part of Corporate and Other). (5) Going forward, our loan loss ratio target will be between 45 and 60 basis points through the business cycle.
Non-financial
Objectives
Clients Help our clients achieve what matters to them
Accomplishments
Continued our leadership in mobile innovations with the launch of mobile payments Named the Best Commercial Bank in Canada by World Finance magazine Awarded Deal of the Year at the 19th annual U.S. Mutual Fund Industry Awards for our investment in American Century Investments Acquired the private wealth business of MFS McLean Budden to build our wealth management platform Named Best Bank of the Year Project Finance & Infrastructure Canada by DealMakers Monthly Increased our Employee Commitment Index for the seventh consecutive year Recognized as one of Canadas Top 100 Employers and as one of the Best Workplaces in Canada Selected as one of Canadas Best Employers for New Canadians for the fifth consecutive year Named one of Canadas Best Diversity Employers for the second consecutive year Invested more than $62 million in the training and development of our people
Employees Create an environment where all employees can excel Community Make a real difference in our communities
Invested more than $38 million to support charitable organizations across Canada Nearly 13,000 CIBC employees and their families raised more than $30 million in 60 communities through the 2012 Canadian Breast Cancer Foundation CIBC Run for the Cure Raised $4.1 million on CIBC Miracle Day in December 2011 to support childrens charities throughout 2012 Contributed more than $8.5 million to the 2011 United Way campaign Continued our investment in energy efficiency initiatives, including lighting retrofits in more than 90 branches Increased the use of Forest Stewardship Council (FSC) certified paper stock to 97% and committed to use FSC-certified wood products in corporate office furniture systems Led or co-led over $3 billion in project financings for renewable energy, including wind, hydro, solar, geothermal, biomass, and biogas in the last three years Ranked the strongest bank in Canada and North America and third strongest bank in the world by Bloomberg Markets magazine Ranked among the top 10 of the Worlds Safest Banks in North America by Global Finance magazine
Environment Demonstrate environmental responsibility in all activities Governance Be a leader in governance practices
Against a backdrop of economic uncertainty, deleveraging and re-regulation, CIBC reported another year of progress in 2012.
In fiscal 2012, CIBC reported net income of $3.3 billion or $8.07(1) per share on an adjusted basis, compared with $2.9 billion or $7.57(1) per share a year ago. Revenue rose to $12.5 billion from $12.4 billion and return on equity was once again strong at 22.0%. Our Tier 1 capital ratio was 13.8%, keeping us in a leading position among Canadian banks. With a pro forma Basel III common equity ratio of 9.0%, we are well in excess of the 2019 minimum regulatory requirement of 7%. These ratios underscore our strength and stability. We increased our quarterly common dividend to 94 cents effective October 2012, as well as initiated a normal course issuer bid to repurchase 2% of our common equity. In the areas of efficiency and risk, CIBC maintained our non-interest expense to revenue ratio at our objective of the industry median. Loan losses were $1.3 billion and were supported by effective risk management across our businesses. Our results in 2012 reflect broad-based performance across CIBCs core businesses in Retail and Business Banking, Wealth Management and Wholesale Banking. Retail and Business Banking reported net income of $2.3 billion in 2012, up from $2.2 billion in 2011, as a result of volume growth across most retail products and higher fees, partially offset by narrower spreads in the low-interest environment that continues to prevail. Wealth Management had net income of $339 million in 2012, up from $279 million in 2011. The business delivered record long-term mutual fund net sales of $3.9 billion in 2012 and leading investment performance. Despite ongoing volatility and uncertainty in global equity markets, Wholesale Banking continued to deliver consistent and risk-controlled performance during the year, reporting net income of $613 million, compared with $543 million in 2011.
In addition to our financial performance, CIBC was recognized by a number of third party organizations including being named: Strongest bank in North America and third in the world by Bloomberg Markets magazine; Deal of the Year for our equity investment in American Century Investments; One of the 50 Most Socially Responsible Corporations in Canada by Macleans magazine and Sustainalytics; One of the 25 Best Canadian Brands by Interbrand Canada; One of Canadas 10 Most Admired Corporate Cultures by Waterstone Human Capital; One of Canadas Best Workplaces by the Great Place to Work Institute; and One of Canadas Top 100 Employers for 2013 and one of Canadas Best Diversity Employers and a Best Employer for New Canadians by Mediacorp Canada Inc. Our Strategy Our progress in 2012 reflects our strategy. There are three key elements to our strategy. 1. First, we are a lower risk bank. This is our first principle. 2. Second is our strategic imperative which is to deliver consistent and sustainable earnings. 3. Third is our strategic plan, which is focused on four work streams: Strengthen and grow our core Canadian retail banking franchise; Grow our wealth management business; Grow our wholesale banking businesses in targeted and client-focused areas; and Strengthen our Caribbean banking operation. Retail and Business Banking Our Canadian retail banking franchise continues to be the largest contributor to earnings. We will continue to strengthen this business through ongoing investments in projects and infrastructure that provide value to our clients. Our strategy in Retail and Business Banking has two objectives to enhance the client experience and to accelerate profitable revenue growth. Supporting our retail objectives are three priorities: 1. Deepen relationships with our clients 2. Improve our sales and service capabilities 3. Acquire and retain clients In 2012, we made good progress against these priorities. Deepen client relationships We launched the CIBC Total Banking Rebate to recognize and reward clients for building deeper relationships with us. We introduced Next Best Offer which enables our frontline sales teams to better understand our clients needs and current holdings and provide the best possible offer. We launched the CIBC Home Power Plan, combining the benefits of a traditional mortgage and a line of credit to give clients a long-term borrowing solution resulting in a deeper, longer term relationship with CIBC. In recognition of our strong client focus and clear commitment to building long-term client relationships, our Business Banking team was named the Best Commercial Bank in Canada by World Finance magazine.
Improve sales and service capabilities We launched Break Away an innovative leadership development program designed to help frontline leaders focus their teams on best practice activities in order to enhance the client experience and accelerate profitable revenue growth. We implemented inter-branch banking capabilities and launched the new cash management solution, CIBC Cash Management Online, to enhance the client experience. We invested in a host of process improvements to increase responsiveness and enhance client experience. Acquire and retain clients We exited the FirstLine mortgage broker channel and are renewing FirstLine clients into CIBC branded mortgages where we have the opportunity to cross-sell and deepen client relationships. We expanded our distribution footprint with 28 new, relocated or expanded branches across the country this year. In addition, we provided our clients even greater access by expanding our business hours. More than half of our over 1,100 branches are open Saturdays; we have doubled the number of branches open Sundays and we are open later on weekdays at more than 90% of our branches across the country. We continue to lead the market in mobile innovations. We also became the first bank to launch mobile credit card payment capability in partnership with Rogers Communications. Wealth Management In Wealth Management we seek to grow our business. This growth is supported by three strategic priorities: 1. Attract and deepen client relationships 2. Seek new sources of domestic assets 3. Pursue acquisitions and investments In 2012 we made good progress against our priorities. Attract and deepen client relationships To build deeper, long-term relationships with our Wealth Management clients we are leveraging our investment performance momentum, enhancing products and building on our integrated offer to strengthen relationships with our clients. Our innovative loyalty pricing through CIBC Investors Edge and our focus on high net worth clients in CIBC Wood Gundy and CIBC Private Wealth Management have helped to strengthen these relationships. Seek new sources of domestic assets We are growing our Canadian client franchise by attracting high quality investment advisors to CIBC Wood Gundy, and we are building our institutional asset management client base through CIBC Asset Management. In 2012, we added $1.9 billion to our institutional assets under management through new mandates. Our acquisition of the MFS McLean Budden private wealth management business added $1.4 billion in client assets. Pursue acquisitions and investments In addition to organic growth opportunities, we are pursuing acquisitions and investments that align with our risk appetite acquisitions similar to the MFS McLean Budden private wealth management business, or last years investment in American Century Investments (ACI). Our investment in ACI has generated solid results including 15 consecutive quarters of positive net sales.
elements to
Three
strategy
our
3. Four Focused
Work Streams
Wholesale Banking In Wholesale Banking our plan is to grow our business in targeted industries within our defined risk appetite. We expect to achieve this by focusing on three priorities: Add the most value to our clients in Canada Serve our clients abroad Identify and export core capabilities In 2012, we continued to make progress in executing our client-focused strategy. Adding value to clients We bring value to our clients by delivering a comprehensive integrated suite of wholesale banking products and services. We have evolved our processes and controls and realigned our businesses, which has resulted in improved consistency and quality of earnings, and a more client-driven business. Serving our clients abroad By focusing on clients at home and abroad, we have demonstrated an ability to serve their credit, capital markets and advisory needs. We are growing with our Canadian clients as they grow internationally where the industry is relevant to Canada, the long-term outlook for the industry is positive and we have demonstrated industry expertise that is relevant to the international market. Identifying and exporting core capabilities We are expanding client relationships in key industries and investing in our international teams to strengthen our presence and capability. We see the opportunity to do more where we are investing to export core capabilities to markets and sectors that are familiar to us. The oil and gas sector in the U.S. is one area with which we are well familiar. We strengthened our Wholesale Bank with the acquisition of Griffis & Small, LLC, a Houston-based energy advisory firm, specializing in acquisitions and divestitures. The transaction supports CIBCs strategy of targeted growth in businesses and geographies where we have strong existing client relationships and capabilities. The acquisition also creates opportunities to serve new and existing Wholesale Banking clients in the U.S., and complements our energy-focused teams in Calgary, the U.K. and Asia. CIBC FirstCaribbean Our CIBC FirstCaribbean International Bank has been affected by economic conditions in the region. Over the past year, a new leadership team has been engaged in leveraging and replicating CIBCs strengths to ensure that as conditions improve we can return this business to historical levels of profitability. In summary We believe the three major macro trends of uncertainty, deleveraging and re-regulation will continue to impact banks globally. Within this environment we believe CIBC has the right strategy. It is a strategy that will continue to deliver value to all of our key stakeholders including: our shareholders, our clients, our employees and our communities. I would like to thank all 42,000 of CIBCs employees for their efforts this past year in executing our strategy. Our performance in 2012 demonstrates the value of strategy and our further potential as we head into 2013.
CIBC was successful in 2012 and is well positioned for the future. Our businesses performed in another year of global economic challenge. Our results are a testament to CIBCs strategic focus and commitment.
A participating Board Your Board is a participating Board. It participates by contributing to the strategic direction of the organization and overseeing alignment with the risk appetite. It supervises the execution of the strategy and provides input and approves the establishment of metrics for measuring CIBCs progress, as well as the development of CIBCs short and long-term targets. The Board also participates by overseeing the talent development strategy and the alignment of CIBCs compensation philosophy and policies with the banks strategic direction and its risk appetite. It uses a competency matrix to ensure an appropriate Board composition and maintains an ongoing dialogue with key stakeholders. Responsible oversight While management is focused on serving clients and running the day-to-day operations, your Board is vigilant in its oversight responsibilities. We act as stewards for our shareholders and set the tone for a corporate culture that fosters openness, accountability and transparency. Our oversight responsibilities extend to business growth, risk and talent. We review business investments to support strategic growth in areas that align with the banks competitive capabilities and market opportunities; we supervise CIBCs strategy and risk profile to ensure an appropriate risk posture; and we assess CIBCs talent strategy to support leadership development and succession planning for critical roles. Leadership in governance We continue to believe that the strength of our governance is a key driver for CIBCs long-term success. Our integrated governance framework serves as the foundation for sustaining excellence in governance. The framework guides the Board and management in fulfilling their obligations to CIBC and our stakeholders. Our framework comprises an independent and experienced board of directors with diverse backgrounds and skills; a constructive relationship between the Board and senior management to support the exchange of information and productive dialogue; and a robust committee structure and set of governance and control policies and procedures. CIBC 2012 ANNUAL REPORT 5
Board of Directors
Brent S. Belzberg 2005 (CGC, MRCC Chair) Senior Managing Partner TorQuest Partners Toronto, Ontario, Canada Gary F. Colter 2003 (AC, CGC Chair) President CRS Inc. Mississauga, Ontario, Canada Dominic DAlessandro, O.C. 2010 (RMC) Past President and Chief Executive Officer Manulife Financial Corporation Toronto, Ontario, Canada Patrick D. Daniel 2009 (MRCC) Past President and Chief Executive Officer Enbridge Inc. Calgary, Alberta, Canada Luc Desjardins 2009 (MRCC) President and Chief Executive Officer Superior Plus Corp. Calgary, Alberta, Canada Hon. Gordon D. Giffin 2001 (MRCC) Senior Partner McKenna Long & Aldridge LLP Atlanta, Georgia, U.S.A. Linda S. Hasenfratz 2004 (MRCC) Chief Executive Officer Linamar Corporation Guelph, Ontario, Canada Nicholas D. Le Pan 2008 (CGC, RMC Chair) Corporate Director Ottawa, Ontario, Canada Hon. John P. Manley P.C., O.C. 2005 (AC, CGC) President and Chief Executive Officer Canadian Council of Chief Executives Ottawa, Ontario, Canada Gerald T. McCaughey 2005 President and Chief Executive Officer CIBC Toronto, Ontario, Canada Jane L. Peverett 2009 (AC) Corporate Director West Vancouver, British Columbia, Canada Leslie Rahl 2007 (RMC) Founder and Managing Partner Capital Market Risk Advisors, Inc. New York, New York, U.S.A. Charles Sirois C.M., O.Q. 1997 Chair of the Board CIBC Chairman Telesystem Ltd. Montreal, Quebec, Canada Katharine B. Stevenson 2011 (RMC) Corporate Director Toronto, Ontario, Canada Ronald W. Tysoe 2004 (AC Chair, CGC) Corporate Director Jupiter, Florida, U.S.A.
AC Audit Committee CGC Corporate Governance Committee MRCC Management Resources and Compensation Committee RMC Risk Management Committee
Accountability is one of CIBCs core values. To support this tenet, all members of CIBCs Board of Directors abide by the CIBC Code of Ethics for Directors. Employees are bound by the CIBC Code of Conduct and a confidential CIBC Ethics Hotline is available to report any concerns regarding irregular business activity or behaviour that could place CIBCs integrity or reputation at risk.
For more on CIBCs integrated governance framework, including the Statement of Corporate Governance Practices, our CIBC Disclosure Policy and the Disclosure Required by NYSE Listed Company Manual visit www.cibc.com
Sustainability Corporate governance is only one element of our commitment to corporate responsibility. Sustainable banking is about managing and positioning the company for the long term. This view is embedded in the Boards decision-making. Two of our Board committees the Corporate Governance Committee and the Risk Management Committee have specific oversight accountabilities related to CIBCs corporate responsibility. We recognize that CIBC plays a role that is extremely important to our Canadian economy, our clients, our employees and the community. We are proud of the contribution CIBC has made to the economic and social vibrancy of our communities. Each year, CIBC produces a separate Corporate Responsibility Report and Public Accountability Statement that highlights our focus in this area.
Look for the CIBC 2012 Corporate Responsibility Report and Public Accountability Statement online at www.cibc.com, available March 2013.
Rewarding shareholders At CIBC, our goal is to create long-term sustainable value for our stakeholders. We do this by focusing on our clients, operating as a lower risk bank and generating consistent, sustainable earnings. The concept of safety and soundness is deeply rooted in the management of our bank. The health of our bank plays an intrinsic part in our effectiveness and ability to create value for our shareholders. A foundation for the future Our strategic approach allows us to keep pace and stay ahead in a rapidly changing economic and regulatory environment. The outlook for CIBC in 2013 is bright and we are well positioned to take advantage of appropriate opportunities to further strengthen our franchise. CIBC has a talented group of 42,000 employees, led by a committed management team and supported by a strong Board. Collectively, their efforts have earned CIBC recognition as Canadas and North Americas strongest bank by Bloomberg Markets magazine, which also named CIBC President and Chief Executive Officer Gerry McCaughey as one of the most influential business leaders in the world. It is a privilege to work with such an accomplished group of individuals, and it is a privilege to serve all of you.
8 8 8 8
Overview Vision, mission and values CIBCs strategy Performance against objectives
14 Non-interest expenses 14 Taxes 15 Foreign exchange 15 Significant events 15 Outlook for calendar year 2013 16 Fourth quarter review 16 Quarterly trend analysis 17 Review of 2011 financial performance (Canadian GAAP) 19 Non-GAAP measures 22 Strategic business units overview 23 Retail and Business Banking 25 Wealth Management
28 Wholesale Banking 33 Corporate and Other 34 Financial condition 34 Review of consolidated balance sheet 35 Capital resources 39 Off-balance sheet arrangements 42 Management of risk 42 Risk overview 44 Credit risk 57 Market risk 62 Liquidity risk 67 Strategic risk 67 Operational risk 68 Reputation and legal risk
68 Regulatory risk 68 Environmental risk 69 Accounting and control matters 69 Critical accounting policies and estimates 73 Financial instruments 73 Transition to International Financial Reporting Standards 73 Accounting developments 73 Related-party transactions 74 Controls and procedures 75 Supplementary annual financial information
10 Economic and market environment 11 Financial performance overview 11 Financial highlights 12 2012 Financial results 12 Net interest income and margin 13 Non-interest income 13 Trading activities (TEB) 14 Provision for credit losses
A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including in this Annual Report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. These statements include, but are not limited to, statements made in the Chief Executive Officers Letter, Overview Performance Against Objectives, Financial Performance Overview Taxes, Financial Performance Overview Significant Events, Strategic Business Units overview Retail and Business Banking, Strategic Business Units overview Wholesale Banking, Strategic Business Units overview Wealth Management, Financial Condition Capital Resources, Management of Risk Liquidity Risk, Accounting and Control Matters Risk factors related to fair value adjustments and Accounting and Control Matters Provisions and contingent liabilities sections, of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for calendar year 2013 and subsequent periods. Forward-looking statements are typically identified by the words believe, expect, anticipate, intend, estimate and other similar expressions or future or conditional verbs such as will, should, would and could. By their nature, these statements require us to make assumptions, including the economic assumptions set out in the Financial Performance Overview Outlook for calendar year 2013 section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, operational, reputation and legal, regulatory and environmental risk discussed in the Management of Risk section of this report; the effectiveness and adequacy of our risk management models and processes; legislative or regulatory developments in the jurisdictions where we operate, amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; the accuracy and completeness of information provided to us by clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations; changes in market rates and prices which may adversely affect the value of financial products; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law.
Overview
CIBC is a leading Canadian-based global financial institution with a market capitalization of $32 billion and a Tier 1 capital ratio of 13.8%. Through our three main businesses, Retail and Business Banking, Wealth Management, and Wholesale Banking, CIBC provides a full range of financial products and services to more than 11 million individual, small business, commercial, corporate and institutional clients in Canada and around the world. We have more than 42,000 employees dedicated to helping our clients achieve what matters to them; delivering consistent and sustainable earnings for our shareholders; and, giving back to our communities.
CIBCs strategy
CIBCs first principle is to be a lower risk bank that generates value creation for stakeholders by delivering consistent and sustainable earnings over the long term. We have a strategic plan that is focused on four work streams: 1. We will strengthen and grow our core Canadian retail banking franchise 2. We will grow our wealth management business 3. We will grow our wholesale banking business in targeted and client-focused areas 4. We will strengthen our Caribbean banking operation
Earnings growth
To assess our earnings growth, we monitor our earnings per share (EPS). CIBC has an EPS growth target of 5% to 10% on average annually. In 2012, we reported adjusted diluted EPS(1) of $8.07, up from $7.57 in 2011, meeting our 5% to 10% target over the prior year. We are maintaining our 5% to 10% average annual EPS growth target. In support of our EPS target, we also have objectives to maintain a loan loss ratio between 50 and 65 basis points through the cycle and to maintain our adjusted efficiency ratio(1) at the median position among our industry peers. Our loan loss ratio is defined as the provision for credit losses on impaired loans divided by average loans and acceptances, net of allowance for credit losses. In 2012, our loan loss ratio was 53 basis points, up from the 51 basis points we reported in 2011 and within our target range. Going forward we are lowering our target range for loan losses to 45 to 60 basis points. Our adjusted efficiency ratio(1) was 55.8% in 2012, improving from 56.4% in 2011, supported by revenue growth that exceeded expense growth. Based on the most recent publicly reported results of our industry peer group, CIBC has maintained its efficiency ratio at the industry median in 2012. We are maintaining our industry median target going forward.
Adjusted earnings per share(1)(2)
($)
7.57 6.80 5.81
38
8.07
56 51 53
61.7
57.7
58.5
56.4
55.8
6.39
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
9.4 (19.4)
08
09
10
11
12
08
09
10
11
12
Going forward, we are maintaining our objectives to deliver an adjusted dividend payout ratio(1) between 40% and 50% of our earnings and a TSR above the industry average.
CIBC (0.1)% S&P/TSX Composite Index (1.7)% S&P/TSX Composite Banks Index 25.2%
17.8
15.4
13.9
16.1
11.6
36
31
26
23
23
64
69
74
77
77
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
08 Retail
09
10 Wholesale
11
12
For additional information, see the Non-GAAP measures section. Beginning in 2011, these measures are under IFRS; prior fiscal years are under Canadian GAAP. Capital measures for 2011 and the prior fiscal years are under Canadian GAAP. For the purposes of calculating this ratio, Retail includes Retail and Business Banking, Wealth Management, and International Banking operations (reported as part of Corporate and Other). The ratio represents the amount of economic capital attributed to these businesses as at the end of the year.
10
Canadian GAAP
2011 $ 7,062 5,373 12,435 1,144 7,486 3,805 927 2,878 11 177 2,690 2,867 60.2% 56.4% 0.51% 22.2% 1.79% 2.03% 0.73% 0.83% 0.43% $ 2010 6,204 5,881 12,085 1,046 7,027 4,012 1,533 27 2,452 169 2,283 2,452 58.1% 58.5% 0.56%(1) 19.4% 1.79% 2.11% 0.71% 0.83% 32.38% $ 2009 5,394 4,534 9,928 1,649 6,660 1,619 424 21 1,174 162 1,012 1,174 67.1% 57.7% 0.70%(1) 9.4% 1.54% 1.89% 0.33% 0.41% 21.07% $ 2008 5,207 (1,493) 3,714 773 7,201 (4,260) (2,218) 18 (2,060) 119 (2,179) (2,060) n/m 61.7% 0.38%(1) (19.4)% 1.51% 1.78% (0.60)% (0.71)% (43.50)%
2012 $ 7,494 5,055 12,549 1,291 7,215 4,043 704 3,339 8 158 3,173 3,331 57.5% 55.8% 0.53% 22.0% 1.89% 2.20% 0.84% 0.98% 9.82%
Financial results ($ millions) Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income (loss) before taxes Income taxes Non-controlling interests Net income (loss) Net income attributable to non-controlling interests Preferred shareholders Common shareholders Net income (loss) applicable to equity shareholders Financial measures Reported efficiency ratio Adjusted efficiency ratio(1) Loan loss ratio(2) Return on common shareholders equity Net interest margin Net interest margin on average interest-earning assets(3) Return on average assets(4) Return on average interest-earning assets(3)(4) Total shareholder return Common share information Per share ($) basic earnings (loss) reported diluted earnings (loss)(5) adjusted diluted earnings(1) dividends book value Share price ($) high low closing Shares outstanding (thousands) weighted-average basic weighted-average diluted end of period Market capitalization ($ millions) Value measures Dividend yield (based on closing share price) Reported dividend payout ratio Adjusted dividend payout ratio(1) Market value to book value ratio On- and off-balance sheet information ($ millions) Cash, deposits with banks and securities Loans and acceptances, net of allowance Total assets Deposits Common shareholders equity Average assets Average interest-earning assets(3) Average common shareholders equity Assets under administration(6) Balance sheet quality measures Risk-weighted assets ($ billions)(7) Tangible common equity ratio(1)(7) Tier 1 capital ratio(7) Total capital ratio(7) Other information Retail/wholesale ratio(1)(8) Full-time equivalent employees(9)
$ $
$ $
7.86 7.85 8.07 3.64 37.48 78.56 68.43 78.56 403,685 404,145 404,485 31,776 4.6% 46.3% 45.1% 2.10
6.79 6.71 7.57 3.51 32.88 85.49 67.84 75.10 396,233 406,696 400,534 30,080 4.7% 51.7% 46.3% 2.28
5.89 5.87 6.39 3.48 32.17 79.50 61.96 78.23 387,802 388,807 392,739 30,724 4.4% 59.1% 54.4% 2.43
2.65 2.65 5.81 3.48 28.96 69.30 37.10 62.00 381,677 382,442 383,982 23,807 5.6% >100% 59.8% 2.14
(5.89) (5.89) 6.80 3.48 29.40 99.81 49.00 54.66 370,229 371,763 380,805 20,815 6.4% n/m 50.8% 1.86
70,061 252,732 393,385 300,344 15,160 397,382 341,053 14,442 1,445,870 115.2 11.6% 13.8% 17.3% 77%/23% 42,595
65,437 248,409 383,758 289,220 13,171 394,527 347,634 12,145 1,317,799 110.0 11.4% 14.7% 18.4% 77%/23% 42,239
89,660 184,576 352,040 246,671 12,634 345,943 294,428 11,772 1,260,989 106.7 9.9% 13.9% 17.8% 74%/26% 42,354
84,583 175,609 335,944 223,117 11,119 350,706 285,563 10,731 1,135,539 117.3 7.6% 12.1% 16.1% 69%/31% 41,941
88,130 180,323 353,930 232,952 11,200 344,865 292,159 11,261 1,047,326 117.9 7.5% 10.5% 15.4% 64%/36% 43,293
(1) For additional information, see the Non-GAAP measures section. (2) Under IFRS, the ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. The provision for credit losses on impaired loans includes provision for: individual allowance; collective allowance on personal, scored small business loans and mortgages that are greater than 90 days delinquent; and net credit card write-offs. Under Canadian GAAP, the ratio was calculated as the specific provision for credit losses, including losses on securitized portfolio, to the total loans and acceptances net of allowance for credit losses (on a managed basis). (3) Average interest-earning assets include interest-bearing deposits with banks, securities, securities borrowed or purchased under resale agreements, and loans net of allowances. (4) Net income expressed as a percentage of average assets or average interest-earning assets. (5) In the case of a loss, the effect of stock options potentially exercisable on diluted EPS is anti-dilutive; therefore, basic and diluted EPS will be the same. (6) Includes the full contract amount of assets under administration or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon. (7) Capital measures for 2011 are under Canadian GAAP and have not been restated for IFRS. (8) For the purposes of calculating this ratio, Retail includes Retail and Business Banking, Wealth Management, and International banking operations (reported as part of Corporate and Other). The ratio represents the amount of economic capital attributed to these businesses as at the end of the period. (9) Full-time equivalent headcount is a measure that normalizes the number of full-time and part-time employees, base plus commissioned employees, and 100% commissioned employees into equivalent full-time units based on actual hours of paid work during a given year. n/m Not meaningful.
11
2012
Net income was affected by the following items of note: $57 million ($32 million after-tax) loan losses in our exited U.S. leveraged finance portfolio; $37 million ($35 million after-tax) gain relating to an equity-accounted investment in our Wealth Management strategic business unit (SBU); $33 million ($24 million after-tax) loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis; $30 million ($25 million after-tax) amortization of intangible assets; $28 million ($16 million after-tax) hedge accounting loss on leveraged leases; $24 million ($19 million after-tax) gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. (TMX Group) by Maple Group Acquisition Corporation (Maple), net of associated expenses; and $20 million ($15 million after-tax) loss from the structured credit run-off business. The above items of note increased revenue by $9 million, provision for credit losses by $53 million, non-interest expenses by $63 million, and decreased income tax expense by $49 million. In aggregate, these items of note decreased net income by $58 million. In addition, net income attributable to common shareholders was also affected by the following item of note: $30 million premium paid on preferred share redemptions.
2011
Net income was affected by the following items of note: $203 million goodwill impairment relating to FirstCaribbean International Bank Limited (CIBC FirstCaribbean); $178 million ($128 million after-tax) loss from the structured credit run-off business; $90 million ($65 million after-tax) loss from mark-to-market (MTM) volatility prior to the establishment of accounting hedges on securitized mortgages and funding liabilities; $90 million ($46 million after-tax) gain on sale of a merchant banking investment, net of associated expenses; $76 million ($55 million after-tax) reduction in the collective allowance recognized in Corporate and Other; $37 million after-tax gain on the sale of CIBC Mellon Trust Companys (CMT) Issuer Services business; $35 million ($28 million after-tax) amortization of intangible assets; and $25 million ($18 million after-tax) loan loss in our exited European leveraged finance business. The above items of note decreased revenue by $21 million, provision for credit losses by $51 million, increased non-interest expenses by $358 million, and decreased income tax expense by $24 million. In aggregate, these items of note decreased net income by $304 million. In addition, net income attributable to common shareholders was also affected by the following item of note: $12 million premium paid on preferred share redemptions.
Average interest-earning assets Net interest income Net interest margin on average interest-earning assets
Net interest income was up $432 million or 6% from 2011, primarily due to higher trading and treasury related net interest income and volume growth across most retail products, partially offset by narrower spreads. The current year included a hedge accounting loss on leveraged leases shown as an item of note above, while the prior year included interest income on tax reassessments. Additional information on net interest income and margin is provided in the Supplementary annual financial information section.
(1) For additional information, see the Non-GAAP measures section.
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Non-interest income
$ millions, for the year ended October 31
2012 $ 438 775 418 619 424 880 335 402 (115) 264 (32) 91 160 396 $
2011 514 756 379 609 411 849 320 496 44 397 (7) 204 111 290
Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees Mutual fund fees Insurance fees, net of claims Commissions on securities transactions Trading income (loss) AFS securities gains (losses), net FVO gains (losses), net Foreign exchange other than trading Income from equity-accounted associates and joint ventures Other
$ 5,055
$ 5,373
Non-interest income was down $318 million or 6% from 2011. Underwriting and advisory fees were down $76 million or 15%, primarily due to lower advisory fees and equity new issuance revenue. Credit fees were up $39 million or 10%, primarily due to higher committed corporate lending facilities. Commissions on securities transactions were down $94 million or 19%, primarily due to lower trading volumes. Trading loss was $115 million compared to income of $44 million in 2011. See the Trading activities section which follows for further details. Available-for-sale (AFS) securities gains, net, were down $133 million or 34%, primarily due to a gain on sale of a merchant banking investment in the prior year shown as an item of note above. Designated at fair value (FVO) losses, net, were up $25 million, primarily due to losses in our structured credit run-off business compared to gains in the prior year. Foreign exchange other than trading was down $113 million or 55%, largely driven by higher losses on economic hedging activities. Income from equity-accounted associates and joint ventures was up $49 million or 44%, primarily due to income from our proportionate share in American Century Investments (included from September 1, 2011) including a gain related to this equity-accounted investment shown as an item of note above. Partially offsetting this increase was a gain on sale of CMTs Issuer Services business included in the prior year, also shown as an item of note. Other was up $106 million or 37%. The prior year included an item of note related to accounting hedges and the current year included a gain on sale of interest in an entity in relation to the acquisition of TMX Group by Maple, also shown as an item of note.
Trading income by product line: Interest rates Foreign exchange Equities(1) Commodities Structured credit Other
(1) Includes taxable equivalent basis (TEB) adjustment of $280 million (2011: $187 million) reported within Wholesale Banking. See Strategic business units section for further details.
Trading income was higher by $252 million or 45%, primarily driven by income in the structured credit run-off business, compared to a loss in the prior year, and higher tax-exempt revenue and interest rate trading income in the current year, partially offset by the change in valuation of collateralized derivatives to an OIS basis noted above. Net interest income comprises interest and dividends relating to financial assets and liabilities associated with trading activities, net of interest expense and interest income associated with funding these assets and liabilities. Non-interest income includes realized and unrealized gains and losses on securities held-for-trading and income relating to changes in fair value of derivative financial instruments. Trading activities and related risk management strategies can periodically shift income between net interest income and non-interest income. Therefore, we view total trading revenue as the most appropriate measure of trading performance.
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Retail and Business Banking Wealth Management Wholesale Banking Corporate and Other
The provision for credit losses was up $147 million or 13% from 2011. In Retail and Business Banking, provisions were down due to higher recoveries, lower bankruptcies and write-offs in the cards portfolio, partially offset by higher provisions in the personal and business lending portfolios. In Wholesale Banking, provisions were up mainly due to higher losses in U.S. real estate finance and the exited U.S. leveraged finance portfolios. In Corporate and Other, provisions were up due to higher losses in CIBC FirstCaribbean. There were lower net provision reversals related to the collective allowance reported in Corporate and Other compared with the prior year.
Non-interest expenses
$ millions, for the year ended October 31
2012 $ 2,285 1,236 523 4,044 697 1,022 304 233 174 50 691 $ 7,215
2011 $ 2,245 1,261 546 4,052 667 989 296 213 178 38 1,053 $ 7,486
Employee compensation and benefits Salaries Performance-based compensation Benefits Occupancy costs Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other
Non-interest expenses decreased by $271 million or 4% from 2011. Employee compensation and benefits decreased by $8 million due to lower performance-based compensation and benefits, partially offset by higher salaries. Occupancy costs increased by $30 million or 4%, mainly due to higher rental expenses. Computer, software and office equipment increased by $33 million or 3%, and Advertising and business development increased by $20 million or 9%, primarily due to higher spending on strategic business initiatives. Other decreased by $362 million or 34%, primarily due to the goodwill impairment charge relating to CIBC FirstCaribbean and expenses relating to the sale of a merchant banking investment in the prior year, both shown as items of note above, and operational efficiencies during the current year.
Taxes
$ millions, for the year ended October 31
Income tax expense Indirect taxes(1) GST, HST and sales taxes Payroll taxes Capital taxes Property and business taxes Total indirect taxes Total taxes Income taxes as a percentage of net income before taxes Total taxes as a percentage of net income before deduction of total taxes
(1) Certain amounts in the table are based on a paid or payable basis and do not factor in capitalization and subsequent amortization.
Income taxes include those imposed on CIBC as a Canadian legal entity, as well as on our domestic and foreign subsidiaries. Indirect taxes comprise goods and services tax (GST), harmonized sales tax (HST), and sales, payroll, capital, property and business taxes. Indirect taxes are included in non-interest expenses. Total income and indirect taxes were down $203 million from 2011. Income tax expense was $704 million, compared to $927 million in 2011. This change was primarily due to higher tax-exempt income, a lower statutory income tax rate, and a decrease in the relative proportion of income subject to higher rates of income tax. The prior year included the CIBC FirstCaribbean goodwill impairment which was not tax-effected. In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation and on December 21, 2011 (and reconfirmed on July 5, 2012), in connection with a motion by CIBC to strike the Crowns replies, the Tax Court of Canada struck certain portions of the replies and directed the Crown to submit amended replies. Both the Crown and CIBC appealed the ruling to the Federal Court of Appeal, and the appeal was heard on November 21, 2012. A decision has not yet been rendered.
14
Foreign exchange
The estimated impact of U.S. dollar translation on key lines of our consolidated statement of income, as a result of changes in average exchange rates, are as follows:
2012 vs. 2011 $ 27 5 12 $ 10 2% 2011 vs. 2010 $ (102) (7) (52) (8) $ (35) (6)%
Estimated increase (decrease) in: Total revenue Provision for credit losses Non-interest expense Income taxes Net income Average US$ appreciation (depreciation) relative to C$
Significant events
Investment in TMX Group Limited
CIBC completed funding of its $194 million equity commitment in Maple. The equity commitment from CIBC, and other investors, coupled with CIBCs participation in a $1.9 billion syndicated credit facility, provided the necessary financing to support Maples acquisition of 80% of the outstanding shares of TMX Group. On September 14, 2012, Maple completed the acquisition of the remaining 20% of outstanding TMX Group shares in a one-for-one exchange for Maple shares. Maple also acquired 100% of Alpha Trading Systems Inc., Alpha Trading Systems Limited Partnership and The Canadian Depository for Securities Limited during the fourth quarter. CIBC recognized a combined gain, net of associated expenses, of $24 million ($19 million after-tax) on the sale of its interests in these entities. Maple was subsequently renamed TMX Group Limited. As a result of the above, CIBC owns 6.7% of TMX Group Limited and has a nominee on its board of directors. CIBC follows the equity method to account for this investment, and our share in the results of TMX Group Limited is included in the Wholesale Banking SBU for the period subsequent to the acquisition.
FirstLine mortgages
CIBC announced that effective July 31, 2012, we are no longer accepting mortgages through the broker mortgage channel under the FirstLine brand. Existing FirstLine clients are being offered a CIBC brand mortgage upon renewal, which is consistent with Retail and Business Bankings strategy of deepening client relationships. Revenue from FirstLine has been reclassified from Personal banking to Other within Retail and Business Banking, retroactively. Revenue from renewals into CIBC brand is included within Personal banking.
15
2012 Oct. 31 Jul. 31 $ 2,085 401 527 136 $ 3,149 $ 1,883 1,266 3,149 317 1,831 1,001 160 $ 841 2 839 2.00 2.00 Apr. 30 $ 2,004 418 463 199 $ 3,084 $ 1,753 1,331 3,084 308 1,764 1,012 201 $ 811 1 810 1.90 1.90 Jan. 31 $ 2,029 435 495 198 $ 3,157 $ 1,842 1,315 3,157 338 1,791 1,028 193 $ 835 3 832 1.94 1.93 Oct. 31 $ 2,076 396 561 162 $ 3,195 $ 1,776 1,419 3,195 306 1,920 969 212 $ 757 3 754 1.80 1.79 Jul. 31 $ 2,035 404 503 189 $ 3,131 $ 1,785 1,346 3,131 310 2,005 816 225 $ 591 2 589 1.35 1.33 Apr. 30 $ 1,932 420 477 186 $ 3,015 $ 1,731 1,284 3,015 245 1,756 1,014 247 $ 767 3 764 1.83 1.80
2011 Jan. 31 $ 2,002 416 517 159 $ 3,094 $ 1,770 1,324 3,094 283 1,805 1,006 243 $ 763 3 760 1.82 1.80
Revenue Retail and Business Banking Wealth Management Wholesale Banking(1) Corporate and Other(1) Total revenue Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income before taxes Income taxes Net income Net income attributable to: Non-controlling interests Equity shareholders Earnings per share basic diluted
$ 2,036 420 575 128 $ 3,159 $ 2,016 1,143 3,159 328 1,829 1,002 150 $ 852 2 850 2.02 2.02
$ $
$ $
$ $
$ $
$ $
$ $
$ $
$ $
(1) Starting in the third quarter of 2012, Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the revenue and income taxes of Corporate and Other.
Revenue
Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by spread compression and attrition in our exited FirstLine mortgages (see Strategic business units overview section for additional details).
16
Non-interest expenses
Non-interest expenses have fluctuated over the period largely due to changes in employee compensation and benefits, and pension expense. An impairment loss relating to CIBC FirstCaribbean goodwill was recognized in the third quarter of 2011.
Income taxes
Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has been trending higher since the first quarter of 2011. The above-noted impairment loss relating to CIBC FirstCaribbean goodwill was not tax-effected.
Retail and Business Banking $ 5,882 1,800 283 7,965 1,072 4,062 2,831 706 $ 2,125 $ 5,475 1,829 269 7,573 1,186 3,842 2,545 702 $ 1,843
Wealth Management $ 179 1,740 (283) 1,636 4 1,241 391 112 $ $ 279 160 1,588 (269) 1,479 1 1,163 315 90 $ 225
Wholesale Banking(1) $ 921 1,143 2,064 32 1,198 834 268 1 $ $ 565 704 1,063 1,767 88 1,147 532 178 12 $ 342
Corporate and Other(1) $ (632) 1,216 584 (267) 849 2 (117) 9 $ $ 110 (135) 1,401 1,266 (229) 875 620 563 15 $ 42 $ $ $ $
CIBC Total 6,350 5,899 12,249 841 7,350 4,058 969 10 3,079 6,204 5,881 12,085 1,046 7,027 4,012 1,533 27 2,452
2011
Net interest income Non-interest income Intersegment revenue Total revenue Provision for credit losses Non-interest expenses Income before taxes and non-controlling interests Income taxes Non-controlling interests Net income
2010
Net interest income Non-interest income Intersegment revenue Total revenue Provision for credit losses Non-interest expenses Income before taxes and non-controlling interests Income taxes Non-controlling interests Net income
(1) Starting in 2012, Wholesale Banking revenue and income taxes are reported on a TEB basis with an equivalent offset in the revenue and income taxes of Corporate and Other. Information relating to 2011 and 2010 has been reclassified accordingly.
The following discussion provides a comparison of our results of operations for the years ended October 31, 2011 and 2010 on a Canadian GAAP basis.
Overview
Net income for 2011 was $3,079 million, compared to $2,452 million in 2010. The increase in net income was primarily due to lower income tax expense. Increase in revenue and lower provision for credit losses were mostly offset by higher non-interest expenses.
Revenue by segments
Retail and Business Banking Revenue was up $392 million or 5% from 2010, primarily due to volume growth across most lines of business, and higher treasury allocations and fees, partially offset by narrower spreads. Wealth Management Revenue was up $157 million or 11% from 2010, primarily due to higher revenue from retail brokerage and asset management.
17
Consolidated CIBC
Net interest income Net interest income was up $146 million or 2% from 2010, primarily due to volume growth in most retail products, including the impact of the acquisition of the MasterCard portfolio completed on September 1, 2010, partially offset by narrower spreads. In addition, trading-related net interest income was higher in 2011. These factors were partially offset by lower interest income from CIBC FirstCaribbean, lower treasury-related net interest income, and lower interest income on tax reassessments. Non-interest income Non-interest income was up $18 million or less than 1% from 2010. Higher income from securitized assets, higher mutual fund, underwriting and advisory fees, and lower losses related to the structured credit run-off business were largely offset by lower foreign exchange gains on capital repatriation activities, and lower card fees. Provision for credit losses The provision for credit losses was down $205 million or 20% from 2010. Specific provision for credit losses in consumer portfolios was down $181 million mainly due to lower write-offs across most products and the favourable impact of higher credit card securitizations in 2011. This was partially offset by losses arising from the acquired MasterCard portfolio. Specific provision for credit losses in the business and government lending portfolios was down $95 million, primarily due to the improvement in credit quality of our portfolios in Canada and in our U.S. real estate finance business, partially offset by higher provisions in CIBC FirstCaribbean and in our exited leveraged finance business in Europe. The change in general provision for credit losses was unfavourable by $71 million from 2010. This was primarily due to a slowing improvement in the Visa cards portfolio compared to 2010, partially offset by a decrease in provision in the personal loans portfolio. Non-interest expenses Non-interest expenses increased by $323 million or 5% from 2010, primarily due to higher employee compensation and benefits, partially offset by lower business and capital taxes, and professional fees. The servicing fees in relation to the acquisition of the MasterCard portfolio and expenses related to the sale of a merchant banking investment also contributed to the increase in 2011. Income taxes Income tax expense was $969 million, compared to $1,533 million in 2010. This change was primarily due to higher income tax expense in 2010 related to foreign exchange gains on capital repatriation activities. Also, income tax expense was favourably impacted in 2011 by higher tax-exempt income and a lower domestic statutory income tax rate.
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Non-GAAP measures
We use a number of financial measures to assess the performance of our business lines as described below. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures useful in analyzing financial performance.
Adjusted measures
Management assesses results on a reported and adjusted basis and considers both as useful measures of performance. Adjusted results remove items of note from reported results and are used to calculate our three adjusted measures noted below. Items of note include the results of our structured credit run-off business, the amortization of intangibles and certain items of significance that arise from time to time which management believes are not reflective of underlying business performance. We believe that adjusted measures provide the reader with a better understanding of how management assesses underlying business performance and facilitate a more informed analysis of trends. While we believe that adjusted measures may facilitate comparisons between our results and those of some of our Canadian peer banks which make similar adjustments in their public disclosure, it should be noted that there is no standardized meaning for adjusted measures under GAAP. We also adjust our results to gross up tax-exempt revenue on certain securities to a TEB basis, being the amount of fully taxable revenue, which, were it to have incurred tax at the statutory income tax rate, would yield the same after-tax revenue.
Economic capital
Economic capital provides the financial framework to evaluate the returns of each SBU, commensurate with risk assumed. Economic capital is an estimate of the amount of equity capital required by the businesses to absorb losses consistent with our targeted risk rating over a one-year horizon. Economic capital comprises a number of key risk types including credit, strategic, operational, investment, and market. The economic capital methodologies that we employ quantify the level of inherent risk within our products, clients, and business lines, as required. The difference between our total equity capital and economic capital is held in Corporate and Other. There is no comparable GAAP measure for economic capital.
Economic profit
Net income attributable to equity shareholders, adjusted for a charge on economic capital, determines economic profit. This measures the return generated by each SBU in excess of our cost of capital, thus enabling users of our financial information to identify relative contributions to shareholder value.
Managed loans
Under Canadian GAAP, securitized loans were removed from the consolidated balance sheet upon sale. Loans on a managed basis included securitization inventory as well as loans and securities sold. We used this measure to evaluate the credit performance and the overall financial performance of the underlying loans.
19
Canadian GAAP 2011 2010 $ 2,283 200 $ 2,483 388,807 388,807 $ 5.87 6.39 12,085 (291) 53 $ $ 11,847 7,027 (99) $ 6,928 58.1% 58.5% $ 2,283 200 $ $ 2,483 $ 1,350 $ 59.1% 54.4% $ $ $ $ $ $ $ 2009 1,012 1,209 2,221 382,442 382,442 2.65 5.81 9,928 1,453 42 11,423 6,660 (72) 6,588 67.1% 57.7% 1,012 1,209 2,221 $ 1,328 $ >100% 59.8% $ $ $ $ $ $ $ 2008 (2,179) 4,709 2,530 371,763 371,763 (5.89) 6.80 3,714 7,273 188 11,175 7,201 (309) 6,892 n/m 61.7% (2,179) 4,709 2,530 1,285 n/m 50.8%
2012 A $ 3,173 88 B C D A/C B/D E $ $ 3,261 404,145 404,145 7.85 8.07 12,549 (9) 281 F G $ $ 12,821 7,215 (63) H G/E H/F I $ $ 7,152 57.5% 55.8% 3,173 88 J K K/I K/J $ $ 3,261 $ 1,470 $ 46.3% 45.1% $ $ $ $ $ $ $
Reported and adjusted diluted EPS Reported net income (loss) attributable to diluted common shareholders Adjusting items: After-tax impact of items of note(1) Dividends on convertible preferred shares(2) Adjusted net income attributable to diluted common shareholders(3) Reported diluted weighted-average common shares outstanding (thousands) Removal of impact of convertible preferred shares (thousands)(2) Adjusted diluted weighted-average shares outstanding (thousands)(3) Reported diluted EPS ($) Adjusted diluted EPS ($)(3) Reported and adjusted efficiency ratio Reported total revenue Adjusting items: Pre-tax impact of items of note(1) TEB Adjusted total revenue(3) Reported non-interest expenses Adjusting items: Pre-tax impact of items of note(1) Adjusted non-interest expenses(3) Reported efficiency ratio Adjusted efficiency ratio(3) Reported and adjusted dividend payout ratio Reported net income (loss) attributable to common shareholders Adjusting items: After-tax impact of items of note(1) Adjusted net income attributable to common shareholders(3) Dividends paid to common shares Reported dividend payout ratio Adjusted dividend payout ratio(3) Loan loss ratio Loans and acceptances (net of allowances for credit losses) Add: loans securitized Managed loans and acceptances(3) Specific provision for credit losses Add: losses on securitized portfolio Specific provision for credit losses on a managed basis(3) Loan loss ratio (on managed basis)
(3)
2,728 316 (38) 3,006 406,696 (9,609) 397,087 6.71 7.57 12,435 21 189 12,645 7,486 (358) 7,128 60.2% 56.4% 2,690 316 3,006 1,391 51.7% 46.3%
(1) Reflects impact of items of note under 2012 Financial results section and below. (2) We have irrevocably renounced by way of a deed poll, our right to convert the series 26, 27, and 29 non-cumulative Class A Preferred Shares (the Convertible Preferred Shares) into CIBC common shares, except in circumstances that would be a Trigger Event as described in the August 2011 Non-Viability Contingent Capital advisory issued by OSFI. By renouncing our conversion rights, the Convertible Preferred Shares are no longer dilutive subsequent to August 16, 2011, the date the conversion rights were renounced by CIBC. The impact of dilution prior to August 17, 2011 has been removed for the purposes of calculation of the adjusted diluted EPS. (3) Non-GAAP measure. n/m Not meaningful.
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2009
Net income was affected by the following items of note: $1,003 million ($684 million after-tax) loss on the structured credit run-off business; $265 million ($182 million after-tax) negative impact of changes in credit spreads on the MTM of credit derivatives in our corporate loan hedging program; $164 million ($106 million after-tax) of valuation charges related to certain trading and AFS positions in exited and other run-off businesses; $136 million ($81 million after-tax) of higher than normal losses and write-downs on our legacy merchant banking portfolios; $107 million ($73 million after-tax) provision for credit losses in the general allowance; $92 million ($51 million after-tax) MTM loss relating to interest-rate hedges for the leveraged lease portfolio that did not qualify for hedge accounting; $83 million ($56 million after-tax) loan loss in our leveraged loan and other run-off portfolios; $27 million ($18 million after-tax) of a higher litigation provision and other operational costs; $26 million ($18 million after-tax) decrease in credit valuation adjustments (CVAs) against credit exposures to derivative counterparties, other than financial guarantors, on non-structured credit contracts; $25 million ($17 million after-tax) interest income on income tax reassessments; and $111 million ($7 million after-tax) of foreign exchange gains on capital repatriation activities. The above items of note decreased revenue by $1,453 million, increased provision for credit losses by $190 million, non-interest expenses by $72 million, and decreased income tax expense by $506 million. In aggregate, these items of note decreased net income by $1,209 million.
2008
Net loss was affected by the following items of note: $7,312 million ($4,925 million after-tax) loss on the structured credit run-off business; $519 million positive impact of favourable tax-related items, including $486 million on recognition of an additional expected tax benefit relating to Enron-related litigation settlements; $414 million ($279 million after-tax) positive impact of changes in credit spreads on the MTM of credit derivatives in our corporate loan hedging program; $192 million ($130 million after-tax) of higher than normal severance accruals; $177 million ($106 million after-tax) of higher than normal losses/write-downs on our merchant banking and other investment portfolios; $125 million ($78 million after-tax) combined loss related to the sale of some of our U.S. businesses to Oppenheimer, and the exit of certain trading positions; $106 million ($67 million after-tax) of losses and interest expense related to leveraged leases; $75 million ($50 million after-tax) of CVA against credit exposures to derivatives counterparties, other than financial guarantors, on non-structured credit contracts; $56 million ($38 million after-tax) increase in market valuation adjustments due to changes in valuation technique on other than structured credit positions; and $47 million foreign exchange gain ($113 million loss after-tax) on the repatriation of capital and retained earnings. The above items of note decreased revenue by $7,273 million, increased non-interest expenses by $309 million, and decreased income tax expense by $2,873 million. In aggregate, these items of note increased net loss by $4,709 million.
21
FirstLine mortgages
Effective July 31, 2012, CIBC stopped accepting new mortgage applications through the FirstLine mortgages brand. Accordingly, the results of the exited FirstLine broker channel have been retroactively reclassified from Personal banking to Other within Retail and Business Banking.
22
2012 progress
We made good progress in 2012 against our strategic priorities.
We launched Break Away an innovative leadership development program designed to help frontline leaders focus their teams on best practice activities in order to enhance the client experience and accelerate profitable revenue growth. We implemented inter-branch banking capabilities for Small Business clients and launched the new cash management solution, CIBC Cash Management Online, to enhance the client experience. We invested in a host of process improvements to increase responsiveness and enhance client experience.
Net income
($ billions)
Funds managed
($ billions)
378.3 384.6
Efficiency ratio
(%)
8.0
8.2 2.2
50.1 2.3
49.8
11
12
11
12
11
12
11
12
23
11
12
Business banking
7% growth in funds managed Business lending grew 7%, 10% excluding commercial mortgages Strong growth of 8% in core business deposits
11
12
Results
(1)
2012 $ 6,309 1,501 344 8,154 1,080 4,059 3,015 729 2,286 2,286 $
2011 6,270 1,411 364 8,045 1,096 4,034 2,915 731 2,184 2,184
Revenue Personal banking(2) Business banking Other(2) Total revenue Provision for credit losses Non-interest expenses Income before taxes Income taxes Net income Net income attributable to: Equity shareholders (a) Efficiency ratio Return on equity(3) Charge for economic capital(3) (b) Economic profit(3) (a+b) Average assets ($ billions) Full-time equivalent employees
(1) For additional segmented information, see Note 28 to the consolidated financial statements. (2) Results of FirstLine mortgages have been retroactively reclassified from Personal banking to Other. (3) For additional information, see the Non-GAAP measures section.
$ $
$ $
Financial overview Net income was up $102 million or 5% from 2011. Revenue increased as a result of volume growth across most retail products and higher fees, partially offset by narrower spreads. Non-interest expenses were higher and provision for credit losses was lower. Revenue Revenue was up $109 million or 1% from 2011. Personal banking revenue was up $39 million or 1%, primarily due to volume growth in deposits and lending and higher fees, partially offset by lower spreads. Business banking revenue was up $90 million or 6%, primarily due to volume growth across most products. Other was down $20 million or 5%, primarily due to lower revenue relating to FirstLine mortgages. Provision for credit losses Provision for credit losses was down $16 million or 1% from 2011, primarily due to higher recoveries, lower bankruptcies and write-offs in the cards portfolio, partially offset by higher provisions in the personal and business lending portfolios. Non-interest expenses Non-interest expenses were up $25 million or 1% from 2011, mainly due to increased spending on strategic business initiatives, partially offset by operational efficiencies during the year. Income taxes Income tax expense was comparable to the prior year, as the favourable impact of the lower statutory tax rate was offset by the impact of higher income. Average assets Average assets were down $3.2 billion or 1% from 2011 due to run-off of the exited FirstLine mortgage channel and lower allocated treasury assets. Excluding the above two items, average assets grew by 6%.
24
Wealth Management
Wealth Management provides relationship-based advisory services and an extensive suite of leading investment solutions to meet the needs of institutional, retail and high net worth clients. Our asset management, retail brokerage and private wealth management businesses combine to create an integrated offer, delivered through nearly 1,500 advisors across Canada.
2012 progress
We made good progress in 2012 against our strategic priorities.
We are leveraging our investment performance momentum, enhancing products, and creating an integrated offer to build deeper, long-term relationships with our Wealth Management clients. We are attracting new clients to our platform with innovative loyalty pricing through CIBC Investors Edge, our self directed brokerage, and specialized advisory services for our high net worth clients in CIBC Wood Gundy, our full service brokerage, and CIBC Private Wealth Management. We continue to make investments to improve the client experience, including ongoing enhancements to our online brokerage website and advisory offer.
Net income
($ millions)
339
Mutual funds
($ billions)
1.6
1.7
202.9 279
57.2 51.4
11
12
11
12
11
12
11
12
25
Retail brokerage
5% growth in AUA full service brokerage 10% growth in AUA self directed brokerage CIBC Wood Gundy continues to have solid client satisfaction indicators
Assets under administration CIBC Wood Gundy
($ billions)
111.9 117.5
11
12
Asset management
11% growth in assets under management Investment performance consistently amongst the Canadian leaders, as measured against median Record net sales of long-term mutual funds of $3.9 billion
11
12
11
12
26
2012 $ 1,014 560 100 1,674 1,232 442 103 $ $ 339 339 73.6% 19.8% (214) 125 4.0 217.1 3,783 $ $
2011 $ 1,082 456 98 1,636 4 1,241 391 112 279 279 75.9% 31.7% (116) 163 3.4 202.9 3,731
Revenue Retail brokerage Asset management Private wealth management Total revenue Provision for credit losses Non-interest expenses Income before taxes Income taxes Net income Net income attributable to: Equity shareholders (a) Efficiency ratio Return on equity(2) Charge for economic capital(2) (b) Economic profit(2) (a+b) Average assets ($ billions) Assets under administration ($ billions) Full-time equivalent employees
(1) For additional segmented information, see Note 28 to the consolidated financial statements. (2) For additional information, see the Non-GAAP measures section.
$ $ $ $
$ $ $ $
Financial overview Net income was up $60 million or 22% from 2011. Net income increased as a result of higher revenue in asset management from our proportionate share of income in ACI including a gain relating to this equity-accounted investment shown as an item of note, partially offset by lower revenue in retail brokerage. Revenue Revenue was up $38 million or 2% from 2011. Retail brokerage revenue was down $68 million or 6%, primarily due to lower commissions from equity trading and new issuance activity. Asset management revenue was up $104 million or 23%, primarily due to the income from our proportionate share in ACI including the item of note discussed above. Private wealth management revenue was comparable to 2011. Non-interest expenses Non-interest expenses were down $9 million or 1% from 2011, mainly due to lower performance-based compensation, partially offset by higher salaries. Income taxes Income taxes were down $9 million or 8% from 2011, mainly due to a lower tax rate on the income from our proportionate share in ACI and the item of note discussed above. Assets under administration Assets under administration were up $14.2 billion or 7% from 2011, primarily due to record net sales of long-term mutual funds and higher average client assets.
27
Wholesale Banking
Wholesale Banking provides a wide range of credit, capital markets, investment banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.
2012 progress
We made good progress in 2012 against our strategic priorities.
Net income
($ millions)
Economic capital(1)
($ billions)
2.4 2.2
4.9
11
12
11
12
11
12
11
12
28
Capital markets
CIBC was ranked among the leading FX providers globally, and was also ranked a top bank in Canadian dollar service in the FX Week Best Bank Awards 2012 Ranked #1 among Canadian prime brokers by Global Custodian Prime Brokerage Survey and ranked #2 provider of Canadian equity research, according to the latest Brendan Wood International survey Ranked #2 in market share in fees for Equity Capital Markets by Brendan Wood International Ranked #1 by deal count and #2 by volume in bond underwriting Acted as bookrunner on three of the top five equity issuances Ranked #1 underwriter in Canadian dollar-denominated debt for governments in Canada, and also ranked #1 underwriter in US$ debt for Canadian governments a first for CIBC
1.1
1.2
11
12
11
12
29
2012 $ 1,195 801 64 2,060 142 1,115 803 190 $ $ 613 613 $ $
Revenue Capital markets Corporate and investment banking Other Total revenue(2) Provision for credit losses Non-interest expenses Income before taxes Income taxes(2) Net income Net income attributable to: Non-controlling interests Equity shareholders (a) Efficiency ratio Return on equity(3) Charge for economic capital(3) (b) Economic profit(3) (a+b) Average assets ($ billions) Full-time equivalent employees
(1) For additional segmented information, see Note 28 to the consolidated financial statements. (2) Revenue and income taxes are reported on a TEB basis. Accordingly, revenue and income taxes include a TEB adjustment of $281 million (2011: $189 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. (3) For additional information, see the Non-GAAP measures section.
Financial overview Net income was up $70 million or 13% from 2011, primarily due to lower non-interest expenses and a lower effective tax rate, partially offset by a higher provision for credit losses. Revenue Revenue was up $2 million from 2011. Capital markets revenue was up $96 million or 9% due to higher trading revenue, higher fixed income and debt new issuance revenue, and a gain on sale of an interest in an entity in relation to the acquisition of TMX Group by Maple included as an item of note. In addition, the prior year included CVA charges against credit exposures to derivative counterparties (other than financial guarantors), whereas the current year includes a CVA reversal. Partially offsetting the above factors were lower equity new issuance and equity commission revenue, and the loss relating to the change in valuation of collateralized derivatives to an OIS basis included as an item of note. Corporate and investment banking revenue was down $147 million or 16%, primarily due to lower investment portfolio gains and lower advisory and equity new issuance revenue, partially offset by higher revenue from corporate credit products and U.S. real estate finance. Other revenue was up $53 million, primarily due to lower losses in the structured credit run-off business. Provision for credit losses Provision for credit losses was up $95 million from 2011 mainly due to higher losses in U.S. real estate finance and the exited U.S. leveraged finance portfolio. Non-interest expenses Non-interest expenses were down $103 million or 8% from 2011, mainly due to lower expenses in the structured credit run-off business and lower performance-based compensation. The prior year included expenses related to the sale of a merchant banking investment. Income taxes Income tax expense decreased by $60 million or 24% from 2011. The impact of a decrease in the relative proportion of income earned in higher tax jurisdictions was partially offset by the increased TEB adjustment on higher tax-exempt income. Average assets Average assets were up $7.3 billion or 7% from 2011, primarily due to increased trading activity and higher loan balances in corporate credit and U.S. real estate finance.
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Results
$ millions, for the year ended October 31
Net interest income (expense) Trading income (loss)(1) FVO gains (losses)(1) Other income Total revenue Provision for credit losses Non-interest expenses Loss before taxes Income taxes Net loss
(1) During 2012, we reclassified gains and losses (both realized and unrealized) on certain trading securities and derivatives that are managed in conjunction with FVO financial instruments from trading income (loss) to FVO gains (losses), net in the consolidated statement of income. Prior year information has been reclassified accordingly.
The net loss for the year was $15 million (US$14 million), compared with $128 million (US$128 million) for the prior year. The net loss for the year was mainly due to a decrease in the value of receivables related to protection purchased from financial guarantors (on loan assets that are carried at amortized cost), resulting from an increase in the MTM of the underlying positions, net interest and non-interest expenses. These were partially offset by a reduction in CVA relating to financial guarantors and gains on sales and terminations. During the year, sales and terminations resulted in notional reductions in securities of US$296 million and purchased credit derivatives of US$2.5 billion. The completion of these transactions resulted in an aggregate gain of $33 million (US$34 million).
Position summary
The following table summarizes our positions within the structured credit run-off business:
Written credit derivatives, liquidity and credit facilities Credit protection purchased from Financial guarantors Other counterparties
Investment and loans(1) Fair value of trading AFS and FVO securities $ 564 Fair value of securities classified as loans $ 3,674 57
Notional USRMM - CDO CLO Corporate debt Other Unmatched October 31, 2011 $ 3,828 914
Carrying value of securities classified as loans Notional $ $ 298 3,689 3,117 4,968 60 652
$ 4,742 $ 5,258
$ 564 $ 581
$ 3,731 $ 3,947
$ 6,492 $ 7,260
$ 269 $ 479
$ 5,926 $ 8,306
(1) Excluded from the table above are equity and surplus note AFS securities that we obtained in consideration for commutation of our U.S. residential mortgage market (USRMM) contracts with financial guarantors. The equity securities had a carrying value of US$7 million (2011: US$1 million) and the surplus notes had a notional value of US$140 million (2011: US$239 million) and a carrying value of US$12 million (2011: US$32 million).
USRMM collateralized debt obligation (CDO) Our net USRMM position, consisting of a written credit derivative, amounted to US$51 million. This position was hedged through protection purchased from a large U.S.-based diversified multinational insurance and financial services company with which we have market-standard collateral arrangements. Collateralized loan obligation (CLO) CLO positions consist of super senior tranches of CLOs backed by diversified pools of primarily U.S. (62%) and European-based (35%) senior secured leveraged loans. As at October 31, 2012, approximately 13% of the total notional amount of the CLO tranches was rated equivalent to AAA, and the remainder were rated between the equivalent of AA+ and AA-. As at October 31, 2012, approximately 17% of the underlying collateral was rated equivalent to BB- or higher, 51% was rated between the equivalent of B+ and B-, 7% was rated equivalent to CCC+ or lower, with the remainder unrated. The CLO positions have a weighted-average life of 2.9 years and average subordination of 30%. Corporate debt Corporate debt exposure consists of a large matched super senior derivative, where CIBC has purchased and sold credit protection on the same reference portfolio. The reference portfolio consists of highly diversified, predominantly investment grade corporate credit. Claims on these contracts do not occur until cumulative credit default losses from the reference portfolio exceed 30% during the 50-month term of the contract. On this reference portfolio, we have sold protection to an investment dealer. Other Our significant positions in Other, as at October 31, 2012, include: US$232 million notional value of CDOs consisting of trust preferred securities (TruPs) collateral, which are Tier I Innovative Capital Instruments issued by U.S. regional banks and insurers. These securities are classified as FVO securities and had a fair value of US$170 million; US$189 million notional value of trading securities with a fair value of US$142 million, and US$304 million notional value of written protection with a fair value of US$76 million, on inflation-linked notes, and CDO tranches with collateral consisting of high-yield corporate debt portfolios, TruPs and non-U.S. residential mortgage-backed securities, with 37% rated the equivalent of AA- or higher, 14% rated between the equivalent of A+ and A-, and the majority of the remaining rated equivalent of BBB or lower;
CIBC 2012 ANNUAL REPORT
31
Unmatched The underlying in our unmatched positions are a reference portfolio of corporate debt and a loan backed by film receivables.
Financial guarantors(1) Investment grade Non-investment grade Unrated Other counterparties(1) Investment grade Unrated
$ 356 $ 453
$ 2,995
$ 1,222
$ 1,015
(1) In cases where one credit rating agency does not provide a rating, the classification in the table is based on the rating provided by the other agency. Where ratings differ between agencies, we use the lower rating.
The unrated other counterparties are primarily two Canadian conduits. These conduits are in compliance with their collateral posting arrangements and have posted collateral exceeding current market exposure. The fair value of the collateral as at October 31, 2012 was US$352 million relative to the US$53 million net exposure.
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Results(1)
$ millions, for the year ended October 31
2011 566 130 696 (3) 993 (294) (166) (128) 10 (138) 15,644
Revenue International banking Other Total revenue(2) Provision for (reversal of) credit losses Non-interest expenses Income (loss) before taxes Income taxes(2) Net income (loss) Net income (loss) attributable to: Non-controlling interests Equity shareholders Full-time equivalent employees
(1) For additional segmented information, see Note 28 to the consolidated financial statements. (2) Wholesale Banking revenue and income taxes are reported on a TEB basis with an equivalent offset in the revenue and income taxes of Corporate and Other. Accordingly, revenue and income taxes include a TEB adjustment of $281 million (2011: $189 million).
Financial overview Net income was $101 million compared to a net loss of $128 million in 2011. The prior year included a goodwill impairment charge related to CIBC FirstCaribbean and losses from MTM volatility prior to the establishment of accounting hedges on securitized mortgages and funding liabilities, partially offset by a gain on sale of CMTs Issuer Services business, and interest income on tax reassessments. The current year included a provision for credit losses compared to a reversal of credit losses in the prior year and higher unallocated corporate support costs, partially offset by a net write-up of deferred tax assets, and higher unallocated treasury revenue. Revenue Revenue was down $35 million or 5% from 2011. International banking revenue was up $16 million or 3% from 2011, primarily due to lower interest expense and the impact of a weaker Canadian dollar in CIBC FirstCaribbean. Other revenue was down $51 million or 39% from 2011. The current year included a higher TEB adjustment, partially offset by higher unallocated treasury revenue. The prior year included the loss from MTM volatility prior to the establishment of accounting hedges on securitized mortgages and funding liabilities, the gain on sale of CMTs Issuer Services business, and interest income on tax reassessments. Provision for (reversal of) credit losses Provision for credit losses was $69 million compared to a reversal of credit losses of $3 million in 2011. There were lower net provision reversals of collectively assessed credit losses relating to business and government, commercial banking, and small business portfolios, partially offset by net higher provision reversals in the cards portfolio. The current year included higher losses in CIBC FirstCaribbean. Non-interest expenses Non-interest expenses were down $184 million or 19% from 2011. The prior year included the goodwill impairment charge noted above. The current year had higher unallocated corporate support costs. Income taxes Income tax benefit was up $152 million, primarily due to a higher TEB adjustment, and lower net write-offs of deferred tax assets as a result of a lower decline in tax rates. The current year included a write-up of deferred tax assets owing to higher Ontario income tax rates, whereas the prior year included net write-downs. The prior year included the CIBC FirstCaribbean goodwill impairment that was not tax-effected.
33
Financial condition
Review of consolidated balance sheet
$ millions, as at October 31
2012 $ 4,727 40,330 24,700 304 65,334 28,474 150,056 35,323 15,153 43,624 (1,860) 242,296 27,039 10,436 15,079 $ 393,385 $
2011 5,142 32,713 27,118 464 60,295 27,479 150,509 34,842 15,744 39,663 (1,803) 238,955 28,270 9,454 14,163 $ 383,758
Assets Cash and deposits with banks Securities Trading AFS FVO Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets Liabilities and equity Deposits Personal Business and government Bank Secured borrowings Capital Trust securities Obligations related to securities lent or sold short or under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness Equity
$ 118,153 125,055 4,723 52,413 300,344 1,678 21,259 27,091 10,481 10,671 4,823 17,038 $ 393,385
$ 116,592 117,143 4,177 51,308 289,220 1,594 21,730 28,792 9,489 11,704 5,138 16,091 $ 383,758
Assets
Total assets as at October 31, 2012 were up by $9.6 billion or 3% from 2011. Cash and deposits with banks were down $415 million or 8%, mainly due to lower treasury deposit placements. Securities increased by $5.0 billion or 8%, due to an increase in trading securities, partially offset by a decrease in AFS securities. Trading securities increased mainly in the equity portfolios and government-issued or government-guaranteed securities. AFS securities decreased mainly in governmentissued or guaranteed securities. Further details on the composition of securities are provided in Note 4 to the consolidated financial statements and in the Supplementary annual financial information section. Securities borrowed or purchased under resale agreements increased by $995 million or 4% due to funding requirements and client-driven activities. Loans increased by $3.3 billion or 1%. Residential mortgages were down $453 million mainly due to principal repayments and liquidations and lower mortgage originations. Personal loans were up $481 million due to volume growth. Credit card loans were down $591 million mainly due to net repayments. Business and government loans were up $4.0 billion due to growth in our domestic and international portfolios. A detailed discussion of the loan portfolios is included in the Management of risk section. Further details on the composition of loans are provided in Note 5 to the consolidated financial statements and in the Supplementary annual financial information section. Customers liability under acceptances increased by $982 million or 10%, driven by growth in corporate and commercial banking. Derivative instruments decreased by $1.2 billion or 4%, largely driven by lower foreign exchange and credit derivatives valuations. Other assets were up $916 million or 6%, mainly due to higher current tax receivable.
Liabilities
Total liabilities as at October 31, 2012 were up by $8.7 billion or 2% from 2011. Deposits were up $11.1 billion or 4%, driven by funding and retail volume growth. Further details on the composition of deposits are provided in Note 10 to the consolidated financial statements and in the Supplementary annual financial information section. Obligations related to securities lent or sold short or under repurchase agreements decreased by $471 million or 2%, reflecting our funding requirements and client-driven activities.
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Equity
Equity as at October 31, 2012 was up by $947 million or 6%, mainly due to a net increase in retained earnings and the issuance of common shares pursuant to the stock option, shareholder investment, and employee share purchase plans (ESPP). These were offset in part by repurchase and cancellation of common shares under the normal course issuer bid, and preferred share redemptions, as explained in the Capital management section below.
Capital resources
Our capital strength protects our depositors and creditors from risks inherent in our businesses, allows us to absorb unexpected losses, and enables us to take advantage of attractive business opportunities. It also enables us to maintain a favourable credit standing and to raise additional capital or other funding on attractive terms. Our objective is to maintain a strong and efficient capital base. We manage and monitor our capital to maximize risk-adjusted return to shareholders and to meet regulatory requirements.
Basel II changes
Commencing in the first quarter of 2012, we implemented changes to the capital requirements for securitization transactions outlined in the Basel Committee on Banking Supervision (BCBS) Enhancements to the Basel II Framework and changes to the trading book capital rules outlined in BCBS Revisions to the Basel II Market Risk Framework, commonly referred to as Basel 2.5. Securitization We generally use a ratings-based approach for the risk weighting of non-trading securitization exposures, except liquidity facilities provided to certain special purpose entities (SPEs) for which we apply an internal assessment approach. The mapping of our internal ratings with the ratings used by external ratings agencies and our internal ratings development process is discussed in the Credit risk section. Trading securitization exposures are risk-weighted following the internal ratings-based (IRB) approach for rated positions. Our resecuritization exposures relate to our third-party structured vehicles and are comprised of investments, loans, and written credit derivatives. Our credit risk mitigation process reduces the credit risk in our overall credit exposures including securitizations and resecuritization activities. We monitor credit and market risks within the securitization and resecuritization exposures in the same way as we monitor our other credit and market risk exposures. Market risk Changes relating to the Revisions to the Basel II Market Risk Framework are disclosed in detail in the Market risk section.
Risk-weighted assets
Under the Basel II advanced internal ratings based (AIRB) approach, credit RWAs are calculated according to the mathematical formula utilizing probability of default (PD), loss given default (LGD), and exposure at default (EAD), and in some cases, maturity adjustments. Under the Basel II standardized approach, credit RWAs are calculated by applying the weighting factors specified in the OSFI guidelines to on- and off-balance sheet exposures. RWAs for market risk in the trading portfolio are statistically determined based on models approved by OSFI. RWAs for operational risk related to losses from inadequate or failed processes, people, and systems are determined under a model-based approach approved by OSFI.
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2012
2011(1)
Credit risk Standardized approach Corporate Sovereign Banks Real estate secured personal lending Other retail AIRB approach Corporate Sovereign Banks Real estate secured personal lending Qualifying revolving retail Other retail Equity Trading book Securitizations Adjustment for scaling factor Other credit risk-weighted assets Total credit risk Market risk (Internal Models and IRB Approach) Operational risk (Advanced Measurement Approach) Total risk-weighted assets
(1) Capital measures for 2011 are under Canadian GAAP and have not been restated for IFRS.
3,750 670 206 1,620 1,680 7,926 39,237 1,727 2,840 4,825 15,852 5,011 901 2,064 2,621 4,505 79,583 5,851 93,360 3,033 18,836
3,735 676 428 1,652 1,961 8,452 34,988 1,544 3,077 4,876 15,544 5,764 613 2,574 2,119 4,266 75,365 6,293 90,110 1,646 18,212
$ 115,229
$ 109,968
The components of our regulatory capital are shown in the table below:
$ millions, as at October 31
2012 $ 7,751 85 7,042 274 (88) 1,706 1,678 172 (1,702) (43) (935) 15,940 $
2011(1) 7,376 90 7,605 (650) 2,756 1,600 164 (1,894) (60) (779) 16,208 234 4,741 5 108 (779) (230) 4,079 $ 20,287 14.7% 18.4% 16.0x
Tier 1 capital Common shares Contributed surplus Retained earnings Adjustment for transition to IFRS(2) Foreign currency translation adjustments Non-cumulative preferred shares Innovative instruments Certain non-controlling interests in subsidiaries Goodwill Gains on sale of applicable securitized assets(3) Other deductions 50/50 deductions from each of Tier 1 and Tier 2(3) Tier 2 capital Perpetual subordinated indebtedness Other subordinated indebtedness (net of amortization) Net after-tax unrealized holding gains on AFS equity securities Eligible allowance 50/50 deductions from each of Tier 1 and Tier 2(3) Investment in insurance activities(4) Total capital available for regulatory purposes Regulatory capital ratios Tier 1 capital Total capital Assets-to-capital multiple (ACM)
219 4,398 196 106 (935) 3,984 $ 19,924 13.8% 17.3% 17.4x
(1) Capital measures for 2011 are under Canadian GAAP and have not been restated for IFRS. (2) OSFIs IFRS transitional relief election. (3) Items which are deducted 50% from each of Tier 1 capital and Tier 2 capital include allowance shortfall calculated under AIRB approach, securitization exposures (other than gain on sale of applicable securitized assets), and substantial investments in unconsolidated entities. (4) Investment in insurance activities was deducted 100% from Tier 2 capital until October 31, 2011. Starting 2012, it is subject to a 50/50 deduction from Tier 1 and 2 capital, in accordance with OSFIs transition rules.
The Tier 1 capital ratio was down 0.9% and the Total capital ratio was down 1.1% from October 31, 2011. The capital ratios were negatively impacted by an increase in RWAs while Tier 1 and Total regulatory capital were slightly lower than October 31, 2011. The increase in Tier 1 capital from October 31, 2011 due to internal capital generation and the issuance of common shares was more than offset by the impact of transition to IFRS, including the effect of adopting the OSFIs IFRS transitional election, the purchase and cancellation of common shares, and the redemption of preferred shares (see below for details). Total capital was impacted by the removal of our floating rate Debentures (subordinated indebtedness) due June 22, 2017 (see below for details),
36
All-in is defined by OSFI as capital calculated to include all of the regulatory adjustments that will be required by 2019, but retaining the phase-out rules for non-qualifying capital instruments.
37
Capital management
Our capital management policies, established by the Board, relate to capital strength, capital mix, dividends and return of capital, and the unconsolidated capital adequacy of regulated entities. Each year a capital plan and three-year outlook are established, which encompass all the associated elements of capital: forecasts of sources and uses, maturities, redemptions, new issuances, corporate initiatives and business growth. The capital plan is stress-tested in various ways to ensure that it is sufficiently robust under all reasonable scenarios. We maintain a process which determines plausible but stressed economic scenarios, and then apply these stresses to the vast majority of our exposures to determine the impact on the consolidated statement of income, RWA requirements, and consequently, key capital ratios. This helps us analyze the potential risks within our portfolios and establish prudent capital levels in excess of the regulatory minimum requirements. All of the elements of capital are monitored throughout the year and the capital plan is adjusted as appropriate. The following were the main capital initiatives undertaken in 2012: Subordinated debt During the year, we purchased and cancelled US$15 million of our floating rate Debentures (subordinated indebtedness) due August 31, 2085. On June 22, 2012, we redeemed all $257 million (200 million) of our floating rate Debentures due June 22, 2017 for their outstanding principal amount plus unpaid interest accrued to the redemption date in accordance with their terms. Preferred shares On January 31, 2012, we redeemed all of our 18 million Non-cumulative Class A Series 31 Preferred Shares with a par value of $25.00 each at a redemption price of $26.00 per share for cash. On April 30, 2012, we redeemed all of our 12 million Non-cumulative Class A Series 32 Preferred Shares with a par value of $25.00 each at a redemption price of $26.00 per share for cash. On October 29, 2012, we redeemed all of our 12 million Non-cumulative Class A Series 18 Preferred Shares with a par value and redemption price of $25.00 each for cash. Common shares Effective April 26, 2012, the Board of Directors and CIBC common shareholders approved removing the cap on the maximum aggregate consideration for which CIBCs common shares may be issued. Accordingly, CIBCs authorized capital now consists of an unlimited number of common shares, without nominal or par value. Previously, CIBC was authorized to issue an unlimited number of common shares without nominal or par value, provided that the maximum aggregate consideration for all outstanding common shares at any time did not exceed $15 billion. During the year, we issued 1.1 million (2011: 1.2 million) new common shares for a total consideration of $68 million (2011: $79 million), pursuant to stock option plans. Under CIBCs Shareholder Investment Plan (Plan), shareholders may elect to reinvest dividends received on common or preferred shares into additional common shares, and purchase additional common shares through optional cash contributions. Under the Plan, we may elect to have shares issued from Treasury or purchased in the open market. If the shares are issued from Treasury, we may offer a discount on reinvested dividends. Commencing with dividends paid on July 27, 2012, the participants in the Dividend Reinvestment Option and Stock Dividend Option of the Plan no longer receive a discount from average market price (as defined in the Plan) on the reinvested dividends in additional common shares. Previously, the shares were issued at a 2% discount. During 2012, we issued 3.7 million (2011: 5.5 million) new common shares for a total consideration of $271 million (2011: $411 million), pursuant to the Plan. Effective with the January 2013 dividend, shares acquired under the Plan will revert to open market purchases. Employee contributions to CIBCs Canadian ESPP have been used to purchase common shares issued from Treasury. For additional details about the ESPP, see Note 18 to the consolidated financial statements. During 2012, we issued 1.2 million (2011: 1.1 million) new common shares for a total consideration of $91 million (2011: $85 million), pursuant to the ESPP. Normal course issuer bid On September 5, 2012, the Toronto Stock Exchange accepted the notice of CIBCs intention to commence a new normal course issuer bid. Purchases under this bid commenced on September 7 and will terminate upon the earlier of (i) CIBC purchasing 8.1 million common shares, (ii) CIBC providing a notice of termination, or (iii) September 6, 2013. As of October 31, 2012, we purchased and cancelled 2,025,000 common shares under this bid at an average price of $77.33 for a total amount of $157 million. Dividends We paid quarterly dividends of 90 cents per common share for the first three quarters of 2012. For the fourth quarter of 2012, we increased our quarterly dividend from 90 cents to 94 cents per common share. Common and preferred share dividends are declared quarterly at the discretion of the Board. The declaration and payment of dividends is governed by Section 79 of the Bank Act (Canada), the terms of the preferred shares, and the terms of the Notes issued by CIBC Capital Trust, as explained in Notes 15 and 16 to the consolidated financial statements.
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Credit 40%
No. of shares 403,675,117 10,000,000 12,000,000 13,232,342 12,000,000 13,000,000 8,000,000 4,160,380
Common shares(2) Class A Preferred Shares Series 26 Series 27 Series 29 Series 33 Series 35 Series 37 Total Stock options outstanding
(1) Preferred shareholders do not have the right to convert their shares into common shares. (2) Net of treasury shares.
April 30, 2008 October 31, 2008 May 1, 2010 not convertible not convertible not convertible
As noted in the table above, Class A Preferred Shares Series 26, 27, and 29 provide CIBC with the right to convert the shares to common shares on or after a specified conversion date. We have irrevocably renounced by way of a deed poll, our rights to convert these shares into common shares except in circumstances that would be a Trigger Event as described in the August 2011 Non-Viability Contingent Capital advisory issued by OSFI (which has been incorporated into the draft capital adequacy guidelines). We have provided an undertaking to OSFI that we will immediately exercise our rights to convert these shares into common shares upon the occurrence of a Trigger Event. Each such share is convertible into a number of common shares, determined by dividing the then applicable cash redemption price by 95% of the average common share price (as defined in the relevant short form prospectus or prospectus supplement), subject to a minimum price of $2.00 per share. Non-cumulative Rate Reset Class A Preferred Shares, Series 33 (Series 33 shares) may be converted on a one-for-one basis into non-cumulative Floating Rate Class A Preferred Shares Series 34 (Series 34 shares) at the holders option on July 31, 2014, subject to CIBC having announced its intention to redeem the shares. Thereafter, Series 33 shares and Series 34 shares are convertible, one to the other, at every fifth anniversary of July 31, 2014, subject to CIBC having announced its intention to redeem the shares at each such anniversary. Non-cumulative Rate Reset Class A Preferred Shares Series 35 (Series 35 shares) may be converted on a one-for-one basis into non-cumulative Floating Rate Class A Preferred Shares Series 36 (Series 36 shares) at the holders option on April 30, 2014, subject to CIBC having announced its intention to redeem the shares. Thereafter, Series 35 shares and Series 36 shares are convertible, one to the other, at every fifth anniversary of April 30, 2014, subject to CIBC having announced its intention to redeem the shares at each such anniversary. Non-cumulative Rate Reset Class A Preferred Shares Series 37 (Series 37 shares) may be converted on a one-for-one basis into non-cumulative Floating Rate Class A Preferred Shares Series 38 (Series 38 shares) at the holders option on July 31, 2014, subject to CIBC having announced its intention to redeem the shares. Thereafter, Series 37 shares and Series 38 shares are convertible, one to the other, at every fifth anniversary of July 31, 2014, subject to CIBC having announced its intention to redeem the shares at each such anniversary.
CIBC-sponsored conduits
We sponsor a single-seller conduit and several multi-seller conduits (collectively, the conduits) in Canada. Our multi-seller conduits purchase pools of financial assets from our clients and finance the purchases by issuing ABCP to investors. Our single-seller conduit purchases pools of financial assets from
CIBC 2012 ANNUAL REPORT
39
2012 Investment and loans(1) Undrawn liquidity and credit facilities $ 1,554 40 333 23 Written credit derivatives(2) $ 207 4,382 Undrawn liquidity and credit facilities $ 1,297 42 391 16
CIBC-sponsored conduits CIBC-structured CDO vehicles Third-party structured vehicles Structured credit run-off Continuing Pass-through investment structures Commercial mortgage securitization trust
(1) Excludes securities issued by, retained interest in, and derivatives with entities established by CMHC, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (Ginnie Mae), Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association (Sallie Mae). $3.7 billion (2011: $3.9 billion) of the exposures related to CIBC-structured vehicles and third-party structured vehicles structured credit run-off were hedged. (2) The negative fair value recorded on the consolidated balance sheet was $1.2 billion (2011: $1.6 billion). Notional of $3.3 billion (2011: $3.6 billion) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was $307 million (2011: $450 million). An additional notional of $1.0 billion (2011: $1.2 billion) was hedged through a limited recourse note. Accumulated fair value losses were $26 million (2011: $46 million) on unhedged written credit derivatives.
Derivatives
We participate in derivatives transactions, as a market maker facilitating the needs of our clients or as a principal to manage the risks associated with our funding, investing and trading strategies. Since 2008, we have ceased activities in the following areas: Credit derivative contracts with clients to enable them to create synthetic exposures to meet their needs; and Intermediation trades that assume credit risks of clients through credit derivatives, and in turn offset these risks by entering into credit derivative contracts with third-party financial institutions. All derivatives are recorded at fair value on our consolidated balance sheet. See Notes 12 and 24 to the consolidated financial statements for details on derivative contracts and the risks associated with them.
40
Less than 1 year Securities lending(1) Unutilized credit commitments(2) Backstop liquidity facilities(3) Standby and performance letters of credit Documentary and commercial letters of credit Other Securities lending(1) Unutilized credit commitments(2) Backstop liquidity facilities(3) Standby and performance letters of credit Documentary and commercial letters of credit Other $ 15,396 120,496 3,189 5,857 449 359 10,924 118,177 2,273 5,180 312 412 $
Total 15,396 148,957 3,189 7,504 449 359 10,924 140,338 2,273 6,323 312 412
Oct. 31 2012
$ 10,988 $
$ 17,640 $
$ 1,480 $
$ 175,854 $
$ 137,278
$ 10,642
$ 11,445
$ 1,217
$ 160,582
(1) Excludes securities lending of $1.6 billion (2011: $2.8 billion) for cash because it is reported on the consolidated balance sheet. (2) Includes irrevocable lines of credit totalling $35.9 billion (2011: $32.2 billion). (3) Excludes backstop liquidity facilities provided to our consolidated sponsored ABCP programs totalling $390 million (2011: $1,104 million).
In addition, we transact securities lending activities in which we act as an agent for the owners of securities through a joint venture which we have with The Bank of New York Mellon. As at October 31, 2012, client securities lending of the joint venture totalled $48.1 billion (2011: $46.3 billion).
Guarantees
A guarantee is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor failed to make payment when due in accordance with the original or modified terms of a debt instrument. Guarantees include standby performance letters of credit and credit derivatives protection sold, as discussed in Notes 22 and 12 to the consolidated financial statements, respectively.
41
Management of risk
We have provided certain disclosures required under IFRS 7, Financial Instruments Disclosures related to the nature and extent of risks arising from financial instruments, in the MD&A as permitted by that IFRS standard. These disclosures are included in the sections Risk overview, Credit risk, Market risk, Liquidity risk, Operational risk, Reputation and legal risk, and Regulatory risk. These disclosures have been shaded and form an integral part of the consolidated financial statements.
Risk overview
Most of CIBCs business activities involve, to a varying degree, a variety of risks, including credit, market, liquidity, and operational risks. Our objective is to balance the level of risk with our business objectives for growth and profitability, in order to achieve consistent and sustainable performance over the long term, while remaining within our risk appetite. Our risk appetite defines tolerance levels for various risks. This is the foundation for our risk management culture, and is supported by limits, policies, procedures and other controls. Managing risk is a shared responsibility at CIBC. Business units and risk management professionals work in collaboration to ensure that business strategies and activities are consistent with our risk appetite. Our risk management framework includes: The Board-approved risk appetite statement; Risk policies, procedures and limits to align activities with our risk appetite; Regular risk reports to identify and communicate risk levels; An independent control framework to identify and test compliance with key controls; Stress testing to consider potential impacts of changes in the business environment on capital, liquidity and earnings; and Oversight through our risk-focused committees and governance structures. We continuously monitor our risk profile against our defined risk appetite and related limits, taking actions as needed to maintain an appropriate balance of risk and return. Monitoring our risk profile includes forward-looking analysis of sensitivity to local and global market factors, economic conditions, and political and regulatory environments that influence our overall risk profile. Regular and transparent risk reporting and discussion at senior management committees facilitate communication of risks and risk strategies across the organization, with oversight provided by the Board of Directors.
Risk governance
Our risk governance and management structure is illustrated below:
Board of Directors
Audit Committee
Senior Executive Team Asset Liability Committee Capital and Risk Committee Governance and Control Committee Reputation and Legal Risks Committee
RISK MANAGEMENT Key Risk Management Groups Capital Markets Risk Management Card Products Risk Management Retail Lending and Wealth Risk Management Wholesale Credit and Investment Risk Management Risk Services
BUSINESS UNITS
42
Board of Directors (the Board): The Board oversees the enterprise-wide risk management program through approval of our risk appetite and supporting risk management policies and limits and related monitoring. The Board accomplishes its mandate through its Risk Management and Audit committees, described below. Risk Management Committee (RMC): This committee assists the Board in fulfilling its responsibilities for approving CIBCs risk appetite and overseeing CIBCs risk profile and performance against the defined risk appetite. This includes oversight of policies, procedures and limits related to the identification, measurement, monitoring and controlling of CIBCs principal business risks. Audit Committee: The Audit Committee reviews the overall adequacy and the effectiveness of internal controls and the control environment, including controls over the risk management process. Senior Executive Team (SET): The SET, led by the CEO, and including the executives reporting directly to the CEO, is responsible for setting business strategy and for monitoring, evaluating and managing risks across CIBC. The SET is supported by the following committees: Asset Liability Committee (ALCO): This committee, which comprises the SET and senior Business and Risk Management executives, reviews CIBCs key risks and implications for balance sheet and liquidity management. Capital and Risk Committee (CRC): This committee, which comprises the SET and senior leaders from the lines of business, Risk Management and other infrastructure groups, provides a forum for the strategic assessment of risks and risk-mitigation strategies. Key activities include reviewing, evaluating and recommending CIBCs risk appetite statement and risk strategies; reviewing and evaluating business strategies in the context of our risk appetite; and identifying, reviewing and advising on current and emerging risk issues and associated mitigation plans. Governance and Control Committee (GCC): This committee acts as the senior point of management review with respect to the design and effectiveness of CIBCs governance and internal control structure, within the parameters and strategic objectives established by the CEO and direction provided by the Board. Reputation and Legal Risks Committee (RLR): This committee reviews transactions for potential material reputation and/or legal impacts and provides oversight of our policies and procedures relative to the management of reputation and legal risks.
Risk management
The Risk Management group is responsible for setting risk strategy and for providing independent oversight of risk measurement, monitoring and control. Our Risk Management group works in partnership with our businesses to identify, assess, mitigate and monitor the risks associated with business activities and strategies. The Risk Management group performs several important activities including the following: Developing CIBCs risk appetite; Setting risk strategy to manage risks in alignment with our risk appetite and business strategy; Establishing and communicating policies, procedures and limits to control risks in alignment with risk strategy; Measuring, monitoring and reporting on risk levels; Identifying and assessing emerging and potential strategic risks; and Deciding on transactions that fall outside of risk limits delegated to underlying business lines. The five key groups within Risk Management, independent of the originating businesses, contribute to our management of risk: Capital Markets Risk Management This unit provides independent oversight of the measurement, monitoring and control of market risks (both trading and non-trading), trading credit risk and trading operational risk across CIBCs portfolios; Card Products Risk Management This unit oversees the management of credit risk in the card products portfolio, including the optimization of credit portfolio quality; Retail Lending and Wealth Risk Management This unit primarily oversees the management of credit and fraud risk in the retail lines of credit and loans, residential mortgage, and small business loan portfolios, including the optimization of credit portfolio quality. This unit is also responsible for overall risk management oversight of wealth management activities; Wholesale Credit and Investment Risk Management This unit is responsible for the adjudication and oversight of credit risks associated with our commercial and wholesale lending activities globally, management of the risks of our investment portfolios, as well as management of the special loans portfolios; and Risk Services This unit is responsible for enterprise-wide analysis and reporting. Risk Services is also responsible for economic capital methodologies, capital policies, and CIBCs operational risk framework. Liquidity, funding and interest rate risks are managed by Treasury. The measurement, monitoring and control of these risks are addressed in collaboration with Risk Management, with oversight provided by the ALCO.
43
Risk controls
Our risk management framework includes a comprehensive set of risk controls, designed to ensure that risks are being appropriately identified and managed. Our risk controls are part of CIBCs overall Control Framework, developed based on the Committee of Sponsoring Organizations of the Treadway Commissions (COSO) widely accepted Internal Control Integrated Framework. The Control Framework also draws on elements of the OSFI Supervisory Framework and Corporate Governance Guidelines. The Board, primarily through the RMC, approves certain risk limits and delegates specific transactional approval authorities to the CEO. The RMC must approve transactions that exceed delegated authorities. Onward delegation of authority by the CEO to business units is controlled to ensure decision-making authorities are restricted to those individuals with the necessary experience levels. In addition, CIBC has rigorous processes to identify, evaluate and remediate risk control deficiencies in a timely manner. Regular reporting is provided to the RMC to evidence compliance with risk limits. Risk limits are reviewed annually by the RMC, and the delegation of authority to the CEO is reviewed and approved annually by the Board.
Credit risk
Credit risk primarily arises from our direct lending activities, and from our trading, investment, and hedging activities. Credit risk is defined as the risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with contractual terms. To control credit risk in alignment with CIBCs risk appetite, CIBC has implemented policies and standards as well as limits to control credit concentrations. Key policies and limits are subject to annual review and approval by the RMC. Senior management reports to the RMC at least quarterly on material credit risk matters, including material credit transactions, compliance with limits, portfolio trends, impaired loans and credit loss provisioning levels. Impaired loan balances, allowances, and credit losses are reviewed by the RMC and the Audit Committee quarterly. The Risk Management group provides enterprise-wide adjudication and oversight of the management of credit risk in our credit portfolios. Adjudication and portfolio management decisions are based on our risk appetite, as reflected in our policies, standards, and limits. Credit approval authorities are controlled to ensure decisions are made by qualified personnel.
44
We limit the credit risk of OTC derivatives through the use of multi-product derivative master netting agreements and credit support annexes. Further, we may settle certain OTC derivative contracts through exchanges, where we have limited credit risk due to daily margining. We use credit derivatives to reduce industry sector concentrations and single-name exposures, or as part of portfolio diversification techniques, though our use of credit derivatives has declined significantly this year.
Oct. 31 2012 AIRB Standardized approach approach Total AIRB Standardized approach approach
Business and government portfolios Corporate Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Sovereign Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Banks Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Total business and government portfolios (gross) Less: repo collateral Total business and government portfolios (net) Retail portfolios Real estate secured personal lending Drawn Undrawn commitments Qualifying revolving retail Drawn Undrawn commitments Other off-balance sheet Other retail Drawn Undrawn commitments Other off-balance sheet Total retail portfolios Securitization exposures(1) Gross credit exposure Net credit exposure
(1) Under internal ratings based approach.
43,836 28,023 29,823 8,332 3,430 113,444 20,849 4,617 5,666 486 3,055 34,673 10,981 568 21,449 43,504 7,941 84,443 232,560 48,152 184,408
3,448 $ 233 138 180 3,999 2,687 5 2,692 730 9 739 7,430 7,430
47,284 $ 28,256 29,961 8,512 3,430 117,443 23,536 4,617 5,666 486 3,060 37,365 11,711 568 21,449 43,504 7,950 85,182 239,990 48,152 191,838
39,491 24,303 28,055 5,204 3,909 100,962 20,571 4,791 1,893 410 2,572 30,237 12,960 613 25,342 43,825 7,948 90,688 221,887 50,106 171,781
3,520 $ 139 139 191 3,989 2,529 2,529 846 5 851 7,369 7,369
43,011 $ 24,442 28,194 5,395 3,909 104,951 23,100 4,791 1,893 410 2,572 32,766 13,806 613 25,342 43,825 7,953 91,539 229,256 50,106 179,150
31,504 21,853 28,614 4,765 5,316 92,052 25,404 4,513 1,056 184 1,778 32,935 15,613 890 51,395 42,082 7,486 117,466 242,453 76,273 166,180
4,440 $ 167 188 29 4,824 1,490 1,490 766 5 771 7,085 7,085
35,944 22,020 28,614 4,953 5,345 96,876 26,894 4,513 1,056 184 1,778 34,425 16,379 890 51,395 42,082 7,491 118,237 249,538 76,273 173,265
165,482 28,811 194,293 21,313 39,745 341 61,399 7,791 1,222 29 9,042 264,734 19,003 $ 516,297 $ 468,145
167,665 28,811 196,476 21,313 39,745 341 61,399 9,950 1,242 45 11,237 269,112 19,003
164,709 27,993 192,702 21,338 40,586 396 62,320 7,963 1,302 32 9,297 264,319 19,488
166,927 27,993 194,920 21,338 40,586 396 62,320 10,504 1,322 48 11,874 269,114 19,488
157,315 25,983 183,298 20,743 40,095 381 61,219 8,001 2,110 18 10,129 254,646 17,592
159,531 25,983 185,514 20,743 40,095 381 61,219 10,992 2,130 18 13,140 259,873 17,592
45
The portfolios are categorized based upon how we manage the business and the associated risks. Amounts provided are after CVA related to financial guarantors, derivative master netting agreements, and before allowance for credit losses and other risk mitigation. Non-trading equity exposures are not included in the table above as they have been deemed immaterial under the OSFI guidelines, and hence, are subject to 100% risk-weighting.
We use quantitative modelling techniques to assist in the development of internal risk-rating systems. The risk-rating systems have been developed through analysis of internal and external credit risk data. The risk ratings are used for portfolio management, risk limit setting, product pricing, and in the determination of economic capital. Our credit process is designed to ensure that we approve applications and extend credit only where we believe that our customer has the ability to repay, according to the agreed terms and conditions. Embedded in our credit policies and criteria is an assessment of risk exposure using the following three dimensions: PD the probability that the obligor will default within the next 12 months. EAD the estimate of the amount which will be drawn at the time of default. LGD the expected severity of loss as the result of the default, expressed as a percentage of the EAD. Our credit framework and policies define our appetite for exposure to any single name or group of related borrowers, which is a function of the internal risk rating. We generally extend new credit only to borrowers in the investment grade noted above. Our credit policies are also defined to manage our exposure to concentration in any borrowers in any particular industry or region. The effectiveness of the risk-rating systems and the parameters associated with the risk ratings are monitored within Risk Management and are subject to an annual review. The models used in the estimation of the risk parameters are also subject to independent validation by the Risk Management validation group, which is independent of both the origination business and the model development process. Parameter estimates for each of these dimensions are long-term averages with adjustments for the impact of any potential change in the credit cycle. A simplified risk-rating process (slotting approach) is used for uninsured Canadian commercial mortgages, which comprise non-residential mortgages and multi-family residential mortgages. These exposures are individually rated on our rating scale using a risk-rating methodology that considers the propertys key attributes, which include its loan-to-value (LTV) and debt service ratios, the quality of the property, and the financial strength of the owner/sponsor. All exposures are secured by a lien over the property. Additionally, we have insured multi-family residential mortgages, which are not treated under the slotting approach, but are instead treated as sovereign exposures in the following table.
46
Credit quality of the risk-rated portfolios The following table provides the credit quality of the risk-rated portfolios. Amounts provided are before allowance for credit losses, and after credit risk mitigation, CVA, and collateral on repurchase agreement activities.
$ millions, as at
EAD Grade Oct. 31 2012 Investment grade Non-investment grade Watchlist Default Total risk-rated exposure Strong Good Satisfactory Weak Total slotted exposure Total business and government portfolios Oct. 31 2011 Investment grade Non-investment grade Watchlist Default Total risk-rated exposure Strong Good Satisfactory Weak Default Total slotted exposure Total business and government portfolios Nov. 1 2010 Investment grade Non-investment grade Watchlist Default Total risk-rated exposure Strong Good Satisfactory Weak Default Total slotted exposure Total business and government portfolios $ $ 33,217 22,761 603 1,043 $ 57,624 $ 31,385 517 1 1 $ 31,904 $ 67,501 2,347 3 $ 69,851 $ $ 39,831 26,482 546 848 $ 67,707 $ 27,986 510 $ 28,496 $ 65,760 2,244 3 $ 68,007 $ Corporate $ 49,424 30,102 717 816 $ 81,059 Sovereign $ 30,034 547 $ 30,581 Banks $ 62,919 2,206 15 $ 65,140 Total $ 142,377 32,855 732 816 $ 176,780 7,120 350 96 62 7,628 $ 184,408 $ 133,577 29,236 549 848 $ 164,210 7,222 239 41 65 4 7,571 $ 171,781 $ 132,103 25,625 607 1,044 $ 159,379 6,612 111 57 13 8 6,801 $ 166,180
The total exposures increased by $12.6 billion from October 31, 2011, largely attributable to growth in our corporate and commercial lending portfolios. The increase was mainly in the investment grade category, which increased by $8.8 billion from October 31, 2011, while the non-investment grade category was up $3.6 billion. The increase in watchlist exposures was largely attributable to downgrades in the Canadian portfolio, while default exposures were down marginally from October 31, 2011. Retail portfolios Retail portfolios are characterized by a large number of relatively small exposures. They comprise: real estate secured personal lending (residential mortgages and personal loans and lines secured by residential property); qualifying revolving retail exposures (credit cards and unsecured lines of credit); and other retail exposures (loans secured by non-residential assets, unsecured loans including student loans, and scored small business loans). We use scoring models in the adjudication of new retail credit exposures, which are based on statistical methods of analyzing the unique characteristics of the borrower, to estimate future behaviour. In developing our models, we use internal historical information from previous borrowers, as well as information from external sources, such as credit bureaus. The use of credit scoring models allows for consistent assessment across borrowers. There are specific guidelines in place for each product, and our adjudication decision will take into account the characteristics of the borrower, any guarantors, and the quality and sufficiency of the collateral pledged (if any). The documentation required as part of the lending process will include satisfactory identification, proof of income, independent appraisal of the collateral, and registration of security, as appropriate. Retail portfolios are managed as pools of homogeneous risk exposures, using external credit bureau scores and/or other behavioural assessments to group exposures according to similar credit risk profiles. These pools are assessed through statistical techniques, such as credit scoring and computerbased models. Characteristics used to group individual exposures vary by asset category; as a result, the number of pools, their size, and the statistical techniques applied to their management differ accordingly.
47
Credit quality of the retail portfolios The following table presents the credit quality of the retail portfolios. Amounts provided are before allowance for credit losses and after credit risk mitigation. Retail portfolios includes $110.2 billion (October 31, 2011: $112.6 billion; November 1, 2010: $108.9 billion) of insured residential mortgages, $2.7 billion (October 31, 2011: $2.8 billion; November 1, 2010: $3.5 billion) of small business scored exposures, government guaranteed student loans, and small business loans.
$ millions, as at
EAD
Risk level Oct. 31 2012 Exceptionally low Very low Low Medium High Default Exceptionally low Very low Low Medium High Default Exceptionally low Very low Low Medium High Default Real estate secured personal lending $ 170,099 12,482 10,015 1,414 170 113 $ 194,293 Oct. 31 2011 $ 168,805 12,906 9,760 922 181 128 $ 192,702 Nov. 1 2010 $ 163,732 10,991 7,705 593 112 165 $ 183,298 Qualifying revolving retail $ 34,201 5,482 14,135 5,999 1,393 189 $ 61,399 33,562 6,796 13,646 6,397 1,746 173 $ 62,320 32,252 9,230 12,556 5,484 1,523 174 $ 61,219 $ $ Other retail 1,626 1,319 3,740 1,924 343 90 9,042 1,423 743 4,252 2,296 465 118 9,297 825 2,244 4,885 2,045 61 69 $ 10,129 Total $ 205,926 19,283 27,890 9,337 1,906 392 $ 264,734 203,790 20,445 27,658 9,615 2,392 419 $ 264,319 196,809 22,465 25,146 8,122 1,696 408 $ 254,646
Real estate secured personal lending It comprises residential mortgages and personal loans and lines secured by residential property. This portfolio is low risk where we have a first charge on the majority of the properties, and second lien on only a small portion of the portfolio. We use the same scoring model and lending criteria in the adjudication of both first lien and second lien loans; however, our credit policies are designed to ensure that the value of both the first and second liens does not exceed 80% of the collateral value at origination. In Canada, banks are limited to providing residential real estate loans of no more than 80% of the collateral value by the Bank Act. All loans with a higher LTV ratio must be insured by either the Government of Canada or a private insurer. While all insurers are well capitalized at the moment and private insurers claims are substantially covered by the Government of Canada in the event of a bankruptcy, there is a possibility that losses could be incurred if private insurers become bankrupt or both the private insurers and the Government of Canada deny claims under certain terms and conditions. No material losses are expected in the mortgage portfolio.
48
$ 143.7 $ 143.8
(1) 93% (2011: 92%) is insured by Government of Canada and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS.
LTV ratio
Insured October 31, 2012(1) October 31, 2011(2)
(1) Based on latest available industry house price estimates from Teranet (September 30, 2012). (2) Based on industry house price estimates from Teranet (September 30, 2011).
48% 49%
We have two types of condominium exposures in Canada: mortgages and developer loans. Both are primarily concentrated in the Toronto and Vancouver areas. As at October 31, 2012, our Canadian condominium mortgages were $16.9 billion (2011: $17.1 billion) of which 77% (2011: 78%) were insured. Our drawn developer loans were $701 million (2011: $458 million) or 1% of our business and government portfolio and our related undrawn exposure was $2.0 billion (2011: $1.4 billion). The condominium developer exposure is diversified across 70 projects.
0% Corporate Sovereign Bank Real estate secured personal lending Other retail Corporate Sovereign Bank Real estate secured personal lending Other retail Corporate Sovereign Bank Real estate secured personal lending Other retail $ 1,890 1,647 1,213 $
100% $ 3,999 558 46 133 $ 4,736 $ 3,975 539 12 173 $ 4,699 $ 4,784 127 14 1 210 $ 5,136 $
Total 3,999 2,692 739 2,183 2,195 3,989 2,529 851 2,218 2,577 4,824 1,490 771 2,216 3,011
Oct. 31 2012
$ 654 $
$ 283 $
$ 4,245 $
$ 11,808 $
$ 797 $
$ 399 $
$ 4,622 $
$ 12,164 $
$ 1,213
$ 713
$ 234
$ 5,016
$ 12,312
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Securitization exposures
The following table provides details on our securitization exposures by credit ratings under the IRB approach. Accumulated gain of nil (October 31, 2011: $60 million; November 1, 2010: $58 million) is not included in the table below as it is deducted from Tier 1 capital.
$ millions, as at
(1) Under Canadian GAAP. (2) EAD under IRB approach is net of financial collateral of $428 million (October 31, 2011: $353 million: November 1, 2010: $478 million).
Oct. 31 2012 Exposure(1) $ 5.46 1.22 0.02 0.01 0.01 $ 6.72 81.4% 18.2 0.2 0.1 0.1 100.0% $ 5.72 1.46 0.01 0.01 0.01 $ 7.21
Oct. 31 2011 79.3% 20.3 0.1 0.2 0.1 100.0% $ 6.48 0.82 0.01 0.02 0.14 $ 7.47
(1) MTM value of the derivative contracts is after CVA and derivative master netting agreements, and before any collateral.
Concentration of exposures
Concentration of credit risk exists when a number of obligors are engaged in similar activities, or operate in the same geographical areas or industry sectors, and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political, or other conditions.
Geographic distribution
The following table provides a geographic distribution of our business and government exposures under the AIRB approach. The classification of geography is based upon the country of ultimate risk. Amounts are before allowance for credit losses and risk mitigation, and after CVA related to financial guarantors and $48.2 billion (October 31, 2011: $50.1 billion; November 1, 2010: $76.3 billion) of collateral held for our repurchase agreement activities.
$ millions, as at
Canada Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives Drawn Undrawn commitments Repo-style transactions Other off-balance sheet OTC derivatives $ 52,898 27,772 7,083 40,995 6,813 51,796 25,421 3,126 39,001 6,365 52,490 22,652 1,763 35,956 6,350 $ 119,211
U.S. $ 15,244 3,927 1,291 7,753 2,379 $ 30,594 $ 12,650 3,397 1,547 5,204 2,774 $ 25,572 10,967 2,749 2,347 4,737 3,058 $ 23,858 $
Europe 3,358 865 127 3,303 4,672 5,068 381 429 5,050 4,664 5,994 458 466 5,730 4,635 $ 17,283
Other $ 4,166 644 285 271 562 $ 5,928 $ 3,508 508 82 184 626 $ 4,908 3,070 1,397 216 608 537 $ 5,828 $
Total 75,666 33,208 8,786 52,322 14,426 73,022 29,707 5,184 49,439 14,429 72,521 27,256 4,792 47,031 14,580 $ 166,180
Oct. 31 2012
$ 12,325 $
$ 184,408 $
$ 15,592
$ 171,781
For retail portfolios, substantially all of the exposures under the AIRB approach are based in Canada.
50
Business and government exposures by industry groups The following table provides an industry-wide breakdown of our business and government exposures under the AIRB approach. Amounts are before allowance for credit losses and risk mitigation, and after CVA related to financial guarantors and $48.2 billion (October 31, 2011: $50.1 billion; November 1, 2010: $76.3 billion) of collateral held for our repurchase agreement activities.
Undrawn commitments $ 103 2,985 2,297 1,415 1,193 853 3,933 1,117 6,547 2,549 476 349 1,108 267 1,174 2,902 846 3,094 151 2,888 2,228 1,525 1,082 940 3,130 1,105 5,480 1,893 474 381 827 314 1,008 2,225 937 3,119 163 2,927 1,917 1,274 1,066 820 2,690 999 4,742 1,955 344 349 982 487 723 1,901 874 3,043 Repo-style transactions $ 7,217 14 14 1,541 5,035 10 139 4,711 29 9 1 17 25 Other offbalance sheet $ 47,688 267 195 90 109 801 41 811 433 138 52 228 180 200 732 50 307 45,669 280 166 96 24 753 33 504 311 117 47 199 157 270 614 55 144 43,741 263 331 101 45 618 31 352 284 102 31 185 73 422 332 66 54 OTC derivatives $ 10,105(1) 30 29 37 23 72 28 548 19 35 6 76 3 88 381 97 2,849 10,563(1) 39 38 47 19 117 27 530 19 51 5 69 11 30 424 92 2,348 11,453(1) 42 100 42 35 71 23 419 63 42 4 172 12 44 404 80 1,574 $
$ millions, as at
Drawn $ 7,525 15,431 2,711 3,930 1,513 2,034 10,205 3,532 3,752 662 476 592 452 396 1,337 1,753 1,395 17,970 7,420 17,826 2,424 3,723 1,532 1,612 8,573 3,228 3,357 468 473 381 365 444 1,185 963 1,254 17,794 6,638 24,210 2,390 3,506 1,046 1,280 5,717 2,968 2,791 264 353 496 418 424 1,114 875 1,211 16,820
Total 7,628 83,426 5,305 5,583 2,833 3,019 15,011 4,718 11,658 3,663 1,125 999 1,864 846 2,799 5,768 2,402 25,761 7,571 81,981 4,971 5,452 2,757 2,595 12,573 4,393 9,871 2,691 1,115 814 1,460 926 2,493 4,226 2,348 23,544 6,801 87,042 4,612 5,240 2,255 2,180 9,096 4,021 8,304 2,566 850 881 1,757 996 2,303 3,512 2,248 21,516
Oct. 31 2012
Commercial mortgages Financial institutions Retail and wholesale Business services Manufacturing capital goods Manufacturing consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Broadcasting, publishing and printing Transportation Utilities Education, health, and social services Governments Commercial mortgages Financial institutions Retail and wholesale Business services Manufacturing capital goods Manufacturing consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Broadcasting, publishing and printing Transportation Utilities Education, health, and social services Governments Commercial mortgages Financial institutions Retail and wholesale Business services Manufacturing capital goods Manufacturing consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Broadcasting, publishing and printing Transportation Utilities Education, health, and social services Governments
$ 33,208 $
$ 8,786 $
$ 52,322 $
$ 14,426 $
$ 184,408 $
$ 29,707 $
$ 5,184 $
$ 49,439 $
$ 14,429 $
$ 171,781 $
$ 72,521
$ 27,256
$ 4,792
$ 47,031
$ 14,580
$ 166,180
(1) Includes $281 million (October 31,2011: $487 million; November 1, 2010: $1.2 billion) of EAD with financial guarantors hedging our derivative contracts. The fair value of these derivative contracts net of CVA was $269 million (October 31, 2011: $477 million; November 1, 2010: $732 million).
As at October 31, 2012, the notional amount of credit protection purchased against our business and government loans was $34 million (October 31, 2011: $85 million; November 1, 2010: $1.2 billion). The decrease during the year was due to unwinding of hedge positions. All counterparties from whom we have purchased credit protection for the loan portfolio are financial institutions with investment-grade ratings from major rating agencies.
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Total loans and acceptances As at October 31, 2012, total loans and acceptances after allowance for credit losses were $252.7 billion (October 31, 2011: $248.4 billion; November 1, 2010: $237.2 billion). Consumer loans (comprising residential mortgages, credit cards and personal loans, including student loans) constitute 79% (October 31, 2011: 80%; November 1, 2010: 81%) of the portfolio, and business and government loans (including acceptances) constitute the remaining. Consumer loans were down by $517 million from the prior year. The decrease in residential mortgages and credit cards was largely offset by an increase in personal lending. Business and government loans (including acceptances) were up $4.8 billion or 10% from the prior year, mainly attributable to the real estate and construction, and the utilities sectors. The following table provides details of our impaired loans, allowances and provisions for credit losses.
Business and government loans $ 1,102 490 (273) 1,319 (191) $ 1,128 $ 388 (191) 317 9 (30) (1) 492 714 26 (104) 636 $ $ Consumer loans $ 815 1,646 (565) 1,896 (1,157) 739 214 (1,157) 1,016 161 (17) 12 229 601 (76) (15) 510 2012 Total $ 1,917 2,136 (838) 3,215 (1,348) $ 1,867 $ 602 (1,348) 1,333 170 (47) 11 721 Business and government loans $ 1,080 431 (251) 1,260 (158) $ 1,102 $ 372 (158) 196 12 (34) 388 708 22 (16) 714 $ $ Consumer loans $ 854 1,792 (654) 1,992 (1,177) 815 224 (1,177) 1,050 133 (14) (2) 214 630 (39) 10 601 2011 Total $ 1,934 2,223 (905) 3,252 (1,335) $ 1,917 $ 596 (1,335) 1,246 145 (48) (2) 602
Gross impaired loans Balance at beginning of year New additions Returned to performing status, repaid or sold Gross impaired loans prior to write-offs Write-offs Balance at end of year Allowance for impairment(1) Balance at beginning of year Write-offs Provisions Recoveries Interest accrued on impaired Other Balance at end of year Net impaired loans Balance at beginning of year Net change in gross impaired Net change in allowance Balance at end of year Gross impaired loans less allowance for impairment as a percentage of related assets(2)
$ $
$ $
$ $
$ $
(1) Includes collective allowance relating to personal, scored small business and mortgage impaired loans that are greater than 90 days delinquent, and individual allowance. (2) The related assets include loans, securities borrowed and purchased under resale agreements, and acceptances.
Impaired loans
During the year, $2.1 billion of loans were newly classified as impaired, down $87 million from 2011. This was driven by a decrease of $146 million in consumer loans, partially offset by an increase of $59 million in business and government loans. Reductions in gross impaired loans (GIL) through remediation, repayment or sale were $838 million, down $67 million from 2011. This was mainly driven by a decrease of $89 million in consumer loans, partially offset by an increase of $22 million in business and government loans. For the year, write-offs totalled $1.3 billion, up $13 million from the prior year. Business and government loan write-offs increased by $33 million, while consumer loan write-offs decreased by $20 million. After experiencing an increase during the 2009 recession, Canadian consumer GIL stabilized in 2011 and showed some improvement in 2012. The majority of impaired residential mortgages in 2012 were in the Canadian insured portfolio where losses are expected to be minimal. Consumer GIL in CIBC FirstCaribbean increased slightly in 2012 mainly due to continued economic pressure in the Caribbean region. GIL in business and government loans was comparable to the prior year, with an increase in new classifications in the oil and gas sector and in U.S. real estate finance accounts originated before 2009, offsetting higher loans repaid and increased write-offs. Additional details on the geographic distribution and industry classification of impaired loans are provided in the Supplementary annual financial information section.
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53
Bank 7 7 1 48 2 65 10 5 110
Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain Total Eurozone Czech Republic Denmark Guernsey Isle of Man Norway Russia Sweden Switzerland Turkey United Kingdom Total non-Eurozone Total Europe Middle East and North Africa(3) Total exposure October 31, 2011
$ $
$ $
$ $
$ $
$ $
$ $
$ $
$ $ $ $
$ 1,055 $ 1,287 $
$ 2,463 $ 3,291 $ 2
$ 1,316 $ 1,397 $
$ 125 $ 190 $ 2
$ 1,441 $ 1,587 $ 2
$ 1,141 $
$ 1,141 $ 906
$ 1,287 $ 1,656
$ 3,293 $ 5,640
$ 1,397 $ 683
$ 192 $ 117
$ 1,589 $ 800
$ 3,078
(1) Comprises securities purchased and sold under repurchase agreements for cash collateral; securities borrowed and lent for cash collateral; and securities borrowed and lent for securities collateral. (2) Includes $144 million of exposure (notional value of $183 million and fair value of $39 million) on a CDS sold on a bond issue of a U.K. corporate entity, which is guaranteed by a financial guarantor. We currently hold the CDS sold as part of our structured credit run-off business. A payout on the CDS sold would be triggered by the bankruptcy of the reference entity, or a failure of the entity to make a principal or interest payment as it is due, as well as a failure of the financial guarantor to meet its obligation under the guarantee. (3) Comprises Algeria, Bahrain, Egypt, Jordan, Lebanon, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia, and Yemen.
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Corporate $ 10 1 62
Sovereign $ $ $ $ $ $ $ $ 7 $
Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain Total Eurozone Czech Republic Denmark Guernsey Norway Russia Sweden Switzerland Turkey United Kingdom Total non-Eurozone Total Europe Middle East and North Africa Total exposure October 31, 2011
(1) The amounts shown are net of CVA.
(3)
$ 10 $
$ 3,296 $
$ 3,306 $
$ 3,023 $
$ 283 $
$ 1,257 $
$ 63 $ 73 $ $ 73 $ 32
$ $
(2) Collateral on derivative MTM receivables was $2.3 billion (2011: $1.9 billion), and was all in the form of cash. Collateral on repo-style transactions was $3.5 billion (2011: $6.2 billion), and is comprised of cash and investment-grade debt securities. (3) Comprises Algeria, Bahrain, Egypt, Jordan, Lebanon, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia, and Yemen.
Indirect exposures to certain countries and regions Our indirect exposures comprise securities (primarily CLOs classified as loans on our consolidated balance sheet), and written credit protection on securities in our structured credit run-off business where we benefit from subordination to our position. Our gross exposure before subordination is stated at carrying value for securities and notional less fair value for derivatives where we have written protection. We have no indirect exposures to Portugal, Slovenia, Guernsey, Turkey, Russia and selected countries in the Middle East and North Africa.
Total indirect exposure $ 12 39 12 531 424 10 61 78 58 313 148 1,686 $ 37 11 78 4 636 766
Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Spain Total Eurozone Denmark Norway Sweden Switzerland United Kingdom Total non-Eurozone Total exposure October 31, 2011
$ 2,452 $ 2,559
In addition to the indirect exposures above, we have indirect exposure to European counterparties when we have taken debt or equity securities issued by European entities as collateral for our securities lending and borrowing activity, from entities that are not in Europe. Our indirect exposure was $846 million (2011: $2.9 billion).
CIBC 2012 ANNUAL REPORT
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Undrawn $ 69 376
Construction program Interim program Permanent program Exposure, net of allowance Of the above: Net Impaired On credit watch list Exposure, net of allowance, as at October 31, 2011
$ 445 $ 2
$ 3,379
$ 629
As at October 31, 2012, the allowance for credit losses for this portfolio was $118 million (2011: $86 million). During the year, we recorded a provision for credit losses of $75 million (2011: $15 million). The business also maintains commercial mortgage-backed securities (CMBS) trading and distribution capabilities. As at October 31, 2012, we had CMBS inventory with a notional amount of $9 million and a fair value of less than $1 million (2011: notional of $9 million and fair value of less than $1 million). Leveraged finance The exposures in our leveraged finance activities in Europe and the U.S. are discussed below. European leveraged finance In 2008, management made a decision to exit our European leveraged finance business where we participated or originated non-investment grade leveraged loans and syndicated the majority of the loans, earning a fee during the process. The following table provides a summary of our positions in this business:
$ millions, as at October 31, 2012
Undrawn $ 49 1 10 $ 60 $ 10
Manufacturing Publishing and printing Utilities Business services Transportation Exposure, net of allowance Of the above: Net Impaired On credit watch list Exposure, net of allowance, as at October 31, 2011
$ 437
$ 91
Our exposure has declined primarily due to repayments during the year. As at October 31, 2012, the allowance for credit losses for this portfolio was $41 million (2011: $43 million). During the year, net reversals of credit losses were $1 million (2011: provision for credit losses of $19 million). U.S. leveraged finance We sold our U.S. leveraged finance business, where we provided leveraged loans to non-investment grade customers to facilitate their buyout, acquisition and restructuring activities, as part of the sale of some of our U.S. businesses to Oppenheimer Holdings Inc. (Oppenheimer) in 2008. Under the transaction, the leveraged loans in existence at the time of the sale remained with us. These loans are being managed to maturity. In addition, under the current terms of our agreement with Oppenheimer, we agreed to provide a loan warehouse facility of up to $2.0 billion to finance and hold syndicated loans to non-investment grade customers, originated for U.S. middle market companies by Oppenheimer, to facilitate their buyout, acquisition and restructuring activities. Underwriting of any loan for inclusion in this facility is subject to joint credit approval by Oppenheimer and CIBC.
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Drawn $ 65 9 15 2 91 37 42
Undrawn $ 16 3 19 5 13
Transportation Healthcare Media and advertising Manufacturing Other Exposure, net of allowance Of the above: Net impaired On credit watch list Exposure, net of allowance, as at October 31, 2011
$ $
$ $
$ 111
$ 179
As at October 31, 2012, the allowance for credit losses for this portfolio was $67 million (2011: $13 million). During the year, we recorded a provision for credit losses of $55 million (2011: reversal of credit losses of $2 million).
Settlement risk
Settlement risk is the risk that one party fails to deliver at the time of settlement on the terms of a contract between two parties. This risk can arise in general trading activities and from payment and settlement system participation. Many global settlement systems offer significant risk reduction benefits through complex risk mitigation frameworks. Bilateral payment netting agreements may be put in place to mitigate risk by reducing the aggregate settlement amount between counterparties. Further, we participate in several North American payment and settlement systems, including a global foreign exchange multilateral netting system. We also use financial intermediaries to access some payment and settlement systems, and for certain trades, we may utilize an established clearing house to minimize settlement risk. Transactions settled outside of payment and settlement systems or clearing houses require approval of credit facilities for counterparties, either as pre-approved settlement risk limits or payment-versus-payment arrangements.
Market risk
Market risk arises from positions in currencies, securities and derivatives held in our trading portfolios, and from our retail banking business, investment portfolios and other non-trading activities. Market risk is defined as the potential for financial loss from adverse changes in underlying market factors, including interest and foreign exchange rates, credit spreads, and equity and commodity prices. Market risk is managed through an integrated internal control framework. Each business has a dedicated market risk manager, supplemented by regional risk managers located in all of our major trading centres, facilitating comprehensive risk coverage. We have comprehensive policies for market risk management related to identification and measurement of the various types of market risk, the eligibility of certain of those risks for inclusion in the trading and non-trading books, and to the establishment of limits within which we manage our overall exposures. Our policies also outline requirements for valuation model construction, and align with accounting policies with respect to MTM and model valuation methodologies, the independent checking of the valuation of positions, and the establishment of valuation adjustments. In 2012, we implemented the Market Risk Amendment (MRA) which includes stressed VaR and the Incremental Risk Charge (IRC) as required by OSFI under the BCBS Revisions to the Basel II Market Risk Framework.
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Trading activities
We hold positions in traded financial instruments to meet client investment and risk management needs, and for proprietary trading purposes. Trading revenue (net interest income or non-interest income) is generated from these transactions. Trading instruments are recorded at fair value and include debt and equity securities, as well as interest rate, foreign exchange, equity, commodity, and credit derivative products. Risk measurement We use the following measures for market risk: VaR, which enables the meaningful comparison of the risks in different businesses and asset classes; Stressed VaR, which enables the meaningful comparison of the risks in different businesses and asset classes if the worst period in the last five years is applied to the current portfolio; IRC, which measures assigned capital due to the credit migration and default risk for issuer credit risk held in the trading portfolios; Stressed VaR and IRC provide management with additional measurement metrics of CIBCs exposure under stressed market conditions. As these metrics factor into our capital requirement calculations they also drive risk-return and business mix decisions as we work to optimize return on capital; Stress testing and scenario analyses, which provide insight into portfolio behaviour under extreme circumstances; and Backtesting, which validates the effectiveness of risk quantification through analysis of actual and theoretical profit and loss outcomes. Trading revenue (TEB) comprises both trading net interest income and non-interest income and excludes underwriting fees and commissions. In 2012, trading revenue was $535 million (2011: $376 million) and trading revenue (TEB) was $815 million (2011: $563 million). The VaR measures exclude exposures in our structured credit run-off businesses as discussed in the Structured credit run-off business section. These positions are being managed down independent of our trading businesses and our processes include frequent comprehensive measurement and reporting of the main risks to both management and the RMC. Value-at-Risk Our VaR methodology is a statistical technique that measures the potential overnight loss within a 99% confidence level. VaR uses numerous risk factors as inputs and is computed through the use of historical volatility of each risk factor and the associated historical correlations among them, evaluated over a one-year period. Total market risk VaR is determined by the combined modeling of VaR for each of interest rate, credit spread, equity, foreign exchange, commodity, and debt specific risks, along with the reduction due to the portfolio effect arising from the interrelationship of the different risks. Actual market loss experience may differ from that implied by the VaR measure for a variety of reasons. Fluctuations in market rates and prices may differ from those in the past that are used to compute the VaR measure. Additionally, our VaR measure does not account for any losses that may occur beyond the 99% confidence level. To determine the reliability of the VaR models, actual outcomes are monitored regularly to test the validity of the assumptions and the parameters used in the VaR calculation. Market risk positions are also subject to regular stress tests against defined limits to ensure we would withstand an extreme market event. Stress testing and scenario analysis Stress testing and scenario analyses are designed to add insight to possible outcomes of abnormal market conditions, and to highlight possible risk concentrations. Our stress testing measures the effect on portfolio values of a wide range of extreme moves in market prices. The methodology assumes that no actions are taken during the stress event to mitigate risk, reflecting the decreased liquidity that frequently accompanies market shocks. Our scenario analysis approach simulates the impact on earnings of extreme market events up to a period of one quarter. Scenarios are developed using actual historical market data during periods of market disruption, or are based on the hypothetical occurrence of economic events, political events and natural disasters suggested and designed by economists, business leaders and risk managers. Among the historical scenarios used were the 1987 equity market crash, the 1994 period of U.S. Federal Reserve tightening, the 1998 Russian-led crisis, the market events following September 11, 2001, and the 2008 market crisis. The hypothetical scenarios used include potential market crises originating in North America, Asia, and Europe. Our core stress testing and scenario analyses are run daily, and further ad hoc analysis is carried out as required. Scenarios are reviewed and amended as necessary to ensure they remain relevant. Limits are placed on the maximum acceptable loss to the aggregate portfolio under any worst-case scenario and on the impact of stress testing at the detailed portfolio level and by asset class. Backtesting Backtesting process measures that actual profit and loss outcomes are consistent with the statistical assumptions of the VaR model. This process also includes the calculation of a hypothetical or static profit and loss. This represents the theoretical change in value of the prior days closing portfolio due to each days price movements, on the assumption that the contents of the portfolio remained unchanged. Backtesting process is conducted on a daily basis at the level of consolidated CIBC and at the lower levels, including business lines and individual portfolios. Static profit and loss and trading losses in excess of the one-day VaR are investigated. The investigation process involves review of data used in the model, underlying theoretical definition of the model, overview of processes used to aggregate data and produce output information and strategic analysis of produced results. The purpose of review of the model definition process is to ensure that all risk factors are identified and understood. The model validation process is performed by risk professionals who are independent of those responsible for development of the model. Validation process, overview of results and model overview are also subject to regular review by Internal Audit. Based on our backtesting results, we are able to ensure that our VaR model appropriately measures the risk.
Stressed value-at-risk
The stressed VaR measure is intended to replicate the VaR calculation that would be generated for our current portfolio if the values of the relevant market risk factors were sourced from a period of stressed market conditions. The model inputs are calibrated to historical data from a continuous 12-month period of significant financial stress relevant to our current portfolio over the last five years. Our current stressed VaR period is from October 9, 2008 to October 8, 2009.
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Incremental risk charge IRC is a default and migration risk charge for issuer credit risk held in the trading portfolios. Our IRC methodology is a statistical technique that measures the risk of issuer migration and default over a period of one year by simulating changes in issuer credit rating. Validation of the model included testing of the liquidity horizon, recovery rate, correlation, and probability of default and migration. The VaR table below presents market risks by type of risk and in aggregate. The risks are interrelated and the diversification effect reflects the reduction of risk due to portfolio effects among the trading positions. Our trading risk exposures to interest rates and credit spreads arise from activities in the global debt and derivative markets, particularly from transactions in the Canadian, U.S. and European markets. The primary instruments are government and corporate debt, interest rate derivatives and other. The bulk of the trading exposure to foreign exchange risk arises from transactions involving the U.S. dollar, Euro, British pound, and Japanese yen, whereas the primary risks of losses in equities are in the U.S., Canadian and European markets. Trading exposure to commodities arises primarily from transactions involving North American natural gas and oil product indices. Total average risk for the trading portfolio was down 25% from the previous year, driven mainly by a decrease in interest rate risk.
Oct. 31 2012 Year-end Average High $ 5.3 2.4 5.4 1.7 3.0 4.2 n/m $ 7.0 Low Year-end $ 0.9 0.6 1.4 0.2 0.5 1.8 n/m $ 3.3 $ 2.7 1.0 1.6 1.6 0.5 2.5 (5.7) $ 4.2 Average $ 3.4 1.1 3.2 0.9 1.0 2.7 (5.8) $ 6.5 $ High 6.7 1.7 6.2 3.3 1.9 5.2 n/m $ 2.1 1.4 2.0 0.7 1.0 2.1 (5.2) $ 4.1 $ 1.9 1.3 3.0 0.7 1.2 2.6 (5.8) $ 4.9
Oct. 31 2011 Low $ 1.5 0.5 1.4 0.2 0.4 1.3 n/m $ 3.4
Nov. 1 2010(1) As at $ 3.2 0.9 0.8 0.7 0.3 2.2 (4.0) $ 4.1
Interest rate risk Credit spread risk Equity risk Foreign exchange risk Commodity risk Debt specific risk Diversification effect(2) Total VaR (one-day measure)
$ 10.2
(1) Does not include ISB risk measures including equity skew vega risk, commodity skew vega risk, interest rate basis risk, dividend risk, and correlation risk relating to trading activities as the information was not available. (2) Total VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect. n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.
2012 Year-end Average $ 6.3 3.0 2.5 1.8 1.1 0.9 (9.1) $ 6.5 High $ 13.4 7.2 6.9 9.4 4.6 1.7 n/m $ 13.0 Low $ 1.5 0.7 0.9 0.2 0.3 0.4 n/m $ 2.0 $ 8.3 3.8 1.2 0.6 1.3 0.9 (6.5) $ 9.6
Interest rate risk Credit spread risk Equity risk Foreign exchange risk Commodity risk Debt specific risk Diversification effect(1) Total stressed VaR (one-day measure)
(1) Total stressed VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect. n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types.
2012 Year-end Average $ 33.4 37.9 $ 71.3 High $ 54.7 59.7 $ 97.1 Low $ 17.2 18.4 $ 50.8 $ 28.8 42.1 $ 70.9
Trading revenue The histogram below presents the frequency distribution of daily trading revenue (TEB) for 2012. Trading revenue (TEB) was positive for 97% of the days (2011: 94%). Daily trading losses did not exceed VaR during the year. The largest loss occurred on April 9, 2012, totalling $1.6 million and was mainly driven by changes in interest rates and funding costs. The largest gain occurred on October 19, 2012, totalling $20.5 million and it was driven by the client index facilitation business. Average daily trading revenue (TEB) was $3.3 million (2011: $2.7 million) and the average daily TEB was $1.1 million (2011: $0.7 million). The plots below do not include an adjustment for the valuation of derivatives on a collateralized basis using prices from the OIS market.
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25
20
15
10
$ millions
-5
-10
-15
-20
-25
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Non-exchange traded commodity derivatives In the normal course of business, we trade non-exchange traded commodity derivative contracts. We control and manage our non-exchange traded commodity derivatives risk through the VaR and stress testing methodologies described above. We use modelling techniques or other valuation methodologies to determine the fair value of these contracts. The following table provides the fair value, based upon maturity of non-exchange traded commodity contracts:
$ millions, as at October 31, 2012
Maturity less than 1 year Maturity 1 3 years Maturity 4 5 years Maturity in excess of 5 years
$ (170)
Non-trading activities
Market risks also arise from our retail banking business, equity investments and other non-trading activities. We originate many retail products with market risk characteristics. Changes in market conditions, customer behaviour and competitive market pressures can have an impact on the market risk exposure and retail margins earned from these products. Foreign exchange exposures arising from net earnings and investments in foreign operations are also included in non-trading activities.
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Interest rate risk Non-trading interest rate risk consists primarily of risk inherent in asset/liability management (ALM) activities and the activities of domestic and foreign subsidiaries. Interest rate risk results from differences in the maturities or repricing dates of assets and liabilities, both on- and off-balance sheet, as well as from embedded optionality in retail products. This optionality arises predominantly from the prepayment exposures of mortgage products, mortgage commitments and some GIC products with early redemption features; this optionality is measured consistent with our actual experience. A variety of cash instruments and derivatives, principally interest rate swaps, futures and options, are used to manage and control these risks. ALM activities are conducted by Treasury under the supervision of the SET, within the overall risk appetite established by the Board. Compliance with trading and non-trading market risk policy, as well as market risk limits is monitored daily by market risk management. Our principal interest rate risk measures are VaR, earnings risk, and future risk. Earnings risk is the impact to net income after-tax, over a one-year term of an immediate 1% and 2% increase in market interest rates. Future risk is the impact to common shareholders equity (on a present value basis) of an immediate 1% and 2% increase in market interest rates. Our total non-trading interest rate risk exposure, as at October 31, 2012, is included in Note 17 to the consolidated financial statements. On- and off-balance sheet assets and liabilities are generally reported based on the earlier of their contractual repricing or maturity date; however, our disclosure includes the assumed interest rate sensitivity of certain assets and liabilities (including core deposits and credit card balances), reflecting how we manage interest rate risk; the assumed duration of core balances is approximately 1.9 years. The interest rate position reported in Note 17 presents our risk exposure only at a point in time. The exposure can change depending on client preference for products and terms, including mortgage prepayment or other options exercised, and the nature of our management of the various and diverse portfolios that comprise the consolidated interest rate risk position. The following table shows the potential impact over the next 12 months, adjusted for structural assumptions (excluding shareholders equity), estimated prepayments and early withdrawals, of an immediate 100 and 200 basis point increase or decrease in interest rates. In addition, we have a floor in place in the downward shock to accommodate for the current low interest rate environment (i.e., the analysis uses the floor to stop interest rates from going into a negative position in the lower rate scenarios, given todays historically low interest rate environment). Interest rate sensitivity non-trading (after-tax)
$ millions, as at
100 basis points increase in interest rates Increase (decrease) in net income attributable to equity shareholders Decrease in present value of shareholders equity 100 basis points decrease in interest rates Increase (decrease) in net income attributable to equity shareholders Decrease (increase) in present value of shareholders equity 200 basis points increase in interest rates Increase (decrease) in net income attributable to equity shareholders Decrease in present value of shareholders equity 200 basis points decrease in interest rates Increase (decrease) in net income attributable to equity shareholders Decrease (increase) in present value of shareholders equity
$ 101 (99)
(21) (170)
1 (43)
$ 111 (188)
(24) (84)
2 (34)
110 (39)
$ 12 (17)
3 (12)
$ (180) 3
7 115
44
$ (180) 64
24 59
(2) 34
$ (173) (68)
(2) 9
(3) 9
$ 206 (252)
(43) (339)
2 (85)
$ 195 (380)
(48) (168)
4 (67)
196 (117)
$ 25 (33)
5 (25)
$ (358) (181)
(1) 127
(1) 69
$ (232) 18
36 86
(5) 45
$ (250) (161)
(2) 13
(3) 17
Foreign exchange risk Non-trading foreign exchange risk, also referred to as structural foreign exchange risk, arises primarily from our investments in foreign operations. This risk, predominantly in U.S. dollars, is managed using derivative hedges and by funding the investments in foreign currencies. We actively manage this risk to ensure that the potential impact to earnings is minimized and that the potential impact on our capital ratios is within tolerances set by the RMC. Structural foreign exchange risk is managed by Treasury under the supervision of the SET, with the overall risk appetite established by the Board. Compliance with trading and non-trading market risk policy, as well as market risk limits, is monitored daily by market risk management. A 1% appreciation of the Canadian dollar would reduce our shareholders equity as at October 31, 2012 by approximately $36 million (October 31, 2011: $38 million; November 1, 2010: $39 million) on a pre-tax basis. Our non-functional currency denominated earnings are converted into the functional currencies through spot or forward foreign exchange transactions. Thus, there is no significant impact of exchange rate fluctuations on our consolidated statement of income, except for foreign functional currency earnings, which are translated at average monthly exchange rates as they arise. We hedge certain foreign currency contractual expenses using derivatives which are accounted for as cash flow hedges. The net change in fair value of these hedging derivatives included in AOCI amounted to a loss of $6 million (October 31, 2011: loss of $19 million: November 1, 2010: loss of $24 million). This amount will be released from AOCI to offset the hedged currency fluctuations as the expenses are incurred. Derivatives held for ALM purposes Where derivatives are held for ALM purposes, and when transactions meet the criteria specified under IFRS, we apply hedge accounting for the risks being hedged, as discussed in Notes 12 and 13 to the consolidated financial statements. Derivative hedges that do not qualify for hedge accounting
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treatment are referred to as economic hedges and are recorded at fair value on the consolidated balance sheet with changes in fair value recognized in the consolidated statement of income. Economic hedges for other than FVO financial instruments may lead to income volatility because the hedged items are recorded either on a cost or amortized cost basis. This income volatility may not be representative of the overall risk. Equity risk Non-trading equity risk arises primarily in our merchant banking activities. Our merchant banking investments comprise public and private equities, investments in limited partnerships, and equity-accounted investments. The following table provides the amortized cost and fair values of our non-trading equities, including merchant banking portfolios:
$ millions, as at
AFS securities Equity-accounted investments in associates(1) AFS securities Equity-accounted investments in associates(1) AFS securities Equity-accounted investments in associates(1)
$ 1,751 $
$ 2,046 $
$ 1,643 $ $
(1) Excludes our equity-accounted joint ventures. See Note 26 to the consolidated financial statements for details on our equity-accounted investments.
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet financial obligations as they fall due, in their full amount and stipulated currencies, without raising funds at adverse rates or selling assets on a forced basis.
Our liquidity risk management strategies seek to maintain sufficient liquid financial resources and diversified funding sources to continually fund our balance sheet and contingent obligations under both normal and stressed market environments.
Policies
Our liquidity policy and framework require maintenance of sufficient unencumbered stock of liquid assets to meet anticipated funding needs in both stable and stressed conditions for a minimum period of time as determined by the RMC. Guidelines are also set to ensure a well-diversified and balanced liability structure. Alongside the liquidity risk management framework, our enterprise-wide pledging policy sets out consolidated aggregate net maximum pledge limits for financial and non-financial assets. Pledged assets are considered encumbered and therefore unavailable for liquidity purposes. We maintain and periodically update a detailed CFP for responding to liquidity stress events. The plan is presented annually to the RMC.
Risk measurement
CIBCs liquidity risk tolerance is defined by its Risk Appetite Statement, approved annually by the Board of Directors, and forms the basis for the delegation of liquidity risk authorities to the ALCO, which in turn delegates to senior management. The primary liquidity risk metric to measure and monitor CIBCs liquidity position is the liquidity horizon, the future point in time when projected cumulative cash outflows exceed cash inflows under a predefined liquidity stress scenario. The minimum liquidity horizon is set by the RMC and delegated to the ALCO. Our liquidity measurement system provides daily liquidity risk exposure reports for review by senior management. ALCO monitors CIBCs current and prospective liquidity position in relation to risk appetite and limits.
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CIBC applies a severe, name-specific and market-wide stress scenario to determine the amount of liquidity required to satisfy its obligations as they come due. The scenario models potential liquidity and funding requirements, including unsecured wholesale funding and deposit runoff, and expected contingent liability utilization, as well as liquid asset marketability, in the context of the prescribed stress event. Liquid assets are cash, short-term bank deposits and high-quality marketable securities that can be readily pledged or converted into cash in a timely fashion. Stress scenario assumptions and associated parameters are subject to periodic review and approval, at least annually, by CIBCs ALCO and RMC. Term funding sources and strategies We manage liquidity to meet both short and long-term cash requirements. Reliance on short-term wholesale funding is maintained at prudent levels and is in accordance with RMC authorized limits and management targets established by ALCO. We obtain funding through both wholesale and retail sources. Consistent with our liquidity risk mitigation strategies, we continue to source term funding in the wholesale markets from a variety of clients and geographic locations, borrowing across a range of maturities, using a mix of funding instruments. Personal retail deposits remain our primary source of funding and totalled $118.2 billion as at October 31, 2012 (October 31, 2011: $116.6 billion; November 1, 2010: $113.3 billion). Our liquidity management framework applies deposit run-off assumptions, under a severe combined stress scenario, to determine core deposits. Strategies for managing liquidity risk include maintaining diversified sources of wholesale term funding, asset securitization initiatives, and maintenance of segregated pools of high-quality liquid assets that can be sold or pledged as security to provide a ready source of cash. Collectively, these strategies result in lower dependency on short-term wholesale funding. The following table provides the contractual maturities at carrying values of funding sourced by CIBC from the wholesale market:
$ millions, as at
1-3 months
3-6 months
6 - 12 months
1-2 years
Over 2 years
Total
Oct. 31 Deposits from banks 2012 Bearer deposit notes, certificate of deposits and bankers acceptances Deposit and medium-term notes Subordinated indebtedness Mortgage securitization Covered bonds Cards securitization Comprises: Unsecured Secured Oct. 31 Deposits from banks 2011 Bearer deposit notes, certificate of deposits and bankers acceptances Deposit and medium-term notes Subordinated indebtedness Mortgage securitization Covered bonds Cards securitization Comprises: Unsecured Secured
$ 1,152 4,035 1,658 1,272 $ 8,117 $ 6,845 1,272 $ 8,117 $ 275 1,942 2,989 1,902 373 $ 7,481 $ 5,206 2,275 $ 7,481
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3,624
$ $ $ $
2,050 5,445 2,464 177 $ 10,346 7,705 2,641 $ 10,346 $ 3,727 2,355 847 6,929 6,082 847 6,929 $
3,594 8,695 559 3,875 957 $ 17,680 $ 12,848 4,832 $ 17,680 $ 3,050 10,288 3,308 682 $ 17,328 $ 13,338 3,990 $ 17,328
544 4,447 12,218 2,763 1,919 $ 21,891 4,991 16,900 $ 21,891 $ 3,057 1,861 558 5,023 2,475 1,406 $ 14,380 5,476 8,904 $ 14,380 $ $
4,050 16,176 4,264 16,278 8,645 1,845 $ 51,258 $ 24,490 26,768 $ 51,258 $ 321 14,965 4,580 24,595 9,153 1,544 $ 55,158 $ 19,866 35,292 $ 55,158
18,107 36,933 4,823 33,643 13,872 4,898 $ 115,900 63,487 52,413 $ 115,900 $ 3,028 16,415 36,421 5,138 35,675 12,001 3,632 $ 112,310 61,002 51,308 $ 112,310 $ $
$ $ $
Oct. 31 2012 $ 1,226 63,882 26,708 25,163 15,396 3,311 135,686 49,855 $ 85,831 $ $
Oct. 31 2011 1,928 58,816 19,433 25,641 10,924 1,838 118,580 43,184 75,396 $ $
Nov. 1 2010 7,137 52,278 19,812 34,722 12,352 2,401 128,702 58,396 70,306
Cash and deposits with banks(1) Securities(2) NHA mortgage-backed securities Securities purchased under resale agreements Securities borrowed against securities Cash collateral on securities borrowed Total liquid assets Encumbered liquid assets(3) Unencumbered liquid assets
(1) Includes cash, non-interest bearing deposits and interest-bearing deposits with contractual maturities of less than 30 days. (2) Includes all trading, AFS and FVO securities other than the securities in our structured credit run-off business and private equity securities. (3) Includes encumbered amounts to support settlement and clearing activity that management considers prudent in the event of a market disruption.
In the course of our regular business activities, a portion of our total assets are pledged for collateral management purposes, including those necessary for day-to-day clearing and settlement of payments and securities. For additional details, see Note 22 to the consolidated financial statements.
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Preferred Shares 2012 2011 Pfd-1(L)(1) Pfd-1(L) BBB A Baa1(2) Baa1 P-2(H)/P-2(3) P-2(H)/P-1(L)(3)
(1) Series 26, 27, and 29 under review with negative implications. (2) Ratings under review for possible downgrade. (3) Preferred shares qualifying as non-viability contingent capital under Basel III.
Impact on collateral if there is a downgrade of CIBCs credit rating We are required to deliver collateral to certain derivative counterparties in case of a downgrade to our current credit risk rating. The collateral requirement is based on MTM exposure, collateral valuations, and collateral arrangement thresholds as applicable. Restrictions on the flow of funds We have certain subsidiaries that have separate regulatory capital, liquidity and funding requirements, as set by banking and securities regulators. Requirements of these entities are subject to regulatory change and can fluctuate depending on activity. We monitor and manage our capital and liquidity requirements across these entities to ensure that capital is used efficiently and that each entity is in continuous compliance with local regulations.
Regulatory developments
There is an ongoing cooperation between banks and regulators towards implementing BCBS liquidity standards, i.e., the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), which are scheduled for implementation in January 2015 and January 2018, respectively, in addition to other supplemental reporting metrics. We currently monitor the LCR for regulatory and internal reporting purposes and NSFR reporting is provided quarterly to OSFI. Our liquidity management framework integrates liquidity management principles and guidelines recommended by BCBS. OSFI sets out prudential considerations relating to the liquidity risk management programs of Canadian federally regulated deposit-taking institutions in its Guideline B-6, Liquidity Principles. Significant revisions to the guideline went into effect in February 2012. BCBS guidelines are incorporated into this regulation, and in addition, the regulation requires us to measure liquidity risk using a Net Cumulative Cash Flow (NCCF) test and report compliance with NCCF requirements to our regulator.
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Assets Cash and non-interest bearing deposits with banks Interest bearing deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets Liabilities Deposits(1)(2) Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness
$ $
123,867 278 11,235 18,292 9,538 $ 180,897 $ 83,794 9,719 291 93,804
8,911 588 15,334 14,064 $ 52,405 $ 13,594 1,678 13,315 4,532 $ 33,119
150,056 35,323 15,153 43,624 (1,860) 27,039 10,436 15,079 $ 393,385 $ 300,344 13,035 1,593 1,678 6,631 27,091 10,481 10,671 4,823 $ 376,347
(1) Deposits less than one year comprise: $20.4 billion with contractual maturities less than three months; $19.1 billion with contractual maturities within three to six months; and $39.3 billion with contractual maturities within six to twelve months. (2) Comprises $118.2 billion of personal deposits of which $113.6 billion are in Canada and $4.6 billion in other countries; $177.4 billion of business and government deposits of which $143.4 billion are in Canada and $34.0 billion in other countries; and $4.7 billion of bank deposits of which $1.5 billion are in Canada and $3.2 billion in other countries.
Less than 1 year $ 1,481 3,661 12,773 1,838 25,641 19,019 5,456 4,071 10,690 4,143 9,454 $ 98,227 $
1-5 years 16,878 122,845 288 11,673 13,460 11,586 $ 176,730 $ 83,472 12,079 311 95,862 $
Over 5 years 7,981 8,645 583 15,513 12,541 $ 45,263 $ 13,256 1,594 12,059 4,827 $ 31,736
Total 1,481 3,661 60,295 1,838 25,641 150,509 34,842 15,744 39,663 (1,803) 28,270 9,454 14,163 $ 383,758 $ 289,220 10,316 2,850 1,594 8,564 28,792 9,489 11,704 5,138 $ 367,667
Assets(1) Cash and non-interest bearing deposits with banks Interest bearing deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets Liabilities(1) Deposits(2)(3) Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness
(1) Certain information has been reclassified to conform to the presentation in the current year. (2) Deposits less than one year comprise: $26.0 billion with contractual maturities less than three months; $13.1 billion with contractual maturities within three to six months; and $33.7 billion with contractual maturities within six to twelve months. (3) Comprises $116.6 billion of personal deposits of which $112.0 billion are in Canada and $4.6 billion in other countries; $168.4 billion of business and government deposits of which $138.2 billion are in Canada and $30.2 billion in other countries; and $4.2 billion of bank deposits of which $1.7 billion are in Canada and $2.5 billion in other countries.
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Less than 1 year $ 1,817 9,005 16,303 2,401 34,722 13,869 5,664 4,115 10,566 3,764 7,633 $ 109,859 $
1-5 years 15,163 125,449 296 11,799 7,612 10,163 $ 170,482 $ 76,766 10,963 325 88,054 $
Over 5 years 8,926 3,966 596 19,768 10,773 $ 44,029 $ 12,967 1,600 10,493 4,448 $ 29,508
Total 1,817 9,005 54,318 2,401 34,722 143,284 34,335 15,914 37,946 (1,886) 24,700 7,633 15,119 $ 379,308 $ 278,271 9,673 4,306 1,600 20,651 25,363 7,633 12,239 4,773 $ 364,509
Assets Cash and non-interest bearing deposits with banks Interest bearing deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets Liabilities Deposits(1)(2) Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Derivative instruments Acceptances Other liabilities Subordinated indebtedness
$ 125,388
(1) Deposits less than one year comprise: $31.3 billion with contractual maturities less than three months; $17.8 billion with contractual maturities within three to six months; and $30.1 billion with contractual maturities within twelve months. (2) Comprises $113.3 billion of personal deposits of which $108.9 billion are in Canada and $4.4 billion in other countries; $159.4 billion of business and government deposits of which $126.9 billion are in Canada and $32.5 billion in other countries; and $5.6 billion of bank deposits of which $1.3 billion are in Canada and $4.3 billion in other countries.
Credit and liquidity commitments The following table provides the contractual maturity of notional amounts of credit, guarantee, and liquidity commitments should contracts be fully drawn upon and clients default. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements.
Contract amounts expiration per period
$ millions, as at
Less than 1 year Unutilized credit commitments Backstop liquidity facilities Standby and performance letters of credit Documentary and commercial letters of credit Unutilized credit commitments Backstop liquidity facilities Standby and performance letters of credit Documentary and commercial letters of credit Unutilized credit commitments Backstop liquidity facilities Standby and performance letters of credit Documentary and commercial letters of credit $ 120,496 3,189 5,857 449 $ 129,991 $ 118,177 2,273 5,180 312 $ 125,942 $ 111,719 3,444 4,656 290 $ 120,109
3-5 years $ 17,009 631 $ 17,640 $ 10,982 463 $ 11,445 $ 2,401 146 2,547
Over 5 years $ 1,159 321 $ 1,480 $ 1,193 24 $ 1,217 $ 521 152 673
Total $ 148,957 3,189 7,504 449 $ 160,099 $ 140,338 2,273 6,323 312 $ 149,246 $ 132,251 3,444 5,721 290 $ 141,706
Oct. 31 2012
Oct. 31 2011
Nov. 1 2010
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Other contractual obligations The following table provides the contractual maturities of other contractual obligations affecting our funding needs:
$ millions, as at
Less than 1 year Operating leases Purchase obligations(1) Investment commitments(2) Pension contributions(3) Underwriting commitments Operating leases Purchase obligations(1) Investment commitments(2) Pension contributions(3) Underwriting commitments Operating leases Purchase obligations(1) Investment commitments(2) Pension contributions(3) Underwriting commitments $ 366 659 178 239 184 351 566 354 230 333 332 581 294 216 183 $
Over 5 years $ 1,398 248 $ 1,646 $ 1,385 434 $ 1,819 $ 1,482 151 $ 1,633
Total $ 2,983 2,257 178 239 184 $ 5,841 $ 2,878 2,351 354 230 333 $ 6,146 $ 2,905 1,752 294 216 183 $ 5,350
Oct. 31 2012
$ 1,518 $
$ 1,051 $
$ 1,467 $
$ 1,026 $
$ 1,606
$ 1,397
(1) Obligations that are legally binding agreements whereby we agree to purchase products or services with specific minimum or baseline quantities defined at fixed, minimum or variable prices over a specified period of time are defined as purchase obligations. Purchase obligations are included through to the termination date specified in the respective agreements, even if the contract is renewable. Many of the purchase agreements for goods and services include clauses that would allow us to cancel the agreement prior to expiration of the contract within a specific notice period. However, the amount above includes our obligations without regard to such termination clauses (unless actual notice of our intention to terminate the agreement has been communicated to the counterparty). The table excludes purchases of debt and equity instruments that settle within standard market timeframes. (2) As an investor in merchant banking activities, we enter into commitments to fund external private equity funds and investments in equity and debt securities at market value at the time the commitments are drawn. As the timing of future investment commitments is non-specific and callable by the counterparty, obligations have been included as less than one year. (3) Includes estimated minimum pension contributions, and expected benefit payments for post-retirement medical and dental plans, the long-term disability plan, and related medical and dental benefits for disabled employees. Subject to change as contribution decisions are affected by various factors, such as market performance, regulatory requirements, and managements ability to change funding policy. Also, funding requirements after 2013 are excluded due to the significant variability in the assumptions required to project the timing of future cash flows.
Strategic risk
Strategic risk arises from ineffective business strategies or the failure to effectively execute strategies. It includes, but is not limited to, potential financial loss due to the failure of acquisitions or organic growth initiatives. Oversight of strategic risk is the responsibility of the SET and the Board. At least annually, the CEO presents CIBCs strategic planning process and CIBCs annual strategic business plan to the Board for review and approval. The Board reviews the plan in light of managements assessment of emerging market trends, the competitive environment, potential risks and other key issues. One of the tools for measuring, monitoring and controlling strategic risk is attribution of economic capital against this risk. Our economic capital models include a strategic risk component for those businesses utilizing capital to fund an acquisition or a significant organic growth strategy.
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems, human error or external events. Operational risks driven by people and processes are mitigated through human resources policies and practices, and operational procedural controls, respectively. Operational risks driven by systems are managed through controls over technology development and change management. The GCC provides oversight on operational risk matters and our internal control framework within the parameters and strategic objectives established by the SET. The SET is accountable to the Board and its Audit Committee and the RMC for maintaining a strong risk culture and internal control environment.
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Risk measurement
We use the Advanced Measurement Approach (AMA), a risk-sensitive method under Basel II, to quantify our operational risk exposure in the form of operational risk regulatory capital. We determine operational risk capital using a loss distribution approach that uses outputs from our risk assessment tools, including actual internal loss experiences, loss scenarios based on internal/external loss data and management expertise, audit findings and the results of risk and control self-assessments. Under AMA, we are permitted to recognize the risk mitigating impact of insurance in the measures of operational risk used for regulatory minimum capital requirements. Although our current insurance policies are tailored to provide earnings protection from potential high-severity losses, we do not reflect mitigation through insurance or any other risk transfer mechanism in our AMA model. We attribute operational risk capital at the line of business level. Capital represents the worst-case loss within a 99.9% confidence level and is determined for each loss event type and production/infrastructure/corporate governance line of business. The aggregate risk of CIBC is less than the sum of the individual parts, as the likelihood that all business groups across all regions will experience a worst-case loss in every loss category in the same year is extremely low. To adjust for the fact that all risks are not 100% correlated, we incorporate a portfolio effect to ensure that the aggregated risk is representative of the total bank-wide risk. The process for determining correlations considers both internal and external historical correlations and takes into account the uncertainty surrounding correlation estimates. The results of the capital calculations are internally backtested each quarter, and the overall methodology is independently validated by the Risk Management Validation group to ensure that the assumptions applied are reasonable and conservative. For regulated subsidiaries, the basic indicator or standardized approaches are adopted as agreed with local regulators.
Regulatory risk
Regulatory risk is the risk of non-compliance with regulatory requirements. Non-compliance with these requirements may lead to regulatory sanctions and harm to our reputation. Our regulatory compliance philosophy is to manage regulatory risk through the promotion of a strong compliance culture, and the integration of sound controls within the business and infrastructure groups. The foundation of this approach is a comprehensive Legislative Compliance Management (LCM) framework. The LCM framework maps regulatory requirements to internal policies, procedures and controls that govern regulatory compliance. Our Compliance department is responsible for the development and maintenance of a comprehensive regulatory compliance program, including oversight of the LCM framework. The department is independent of business management and reports regularly to the Audit Committee. Primary responsibility for compliance with all applicable regulatory requirements rests with senior management of the business and infrastructure groups, and extends to all employees. The Compliance departments activities support those groups, with particular emphasis on regulatory requirements that govern the relationship between CIBC and its clients that help protect the integrity of the capital markets.
Environmental risk
Environmental risk is the risk of financial loss or damage to reputation associated with environmental issues, whether arising from our credit and investment activities or related to our own operations. Our corporate environmental policy, originally approved by the Board in 1993 and most recently updated and approved by the RMC in 2011, commits CIBC to responsible conduct in all activities to protect and conserve the environment; safeguard the interests of all stakeholders from unacceptable levels of environmental risk; and support the principles of sustainable development. The policy is addressed by an integrated Corporate Environmental Management Program which is under the overall management of the Environmental Risk Management (ERM) group in Risk Management. Environmental evaluations are integrated into our credit and investment risk assessment processes, with environmental risk management standards and procedures in place for all sectors. In addition, environmental and social risk assessments in project finance are required in accordance with our commitment to the Equator Principles, a voluntary set of guidelines for financial institutions based on the screening criteria of the International Finance Corporation, which we adopted in 2003. We also conduct ongoing research and benchmarking on environmental issues such as climate change and biodiversity protection as they may pertain to responsible lending practices. We are also a signatory to and participant in the Carbon Disclosure Project, which promotes corporate disclosure to the investment community on greenhouse gas emissions and climate change management. The ERM group works closely with Corporate Services, Marketing, Communications and Public Affairs, and other business and functional groups in ensuring that high standards of environmental due diligence and responsibility are applied in our facilities management, purchasing and other operations. An Environmental Management Committee is in place to provide oversight and to support these activities.
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Oct. 31 2011 Structured credit run-off business $ 559 2 198 1,020 389 1,788 $ Total CIBC 570 2,052 198 1,109 955 1,937 Total CIBC(1) 1.7% 7.6 42.7 3.9 44.9% 6.7
Assets Trading securities and loans AFS securities FVO securities Derivative instruments Liabilities Deposits and other liabilities(2) Derivative instruments
(2) Includes FVO deposits and bifurcated embedded derivatives.
(1) Represents percentage of Level 3 assets and liabilities in each reported category that are carried at fair value on the consolidated balance sheet.
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Securities Market risk Derivatives Market risk Credit risk Administration costs Total valuation adjustments
Note 2 to the consolidated financial statements presents the valuation methods used to determine fair value showing separately those that are carried at fair value on the consolidated balance sheet and those that are not.
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Asset impairment
Goodwill, other intangible assets and long-lived assets As at October 31, 2012, we had goodwill of $1,701 million (2011: $1,677 million) and other intangible assets with an indefinite life of $136 million (2011: $136 million). Goodwill is not amortized, but is tested, at least annually, for impairment by comparing the recoverable amount of the cash-generating unit (CGU) to which goodwill has been allocated, with the carrying amount of the CGU including goodwill, with any deficiency recognized as impairment to goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell or value in use. During 2012, we changed our annual goodwill impairment testing date from April 30 to August 1 in order to better align this date with our annual planning cycle. Accordingly, for 2012 we performed our goodwill impairment test as at April 30 and August 1 for each CGU to which goodwill has been allocated. Going forward goodwill will be tested for impairment once annually on August 1 or more frequently if there is any indication that the goodwill may be impaired. Acquired intangible assets are separately recognized if the benefits of the intangible assets are obtained through contractual or other legal rights, or if the intangible assets can be sold, transferred, licensed, rented, or exchanged. Determining the useful lives of intangible assets requires judgment and fact-based analysis. Intangibles with an indefinite life are not amortized but are assessed for impairment by comparing the recoverable amount to the carrying amount.
CIBC 2012 ANNUAL REPORT
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Income taxes
We use judgment in the estimation of income taxes and deferred income tax assets and liabilities. As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions where we operate. This process involves estimating actual current tax exposure, together with assessing temporary differences that result from the different treatment of items for tax and accounting purposes, and any tax loss carryforwards. We are also required to establish a deferred income tax asset in respect of expenses recorded currently for which a tax deduction will be available in a future period, such as all or a portion of the collective allowance for credit losses and tax loss carryforwards. As at October 31, 2012, we had a deferred income tax asset of $457 million (2011: $644 million) and a deferred income tax liability of $37 million (2011: $51 million). We are required to assess whether it is probable that our deferred income tax asset will be realized prior to its expiration and, based on all the available evidence, determine if any portion of our deferred income tax asset should not be recognized. The factors used to assess the probability of realization are our past experience of income and capital gains, forecast of future net income before taxes, available tax planning strategies that could be implemented to realize the deferred income tax asset, and the remaining expiration period of tax loss carryforwards. Although realization is not assured, we believe, based on all the available evidence, it is probable that the remaining deferred income tax asset will be realized. Income tax accounting impacts all our reporting segments. For further details of our income taxes, see Note 20 to the consolidated financial statements.
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Financial instruments
As a financial institution, our assets and liabilities primarily comprise financial instruments, which include deposits, securities, loans, derivatives, acceptances, repurchase agreements, subordinated debt, and preferred shares. We use these financial instruments for both trading and non-trading activities. Trading activities include the purchase and sale of securities, transacting in foreign exchange and derivative instruments in the course of facilitating client trades, and taking proprietary trading positions with the objective of income generation. Non-trading activities generally include the business of lending, investing, funding, and ALM. The use of financial instruments may either introduce or mitigate exposures to market, credit and/or liquidity risks. See the Management of risk section for details on how these risks are managed. Financial instruments are accounted for according to their classification. For details on the accounting for these instruments, see Note 2 to the consolidated financial statements. For significant assumptions made in determining the valuation of financial and other instruments, see the Valuation of financial instruments section above.
Accounting developments
Future accounting policy changes
For details on the future accounting policy changes, see Note 32 to the consolidated financial statements.
Related-party transactions
We have various processes in place to ensure that the relevant related-party information is identified and reported to the Corporate Governance Committee (CGC) of the Board on a quarterly basis, as required by the Bank Act. The CGC has the responsibility for reviewing our policies and practices in identifying transactions with our related parties that may materially affect us, and reviewing the associated procedures for promoting compliance with the Bank Act. As a result of transition to IFRS, postemployment benefit plans for CIBC employees are also considered related parties. For further details, see Notes 19 and 25 to the consolidated financial statements.
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Interest 2010 3,359 14,895 19,969 19,713 18,910 89,714 43,851 20,041 153,606 419 9,459 7,774 13,761 261,865 7,694 5,647 14,649 416 $ 2012 27 1,201 252 3 274 4,592 3,477 1,111 9,180 13 10,950 15 70 157 7 49 126 64 630 820 7 1,125 $ 12,075 $ 1,217 1,096 5 1,118 3,436 327 111 144 56 201 4,275 62 101 29 2 194 6 45 54 7 306 4,581 4,581 7,494 $ 2011 29 906 264 3 249 4,844 3,523 947 9,314 44 10,809 34 75 157 16 116 129 72 595 796 30 1,224 $ 12,033 $ 1,276 975 6 1,270 3,527 386 182 142 71 207 4,515 73 207 33 3 316 2 82 48 8 456 4,971 4,971 7,062 $ 2010 16 368 598 282 90 2,566 2,786 927 6,279 55 7,688 36 89 198 27 103 177 79 685 941 13 1,407 $ 9,095 $ 1,398 571 4 1,973 209 186 (5) 180 35 2,578 85 111 23 219 2 109 (25) 8 313 2,891 $ 2,891 $ 6,204 2012
Average rate 2011 1.12% 2.69 2.18 6.38 1.15 3.32 7.33 4.18 4.30 8.30 3.42 0.21 5.94 1.35 3.32 0.76 6.03 7.27 4.02 4.44 69.77 1.55 3.05% 1.19% 1.10 0.54 2.71 1.44 3.30 1.52 8.91 0.62 4.13 1.48 1.21 0.58 0.60 0.37 0.66 2.60 0.69 5.44 1.41 0.61 1.31 1.26% 1.79% 2010 0.48% 2.47 2.99 1.43 0.48 2.86 6.35 4.63 4.09 13.13 2.94 0.47 1.58 1.35 6.49 0.61 8.01 7.47 3.90 4.51 7.83 1.67 2.63% 1.33% 0.69 0.35 1.05 2.46 0.72 (0.05) 3.78 5.85 1.00 1.37 0.36 0.41 0.52 1.56 0.81 (1.53) 1.29 0.42 0.87 0.84% 1.79%
2012 $ 2,620 $ 36,492 13,249 47 18,443 148,660 48,463 25,260 222,383 359 11,745 9,754 12,320 327,412 5,325 1,282 12,917 323
2011 2,580 $ 33,702 12,124 47 21,588 145,735 48,087 22,633 216,455 530 10,080 8,503 10,140 315,749 16,242 1,263 11,671 482
Domestic assets(2) Cash and deposits with banks Securities Trading AFS FVO Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Derivative instruments Customers liability under acceptances Other non-interest-bearing assets Total domestic assets Foreign assets(2) Cash and deposits with banks Securities Trading AFS FVO Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Total loans Other interest-bearing assets Derivative instruments Customers liability under acceptances Other non-interest-bearing assets Total foreign assets Total assets Domestic liabilities(2) Deposits Personal Business and government Bank Secured borrowings Total deposits Derivative instruments Acceptances Obligations related to securities sold short Obligations related to securities lent or sold under repurchased agreements Capital Trust securities Other liabilities Subordinated indebtedness Preferred share liabilities Total domestic liabilities Foreign liabilities(2) Deposits Personal Business and government Bank Secured borrowings Total deposits Derivative instruments Acceptances Obligations related to securities sold short Obligations related to securities lent or sold under repurchased agreements Capital Trust securities Other liabilities Subordinated indebtedness Non-controlling interests Total foreign liabilities Total liabilities Shareholders equity Non-controlling interests Total liabilities and equity Net interest income and margin Additional disclosures: Non-interestbearing deposit liabilities Domestic Foreign
1.03% 3.29 1.90 6.38 1.49 3.09 7.17 4.40 4.13 3.62 3.34 0.28 5.46 1.22 2.17 0.48 5.73 6.93 3.79 4.15 18.42 1.61 3.04% 1.10% 1.25 0.54 2.15 1.37 3.05 1.76 8.73 0.53 4.38 1.39 0.95 0.28 0.63 0.43 0.41 4.35 0.64 4.32 1.63 0.41 1.20 1.15% 1.89%
10,131 15,273 16,933 2,200 2,138 2,210 923 991 1,058 16,613 14,788 17,582 19,736 17,917 20,850 38 43 166 16,971 13,235 14,487 3,247 2,652 3,236 69,970 78,778 84,078 $ 397,382 $ 394,527 $ 345,943 $ 110,442 $ 107,384 $ 104,862 88,028 88,844 82,697 918 1,116 1,156 51,975 46,825 251,363 244,169 188,715 11,820 10,094 10,357 9,754 8,503 7,774 10,727 11,702 8,492 6,318 1,649 10,474 4,590 306,695 6,526 36,248 4,608 460 47,842 17,080 138 11,964 1,593 11,535 5,011 304,571 6,030 35,564 5,529 814 47,937 13,252 77 25,885 10,183 4,767 598 256,771 6,217 30,437 5,678 42,332 15,863 128
7,077 11,880 13,494 1,250 883 1,637 430 566 622 168 73,817 74,595 74,244 379,166 331,015 380,512 16,705 15,199 14,928 165 162 $ 397,382 $ 394,527 $ 345,943
$ $
$ $
$ $
27,865 $ 3,174 $
26,505 $ 2,875 $
26,125 2,234
(1) Amounts for 2012 and 2011 are based upon IFRS while 2010 are based upon Canadian GAAP. (2) Classification as domestic or foreign is based on domicile of debtor or customer.
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Canadian GAAP 2012/2011 2011/2010 Increase (decrease) due to change in: Average balance $ 1 433 (169) (2) 14 167 (40) 193 320 15 612 40 (55) (43) (2) (10) (6) (5) (99) (110) (10) (190) $ 422 34 131 165 79 (76) 9 (35) 142 (3) 24 (1) 20 (1) (13) 11 (1) 16 $ 158 $ 264 Average rate $ 12 110 50 76 145 180 78 (34) 224 13 630 (42) 13 2 (12) 23 (42) (2) (15) (59) 27 (48) $ 582 (156) 488 2 334 100 105 26 18 583 (9) 74 11 76 1 (14) 53 1 117 $ 700 $ (118) $ $ $ Total 13 543 (119) 74 159 347 38 159 544 28 1,242 (2) (42) (41) (14) 13 (48) (7) (114) (169) 17 (238) $ 1,004 (122) 619 2 499 179 29 26 27 (35) 725 (12) 98 10 96 (27) 64 133 858 146
Increase (decrease) due to change in: Average balance Domestic assets(1) Cash and deposits with banks Securities Trading AFS FVO Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government $ 75 24 (36) 97 28 110 235 (14) 284 (23) 1 17 (5) (39) 4 (5) 73 72 (3) 20 $ 304 36 (9) (1) 140 166 (32) (86) 5 (7) (17) 29 6 4 (5) (1) 4 2 (33) 20 (2) (9) $ 20 Average rate $ (2) 220 (36) 61 (349) (74) 54 (369) (17) (143) 4 (6) (17) (4) (28) (7) (3) (38) (48) (20) (119) $ (262) (95) 130 (292) (257) (27) 15 (3) (8) 11 (269) (17) (110) 1 (126) 2 (4) (14) 1 (141) $ (410) $ 148 $ $ Total (2) 295 (12) 25 (252) (46) 164 (134) (31) 141 (19) (5) (9) (67) (3) (8) 35 24 (23) (99) 42 (59) 121 (1) (152) (91) (59) (71) 2 (15) (6) (240) (11) (106) (4) (1) (122) 4 (37) 6 (1) (150) $ (390) $ 432
Total loans Other interest-bearing assets Change in domestic interest income Foreign assets(1) Cash and deposits with banks Securities Trading AFS FVO Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government
Total loans Other interest-bearing assets Change in foreign interest income Total change in interest income Domestic liabilities(1) Deposits Personal Business and government Bank Secured borrowings Total deposits Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Capital Trust securities Other liabilities Subordinated indebtedness Preferred share liabilities Change in domestic interest expense Foreign liabilities(1) Deposits Personal Business and government Bank Secured borrowings Total deposits Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Other liabilities Subordinated indebtedness Change in foreign interest expense Total change in interest expense Change in total net interest income
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
$ 284
76
Canadian GAAP Canada(1) 2011 2010 91,338 $ 523 32,365 11,508 135,734 6,339 1,852 2,487 2,773 970 1,016 3,123 3,240 2,418 123 376 223 264 386 750 795 1,301 759 358 (217) 29,336 2009 83,837 $ 677 31,729 11,121 127,364 5,789 2,422 1,926 2,701 709 787 2,903 2,897 3,091 501 299 172 148 505 800 667 1,240 685 96 (254) 28,084 2008 88,185 858 29,648 10,329 129,020 5,790 4,107 2,261 2,951 860 951 2,975 3,058 3,605 1,763 340 190 565 580 627 862 1,296 856 (282) 33,355 $
IFRS 2012 1 109 33 143 435 113 226 188 62 4,156 1 781 65 44 14 332 492 25 730 (38) 7,626 $ 7,769 $ 2011 1 132 24 157 2 427 43 221 129 50 3,215 413 78 52 73 12 353 246 46 845 (54) 6,151 $ 6,308 $
Canadian GAAP U.S.(1) 2010 1 241 30 272 2 352 52 403 12 18 1,563 (1) 145 32 33 13 359 99 46 1,031 (67) 4,092 $ 4,364 $ 2009 1 $ 162 28 191 3 644 115 455 26 17 2,054 (1) 12 61 43 34 294 57 47 1,128 (76) 4,913 2008 1 215 25 241 77 1,045 193 558 296 90 2,138 58 39 93 140 107 59 460 162 119 (42) 5,592
2012
Residential mortgages Student Personal Credit card Total net consumer loans Non-residential mortgages Financial institutions Retail and Wholesale Business services Manufacturing-capital goods Manufacturing-consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Publishing, printing, and broadcasting Transportation Utilities Education, health and social services Governments Others General allowance allocated to business and government loans Collective allowance allocated to business and government loans Total net business and government loans, including acceptances Total net loans and acceptances
$ 147,841 $ 148,268 $ 287 384 33,891 33,202 14,418 14,970 196,437 7,095 2,384 2,827 3,694 1,072 1,736 4,956 3,689 2,856 319 426 464 238 356 736 1,082 1,933 727 (211) 36,379 196,824 7,055 2,124 2,652 3,508 1,079 1,289 4,118 3,585 2,884 285 416 244 213 405 701 674 1,754 785 (205) 33,566
$ 5,104 $ 5,833
Canadian GAAP Other(1) 2011 2,191 1 637 118 2,947 291 1,003 351 1,032 217 268 572 94 109 32 22 60 41 387 272 23 901 3,109 (20) 8,764 $ 2010 2,190 $ 1 688 111 2,990 392 1,032 391 1,053 269 253 681 104 129 31 242 33 36 249 310 27 633 6,312 (25) 12,152 2009 2,272 $ 1 759 110 3,142 495 971 462 1,361 329 296 755 114 348 21 271 44 39 273 351 19 567 5,255 (56) 11,915 2008
Canadian GAAP Total 2010 93,529 $ 524 33,294 11,649 138,996 6,733 3,236 2,930 4,229 1,251 1,287 5,367 3,343 2,563 284 407 498 310 422 1,358 1,204 1,374 1,392 7,701 (309) 45,580 2009 86,110 $ 678 32,650 11,259 130,697 6,287 4,037 2,503 4,517 1,064 1,100 5,712 3,010 3,103 849 381 486 226 544 1,367 1,075 1,306 1,252 6,479 (386) 44,912 2008 90,649 859 30,772 10,480 132,760 6,386 6,397 3,229 5,346 1,229 1,406 5,726 3,200 3,663 2,951 461 573 885 649 1,456 1,271 1,415 1,678 (358) 47,563
2012 $ 2,143 $ 1 568 119 2,831 273 1,099 326 932 243 225 791 65 16 280 29 22 148 37 430 467 23 922 3,011 (23) 9,316
Residential mortgages Student Personal Credit card Total net consumer loans Non-residential mortgages Financial institutions Retail and Wholesale Business services Manufacturing-capital goods Manufacturing-consumer goods Real estate and construction Agriculture Oil and gas Mining Forest products Hardware and software Telecommunications and cable Publishing, printing, and broadcasting Transportation Utilities Education, health and social services Governments Others General allowance allocated to business and government loans Collective allowance allocated to business and government loans Total net business and government loans, including acceptances Total net loans and acceptances
2,463 $ 149,985 $ 150,460 $ 1 288 385 909 34,568 33,971 126 14,570 15,112 3,499 519 1,245 775 1,837 73 365 613 142 1,149 28 243 213 10 369 247 822 (34) 8,616 199,411 7,368 3,918 3,266 4,852 1,503 2,023 9,903 3,755 3,653 664 499 486 400 393 1,498 2,041 1,981 1,649 3,741 (272) 53,321 199,928 7,348 3,554 3,046 4,761 1,425 1,607 7,905 3,679 3,297 472 500 339 285 446 1,441 1,192 1,823 1,686 3,954 (279) 48,481
$ 12,147 $ 11,711
77
Canadian GAAP 2011 $ 1,950 1,144 2010 $ 2,043 1,046 2009 $ 1,523 1,649 2008 $ 1,443 773
Balance at beginning of year Provision for credit losses Write-offs Domestic(1) Residential mortgages Student Personal and credit card Other business and government Foreign(1) Residential mortgages Personal and credit card Other business and government Total write-offs Recoveries Domestic(1) Student Personal and credit card Other business and government Foreign(1) Personal and credit card Other business and government Total recoveries Net write-offs Interest income on impaired loans Other Balance at end of year Comprised of: Loans Letters of credit Undrawn credit facilities Ratio of net write-offs during year to average loans outstanding during year
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
18 6 1,118 93 2 13 98 1,348
Allowance for credit losses on impaired loans as a percentage of gross impaired loans (IFRS)
Allowance for credit losses(1)
$ millions, as at October 31
Allowance as a % of gross impaired loans 2012 8.0% 84.6 47.3 44.3% 11.0% 31.6 42.8 35.8% 38.6% 2011 5.0% 73.6 56.1 38.6% 8.1% 31.6 31.7 27.5% 31.4%
2012 $ 18 159 97
2011 $ 15 156 88
Domestic(2) Residential mortgages Personal loans Business and government Total domestic Foreign(2) Residential mortgages Personal loans Business and government Total foreign Total allowance
$ 274 $ 27 25 395
$ 259 $ 18 25 300
$ 447 $ 721
$ 343 $ 602
(1) Comprises individual allowance; and collective allowance related to personal, scored small business, and mortgage impaired loans that are greater than 90 days delinquent. (2) Classification as domestic or foreign is based on domicile of debtor or customer.
78
Specific allowance as a % of gross impaired loans 2010 7.3% 88.9 55.3 47.9% 5.7% 35.6 29.8 26.2% 34.4% 2009 6.1% 94.2 51.9 51.4% 12.2% 37.6 33.3 30.5% 38.5% 2008 6.3% 79.0 71.2 56.7% 18.8% 45.8 34.5 31.6% 45.1%
Domestic(1) Residential mortgages Personal loans Business and government Total domestic Foreign(1) Residential mortgages Personal loans Business and government Total foreign Total specific allowance
$ 332 $ 11 31 257
$ 374 $ 21 32 308
$ 299 $ 27 38 79
$ 299 $ 631
$ 361 $ 735
$ 144 $ 443
Allowance as a % of net loans and acceptances 2012 % 0.8 4.0 0.5 0.5% 0.3% 0.7 0.7 0.4 0.4% 0.5% 2011 % 0.9 4.2 0.5 0.5% 0.1% 0.6 0.7 0.5 0.5% 0.5%
Domestic(2) Residential mortgages Personal loans Credit cards Business and government Total domestic Foreign(2) Residential mortgages Personal loans Credit cards Business and government Total foreign Total allowance
$ 1,065 $ 7 5 1 61 74
$ 1,119 $ 2 5 1 74 82
$ 1,139
$ 1,201
(1) Comprises the collective allowance related to credit card loans; and personal loans, mortgage and business and government loans that are less than 90 days delinquent. Excludes allowance on undrawn credit facilities. (2) Classification as domestic or foreign is based on domicile of debtor or customer.
79
General allowance as a % of net loans and acceptances 2010 % 0.9 4.1 0.7 0.6% 0.2% 0.6 0.7 0.6 0.5% 0.6% 2009 % 0.9 4.9 0.9 0.7% 0.1% 0.4 0.7 0.8 0.7% 0.7% 2008 % 0.9 3.4 0.8 0.6% 0.2% 0.5 0.7 0.5 0.5% 0.6%
Domestic(1) Residential mortgages Personal loans Credit cards Business and government Total domestic Foreign(1) Residential mortgages Personal loans Credit cards Business and government Total foreign Total general allowance
$ $
$ $
$ 1,089
$ 1,225
$ 1,003
Canadian GAAP 2011 $ 13,115 19,602 110,157 9,093 38,433 41,074 (1,084) 6,308 11,711 $ 2010 9,446 13,779 77,791 7,934 27,667 29,439 (986) 4,364 15,142 $ 2009 8,903 12,435 72,527 7,348 27,336 27,984 (1,085) 5,104 15,057 $ 2008 8,977 12,693 76,065 7,152 28,145 30,259 (916) 5,833 12,115
2012 $ 13,228 20,591 108,861 11,440 38,300 41,435 (1,039) 7,769 12,147
Canada Atlantic provinces Quebec Ontario Prairie provinces Alberta, Northwest Territories and Nunavut British Columbia and Yukon General allowance allocated to Canada Collective allowance allocated to Canada(2) Total Canada U.S. Other countries Total net loans and acceptances
$ 232,816 $ $
$ 230,390 $ $
$ 165,070 $ $
$ 155,448 $ $
$ 162,375 $ $
$ 252,732
$ 248,409
$ 184,576
$ 175,609
$ 180,323
(1) Classification by country is based on domicile of debtor or customer. (2) Comprises the collective allowance related to credit card loans, personal loans that are less than 30 days delinquent, and mortgage and business and government loans that are less than 90 days delinquent.
80
Canadian GAAP Canada(1) 2011 $ 302 17 195 514 4 1 47 16 24 15 4 39 5 2 $ 2010 259 23 194 476 8 1 57 46 54 6 26 10 7 2 $ 2009 230 29 211 470 8 1 97 49 16 9 26 44 5 3 2008 $ 143 33 181 357 4 4 89 17 8 20 20 3 3 2 170 527 366 $ 893 $ 9 11 158 178 1 1 74 11 8 10 7 3 4 2
Gross impaired loans Residential mortgages Student Personal Total gross impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total gross impaired business and government loans Total gross impaired loans Other past due loans(2) Total gross impaired and other past due loans Allowance for credit losses(3) Residential mortgages Student Personal Total allowance consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total allowance business and government loans Total allowance Net impaired loans Residential mortgages Student Personal Total net impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total net impaired business and government loans Total net impaired loans
205 619 401 $ 1,020 $ 18 159 177 26 8 10 4 25 16 6 2 97 274 208 12 17 237 1 12 3 13 3 30 46 108 345
157 671 553 $ 1,224 $ 15 5 151 171 3 1 32 8 11 5 3 18 5 2 88 259 287 12 44 343 1 15 8 13 10 1 21 69 412
217 693 376 $ 1,069 $ 19 7 186 212 2 1 36 23 18 4 19 9 7 1 120 332 240 16 8 264 6 21 23 36 2 7 1 1 97 361
258 728 472 $ 1,200 $ 14 12 214 240 2 1 59 27 8 6 12 13 5 1 134 374 216 17 (3) 230 6 38 22 8 3 14 31 2 124 354
6 6 5 $ 11 $ 1 2 1 4 4 1 1 2 2
$ $
$ $
$ $
$ $
186 $ 186 $ 20 93 35
$ $
$ $
148 $ 148
172 $ 172
161 $ 161
327 $ 327
(1) Classification by country is based on domicile of debtor or customer. (2) Represents loans where repayment of principal or payment of interest is contractually in arrears between 90 and 180 days. (3) Under IFRS, comprises individual allowance; and collective allowance related to personal, scored small business, and mortgage impaired loans that are greater than 90 days delinquent. Under Canadian GAAP, includes total specific allowance.
81
Canadian GAAP Other(1) 2011 $ 222 79 301 71 3 213 56 269 23 3 9 28 675 976 11 $ 987 $ 18 25 43 26 1 69 37 40 12 1 9 7 202 $ 245 2010 $ 193 87 280 67 4 172 51 228 20 32 25 1 600 880 5 $ 885 $ 11 31 42 14 1 50 17 46 9 11 7 155 $ 197 2009 $ 172 85 257 57 3 132 16 115 14 90 24 1 452 709 6 $ 715 $ 21 32 53 9 1 46 5 27 6 59 7 1 161 $ 214 2008 $ 144 83 227 28 1 70 7 76 15 1 23 1 1 223 450 3 $ 453 $ 27 38 65 4 30 3 27 4 6 1 75 $ 140 $
Canadian GAAP Total 2010 2009 $ 2008 287 33 264 584 32 5 159 26 86 35 21 5 26 1 3 399 983 374 $ 1,357 36 11 196 243 5 1 104 15 37 14 7 4 10 1 2 200 443 251 22 68 341 27 4 55 11 49 21 14 1 16 1 199 540
2012 $ 246 79 325 101 1 191 54 210 12 1 9 8 1 1 589 914 7 $ 921 $ 27 25 52 24 1 63 37 70 3 9 1 1 209 $ 261
Gross impaired loans Residential mortgages Student Personal Total gross impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total gross impaired business and government loans Total gross impaired loans Other past due loans(2) Total gross impaired and other past due loans Allowance for credit losses(3) Residential mortgages Student Personal Total allowance consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total allowance business and government loans Total allowance Net impaired loans Residential mortgages Student Personal Total net impaired consumer loans Non-residential mortgages Financial institutions Retail, wholesale and business services Manufacturing consumer and capital goods Real estate and construction Agriculture Resource-based industries Telecommunications, media and technology Transportation Utilities Other Total net impaired business and government loans Total net impaired loans
472 $ 524 12 17 255 274 739 815 101 75 2 4 287 311 68 77 416 504 19 38 56 7 71 48 104 36 1 3 2 1,128 1,102 1,867 1,917 419 564 $ 2,286 $ 2,481 $ 45 $ 184 229 24 1 127 48 170 7 25 25 62 1 2 492 721 $ 33 5 176 214 29 2 120 49 123 17 4 27 15 2 388 602
452 $ 402 23 29 281 296 756 727 75 65 5 139 280 274 113 96 465 375 26 23 26 26 42 134 45 48 1 1 2 3 1,080 1,184 1,836 1,911 381 478 $ 2,217 $ 2,389 30 $ 7 217 254 16 2 108 47 127 14 19 20 23 1 377 631 $ 35 12 246 293 11 19 115 49 124 13 12 72 25 1 1 442 735
427 491 12 $ 12 71 98 510 601 77 46 1 2 160 191 20 28 246 381 12 21 31 3 46 21 42 21 1 636 714 $ 1,146 $ 1,315 $
422 367 16 $ 17 64 50 502 434 59 54 3 120 172 159 66 47 338 251 12 10 7 14 22 62 22 23 1 1 2 703 742 $ 1,205 $ 1,176
(1) Classification by country is based on domicile of debtor or customer. (2) Represents loans where repayment of principal or payment of interest is contractually in arrears between 90 and 180 days. (3) Under IFRS, comprises individual allowance; and collective allowance related to personal, scored small business, and mortgage impaired loans that are greater than 90 days delinquent. Under Canadian GAAP, includes total specific allowance.
82
2012
2011
Deposits in domestic bank offices(2) Payable on demand Personal Business and government Bank Payable after notice Personal Business and government Bank Payable on a fixed date Personal Business and government Bank Secured borrowings Total domestic Deposits in foreign bank offices Payable on demand Personal Business and government Bank Payable after notice Personal Business and government Payable on a fixed date Personal Business and government Bank Secured borrowings Total foreign Total deposits
7,481 26,413 1,188 64,549 15,478 11 40,288 47,111 424 51,975 254,918
7,390 26,393 1,406 60,364 11,757 9 41,322 51,423 563 46,825 247,452
0.23% 0.39 0.25 0.62 1.07 2.03 1.63 0.94 2.15 1.33
0.09% 0.43 0.28 0.63 1.05 2.19 1.44 1.07 2.71 1.43
457 2,533 49 1,933 579 2,260 32,162 3,854 460 44,287 $ 299,205
435 2,356 36 1,884 506 2,019 31,973 4,631 814 44,654 $ 292,106
3 6 4 39 1 9 74 19 155 $ 2,192
0.66 0.08 4.08 1.81 0.17 0.22 0.49 0.65 0.43 0.53 1.21%
0.69 0.13 11.11 1.86 0.20 0.79 0.63 0.54 0.37 0.66 1.32%
0.68 0.26 5.00 2.04 0.15 0.41 0.28 0.39 0.40 0.95%
(1) Amounts for 2012 and 2011 are based upon IFRS while 2010 are based upon Canadian GAAP. (2) Deposits by foreign depositors in our domestic bank offices amounted to $3.9 billion (2011: $3.8 billion; 2010: $3.6 billion).
Short-term borrowings
$ millions, as at or for the year ended October 31
Amounts outstanding at end of year Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Total short-term borrowings Obligations related to securities sold short Average balance Maximum month-end balance Average interest rate Obligations related to securities lent or sold under repurchase agreements Average balance Maximum month-end balance Average interest rate
$ 10,865 $ 11,779 13,035 13,410 3.06% 3.29% 13,395 21,972 1.16% 23,844 32,391 1.11%
(1) For the audit of CIBCs annual financial statements and services normally provided by the principal auditor in connection with CIBCs statutory and regulatory filings. Audit fees also include the audit of internal controls over financial reporting under standards of the Public Company Accounting Oversight Board (United States). (2) For the assurance and related services that are reasonably related to the performance of the audit or review of CIBCs financial statements, including accounting consultation, various agreed upon procedures and translation of financial reports. (3) For tax compliance services.
83
Note 10 Note 11 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Note 23 Note 24 Note 25 Note 26 Note 27 Note 28 Note 29 Note 30 Note 31 Note 32
84
December 5, 2012
85
Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CIBC as at October 31, 2012 and 2011 and November 1, 2010, its financial performance and its cash flows for each of the years in the two-year period ended October 31, 2012, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Other matter
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CIBCs internal control over financial reporting as of October 31, 2012, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 5, 2012 expressed an unqualified opinion on CIBCs internal control over financial reporting.
86
87
Oct. 31 2012 $ 2,613 2,114 40,330 24,700 304 65,334 3,311 25,163 150,056 35,323 15,153 43,624 (1,860) 242,296 $
Oct. 31 2011 1,481 3,661 32,713 27,118 464 60,295 1,838 25,641 150,509 34,842 15,744 39,663 (1,803) 238,955 28,270 9,454 1,580 1,677 633 1,394 8,879 51,887 $ 383,758 $
Nov. 1 2010 1,817 9,005 29,074 24,369 875 54,318 2,401 34,722 143,284 34,335 15,914 37,946 (1,886) 229,593 24,700 7,633 1,568 1,907 579 495 10,570 47,452 $ 379,308
ASSETS Cash and non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities (Note 4) Trading Available-for-sale (AFS) Designated at fair value (FVO) Cash collateral on securities borrowed Securities purchased under resale agreements Loans (Note 5) Residential mortgages Personal Credit card Business and government Allowance for credit losses Other Derivative instruments (Note 12) Customers liability under acceptances Land, buildings and equipment (Note 7) Goodwill (Note 8) Software and other intangible assets (Note 8) Investments in equity-accounted associates and joint ventures Other assets (Note 9)
LIABILITIES AND EQUITY Deposits (Note 10) Personal Business and government Bank Secured borrowings Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other Derivative instruments (Note 12) Acceptances Other liabilities (Note 11) Subordinated indebtedness (Note 14) Equity Preferred shares (Note 15) Common shares (Note 15) Contributed surplus Retained earnings Accumulated other comprehensive income (AOCI) Total shareholders equity Non-controlling interests Total equity
$ 118,153 125,055 4,723 52,413 300,344 13,035 1,593 1,678 6,631 27,091 10,481 10,671 48,243 4,823 1,706 7,769 85 7,042 264 16,866 172 17,038 $ 393,385
$ 116,592 117,143 4,177 51,308 289,220 10,316 2,850 1,594 8,564 28,792 9,489 11,704 49,985 5,138 2,756 7,376 93 5,457 245 15,927 164 16,091 $ 383,758
$ 113,294 115,841 5,618 43,518 278,271 9,673 4,306 1,600 20,651 25,363 7,633 12,239 45,235 4,773 3,156 6,804 98 4,157 416 14,631 168 14,799 $ 379,308
The accompanying notes and shaded sections in MD&A - Management of risk are an integral part of these consolidated financial statements.
88
2011 $ 10,184 1,421 365 63 12,033 3,843 388 264 215 142 119 4,971 7,062 514 756 379 609 411 849 320 496 44 397 (7) 204 111 290 5,373 12,435 1,144 4,052 667 989 296 213 178 38 1,053 7,486 3,805 927 $ $ $ $ $ 2,878 11 177 2,690 2,867 6.79 6.71 3.51
Interest income Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Capital Trust securities Other Net interest income Non-interest income Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees Mutual fund fees Insurance fees, net of claims Commissions on securities transactions Trading income (loss) AFS securities gains (losses), net (Note 4) FVO gains (losses), net Foreign exchange other than trading Income from equity-accounted associates and joint ventures (Note 26) Other Total revenue Provision for credit losses (Note 5) Non-interest expenses Employee compensation and benefits Occupancy costs Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other Income before income taxes Income taxes Net income Net income attributable to non-controlling interests Preferred shareholders Common shareholders Net income attributable to equity shareholders Earnings per share (in dollars) (Note 21)
3,630 333 156 208 144 110 4,581 7,494 438 775 418 619 424 880 335 402 (115) 264 (32) 91 160 396 5,055 12,549 1,291 4,044 697 1,022 304 233 174 50 691 7,215 4,043 704 $ $ $ $ $ 3,339 8 158 3,173 3,331 7.86 7.85 3.64
Basic Diluted
Dividends per common share (in dollars) (Note 15)
The accompanying notes and shaded sections in MD&A - Management of risk are an integral part of these consolidated financial statements.
89
2012 $ 3,339 $
2011 2,878
Net income Other comprehensive income (OCI), net of tax Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net (gains) losses on investments in foreign operations reclassified to net income Net gains (losses) on hedges of investments in foreign operations Net (gains) losses on hedges of investments in foreign operations reclassified to net income Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income Total OCI(1) Comprehensive income Comprehensive income attributable to non-controlling interests Preferred shareholders Common shareholders Comprehensive income attributable to equity shareholders
(1) Includes $8 million of gains for 2012 (2011: $13 million of losses) relating to our investments in equity-accounted associates and joint ventures.
(101) 13 (88) 182 (241) (59) (40) 16 (24) (171) 2,707 11 177 2,519 2,696
2012
2011
Income tax (expense) benefit Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net gains (losses) on hedges of investments in foreign operations Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income
17
37
The accompanying notes and shaded sections in MD&A - Management of risk are an integral part of these consolidated financial statements.
90
2012 $ $ $ 2,756 (1,050) 1,706 7,376 430 (39) 2 7,769 93 7 (15) 85 5,457 3,331 (128) (1,470) (30) (118) $ 7,042 $ $ $ $
2011 3,156 (400) 2,756 6,804 575 (3) 7,376 98 6 (12) 1 93 4,157 2,867 (165) (1,391) (12) 1 5,457
Preferred shares (Note 15) Balance at beginning of year Redemption of preferred shares Balance at end of year Common shares (Note 15) Balance at beginning of year Issue of common shares Purchase of common shares for cancellation Treasury shares Balance at end of year Contributed surplus Balance at beginning of year Stock option expense Stock options exercised Other Balance at end of year Retained earnings Balance at beginning of year Net income attributable to equity shareholders Dividends (Note 15) Preferred Common Premium on redemption of preferred shares Premium on purchase of common shares Other Balance at end of year AOCI, net of tax Net foreign currency translation adjustments Balance at beginning of year Net change in foreign currency translation adjustments Balance at end of year Net gains (losses) on AFS securities Balance at beginning of year Net change in AFS securities Balance at end of year(1) Net gains (losses) on cash flow hedges Balance at beginning of year Net change in cash flow hedges Balance at end of year Total AOCI, net of tax(2) Non-controlling interests Balance at beginning of year Net income attributable to non-controlling interests Dividends Other Balance at end of year Equity at end of year
$ $
$ $
$ $
$ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
(88) (88) 397 (59) 338 19 (24) (5) 245 168 11 (8) (7) 164
$ 17,038
$ 16,091
(1) Includes $44 million (2011: $38 million) of cumulative loss related to AFS securities measured at fair value. (2) A gain of $2 million (2011: $1 million loss) deferred in AOCI is expected to be reclassified to net income during the next 12 months. Remaining amounts will be reclassified to net income over periods up to seven years (2011: nine years) thereafter.
The accompanying notes and shaded sections in MD&A - Management of risk are an integral part of these consolidated financial statements.
91
2012 $ 3,339 1,291 357 7 167 (264) (17) 91 1,547 (5,023) 11,339 2,719 (22) (95) 146 (54) (7,617) 160 (639) (749) (1,257) (1,933) (1,473) 516 (916) 1,620
2011(1) $ 2,878 1,144 556 6 518 (397) (5) 381 5,344 (10,279) 11,644 643 115 (167) (3,047) 2,616 (3,639) 411 (1,164) 191 (1,456) (12,087) 563 9,081 1,253 5,103 1,500 (1,099) (1,016) 563 (3) (1,556) (1,611) (33,645) 13,514 17,400 (855) 10 (234) (3,810) (18) (336) 1,817 $ 1,481 $ 5,138 218 12,148
Cash flows provided by (used in) operating activities Net income Adjustments to reconcile net income to cash flows provided by (used in) operating activities: Provision for credit losses Amortization(2) Stock option expense Deferred income taxes AFS securities (gains) losses, net Net losses (gains) on disposal of land, buildings and equipment Other non-cash items, net Net changes in operating assets and liabilities Interest-bearing deposits with banks Loans, net of repayments Deposits, net of withdrawals Obligations related to securities sold short Accrued interest receivable Accrued interest payable Derivative assets Derivative liabilities Trading securities FVO securities Other FVO assets and liabilities Current income taxes Cash collateral on securities lent Obligations related to securities sold under repurchase agreements Cash collateral on securities borrowed Securities purchased under resale agreements Other, net Cash flows provided by (used in) financing activities Issue of subordinated indebtedness Redemption/repurchase of subordinated indebtedness Redemption of preferred shares Issue of common shares for cash Purchase of common shares for cancellation Net proceeds from treasury shares Dividends paid Cash flows provided by (used in) investing activities Purchase of AFS securities Proceeds from sale of AFS securities Proceeds from maturity of AFS securities Net cash used in acquisitions Net cash provided by dispositions Net purchase of land, buildings and equipment Effect of exchange rate changes on cash and non-interest-bearing deposits with banks Net increase (decrease) in cash and non-interest bearing deposits with banks during year Cash and non-interest-bearing deposits with banks at beginning of year Cash and non-interest-bearing deposits with banks at end of year(3) Cash interest paid Cash income taxes paid Cash interest and dividends received
(272) (1,080) 415 (157) 2 (1,598) (2,690) (38,537) 23,815 17,421 (235) 42 (309) 2,197 5 1,132 1,481 $ 2,613 $ 4,676 1,286 12,053
(1) Certain prior year information has been reclassified to conform to the presentation in the current year. (2) Comprises amortization of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets. In addition, 2011 includes impairment loss on goodwill. (3) Includes restricted balance of $270 million (2011: $257 million).
The accompanying notes and shaded sections in MD&A - Management of risk are an integral part of these consolidated financial statements.
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Basis of consolidation
Subsidiaries Subsidiaries are entities over which CIBC has control, where control is defined as the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. Control is presumed to exist where we hold, either directly or indirectly, 50% or more of the voting rights of an entity. Generally, CIBC has a shareholding of more than 50% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is obtained by CIBC, and are deconsolidated from the date that control is lost. Consistent accounting policies are applied throughout CIBC for the purposes of consolidation. Details of our significant subsidiaries are provided in Note 27. Special purpose entities SPEs are created to accomplish a narrow and well-defined objective. We consolidate a SPE if an assessment of the relevant factors indicates that we control the SPE. The assessment of whether we have control over a SPE is first performed at inception and is based on an evaluation of the substance of our relationship with the SPE and the risks and rewards. The following factors may indicate a relationship in which we in substance control and consequently consolidate a SPE: the activities of the SPE are being conducted according to our specific business needs so that we obtain benefits from the SPEs operations; we have the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an autopilot mechanism, we have delegated these decision-making powers; we have rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE; or we retain the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from the SPEs activities. Consolidation conclusions are reassessed whenever there is a change in the substance of the relationship with a SPE. Factors that trigger the reassessment include, but are not limited to, significant changes in ownership structure of the SPE, changes in contractual or governance arrangements, provision of a liquidity facility beyond the original terms, transactions with the SPE that were not contemplated originally and changes in the financing structure of the SPE. As part of the reassessment process, we update assumptions with respect to loss probabilities, the likelihood of additional liquidity facilities being drawn in the future and the likelihood of future actions being taken for reputational or other purposes. All currently available information is taken into account. Transactions eliminated on consolidation All intercompany transactions, balances and unrealized gains and losses on transactions are eliminated on consolidation. Non-controlling interests Non-controlling interests (NCI) are presented on the consolidated balance sheet as a separate component of equity that is distinct from CIBCs shareholders equity. The net income attributable to non-controlling interests is presented separately in the consolidated statement of income.
93
94
Transaction costs
Transaction costs relating to trading and FVO financial instruments are expensed as incurred. Transaction costs for all other financial instruments are generally capitalized. For debt instruments, transaction costs are amortized over the expected life of the instrument using the effective interest method. For equity instruments, transaction costs are included in the carrying value.
Securities purchased under resale agreements and obligations related to securities sold under repurchase agreements
Securities purchased under resale agreements are treated as collateralized lending transactions and are measured at amortized cost as they represent the purchase of securities effected with a simultaneous agreement to sell them back at a future date at a fixed price, which is generally near term. Interest income is accrued using the effective interest rate method and is included in Interest income Securities borrowed or purchased under resale agreements in the consolidated statement of income. Certain securities purchased under resale agreements are designated as FVO and are measured at fair value with changes therein recognized in FVO gains (losses), net. Similarly, securities sold under agreements to repurchase are treated as collateralized borrowing transactions with interest expense accrued using the effective interest method and are included in Interest expense Securities lent or sold under repurchase agreements in the consolidated statement of income.
95
Derivatives
We use derivative instruments for both asset/liability management (ALM) and trading purposes. The derivatives used for ALM purposes allow us to manage financial risks, such as movements in interest and foreign exchange rates. While our derivative trading activities are primarily driven by client trading activities, we may also take proprietary trading positions in the interest rate, foreign exchange, debt, equity and commodity markets, with the objective of earning income. All derivative instruments are recognized initially, and are measured subsequently, at fair value and are reported as assets where they have a positive fair value and as liabilities where they have a negative fair value, in both cases as Derivative instruments. Any realized and unrealized gains or losses on derivatives used for trading purposes are recognized immediately in Trading income (loss). The accounting for derivatives used for ALM purposes depends on whether they qualify for hedge accounting as discussed below.
96
Embedded derivatives
All derivatives embedded in other financial instruments are accounted for as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host contract and the terms of the embedded derivative represent those of a freestanding derivative in situations where the combined contract is not classified as trading or designated as FVO. These embedded derivatives, which are classified together with the host contract on the consolidated balance sheet, are measured at fair value with changes therein included in Non-interest income Other. The residual amount of the host instrument asset or liability is accreted to its maturity value through interest income and interest expense, respectively, using the effective interest method. Gains at inception on derivatives embedded in financial instruments bifurcated for accounting purposes are not recognized at inception; instead they are recognized over the life of the instrument. Where an embedded derivative is separable from the host contract but the fair value, as at the acquisition or reporting date, cannot be reliably measured separately or is otherwise not bifurcated, the entire combined contract is measured at fair value.
97
Treasury shares
Where we repurchase our own equity instruments, these instruments are treated as treasury shares and are deducted from equity at their cost with any gain or loss recognized in Contributed surplus. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of our own equity instruments. Any difference between the carrying value and the consideration, if reissued, is also included in Contributed surplus.
Mortgage commitments
Mortgage interest rate commitments are extended to our retail clients in contemplation of borrowing to finance the purchase of homes under mortgages to be funded by CIBC in the future. These commitments are usually for periods of up to 90 days and generally entitle the borrower to receive funding at the lower of the interest rate at the time of the commitment and the rate applicable at the funding date. We use financial instruments, such as interest rate derivatives, to economically hedge our exposure to an increase in interest rates. We apply the FVO to the commitments and measure them based on an estimate of the commitments expected to be exercised. We also carry the associated economic hedges at fair value on the consolidated balance sheet. Changes in the fair value of the commitments and the associated economic hedges are included in FVO gains (losses), net. In addition, since the fair value of the commitments is priced into the mortgage, their initial fair value is recognized over the life of the resulting mortgage. The fair value of the mortgage commitment upon funding, if any, is recognized in the consolidated statement of income to offset the difference between the mortgage amount and its fair value.
Financial guarantees
Financial guarantees are financial contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contracts issued by CIBC that are not classified as insurance contracts are initially recognized as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantees, which is generally the premium received or receivable on the date the guarantee was given. Subsequently, financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortization, and the present value of any expected payment when a payment under the guarantee has become probable. A financial guarantee that qualifies as a derivative is re-measured at fair value as at each reporting date and reported as Derivative instruments in assets or liabilities, as appropriate.
98
Depreciation methods, useful lives and residual values are reviewed at each annual reporting date and are adjusted if appropriate. Gains and losses on disposal are included in Non-interest income Other. We consider a portion of land and building underlying a finance lease arrangement as investment property since we sub-lease this portion to a third party. Our investment property is recognized initially at cost and is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. Our investment property is depreciated on a straight-line basis over its estimated useful life, being the term of the lease. Rental income is included in Non-interest income Other.
Income taxes
Income tax comprises current tax and deferred tax. Income tax is recognized in the consolidated statement of income except to the extent that it relates to items recognized in OCI or directly in equity, in which case it is recognized accordingly. Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted or substantively enacted as at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset when CIBC intends to settle on a net basis and the legal right to offset exists. Deferred tax is recognized on temporary differences between the carrying value of assets and liabilities on the consolidated balance sheet and the corresponding amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable income, or for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted as at the reporting date. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized.
CIBC 2012 ANNUAL REPORT
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Share-based payments
We provide compensation to certain employees and directors in the form of share-based awards. Compensation expense for share-based awards is recognized from the service commencement date to the earlier of the contractual vesting date or the employees retirement eligible date. For grants regularly awarded in the annual incentive compensation cycle (annual incentive grant), the service commencement date is considered to be the start of the fiscal year that precedes the fiscal year in which the grant is made. The service commencement date in respect of special awards granted outside of the annual cycle is the grant date. The amount of compensation expense recognized is based on managements best estimate of the number of share-based awards expected to vest and estimates are revised to reflect changes in expected forfeitures. For the annual incentive grant, compensation expense is recognized from the service commencement date based on the estimated fair value of the forthcoming grant with the estimated fair value adjusted to the actual fair value at the grant date. Under our Restricted Share Award (RSA) plans, where grants are settled in the cash equivalent of common shares, changes in the obligation which arise from fluctuations in the market price of common shares are recognized in the consolidated statement of income as compensation expense in proportion to the award recognized. Under the Performance Share Unit (PSU) plan, where grants are settled in the cash equivalent of common shares, changes in the obligation which arise from fluctuations in the market price of common shares are recognized in the consolidated statement of income as compensation expense in proportion to the award recognized. The amount of compensation expense recognized is based on managements best estimate of the number of share-based awards
100
Reclassifications
During the year, we reclassified gains and losses (both realized and unrealized) on certain trading securities and derivatives that are managed in conjunction with FVO financial instruments from trading income (loss) to FVO gains (losses), net in the consolidated statement of income. In addition, we reclassified Secured borrowing into Deposits on the consolidated balance sheet and statement of income during the year. For reclassifications relating to our reporting segments, see Note 28.
Note 2
This note presents the fair values of financial instruments and explains how we determine those values. Note 1, Basis of preparation and summary of significant accounting policies sets out the accounting treatment for each measurement category of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability at the measurement date (i.e. the exit price) in an orderly arms length transaction between knowledgeable and willing market participants motivated by normal business considerations. Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where quoted prices are readily available, representing regularly occurring transactions. The determination of fair value requires judgment and is based on market information, where
CIBC 2012 ANNUAL REPORT
101
102
103
Carrying value Fair value through net income $ 40,634 38 905 27,039 Fair value through OCI $ 24,700 $ Fair value over (under) carrying value $ 554 10 30 (1)
Amortized cost Oct. 31 Financial assets 2012 Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Derivative instruments Customers liability under acceptances Other assets Financial liabilities Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other liabilities Subordinated indebtedness Oct. 31 Financial assets 2011 Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Derivative instruments Customers liability under acceptances Other assets Financial liabilities Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other liabilities Subordinated indebtedness $ $ 4,727 3,311 25,125 149,985 34,856 14,570 41,980 10,436 5,858
Total 4,727 65,334 3,311 25,163 149,985 34,856 14,570 42,885 27,039 10,436 5,858 $
Fair value 4,727 65,334 3,311 25,163 150,539 34,866 14,570 42,915 27,039 10,436 5,857
118,153 123,567 4,723 52,048 10,481 1,593 1,641 6,631 7,398 4,823 5,142 1,838 25,641 150,460 34,356 15,112 38,759 9,454 6,240 $
27,118 $
118,153 125,055 4,723 52,413 27,091 10,481 13,035 1,593 1,678 6,631 7,404 4,823 5,142 60,295 1,838 25,641 150,460 34,356 15,112 39,027 28,270 9,454 6,240 $
118,255 125,584 4,723 52,699 27,091 10,481 13,035 1,593 2,158 6,631 7,404 5,242 5,142 60,295 1,838 25,641 152,018 34,376 15,112 39,038 28,270 9,454 6,244 $
116,592 115,620 4,177 50,936 9,489 2,850 1,594 8,564 8,175 5,138
116,592 117,143 4,177 51,308 28,792 9,489 10,316 2,850 1,594 8,564 8,175 5,138
116,888 117,791 4,177 51,451 28,792 9,489 10,316 2,850 2,070 8,564 8,175 5,533
104
Carrying value Fair value through net income $ 29,949 1,011 24,700 Fair value through OCI $ 24,369 $ Fair value over (under) carrying value $ 1,889 28 49 5
Amortized cost Nov. 1 Financial assets 2010 Cash and deposits with banks Securities Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Derivative instruments Customers liability under acceptances Other assets Financial liabilities Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other liabilities Subordinated indebtedness $ 10,822 2,401 34,722 143,241 33,818 15,264 36,259 7,633 7,430
Total 10,822 54,318 2,401 34,722 143,241 33,818 15,264 37,270 24,700 7,633 7,430 $
Fair value 10,822 54,318 2,401 34,722 145,130 33,846 15,264 37,319 24,700 7,633 7,435
113,294 112,848 5,618 43,159 7,633 4,306 1,600 20,651 8,391 4,773
113,294 115,841 5,618 43,518 25,363 7,633 9,673 4,306 1,600 20,651 8,391 4,773
113,685 116,957 5,618 44,051 25,363 7,633 9,673 4,306 2,077 20,651 8,391 5,073
105
$ millions, as at
95 $ 112 $ 17,971 18,241 363 424 18,429 1,180 3,538 118 4,836 18,777 941 3,170 147 4,258
(17) $ 171 $ 128 (270) 16,475 16,640 363 467 (424) 514 (348) 239 368 118 (147) 578 17,113 1,653 3,655 97 5,405 17,282 1,493 3,527 132 5,152
43 $ 55 $ 37 $ 18 (165) 13,521 13,477 44 467 500 500 (514) 538 (538) (169) 160 128 97 (132) 253 14,076 1,501 3,662 227 5,390 14,052 1,325 3,664 290 5,279 24 176 (2) 227 (290) 111
2 1,148 27,091 (20,070) 7,021 $ 18,317 5,050 1,577 993 65 636 26,638
8,410 $ (663)
(141) $ 12,405 $ 12,554 259 5,840 5,438 (758) 1,069 1,781 (644) 669 798 4 58 44 83 667 502 (1,197) $ 20,708 $ 21,117
n/m
n/m
n/m
(1) Includes positive and negative fair values of $245 million (October 31, 2011: $338 million; November 1, 2010: $279 million) and $137 million (October 31, 2011: $235 million; November 1, 2010: $270 million), respectively, for exchange-traded options. (2) Comprises forwards, swaps, and options. (3) Average fair value represents monthly averages. n/m Not meaningful.
106
Total
Oct. 31 2012
Total
Oct. 31 2011
Total
Nov. 1 2010
Oct. 31 2012
Oct. 31 2011
Nov. 1 2010
Financial assets Trading securities Government issued or guaranteed Corporate equity Corporate debt Mortgage- and asset-backed Trading loans Business and government AFS securities Government issued or guaranteed Corporate equity Corporate debt Mortgage- and asset-backed FVO securities and securities purchased under resale agreements(1) Derivative instruments Interest rate Foreign exchange Credit Equity Precious metal Other commodity
$ 628 12 640 $
$ 559 11 570 $
20 809 11 840
8,218 $ 14,123 21,833 12,908 1,201 1,059 1,461 984 268 1,011
9,425 $ 12,268 $
$ 32,981 $ 30,085
$ 1,889 $ 4,872 $ 6,957 $ 15,389 $ 13,486 $ 14 115 108 1 4,977 3,816 1,060 2,777
$ 18,358 $ 15,663 833 1,018 3,825 2,736 4,102 4,952 $ 27,118 $ 24,369
$ 12 33 7 193
$ 7 202 70
170 $ 80 591 12
198 $ 80 1,019 10
270 79 1,340 22 5
$ Total financial assets Financial liabilities Deposits and other liabilities(2) Obligations related to securities sold short Derivative instruments Interest rate Foreign exchange Credit Equity Precious metal Other commodity Total liabilities
245 $
$ 27,039 $ 93,316
$ 28,759 $ 28,308 $ 24,321 $ 61,694 $ 56,596 $ 50,670 $ 2,863 $ 3,929 $ 5,038 $ $ (6,805) $ (5,150) $ (1,483) $ (1,170) $ (2,397) $ (3,793) (6,230) (5,166) (5,880) (597) $ (597) $
$ (6,805) $ (5,150) $ (3,793) $ (7,713) $ (6,336) $ (8,277) $ $ $ (18) (18) (101) (137) $ (45) $ (90) (16) (81) (232) $
(6) $ (19,540) $ (19,667) $ (16,656) $ (85) $ (84) $ (85) $ (19,625) $ (19,796) $ (16,747) (4,556) (5,524) (5,412) (4,556) (5,524) (5,412) (1,315) (1,787) (2,061) (1,315) (1,787) (2,061) (178) (936) (956) (428) (2) (48) (57) (956) (1,094) (663) (13) (34) (30) (31) (50) (30) (86) (507) (442) (335) (18) (29) (608) (541) (450) (270) $ (25,552) $ (26,623) $ (22,861) $ (1,402) $ (1,937) $ (2,232) $ (27,091) $ (28,792) $ (25,363)
$ (6,942) $ (5,382) $ (4,063) $ (33,265) $ (32,959) $ (31,138) $ (1,999) $ (2,892) $ (3,482) $ (42,206) $ (41,233) $ (38,683)
(1) Includes FVO securities purchased under resale agreements of $38 million (October 31, 2011: nil; November 1, 2010: nil). (2) Comprises FVO deposits of $1,488 million (October 31, 2011: $1,523 million; November 1, 2010: $2,993 million), FVO secured borrowings of $365 million (October 31: $372 million; November 1, 2010: $359 million), bifurcated embedded derivatives of $184 million (October 31, 2011: $230 million; November 1, 2010: $295 million), FVO other liabilities of $3 million (October 31, 2011: nil; November 1, 2010: nil), and other financial liabilities measured at fair value of $40 million (October 31, 2011: nil; November 1, 2010: nil).
During the year, we transferred $372 million of certain FVO notes (classified as deposits secured borrowings) from Level 3 to Level 2 due to availability of market observable inputs. The net gain recognized in the consolidated statement of income on the financial instruments, for which fair value was estimated using valuation techniques requiring non-observable market parameters, for the year was $199 million (2011: $310 million).
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Opening balance
Realized(1) Unrealized(1)(2)
Transfer in to Level 3
Purchases
Issuances
Sales
Settlements
Closing balance
2012 Trading securities and loans AFS securities FVO securities Derivative assets Total assets Deposits and other liabilities(3) Derivative instruments Total liabilities 2011 Trading securities and loans AFS securities FVO securities Derivative assets Total assets Deposits and other liabilities (3) Derivative instruments Total liabilities
91 (25) 30 (298)
$ $ $ $ $ $ $ $
(349) (18)
(83) $ 640 (722) 1,370 (72) 170 (118) 683 (995) $ 2,863 56 257 313 $ (597) (1,402)
$ $ $ $
$ $ $ $
$ $ $ $
$ (367) 7 7
$ $ $ $
$ 372 $ 372 $ 12 12
(37) $ (37) $
$ 29 $ 30 230 26 (197) $ 89 $ 9 53
$ (1,999)
$ (40) $ $
$ $ $
$ 1,004 $ $
$ 62
$ (2,892)
(1) Includes foreign currency gains and losses. (2) Comprises unrealized gains and losses relating to these assets and liabilities held at the end of the reporting year. (3) Includes FVO deposits $472 million (October 31, 2011: $432 million; November 1, 2010: $651 million), FVO secured borrowings nil (October 31, 2011: $372 million; November 1, 2010: $359 million) and bifurcated embedded derivatives $122 million (October 31, 2011: $151 million; November 1, 2010: $240 million).
108
FVO liabilities
FVO deposits and other liabilities include: Certain business and government deposit liabilities and certain secured borrowings, that are economically hedged with derivatives and other financial instruments; and certain financial liabilities that have one or more embedded derivatives that significantly modify the cash flows of the host liability but are not bifurcated from the host instrument; and Our mortgage commitments to retail customers to provide mortgages at fixed rates that are economically hedged with derivatives and other financial instruments. The fair value of a FVO financial liability reflects the credit risk relating to that liability. For those FVO liabilities in which we believe the fair value is influenced by changes in our credit risk from the note holders perspective, the amount of change in the fair value that is attributable to changes in our own credit spread is calculated based on broker quotes we obtain for our own credit spread at the inception of the FVO liability and as at the end of each reporting period. The impact of changes in CIBCs own credit risk on our outstanding FVO liabilities were losses of $1 million for the year ended October 31, 2012 and less than $1 million cumulatively (2011: less than $1 million for the year and cumulatively). The carrying amount of FVO deposits would have been $5 million lower (October 31, 2011: $26 million lower; November 1, 2010: $2 million lower) had the deposits been carried on a contractual settlement amount.
Note 3
Acquisitions
Acquisition of Griffis & Small, LLC On August 31, 2012, CIBC completed the acquisition of the business of Griffis & Small, LLC, a Houston-based energy advisory firm specializing in acquisitions and divestitures in the exploration and production sector. The acquired business has been consolidated from the date of close and the results of the acquired business are included in the Wholesale Banking SBU for the period subsequent to the acquisition. Acquisition of MFS McLean Budden On September 7, 2012 CIBC completed the acquisition of the private wealth management business of MFS McLean Budden, which has approximately $1.4 billion in assets under management for high-net-worth individuals and families, endowments and foundations. The acquired business has been consolidated from the date of close and the results of the acquired business are included in the Wealth Management SBU for the period subsequent to the acquisition. The acquisition of the business of Griffis & Small, LLC and the private wealth management business of MFS McLean Budden resulted in the recognition of aggregate goodwill and finite-lived intangible assets of $32 million.
109
Note 4
Securities
Residual term to contractual maturity Within 1 year 1 to 5 years 5 to 10 years Over 10 years No specific maturity Total Yield(1)
Carrying Carrying Carrying Carrying Carrying Carrying value Yield(1) value Yield(1) value Yield(1) value Yield(1) value Yield(1) value
AFS securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(2) Asset-backed securities Corporate public debt Corporate private debt Total debt securities Corporate public equity Corporate private equity Total equity securities Total AFS securities Trading securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(3) Asset-backed securities Corporate public debt Corporate public equity Total trading securities FVO securities Securities issued or guaranteed by: Other Canadian governments Asset-backed securities Corporate public debt Total FVO securities Total securities(4)
1.9% $ 1,275 1.9 2,540 0.5 1,351 3.8 243 2.8 8 3.3 39 1.9 5 10.0 1 5,462 $ 5,462
% $ n/m n/m
6,765 4,223 4,399 1,891 1,023 747 4,989 9 24,046 16 638 654
2.3% 2.7 0.6 3.9 2.0 3.1 1.8 9.0 n/m n/m
$ 3,758
$ 13,456
$ 1,370
$ 24,700
27,293
$ 2,434
$ 3,683
$ 2,776
$ 27,293
$ 40,330
87 87
47 170 217
47 170 87 304
$ 6,192
$ 17,687
$ 9,145
$ 4,363
$ 27,947
$ 65,334
(1) Represents the weighted-average yield, which is determined by applying the weighted-average of the yields of individual fixed income securities. (2) Includes securities backed by mortgages insured by the Canada Mortgage and Housing Corporation (CMHC) with amortized cost of $482 million and fair value of $492 million; securities issued by Federal National Mortgage Association (Fannie Mae), with amortized cost and fair value of $8 million; and securities issued by Government National Mortgage Association, a U.S. government corporation (Ginnie Mae), with amortized cost of $511 million and fair value of $518 million. (3) Includes securities backed by mortgages insured by the CMHC of $273 million. (4) Includes securities denominated in U.S. dollars with carrying value of $14.3 billion and securities denominated in other foreign currencies with carrying value of $570 million. n/m Not meaningful.
110
Total Yield(1)
Carrying value
Yield(1)
AFS securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(2) Asset-backed securities Corporate public debt Corporate private debt Total debt securities Corporate public equity Corporate private equity(3) Total equity securities Total AFS securities Trading securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(4) Asset-backed securities Corporate public debt Corporate public equity Total trading securities FVO securities Securities issued or guaranteed by: Other Canadian governments U.S. Treasury and agencies Mortgage-backed securities(5) Asset-backed securities Corporate public debt Total FVO securities Total securities(6)
2.4% $ 42 3.8 1,777 2.1 27 3.9 163 2.6 72 3.6 2.5 20 10.4 3 2,104 $ 2,104
% $ n/m n/m
4,834 6,226 3,661 3,637 2,796 1,306 3,800 25 26,285 115 718 833
2.3% 3.9 0.2 2.6 2.2 3.6 1.5 8.4 n/m n/m
$ 10,020
$ 12,737
$ 1,424
$ 27,118
21,830
$ 1,925
$ 2,084
$ 21,830
$ 32,713
20 20
84 84
46 43 271 360
46 20 43 271 84 464
$ 12,773
$ 16,878
$ 4,113
$ 3,868
$ 22,663
$ 60,295
(1) Represents the weighted-average yield, which is determined by applying the weighted-average of the yields of individual fixed income securities. (2) Includes securities backed by mortgages insured by the CMHC with amortized cost of $2,038 million and fair value of $2,081 million; securities issued by Fannie Mae, with amortized cost and fair value of $12 million; and securities issued by Ginnie Mae, with amortized cost of $656 million and fair value of $657 million. (3) Certain information has been reclassified to conform to the presentation in the current year. (4) (5) (6) n/m Includes securities backed by mortgages insured by the CMHC of $662 million. Comprises securities issued by Ginnie Mae. Includes securities denominated in U.S. dollars with carrying value of $14.3 billion and securities denominated in other foreign currencies with carrying value of $706 million. Not meaningful.
111
Total Yield(1)
Carrying value
Yield(1)
AFS securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(2) Asset-backed securities Corporate public debt Corporate private debt Total debt securities Corporate public equity Corporate private equity Total equity securities Total AFS securities Trading securities Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities(3) Asset-backed securities Corporate public debt Corporate public equity Total trading securities FVO securities Securities issued or guaranteed by: Other Canadian governments U.S. Treasury and agencies Mortgage-backed securities(4) Asset-backed securities Corporate public debt Total FVO securities Total securities(5)
1.7% $ 185 3.1 1,777 2.0 109 3.0 207 2.5 127 4.1 3 2.3 102 6.3 6 2,516 $ 2,516
% $ n/m n/m
4,771 4,263 3,348 3,281 3,421 1,531 2,676 60 23,351 113 905 1,018
1.6% 3.3 0.3 3.1 2.3 4.1 1.4 6.2 n/m n/m
$ 10,938
$ 1,389
$ 24,369
12,908
$ 2,104
$ 12,908
25 $ 25 $ $ 16,303
59 59 $ $ 15,163
7 80 87 $ $ 4,729
$ $ 13,926
(1) Represents the weighted-average yield, which is determined by applying the weighted-average of the yields of individual fixed income securities. (2) Includes securities backed by mortgages insured by the CMHC with amortized cost of $2,612 million and fair value of $2,657 million; securities issued by Fannie Mae, with amortized cost and fair value of $18 million; and securities issued by Ginnie Mae, with amortized cost of $711 million and fair value of $714 million. (3) Includes securities backed by mortgages insured by the CMHC of $36 million. (4) Comprises securities issued by Fannie Mae of $25 million and securities issued by Ginnie Mae of $56 million. (5) Includes securities denominated in U.S. dollars with carrying value of $13.9 billion and securities denominated in other foreign currencies with carrying value of $831 million. n/m Not meaningful.
112
Oct. 31 2012 Fair value Carrying value $ 3,940 14 $ 3,954 Fair value $ 4,077 33 $ 4,110
Oct. 31 2011 Carrying value $ 4,219 33 $ 4,252 Fair value $ 5,850 55 $ 5,905 2012 $ 97 (34) $ 63
Trading assets previously reclassified to loans and receivables Trading assets previously reclassified to AFS Total financial assets reclassified
$ millions, for the year ended October 31
$ 3,864 14 $ 3,878
Net income (before taxes) recognized on assets reclassified Interest income Impairment write-downs Change in fair value recognized in net income (before taxes) on assets if reclassification had not been made On trading assets previously reclassified to loans and receivables On trading assets previously reclassified to AFS
$ 62 (1) $ 61
$ (16) 4 $ (12)
The effective interest rates on trading securities previously reclassified to AFS ranged from 3% to 13% with expected recoverable cash flows of $1.2 billion as of their reclassification date. The effective interest rates on trading assets previously reclassified to loans and receivables ranged from 4% to 10% with expected recoverable cash flows of $7.9 billion as of their reclassification date.
$ millions, as at
Securities issued or guaranteed by: Canadian federal government $ Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities Asset-backed securities Corporate public debt Corporate public equity Corporate private debt Corporate private equity
84 28 14 24 19 11 69 11 4 260
39 69 8 40 46 19 18 46 277
5 81 5 47 50 30 18 45 9 357
$ 24,224
$ 524
$ (48) $ 24,700
$ 26,600
$ 562
$ 647
$ (74) $ 24,369
113
$ millions, as at
Oct. 31 2012
Securities issued or guaranteed by: Canadian federal government Other Canadian governments U.S. Treasury and agencies Other foreign governments Mortgage-backed securities Asset-backed securities Corporate public debt Corporate private equity
$ $
$ 181 $ 25 19 44
$ (70)
$ (74)
As at October 31, 2012, the amortized cost of 100 AFS securities that are in a gross unrealized loss position (October 31, 2011: 157 securities; November 1, 2010: 151 securities) exceeded their fair value by $48 million (October 31, 2011: $44 million; November 1, 2010: $74 million). The securities that have been in a gross unrealized loss position for more than a year include 6 AFS securities (October 31, 2011: 17 securities; November 1, 2010: 8 securities), with a gross unrealized loss of less than $1 million (October 31, 2011: $3 million; November 1, 2010: $4 million). We have determined that the unrealized losses on these AFS securities are temporary in nature. The table below presents realized gains, losses, impairment reversals and write-downs on AFS securities:
$ millions, for the year ended October 31
Realized gains Realized losses Impairment reversals Impairment write-downs Debt securities Equity securities
114
Note 5
$ millions, as at
Loans(1)(2)
Gross amount $ 150,056 35,323 15,153 43,624 244,156 $ 150,509 34,842 15,744 39,663 240,758 $ 143,284 34,335 15,914 37,946 231,479 Individual allowance $ 8 467 475 $ 1 8 357 366 $ 1 6 338 345 $ $ Collective allowance $ 71 459 583 272 1,385 48 478 632 279 1,437 42 511 650 338 1,541 $ $ Total allowance $ 71 467 583 739 1,860 49 486 632 636 1,803 43 517 650 676 1,886 Net total $ 149,985 34,856 14,570 42,885 242,296 $ 150,460 34,356 15,112 39,027 238,955 $ 143,241 33,818 15,264 37,270 229,593
Oct. 31 2012
Residential mortgages Personal(3) Credit card Business and government(4) Residential mortgages Personal(3) Credit card Business and government(4) Residential mortgages Personal(3) Credit card Business and government(4)
Oct. 31 2011
Nov. 1 2010
(1) Loans are net of unearned income of $327 million (October 31, 2011: $312 million; November 1, 2010: $272 million). (2) Includes gross loans of $19.9 billion (October 31, 2011: $18.5 billion; November 1, 2010: $18.3 billion) denominated in U.S. dollars and of $3.1 billion (October 31, 2011: $2.2 billion; November 1, 2010: $2.7 billion) denominated in other foreign currencies. (3) Includes $133 million (October 31, 2011: $169 million; November 1, 2010: $210 million), including a non-recourse portion of nil (October 31, 2011: nil; November 1, 2010: $4 million), related to loans to certain individuals while employed by CIBC to finance a portion of their participation in funds which make private equity investments on a side-by-side basis with CIBC and its affiliates. These loans are secured by the borrowers interest in the funds. Of the total amount outstanding, $129 million (October 31, 2011: $158 million; November 1, 2010: $184 million) relates to individuals who are no longer employed by CIBC. (4) Includes trading loans of $905 million (October 31, 2011: $268 million; November 1, 2010: $1,011 million).
Business and government 2012 $ 357 272 (134) 3 (30) (1) $ 467 2011 $ 338 152 (99) 6 (34) (6) $ 357 2012 $ 366 271 (135) 3 (30) $ 475
2012 $ 1 (1) $
2011 $ 1 $ 1
Balance at beginning of year Provision for (reversal of) credit losses Write-offs Recoveries Interest income on impaired loans Other Balance at end of year
Collective allowance
Residential mortgages
$ millions, as at or for the year ended October 31
Personal 2012 $ 478 268 (310) 30 (5) (2) $ 459 $ 459 2011 $ 511 248 (307) 27 (1) $ 478 $ 478 2012 $ 632 646 (826) 131 $ 583 $ 583
Business and government 2012 $ 327 53 (57) 6 (1) $ 328 $ 272 56 2011 2012
Total 2011
Balance at beginning of year Provision for (reversal of) credit losses Write-offs Recoveries Interest income on impaired loans Other Balance at end of year Comprises: Loans Undrawn credit facilities(1)
$ 402 $ 1,485 $ 1,605 (27) 1,020 988 (59) (1,213) (1,235) 6 167 139 (17) (14) 5 (1) 2 $ 327 $ 279 48 $ 1,441 $ 1,385 56 $ 1,485 $ 1,437 48
115
$ millions, as at
Oct. 31 2012
Residential mortgages Personal Business and government Total impaired loans(2)(3) Residential mortgages Personal Business and government Total impaired loans(2)(3) Residential mortgages Personal Business and government Total impaired loans(3)
$ 1,867 $
$ 475 $
$ 246 $
$ 1,146 $
Oct. 31 2011
$ 1,917 $
$ 366 $
$ 236 $
$ 1,315 $
Nov. 1 2010
$ 1,934
$ 345
$ 251
$ 1,338
(1) Includes collective allowance related to personal, scored small business, and mortgage impaired loans that are greater than 90 days delinquent. In addition, we have collective allowance of $1,195 million (October 31, 2011: $1,249 million; November 1, 2010: $1,354 million) on balances which are not impaired. (2) Average balance of gross impaired loans was $1,905 million (2011: $1,882 million). (3) Foreclosed assets of $44 million (October 31, 2011: $54 million; November 1, 2010: $65 million) were included in Other assets on the consolidated balance sheet.
$ millions, as at
Total $ 2,732 564 1,060 284 $ 4,640 $ 3,103 619 1,241 256 $ 5,219 $ 3,483 659 1,366 555 $ 6,063
Oct. 31 2012
$ 1,069 $
$ 1,152 $
$ 1,447
During the year, gross interest income that would have been recorded if impaired loans were treated as current was $128 million (2011: $122 million), of which $34 million (2011: $36 million) was in Canada and $94 million (2011: $86 million) was outside Canada. During the year, interest recognized on impaired loans was $47 million (2011: $48 million); and interest recognized on loans before being classified as impaired was $69 million (2011: $59 million), of which $53 million (2011: $44 million) was in Canada and $16 million (2011: $15 million) was outside Canada.
Interest income Interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses
116
Note 6
Structured entities
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. Structured entities include SPEs which are entities that are created to accomplish a narrow and well-defined objective. We consolidate a structured entity when the substance of the relationship indicates that we control the structured entity. Consolidated structured entities We consolidate the following structured entities: CIBC sponsored conduit We sponsor a consolidated multi-seller conduit in Canada that purchases financial assets from clients and finances the purchases by issuing asset-backed commercial paper (ABCP). The sellers to the conduit continue to service the assets and are exposed to credit losses realized on these assets through the provision of over-collateralization. We hold all of the outstanding ABCP. Residential mortgage securitization trusts Clear Trust (Clear) originates Canadian insured prime mortgages and uninsured Near-Prime/Alt-A mortgages. Clear sells these mortgages to Crisp Trust (Crisp). Crisp funds the purchase of these mortgages through the issuance of commercial paper to third-party investors, which is secured by the mortgages. We provide cash reserves and liquidity facilities to Crisp that require us to provide funding, subject to the satisfaction of certain conditions. The commercial paper liabilities are presented as Secured borrowings within Deposits on the consolidated balance sheet. During the year, we purchased all of the outstanding commercial paper that was issued by Crisp and terminated the liquidity facility. Credit card securitization trusts We sell credit card receivables to Cards II Trust (Cards II). Cards II purchases a proportionate share of designated portfolios with the proceeds received from the issuance of notes. We also sell credit card receivables to Broadway Trust (Broadway). Broadway purchases credit card receivables associated with explicitly identified individual accounts with the proceeds received from the issuance of notes. Our credit card securitizations are revolving securitizations, with new credit card receivables sold to Cards II and Broadway in order to replenish receivable amounts as credit card clients repay their balances. The notes are presented as Secured borrowings within Deposits on the consolidated balance sheet. CIBC Capital Trust We have issued senior deposit notes to CIBC Capital Trust (Capital Trust). Capital Trust funds the purchase through the issuance of CIBC Tier 1 Notes (Notes) that match the term of the senior deposit notes. The Notes are eligible for Tier 1 regulatory capital treatment. See Note 16 for additional details. Covered bond guarantor Under the terms of the Covered Bond Programme (the Programme), we issue covered bonds, representing unconditional, unsubordinated and unsecured obligations of CIBC that are backed by a pool of insured mortgages. As part of the Programme, we transfer the mortgages to the CIBC Covered Bond Guarantor Limited Partnership (Guarantor) that warehouses these mortgages and serves as a guarantor to bondholders, if CIBC were to become insolvent. As at October 31, 2012, $14.6 billion of mortgages with a fair value of $14.7 billion (October 31, 2011: $12.5 billion with a fair value of $12.7 billion; November 1, 2010: $6.7 billion with a fair value of $6.8 billion) supported associated covered bond liabilities of $13.9 billion with a fair value of $14.0 billion (October 31, 2011: $12.0 billion with a fair value of $12.0 billion; November 1, 2010: $6.4 billion with a fair value of $6.5 billion). Non-consolidated structured entities The following structured entities are not consolidated by CIBC: CIBC sponsored conduits We sponsor a single-seller conduit and several non-consolidated multi-seller conduits in Canada. Our multi-seller conduits purchase pools of financial assets from our clients and finance the purchases by issuing ABCP to investors. Our single-seller conduit purchases pools of financial assets from our client and finances these purchases through a credit facility provided by a syndication of financial institutions. The sellers to the conduits may continue to service the assets and may be exposed to credit losses realized on these assets, typically through the provision of over-collateralization or another form of retained interest. The conduits may obtain credit enhancement from third-party providers. We generally provide the conduits with commercial paper backstop liquidity facilities, securities distribution, accounting, cash management, and operations services. The liquidity facilities for our sponsored conduits require us to provide funding, subject to the satisfaction of certain conditions with respect to the conduits, to purchase non-defaulted assets. We are subject to maintaining certain short-term and/or long-term debt ratings with respect to the liquidity facilities provided to our sponsored conduits. If we are downgraded below the specified level, and we fail to make alternative arrangements that meet the requirements of the rating agencies that rate the ABCP issued by conduits, we could be required to provide funding into an escrow account in respect of our liquidity commitments. We may also act as the counterparty to derivative contracts entered into by a conduit in order to convert the yield of the underlying assets to match the needs of the conduits investors or to mitigate the interest rate risk within the conduit. All fees earned in respect of activities with the conduits are on a market basis.
117
118
$ millions, as at
Commercial Pass-through mortgage investment securitization Run-off Continuing structures trust 621 170 3,522 4,313 1,198 1,198 4,313 3,184 333 (6,470) 1,360 558 2 183 3,754 4,497 1,545 1,545 4,497 3,285 391 (6,768) 1,405 809 14 270 6,711 7,804 1,762 1,762 7,804 4,287 585 $ 226 751 27 $ 2,182 77 $ 2,259 $ $ 151 151 $ 1 $ 1 $ $ $ 1 $ 1 $ 5 $ 5 $ $ $ 5 $ 5 $ 5 $ 5 $ $ $ 5 $ 5
Oct. 31 On-balance sheet assets at carrying value(1) 2012 Trading securities AFS securities FVO securities Loans Derivatives(2) On-balance sheet liabilities at carrying value Derivatives(2)
(1)
$ $ $ Maximum exposure to loss, net of hedges Investment and loans Notional of written derivatives, less fair value losses Liquidity and credit facilities Less: hedges of investments, loans and written derivatives exposure Oct. 31 On-balance sheet assets at carrying value(1) 2011 Trading securities AFS securities FVO securities Loans Derivatives(2) On-balance sheet liabilities at carrying value(1) Derivatives(2) Maximum exposure to loss, net of hedges Investment and loans Notional of written derivatives, less fair value losses Liquidity and credit facilities Less: hedges of investments, loans and written derivatives exposure Nov. 1 2010 On-balance sheet assets at carrying value(1) Trading securities AFS securities FVO securities Loans Derivatives(2) On-balance sheet liabilities at carrying value(1) Derivatives(2) Maximum exposure to loss, net of hedges Investment and loans Notional of written derivatives, less fair value losses Liquidity and credit facilities Less: hedges of investments, loans and written derivatives exposure $
$ 232 $ $ $ 23 $ 23 $
$ 1,004 $ $
3 77 80 80 1,297
$ $ $ $
$ 292 $ $ $ 37 $ 37 $
$ 1,626 $ $
$ $ $ $
$ $ $ $
$ 448 $ $ $ 36 $ 36 $
$ 1,778 $ $
$ $ $ $
(10,165) 2,511
(1) Excludes structured entities established by CMHC, Fannie Mae, Freddie Mac, Ginnie Mae, Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association (Sallie Mae). (2) Comprises written credit default swaps (CDS) and total return swaps under which we assume exposures and excludes all other derivatives.
119
Oct. 31 2012 Carrying amount Fair value $ 32,528 1,795 5,324 $ 39,647 $ 40,830 Carrying amount $ 34,224 2,707 1,631 3,292 $ 41,854 $ 42,582
Oct. 31 2011 Fair value $ 34,578 2,707 1,631 3,292 $ 42,208 $ 42,680 Carrying amount $ 32,413 9,806 2,926 3,825 $ 48,970 $ 49,358
Nov. 1 2010 Fair value $ 32,840 9,806 2,926 3,825 $ 49,397 $ 49,827
Residential mortgage securitizations(1) Securities held by counterparties as collateral under repurchase agreements(2)(3) Securities lent for cash collateral(2)(3) Securities lent for securities collateral(2)(3) Carrying amount of associated liabilities
(1) Includes $4.0 billion (October 31, 2011: $3.4 billion; November 1, 2010: $3.4 billion) of mortgages underlying MBS held by CMHC counterparties as collateral under repurchase agreements. Certain cash in transit balances related to the securitization process amounting to $1,196 million (October 31, 2011: $882 million; November 1, 2010: $729 million) have been applied to reduce these balances. (2) Does not include over-collateralization of assets pledged. (3) Excludes third-party pledged assets.
Additionally, we securitized $22.7 billion with a fair value of $22.8 billion (October 31, 2011: $16.1 billion with a fair value of $16.2 billion; November 1, 2010: $16.4 billion with a fair value of $16.7 billion) of mortgages that were not transferred to external parties.
120
Note 7
Total $ 3,677 355 (333) 3 $ 3,702 $ 3,559 138 (20) $ 3,677 $ 2,097 230 (304) (4) $ 2,019 $ 1,991 213 (114) 7 $ 2,097 $ 1,683 $ 1,580 $ 1,568
2012
Cost Balance at beginning of year Additions Disposals Adjustments(3) Balance at end of year Cost Balance at beginning of year Net additions (disposals) Adjustments(3) Balance at end of year Accumulated amortization Balance at beginning of year Amortization Disposals Adjustments(3) Balance at end of year Accumulated amortization Balance at beginning of year Amortization Disposals Adjustments(3) Balance at end of year Net book value As at October 31, 2012 As at October 31, 2011 As at November 1, 2010
2011
$ 1,067 47 (1) $ 1,113 $ 885 107 (243) 1 750 839 103 (59) 2 885 231 228 228
2012
$ $
$ $
2011
$ $ $ $
$ $ $ $
(1) Includes land and building underlying a finance lease arrangement. See below for further details. (2) Includes $119 million (October 31, 2011: $87 million; November 1, 2010: $132 million) of work-in-progress not subject to amortization. (3) Includes foreign currency translation adjustments.
Gross additions and disposals during the year were: Retail and Business Banking $141 million and $231 million, respectively (2011: net additions of $98 million); Wealth Management $29 million and $21 million, respectively (2011: net additions of $7 million); Wholesale Banking $11 million and $2 million, respectively (2011: net disposals of $2 million); and Corporate and Other $174 million and $79 million, respectively (2011: net additions of $35 million).
Rental income of $72 million (2011: $78 million) was generated by the investment property. Interest expense of $28 million (2011: $28 million) and non-interest expenses of $31 million (2011: $35 million) were incurred in respect of the finance lease property, which includes the portion used for operations and administrative purposes. Our commitment related to the finance lease is disclosed in Note 22.
Note 8
Goodwill
The carrying amount of goodwill was reviewed for impairment upon transition to IFRS, as at November 1, 2010, April 30, 2011 and April 30, 2012 and is now tested annually as at August 1 and whenever there are events or changes in circumstances indicative that the carrying amount is not recoverable. During 2012, we changed our annual goodwill impairment testing date from April 30 to August 1 in order to better align with our annual planning cycle. Goodwill is allocated to CGUs for the purposes of impairment testing based on the level at which it is monitored by management. The goodwill impairment test is performed by comparing the recoverable amount of the CGU to which goodwill has been allocated, with the carrying amount of the CGU including goodwill, with any deficiency recognized as impairment to goodwill. The recoverable amount of a CGU is defined as the higher of its estimated fair value less cost to sell and value in use.
121
CGUs 2012 Balance at beginning of year Acquisitions Adjustments(2) Balance at end of year 2011 Balance at beginning of year Acquisitions Impairment Adjustments(2) Balance at end of year
Capital markets(1) $ 40 17 $ 57 $ 40 $ 40
Other $ 64 $ 64 $ 61 2 1 $ 64
(1) Capital markets and FirstCaribbean International Bank Limited (CIBC FirstCaribbean) CGUs are part of Wholesale Banking and Corporate and Other reporting segments, respectively. (2) Includes foreign currency translation adjustments. (3) The impairment loss is recognized in Other non-interest expenses in the consolidated statement of income.
122
Brandname(2) $ 20 $ 20
2012 2011
Balance at beginning and end of year Balance at beginning and end of year
(1) Represents management contracts purchased as part of past acquisitions. (2) Acquired as part of the CIBC FirstCaribbean acquisition.
The components of finite-lived software and other intangible assets are as follows:
Core deposit intangibles(2) $ 243 1 $ 244 $ 249 (6) $ 243 $ 131 19 $ 150 $ 110 23 (2) $ 131 $ 94 112 139 Contract based(3) $ 50 $ 50 $ 50 $ 50 $ 42 2 $ 44 $ 40 2 $ 42 $ 6 8 10 Customer relationships(4) $ 67 10 1 $ 78 $ 49 18 $ 67 $ 12 9 1 $ 22 $ 2 10
Software(1) $ 1,685 166 (36) 2 $ 1,817 $ 1,511 176 (2) $ 1,685 $ 1,363 97 (7) $ 1,453 $ 1,264 105 (8) 2 $ 1,363 $ 364 322 247
Total $ 2,045 10 167 (36) 3 $ 2,189 $ 1,859 194 (8) $ 2,045 $ 1,548 127 (7) 1 $ 1,669 $ 1,416 140 (8) $ 1,548 $ 520 497 443
2012
Gross carrying amount Balance at beginning of year Acquisition through business combinations Additions Disposals Adjustments(5) Balance at end of year Gross carrying amount Balance at beginning of year Net acquisitions Adjustments Balance at end of year Accumulated amortization Balance at beginning of year Amortization Disposals Adjustments(5) Balance at end of year Accumulated amortization Balance at beginning of year Amortization Disposals Adjustments Balance at end of year Net book value As at October 31, 2012 As at October 31, 2011 As at November 1, 2010
2011
2012
2011
$ 12 $ 56 55 47
(1) Includes $167 million (October 31, 2011: $177 million; November 1, 2010: $73 million) of work-in-progress not subject to amortization. (2) Acquired as part of the CIBC FirstCaribbean acquisition. (3) Represents a combination of management contracts purchased as part of past acquisitions. (4) Represents customer relationships associated with the acquisitions of Griffis & Small, LLC, the private wealth management business of MFS McLean Budden, and the MasterCard portfolio. (5) Includes foreign currency translation adjustments.
Net additions and disposals during the year were: Retail and Business Banking net disposals of $10 million (2011: net additions of $17 million); Wealth Management net additions of $5 million (2011: $5 million); Wholesale Banking net additions of $1 million (2011: nil); and Corporate and Other net additions of $145 million (2011: $172 million).
Note 9
$ millions, as at
Other assets
Oct. 31 2012 $ 746 563 406 373 1,189 457 578 28 4,120 541 403 Oct. 31 2011 $ 724 221 375 290 443 644 530 316 4,397 507 432 $ Nov. 1 2010 840 105 373 406 577 1,122 534 674 4,912 594 433
Accrued interest receivable Defined benefit asset (Note 19) Gold and silver certificates Brokers client accounts Current tax receivable Deferred tax asset (Note 20) Other prepayments Cheques and other items in transit, net Derivative collateral receivable Accounts receivable Other
$ 9,404
$ 8,879
$ 10,570
123
Note 10
$ millions, as at
Deposits(1)(2)
Payable on demand(3) $ 8,006 29,816 1,480 Payable after notice(4) $ 67,322 17,514 7 $ 84,843 Payable on a fixed date(5) $ 42,825 77,725 3,236 52,413 Total $ 118,153 125,055 4,723 52,413 $ 300,344 $ 298,491 1,853 $ 300,344
Oct. 31 2012
Personal Business and government Bank Secured borrowings(6) Comprised of: Held at amortized cost Designated at fair value Total deposits include: Non-interest-bearing deposits In domestic offices In foreign offices Interest-bearing deposits In domestic offices In foreign offices U.S. federal funds purchased
$ 39,302
$ 176,199
$ 300,344 Oct. 31 2011 Personal Business and government Bank Secured borrowings(6) Comprised of: Held at amortized cost Designated at fair value Total deposits include: Non-interest-bearing deposits In domestic offices In foreign offices Interest-bearing deposits In domestic offices In foreign offices U.S. federal funds purchased Nov. 1 2010 Personal Business and government Bank Secured borrowings(6) Comprised of: Held at amortized cost Designated at fair value Total deposits include: Non-interest-bearing deposits In domestic offices In foreign offices Interest-bearing deposits In domestic offices In foreign offices U.S. federal funds purchased $ 7,935 27,329 1,020 $ 61,079 11,952 5 $ 73,036 $ 44,280 76,560 4,593 43,518 $ 8,109 29,475 1,297 $ 66,149 14,607 11 $ 80,767 $ 42,334 73,061 2,869 51,308 $ 116,592 117,143 4,177 51,308 $ 289,220 $ 287,325 1,895 $ 289,220
$ 38,881
$ 169,572
$ 36,284
$ 168,951
$ 278,271
(1) Includes deposits of $66.8 billion (October 31, 2011: $56.1 billion; November 1, 2010: $53.6 billion) denominated in U.S. dollars and deposits of $6.5 billion (October 31, 2011: $6.0 billion; November 1, 2010: $5.4 billion) denominated in other foreign currencies. (2) Net of purchased notes $1,127 million (October 31, 2011: $935 million; November 1, 2010: $648 million). (3) Includes all deposits for which we do not have the right to require notice of withdrawal. These deposits are generally chequing accounts. (4) Includes all deposits for which we can legally require notice of withdrawal. These deposits are generally savings accounts. (5) Includes all deposits that mature on a specified date. These deposits are generally term deposits, guaranteed investment certificates, and similar instruments. (6) Comprises liabilities issued by or as a result of activities associated with the securitization of residential mortgages, Covered Bond Programme, and consolidated securitization vehicles.
124
Note 11
$ millions, as at
Other liabilities
Oct. 31 2012 $ 1,315 657 139 809 2,937 394 827 37 1,160 2,396 $ Oct. 31 2011 1,410 658 300 1,121 2,901 378 1,312 43 51 1,027 2,503 $ Nov. 1 2010 1,577 689 415 898 3,062 387 1,194 28 1,180 2,809(1)
Accrued interest payable Defined benefit liability (Note 19) Gold and silver certificates Brokers client accounts Derivative collateral payable Other deferred items Negotiable instruments Current tax payable Deferred tax liability (Note 20) Accounts payable and accrued expenses Other
$ 10,671
$ 11,704
$ 12,239
(1) Includes $604 million of principal and premium amount payable to holders in respect of non-cumulative preferred shares (Series 19 and 23) redeemed on October 31, 2010.
Note 12
Derivative instruments
As described in Note 1, in the normal course of business, we use various derivative instruments for both trading and ALM purposes. These derivatives limit, modify or give rise to varying degrees and types of risk.
Oct. 31 2012 Assets Trading (Note 2) Designated accounting hedges (Note 13) Economic hedges(1) Economic hedges of FVO financial instruments Other economic hedges $ 24,633 1,863 171 372 $ 27,039 Liabilities $ 25,943 603 67 478 $ 27,091 Assets $ 24,561 2,268 1,256 185 $ 28,270 Oct. 31 2011 Liabilities $ 25,904 864 1,714 310 $ 28,792 Assets $ 22,033 1,305 477 885 $ 24,700 Nov. 1 2010 Liabilities $ 22,526 715 772 1,350 $ 25,363
$ millions, as at
(1) Comprises derivatives not part of qualifying hedging relationships for accounting purposes under IAS 39.
125
Notional amounts
The notional amounts are not recorded as assets or liabilities, as they represent the face amount of the contract to which a rate or price is applied to determine the amount of cash flows to be exchanged. In most cases, notional amounts do not represent the potential gain or loss associated with market or credit risk of such instruments.
126
Trading
ALM
Interest rate derivatives OTC Forward rate agreements Clearing house settled forward rate agreements Swap contracts Clearing house settled swap contracts Purchased options Written options Exchange-traded Futures contracts Purchased options Written options Total interest rate derivatives Foreign exchange derivatives OTC Forward contracts Swap contracts Purchased options Written options Exchange-traded Futures contracts Total foreign exchange derivatives Credit derivatives OTC Total return swap contracts protection sold Credit default swap contracts protection purchased Credit default swap contracts protection sold Total credit derivatives Equity derivatives(1) OTC Exchange-traded Total equity derivatives Precious metal derivatives(1) OTC Exchange-traded Total precious metal derivatives Other commodity derivatives(1) OTC Exchange-traded Total other commodity derivatives
$ 113,030 28,152 241,135 105,332 2,699 2,251 492,599 28,697 3,750 4,000 36,447 529,046
29,727 28,550 470,816 186,044 4,044 2,337 721,518 19,878 19,878 741,396
142,757 56,702 808,193 332,786 9,269 6,761 1,356,468 48,575 3,750 4,000 56,325 1,412,793
140,358 56,702 589,128 316,374 8,419 6,761 1,117,742 47,886 3,750 4,000 55,636 1,173,378
505 956 1,461 25,688 2,019 27,707 1,650 86 1,736 2,848 8,482 11,330 $ 741,743
2,547 11,813 5,984 20,344 2,344 268 2,612 43 42 85 8,491 3,911 12,402 $ 877,584
2,547 12,640 7,188 22,375 28,093 2,287 30,380 1,693 128 1,821 11,770 12,448 24,218 $ 1,783,761
2,547 12,606 7,188 22,341 27,449 2,287 29,736 1,693 128 1,821 11,770 12,361 24,131 $ 1,511,983
127
Residual term to contractual maturity Less than 1 year 1 to 5 years Over 5 years Total notional amounts
Trading
ALM
Interest rate derivatives OTC Forward rate agreements Swap contracts Clearing house settled swap contracts Purchased options Written options Exchange-traded Futures contracts Purchased options Written options Total interest rate derivatives Foreign exchange derivatives OTC Forward contracts Swap contracts Purchased options Written options Exchange-traded Futures contracts Total foreign exchange derivatives Credit derivatives OTC Total return swap contracts protection sold Credit default swap contracts protection purchased Credit default swap contracts protection sold Total credit derivatives Equity derivatives(1) OTC Exchange-traded Total equity derivatives Precious metal derivatives(1) OTC Exchange-traded Total precious metal derivatives Other commodity derivatives(1) OTC Exchange-traded Total other commodity derivatives
(1) Comprises forwards, futures, swaps, and options.
99,456 273,005 3,625 1,891 3,141 381,118 34,671 24,233 29,466 88,370 469,488
121,402 936,887 23,962 11,581 13,356 1,107,188 42,665 24,233 29,466 96,364 1,203,552
118,477 670,804 23,962 11,496 10,804 835,543 38,438 24,233 29,466 92,137 927,680
104 104 21,884 3,431 25,315 1,906 231 2,137 3,591 7,363 10,954 $ 677,769
2,612 10,434 2,315 15,361 2,445 422 2,867 26 26 4,583 3,974 8,557 $ 733,854
2,612 15,740 7,642 25,994 24,403 3,853 28,256 1,906 257 2,163 8,399 11,339 19,738 $ 1,559,860
2,612 15,655 7,642 25,909 23,739 3,853 27,592 1,906 257 2,163 8,399 11,339 19,738 $ 1,257,055
128
Residual term to contractual maturity Less than 1 year 1 to 5 years Over 5 years Total notional amounts
Trading
ALM
Interest rate derivatives OTC Forward rate agreements Swap contracts Purchased options Written options Exchange-traded Futures contracts Purchased options Written options Total interest rate derivatives Foreign exchange derivatives OTC Forward contracts Swap contracts Purchased options Written options Exchange-traded Futures contracts Total foreign exchange derivatives Credit derivatives OTC Total return swap contracts - protection sold Credit default swap contracts - protection purchased Credit default swap contracts - protection sold Total credit derivatives Equity derivatives(1) OTC Exchange-traded Total equity derivatives Precious metal derivatives(1) OTC Exchange-traded Total precious metal derivatives Other commodity derivatives(1) OTC Exchange-traded Total other commodity derivatives
65,692 214,105 1,215 6,385 287,397 16,250 5,352 6,062 27,664 315,061
5,803 416,515 8,092 8,583 438,993 12,213 21,628 27,749 61,590 500,583
71,825 722,534 12,799 18,392 825,550 28,463 26,980 33,811 89,254 914,804
68,354 485,183 12,452 16,682 582,671 27,427 26,980 33,811 88,218 670,889
75 76 151 13,033 8,010 21,043 369 19 388 3,075 3,353 6,428 $ 497,465
6,711 3,922 10,633 3,522 689 4,211 144 144 3,531 2,949 6,480 $ 580,481
2,982 23,355 12,080 38,417 16,589 8,699 25,288 513 19 532 6,878 6,303 13,181 $ 1,226,901
2,982 22,149 12,080 37,211 16,057 8,699 24,756 513 19 532 6,878 6,303 13,181 $ 965,209
Risk
In the following sections, we discuss the risks related to the use of derivatives and how we manage these risks. Market risk Derivative instruments, in the absence of any compensating upfront cash payments, generally have no or small market values at inception. They obtain value, positive or negative, as relevant interest rates, foreign exchange rates, equity, commodity, credit prices or indices change, such that the previously contracted terms of the derivative transactions have become more or less favourable than what can be negotiated under current market conditions for contracts with the same terms and the same remaining period to expiry. The potential for derivatives to increase or decrease in value as a result of the foregoing factors is generally referred to as market risk. Market risk arising through trading activities is managed in order to mitigate risk, where appropriate, and with a view to maximizing trading income. To further manage risks, we may enter into contracts with other market makers or may undertake cash market hedges. Credit risk Credit risk arises from the potential for a counterparty to default on its contractual obligations and the risk that prevailing market conditions are such that we would incur a loss in replacing the defaulted transaction. We limit the credit risk of OTC derivatives by actively pursuing risk mitigation opportunities through the use of multi-product derivative master netting agreements, central counterparties (clearing houses), collateral, and other credit mitigation techniques.
129
130
ALM 1,822 1 1,823 103 447 550 27 2,400 $ 2,400 $ 3,003 10 3,013 83 580 663 21 3,697 $ 3,697 $ $ $ $
Total 95 19,788 364 20,247 1,283 3,985 118 5,386 591 591 220 15 335 26,794 (20,070) 6,724 171 19,471 432 20,074 1,737 4,235 97 6,069 1,021 1,021 301 55 401 27,921 (20,728) 7,193
Oct. 31 2012
Interest rate derivatives Forward contracts Swap contracts Purchased options Foreign exchange derivatives Forward contracts Swap contracts Purchased options Credit derivatives(3) Credit default swap contracts - protection purchased Equity derivatives(4) Precious metal derivatives(4) Other commodity derivatives(4) Less: effect of master netting agreements
1,180 3,538 118 4,836 591 591 193 15 335 24,394 (20,070) $ 4,324 171 16,468 422 17,061
Oct. 31 2011(5)
Interest rate derivatives Forward contracts Swap contracts Purchased options Foreign exchange derivatives Forward contracts Swap contracts Purchased options Credit derivatives(3) Credit default swap contracts - protection purchased Equity derivatives(4) Precious metal derivatives(4) Other commodity derivatives(4) Less: effect of master netting agreements
1,654 3,655 97 5,406 1,021 1,021 280 55 401 24,224 (20,728) $ 3,496
(1) Exchange-traded contracts with a replacement cost of $245 million (October 31, 2011: $338 million) are excluded in accordance with the guidelines of OSFI. (2) Sum of current replacement cost and potential credit exposure, adjusted for master netting agreements and the impact of collateral amounting to $3,446 million (October 31, 2011: $2,262 million). The collateral comprises cash $2,734 million (October 31, 2011: $1,988 million) and government securities $712 million (October 31, 2011: $274 million). (3) Written ALM credit derivatives are treated as guarantee commitments; bought ALM credit derivatives meeting the hedge effectiveness criteria under Basel II are treated as credit risk mitigation with no counterparty credit risk charge; and bought ALM credit derivatives not meeting the hedge effectiveness criteria under Basel II receive a counterparty credit risk charge. (4) Comprises forwards, swaps, and options. (5) Under Canadian generally accepted accounting principles and have not been restated for IFRS.
CVA
A CVA is determined using the fair value based exposure we have on derivative contracts. We believe that we have made appropriate fair value adjustments to date. The establishment of fair value adjustments involves estimates that are based on accounting processes and judgments by management. We evaluate the adequacy of the fair value adjustments on an ongoing basis. Market and economic conditions relating to derivative counterparties may change in the future, which could result in significant future losses.
Financial guarantors
Contracts we have with financial guarantors are primarily credit derivatives. Fair value based exposure for credit derivatives is determined using the market value of the underlying reference assets. Our counterparty credit charge is a function of the fair value based exposure and our assessment of the counterparty credit risk. Counterparty credit risk is calculated using market-observed credit spreads, where available and appropriate, or through the use of equivalent credit proxies, or through an assessment of net recoverable value. During the year, we recorded a gain of $95 million (2011: loss of $3 million) against our receivables from financial guarantors. Separately, we recorded a gain of less than $1 million (2011: loss of $100 million) on terminations and maturity of contracts with financial guarantors during the year. The fair value of derivative contracts with financial guarantors, net of CVA, was $269 million (October 31, 2011: $477 million; November 1, 2010: $734 million).
Non-financial guarantors
Our methodology in establishing CVA against other derivative counterparties is also calculated using a fair value based exposure measure. We use marketobserved credit spreads or proxies, as appropriate. During the year, we recorded a gain of $11 million (2011: gain of $3 million) on our receivables from non-financial guarantors derivative counterparties.
CIBC 2012 ANNUAL REPORT
131
Note 13
The following table presents the hedge ineffectiveness gains (losses) recognized in the consolidated statement of income:
$ millions, for the year ended October 31
Fair value hedges(1) Gains (losses) on hedging instruments Gains (losses) on hedged items attributable to hedged risks Cash flow hedges(2)(3)
(1) Recognized in Net interest income. (2) Recognized in Non-interest income Other and Non-interest expenses Other. (3) Includes NIFO hedges.
Portions of derivative gains (losses) that by designation were excluded from the assessment of hedge effectiveness for fair value, cash flow, and NIFO hedging activities are included in the consolidated statement of income, and are not significant for the years ended October 31, 2012 and 2011. The following table presents the notional amounts and carrying value of our hedging-related derivative instruments:
$ millions, as at
Oct. 31 2012 Derivatives notional amount Carrying value Positive $ 1,814 49 $ 1,863 Negative Derivatives notional amount
Oct. 31 2011 Carrying value Positive $ 2,178 46 44 $ 2,268 Negative $ 842 22 $ 864 Derivatives notional amount $ 84,298 8,534 1,367 $ 94,199
Nov. 1 2010 Carrying value Positive $ 1,240 60 5 $ 1,305 Negative $ 696 19 $ 715
In addition, foreign currency denominated deposit liabilities of $69 million (October 31, 2011: $54 million; November 1, 2010: $62 million) and $2.2 billion (October 31, 2011: $2.3 billion; November 1, 2010: $659 million) have been designated as fair value hedges of foreign exchange risk and NIFO hedges, respectively. The cash flows designated as hedged items are expected to occur as follows:
$ millions, as at
1 to 3 years $ 87 79
Over 8 years $ $ $ 14
Cash inflows Cash outflows Net cash flow Cash inflows Cash outflows Net cash flow
$ (125) $
$ (87) $
$ (121) $
$ (141)
$ (79)
$ (134)
$ (14)
Income related to interest cash flows is recognized using the effective interest method over the life of the underlying investment.
132
Note 14
Subordinated indebtedness
The debt issues included in the table below are outstanding unsecured obligations of CIBC and its subsidiaries and are subordinated to the claims of depositors and other creditors as set out in their terms. Foreign currency denominated indebtedness either funds foreign currency denominated assets (including our net investment in foreign operations) or is combined with cross-currency swaps to provide funding on a cost-effective basis and to manage currency risk. All redemptions are subject to regulatory approval.
$ millions, as at
Oct. 31 2011
Nov. 1 2010
At par
9.65 October 31, 2014 4.55(3) March 28, 2016 Fixed(5) September 23, 2018 Floating(6) June 22, 2017 5.15(8) June 6, 2018 4.11(9) April 30, 2020 3.15(11) November 2, 2020 6.00(12) June 6, 2023 8.70 May 25, 2029(13) 11.60 January 7, 2031 10.80 May 15, 2031 8.70 May 25, 2032(13) 8.70 May 25, 2033(13) 8.70 May 25, 2035(13) Floating(14) July 31, 2084 Floating(15) August 31, 2085
June 6, 2008 April 30, 2010 June 6, 2008 January 7, 1996 May 15, 2021
291 $ 250 $ 311 $ 250 $ 325 1,080 1,093 30 30 30 32 32 276 276 284 284 552 550 554 550 557 1,100 1,100 1,100 1,100 1,100 1,500 1,500 1,500 600 600 600 600 600 45 25 43 25 42 200 200 200 200 200 150 150 150 150 150 47 25 44 25 43 47 25 45 25 43 49 25 46 25 44 168 168 168 202 202 52 66 66 68 68 4,831 (8) 4,990 5 5,133 5 4,616 (10) 4,783 (10)
(6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16)
Canada Yield Price: a price calculated at the time of redemption to provide a yield to maturity equal to the yield of a Government of Canada bond of appropriate maturity plus a pre-determined spread. Carrying values of fixed-rate subordinated indebtedness notes reflect the impact of interest rate hedges in an effective hedge relationship. Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.00% above the three-month Canadian dollar bankers acceptance rate. On this date, we redeemed the outstanding principal amount plus unpaid accrued interest to the redemption date. Guaranteed Subordinated Term Notes in Trinidad and Tobago dollars issued on March 23, 2007 by FirstCaribbean International Bank (Trinidad & Tobago) Limited, a subsidiary of FirstCaribbean International Bank Limited, and guaranteed on a subordinated basis by FirstCaribbean International Bank Limited. Interest rate was fixed for the first two years at 7.90%; then fixed for the next three years at 8.15%; thereafter fixed at 8.75% for the remaining tenor. Effective September 23, 2012, the subordinated notes were amended, and the maturity date was extended to September 23, 2018 and the interest was reduced to 4.35% per annum for the remaining term. Issued by CIBC World Markets plc and guaranteed by CIBC on a subordinated basis. Interest rate is based on the three-month Euribor plus 0.20% until the earliest date redeemable by CIBC World Markets plc and, thereafter, on the three-month Euribor plus 0.70%. On this date, we redeemed the outstanding principal amount plus unpaid accrued interest to the redemption date. Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 2.30% above the three-month Canadian dollar bankers acceptance rate. Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.90% above the three-month Canadian dollar bankers acceptance rate. CIBCs ability to redeem prior to this date is subject to our receipt of notice or advice from OSFI that the Debentures no longer qualify as Tier 2 capital. Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 1.27% above the three-month Canadian dollar bankers acceptance rate. Interest rate is fixed at the indicated rate until the earliest date redeemable at par by CIBC and, thereafter, at a rate of 2.50% above the three-month Canadian dollar bankers acceptance rate. Not redeemable prior to maturity date. Interest rate is based on the six-month US$ LIBOR plus 0.25%. Interest rate is based on the six-month US$ LIBOR plus 0.125%. US$15 million of this issue was repurchased and cancelled during the year.
Note 15
Common shares
Effective April 26, 2012, the Board of Directors and CIBC common shareholders approved removing the cap on the maximum aggregate consideration for which CIBCs common shares may be issued. Accordingly, CIBCs authorized capital now consists of an unlimited number of common shares, without nominal or par value. Previously, CIBC was authorized to issue an unlimited number of common shares without nominal or par value, provided that the maximum aggregate consideration for all outstanding common shares at any time did not exceed $15 billion. Normal course issuer bid On September 5, 2012, the Toronto Stock Exchange accepted the notice of CIBCs intention to commence a new normal course issuer bid. Purchases under this bid commenced on September 7 and will terminate upon the earlier of (i) CIBC purchasing 8.1 million common shares, (ii) CIBC providing a notice of termination, or (iii) September 6, 2013. As of October 31, 2012, we purchased and cancelled 2,025,000 common shares under this bid at an average price of $77.33 for a total amount of $157 million.
Preferred shares
CIBC is authorized to issue an unlimited number of Class A Preferred Shares and Class B Preferred Shares without nominal or par value, issuable in series, provided that, for each class of preferred shares, the maximum aggregate consideration for all outstanding shares, at any time does not exceed $10 billion. There are no Class B Preferred Shares currently outstanding.
CIBC 2012 ANNUAL REPORT
133
Oct. 31 2012 Dividends paid Amount $ 1,470 $ 16 14 17 18 6 7 16 21 13 128 $ per share $ 3.64 $ 1.37 1.44 1.40 1.35 0.29 0.56 1.34 1.63 1.63 Shares outstanding Number of shares 400,534,211 12,000,000 10,000,000 12,000,000 13,232,342 18,000,000 12,000,000 12,000,000 13,000,000 8,000,000 Amount $ 7,376 $ 300 250 300 331 450 300 300 325 200 Number of shares
Oct. 31 2011 Dividends paid Amount $ 1,391 $ 16 14 17 (4) 18 15 21 14 16 21 13 165 $ per share $ 3.51 $ 1.38 1.44 1.40 0.04 1.35 0.90 1.18 1.13 1.34 1.63 1.63 Number of shares 392,738,700 12,000,000 10,000,000 12,000,000 2,000 13,232,342 16,000,000 18,000,000 12,000,000 12,000,000 13,000,000 8,000,000
Nov. 1 2010 Shares outstanding Amount $ 6,804 $ 300 250 300 (4) 331 400 450 300 300 325 200
Shares outstanding Amount $ 7,769 $ 250 300 331 300 325 200
Common shares(1) Class A Preferred Shares Series 18(2) Series 26 Series 27 Series 28(3) Series 29 Series 30(5) Series 31(6) Series 32(7) Series 33 Series 35 Series 37
$ 1,706
(1) (2) (3) (4) (5) (6) (7)
$ 2,756
$ 3,156
Includes treasury shares. We redeemed all of our 12 million Non-cumulative Class A Series 18 Preferred Shares with a par value and redemption price of $25.00 each for cash on October 29, 2012. We redeemed all 2,000 of the remaining outstanding Non-cumulative Class A Series 28 Preferred Shares with a par value of $10.00 each at a redemption price of $10.00 per share for cash on April 28, 2011. Due to rounding. We redeemed all of our 16 million Non-cumulative Class A Series 30 Preferred Shares with a par value of $25.00 each at a redemption price of $25.75 per share for cash on July 31, 2011. We redeemed all of our 18 million Non-cumulative Class A Series 31 Preferred Shares with a par value of $25.00 each at a redemption price of $26.00 per share for cash on January 31, 2012. We redeemed all of our 12 million Non-cumulative Class A Series 32 Preferred Shares with a par value of $25.00 each at a redemption price of $26.00 per share for cash on April 30, 2012.
134
Specified redemption date April 30, 2008 April 30, 2009 April 30, 2010 April 30, 2011 April 30, 2012 October 31, 2008 October 31, 2009 October 31, 2010 October 31, 2011 October 31, 2012 May 1, 2010 May 1, 2011 May 1, 2012 May 1, 2013 May 1, 2014 July 31, 2014 April 30, 2014 July 31, 2014
Cash redemption price per share $ 26.00 25.75 25.50 25.25 25.00 $ 26.00 25.75 25.50 25.25 25.00 $ 26.00 25.75 25.50 25.25 25.00 $ 25.00 $ 25.00 $ 25.00
Series 26
Series 27
$ 0.350000
Series 29
$ 0.337500
(1) Quarterly dividends are adjusted for the number of days during the quarter that the share is outstanding at the time of issuance and redemption.
2012 Number of shares Amount $ 7,376 68 271 91 Number of shares 392,738,700 1,242,462 5,501,553 1,090,096
Balance at beginning of year Issuance pursuant to: Stock option plans Shareholder investment plan(1) Employee share purchase plan(2) Purchase of common shares for cancellation Treasury shares Balance at end of year
(1) Commencing with dividends paid on July 27, 2012, the participants in the Dividend Reinvestment Option and Stock Dividend Option of the Shareholder Investment Plan do not receive a discount from average market price on the reinvested dividends in additional common shares. Previously, the shares were issued at a 2% discount commencing with the dividends paid on April 28, 2011 and prior to that, effective July 2009, they were issued at a 3% discount. Commencing with the first quarter of 2013 dividend payment, shares distributed under the Shareholder Investment Plan will be acquired in the open market. (2) Employee contributions to our Canadian ESPP have been used to purchase common shares issued from Treasury.
135
Capital Tier 1 capital Total regulatory capital Risk-weighted assets Credit risk Market risk Operational risk Total risk-weighted assets Capital ratios Tier 1 capital ratio Total capital ratio Assets-to-capital multiple
(1) Capital measures for 2011 are under Canadian generally accepted accounting principles and have not been restated for IFRS. (2) Incorporates OSFIs IFRS transitional relief election (see discussion below for further details).
During the years ended October 31, 2012 and 2011, we have complied with all of our regulatory capital requirements.
Starting January 1, 2013, banks will commence implementing the significant capital reforms (referred to as Basel III) proposed by BCBS since December 2009. The reforms will increase the quality, quantity, and consistency of capital to strengthen the resilience of the banking sector. OSFI has confirmed that Basel III will be adopted in Canada, and has issued draft revisions to its guidelines for capital adequacy in Canada which incorporate Basel III reforms.
136
Note 16
On March 13, 2009, CIBC Capital Trust (the Trust), a consolidated trust, issued $1,300 million of CIBC Tier 1 Notes Series A, due June 30, 2108, and $300 million of CIBC Tier 1 Notes Series B, due June 30, 2108 (collectively, the Notes). The Notes are structured to achieve Tier 1 regulatory capital treatment and, as such, have features of equity capital, including the deferral of cash interest under certain circumstances (Deferral Events). In the case of a Deferral Event, holders of the Notes will be required to invest interest paid on the Notes in our perpetual preferred shares. Should the Trust fail to pay the semi-annual interest payments on the Notes in full, we will not declare dividends of any kind on any of our preferred or common shares for a specified period of time. In addition, the Notes will be automatically exchanged for our perpetual preferred shares upon the occurrence of any one of the following events: (i) proceedings are commenced for our winding-up; (ii) OSFI takes control of us or our assets; (iii) we or OSFI are of the opinion that our Tier 1 capital ratio is less than 5% or our Total capital ratio is less than 8%; or (iv) OSFI directs us pursuant to the Bank Act to increase our capital or provide additional liquidity and we elect such automatic exchange or we fail to comply with such direction. Upon such automatic exchange, holders of the Notes will cease to have any claim or entitlement to interest or principal against the Trust. CIBC Tier 1 Notes Series A will pay interest, at a rate of 9.976%, semi-annually until June 30, 2019. On June 30, 2019, and on each five-year anniversary thereafter, the interest rate on the CIBC Tier 1 Notes Series A will reset to the five-year Government of Canada bond yield at such time plus 10.425%. CIBC Tier 1 Notes Series B will pay interest, at a rate of 10.25%, semi-annually until June 30, 2039. On June 30, 2039, and on each five-year anniversary thereafter, the interest rate on the CIBC Tier 1 Notes Series B will reset to the five-year Government of Canada bond yield at such time plus 9.878%. According to OSFI guidelines, innovative capital instruments can comprise up to 15% of net Tier 1 capital with an additional 5% eligible for Tier 2 capital. Subject to the approval of OSFI, the Trust may, in whole or in part, on the redemption dates specified in the table below, and on any date thereafter, redeem the CIBC Tier 1 Notes Series A or Series B without the consent of the holders. Also, subject to the approval of OSFI, the Trust may redeem all, but not part of, the CIBC Tier 1 Notes Series A or Series B prior to the earliest redemption date specified in the table below without the consent of the holders, upon the occurrence of certain specified tax or regulatory events. In February 2011, OSFI issued advisories confirming the adoption of Basel III in Canada and clarifying the treatment of non-qualifying capital instruments. Non-qualifying capital instruments are subject to a 10% phase-out per annum commencing 2013. Banks are expected to develop and maintain a redemption schedule for non-qualifying capital instruments that gives priority to redeeming instruments at their regular par redemption dates before exercising any regulatory event redemption rights. With the adoption of Basel III, innovative capital instruments such as the CIBC Tier 1 Notes will be viewed as non-qualifying capital instruments. We expect to exercise our regulatory event redemption rights in fiscal 2022 in respect of the $300 million CIBC Tier 1 Notes Series B. The table below presents the significant terms and conditions of the Notes:
$ millions, as at
Oct. 31 2012 Earliest redemption dates At greater of Canada Yield Price(1) and par
Oct. 31 2011
Nov. 1 2010
Yield
At par
March 13, 2009 June 30, December 31 9.976% June 30, 2014 June 30, 2019 March 13, 2009 June 30, December 31 10.250% June 30, 2014 June 30, 2039
(1) Canada Yield Price: a price calculated at the time of redemption (other than an interest rate reset date applicable to the series) to provide a yield to maturity equal to the yield on a Government of Canada bond of appropriate maturity plus (i) for the CIBC Tier 1 Notes Series A, (a) 1.735% if the redemption date is any time prior to June 30, 2019, or (b) 3.475% if the redemption date is any time on or after June 30, 2019, and (ii) for the CIBC Tier 1 Notes Series B, (a) 1.645% if the redemption date is any time prior to June 30, 2039, or (b) 3.29% if the redemption date is any time on or after June 30, 2039.
137
Note 17
The table below details our exposure to interest rate risk resulting from the mismatch, or gap, relating to trading and non-trading financial assets, liabilities, and derivative off-balance sheet instruments. On- and off-balance sheet financial instruments have been reported on the earlier of their contractual repricing date or maturity date. Certain contractual repricing dates have been adjusted according to managements estimates for prepayments and early redemptions. We manage interest rate gap by imputing a duration to certain assets and liabilities based on historical and forecasted trends in core balances. The repricing profile of these assets and liabilities has been incorporated in the table below. We have applied structural assumptions for credit cards and demand and notice deposits while shareholders equity has been treated as non-interest rate sensitive.
Based on earlier of maturity or repricing date of interest rate sensitive instruments
$ millions, as at
Within 3 months 2,038 1,054 11,254 28,436 22,122 31,204 1,150 97,258 72,615 405 8,224 168 30,330 5,766 117,508 (20,250) (34,469) (54,719) (16,953) $
Oct. 31 2012
Assets Cash and deposits with banks Trading securities AFS securities FVO securities Securities borrowed or purchased under resale agreements Loans Other Structural assumptions Total assets Liabilities and equity Deposits Obligations related to securities sold short Obligations related to securities lent or sold under repurchase agreements Subordinated indebtedness Other Structural assumptions Total liabilities and shareholders equity On-balance sheet gap Off-balance sheet gap(1) Total gap Total cumulative gap Gap by currency On-balance sheet gap Canadian currency Foreign currencies Total on-balance sheet gap Off-balance sheet gap(1) Canadian currency Foreign currencies Total off-balance sheet gap Total gap
$ $
38 31,742 4,146 $ 39,033 $ 41,514 447 625 20,756 63,342 (24,309) 25,372 1,063 (15,890)
65,806 8,610 $ 84,222 $ 53,904 3,919 2,891 2,503 24,920 88,137 (3,915) 10,015 6,100 (9,790)
2,296 $ 14,538 $ 8,132 3,896 1,139 634 13,801 737 (918) (181) (9,971)
3,721 21,350 (3,002) $ 52,629 $ 32,477 4,368 33,492 (27,679) 42,658 9,971 9,971
28,474 242,296 52,554 $ 393,385 $ 300,344 13,035 8,224 4,823 66,959 393,385
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $
$ $ $ $ $
Oct. 31 2011
Gap by currency On-balance sheet gap Canadian currency Foreign currencies Total on-balance sheet gap Off-balance sheet gap(1) Canadian currency Foreign currencies Total off-balance sheet gap Total gap Gap by currency On-balance sheet gap Canadian currency Foreign currencies Total on-balance sheet gap Off-balance sheet gap(1) Canadian currency Foreign currencies Total off-balance sheet gap Total gap
$ $ $ $ $
$ $
$ $ $ $ $
$ $ $ $ $
Nov. 1 2010
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
(1) Includes derivative instruments which are reported on the consolidated balance sheet at fair value.
138
Note 18
Share-based payments
Directors plans
Under the Director Deferred Share Unit/Common Share Election Plan, each director who is not an officer or employee of CIBC may elect to receive the annual amount payable by CIBC as either Deferred Share Units (DSUs) or common shares. For purposes of this plan, the annual amount payable is the non-cash component of the director retainer. Under the Non-Officer Director Share Plan, each non-officer director may elect to receive all or a portion of their cash-eligible remuneration in the form of cash, common shares or DSUs. For purposes of this plan, cash-eligible remuneration includes the cash component of the director retainer, the Chair of the Board retainer, meeting attendance fees, non-resident attendance fees, committee chair retainers and committee member retainers. The value of DSUs credited to a director is payable when he or she is no longer a director or employee of CIBC and, in addition, for directors subject to section 409A of the U.S. Internal Revenue Code of 1986, as amended, the director is not providing any services to CIBC or any member of its controlled group as an independent contractor. In addition, under the Director Deferred Share Unit/Common Share Election Plan, the value of DSUs is payable when the director is no longer related to, or affiliated with, CIBC as defined in the Income Tax Act (Canada). Other non-interest expense in respect of the DSU components of these plans, before the impact of hedging, totalled $3 million in 2012 (2011: $2 million). Liabilities in respect of DSUs totalled $11 million (October 31, 2011: $9 million; November 1, 2010: $8 million).
139
Weighted-average assumptions Risk-free interest rate Expected dividend yield Expected share price volatility Expected life Share price / exercise price
Compensation expense in respect of stock options totalled $7 million in 2012 (2011: $6 million).
2012 Number of stock options Weightedaverage exercise price $ 66.34 71.73 50.76 70.49 70.78 $ 70.95 $ 71.78 Number of stock options 5,641,221 419,989 (1,242,462) (41,580) (30,620) 4,746,548 3,018,340 5,945,121
2011 Weightedaverage exercise price $ 62.88 78.41 54.72 64.56 68.61 $ 66.34 $ 66.05
Outstanding at beginning of year Granted Exercised(1) Forfeited Cancelled / expired Outstanding at end of year Exercisable at end of year Available for grant
(1) The weighted-average share price at the date of exercise was $74.26 (2011: $79.51).
Range of exercise prices $40.00 $49.00 $49.01 $55.00 $55.01 $65.00 $65.01 $75.00 $75.01 $85.00 $85.01 $105.00
Hedging
The impact due to changes in CIBCs share price in respect of cash-settled share-based compensation under the RSA, PSU, and DSU plans is hedged through the use of derivatives. The gains and losses on these derivatives are recognized in compensation expense. During the year, we recorded gains of $37 million (2011: gain of $18 million) in the consolidated statement of income in respect of these derivatives. As at October 31, 2012, the ending AOCI balance in respect of the designated accounting hedges totalled a credit of $9 million (2011: $1 million).
140
Note 19
Post-employment benefits
We sponsor pension and other post-employment benefit plans for eligible employees. Our pension plans include registered funded defined benefit pension plans, supplemental arrangements that provide pension benefits in excess of statutory limits, and defined contribution plans. The defined benefit pension plans are predominantly non-contributory, but some participants contribute to their respective plans so as to receive higher pension benefits. These benefits are, in general, based on years of service and compensation near retirement. Effective January 1, 2012, there is a two-year waiting period for new members to join our principal Canadian pension plan. We also provide certain health-care, life insurance, and other benefits to eligible employees and pensioners. Plan assets and defined benefit obligations related to our defined benefit plans are measured for accounting purposes as at October 31 each year. The following table presents the financial position of the defined benefit pension and other post-employment plans for Canada, the U.S., the U.K., and our Caribbean subsidiaries. Other minor plans operated by some of our subsidiaries are not material and are not included in these disclosures.
Pension plans
$ millions, as at or for the year ended October 31
Other post-employment plans 2012 $ 570 9 30 (26) 71 1 $ 655 $ 26 (26) 2011 $ 536 9 29 (27) 23 $ 570 $ 27 (27)
2012 $ 4,973 161 6 278 (236) 664 $ 5,846 $ 4,895 315 93 476 6 (236) (1) $ 5,548 $ (298) 827 529 (17) 512
2011 $ 4,615 150 6 260 (222) (9) 163 10 $ 4,973 $ 4,608 292 (60) 281 6 (222) (9) (1) $ 4,895 $ (78) 257 1 180 (18) 162
Defined benefit obligation Balance at beginning of year Current service cost Employee contributions Interest cost on defined benefit obligation Benefits paid Foreign exchange rate changes Net actuarial losses on defined benefit obligation Plan amendments Balance at end of year Plan assets Fair value at beginning of year Expected return on plan assets(1) Net actuarial gains (losses) on plan assets(1) Employer contributions Employee contributions Benefits paid Foreign exchange rate changes Net transfer out Fair value at end of year Funded status deficit Unamortized net actuarial losses Unamortized past service costs (gains) Net defined benefit asset (liability) Valuation allowance Net defined benefit asset (liability), net of valuation allowance
(1) The actual return on plan assets for the year ended October 31, 2012 was $408 million (2011: $232 million).
$ $
$ $
The net defined benefit asset (liability), net of valuation allowance, included in other assets and other liabilities is as follows:
Pension plans Other post-employment plans
Oct. 31
$ millions, as at
Oct. 31
2011 $ 221 (59) $ 162
Nov. 1
2010 $ 105 (92) $ 13
Oct. 31
2012 $ (606)
Oct. 31
2011 $ (599)
Nov. 1
2010 $ (597)
$ (606)
$ (599)
$ (597)
Included in the defined benefit obligation and fair value of plan assets at year end are the following amounts in respect of plans with defined benefit obligations in excess of fair value of assets:
Pension plans
$ millions, as at
Other post-employment plans Oct. 31 2012 $ 655 655 $ (655) Oct. 31 2011 $ 570 570 $ (570) Nov. 1 2010 $ 536 536 $ (536)
Defined benefit obligation Unfunded plans Funded plans Fair value of plan assets Funded status deficit
141
Current service cost Interest cost on defined benefit obligation Expected return on plan assets Recognition of past service costs (gains) Amortization of net actuarial losses Change in valuation allowance Net defined benefit plan expense recognized
Investment policy
CIBCs Board of Directors has delegated the responsibility for establishing pension fund investment objectives and policies and monitoring pension investment policy to the Boards Management Resources and Compensation Committee (MRCC). The MRCC is responsible for establishing investment policies such as asset mix, permitted investments, and use of derivatives. While specific investment policies are determined at a plan level to reflect the unique characteristics of each plan, common investment policies for all plans include the optimization of the risk-return relationship using a portfolio of various asset classes diversified by market segment, economic sector, and issuer. The objectives are to secure the obligations of our funded plans, to maximize investment returns while not compromising the security of the respective plans, and to manage the level of funding contributions. To reduce investment-specific risk and to enhance expected returns, investments are allocated among multiple asset classes, with publicly traded fixed income and equities in active markets, representing the most significant asset allocations. Use of derivative financial instruments is limited to generating the synthetic return of debt or equity instruments or to provide currency hedging for foreign equity holdings. Investments in specific asset classes are further diversified across funds, managers, strategies, sectors and geographies, depending on the specific characteristics of each asset class. The exposure to any one of these asset classes will be determined by our assessment of the needs of the plan assets and economic and financial market conditions. Factors evaluated before adopting the asset mix include demographics, cash-flow payout requirements, liquidity requirements, actuarial assumptions, expected benefit increases, and corporate cash flows. Management of the assets of the various Canadian plans has been delegated primarily to the Pension and Benefits Investment Committee (PBIC), which is a committee composed of CIBC management. The PBIC has appointed investment managers, including CIBC Global Asset Management Inc., a wholly owned subsidiary of CIBC. These managers have investment discretion within established target asset mix ranges as set by the MRCC. Should the actual mix fall outside specified ranges, the assets are rebalanced as required to be within the target asset mix ranges. Similar committees exist for the management of our non-Canadian plans. Risk management oversight as performed by PBIC and other committees includes but is not limited to the following activities: Periodic ALM and strategic asset allocation studies; Monitoring of funding levels and funding ratios; Monitoring compliance with asset allocation guidelines and investment management agreements; Monitoring asset class performance against asset class benchmarks; and Monitoring investment manager performance against benchmarks.
Plan assumptions
The discount rate assumption used in determining pension and other post-employment benefit obligations and net defined benefit plan expense reflects the market yields, as of the measurement date, on high-quality corporate bonds with cash flows that match expected benefit payments. For the Canadian plans, the expected rate of return on plan assets assumption is reviewed annually by management, in conjunction with our actuaries. The assumption is based on expected returns for the various asset classes, weighted by the portfolio allocation. Anticipated future long-term performance of individual asset categories is considered, reflecting expected future inflation and real yields on fixed income securities and equities. In the U.S., U.K., and Caribbean regions, procedures similar to those in Canada are used to develop the expected long-term rate of return on plan assets, taking into consideration local market conditions and the specific allocation of plan assets.
142
Other post-employment plans 2012 4.5% 3.0% 5.5% n/a 3.5% 2011 5.5% 3.5% 5.3% n/a 3.5%
Defined benefit obligation as at October 31 Discount rate at end of the period Rate of compensation increase Net benefit plan expense for the year ended October 31 Discount rate at beginning of the period Expected long-term rate of return on plan assets Rate of compensation increase
n/a Not applicable.
The assumed health-care cost trend rates of the principal Canadian plan providing medical, dental, and life insurance benefits are as follows:
For the year ended October 31
Health-care cost trend rates assumed for next year Rate to which the cost trend rate is assumed to decline Year that the rate reaches the ultimate trend rate
A 100 basis points change in assumed health-care cost trend rates would have the following effects:
Aggregate service and interest costs
$ millions, for the year ended October 31
2012 $ 3 (2)
2011 $ 3 (3)
100 basis points increase in rates 100 basis points decrease in rates
The following tables outline the impact of a change of 100 basis points in certain key assumptions used in measuring the defined benefit obligations and related expenses for our Canadian plans: Estimated increase (decrease) in defined benefit plan expense for the year based on assumptions at the beginning of the year
$ millions, for the year ended October 31
Pension plans 2012 $ 68 (30) 43 (43) (19) 20 2011 $ 17 (26) 40 (40) (18) 20
Other post-employment plans 2012 $ 3 (5) n/a n/a 2011 $ 2 (2) n/a n/a
Discount rate Decrease in assumption Increase in assumption Expected long-term rate of return on plan assets Decrease in assumption Increase in assumption Rate of compensation increase Decrease in assumption Increase in assumption
n/a Not applicable.
Pension plans 2012 $ 893 (850) (192) 193 2011 $ 682 (654) (120) 130
Discount rate Decrease in assumption Increase in assumption Rate of compensation increase Decrease in assumption Increase in assumption
2012 $ 11 79 $ 90
2011 $ 11 78 $ 89
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal Insurance Contributions Act.
143
Other post-employment plans 2012 $ 111 $ 111 2011 $ 61 $ 61 2012 $ 805 90 $ 895
Other post-employment plans 2012 $ 655 $ (655) $ (14) 2011 $ 570 $ (570) $ 8(1)
Defined benefits obligation Fair value of plan assets Funded status deficit Experience (losses) gains on plan liabilities for the year Experience gains (losses) on plan assets for the year
(1) Restated.
Cash flows
Cash contributions The most recently completed actuarial valuation of the principal defined benefit pension plan for funding purposes was as at October 31, 2011. The next required actuarial valuation of this plan for funding purposes will be effective as of October 31, 2012. The minimum contributions for 2013 are anticipated to be $189 million for defined benefit pension plans and $28 million for other post-employment benefit plans. These estimates are subject to change since contributions are affected by various factors, such as market performance, regulatory requirements, and managements ability to change funding policy.
Note 20
Income taxes
2012 2011
Consolidated statement of income Provision for current income taxes Adjustments for prior years Current income tax expense Provision for deferred income taxes Adjustments for prior years Effect of changes in tax rates and laws Origination and reversal of temporary differences
Current income taxes Federal Provincial Foreign Deferred income taxes Federal Provincial Foreign
144
2012 $ 1,071 (116) (206) (8) (33) (4) $ 704 26.5% (2.9) (5.1) (0.2) (0.8) (0.1) 17.4% $ $ 1,073 (11) (136) 28 (24) (3) 927
Combined Canadian federal and provincial income tax rate applied to income before income taxes Income taxes adjusted for the effect of: Earnings of foreign subsidiaries Tax-exempt income Changes in income tax rate on deferred tax balances Impact of equity-accounted income Other Income taxes in the consolidated statement of income
145
Provisions $ 50 (4) $ 46
Unearned income
Other 12 10 1 23 $
Deferred tax assets Balance at beginning of year Recognized in net income Other (2) Balance at end of year
$ 104 $ (32) $ 72 $
Securities revaluation $
Other
Total liabilities $ (358) 95 (6) (1) (270) 420 Total assets $ 1,873 (900) (7) (15) $ 951
$ $
Provisions $ 36 16 (2) $ 50
Other
Deferred tax assets Balance at beginning of year Recognized in net income Recognized in OCI Other (2) Balance at end of year
Other
$ $
$ 1,122
(1) The tax loss carryforwards include $37 million (2011: $42 million) that relate to operating losses (of which $21 million relate to the U.S. and $16 million relate to other jurisdictions) that expire in various years commencing in 2013, and $32 million (2011: $22 million) that relate to capital losses that never expire. (2) Includes foreign currency translation adjustments.
The net deferred tax asset is included in Other assets and Other liabilities as follows:
$ millions, as at
Temporary differences
The amount of unused tax losses for which deferred tax assets have not been recognized was $717 million as at October 31, 2012 (2011: $717 million) of which $79 million (2011: $124 million) has no expiry date, and of which $638 million (2011: $593 million) expire within 10 years.
Enron
In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation and on December 21, 2011 (and reconfirmed on July 5, 2012), in connection with a motion by CIBC to strike the Crowns replies, the Tax Court of Canada struck certain portions of the replies and directed the Crown to submit amended replies. Both the Crown and CIBC appealed the ruling to the Federal Court of Appeal, and the appeal was heard on November 21, 2012. A decision has not yet been rendered.
146
Note 21
$ millions, except per share amounts, for the year ended October 31
Basic EPS Net income attributable to equity shareholders Less: Preferred share dividends and premiums Net income attributable to common shareholders Weighted-average common shares outstanding (thousands) Basic EPS Diluted EPS Net income attributable to common shareholders Add: Dividends on Convertible Preferred Shares Net income attributable to diluted common shareholders Weighted-average common shares outstanding (thousands) Add: Convertible Preferred Shares (1) (thousands) Stock options potentially exercisable (2) (thousands) Weighted-average diluted common shares outstanding (thousands) Diluted EPS
(1) We have irrevocably renounced by way of a deed poll, our rights to convert the series 26, 27, and 29 non-cumulative Class A Preferred Shares (the Convertible Preferred Shares) into CIBC common shares, except in circumstances that would be a Trigger Event as described in the August 2011 Non-Viability Contingent Capital advisory issued by OSFI. By renouncing our conversion rights, the Convertible Preferred Shares are no longer dilutive subsequent to August 16, 2011, the date the conversion rights were renounced by CIBC. (2) Excludes average options outstanding of 1,513,903 with a weighted-average exercise price of $82.39; and average options outstanding of 1,263,670 with a weighted-average exercise price of $83.79 for the years ended October 31, 2012 and 2011, respectively, as the options exercise prices were greater than the average market price of common shares.
Note 22
Commitments
Credit-related arrangements Credit-related arrangements are generally off-balance sheet instruments and are typically entered into to meet the financing needs of clients. In addition, there are certain exposures for which we could be obligated to extend credit that are not recorded on the consolidated balance sheet. Our policy of requiring collateral or other security to support credit-related arrangements and the types of security held is generally the same as for loans. The contract amounts shown below for credit-related arrangements represent the maximum amount of additional credit that we could be obligated to extend. The contract amounts also represent the additional credit risk amounts should the contracts be fully drawn, the counterparties default and any collateral held proves to be of no value. As many of these arrangements will expire or terminate without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements or actual risk of loss.
Contract amounts
$ millions, as at
Securities lending (1) Unutilized credit commitments (2) Backstop liquidity facilities (3) Standby and performance letters of credit Documentary and commercial letters of credit Other
$ 175,854
(2) Includes irrevocable lines of credit totalling $35.9 billion (October 31, 2011: $32.2 billion; November 1, 2010: $34.9 billion).
$ 160,582
$ 154,439
(1) Excludes securities lending of $1.6 billion (October 31, 2011: $2.8 billion; November 1, 2010: $4.3 billion) for cash because it is reported on the consolidated balance sheet. (3) Excludes backstop liquidity facilities provided to our consolidated sponsored ABCP programs totalling $390 million (October 31, 2011: $1,104 million; November 1, 2010: $964 million).
In addition, client securities lending of a joint venture which CIBC has with The Bank of New York Mellon totalled $48.1 billion (October 31, 2011: $46.3 billion; November 1, 2010: $45.0 billion) of which securities lending with indemnification totalled $46.5 billion (October 31, 2011: $44.5 billion; November 1, 2010: $42.5 billion). Securities lending Securities lending represents our credit exposure when we lend our own or our clients securities to a borrower and the borrower defaults on the redelivery obligation. The borrower must fully collateralize the security lent at all times. Unutilized credit commitments Unutilized credit commitments are the undrawn portion of lending facilities that we have approved to meet the requirements of clients. These lines may include various conditions that must be satisfied prior to drawdown and include facilities extended in connection with contingent acquisition financing. The credit risk associated with these lines arises from the possibility that a commitment will be drawn down as a loan at some point in the future, prior to the
CIBC 2012 ANNUAL REPORT
147
Finance lease commitments(1) Future minimum lease payments for finance lease commitments for each of the five succeeding years and thereafter are as follows:
$ millions, as at October 31, 2012
2013 2014 2015 2016 2017 2018 and thereafter Less: Future interest charges Present value of finance lease commitments
(1) Total interest expense related to finance lease arrangements was $28 million (2011: $28 million).
$ 400
Other commitments As an investor in merchant banking activities, we enter into commitments to fund external private equity funds and investments in equity and debt securities at market value at the time the commitments are drawn. In connection with these activities, we had commitments to invest up to $178 million (October 31, 2011: $354 million; November 1, 2010: $294 million). In addition, we act as underwriter for certain new issuances under which we alone or together with a syndicate of financial institutions purchase the new issue for resale to investors. As at October 31, 2012, the related underwriting commitments were $184 million (October 31, 2011: $333 million; November 1, 2010: $183 million).
148
Pledged assets
In the ordinary course of business, we pledge our own assets, or may sell or re-pledge third-party assets against liabilities, or to facilitate certain activities, pursuant to agreements permitting such re-pledging of third-party assets where required. The following table presents the carrying value of the sources and uses of our own pledged assets and collateral:
Oct. 31 2012 $ 14 8,387 47,515 4,898 4,120 $ Oct. 31 2011 27 9,418 47,676 3,632 4,397 $ Nov. 1 2010 41 18,924 39,983 3,535 4,912
$ millions, as at
Sources of pledged assets and collateral (1) Deposits with banks Securities Mortgages (2) Credit cards (3) Other assets Uses of pledged assets and collateral Securities lent Obligations related to securities lent or sold under repurchase agreements Secured borrowings Derivative transactions (4) Foreign governments and central banks (5) Clearing systems, payment systems, depositories, and other (5)
$ 64,934
$ 65,150
$ 67,395
(1) Does not include over-collateralization of assets pledged. (2) Includes certain cash in transit balances related to the securitization process. (3) These assets are held in consolidated securitization trusts and support funding liabilities of $4.9 billion with a fair value of $5.0 billion (October 31, 2011: $3.6 billion with a fair value of $3.7 billion; November 1, 2010: $3.5 billion with a fair value of $3.6 billion). (4) Comprises margins for exchange-traded futures and options, clearing house settled swap contracts, and collateralized derivative transactions. (5) Includes assets pledged in order to participate in clearing and payment systems and depositories, or to have access to the facilities of central banks in foreign jurisdictions. Excludes interday pledges to the Bank of Canada related to the Large Value Transfer System as they are normally released back to us at the end of the settlement cycle each day.
The following table presents the uses of third party pledged assets and collateral available for sale or re-pledging:
Oct. 31 2012 $ 44,718 14,726 $ 29,992 Uses of pledged assets and collateral Securities lent Obligations related to securities lent or sold under repurchase agreements Obligations related to securities sold short Derivative transactions (1) $ 10,072 6,429 13,035 456 $ 29,992
(1) Comprises margins for exchange-traded futures and options, clearing house settled swap contracts, and collateralized derivative transactions.
$ millions, as at
Collateral received and available for sale or re-pledging Less: not sold or re-pledged
$ 25,367
$ 30,628
In addition, we transact securities lending activities in which we act as an agent for the owners of securities through a joint venture which we have with The Bank of New York Mellon. See Commitments section above for details.
149
Note 23
CIBC is a party to a number of legal proceedings, including regulatory investigations, in the ordinary course of its business. While it is inherently difficult to predict the outcome of such matters, based on current knowledge and consultation with legal counsel, we do not expect that the outcome of any of these matters, individually or in aggregate, would have a material adverse effect on our consolidated financial position. However, the outcome of any such matters, individually or in aggregate, may be material to our operating results for a particular period. The following is a description of CIBCs significant legal proceedings, which we intend to vigorously defend.
Fresco v. Canadian Imperial Bank of Commerce Gaudet v. Canadian Imperial Bank of Commerce
In June 2007, two proposed class actions were filed against CIBC in the Ontario Superior Court of Justice (Fresco v. CIBC) and in the Quebec Superior Court (Gaudet v. CIBC). Each makes identical claims for unpaid overtime for full-time, part-time, and retail frontline non-management employees. The Ontario action seeks $500 million in damages plus $100 million in punitive damages for all employees in Canada, while the Quebec action is limited to employees in Quebec and has been stayed pending the outcome of the Ontario action. In June 2009, in the Ontario action, the motion judge denied certification of the matter as a class action. In February 2010, the motion judge awarded CIBC $525,000 for its costs in defending the certification motion. In September 2010, the Ontario Divisional Court upheld the motion judges denial of the plaintiffs certification motion and the award of costs to CIBC by a two to one majority. In January 2011, the Ontario Court of Appeal granted the plaintiff leave to appeal the decision denying certification. In June 2012, the Ontario Court of Appeal overturned the lower court and granted certification of the matter as a class action. CIBC is seeking leave to appeal to the Supreme Court of Canada.
Brown v. Canadian Imperial Bank of Commerce and CIBC World Markets Inc.
In 2008, this proposed class action was filed in the Ontario Superior Court of Justice against CIBC World Markets Inc. claiming $350 million for unpaid overtime on behalf of investment bankers, investment advisors, traders, analysts, and others and an additional $10 million in punitive damages. In 2009, the plaintiff amended the statement of claim adding CIBC as a co-defendant and adding a new plaintiff. The proposed amended class includes analysts and investment advisors in Ontario who were not paid overtime or treated as eligible for overtime. In April 2012, the Ontario Superior Court of Justice denied certification of the matter as a class action. The plaintiffs have filed an appeal to the Ontario Divisional Court.
150
Balance at beginning of year Additional new provisions recognized Less: Amounts incurred and charged against existing provisions Unused amounts reversed Balance at end of year
151
Note 24
Concentration of credit exposure may arise with a group of counterparties that have similar economic characteristics or are located in the same geographic region. The ability of such counterparties to meet contractual obligations would be similarly affected by changing economic, political, or other conditions. The amounts of credit exposure associated with our on- and off-balance sheet financial instruments are summarized in the following table:
$ millions, as at
$ 315,937 $ 34,796
$ 27,573 $ 378,306 $ 309,920 $ 29,283 $ 30,392 $ 369,595 $ 290,628 $ 29,343 $ 44,218 $ 364,189
6,390 $ 1,002 4,128 6 97,412 35,071 5,200 143,001 6,208 237 29 477 743
313 $ 7,705 $ 6,401 $ 1,385 $ 255 $ 8,041 $ 6,692 $ 1,136 $ 655 $ 8,483 4,134 3,971 12 3,983 4,281 3 4,284 3 97,415 96,041 65 96,106 92,601 92,601 2,621 42,892 29,113 4,123 1,245 34,481 24,263 3,026 3,038 30,327 2,937 1,994 43 249 2,286 152,146 16,935 896 5,877 23,708 135,526 10,642 656 4,650 15,948 5,520 407 24 271 702 1,565 993 159 169 1,321 142,611 12,042 839 5,090 17,971 127,837 10,893 125 4,155 15,173 4,165 1,863 215 2,078 3,693 1,023 5 465 1,493 135,695 13,779 130 4,835 18,744
Other credit-related arrangements Financial institutions 14,704 Governments 824 Other 5,151 20,679 Derivative instruments (4) By counterparty type Financial institutions (5) Governments Other Less: effect of master netting agreements Total derivative instruments $
$ 163,680 $ 6,951
$ 5,223 $ 175,854 $ 151,474 $ 6,222 $ 2,886 $ 160,582 $ 143,010 $ 6,243 $ 5,186 $ 154,439
$ 5,154 $ 21,373 $ 4,051 152 1,370 5,306 (4,124) $ 1,182 $ 26,794 (20,070) 6,724 $
7,445 $ 9,774 $ 5,844 $ 23,063 $ 3,570 3,570 1,062 37 200 1,299 12,077 (9,511) 9,811 (6,782) 6,044 (4,430) 27,932 (20,723) 7,209 $
5,863 $ 5,528 $ 9,008 $ 20,399 2,664 2,664 1,117 197 44 1,358 9,644 (7,001) 5,725 (4,063) 9,052 (5,889) 24,421 (16,953) 7,468
2,394 $ 3,148
(1) Major assets consist of cash and deposits with banks, loans and acceptances net of allowance for credit losses, securities, securities borrowed or purchased under resale agreements, and derivative instruments. (2) Includes Canadian currency of $320.1 billion (October 31, 2011: $314.1 billion; November 1, 2010: $301.7 billion) and foreign currencies of $58.2 billion (October 31, 2011: $55.5 billion; November 1, 2010: $62.5 billion). (3) Includes loans and acceptances, net of allowance for credit losses, totalling $252.7 billion (October 31, 2011: $248.4 billion; November 1, 2010: $237.2 billion). No industry or foreign jurisdiction accounts for more than 10% of this amount. (4) Also included in the on-balance sheet major assets in the table. (5) Includes positive fair value (net of CVA) of $269 million (October 31, 2011: $477 million; November 1, 2010: $732 million) on notional amounts of $6.5 billion (October 31, 2011: $7.2 billion; November 1, 2010: $13.4 billion) with financial guarantors.
In addition, client securities lending activities of a joint venture which CIBC has with The Bank of New York Mellon totalled: $48.1 billion as at October 31, 2012, of which $31.8 billion was in Canada, $5.7 billion was in the U.S. and $10.6 billion was in other countries; $46.3 billion as at October 31, 2011 of which $30.0 billion was in Canada, $4.4 billion was in the U.S. and $11.9 billion was in other countries; and $45.0 billion as at November 1, 2010 of which $30.0 billion was in Canada, $5.5 billion was in the U.S. and $9.5 billion was in other countries. See shaded sections in MD&A Management of risk for a detailed discussion on our credit risk.
Note 25
Related-party transactions
In the ordinary course of business, we provide banking services and enter into transactions with related parties on terms similar to those offered to non-related parties. Related parties include key management personnel(1) and their affiliates(2), and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by key management personnel or their affiliates. Related parties also include associated companies and joint ventures accounted for under the equity-method, and post-employment benefit plans for CIBC employees. Loans to these related parties are made in the ordinary course of business and on substantially the same terms, as for comparable transactions with third-party counterparties. We offer a subsidy on annual fees and preferential interest rates on credit card balances to senior officers which is the same offer extended to all employees of the bank.
152
Short-term benefits (1) Post-employment benefits Share-based benefits (2) Termination benefits Total compensation
$ 1 3 $ 4
(1) Comprises salaries, statutory and non-statutory benefits, and pension expenses related to senior officers and fees related to directors recognized during the year. Also includes annual incentive plan payments related to senior officers on a cash basis. (2) Comprises grant-date fair values of awards granted in the year.
Note 26
Joint ventures
CIBC is a 50/50 joint venture partner with The Bank of New York Mellon in two joint ventures: CIBC Mellon Trust Company and CIBC Mellon Global Securities Services Company, which provide trust and asset servicing, both in Canada. As at October 31, 2012, the carrying value of our investments in the joint ventures was $267 million (October 31, 2011: $266 million; November 1, 2010: $197 million), which was included in Corporate and Other. There were no loans outstanding as at October 31, 2012 and 2011 and November 1, 2010 to the joint ventures. Undrawn credit commitments to the joint ventures totalled $100 million as at October 31, 2012 and 2011 and November 1, 2010. CIBC, The Bank of New York Mellon, and CIBC Mellon have, jointly and severally, provided indemnity to customers of the joint ventures in respect of securities lending transactions. See Note 22 for additional details on securities lending transactions. The following table provides the summarized aggregate financial information related to CIBCs proportionate interest in the equity-accounted joint ventures:
2012 $ 3,485 3,227 165 53 2011 $ 2,903 2,642 211 84
Associates
As at October 31, 2012, the total carrying value of our investments was $1,368 million (October 31, 2011: $1,128 million; November 1, 2010: $298 million). These comprised investments in: listed associates with a carrying value of $336 million (October 31, 2011: $135 million; November 1, 2010: $133 million) and a fair value of $310 million (October 31, 2011: $131 million; November 1, 2010: $148 million); and unlisted associates with a carrying value of $1,032 million (October 31, 2011: $993 million; November 1, 2010: $165 million) and a fair value of $1,082 million (October 31, 2011: $1,040 million; November 1, 2010: $176 million). Of our total investment in associates, $890 million (October 31, 2011: $851 million; November 1, 2010: nil) was included in Wealth Management, $318 million (October 31, 2011: $139 million; November 1, 2010: $167 million) in Wholesale Banking, and $160 million (October 31, 2011: $138 million; November 1, 2010: $131 million) in Corporate and Other.
CIBC 2012 ANNUAL REPORT
153
Note 27
Significant subsidiaries
The following is a list of significant subsidiaries in which CIBC, either directly or indirectly, owns 100% of the voting shares, except where noted.
$ millions, as at October 31, 2012
Subsidiary name (1) CIBC Asset Management Holdings Inc. CIBC Asset Management Inc. CIBC BA Limited CIBC Global Asset Management Inc. CIBC Private Investment Counsel Inc. CIBC Investor Services Inc. CIBC Life Insurance Company Limited CIBC Mortgages Inc. CIBC Securities Inc. CIBC Trust Corporation CIBC World Markets Inc. CIBC WM Real Estate Ltd. CIBC WM Real Estate (Quebec) Ltd. CIBC Wood Gundy Financial Services Inc. CIBC Wood Gundy Financial Services (Quebec) Inc. CIBC Delaware Holdings Inc. CIBC World Markets Holdings Inc. CIBC World Markets Corp. Canadian Imperial Holdings Inc. CIBC Inc. CIBC Capital Corporation CIBC Delaware Funding Corp. INTRIA Items Inc. CIBC Holdings (Cayman) Limited CIBC Investments (Cayman) Limited FirstCaribbean International Bank Limited (91.7%) CIBC Bank and Trust Company (Cayman) Limited (91.7%) CIBC Trust Company (Bahamas) Limited (91.7%) FirstCaribbean International Bank (Bahamas) Limited (87.3%) FirstCaribbean International Bank (Barbados) Limited (91.7%) FirstCaribbean International Bank (Cayman) Limited (91.7%) FirstCaribbean International Bank (Jamaica) Limited (90.8%) FirstCaribbean International Bank (Trinidad and Tobago) Limited (91.7%) FirstCaribbean International Wealth Management Bank (Barbados) Limited (91.7%) CIBC International (Barbados) Inc. CIBC Offshore Banking Services Corporation CIBC Reinsurance Company Limited CIBC World Markets Securities Ireland Limited CIBC World Markets plc CIBC World Markets (Japan) Inc. CIBC Australia Ltd.
Address of head or principal office Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Montreal, Quebec, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Mississauga, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Toronto, Ontario, Canada Montreal, Quebec, Canada Toronto, Ontario, Canada Montreal, Quebec, Canada New York, NY, U.S. New York, NY, U.S. New York, NY, U.S. New York, NY, U.S. New York, NY, U.S. New York, NY, U.S. New York, NY, U.S. Mississauga, Ontario, Canada George Town, Grand Cayman, Cayman Islands George Town, Grand Cayman, Cayman Islands Warrens, St. Michael, Barbados George Town, Grand Cayman, Cayman Islands Nassau, The Bahamas Nassau, The Bahamas Warrens, St. Michael, Barbados George Town, Grand Cayman, Cayman Islands Kingston, Jamaica Maraval, Port of Spain, Trinidad & Tobago Warrens, St. Michael, Barbados Warrens, St. Michael, Barbados Warrens, St. Michael, Barbados Warrens, St. Michael, Barbados Co. Meath, Ireland London, England, U.K. Tokyo, Japan Sydney, New South Wales, Australia
Book value of shares owned by CIBC and other subsidiaries of CIBC (2) 286 (3) 301 25 23 230 2 411 343
100 3,822
487 51 23
(1) Each subsidiary is incorporated or organized under the laws of the state or country in which the principal office is situated, except for CIBC World Markets (Japan) Inc., which was incorporated in Barbados; CIBC Delaware Holdings Inc., CIBC World Markets Holdings Inc., CIBC World Markets Corp., Canadian Imperial Holdings Inc., CIBC Inc., CIBC Capital Corporation and CIBC Delaware Funding Corp., which were incorporated or organized under the laws of the State of Delaware, U.S. (2) The book value of shares of subsidiaries is shown at cost and may include non-voting common and preferred shares. These amounts are eliminated upon consolidation. (3) The book value of shares owned by CIBC is less than $1 million.
In addition, we consolidate certain SPEs where we have control. See Note 6 for additional details.
154
Note 28
CIBC has three SBUs: Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by Corporate and Other. Retail and Business Banking provides clients across Canada with financial advice, products and services through a strong team of advisors and over 1,100 branches, as well as our ABMs, mobile sales force, telephone banking, online and mobile banking. Wealth Management provides relationship-based advisory services and an extensive suite of leading investment solutions to meet the needs of institutional, retail and high net worth clients. Our asset management, retail brokerage and private wealth management businesses combine to create an integrated offer, delivered through nearly 1,500 advisors across Canada. Wholesale Banking provides a wide range of credit, capital markets, investment banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world. Corporate and Other includes the six functional groups Technology and Operations; Corporate Development; Finance; Treasury; Administration; and Risk Management that support CIBCs SBUs. The revenue, expenses and balance sheet resources of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean; strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited; and other income statement and balance sheet items not directly attributable to the business lines.
155
CIBC Total 7,494 $ 5,055 12,549 1,291 357 6,858 4,043 704 3,339 $ 8 $ 3,331 $
Canada(1) 6,742 4,122 n/a 10,864 997 287 6,139 3,441 664 2,777 2,777 $ $ $ $
U.S.(1) Caribbean(1) 202 255 n/a 457 177 23 231 26 (24) 50 50 $ $ $ $ 474 506 n/a 980 118 40 338 484 39 445 8 437
Other countries(1) $ 76 172 n/a 248 (1) 7 150 92 25 $ $ $ $ $ 67 67 6,400 76 194 n/a 270 19 8 148 95 25 $ $ $ 70 70
2012 Net interest income (2) Non-interest income Intersegment revenue (3) Total revenue Provision for (reversal of) credit losses Amortization (4) Other non-interest expenses Income before income taxes Income taxes (2) Net income Net income attributable to: Non-controlling interests Equity shareholders Average assets (5) 2011 Net interest income (2) Non-interest income Intersegment revenue (3) Total revenue Provision for (reversal of) credit losses Amortization (4) Other non-interest expenses Income before income taxes Income taxes (2) Net income (loss) Net income (loss) attributable to: Non-controlling interests Equity shareholders Average assets (5)
(1) (2) (3) (4) (5) n/a
$ 253,244 $ 5,625 2,137 283 8,045 1,096 83 3,951 2,915 731 $ $ $ 2,184 2,184
$ 4,035 $ 117,914 $ 22,189 $ 397,382 $ 356,515 $ 179 $ 1,740 (283) 1,636 4 7 1,234 391 112 $ $ $ 279 $ $ 279 $ 898 $ 1,160 2,058 47 3 1,215 793 250 543 $ 1 $ 542 $ 360 $ 336 696 (3) 463 530 (294) (166) (128) $ 10 $ (138) $ 7,062 $ 5,373 12,435 1,144 556 6,930 3,805 927 2,878 $ 11 $ 2,867 $ 6,348 4,147 n/a 10,495 1,013 281 6,161 3,040 720 2,320 2,320
$ 14,139 $ 200 458 n/a 658 19 22 274 343 138 $ $ $ 205 1 204
$ 20,328 $ 438 574 n/a 1,012 93 245 347 327 44 $ $ $ 283 10 273
$ 256,362
$ 22,756
$ 19,332
$ 13,194
Net income and average assets are allocated based on the geographical location where they are recorded. Wholesale Banking net interest income and income tax expense includes a TEB adjustment of $281 million (2011: $189 million) with an equivalent offset in Corporate and Other. Intersegment revenue represents internal sales commissions and revenue allocations under the Manufacturer/Customer Segment/Distributor Management Model. Comprises amortization of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets. In addition, 2011 includes impairment loss on goodwill. Assets are disclosed on an average basis as this measure is most relevant to a financial institution and is the measure reviewed by management. Not applicable.
The following table provides a breakdown of revenue from our reporting segments:
$ millions, for the year ended October 31
2011 $ 6,270 1,411 364 $ 8,045 $ 1,082 456 98 $ 1,636 $ 1,099 948 11 $ 2,058 $ $ 566 130 696
Retail and Business Banking Personal banking Business banking Other Wealth Management Retail brokerage Asset management Private wealth management Wholesale Banking Capital markets Corporate and investment banking Other
(1)
$ $
582 79 661
(1) Wholesale Banking revenue includes a TEB adjustment of $281 million (2011: $189 million) with an equivalent offset in Corporate and Other.
156
Note 29
Certain disclosures required by IFRS 7 are provided in the shaded sections of the MD&A Management of risk, as permitted by IFRS. The following table provides a cross referencing of those disclosures to the MD&A.
Description For each type of risk arising from financial instruments, an entity shall disclose: the exposure to risks and how they arise; objectives, policies and processes used for managing the risks; methods used to measure the risk; and description of collateral. Section Risk overview Credit risk Market risk Liquidity risk Operational risk Reputation and legal risk Regulatory risk Credit risk Market risk Liquidity risk
Credit risk gross exposure to credit risk, credit quality and concentration of exposures. Market risk trading portfolios Value-at-Risk (VaR); non-trading portfolios interest rate risk, foreign exchange risk and equity risk. Liquidity risk liquid assets, maturity of financial assets and liabilities, and credit and liquidity commitments.
We have provided quantitative disclosures related to credit risk consistent with Basel II guidelines in the Credit risk section of MD&A, which require entities to disclose their exposures based on how they manage their business and risks. The table below sets out the categories of the drawn exposure to credit risk under advanced internal ratings-based (AIRB) and standardized approaches, displayed in both accounting categories and Basel II portfolios.
$ millions as at
Accounting categories
Basel II portfolios Real estate secured personal lending $ 146,696 20,969 $ 167,665 $ 146,199 20,640 88 $ 166,927 $ 139,106 20,292 133 $ 159,531 $ $ Qualifying revolving retail $ 7,588 13,725 $ 21,313 7,242 14,052 44 $ 21,338 6,757 13,948 38 $ 20,743 $ $ $
Corporate Oct. 31 2012 Non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Trading AFS FVO Loans and acceptances Residential mortgages Personal Credit card Business and government Other assets Total credit exposure Oct. 31 2011 Non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Trading AFS FVO Loans and acceptances Residential mortgages Personal Credit card Business and government Other assets Total credit exposure Nov. 1 2010 Non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Trading AFS FVO Loans and acceptances Residential mortgages Personal Credit card Business and government Other assets Total credit exposure $ 17 15 2,148 625 206 44,000 273 $ 47,284 $ 3 65 2,885 158 582 214 38,834 270 $ 43,011 $ 10 2 1,120 105 827 210 33,450 220 $ 35,944
Sovereign $ 631 515 16,281 134 1,629 3,148 1,198 $ 23,536 $ 559 143 17,183 108 1,514 3,137 456 $ 23,100 $ 231 2,688 1,762 17,691 367 1,382 2,206 567 $ 26,894 $ $ $
Bank 869 2,068 3,865 632 4,277 $ 11,711 418 2,596 5,490 693 4,609 $ 13,806 632 5,876 3,692 133 6 807 5,233 $ 16,379
Other retail $ 6,509 1,549 1,855 37 9,950 6,756 1,751 1,984 13 $ 10,504 7,036 1,969 1,961 26 $ 10,992
157
Note 30
The table below provides the consolidated interest income and expense for both product and accounting categories. The consolidated amounts shown are reported before any interest income and expense associated with funding these assets and liabilities.
$ millions, for the year ended October 31
Trading $ 4 1,271 $
AFS 409
FVO $ 10
Total $ 10,020 1,690 323 42 $ 12,075 $ 3,630 333 156 208 144 110 4,581
2012
Interest income Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Capital Trust securities Other
$ 409 $ 421
$ 10 $ 12 $ 12 $ 19
$ 2011(1) Interest income Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Capital Trust securities Other
$ $
$ $
$ 10,184 1,421 365 63 $ 12,033 $ 3,843 388 264 215 142 119 4,971
$ $
$ 421 $
$ 19 $ 15 $ 15
$
(1) Certain information has been reclassified to conform to the presentation in the current year.
Note 31
Canadian publicly accountable enterprises are required to adopt IFRS for annual periods beginning on or after January 1, 2011. Our audited consolidated financial statements for the year ended October 31, 2012 are the first annual financial statements that comply with IFRS, including the application of IFRS 1. IFRS 1 requires that comparative financial information be provided. As a result, the first day at which we applied IFRS was as at November 1, 2010 (the Transition Date), and our consolidated opening IFRS balance sheet was prepared as at this date. We have retrospectively applied our IFRS accounting policies in the preparation of our opening IFRS consolidated balance sheet as at November 1, 2010 and in the restatement of the 2011 comparative information, except where the applicable IFRS 1 optional exemptions and mandatory exceptions from retrospective application of IFRS have been applied, as described in Section A of this Note. Prior to the adoption of IFRS, our consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). IFRS 1 requires us to explain how the transition from Canadian GAAP to IFRS affects our consolidated balance sheet, and consolidated statements of income, comprehensive income and cash flows and requires a reconciliation of our equity and total comprehensive income previously reported under Canadian GAAP to IFRS. This Note includes the reconciliations from Canadian GAAP to IFRS for the consolidated balance sheet and total equity as at November 1, 2010 and October 31, 2011, and for the consolidated statements of income and comprehensive income for the year ended October 31, 2011. These reconciliations are based on the IFRS accounting policies, optional exemptions and mandatory exceptions that we have applied in our first annual IFRS consolidated financial statements. The following sections are presented in this Note: IFRS consolidated balance sheets and reconciliation to previously reported Canadian GAAP amounts IFRS consolidated statements of income and comprehensive income and reconciliation to previously reported Canadian GAAP amounts Section A Exemptions and exceptions from retrospective application of IFRS Section B Differences in accounting policies Section C Other presentation reclassifications Section D Reconciliation of equity from Canadian GAAP to IFRS Section E Impact of IFRS on financial results of reporting segments Section F IFRS consolidated statements of income and comprehensive income and reconciliation to previously reported Canadian GAAP amounts for the three months ended October 31, 2011
158
Canadian GAAP $ 2,190 9,862 28,557 26,621 22,430 77,608 2,401 34,941 93,568 34,335 12,127 38,582 (1,720) 176,892
IFRS adjustments $ (373) (857) 517 (2,252) (21,555) (23,290) (219) 49,716 3,787 (636) (166) 52,701 18 (51) (92) (6) (30) 197 (730) (694) $ 27,268 $
IFRS 1,817 9,005 29,074 24,369 875 54,318 2,401 34,722 143,284 34,335 15,914 37,946 (1,886) 229,593 24,700 7,633 1,568 1,907 579 495 10,570 47,452 $ 379,308
Note C.2 B.3, B.6 A.8, B.2, B.3 A.5, A.8, B.2-B.4, B.6 A.5, A.8, B.2, B.4
ASSETS Cash and non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Trading Available-for-sale Designated at fair value Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Other Derivative instruments Customers liability under acceptances Land, buildings and equipment Goodwill Software and other intangible assets Investments in equity-accounted associates and joint ventures Other assets
B.6 A.8, B.2, B.3 B.3, B.9 A.8, B.2-B.4, B.6, B.8 A.8, B.3
A.8, B.2, B.3 B.3 B.6, B.7 B.6 B.6 B.6 Various
LIABILITIES AND EQUITY Deposits Personal Business and government Bank Secured borrowings Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other Derivative instruments Acceptances Other liabilities Subordinated indebtedness Non-controlling interests Equity (1) Preferred shares Common shares Contributed surplus Retained earnings Accumulated other comprehensive income (loss) Total shareholders equity Non-controlling interests Total equity
$ 113,294 127,759 5,618 246,671 9,673 4,306 23,914 26,489 7,684 12,572 46,745 4,773 168 3,156 6,804 96 6,095 (361) 15,790 15,790 $ 352,040
(11,918) 43,518 31,600 1,600 (3,263) (1,126) (51) (333) (1,510) (168) 2 (1,938) 777 (1,159) 168 (991)
$ 113,294 115,841 5,618 43,518 278,271 9,673 4,306 1,600 20,651 25,363 7,633 12,239 45,235 4,773 3,156 6,804 98 4,157 416 14,631 168 14,799 $ 379,308
C.1
C.1
$ 27,268
(1) See Section D - Reconciliation of equity from Canadian GAAP to IFRS as at November 1, 2010.
159
Canadian GAAP $ 1,855 4,442 32,797 29,212 20,064 82,073 1,838 26,002 99,603 34,842 10,408 41,812 (1,647) 185,018
IFRS adjustments $ (374) (781) (84) (2,094) (19,600) (21,778) (361) 50,906 5,336 (2,149) (156) 53,937 11 93 (96) (217) (21) 266 (620) (584) $ 30,059 $
IFRS 1,481 3,661 32,713 27,118 464 60,295 1,838 25,641 150,509 34,842 15,744 39,663 (1,803) 238,955 28,270 9,454 1,580 1,677 633 1,394 8,879 51,887 $ 383,758
Note C.2 B.3, B.6 B.3 A.5, A.8, B.2-B.4, B.6 A.5, A.8, B.2, B.4
ASSETS Cash and non-interest-bearing deposits with banks Interest-bearing deposits with banks Securities Trading Available-for-sale Designated at fair value Cash collateral on securities borrowed Securities purchased under resale agreements Loans Residential mortgages Personal Credit card Business and government Allowance for credit losses Other Derivative instruments Customers liability under acceptances Land, buildings and equipment Goodwill Software and other intangible assets Investments in equity-accounted associates and joint ventures Other assets
B.6 A.8, B.2, B.3 B.3, B.9 A.8, B.2-B.4, B.6, B.8 A.8, B.3
A.8, B.2, B.3 B.3, B.6 B.6, B.7 B.6 B.6 B.6 Various
LIABILITIES AND EQUITY Deposits Personal Business and government Bank Secured borrowings Obligations related to securities sold short Cash collateral on securities lent Capital Trust securities Obligations related to securities sold under repurchase agreements Other Derivative instruments Acceptances Other liabilities Subordinated indebtedness Non-controlling interests Equity(1) Preferred shares Common shares Contributed surplus Retained earnings Accumulated other comprehensive income (loss) Total shareholders equity Non-controlling interests Total equity
$ 116,592 134,636 4,181 255,409 10,316 2,850 11,456 29,807 9,396 11,823 51,026 5,138 164 2,756 7,376 90 7,605 (487) 17,340 17,340 $ 353,699
(17,493) (4) 51,308 33,811 1,594 (2,892) (1,015) 93 (119) (1,041) (164) 3 (2,148) 732 (1,413) 164 (1,249)
$ 116,592 117,143 4,177 51,308 289,220 10,316 2,850 1,594 8,564 28,792 9,489 11,704 49,985 5,138 2,756 7,376 93 5,457 245 15,927 164 16,091 $ 383,758
A.8, B.2, B.3, B.6, C.3 B.2 A.8, B.2, B.3, C.3
C.1
C.1
$ 30,059
(1) See Section D - Reconciliation of equity from Canadian GAAP to IFRS as at October 31, 2011.
160
IFRS adjustments $ 2,476 (542) 1,934 1,198 (33) 57 1,222 712 (2) 510 (75) 42 (10) 203 (1,063) (33) 84 (182) (526) 186 303 (111) 3 (5) (1) (1) (1) 252 136 (253) (42) $ $ $ $ (211) 1 (212) (212) $ $ $ $ $
IFRS $ 10,184 1,421 365 63 12,033 3,843 388 264 215 142 119 4,971 7,062 514 756 379 609 411 849 320 496 44 397 (7) 204 111 290 5,373 12,435 1,144 4,052 667 989 296 213 178 38 1,053 7,486 3,805 927 2,878 11 177 2,690 2,867 6.79 6.71 3.51
Interest income Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Capital Trust securities Other Net interest income Non-interest income Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees Mutual fund fees Insurance fees, net of claims Commissions on securities transactions Trading income (loss) AFS securities gains (losses), net FVO gains (losses), net Income from securitized assets Foreign exchange other than trading Income from equity-accounted associates and joint ventures Other Total revenue Provision for credit losses Non-interest expenses Employee compensation and benefits Occupancy costs Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other Income before income taxes Income taxes Net income Net income attributable to non-controlling interests Preferred shareholders Common shareholders Net income attributable to equity shareholders Earnings per share (in dollars) Dividends per common share (in dollars) Basic Diluted
2,645 388 297 215 142 62 3,749 6,350 514 756 381 99 486 849 320 496 2 407 (210) 1,063 237 27 472 5,899 12,249 841 4,163 664 994 297 214 179 38 801 7,350 4,058 969 $ 3,089 $ $ 10 177 2,902 7.32 7.31 3.51
B.2-B.4 B.4 B.2-B.4 B.2, B.3 B.3, B.4, B.6 B.6 B.2, B.3, B.6
B.3, B.4, B.10 B.1, B.5, B.6 B.6, B.7 B.6 B.6 B.6 B.6 B.3, B.6, B.9, B.11, B.12
$ 3,079 $
161
IFRS $ 2,878
Note
Net income Other comprehensive income, net of tax Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net (gains) losses on investments in foreign operations reclassified to net income Net gains (losses) on hedges of investments in foreign operations Net (gains) losses on hedges of investments in foreign operations reclassified to net income Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income Total OCI Comprehensive income Comprehensive income attributable to non-controlling interests Preferred shareholders Common shareholders Comprehensive income attributable to equity shareholders
(92) 41 13 (37) (75) 110 (140) (30) (37) 16 (21) (126) $ 2,963 $ $ 10 177 2,776 $ $
(9) (41) 37 (13) 72 (101) (29) (3) (3) (45) $ (256) 1 (257) $ $
(101) 13 (88) 182 (241) (59) (40) 16 (24) (171) $ 2,707 11 177 2,519
B.5
$ 2,696
IFRS
Note
Income tax (expense) benefit Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net gains (losses) on hedges of investments in foreign operations Net (gains) losses on hedges of investments in foreign operations reclassified to net income Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income
A.3 A.3
B.5
162
2.
3.
4.
5.
IFRS mandatory exceptions IFRS 1 prohibits the retrospective application of some requirements of IFRS. Set forth below are the applicable mandatory exceptions under IFRS 1 that have been applied in the preparation of the opening IFRS consolidated balance sheet and in the restatement of the 2011 comparative information. 6. Hedge accounting In the opening IFRS consolidated balance sheet and in the restated 2011 comparative period, only those hedging relationships that satisfy the hedge accounting criteria in IAS 39 Financial Instruments: Recognition and Measurement are reflected. Hedging relationships have not been designated retrospectively and hedge documentation has not been created retrospectively. Since the hedge accounting relationships that were effective under Canadian GAAP also were effective under IAS 39 as at the Transition Date and in the restated 2011 comparative period, they are reflected as effective hedges in the opening IFRS consolidated balance sheet and in the restated 2011 comparative period. The opening IFRS consolidated balance sheet and restated 2011 comparative period also reflect cash flow hedges relating to hedges of share-based payments that are recognized over the performance and vesting period under IFRS but which were expensed in the performance period prior to the grant date under Canadian GAAP (see Section B.5). The 2011 comparative period also reflect fair value hedges designated with respect to certain securitized mortgages and related funding liabilities that are only recognized on the consolidated balance sheet under IFRS (see Section B.2). Estimates Our estimates in accordance with IFRS as at the Transition Date and in the restated 2011 comparative period are consistent with estimates made at those dates in accordance with Canadian GAAP, with adjustments made only to reflect any differences in accounting policies. Additional estimates made under IFRS, that were not required under Canadian GAAP, were based on the information and conditions that existed as at those dates. Hindsight was not used to create or revise estimates.
CIBC 2012 ANNUAL REPORT
7.
163
B. Differences in accounting policies In addition to the exemptions and exceptions discussed above, the following narratives explain the significant differences between the previous Canadian GAAP accounting policies and the IFRS accounting policies applied in preparing the opening IFRS consolidated balance sheet and in the restatement of the 2011 comparative information, and the impact thereof. 1. Employee benefits Actuarial gains and losses for post-employment defined benefit plans Canadian GAAP Net actuarial gains and losses for post-employment defined benefit plans were recognized based on a corridor approach. The corridor was 10% of the greater of the accrued benefit obligation and the market-related value of plan assets, as determined at the beginning of the annual reporting period. Actuarial gains and losses that exceeded the corridor were amortized on a straight-line basis over the expected average remaining service life of covered employees. The market-related value of plan assets was determined using a methodology where the difference between the actual and expected market value of plan assets was recognized over three years. IFRS An entity has an accounting policy choice to recognize actuarial gains and losses for post-employment defined benefit plans based on the corridor approach, similar to Canadian GAAP, or either in net income or in OCI in the period in which they arise. We have elected to recognize net actuarial gains and losses for such plans that arise after the Transition Date based on the corridor approach. The corridor is 10% of the greater of the defined benefit obligation and the fair value of plan assets, as determined at the beginning of the annual reporting period. The net unrecognized actuarial gains and losses that exceed the corridor are amortized on a straight-line basis over the expected average remaining service life of employees participating in the plan. Net unrecognized actuarial losses that existed at the Transition Date were recognized through opening retained earnings for all of our defined benefit plans, except for the portion related to CIBC FirstCaribbean which had previously adopted IFRS (see Section A.1). As a result of the fresh-start election, the actuarial gains and losses that were recognized in net income in the 2011 comparative period under Canadian GAAP were reversed, except for the amortization of actuarial gains and losses related to CIBC FirstCaribbean. Actuarial gains and losses for other long-term employee benefits Canadian GAAP Long-term disability plans and associated benefits were classified as post-employment defined benefit plans, and net actuarial gains and losses that exceeded 10% of the greater of the accrued benefit obligation and the market-related value of the plan assets were recognized on a straightline basis over the expected average remaining service life of covered employees. IFRS Long-term disability plans and associated benefits are classified as other long-term employee benefits and net actuarial gains and losses for these benefits are recognized in net income in the period in which they arise. Actuarial gains and losses that arose in fiscal 2011 therefore were recognized in net income under IFRS, as compared to deferral and amortization using the corridor approach under Canadian GAAP. Fair value of and expected return on plan assets Canadian GAAP The expected return on plan assets, which was recognized in net income, was based on our best estimate of the long-term expected rate of return on plan assets and the market-related value of plan assets at the beginning of the annual reporting period. IFRS The expected return on plan assets, which is recognized in net income, is based on our best estimate of the expected long-term rate of return on plan assets and the fair value of plan assets at the beginning of the annual reporting period. Asset ceiling Canadian GAAP When plan assets exceeded the accrued benefit obligation of a funded defined benefit plan giving rise to a plan surplus, a valuation allowance was recognized for any excess of the surplus over the expected future economic benefit arising from the asset. The accrued benefit asset was presented net of the valuation allowance. IFRS Similar to Canadian GAAP, IAS 19 limits the recognition of a surplus to the expected future economic benefit arising from the asset (the asset ceiling). However, the IAS 19 methodology for calculating the expected future economic benefit differs from that under Canadian GAAP. As a result of the more specific guidance in IAS 19, a lower valuation allowance was recognized for two pension plans as at the Transition Date, with a corresponding increase in retained earnings. Past service costs (gains) Canadian GAAP Past service costs (gains) from plan amendments were amortized on a straight-line basis over the expected average remaining service period over which the employee became fully eligible for benefits. IFRS Past service costs (gains) from plan amendments are recognized in net income on a straight-line basis over the vesting period of the associated benefits, or, if the amended benefits vest immediately, the expense (gain) is recognized immediately in net income. For unrecognized past service costs (gains) as at the Transition Date that related to vested benefits, an adjustment was recorded to recognize this amount with a corresponding adjustment in retained earnings.
164
$ millions, as at
Securities Loans Derivative instruments Other assets Total assets Deposits Obligation related to securities sold under repurchase agreements Derivative instruments Other liabilities Retained earnings Accumulated other comprehensive income Total liabilities and shareholders equity
As a result of the on-balance sheet accounting for residential mortgage pools underlying transferred MBS, we recognize interest income from residential mortgages and interest expense relating to the funding liabilities (secured borrowings), with a resulting net increase in net interest income. In addition, interest on the residential mortgages underlying the MBS inventory is classified in mortgage interest revenue instead of security interest revenue. The recognition of net interest income on the residential mortgages and funding liabilities are net of the amortization of the related origination costs and other amortized cost adjustments in accordance with the effective interest rate method. Furthermore, the accounting for the following items previously recognized under Canadian GAAP is eliminated: Securitization income within non-interest income that arose from: (i) the gain on sale from new transfers; and (ii) interest accretion and service revenue. MTM of seller swaps relating to sold MBS and the MTM of the MBS inventory recognized in FVO income within non-interest income.
165
Interest income Interest expense Net interest income Non-interest income Total revenue Non-interest expenses Net loss before income taxes Income taxes Net loss
3. Consolidation Canadian GAAP We determined whether we should consolidate an entity using one of two different frameworks: the voting interest model or, when the entity was a variable interest entity (VIE), the VIE model. If an entity was not a VIE, the analysis of consolidation was based on whether we had control over the entity, being the continuing power to govern the financial and operating policies of the entity so as to obtain benefits from its activities and be exposed to related risks. Control was presumed to exist when we owned, directly or indirectly through subsidiaries, greater than 50% of the voting interests. Under the VIE model, consolidation was based on an analysis of whether we were the primary beneficiary. The primary beneficiary was the enterprise that absorbed a majority of the VIEs expected losses or received a majority of the VIEs expected residual returns, or both. QSPEs were excluded from the scope of the VIE model and were exempted from consolidation under the voting interest model. IFRS Under IFRS, the requirements for consolidation are based on control under the voting interest model as set out in IAS 27 Consolidated and Separate Financial Statements. Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities. Control is presumed to exist when we own, directly or indirectly through subsidiaries, greater than 50% of an entitys voting interests, but also exists when we own 50% or less of the voting interests but have legal or contractual rights that give rise to control, or de facto control. IFRS does not have the concept of a VIE. However, IFRS has the concept of a SPE, which is an entity created to accomplish a narrow and well-defined objective. As many of the traditional indicators of control, as set out in IAS 27, are not present in a SPE, additional guidance is provided in SIC-12 Consolidation Special Purpose Entities and the SPE is consolidated when the criteria in SIC-12 are met. Those criteria require that the SPE be consolidated when we have control in the form of decision-making powers over the SPE and have the rights to obtain the majority of the benefits of the SPE or are exposed to the majority of the residual or ownership risks related to the SPE. Based on the SIC-12 criteria, we consolidated Capital Trust, which resulted in the derecognition of the senior deposit notes issued to Capital Trust, reported as Business and government deposits, and the recognition of the Capital Trust securities issued by Capital Trust as a liability, with no impact to retained earnings. Additionally, we deconsolidated certain other SPEs where the criteria of SIC-12 were not met. Since IFRS does not have the concept of a QSPE, entities that are considered to be SPEs under IFRS are analyzed for consolidation under SIC-12. Under the SIC-12 criteria, entities that previously were QSPEs under Canadian GAAP are consolidated under IFRS, including Cards II and Broadway, which purchase interests in credit card receivables, and Crisp, which purchases interests in residential mortgages (collectively, the Trusts). As at the Transition Date, the impact of the consolidation of additional entities resulted in an increase in consolidated assets of $3.8 billion ($4.1 billion as at October 31, 2011) and an increase in consolidated liabilities of $3.9 billion ($4.3 billion as at October 31, 2011), mainly associated with the commercial paper funding liabilities in Deposits Secured borrowings, and an after-tax decrease in retained earnings of $128 million ($136 million as at October 31, 2011), and an $8 million after-tax decrease in AOCI ($7 million as at October 31, 2011). The impact of deconsolidation of SPEs was a decrease in consolidated assets and liabilities of $819 million as at the Transition Date (nil as at October 31, 2011). The cumulative increase (decrease) on the consolidated balance sheet as a result of the changes in consolidation accounting was as follows:
2011 Oct. 31 $ 1 227 (265) 4,169 28 (69) 35 $ 2010 Nov. 1 99 (1,319) 4,258 33 (51) (48)
$ millions, as at
Cash and non-interest bearing deposits with banks Interest-bearing deposits with banks Securities Loans Derivative instruments Customers liability under acceptances Other assets Total assets Deposits Derivative instruments Acceptances Other liabilities Retained earnings Accumulated other comprehensive income Total liabilities and shareholders equity
Under IFRS, we recognize interest income on credit card receivables and residential mortgages held in the Trusts and interest expense on the funding liabilities issued by the Trusts. We also recognize fees on the credit card accounts held in the Trusts as part of non-interest income, and we recognize the write-off of delinquent accounts as part of the provision for credit losses. This presentation differs from Canadian GAAP, under which we recognized these items in aggregate in securitization income within non-interest income. The impact on net income in 2011 is primarily due to changes in the collective
166
2011 $ 684 125 559 (296) 263 253 22 (12) (4) $ (8)
Interest income Interest expense Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Net loss before income taxes Income taxes Net loss
4. Financial instruments: recognition and measurement Measurement of private AFS equity instruments Canadian GAAP AFS equity instruments that do not have a quoted market price in an active market (e.g. investments in private companies) were measured at cost less accumulated impairment losses. IFRS Under IAS 39, AFS financial assets that do not have a quoted market price in an active market are measured at fair value, unless fair value cannot be reliably measured. A $328 million adjustment was made to increase the carrying amount of AFS equity instruments to fair value as at the Transition Date ($257 million as at October 31, 2011), with a corresponding after-tax increase of $201 million in AOCI ($160 million as at October 31, 2011). Foreign exchange gains and losses on AFS debt instruments Canadian GAAP Foreign exchange gains and losses attributable to AFS debt instruments were recognized in OCI. IFRS Foreign exchange gains and losses attributable to AFS debt instruments are recognized in net income under IAS 39. This difference resulted in a transfer of the related after-tax foreign exchange gains on these assets of $5 million from AOCI to retained earnings as at the Transition Date ($5 million as at October 31, 2011). Foreign exchange impact of nil on these assets was recognized in net income rather than in OCI for the year ended October 31, 2011. Impairment of AFS equity instruments Canadian GAAP We hold AFS equity investments that are subject to impairment assessments subsequent to initial recognition. Expected future recovery was a consideration in our assessment of an other-than-temporary impairment in the context of whether the decline in fair value of the investment was significant or prolonged. In addition, when an investment was determined to be impaired and its carrying amount was written down to its fair value, it became its new cost base and measurement basis for subsequent impairment assessments. We also hold certain investment-grade perpetual preferred shares that were classified as AFS equity instruments, for which the impairment assessment was conducted under a debt impairment model in accordance with the Securities and Exchange Commission (SEC) guidance for perpetual preferred shares that are investment-grade. We did not recognize any impairment on our perpetual preferred shares. IFRS IAS 39 does not permit consideration of expected future recovery for the purpose of assessing impairment for AFS equity investments in the context of determining whether a decline in fair value is significant or prolonged. In addition, IAS 39 requires that, once an AFS equity instrument is impaired, any future decline in its fair value is recognized in net income. This resulted in incremental impairment charges of $14 million in retained earnings and an after-tax increase of $10 million in AOCI as at the Transition Date ($17 million and $12 million respectively as at October 31, 2011). Due to the incremental impairment losses recognized under IFRS as at the Transition Date, the carrying amount of certain AFS equity instruments under IFRS was lower than the carrying amount under Canadian GAAP. As a result, when certain AFS equity investments were sold in 2011, a higher gain on sale was recognized under IFRS. In addition, for certain investments for which the fair value decreased further subsequent to the Transition Date, the impairment recognized under IFRS was lower than that recognized under Canadian GAAP. Also, due to differences in impairment testing, impairment losses were recognized under IFRS for certain investments where no such impairment losses were recognized under Canadian GAAP. The impact of the above resulted in a decrease in pre-tax income of $4 million ($3 million after-tax) for the year ended October 31, 2011. Also, an entity has an accounting policy choice under IFRS to use either the equity or debt impairment model for assessing impairment for investmentgrade perpetual preferred shares classified as AFS. Once a policy choice is made, it should be followed consistently for all such investment-grade perpetual preferred shares. We elected to follow the equity impairment model for these shares. By applying the equity impairment model retrospectively, the significant or prolonged threshold was breached for certain AFS investment-grade perpetual preferred shares prior to the Transition Date, which resulted in an after-tax impairment charge of $36 million under IFRS that was recognized as a decrease in retained earnings as at the Transition Date, with a corresponding increase in AOCI ($36 million as at October 31, 2011). Reclassification of financial instruments Canadian GAAP Prior to the amendments to Canadian Institute of Chartered Accountants (CICA) handbook section 3855 issued in July 2009, Canadian GAAP required all loans to be measured at amortized cost and explicitly precluded loans from being measured at fair value through profit or loss unless the loans were designated as FVO. As a result, we had classified certain leveraged loans that were originated prior to 2009 as loans and receivables measured at amortized cost, even though we had the near-term intention to sell them at initial recognition.
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Classification FVO loans at fair value FVO loans at fair value Loans and receivables at amortized cost AFS securities at fair value Trading securities at fair value
Classification Trading loans at fair value Loans and receivables at amortized cost FVO securities at fair value Loans and receivables at amortized cost AFS securities at fair value
The above reclassifications decreased pre-tax income by $5 million ($3 million after-tax) for the year ended October 31, 2011. 5. Share-based payments Period of recognition of expense Canadian GAAP The estimated grant-date fair value of share-based awards was recognized in their entirety in the year preceding the grant date if the award was for performance during that year. IFRS Under IFRS 2 Share-based Payment, for awards for which the service commencement date precedes the grant-date (e.g. the award includes a performance year preceding the grant-date), the grant date fair value is recognized over the period from the service commencement date (i.e. the beginning of the performance year preceding the grant-date) to the earlier of the vesting date and the employees retirement eligible date. For such awards, the compensation expense is recognized over a longer period under IFRS. Retention awards are recognized over the vesting period, consistent with the treatment under Canadian GAAP. Forfeitures Canadian GAAP Forfeitures of awards due to the failure to satisfy service or non-market vesting conditions were recognized as incurred. IFRS The impact of forfeitures due to the failure to satisfy service or non-market vesting conditions is estimated initially at the grant date of the award (or at the service commencement date if earlier), and the forfeiture estimate is adjusted if subsequent information indicates that actual forfeitures are likely to differ from the initial estimate. As a result, the carrying amount of the liability for cash-settled awards is lower under IFRS as it reflects an estimate of forfeitures as at the reporting date. As a result of the differences noted above, the net impact was a pre-tax decrease of $150 million in Other liabilities, with an offsetting after-tax increase of $103 million and $2 million in retained earnings and AOCI, respectively, and an after-tax increase in Contributed surplus of $2 million as at the Transition Date. The net impact as at October 31, 2011 was a pre-tax decrease of $102 million in Other liabilities, an after-tax increase of $75 million and nil in retained earnings and AOCI, respectively, and an after-tax increase in Contributed surplus of $3 million. Share-based payment expense increased by $37 million ($28 million after-tax) for the year ended October 31, 2011. 6. Joint venture accounting Canadian GAAP Interests in jointly-controlled entities were proportionately consolidated. Additionally, previous versions of Canadian GAAP required the amortization of goodwill including that recognized under joint venture agreements. IFRS Under IAS 31 Interests in Joint Ventures, interests in jointly-controlled entities may be accounted for using either proportionate consolidation or the equity method of accounting. We elected to apply the equity method for our jointly-controlled investments. The transition to the equity method resulted in a decrease in consolidated assets and liabilities of $2.2 billion ($2.5 billion as at October 31, 2011). In addition, due to our transition to the equity method under IFRS, amortization of goodwill previously recognized under proportionate consolidation was reversed, resulting in an after-tax increase of $6 million in retained earnings as at the Transition Date.
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2011 Oct. 31 $ (1,008) (1,276) (362) (202) 162 (2) (5) (21) 266 (27) $ (2,475) $ (2,696) 162 53 (2,481) 6 $ (2,475) $
2010 Nov. 1 (956) (1,061) (219) (61) (4) (6) (30) 197 (29)
Interest-bearing deposits with banks Securities Securities purchased under resale agreements Loans Customers liability under acceptances Land, buildings and equipment Goodwill Software and other intangible assets Investments in equity-accounted associates and joint ventures Other assets Total assets Deposits Acceptances Other liabilities Retained earnings Total liabilities and shareholders equity
Application of the equity method of accounting for joint ventures had no impact on consolidated net income. However, the increase (decrease) in the consolidated statement of income as a result of the difference in presentation was as follows:
$ millions, for the year ended October 31
Interest income Interest expense Net interest income Income in equity-accounted associates and joint ventures Other non-interest income Total revenue Provision for credit losses Non-interest expenses Net loss before income taxes Income taxes Net income
7. Finance leases Canadian GAAP Under Canadian GAAP, we were deemed to be the owner of land and building for a certain property, as well as the holder of the associated debt. We initially recognized the land and building at cost and recognized the initial carrying amount of the debt at the same amount as the land and building. In addition, as deemed owner, we depreciated the building over a period of 40 years, and no depreciation was recognized in respect of the land. IFRS Under IAS 17 Leases, we recognized an asset and a liability underlying a finance lease for the above noted property. The land and building and the corresponding liability are measured at the present value of the minimum lease payments, which is lower than the carrying amount of the land and building. This is because both the land and building are depreciated over the 30 year term of the lease. This resulted in an after-tax decrease in retained earnings of $17 million as at the Transition Date ($19 million as at October 31, 2011), reflecting higher cumulative depreciation expense under IFRS, which was partially offset by lower cumulative interest expense under IFRS. For the year ended October 31, 2011, a $4 million decrease in pre-tax income was recognized ($2 million after-tax), which was comprised of additional depreciation expense of $8 million and a $4 million decrease in interest expense. 8. Leveraged leases Canadian GAAP Under Canadian GAAP, a change in the estimated timing of cash flows relating to income taxes resulted in a recalculation of the timing of income recognition from leveraged leases in accordance with EIC-46 Leveraged Leases. IFRS Our investments in leveraged leases are classified as loans and are measured at amortized cost using the effective interest method. Income is measured on a constant yield basis using the effective interest rate determined at the inception of the lease. This resulted in an increase in Business and government loans of $37 million along with an after-tax increase in retained earnings of $20 million as at the Transition Date ($24 million increase and after-tax increase of $13 million, respectively, as at October 31, 2011). Interest income and pre-tax income were reduced by $12 million ($7 million after-tax) for the year ended October 31, 2011. 9. Customer loyalty awards Canadian GAAP At the time customer loyalty awards under self-managed credit card reward programs were granted, the expected cost to fulfill award obligations were recognized as a liability and a reduction in related revenue. When the customer redeemed the award, the liability was reduced by the actual cost of the award. For some of our credit cards, we provide our customers with loyalty awards at the time that they activate a new card. The cost of these awards was deferred and amortized. IFRS At the time that customer loyalty awards are granted under self-managed credit card reward programs, the estimated fair value of the awards expected to be redeemed is recognized as deferred revenue within Other liabilities. When we have satisfied our obligation related to the awards, the deferred revenue is recognized as revenue in net income, while the cost of our obligation is recognized as an expense, which has the impact of grossing up our revenue and expenses relative to Canadian GAAP.
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170
The changes in presentation, along with the impact of adjustments related to the transition to IFRS, resulted in adjustments to the consolidated statement of cash flows, as discussed below. Year ended October 31, 2011 For the year ended October 31, 2011, the net decrease in Cash and non-interest bearing deposits with banks was $0.3 billion under both Canadian GAAP and IFRS. Cash flows from operating activities increased by $6.2 billion, from a net outflow of $1.4 billion under Canadian GAAP to a net inflow of $4.8 billion under IFRS. Cash flows from financing activities increased by $1.0 billion, from a net outflow of $2.3 billion under Canadian GAAP to a net outflow of $1.3 billion under IFRS. Cash flows from investing activities decreased by $7.2 billion, from a net inflow of $3.4 billion under Canadian GAAP to a net outflow of $3.8 billion under IFRS.
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Retained earnings $ 6,095 (1,080) (131) (128) 5 (50) (85) 103 6 (575) 3 (6) $ (1,938) $ 4,157
Total equity $ 15,790 (1,080) (165) (136) 201 (4) (85) 107 6 3 (6) 168 (991) $ 14,799
Note A.1 , B.1 A.8 , B.2 A.8 , B.3 B.4 B.4 B.4 A.5, B.4 B.5 B.6 A.3 B.7, B.8 B.9 C.1
As reported under Canadian GAAP Employee benefits Securitized residential mortgages Consolidation Measurement of private AFS equity securities Foreign exchange gains and losses on AFS debt instruments Impairment of AFS equity securities Reclassification of financial instruments Share-based payments Joint venture accounting Foreign currency translation adjustments Finance leases and leveraged leases Customer loyalty points Presentation of non-controlling interests as equity As reported under IFRS
As reported under Canadian GAAP Employee benefits Securitized residential mortgages Consolidation Measurement of private AFS equity securities Foreign exchange gains and losses on AFS debt instruments Impairment of AFS equity securities Reclassification of financial instruments Share-based payments Joint venture accounting Foreign currency translation adjustments Finance leases and leveraged leases Customer loyalty points Goodwill impairment Reimbursement Tax rate adjustment Presentation of non-controlling interests as equity As reported under IFRS
$ 7,605 (1,006) (164) (136) 1 5 (53) (72) 75 6 (571) (6) (6) (203) (6) (12) $ (2,148) $ 5,457
$ 10,222 3 $ 3 $ 10,225
$ 17,340 (1,005) (192) (143) 161 (5) (71) 78 6 (6) (6) (212) (6) (12) $ (1,413) $ 15,927
164
$ 17,340 (1,005) (192) (143) 161 (5) (71) 78 6 (6) (6) (212) (6) (12) 164 $ (1,249) $ 16,091 A.1 , B.1 A.8 , B.2 A.8 , B.3 B.4 B.4 B.4 A.5, B.4 B.5 B.6 A.3 B.7, B.8 B.9 B.11 B.12 C.1
$ 164 $ 164
172
Wealth Management $ 179 1,740 (283) 1,636 4 1,241 391 112 279 179 1,740 (283) 1,636 4 1,241 391 112 $ 279
Wholesale Banking $ 921 1,143 2,064 32 1,198 834 268 $ $ 566 (23) 17 (6) 15 20 (41) (18) $ $ (23) 898 1,160 2,058 47 1,218 793 250 $ 543
Corporate and Other $ (632) 1,216 584 (267) 849 2 (117) $ $ 119 992 (880) 112 264 144 (296) (49) $ $ (247) 360 336 696 (3) 993 (294) (166) $ (128) $
CIBC Total $ 6,350 5,899 12,249 841 7,350 4,058 969 $ 3,089 $ 712 (526) 186 303 136 (253) (42) (211)
Canadian GAAP Net interest income (1) Non-interest income Intersegment revenue Total revenue Provision for (reversal of) credit losses Non-interest expenses Income before income taxes and non-controlling interests Income taxes (1) Net income before non-controlling interests (2) IFRS adjustments Net interest income Non-interest income Intersegment revenue Total revenue Provision for credit losses Non-interest expenses Income (loss) before income taxes Income taxes Net income (loss) IFRS Net interest income (1) Non-interest income Intersegment revenue Total revenue Provision for (reversal of) credit losses Non-interest expenses Income (loss) before income taxes Income taxes (1) Net income (loss) (2)
(1) Starting in the third quarter of 2012, Wholesale Banking revenue and income taxes are reported on a TEB basis. The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. Accordingly, Wholesale Banking net interest income and income tax expense includes a TEB adjustment of $189 million for the year ended October 31, 2011. The equivalent amounts are offset in net interest income and income tax expense in Corporate and Other. Prior period information has been reclassified accordingly. (2) Under Canadian GAAP, net income represents income after attribution to non-controlling interests, whereas under IFRS, net income represents income prior to attribution to non-controlling interests.
The impact of IFRS on the financial results of our reporting segments included the following: The increase in net income in Retail and Business Banking was mainly due to adjustments for employee benefits (see Sections A.1 and B.1) and sharebased payment awards (see Section B.5) of $96 million ($65 million after-tax), net of adjustments related to the securitization of residential mortgages (see Section B.2). Adjustments relating to employee benefits (see Sections A.1 and B.1) and share-based payment awards (see Section B.5) largely offset in Wealth Management. The decrease in net income in Wholesale Banking includes lower revenue in the structured credit run-off business of $8 million ($6 million after-tax) (see Section B.4), reduced leverage lease revenues of $12 million ($7 million after-tax) (see Section B.8), increased litigation reserves of $11 million ($6 million after-tax) (see Section B.12), the elimination of a positive CVA of $13 million ($9 million after-tax) relating to seller swaps not recognized under IFRS (see Section B.2), net of increased revenue of $21 million ($11 million after-tax) on leveraged loans (see Section B.4). The decrease in net income in Corporate and Other includes the $203 million CIBC FirstCaribbean goodwill impairment charge (see Section B.11) and securitization and consolidation related adjustments of $25 million ($18 million after-tax) (see Sections B.2 and B.3, respectively). F. IFRS consolidated statements of income and comprehensive income and reconciliation to previously reported Canadian GAAP amounts For the narratives that explain the significant differences between the previous Canadian GAAP accounting policies and the IFRS accounting policies applied in the restatement of the consolidated statements of income and comprehensive income for the three months ended October 31, 2011, see pages 77 to 87 of the 2012 first quarter interim report.
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IFRS adjustments $ 602 (123) 479 309 (7) 6 308 171 (1) 141 (18) (41) (2) 68 (300) (29) 11 (7) (178) (7) 63 (13) (1) 1 19 6 (76) (37) $ $ $ $ (39) 1 (40) (40) $ $ $ $ $
IFRS $ 2,536 350 82 15 2,983 960 89 47 52 36 23 1,207 1,776 94 192 97 152 104 210 86 109 (13) 236 (12) 48 9 107 1,419 3,195 306 1,054 177 254 76 61 58 5 235 1,920 969 212 757 3 38 716 754 1.80 1.79 0.90
Interest income Loans Securities Securities borrowed or purchased under resale agreements Deposits with banks Interest expense Deposits Securities sold short Securities lent or sold under repurchase agreements Subordinated indebtedness Capital Trust securities Other Net interest income Non-interest income Underwriting and advisory fees Deposit and payment fees Credit fees Card fees Investment management and custodial fees Mutual fund fees Insurance fees, net of claims Commissions on securities transactions Trading income (loss) AFS securities gains (losses), net FVO gains (losses), net Income from securitized assets Foreign exchange other than trading Income from equity-accounted associates and joint ventures Other Total revenue Provision for credit losses Non-interest expenses Employee compensation and benefits Occupancy costs Computer, software and office equipment Communications Advertising and business development Professional fees Business and capital taxes Other Income before income taxes Income taxes Net income Net income attributable to non-controlling interests Preferred shareholders Common shareholders Net income attributable to equity shareholders Earnings per share (in dollars) Dividends per common share (in dollars) Basic Diluted
651 89 54 52 36 17 899 1,605 94 192 98 11 122 210 86 109 28 238 (80) 300 77 (2) 114 1,597 3,202 243 1,067 177 255 76 61 57 5 216 1,914 1,045 249 $ $ $ $ $ 796 2 38 756 794 1.90 1.89 0.90
174
IFRS $ 757
Net income Other comprehensive income, net of tax Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net (gains) losses on investments in foreign operations reclassified to net income Net gains (losses) on hedges of investments in foreign operations Net (gains) losses on hedges of investments in foreign operations reclassified to net income Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income Total OCI Comprehensive income Comprehensive income attributable to non-controlling interests Preferred shareholders Common shareholders Comprehensive income attributable to equity shareholders
234 41 (92) (37) 146 15 (65) (50) 14 (8) 6 102 $ 898 $ $ 2 38 858 $ $
224 (92) 132 (1) (145) (146) 15 (8) 7 (7) $ 750 3 38 709
$ 747
IFRS
Income tax (expense) benefit Net foreign currency translation adjustments Net gains (losses) on investments in foreign operations Net gains (losses) on hedges of investments in foreign operations Net (gains) losses on hedges of investments in foreign operations reclassified to net income Net change in AFS securities Net gains (losses) on AFS securities Net (gains) losses on AFS securities reclassified to net income Net change in cash flow hedges Net gains (losses) on derivatives designated as cash flow hedges Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income
(21) (21) 7 62 69
23
48
71
Note 32
We are currently evaluating the impact of adopting the standards listed below: IFRS 9 Financial Instruments In 2009, the IASB issued IFRS 9 and in 2010, the IASB published amendments to IFRS 9. The standard is expected to replace the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets. In December 2011, the IASB issued an amendment to IFRS 9 to defer the mandatory effective date to annual periods beginning on or after January 1, 2015. IFRS 9 currently provides guidance on the recognition, classification, reclassification and measurement of financial assets and liabilities along with the derecognition of financial assets and liabilities. However, we understand that some aspects of the recognition and measurement guidance in IFRS 9 may be further amended before the standard becomes effective. In addition, the impairment and hedge accounting phases of the IASBs financial instruments project are currently under development. We continue to monitor all of these developments in this project and assess the impact on our consolidated financial statements. IAS 19 Employee Benefits In June 2011, the IASB published an amended version of IAS 19. Adoption of the amendments is required for us on November 1, 2013. The amendments require the following: (i) recognition of actuarial gains and losses in OCI in the period in which they arise, (ii) recognition of expected return on plan assets in net income to be calculated based on the rate used to discount the defined benefit obligation, and (iii) recognition of past service costs (gains) in net income in the period in which they arise. The amendments include additional disclosures that explain the characteristics of the entitys defined benefit plans and risks associated with the plans, as well as disclosures that describe how defined benefit plans may affect the amount, timing and uncertainty of future cash flows, and details of any asset-liability matching strategies used to manage risks. The amendments will have an impact on our defined benefit post-employment benefit plans, including the recognition of the full funded status of our plans through OCI. Retrospective application of the standard will result in the recognition in the consolidated statement of changes in equity of $918 million of pre-tax unamortized actuarial losses and $42 million of pre-tax unamortized past service gains as at October 31, 2012. IFRS 10 Consolidated Financial Statements Issued in May 2011, IFRS 10 is effective for us on November 1, 2013. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. In addition, the consolidation procedures are carried forward substantially unmodified from IAS 27. We are currently assessing the impact of IFRS 10 on our consolidated financial statements.
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176
Quarterly review
Condensed consolidated statement of income
2012 Q1 $ 1,842 1,315 3,157 338 1,791 1,028 193 $ 835 3 56 776 $ 832 $ $ 2011 Q1
Q4 $ 2,016 1,143 3,159 328 1,829 1,002 150 $ 852 2 29 821 $ 850 $ $
Q3 $ 1,883 1,266 3,149 317 1,831 1,001 160 841 2 29 810 839 $ $
Q2 $ 1,753 1,331 3,084 308 1,764 1,012 201 811 1 44 766 810
Q4 $ 1,776 1,419 3,195 306 1,920 969 212 757 3 38 716 754 $ $
Q3 $ 1,785 1,346 3,131 310 2,005 816 225 591 2 55 534 589 $ $
Q2
Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income before taxes Income taxes Net income Net income attributable to non-controlling interests Preferred shareholders Common shareholders Net income attributable to equity shareholders
$ 1,731 $ 1,770 1,284 1,324 3,015 245 1,756 1,014 247 767 $ 3 42 722 764 $ 3,094 283 1,805 1,006 243 763 3 42 718 760
Q4 $ 4,727 65,334 28,474 150,056 50,476 43,624 (1,860) 27,039 10,436 15,079 $ 393,385 $
Q3 8,799 61,977 32,957 151,157 50,415 43,860 (1,884) 28,802 10,068 14,859 $ 401,010 $
Q2 6,157 62,538 26,560 151,103 50,606 42,602 (1,856) 25,911 9,032 14,805 $ 387,458
Q4 5,142 60,295 27,479 150,509 50,586 39,663 (1,803) 28,270 9,454 14,163 $ 383,758 $
Q3 20,531 54,936 35,036 149,348 50,164 38,120 (1,819) 24,195 9,009 13,126 $ 392,646 $
Q2 36,496 62,978 38,555 146,473 49,929 37,389 (1,829) 21,211 8,354 13,726 $ 413,282
Assets Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets Liabilities and equity Deposits Personal Business and government Bank Secured borrowings Derivative instruments Acceptances Obligations related to securities lent or sold short or under repurchase agreements Capital Trust securities Other liabilities Subordinated indebtedness Equity
$ 118,153 125,055 4,723 52,413 27,091 10,481 21,259 1,678 10,671 4,823 17,038 $ 393,385
$ 118,080 129,199 6,723 51,094 29,092 10,072 22,755 1,672 10,488 4,828 17,007 $ 401,010
$ 117,798 121,332 5,077 52,904 26,166 9,032 20,735 1,617 11,256 5,112 16,429 $ 387,458
$ 117,444 120,150 5,575 52,968 30,808 9,128 21,406 1,679 10,876 5,129 16,286 $ 391,449
$ 116,592 117,143 4,177 51,308 28,792 9,489 21,730 1,594 11,704 5,138 16,091 $ 383,758
$ 115,063 124,408 6,951 49,330 23,383 9,009 30,366 1,594 11,780 5,153 15,609 $ 392,646
$ 114,282 139,841 10,767 46,562 21,664 8,354 37,779 1,593 11,791 5,150 15,499 $ 413,282
$ 113,400 124,205 8,060 46,244 19,883 7,904 37,834 1,593 10,961 6,225 15,142 $ 391,451
177
Q4 21.7% 0.85%
Q3 21.8% 0.84%
Q2 22.1% 0.84%
Q4 22.6% 0.75%
Q3 17.1% 0.58%
Q2 24.9% 0.79%
Return on equity Return on average assets Average common shareholders equity ($ millions) Average assets ($ millions) Average assets to average common equity Tier 1 capital ratio(1) Total capital ratio(1) Net interest margin Efficiency ratio
$ 15,077 $ 14,760 $ 14,095 $ 13,826 $ 12,599 $ 12,428 $ 11,876 $ 11,667 $ 401,092 $ 400,543 $ 391,646 $ 396,122 $ 398,386 $ 401,315 $ 396,575 $ 381,897 26.6 27.1 27.8 28.7 31.6 32.3 33.4 32.7 13.8% 14.1% 14.1% 14.3% 14.7% 14.6% 14.7% 14.3% 17.3% 17.7% 17.7% 18.1% 18.4% 18.7% 18.9% 18.4% 2.00% 1.87% 1.82% 1.85% 1.77% 1.76% 1.79% 1.84% 57.9% 58.1% 57.2% 56.7% 60.1% 64.0% 58.2% 58.3%
(1) Capital measures for 2011 are under Canadian GAAP and have not been restated for IFRS.
Average shares outstanding (thousands) Per share basic earnings diluted earnings dividends book value(1) Share price(2) high low close Dividend payout ratio
(1) Common shareholders equity divided by the number of common shares issued and outstanding at end of year. (2) The high and low price during the period, and closing price on the last trading day of the period, on the TSX.
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Canadian GAAP 2011 $ 7,062 5,373 12,435 1,144 7,486 3,805 927 $ 2,878 $ 11 177 2,690 $ 2,867 2010 $ 6,204 5,881 12,085 1,046 7,027 4,012 1,533 27 $ 2,452 169 2,283 $ 2,452 2009 $ 5,394 4,534 9,928 1,649 6,660 1,619 424 21 $ 1,174 162 1,012 $ 1,174 2008 $ 5,207 (1,493) 3,714 773 7,201 (4,260) (2,218) 18 $ (2,060) 119 (2,179) $ (2,060) 2007 $ 4,558 7,508 12,066 603 7,612 3,851 524 31 $ 3,296 171 3,125 $ 3,296 2006 $ 4,435 6,916 11,351 548 7,488 3,315 640 29 $ 2,646 132 2,514 $ 2,646 $ $ 2005 $ 4,937 7,561 12,498 706 10,865 927 789 170 (32) 125 (157) (32) 2004 $ 5,258 6,573 11,831 628 8,307 2,896 790 15 $ 2,091 100 1,991 $ 2,091 2003 $ 5,517 5,924 11,441 1,143 8,106 2,192 239 3 $ 1,950 75 1,875 $ 1,950
2012 $ 7,494 5,055 12,549 1,291 7,215 4,043 704 $ 3,339 $ 8 158 3,173 $ 3,331
Net interest income Non-interest income Total revenue Provision for credit losses Non-interest expenses Income (loss) before income taxes Income taxes Non-controlling interests Net income (loss) Net income (loss) attributable to non-controlling interests Preferred shareholders Common shareholders Net income (loss) attributable to equity shareholders
Canadian GAAP 2011 5,142 $ 60,295 2010 12,052 77,608 $ 2009 7,007 77,576 $ 2008 8,959 79,171 $ 2007 13,747 86,500 $ 2006 11,853 83,498 $ 2005 11,852 67,764 $ 2004 12,203 67,316 2003 $ 10,454 69,628
Assets Cash and deposits with banks Securities Securities borrowed or purchased under resale agreements Loans Residential mortgages Personal and credit card Business and government Allowance for credit losses Derivative instruments Customers liability under acceptances Other assets
$ 393,385 $ 383,758 $ 352,040 Liabilities and equity Deposits Personal $ 118,153 $ 116,592 $ 113,294 Business and government 125,055 117,143 127,759 Bank 4,723 4,177 5,618 Secured borrowings 52,413 51,308 Derivative instruments 27,091 28,792 26,489 Acceptances 10,481 9,489 7,684 Obligations related to securities lent or sold short or under repurchase agreements 21,259 21,730 37,893 Capital Trust securities 1,678 1,594 Other liabilities 10,671 11,704 12,572 Subordinated indebtedness 4,823 5,138 4,773 Preferred share liabilities Non-controlling interests 172 164 168 Shareholders equity 16,866 15,927 15,790 $ 393,385 $ 383,758 $ 352,040
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Canadian GAAP 2011 2010 2009 2008 2007 2006 2005 2004 2003
2012
Return on equity 22.0% 22.2% 19.4% 9.4% (19.4)% 28.7% 27.9% (1.6)% 18.7% 19.2% Return on average assets 0.84% 0.73% 0.71% 0.33% (0.60)% 1.00% 0.91% (0.01)% 0.74% 0.68% Average common shareholders equity ($ millions) $ 14,442 $ 12,145 $ 11,772 $ 10,731 $ 11,261 $ 10,905 $ 9,016 $ 9,804 $ 10,633 $ 9,764 Average assets ($ millions) $ 397,382 $ 394,527 $ 345,943 $ 350,706 $ 344,865 $ 328,520 $ 291,277 $ 288,845 $ 280,810 $ 284,739 Average assets to average common equity 27.5 32.5 29.4 32.7 30.6 30.1 32.3 29.5 26.4 29.2 Tier 1 capital ratio (1) 13.8% 14.7% 13.9% 12.1% 10.5% 9.7% 10.4% 8.5% 10.5% 10.8% Total capital ratio (1) 17.3% 18.4% 17.8% 16.1% 15.4% 13.9% 14.5% 12.7% 12.8% 13.0% Net interest margin 1.89% 1.79% 1.79% 1.54% 1.51% 1.39% 1.52% 1.71% 1.87% 1.94% Efficiency ratio 57.5% 60.2% 58.1% 67.1% n/m 63.1% 66.0% 86.9% 70.2% 70.9%
(1) Capital measures for 2011 are under Canadian GAAP and have not been restated for IFRS.
Canadian GAAP 2011 $ 14,799 (12) (400) 572 (5) (171) 2,867 (165) (1,391) (4) 1 $ 16,091 2010 $ 14,275 563 4 9 2,452 (169) (1,350) 6 $ 15,790 2009 $ 13,831 (6) (1) 525 178 (4) 72 1,174 (162) (1,328) (5) $ 14,275 2008 $ 13,489 (66) (2) 300 2,926 650 (2,060) (119) (1,285) (4) $ 13,831 2007 $ 12,322 (50) (3) (277) (32) (50) 92 26 (650) 3,296 (139) (1,044) (5) $ 13,489 2006 $ 10,731 93 12 (115) 2,646 (132) (924) 11 $ 12,322 2005 $ 12,180 10 (4) (1,035) 598 (17) (1) 49 (32) (125) (902) 6 $ 10,731 2004 $ 12,071 6 (5) (1,084) 133 19 9 (196) 2,091 (100) (781) 12 $ 12,180 2003 $ 10,345 550 108 24 (222) 1,950 (75) (591) (18) $ 12,071
2012 $ 16,091 (118) (30) (1,050) 393 (8) 19 3,331 (128) (1,470) 8 $ 17,038
Balance at beginning of year Adjustment for change in accounting policy Premium on purchase of common shares Premium on redemption of preferred shares Changes in share capital Preferred Common Changes in contributed surplus Changes in OCI Net income (loss) Dividends Preferred Common Non-controlling interests Other Balance at end of year
(1) (2) (3) (4)
Represents the impact of changing the measurement date for employee future benefits. Represents the impact of adopting the amended CICA Emerging Issues Committee Abstract 46, Leveraged Leases. Represents the effect of implementing the CICA financial instruments standards, which provides guidance on recognition and measurement of financial instruments. Represents the effect of implementing CICA AcG-15, Consolidation of Variable Interest Entities, which provides a framework for identifying a VIE and requires a primary beneficiary to consolidate a VIE. (5) Represents the effect of implementing CICA AcG-17, Equity-Linked Deposit Contracts, which introduced the requirements to bifurcate the equity-linked contracts and measure the derivative at fair value.
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Average number outstanding (thousands) Per share basic earnings (loss) diluted earnings (loss) (1) dividends book value (2) Share price (3) high low close Dividend payout ratio
(1) (2) (3) n/m
In case of a loss, the effect of stock options potentially exercisable on diluted earnings (loss) per share will be anti-dilutive; therefore, basic and diluted earnings (loss) per share will be the same. Common shareholders equity divided by the number of common shares issued and outstanding at end of year. The high and low price during the year, and closing price on the last trading day of the year, on the TSX. Not meaningful.
2012 $ 1.3694 1.4375 1.4000 1.3500 0.2938 0.5625 1.3375 1.6250 1.6250 $
2011 1.3750 1.4375 1.4000 0.0400 1.3500 0.9000 1.1750 1.1250 1.3375 1.6250 1.6250 $
2010 1.3750 1.2375 1.3250 1.4375 1.4000 0.0800 1.3500 1.2000 1.1750 1.1250 1.3375 1.6250 1.6250 $
2009 1.3750 1.2375 1.3250 1.4375 1.4000 0.0800 1.3500 1.2000 1.1750 1.1250 1.5271 1.1909 1.0607 $
2008 1.3750 1.2375 1.3250 1.4375 1.4000 0.0800 1.3500 1.2000 1.1750 1.1250 $
2007 1.3750 1.2375 1.3250 0.3750 1.1250 1.4375 1.4000 0.0800 1.3500 1.2000 1.1298 0.7995 $
2006 1.3750 1.2375 1.3250 1.5000 1.5000 1.4375 1.4000 0.0800 1.3500 1.2000 $
2005 1.3750 1.2375 1.5780 1.5095 1.9518 1.3250 1.5000 1.5000 1.4375 1.4000 0.0799 1.3500 1.1938 $
2004 1.0709 1.8456 1.3551 1.3750 1.2375 1.6908 1.5000 2.0520 1.3250 1.5000 1.5000 1.4375 1.5484 0.1996
2003 $ 1.1156 1.4125 2.0025 1.3625 1.3750 1.2375 1.8253 1.5000 2.2152 1.3250 1.5000 1.5000 1.0859
Class A Series 14 Series 15 Series 16 Series 17 Series 18 Series 19 Series 20 Series 21 Series 22 Series 23 Series 24 Series 25 Series 26 Series 27 Series 28 Series 29 Series 30 Series 31 Series 32 Series 33 Series 35 Series 37
(1) The dividends are adjusted for the number of days during the year that the share is outstanding at the time of issuance and redemption.
181
Glossary
Advanced internal ratings-based (AIRB) approach for credit risk Internal models based on historical experience of key risk assumptions are used to compute the capital requirements. Advanced measurement approach (AMA) for operational risk A risk-sensitive approach to calculating the capital charge for operational risk based on internal risk measurement models, using a combination of quantitative and qualitative risk measurement techniques. Allowance for credit losses An allowance set up in the financial statements sufficient to absorb both specifically identified and inherent credit-related losses in CIBCs portfolio of loans, acceptances, letters of credit and guarantees. This allowance can be collective assessed by reviewing a portfolio of loans with similar characteristics, or individual assessed by reviewing the characteristics of an individual exposure. Amortized cost The amount at which a financial asset or financial liability is measured at initial recognition minus repayments, plus or minus any unamortized origination date premiums or discounts, plus or minus any basis adjustments resulting from a fair value hedge, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability. The amount of a financial asset or liability measured at initial recognition is the cost of the financial asset or liability including capitalized transaction costs and deferred fees. Asset/liability management (ALM) This is essentially the management of risks in the non-trading areas of the bank. Risk management techniques are used to manage the relative duration of CIBCs assets (such as loans) and liabilities (such as deposits), in order to minimize the adverse impact of changes in interest rates. In addition, ALM involves active management of CIBCs liquidity profile. Assets-to-capital multiple Total assets plus specified off-balance sheet items divided by total regulatory capital. Assets under administration (AUA) Assets administered by CIBC that are beneficially owned by clients and are, therefore, not reported on the consolidated balance sheet. Services provided by CIBC are of an administrative nature, such as safekeeping of securities, collection of investment income, and the settlement of purchase and sale transactions. Assets under management (AUM) Assets managed by CIBC that are beneficially owned by clients and are, therefore, not reported on the consolidated balance sheet. The service provided in respect of these assets is discretionary portfolio management on behalf of the clients. AUM amounts are included in the amounts reported under AUA. Bank exposures In Basel II credit risk exposure reporting, all direct credit risk exposures to deposit-taking institutions and regulated securities firms, and exposures guaranteed by those entities. Basis point One-hundredth of a percentage point (0.01%). Business and government portfolio In Basel II credit risk exposure reporting, a category of exposures that includes lending to businesses and governments, where the primary basis of adjudication relies on the determination and assignment of an appropriate risk rating, that reflects the credit risk of the exposure. Collateral Assets pledged as security for a loan or other obligation. Collateral can be cash, securities or other assets. Collateralized debt obligation (CDO) Securitization of any combination of corporate debt, ABS, mortgage-backed securities or tranches of other collateralized debt obligations to form a pool of diverse assets that are tranched into securities that offer varying degrees of risk and return so as to meet investor demand. Collateralized loan obligation (CLO) Securitizations of diversified portfolios of corporate debt obligations and/or ABS that are tranched into securities that offer varying degrees of risk and return so as to meet investor demand. Corporate exposures In Basel II credit risk exposure reporting, all direct credit risk exposures to corporations, partnerships and proprietorships, and exposures guaranteed by those entities. Credit derivatives A category of derivatives that allow one party (the beneficiary) to transfer the credit risk of a referenced asset, which the beneficiary may or may not own, to another party (the guarantor) without actually selling the asset. CIBC commonly uses credit derivatives to manage its overall credit risk exposure. Credit risk Risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with agreed terms. Credit valuation adjustment (CVA) Derivative contracts are initially marked to market without reference to credit quality of either counterparty to the contract. The CVA is the adjustment, positive or negative, required to this mark to reflect the expected net credit risk exposure due to failure by either party to perform its obligations under the derivative contract. The calculation of the CVA generally reflects the impact of netting, centralized clearing and collateral arrangements in place between the counterparties. Current replacement cost The estimated cost of replacing derivative instruments that have a positive market value, representing an unrealized gain to CIBC. Derivatives Contracts which may require little or no initial investment and whose value is derived from changes in interest rates, foreign exchange rates, equity or commodity prices, or credit spreads applied to a notional underlying amount. The use of derivatives permits the management of risk due to changes in these risk factors.
182
Glossary
Dividend payout ratio Common dividends paid as a percentage of net income after preferred share dividends and premium on redemptions. Dividend yield Dividends per common share divided by the closing common share price. Drawn exposure In Basel II credit risk exposure reporting, the amount of credit risk exposure resulting from loans already advanced to the customer. Economic capital Economic capital is a non-GAAP measure based upon an estimate of equity capital required by the businesses to absorb losses consistent with our targeted risk rating over a one-year horizon. Economic capital comprises credit, market, operational and strategic risk capital. Economic profit Economic profit is a non-GAAP risk-adjusted performance measure used for measuring economic value added. It is calculated as earnings of each business less a charge for the cost of capital. Effective interest rate method A method of calculating the amortized cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Efficiency ratio Non-interest expenses as a percentage of total revenue (net interest income and non-interest income). Efficiency ratio is used as a measure of productivity. Exposure at default (EAD) In Basel II credit risk exposure reporting, an estimate of the amount of exposure to a customer at the event of, and at the time of, default. Fair value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly arms length transaction between knowledgeable and willing market participants motivated by normal business considerations. Forward contracts A contractual commitment to buy or sell a specified commodity, currency or financial instrument at a specific price and date in the future. Forward contracts are customized contracts traded in over-the-counter markets. Forward contracts are derivatives. Forward rate agreement An over-the-counter contract determining an interest rate to be paid or received commencing on a particular date in the future for a specified period of time. Forward rate agreements are derivatives. Full-time equivalent employees Full-time equivalent employees is a measure that normalizes the number of full-time and part-time employees, base plus commissioned employees, and 100% commissioned employees into equivalent full-time units based on actual hours of paid work during a given period. Futures A contractual commitment to buy or sell a specified commodity, currency or financial instrument at a specific price and date in the future. Futures contracts are standardized and are traded on an exchange. Futures contracts are derivatives. Guarantees and standby letters of credit Primarily represent CIBCs obligation, subject to certain conditions, to make payments to third parties on behalf of clients, if these clients cannot make those payments, or are unable to meet other specified contractual obligations. Hedge A risk reduction technique whereby a derivative or other financial instrument is used to reduce or offset exposure to changes in interest rates, foreign exchange rates, equity, commodity prices or credit risk. Internal models approach (IMA) for market risk Internal models are used to calculate the regulatory capital requirement CIBC must meet for debt/equity specific risks and general market risks. Internal ratings based approach for securitization exposures The computation of capital charge is based on risk weights that are mapped from internal ratings. Liquidity risk Risk of having insufficient cash resources to meet financial obligations as they fall due, in their full amount and stipulated currencies, without raising funds at adverse rates or selling assets on a forced basis. Loss given default (LGD) An estimate of the amount of exposure to a customer that will not be recovered following a default by that customer, expressed as a percentage of the exposure at default. Mark-to-market The market value at which two parties are willing to exchange an asset, liability or other derivative contract. Valuation is at market rates/prices, as at the balance sheet date. Market observable prices are generally available for most publicly traded securities and some derivatives. Mark-to-market for some complex derivatives is model-based using market observable price factors. Market risk The potential for financial loss from adverse changes in underlying market factors, including interest and foreign exchange rates, credit spreads, and equity and commodity prices.
183
Glossary
Master netting agreement An industry standard agreement designed to reduce the credit risk of multiple derivative transactions with a counterparty through the creation of a legal right of offset of exposures in the event of a default by that counterparty. Net interest income The difference between interest earned on assets (such as loans and securities) and interest incurred on liabilities (such as deposits and subordinated indebtedness). Net interest margin Net interest income as a percentage of average assets. Normal course issuer bid Involves a listed company buying its own shares through a stock exchange or other published market, from time to time, and is subject to the various rules of the exchanges and securities commissions. Notional amount Principal amount or reference amount used for the calculation of payments under assets/liabilities or derivative contracts. In most instances, these amounts are not paid, received or exchanged under the terms of the derivative contract. Off-balance sheet financial instruments Assets or liabilities that are not recorded or not fully recorded on the balance sheet at notional or stated amounts, but may produce positive or negative cash flows. Such instruments include credit related arrangements. Office of the Superintendent of Financial Institutions (OSFI) OSFI supervises and regulates all banks, all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and federal pension plans in Canada. Operational risk The risk of loss resulting from inadequate or failed internal processes, systems, or from human error or external events. Options A contractual obligation under which the writer confers the right, but not the obligation, on the purchaser to either buy (call option) or sell (put option) a specific amount of a commodity, currency or financial instrument at a fixed price either at or by a set date. Other off-balance sheet exposure In Basel II credit risk exposure reporting, the amount of credit risk exposure resulting from the issuance of guarantees and letters of credit. Other retail In Basel II credit risk exposure reporting, this exposure class includes all loans other than qualifying revolving retail and real estate secured personal lending, that are extended to individuals and small businesses under the Basel II framework. Over-the-counter derivatives (OTC) exposure In Basel II credit risk exposure reporting, the amount of credit risk exposure resulting from derivatives that trade directly between two counterparties, rather than through exchanges. Probability of default (PD) An estimate of the likelihood of default for any particular customer which occurs when that customer is not able to repay its obligations as they become contractually due. Provision for credit losses An amount charged or credited to income so as to bring the allowance for credit losses to a level that is sufficient to cover specifically identified and inherent credit-related losses in CIBCs portfolio of loans, acceptances, letters of credit, and guarantees. Qualifying revolving retail In Basel II credit risk exposure reporting, this exposure class includes credit cards, unsecured lines of credit and overdraft protection products extended to individuals. Under the standardized approach, these exposures would be included under other retail. Real estate secured personal lending In Basel II credit risk exposure reporting, this exposure class includes residential mortgages and home equity lines of credit extended to individuals. Regulatory capital Basel II regulatory capital comprises Tier 1 and Tier 2 capital as defined by OSFIs Capital Adequacy Regulations. Tier 1 capital comprises common shares, retained earnings, preferred shares, innovative Tier 1 notes, non-controlling interests, contributed surplus, and foreign currency translation adjustments. All Tier 1 and Tier 2 capital elements are net of trading short positions. Goodwill and gain on sale of applicable securitized assets is deducted from Tier 1 capital. Tier 2 capital comprises subordinated debt and eligible collective/general allowance. Both Tier 1 and Tier 2 capital are subject to certain other deductions on a 50/50 basis except for investment in insurance activities which was 100% deducted from Tier 2 capital until October 31, 2011 in accordance with OSFIs transitional rules. Repo-style transactions (Repos) exposure In Basel II credit risk exposure reporting, the amount of credit risk exposure resulting from our securities bought or sold under resale agreements, as well as securities borrowing and lending activities. Retail portfolios In Basel II credit risk exposure reporting, a category of exposures that includes primarily consumer but also small business lending, where the primary basis of adjudication relies on credit scoring models. Return on equity (ROE) Net income attributable to common shareholders, expressed as a percentage of average common shareholders equity.
184
Glossary
Risk-weighted assets (RWAs) RWAs consist of three components: (i) RWAs for credit risk are calculated using the AIRB approach and Standardized Approach. The AIRB RWAs are calculated utilizing PDs, LGDs, EADs, and in some cases maturity adjustment, and the Standardized Approach applies risk weighting factors specified in the OSFI guidelines to on- and off- balance sheet exposures; (ii) RWAs for market risk in the trading portfolio are statistically estimated based on models approved by OSFI; and (iii) RWAs for operational risk relating to the risk of losses from inadequate or failed processes, people and systems are calculated under the AMA approach. Securities borrowed Securities are typically borrowed to cover short positions. Borrowing requires the pledging of collateral by the borrower to the lender. The collateral may be cash or a highly rated security. Securities lent Securities are typically lent to a borrower to cover their short positions. Borrowing requires the pledging of collateral by the borrower to the lender. The collateral provided may be cash or a highly rated security. Securities purchased under resale agreements A transaction where a security is purchased by the buyer and, at the same time, the buyer commits to resell the security to the original seller at a specific price and date in the future. Securities sold short A transaction in which the seller sells securities it does not own. Initially the seller typically borrows the securities in order to deliver them to the purchaser. At a later date, the seller buys identical securities in the market to replace the borrowed securities. Securities sold under repurchase agreements A transaction where a security is sold by the seller and, at the same time, the seller commits to repurchase the security from the original purchaser at a specific price and date in the future. Securitization The process of selling assets (normally financial assets such as loans, leases, trade receivables, credit card receivables or mortgages) to trusts or other special purpose entities (SPEs). A SPE normally issues securities or other form of interests to investors and/or the asset transferor, and the SPE uses the proceeds of the issue of securities to purchase the transferred assets. The SPE will generally use the cash flows generated by the assets to meet the obligations under the securities or other interests issued by the SPE, which may carry a number of different risk profiles. Seller swaps Seller swaps are derivatives used in securitization transactions whereby the asset seller receives ongoing cash flows related to the assets sold and pays the funding costs of the securitization vehicle. Sovereign exposures In Basel II credit risk exposure reporting, all direct credit risk exposures to governments, central banks and certain public sector entities, and exposures guaranteed by those entities. Special purpose entities (SPE) An entity created for a single, well-defined and narrow purpose. Standardized approach for credit risk In Basel II, it is applied to exposures when there is not sufficient information to allow for the AIRB approach for credit risk. Credit risk capital requirements are calculated based on a standardized set of risk weights as prescribed in the Basel Accord. The standardized risk-weights are based on external credit assessments, where available, and on other risk related factors, including export credit agencies, exposure asset class, collateral, etc. Swap contracts Agreements between two parties to exchange a series of cash flows, based on a specific notional amount over a specified period. The typical swap contracts are interest rate swaps and cross currency swaps. Swap contracts are derivatives. Taxable equivalent basis (TEB) Increases tax-exempt income to make it directly comparable to taxable income sources when comparing either total revenue or net interest income. There is an equivalent offsetting adjustment to the income tax provision. Tier 1 and total capital ratios Tier 1 and total regulatory capital, divided by RWAs, based on guidelines set by OSFI, based on Bank for International Settlements standards. Total shareholder return The total return earned on an investment in CIBCs common shares. The return measures the change in shareholder value, assuming dividends are reinvested in additional shares. Undrawn exposures In Basel II credit risk exposure reporting, the amount of credit risk exposure resulting from loans that have not been advanced to a customer, but which a customer may be entitled to draw in the future. Value-at-Risk (VaR) Generally accepted risk measurement concept that uses statistical models to estimate the distribution of possible returns on a portfolio at a given level of confidence.
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Shareholder information
Fiscal Year
November 1st to October 31st
Key Dates
Reporting dates 2013 Q1 Results Thursday, February 28, 2013 Q2 Results Thursday, May 30, 2013 Q3 Results Thursday, August 29, 2013 Q4 Results Thursday, December 5, 2013 Annual Meeting of Shareholders 2013 CIBCs Annual Meeting of Shareholders will be held on Thursday, April 25, 2013, at 10:00 a.m. (Eastern Time) in Ottawa, Ontario at the Fairmont Chateau Laurier, 1 Rideau Street, Ottawa, Ontario, K1N 8S7. Common shares of CIBC (CM) are listed on the Toronto Stock Exchange and the New York Stock Exchange. Preferred shares are listed on the Toronto Stock Exchange. Dividends Quarterly dividends were paid on CIBC common and preferred shares in 2012: Common shares
Ex-dividend date Sep 26/12 Jun 26/12 Mar 26/12 Dec 22/11 Record date Sep 28/12 Jun 28/12 Mar 28/12 Dec 28/11
Series 26 CM.PR.D $0.359375
Payment date Oct 29/12 Jul 27/12 Apr 27/12 Jan 27/12
Series 27 CM.PR.E $0.350000
Preferred shares
Stock Ticker symbol Quarterly dividend
Record dates
December 28/2012 March 28 June 28 September 27
Payment dates
January 28 April 29 July 29 October 28
Eligible dividends
CIBC designates any and all dividends paid or deemed for Canadian federal, provincial or territorial income tax purposes to be paid on or after January 1, 2006 to be eligible dividends, unless otherwise indicated in respect of dividends paid subsequent to this notification, and hereby notifies all recipients of such dividends of this designation.
Credit ratings
Credit rating information can be found on page 64 in this report.
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In the United States, common shares are transferable at: Computershare, 480 Washington Blvd, 27th Floor, Jersey City, NJ 07310, 1 800 589-9836, Website: www.computershare.com/investor.
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Management Proxy Circular 2013 The Management Proxy Circular contains information for shareholders about CIBCs annual meeting, including information relating to the election of CIBCs directors, appointment of auditors and shareholder proposals, as well as other matters. The 2013 Proxy Circular will be available in March 2013 at www.cibc.com/ca/ about.html.
Corporate Governance CIBCs Statement of Corporate Governance Practices describes the governance framework that guides the Board and management in fulfilling their obligations to CIBC and our shareholders. This statement and other information on Corporate Governance at CIBC, including our CIBC Code of Conduct for all employees and CIBC Code of Ethics for Directors, can be found on our corporate website at www.cibc.com/ca/inside-cibc/governance/ governance-practices.html. Regulatory Filings In Canada with the Canadian Securities Administrators at www.sedar.com. In the United States with the Securities and Exchange Commission at www.sec.gov/ edgar.shtml.
Incorporation Canadian Imperial Bank of Commerce (CIBC) is a diversified financial institution governed by the Bank Act (Canada). CIBC was formed through the amalgamation of The Canadian Bank of Commerce and Imperial Bank of Canada in 1961. The Canadian Bank of Commerce was originally incorporated as Bank of Canada by special act of the legislature of the Province of Canada in 1858. Subsequently, the name was changed to The Canadian Bank of Commerce and it opened for business under that name in 1867. Imperial Bank of Canada was incorporated in 1875 by special act of the Parliament of Canada and commenced operations in that year. Trademarks
Trademarks used in this annual report which are owned by Canadian Imperial Bank of Commerce, or a wholly-owned subsidiary, in Canada and/or other countries include: CIBC For what matters, the CIBC logo, CIBC Home Power Plan, CIBC Total Banking Rebate, CIBC Private Wealth Management, CIBC Investors Edge, CIBC Cash Management Online, CIBC FirstCaribbean International Bank, FirstLine, Kids, Cures and Community, Miracle Day and Wood Gundy. All other trademarks mentioned in this annual report, which are not owned by Canadian Imperial Bank of Commerce or its subsidiaries, are the property of their respective owners.
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Corporate Responsibility
Our commitment to corporate responsibility extends from our vision, mission and values and is integrated into our operations and business practices. We recognize that the longterm success and viability of our business is closely linked to the confidence and trust our clients and stakeholders have in our organization.
CIBC has developed a framework to help guide our performance and enhance our overall reporting capabilities based on our economic, environmental, social and governance (EESG) commitments. We continue to focus on: providing accessible and affordable banking to Canadians; advancing the goals of small business; creating an environment where all employees can excel; making a real difference in our communities; and protecting our environment. Economic contribution CIBC is a major contributor to the Canadian economy and to the communities in which we work and live. We generate economic growth and prosperity by creating employment opportunities, purchasing local goods and services, supporting small business, helping our clients achieve their financial goals and by addressing community development issues that matter to Canadians. We continually look for ways to make banking easier and more flexible for our clients by offering greater access and choice, broader community and business support, and ensuring transparency and accountability in our business dealings. Environmental responsibility Our environmental policy commits CIBC to responsible and sustainable growth while protecting and conserving the environment, safeguarding the interests of all CIBC stakeholders from unacceptable levels of environmental risk, and supporting the principles of sustainable development. Social investment CIBCs success comes from fulfilling the commitments we have made to each of our stakeholders creating an environment where all employees can excel, making a real difference in our communities, and helping our clients achieve what matters to them. We focus on what matters to our employees, such as access to career and development opportunities, safe and healthy workplaces, effective training, and positive work-life balance. These efforts help ensure that employees are able to perform at their best, contribute to their communities and advance CIBCs vision of being the leader in client relationships. We are committed to causes that matter to our clients, employees and communities. Our goal is to make a difference through corporate donations, sponsorships and the volunteer spirit of our employees. CIBC is committed to investing in Kids, Cures and Community. We care about nurturing and educating Canadas children and young adults so they can build a better future. We care about bringing hope and relief to people fighting cancer so together we can find a cure. We care about the communities we live in and work each day to make them stronger. Governance practices At CIBC, we conduct our business with honesty and integrity. We hold ourselves accountable for our actions and strive to fulfill the commitments we have made to each of our stakeholders. These values guide our behaviour and performance, and help to maintain the trust and confidence placed in our organization.
w w w. b m i r. c o m
Our Vision
To be the leader in client relationships
Our Mission
To fulfill the commitments we have made to our stakeholders: Help our clients achieve what matters to them Create an environment where all employees can excel Make a real difference in our communities Generate strong total returns for shareholders
Our Values
Our vision and mission are driven by an organizational culture based on core values of Trust, Teamwork and Accountability