2014

CIBC Announces First Quarter 2013 Results

TORONTO, Feb. 28, 2013 /CNW/ - CIBC (TSX: CM) (NYSE: CM) reported today net income of $798 million for the first quarter ended January 31, 2013, compared with net income of $835 million for the same period last year and $852 million for the prior quarter. Reported diluted earnings per share (EPS) was $1.91, compared with $1.93 a year ago and $2.02 for the prior quarter.  Return on common shareholders' equity for the first quarter was 19.9%.

Excluding items of note listed below, CIBC reported record adjusted net income of $895(1) million for the first quarter, compared with adjusted net income of $833(1) million for the same period last year and $858(1) million for the prior quarter. Adjusted diluted EPS was $2.15(1), compared with adjusted diluted EPS of $1.97(1) a year ago and $2.04(1) for the prior quarter.

Results for the first quarter of 2013 were affected by the following items of note netting to a negative impact of $0.24 per share:

  • $148 million ($109 million after-tax or $0.27 per share) loss from the structured credit run-off business, including the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc.;
  • $16 million ($16 million after-tax or $0.04 per share) gain, net of associated expenses, on the sale of our Hong Kong and Singapore-based private wealth management business; and
  • $5 million ($4 million after-tax or $0.01 per share) amortization of intangible assets.

Effective January 2013, CIBC adopted the Office of the Superintendent of Financial Institution's (OSFI) revised Capital Adequacy Requirements (CAR) guideline reflecting changes to capital requirements, referred to as Basel III.  As a result of the change in methodology, the regulatory capital information at January 31, 2013 is not comparable to prior periods. CIBC's Basel III Common Equity Tier 1 ratio at January 31, 2013 was 9.6%, and our Tier 1 capital ratio and Total capital ratio were 12.0% and 15.3%, respectively, on an all-in basis.

"CIBC's solid results in the first quarter reflect our strong focus on our clients as well as our underlying business fundamentals," says Gerald T. McCaughey, President and Chief Executive Officer.  "The broad-based performance across our core businesses reflects our first principle which is to be a lower risk bank delivering consistent, sustainable earnings."

Core business performance
Retail and Business Banking reported net income of $611 million for the first quarter, up from $567 million for the same quarter last year.

Revenue of $2.1 billion was up 2% from the first quarter of 2012, primarily due to volume growth across most products, higher fees and wider spreads, partially offset by lower treasury allocations.

Provision for credit losses of $241 million was down $40 million, or 14%, from the same quarter last year due to lower write-offs and bankruptcies in the cards portfolio.

During the first quarter of 2013, our retail and business banking business continued to make progress against our objectives of accelerating profitable revenue growth and enhancing client experience:

  • We launched the CIBC Mobile Payments App, marking another first for CIBC. Our clients now have an ability to make credit card payments using their smartphone, putting them at the leading edge of a market that will grow significantly in 2013 and beyond;
  • CIBC continues to deliver mobile innovations, offering anytime, anywhere access to banking and financial information, with the launch of a new mobile banking app for President's Choice Financial clients. The new PC Financial Mobile Banking App is compatible with iPhone, iPod touch and iPad, with Android support coming soon;
  • The ongoing conversion of our FirstLine clients into CIBC-branded mortgages continues to exceed our targets;
  • We opened three branches and will open, expand or relocate 23 branches by the end of 2013 to better serve our clients;
  • As the lead sponsor of the CIBC Pan Am and Parapan Am Games, we announced the start of construction for the new CIBC Pan Am and Parapan Am Athletics Stadium at York University. CIBC's objectives for the Pan Am and Parapan Am Games are to inspire a generation of young athletes, enrich our communities, provide significant opportunities for local businesses and leave behind a sustainable legacy; and
  • To enhance financial literacy, we entered into a new partnership with HGTV's Income Property and trusted Canadian real estate expert, Scott McGillivray, to reach consumers who want to better equip themselves with financial know-how prior to home purchases or renovations.

Wealth Management reported net income of $90 million for the first quarter, down $10 million or 10% from the same quarter last year. Excluding a gain of $37 million ($35 million after-tax) relating to an equity-accounted investment in the first quarter of 2012, included as an item of note, net income was up $25 million or 38% from the same quarter last year.

Revenue of $432 million was down $3 million or 1% compared to the first quarter of 2012. Excluding the above-mentioned item of note, revenue was up $34 million or 9% from the same quarter last year.

During the first quarter of 2013, our wealth management business continued its progress in support of our strategic priority to build our wealth management platform:

  • Wealth Management has achieved an all-time high of $223 billion in assets under administration as a result of deepening client relationships and sustained sales momentum in our investment solutions;
  • CIBC Investor's Edge launched a new online interface, providing clients with additional tools and functionality to monitor their investment portfolios;
  • We achieved our strongest quarterly long-term mutual fund net sales results on record with $1.7 billion for the first quarter; and
  • In CIBC Wood Gundy, we continued to invest in our strong technology platform with the launch of the latest portfolio management system to support client relationships through enhanced functionalities and advisor-focused work flow.

Wholesale Banking reported net income of $91 million for the first quarter, down $102 million from the prior quarter. Excluding items of note, which include the settlement related to the Estate of Lehman Brothers Holdings, Inc., adjusted net income was $200(1) million, up $8 million from the prior quarter.

Revenue of $563 million was down $12 million or 2% from the prior quarter, primarily due to lower gains in the structured credit run-off business, partially offset by higher capital markets revenue in fixed income and higher revenue from corporate credit products.

Wholesale Banking had several notable achievements during the first quarter that supported its objective to be the premier client-focused wholesale bank centred in Canada:

  • CIBC acted as lead coordinator for Canada Housing Trust #1's $5.0 billion issuance of 1.7% Canada Mortgage Bonds due December 15, 2017;
  • CIBC acted as joint bookrunner on Husky Energy's $3.2 billion credit facilities; 
  • CIBC acted as financial advisor to GDF Suez on the sale of 60% interest in its Canadian renewable generation portfolio to Mitsui & Co. and a consortium led by Fiera Axium Infrastructure with an enterprise value in excess of $2.0 billion;
  • CIBC acted as joint bookrunner on a $700 million bond offering for Reliance LP;
  • CIBC acted as financial advisor to Penn West on the sale of its 11.7% Net Royalty Interest in its Weyburn Oil Unit to Franco-Nevada for $400 million; and
  • CIBC acted as joint bookrunner of Hudson's Bay Company's $380 million common share initial public offering.

"CIBC delivered solid performance during the first quarter," says Mr. McCaughey. "The investments we are making in our retail and business banking, wealth management and wholesale banking businesses are furthering our strength and positioning us well for the future."

CIBC in our communities
CIBC is committed to supporting causes that matter to our clients, our employees and our communities. During the quarter:

  • CIBC Miracle Day raised a record $4.5 million in donated fees and commissions that will support over 450 children's charities across Canada, and in the U.K. and the U.S.;
  • CIBC's 2012 United Way campaign raised $11.1 million, marking an increase of 30% per cent over last year's total of $8.5 million; and
  • The top student fundraisers in the Canadian Breast Cancer Foundation CIBC Run for the Cure Post Secondary Challenge won $2,500 CIBC Education Awards to help pay for their studies.

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(1) For additional information, see the "Non-GAAP measures" section.

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The information on the following pages forms a part of this press release.

(The board of directors of CIBC reviewed this press release prior to it being issued. CIBC's controls and procedures support the ability of the President and Chief Executive Officer and the Chief Financial Officer of CIBC to certify CIBC's first quarter financial report and controls and procedures. CIBC's CEO and CFO will voluntarily provide to the Securities and Exchange Commission a certification relating to CIBC's first quarter financial information, including the attached unaudited interim consolidated financial statements, and will provide the same certification to the Canadian Securities Administrators.)

Management's discussion and analysis

Management's discussion and analysis (MD&A) is provided to enable readers to assess CIBC's financial condition and results of operations as at and for the quarter ended January 31, 2013, compared with prior quarters. The MD&A should be read in conjunction with our 2012 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of February 27, 2013. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at www.sec.gov. No information on CIBC's website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 182 to 185 of our 2012 Annual Report.

External reporting changes

Basel III
We adopted the Office of the Superintendent of Financial Institution's (OSFI) revised Capital Adequacy Requirements (CAR) Guideline effective January 2013.  The revised CAR Guideline reflects the changes to capital requirements, commonly referred to as Basel III, that have been issued by the Basel Committee on Banking Supervision (BCBS). 

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 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 "Overview - Income taxes", "Overview - Outlook for calendar year 2013", "Review of quarterly financial information", "Capital Resources", "Management of risk - Credit risk", "Management of risk - Market risk", "Management of risk - Liquidity risk", "Management of risk - Operational risk", and "Accounting and control matters" sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for 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 "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, insurance, operational, reputation and legal, regulatory and environmental risk; 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; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; 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.


First quarter financial highlights
                           
          2013       2012 (1)     2012  
Unaudited, as at or for the three months ended         Jan. 31       Oct. 31       Jan. 31  
Financial results ($ millions)                            
Net interest income       $ 1,855      $ 1,848      $ 1,842   
Non-interest income         1,326        1,311        1,315   
Total revenue         3,181        3,159        3,157   
Provision for credit losses         265        328        338   
Non-interest expenses         1,987        1,829        1,791   
Income before taxes         929        1,002        1,028   
Income taxes         131        150        193   
Net income       $ 798      $ 852      $ 835   
Net income attributable to non-controlling interests       $     $     $  
  Preferred shareholders         25        29        56   
  Common shareholders         771        821        776   
Net income attributable to equity shareholders       $ 796      $ 850      $ 832   
Financial measures                            
Reported efficiency ratio         62.5  %     57.9  %     56.7  %
Adjusted efficiency ratio (2)         56.1  %     56.5  %     55.3  %
Loan loss ratio (3)         0.42  %     0.53  %     0.54  %
Return on common shareholders' equity         19.9  %     21.7  %     22.4  %
Net interest margin         1.83  %     1.83  %     1.85  %
Net interest margin on average interest-earning assets (4)         2.12  %     2.14  %     2.16  %
Return on average assets (5)         0.79  %     0.85  %     0.84  %
Return on average interest-earning assets (4)(5)         0.91  %     0.99  %     0.98  %
Total shareholder return         7.13  %     8.42  %     2.78  %
Common share information                            
Per share ($)                            
    - basic earnings       $ 1.91      $ 2.02      $ 1.94   
    - reported diluted earnings         1.91        2.02        1.93   
    - adjusted diluted earnings (2)         2.15         2.04        1.97   
    - dividends         0.94        0.94        0.90   
    - book value         38.07        37.48        34.31   
Share price ($)                            
    - high         84.10        78.56        78.00   
    - low         76.70        72.97        68.43   
    - closing         83.20        78.56        76.25   
Shares outstanding (thousands)                            
    - weighted-average basic         403,332        405,404        401,099   
    - weighted-average diluted         403,770        405,844        401,613   
    - end of period         401,960        404,485        402,728   
Market capitalization ($ millions)       $ 33,443      $ 31,776      $ 30,708   
Value measures                            
Dividend yield (based on closing share price)         4.5  %     4.8  %     4.7  %
Reported dividend payout ratio         49.2  %     46.4  %     46.5  %
Adjusted dividend payout ratio(2)         43.7  %     46.1  %     45.5  %
Market value to book value ratio         2.19        2.10        2.22   
On- and off-balance sheet information ($ millions)                            
Cash, deposits with banks and securities       $ 72,656      $ 70,061      $ 71,065   
Loans and acceptances, net of allowance         251,139        252,732        250,719   
Total assets         392,783        393,385        391,449   
Deposits         306,304        300,344        296,137   
Common shareholders' equity         15,303        15,160        13,817   
Average assets         402,313        401,092        396,122   
Average interest-earning assets (4)         347,020        343,840        339,567   
Average common shareholders' equity         15,361        15,077        13,826   
Assets under administration(6)         1,429,049        1,445,870        1,364,509   
Balance sheet quality measures                            
Basel III - Transitional basis                              
  Risk-weighted assets (RWA) ($ billions)       $ 134.8        n/a       n/a  
  Common Equity Tier 1 ratio         11.5  %     n/a       n/a  
  Tier 1 capital ratio         12.4  %     n/a       n/a  
  Total capital ratio         15.3  %     n/a       n/a  
Basel III - All-in basis                            
  RWA ($ billions)       $ 126.4        n/a       n/a  
  Common Equity Tier 1 ratio         9.6  %     n/a       n/a  
  Tier 1 capital ratio         12.0  %     n/a       n/a  
  Total capital ratio         15.3  %     n/a       n/a  
Basel II                            
  RWA ($ billions)         n/a     $ 115.2      $ 111.5   
  Tier 1 capital ratio         n/a       13.8  %     14.3  %
  Total capital ratio         n/a       17.3  %     18.1  %
Other information                            
Retail / wholesale ratio (2)(7)         78 % / 22 %     77 % / 23 %     78 % / 22 %
Full-time equivalent employees (8)         42,793        42,595        42,181   
(1)   Certain amounts have been reclassified to conform to the presentation adopted in the current period.  
(2)   For additional information, see the "Non-GAAP measures" section.  
(3)   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 and mortgages that are greater than 90 days delinquent; and net credit card write-offs.  
(4)   Average interest-earning assets include interest-bearing deposits with banks, securities, securities borrowed or purchased under resale agreements, and loans net of allowances.
(5)   Net income expressed as a percentage of average assets or average interest-earning assets.  
(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)   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.
(8)   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.  
n/a   Not applicable.  
     

Overview

Financial results
Reported net income for the quarter was $798 million, compared to $835 million for the same quarter last year and $852 million for the prior quarter.

Reported diluted earnings per share (EPS) for the quarter was $1.91, compared to $1.93 for the same quarter last year and $2.02 for the prior quarter.

Adjusted diluted EPS(1) for the quarter was $2.15, compared to $1.97 for the same quarter last year and $2.04 for the prior quarter.

Net income was affected by the following items of note:

  • $148 million ($109 million after-tax) loss from the structured credit run-off business, including the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc.(Wholesale Banking);
  • $16 million ($16 million after-tax) gain, net of associated expenses, on the sale of our Hong Kong and Singapore-based private wealth management business (Corporate and Other); and
  • $5 million ($4 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $2 million after-tax in Corporate and Other).

The above items of note increased revenue by $28 million, non-interest expenses by $165 million, and decreased income tax expenses by $40 million. In aggregate, these items of note decreased net income by $97 million.

(1) For additional information, see the "Non-GAAP measures" section.

Net interest income
Net interest income was up $13 million or 1% from the same quarter last year, primarily due to higher trading-related net interest income, wider retail spreads, and volume growth across most retail products, partially offset by lower treasury-related net interest income.

Net interest income was up $7 million from the prior quarter, primarily due to higher trading-related net interest income and wider retail spreads, largely offset by lower treasury-related net interest income.

Non-interest income
Non-interest income was up $11 million or 1% from the same quarter last year, primarily due to higher mutual fund and credit fees, and higher gains net of write-downs on available-for-sale (AFS) securities, partially offset by lower trading income.  The current quarter had a gain on sale of the private wealth management business as noted above, while the same quarter last year had a gain relating to an equity-accounted investment in our Wealth Management strategic business unit (SBU), also included as an item of note.

Non-interest income was up $15 million or 1% from the prior quarter. The prior quarter included a loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis, and a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. (TMX Group) by Maple Group Acquisition Corporation (Maple), both included as items of note. The current quarter had a gain on sale of the private wealth management business as noted above, higher gains net of write-downs on AFS securities, and higher mutual fund fees, partially offset by lower income from our equity accounted investments, and underwriting and advisory fees.

Provision for credit losses
The provision for credit losses was down $73 million or 22% from the same quarter last year. In Retail and Business Banking, provisions were down due to lower write-offs and bankruptcies in the cards portfolio. In Wholesale Banking, provisions were down due to lower losses in the U.S. real estate finance portfolio. In Corporate and Other, provisions were down due to lower losses in CIBC FirstCaribbean International Bank (CIBC FirstCaribbean) and higher net provision reversals related to collective allowance reported in this segment.

The provision for credit losses was down $63 million or 19% from the prior quarter. In Retail and Business Banking, provisions were down due to lower losses in the business lending portfolio. In Wholesale Banking, provisions were down due to lower losses in the exited U.S. leveraged finance portfolio. In Corporate and Other, provisions were up due to higher losses in CIBC FirstCaribbean, and the provision for collective allowance reported in this segment was comparable to the prior quarter.

Non-interest expenses
Non-interest expenses were up $196 million or 11% compared to the same quarter last year, primarily due to higher expenses in the structured credit run-off business noted above, and higher employee compensation and benefits.

Non-interest expenses were up $158 million or 9% from the prior quarter, primarily due to higher expenses in the structured credit run-off business noted above, and higher employee compensation and benefits, partially offset by lower advertising, computer and office equipment, and occupancy costs.

Income taxes
Income tax expense was down $62 million or 32% from the same quarter last year, primarily due to lower income and higher tax-exempt income.

Income tax expense was down $19 million or 13% from the prior quarter, mainly due to lower income.

In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3.0 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 Crown's 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.

Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $187 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.

Foreign exchange
The estimated impact of U.S. dollar translation on key lines of our interim consolidated statement of income, as a result of changes in average exchange rates, is as follows:

              Jan. 31, 2013     Jan. 31, 2013  
                vs.     vs.  
$ millions, for the three months ended             Jan. 31, 2012     Oct. 31, 2012  
Estimated increase (decrease) in:                      
  Total revenue           $ (7)   $  
  Provision for credit losses                  
  Non-interest expense             (3)      
  Income taxes                  
  Net income             (4)      
Average US$ appreciation (depreciation) relative to C$             (2) %   %
                       

Impact of items of note in prior periods
Net income for the prior quarters was affected by the following items of note:

Q4, 2012

  • $57 million ($32 million after-tax) loan losses in our exited U.S. leveraged finance portfolio (Wholesale Banking);
  • $51 million ($37 million after-tax) gain from the structured credit run-off business (Wholesale Banking);
  • $33 million ($24 million after-tax) loss relating to the change in valuation of collateralized derivatives to the OIS basis ($23 million after-tax in Wholesale Banking and $1 million after-tax in Corporate and Other);
  • $24 million ($19 million after-tax) gain on sale of interests in entities in relation to the acquisition of TMX Group by Maple, net of associated expenses (Wholesale Banking); and
  • $7 million ($6 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $4 million after-tax in Corporate and Other).

The above items of note increased revenue by $52 million, provision for credit losses by $53 million, non-interest expenses by $21 million, and decreased income tax expenses by $16 million. In aggregate, these items of note decreased net income by $6 million.

Q1, 2012

  • $37 million ($35 million after-tax) gain relating to an equity-accounted investment (Wealth Management);
  • $35 million ($26 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
  • $9 million ($7 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $5 million after-tax in Corporate and Other).

The above items of note increased revenue by $10 million, non-interest expenses by $17 million, and decreased income tax expenses by $9 million. In aggregate, these items of note increased net income by $2 million.

In addition, net income attributable to common shareholders was also affected by the following item of note:

  • $18 million premium paid on preferred share redemptions.

Significant events

Lehman Brothers bankruptcy proceedings
During the quarter, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the 2012 consolidated financial statements.

Private wealth management (Asia)
On January 25, 2013, CIBC sold its stand-alone Hong Kong and Singapore-based private wealth management business. This niche advisory and brokerage business, which was included in International banking within Corporate and Other, provided private banking services to a small number of high-net-worth individuals in the Asia-Pacific region and had assets under management of approximately $2 billion. As a result, CIBC recognized a gain, net of associated expenses, of $16 million ($16 million after-tax) during the quarter. CIBC's other businesses in Asia are unaffected by this transaction.

Outlook for calendar year 2013

Moderate economic growth is likely to continue in both Canada and the U.S. in 2013. Real GDP gains are likely to be in the vicinity of 2% in both Canada and the U.S. in the face of soft growth overseas, and ongoing fiscal tightening. We expect European governments will prevent sovereign debt troubles from spilling over into a larger Eurozone banking crisis but fiscal tightening has left Europe in a mild recession. In the U.S., improving household credit fundamentals and continued recovery in home building will help offset the drag from tighter fiscal policy, although the degree of spending cuts remains to be determined.

Canada's economy will benefit from a pick-up in oil output, but will see somewhat less robust domestic demand. Government spending will remain a slight negative for growth as fiscal tightening continues. Consumer demand will be supported by ongoing job creation, but will be held close to income gains as the appetite for credit is held in check by existing high debt levels, even with the Bank of Canada avoiding interest rate increases through 2013. Housing is turning from a strong growth contributor to a slight negative this year as the impact of softer sales shows up in a modest retreat in construction activity.

Retail and Business Banking is expected to face slightly slower growth in demand for mortgages, while consumer credit demand could continue to see limited growth. Demand for business credit should continue at a healthy growth rate. Slightly slower economic growth is unlikely to result in deterioration in household credit quality, with the unemployment rate holding nearly steady.

Wealth Management should see an improvement in demand for equities and other risk assets over the course of 2013 as global uncertainties are gradually resolved.

Wholesale Banking will continue to benefit from a healthy pace of debt financings as both governments and corporations take advantage of low interest rates and robust market conditions. Equity issuance could improve over the course of the year as global growth uncertainties are gradually resolved, a trend that should also support merger activity. Corporate credit demand should be supported by growth in capital spending, although the public debt market and internal cash flows will be a competitive source of funding.


Review of quarterly financial information
                                                         
$ millions, except per share amounts,                                                    
for the three months ended         2013                       2012                 2011
                                                         
          Jan. 31     Oct. 31 (1)   Jul. 31     Apr. 30     Jan. 31     Oct. 31     Jul. 31     Apr. 30
Revenue                                                    
  Retail and Business Banking       $ 2,065    $ 2,036    $ 2,085    $ 2,004    $ 2,029    $ 2,076    $ 2,035    $ 1,932 
  Wealth Management         432      420      401      418      435      396      404      420 
  Wholesale Banking (2)         563      575      527      463      495      561      503      477 
  Corporate and Other (2)         121      128      136      199      198      162      189      186 
Total revenue       $ 3,181    $ 3,159    $ 3,149    $ 3,084    $ 3,157    $ 3,195    $ 3,131    $ 3,015 
Net interest income       $ 1,855    $ 1,848    $ 1,883    $ 1,753    $ 1,842    $ 1,776    $ 1,785    $ 1,731 
Non-interest income         1,326      1,311      1,266      1,331      1,315      1,419      1,346      1,284 
Total revenue         3,181      3,159      3,149      3,084      3,157      3,195      3,131      3,015 
Provision for credit losses         265      328      317      308      338      306      310      245 
Non-interest expenses         1,987      1,829      1,831      1,764      1,791      1,920      2,005      1,756 
          929      1,002      1,001      1,012      1,028      969      816      1,014 
Income taxes         131      150      160      201      193      212      225      247 
Net income       $ 798    $ 852    $ 841    $ 811    $ 835    $ 757    $ 591    $ 767 
Net income attributable to:                                                    
  Non-controlling interests       $   $   $   $   $   $   $   $
  Equity shareholders           796      850      839      810      832      754      589      764 
Earnings per share                                                    
    - basic       $ 1.91    $ 2.02    $ 2.00    $ 1.90    $ 1.94    $ 1.80    $ 1.35    $ 1.83 
    - diluted         1.91      2.02      2.00      1.90      1.93      1.79      1.33      1.80 
(1)   Certain amounts have been reclassified to conform to the presentation adopted in the current period.  
(2)   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.  
     

Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July - third quarter and August - fourth quarter) typically experience lower levels of capital markets activity, which affects our brokerage, investment management, and wholesale banking activities.

Revenue
Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by the continued low interest rate environment and attrition in our exited FirstLine mortgage business.

Wealth Management revenue has benefitted from continued strong net sales of long-term mutual funds and higher average assets under management. Income from our proportionate share in American Century Investments (ACI) is included from September 1, 2011 and a gain related to this equity-accounted investment was included in the first quarter of 2012.

Wholesale Banking revenue is influenced to a large extent by capital market conditions. Revenue had been adversely affected by losses in the structured credit run-off business up to the third quarter of 2012, while the fourth quarter included a gain. The second quarter of 2012 included the hedge accounting loss on leveraged leases. The fourth quarter of 2012 included a gain on sale of interests in entities in relation to the acquisition of TMX Group by Maple and a loss relating to the change in valuation of collateralized derivatives to an OIS basis.

Corporate and Other had lower unallocated treasury revenue in the second half of 2012 and first quarter of 2013. The current quarter also included a gain on sale of the private wealth management business (Asia).

Provision for credit losses
The provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. Losses in the cards portfolio improved in 2012 and the first quarter of 2013. Wholesale Banking provisions declined in the second and third quarters of 2011, while the fourth quarter of 2011 had higher losses in the exited European leveraged finance portfolio. During 2012, we had higher losses in U.S. real estate finance and the exited U.S. leveraged finance portfolio.

Non-interest expenses
Non-interest expenses have fluctuated over the period largely due to changes in employee compensation and benefits, including pension expense. An impairment loss relating to CIBC FirstCaribbean goodwill was recognized in the third quarter of 2011. The current quarter had higher expenses in the structured credit run-off business.

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 second quarter of 2011. The above-noted impairment loss relating to CIBC FirstCaribbean goodwill was not tax-effected.

Non-GAAP measures

We use a number of financial measures to assess the performance of our business lines. 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. For a more detailed discussion on our non-GAAP measures, see page 19 of the 2012 Annual Report.

The following table provides a reconciliation of non-GAAP to GAAP measures related to CIBC on a consolidated basis.

                    2013       2012       2012  
$ millions, as at or for the three months ended                 Jan. 31       Oct. 31       Jan. 31  
Reported and adjusted diluted EPS                                    
Reported net income attributable to diluted common shareholders       A       $ 771      $ 821      $ 776   
Adjusting items:                                    
  After-tax impact of items of note(1)                 97              16   
Adjusted net income attributable to diluted common shareholders (2)       B       $ 868      $ 827      $ 792   
Reported diluted weighted-average common shares outstanding (thousands)       C         403,770        405,844        401,613   
Reported diluted EPS ($)       A/C       $ 1.91      $ 2.02      $ 1.93   
Adjusted diluted EPS ($) (2)       B/C         2.15        2.04        1.97   
Reported and adjusted efficiency ratio                                    
Reported total revenue       D       $ 3,181      $ 3,159      $ 3,157   
Adjusting items:                                    
  Pre-tax impact of items of note(1)                 (28)       (52)       (10)  
  TEB                 92        92        57   
Adjusted total revenue (2)       E       $ 3,245      $ 3,199      $ 3,204   
Reported non-interest expenses       F       $ 1,987      $ 1,829      $ 1,791   
Adjusting items:                                    
  Pre-tax impact of items of note(1)                 (165)       (21)       (17)  
Adjusted non-interest expenses (2)       G       $ 1,822      $ 1,808      $ 1,774   
Reported efficiency ratio       F/D         62.5  %     57.9  %     56.7  %
Adjusted efficiency ratio (2)       G/E         56.1  %     56.5  %     55.3  %
Reported and adjusted dividend payout ratio                                    
Reported net income attributable to common shareholders       H       $ 771        821        776   
Adjusting items:                                    
  After-tax impact of items of note(1)                 97              16   
Adjusted net income attributable to common shareholders (2)       I       $ 868      $ 827      $ 792   
Dividends paid to common shareholders       J       $ 379      $ 381      $ 360   
Reported dividend payout ratio       J/H         49.2  %     46.4  %     46.5  %
Adjusted dividend payout ratio (2)       J/I         43.7  %     46.1  %     45.5  %
 
   

$ millions, for the three months ended Retail and
Business
Banking
Wealth
Management
Wholesale
Banking
Corporate
and Other
CIBC
Total
Jan. 31 Reported net income $  611  $  90  $  91  $  6  $  798 
2013 Adjusting items:                    
      After-tax impact of items of note(1)    2     -     109    (14)    97 
    Adjusted net income(2) $  613  $  90  $  200  $ (8) $  895 
Oct. 31 Reported net income $  569  $  84  $  193  $  6  $  852 
2012 Adjusting items:                    
      After-tax impact of items of note(1)    2     -    (1)    5     6 
    Adjusted net income(2) $  571  $  84  $  192  $  11  $  858 
Jan. 31 Reported net income $  567  $  100  $  133  $  35  $  835 
2012 Adjusting items:                    
      After-tax impact of items of note(1)    2    (35)    26     5    (2)
    Adjusted net income(2) $  569  $  65  $  159  $  40  $  833 
(1) Reflects impact of items of note under "Financial results" section.
(2) Non-GAAP measure.

 

Strategic business units overview

CIBC has three SBUs - Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management, which form part of Corporate and Other. 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. The key methodologies and assumptions used in reporting financial results of our SBUs are provided on page 22 of the 2012 Annual Report.

Retail and Business Banking

Retail and Business Banking provides clients across Canada with financial advice, banking, investment, and authorized insurance products and services through a strong team of advisors and more than 1,100 branches, as well as our ABMs, mobile sales force, and telephone, online and mobile banking.

Results (1)                                
                                   
                2013       2012       2012  
$ millions, for the three months ended             Jan. 31       Oct. 31       Jan. 31  
Revenue                                
  Personal banking           $ 1,623      $ 1,616      $ 1,563   
  Business banking             380        378        373   
  Other             62        42        93   
Total revenue             2,065        2,036        2,029   
Provision for credit losses             241        255        281   
Non-interest expenses             1,021        1,030        996   
Income before taxes             803        751        752   
Income taxes             192        182        185   
Net income           $ 611      $ 569      $ 567   
Net income attributable to:                                
  Equity shareholders (a)           $ 611      $ 569      $ 567   
Efficiency ratio             49.4  %     50.6  %     49.1  %
Return on equity (2)             58.3  %     57.1  %     58.2  %
Charge for economic capital (2)(b)           $ (132)     $ (126)     $ (130)  
Economic profit (2)(a+b)           $ 479      $ 443      $ 437   
Full-time equivalent employees             22,063        21,857        21,706   
(1)   For additional segmented information, see the notes to the interim consolidated financial statements.  
(2)   For additional information, see the "Non-GAAP measures" section.
     

Financial overview
Net income for the quarter was $611 million, up $44 million or 8% from the same quarter last year, primarily due to lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses.

Net income was up $42 million or 7% compared to the prior quarter, primarily due to higher revenue and lower provision for credit losses.

Revenue
Revenue was up $36 million or 2% from the same quarter last year.

Personal banking revenue was up $60 million or 4%, primarily due to volume growth across most products and wider spreads.

Business banking revenue was up $7 million or 2%, primarily due to volume growth and higher fees, partially offset by narrower spreads.

Other revenue was down $31 million mainly due to lower treasury allocations.

Revenue was up $29 million or 1% from the prior quarter.

Personal banking revenue was up $7 million, primarily due to volume growth.

Business banking revenue was comparable to the prior quarter.

Other revenue was up $20 million due to higher treasury allocations.

Provision for credit losses
Provision for credit losses was down $40 million or 14% from the same quarter last year due to lower write-offs and bankruptcies in the cards portfolio.

Provision for credit losses was down $14 million or 5% from the prior quarter, mainly due to lower losses in the business lending portfolio.

Non-interest expenses
Non-interest expenses were up $25 million or 3% from the same quarter last year, primarily due to increased spending on strategic business initiatives.

Non-interest expenses were down $9 million or 1% from the prior quarter, primarily due to lower advertising costs.

Income taxes
Income taxes were up $7 million or 4% from the same quarter last year due to higher income.

Income taxes were up $10 million or 5% from the prior quarter due to higher income.

Aeorplan Agreement
CIBC and Aimia Canada Inc. (Aimia) are parties to an agreement (the Aeroplan Agreement) pursuant to which CIBC pays Aimia for Aeroplan miles credited to participating CIBC cardholders' accounts, based on the value of the cardholders' purchases using such cards. The Aeroplan Agreement will expire on December 31, 2013 unless extended by the parties or replaced in accordance with its terms. CIBC has engaged in periodic extension discussions with Aimia but is also exploring alternatives to extending the Aeroplan Agreement. At this stage, there can be no assurance that the Aeroplan Agreement will be extended.

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.

Results (1)                                
                                 
                2013       2012         2012  
$ millions, for the three months ended             Jan. 31       Oct. 31       Jan. 31  
Revenue                                
  Retail brokerage           $ 259      $ 256      $ 249   
  Asset management             144        138        162   
  Private wealth management             29        26        24   
Total revenue             432        420        435   
Non-interest expenses             315        308        312   
Income before taxes             117        112        123   
Income taxes             27        28        23   
Net income           $ 90      $ 84      $ 100   
Net income attributable to:                                
  Equity shareholders (a)           $ 90      $ 84      $ 100   
Efficiency ratio             73.0  %     73.4  %     71.7  %
Return on equity (2)             19.1  %     18.9  %     24.5  %
Charge for economic capital (2)(b)           $ (58)     $ (55)     $ (52)  
Economic profit (2)(a+b)           $ 32      $ 29      $ 48   
Full-time equivalent employees             3,765        3,783        3,721   
(1)   For additional segmented information, see the notes to the interim consolidated financial statements.
(2)   For additional information, see the "Non-GAAP measures" section.
     

Financial overview
Net income for the quarter was $90 million, a decrease of $10 million or 10% from the same quarter last year due to a gain relating to an equity-accounted investment in the first quarter of 2012 included as an item of note. Excluding this gain, revenue was higher across all lines of business.

Net income was up $6 million or 7% compared to the prior quarter, primarily due to higher revenue, partially offset by higher non-interest expenses.

Revenue
Revenue was down $3 million or 1% compared to the same quarter last year.

Retail brokerage revenue was up $10 million or 4%, primarily due to higher fee-based revenue.

Asset management revenue was down $18 million or 11%, primarily due to a gain in the same quarter last year noted above, partially offset by higher client assets under management driven by higher long-term net sales of mutual funds and improved capital markets.

Private wealth management revenue was up $5 million or 21%, mainly due to higher assets under management driven by client growth, including the impact of the acquisition of the MFS McLean Budden private wealth management business in September 2012.

Revenue was up $12 million or 3% from the prior quarter.

Retail brokerage revenue was up $3 million or 1%, primarily due to higher commissions from equity trading and fee-based revenue.

Asset management revenue was up $6 million or 4%, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds and improved capital markets.

Private wealth management revenue was up $3 million or 12%, mainly due to higher assets under management, including a full quarter impact of the acquisition noted above.

Non-interest expenses
Non-interest expenses were up $3 million or 1% from the same quarter last year, and up $7 million or 2% from the prior quarter, primarily due to higher performance-based compensation.

Income taxes
Income taxes were up $4 million from the same quarter last year mainly due to a lower tax rate on the gain discussed above.

Income taxes were comparable to the prior quarter.

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.

Results (1)                                
                                   
                2013       2012       2012  
$ millions, for the three months ended             Jan. 31       Oct. 31       Jan. 31  
Revenue                                
  Capital markets           $ 328      $ 295      $ 307   
  Corporate and investment banking             213        206        197   
  Other             22        74        (9)  
Total revenue (2)             563        575        495   
Provision for credit losses             10        66        26   
Non-interest expenses             445        263        289   
Income before taxes             108        246        180   
Income taxes (2)             17        53        47   
Net income           $ 91      $ 193      $ 133   
Net income attributable to:                                
  Equity shareholders (a)           $ 91      $ 193      $ 133   
Efficiency ratio (2)             79.0  %     45.7  %     58.3  %
Return on equity (3)             16.3  %     35.0  %     26.5  %
Charge for economic capital (3)(b)           $ (68)     $ (70)     $ (65)  
Economic profit (3)(a+b)           $ 23      $ 123      $ 68   
Full-time equivalent employees             1,261        1,268        1,214   
(1)   For additional segmented information, see the notes to the interim consolidated financial statements.
(2)   Revenue and income taxes are reported on a TEB basis. Accordingly, revenue and income taxes include a TEB adjustment of $92 million for the three months ended January 31, 2013 ($92 million for the three months ended October 31, 2012 and $57 million for the three months ended January 31, 2012).  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 for the quarter was $91 million, down $42 million from the same quarter last year, mainly due to higher non-interest expenses, partially offset by higher revenue, a lower provision for credit losses and lower income taxes.

Net income was down $102 million from the prior quarter, mainly due to higher non-interest expenses, partially offset by a lower provision for credit losses.

Revenue
Revenue was up $68 million or 14% from the same quarter last year.

Capital markets revenue was up $21 million, primarily due to higher revenue from equity derivatives and a reversal of a credit valuation adjustment (CVA) charge against credit exposures to derivative counterparties (other than financial guarantors), partially offset by lower foreign exchange and commodities trading revenue.

Corporate and investment banking revenue was up $16 million as higher revenue from corporate credit products was partially offset by lower revenue from U.S. real estate finance.

Other revenue was up $31 million, primarily due to gains in the structured credit run-off business in the current quarter compared to losses in the prior year quarter.

Revenue was down $12 million or 2% from the prior quarter.

Capital markets revenue was up $33 million, mainly due to higher revenue from fixed income and a reversal of the CVA charge noted above, partially offset by lower revenue from equity derivatives trading.  The prior quarter included a loss relating to the change in valuation of collateralized derivatives to an OIS basis, which was partially offset by a gain on the sale of an interest in an entity in relation to the acquisition of TMX Group by Maple, both included as items of note.

Corporate and investment banking revenue was up $7 million, primarily due to higher investment portfolio gains and higher revenue from corporate credit products, partially offset by lower revenue from U.S. real estate finance.

Other revenue was down $52 million from the prior quarter, primarily due to lower gains in the structured credit run-off business.

Provision for credit losses
Provision for credit losses was down $16 million from the same quarter last year due to lower losses in the U.S. real estate finance portfolio, and down $56 million from the prior quarter due to lower losses in the exited U.S. leveraged finance portfolio.

Non-interest expenses
Non-interest expenses were up $156 million or 54% from the same quarter last year, due to higher expenses in the structured credit run-off business related to the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. (refer to "Structured credit run-off business" section for further details).

Non-interest expenses were up $182 million or 69% from the prior quarter, primarily due to higher expenses in the structured credit run-off business as noted above, and higher performance-based compensation.

Income taxes
Income tax expense for the quarter was $30 million lower than the prior year quarter, primarily due to lower income in the current quarter.

Income tax expense was $36 million lower than the prior quarter, primarily due to lower income in the current quarter.

Structured credit run-off business

The results of the structured credit run-off business are included in the Wholesale Banking SBU.

Results                            
                             
                2013     2012     2012  
$ millions, for the three months ended             Jan. 31     Oct. 31     Jan. 31  
Net interest income (expense)           $ (14)   $ (19)   $ (15)  
Trading income (loss)              18      31      (8)  
FVO losses             (3)     (1)     (5)  
Other income                 42       
Total revenue                 53      (27)  
Non-interest expenses             154           
Income (loss) before taxes             (148)     51      (35)  
Income taxes             (39)     14      (9)  
Net income (loss)           $ (109)   $ 37    $ (26)  
                             

The net loss for the quarter was $109 million (US$110 million), compared with $26 million (US$26 million) for the same quarter last year and net income of $37 million (US$37 million) for the prior quarter.

The net loss for the quarter was mainly due to a charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc., 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 mark-to-market (MTM) of the underlying positions, and net interest expense, partially offset by a CVA gain relating to financial guarantors and gains on unhedged positions.

Position summary
The following table summarizes our positions within our structured credit run-off business:

                                  Written credit                        
                                derivatives, liquidity     Credit protection purchased from
US$ millions, as at January 31, 2013     Investments and loans (1)   and credit facilities     Financial guarantors     Other counterparties
              Fair                                                
              value of     Fair     Carrying                                    
              trading,     value of     value of           Fair                        
              AFS     securities     securities           value of           Fair value           Fair value
              and FVO     classified     classified           written credit           net of           net of
        Notional     securities     as loans     as loans     Notional     derivatives     Notional     CVA     Notional     CVA
USRMM - CDO     $   $   $   $   $ 278    $ 231    $   $   $ 278    $ 232 
CLO       3,804          3,634      3,627      3,129      60      6,031      87      267     
Corporate debt                       4,977      38              4,977      42 
Other       865      559      51      54      641      69      287      27      26     
Unmatched                               134      112      374     
      $ 4,669    $ 559    $ 3,685    $ 3,681    $ 9,025    $ 398    $ 6,452    $ 226    $ 5,922    $ 281 
October 31, 2012     $ 4,742    $ 564    $ 3,731    $ 3,749    $ 9,035    $ 455    $ 6,492    $ 269    $ 5,926    $ 316 
(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$8 million (October 31, 2012: US$9 million) and the surplus notes had a notional value of US$140 million (October 31, 2012: US$140 million) and a carrying value of US$12 million (October 31, 2012: US$12 million).
     

USRMM - collateralized debt obligation (CDO)
Our net USRMM position, consisting of a written credit derivative, amounted to US$47 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 (36%) senior secured leveraged loans. As at January 31, 2013, approximately 22% of the total notional amount of the CLO tranches was rated equivalent to AAA, 72% was rated between the equivalent of AA+ and AA-, and the remainder was the equivalent of A. As at January 31, 2013, approximately 17% of the underlying collateral was rated equivalent to BB- or higher, 53% 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 2.7 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 47 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 January 31, 2013, include:

  • US$214 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$167 million;
  • US$167 million notional value of trading securities with a fair value of US$135 million, and US$292 million notional value of written protection with a fair value of US$67 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 55% rated between the equivalent of A+ and A-, 36% rated between the equivalent of BBB+ and BBB-, and the majority of the remaining rated equivalent of BB+ or lower;
  • US$58 million notional value of an asset-backed security (ABS) classified as a loan, with fair value of US$49 million and carrying value of US$52 million;
  • Variable rate Class A-1/A-2 notes classified as trading securities with a notional value of US$290 million and a fair value of US$247 million, tracking notes classified as AFS with a notional value of US$10 million and a fair value of US$2 million, and loans with a notional value of US$59 million and fair value and carrying value of nil. These notes were originally received in exchange for our non-bank sponsored asset-backed commercial paper (ABCP) in January 2009, upon the ratification of the Montreal Accord restructuring; and
  • US$296 million of undrawn Margin Funding Facility related to the Montreal Accord restructuring.

Unmatched
The underlyings in our unmatched positions are a reference portfolio of corporate debt and a loan backed by film receivables.

Credit protection purchased from financial guarantors and other counterparties
The following table presents the notional amounts and fair values of credit protection purchased from financial guarantors and other counterparties by counterparty credit quality, based on external credit ratings (Standard & Poor's (S&P) and/or Moody's Investors Service (Moody's)), and the underlying referenced assets. Excluded from the table below are certain performing loans and tranched securities positions in our continuing businesses, with a total notional amount of approximately US$60 million, which are partly secured by direct guarantees from financial guarantors or by bonds guaranteed by financial guarantors.

                                          Credit protection purchased
                                          from financial guarantors
            Notional amounts of referenced assets   and other counterparties
                Corporate     CDO -               Total     Fair value           Fair value
US$ millions as at January 31, 2013         CLO     debt     USRMM     Other   Unmatched     notional     before CVA     CVA     net of CVA
Financial guarantors (1)                                                        
  Investment grade       $ 3,697    $   $   $ 57  $ 134    $ 3,888    $ 223    $ (37)   $ 186 
  Non-investment grade         75              177        252      35      (21)     14 
  Unrated         2,259              53        2,312      50      (24)     26 
            6,031              287    134      6,452      308      (82)     226 
Other counterparties (1)                                                        
  Investment grade         267      20      278      26        591      238          240 
  Unrated             4,957            374      5,331      41          41 
            267      4,977      278      26    374      5,922      279          281 
        $ 6,298    $ 4,977    $ 278    $ 313  $ 508    $ 12,374    $ 587    $ (80)   $ 507 
October 31, 2012       $ 6,284    $ 4,968    $ 298    $ 356  $ 512    $ 12,418    $ 692    $ (107)   $ 585 
(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 January 31, 2013 was US$360 million relative to US$41 million of net exposure.

Lehman Brothers bankruptcy proceedings
During the quarter, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the 2012 consolidated financial statements.

Corporate and Other

Corporate and Other includes the six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management - that support CIBC's 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.

Results (1)                                
                                 
                2013       2012       2012
$ millions, for the three months ended               Jan. 31       Oct. 31       Jan. 31
Revenue                                
  International banking           $   163    $   149    $   148 
  Other               (42)       (21)       50 
Total revenue (2)               121        128        198 
Provision for credit losses               14              31 
Non-interest expenses               206        228        194 
Income (loss) before taxes               (99)       (107)       (27)
Income taxes (2)               (105)       (113)       (62)
Net income           $     $     $   35 
Net income attributable to:                                
  Non-controlling interests           $     $     $  
  Equity shareholders                           32 
Full-time equivalent employees               15,704        15,687        15,540 
(1)    For additional segmented information, see the notes to the interim consolidated financial statements.  
(2)    TEB adjusted. See footnote 2 in "Wholesale Banking" section for additional details.
     

Financial overview
Net income for the quarter was $6 million, down $29 million from the same quarter last year primarily due to lower revenue.

Net income was comparable to the prior quarter.

Revenue
Revenue was down $77 million or 39% from the same quarter last year.

International banking revenue was up $15 million or 10% from the same quarter last year, primarily due to a gain on sale of the private wealth management business, included as an item of note.

Other revenue was down $92 million from the same quarter last year due to lower unallocated treasury revenue and a higher TEB adjustment.

Revenue was down $7 million or 5% from the prior quarter.

International banking revenue was up $14 million or 9% from the prior quarter, primarily due to a gain on sale of the private wealth management business noted above.

Other revenue was down $21 million from the prior quarter, primarily due to lower unallocated treasury revenue and lower income from equity-accounted investments.

Provision for credit losses
Provision for credit losses was down $17 million compared to the same quarter last year, mainly due to lower losses in CIBC FirstCaribbean and higher provision reversals of collectively assessed credit losses relating to the cards and commercial banking portfolios, partially offset by higher provision in the personal lending portfolio.

Provision for credit losses was up $7 million from the prior quarter, mainly due to higher losses in CIBC FirstCaribbean. Net higher provision reversals of collectively assessed credit losses relating to the cards portfolio were offset by higher provision in the personal lending portfolio.

Non-interest expenses
Non-interest expenses were up $12 million or 6% from the same quarter last year, mainly due to higher unallocated corporate support costs.

Non-interest expenses were down $22 million or 10% from the prior quarter, mainly due to lower unallocated corporate support costs.

Income taxes
Income tax benefit was up $43 million from the same quarter last year, primarily due to a higher TEB adjustment.

Income tax benefit was down $8 million from the prior quarter.

Financial condition

Review of condensed consolidated balance sheet

          2013       2012
$ millions, as at         Jan. 31       Oct. 31
Assets                  
Cash and deposits with banks       $ 5,636      $ 4,727 
Securities         67,020        65,334 
Securities borrowed or purchased under resale agreements         29,058        28,474 
Loans and acceptances, net of allowance         251,139        252,732 
Derivative instruments         25,085        27,039 
Other assets         14,845        15,079 
        $ 392,783      $ 393,385 
Liabilities and equity                  
Deposits       $ 306,304      $ 300,344 
Capital Trust securities         1,669        1,678 
Obligations related to securities lent or sold short or under repurchase agreements         18,289        21,259 
Derivative instruments         24,551        27,091 
Other liabilities         20,004        21,152 
Subordinated indebtedness         4,791        4,823 
Equity         17,175        17,038 
        $ 392,783      $ 393,385 
                   

Assets
As at January 31, 2013, total assets were down $602 million from October 31, 2012.

Cash and deposits with banks increased by $909 million or 19% mostly due to higher treasury deposit placements.

Securities increased by $1.7 billion or 3%, with increases in both AFS securities and trading securities. AFS securities increased mainly in government-issued or guaranteed securities. Trading securities increased largely in the equity portfolios.

Net loans and acceptances decreased by $1.6 billion. Residential mortgages were down $1.1 billion, primarily due to attrition in our FirstLine mortgage business, partially offset by new mortgage originations through CIBC channels. Personal loans were down $556 million and credit card loans were down $330 million due to net repayments. Business and government loans and acceptances were up $348 million due to growth in our domestic and international portfolios.

Derivative instruments decreased by $2.0 billion or 7% largely driven by valuation of interest rate derivatives.

Other assets decreased by $234 million or 2%, mainly due to a decrease in collateral pledged for derivatives, partially offset by an increase in income taxes receivable as a result of payments made in the quarter.

Liabilities
As at January 31, 2013, total liabilities were down $739 million from October 31, 2012.

Deposits increased by $6.0 billion or 2%, primarily driven by business and government and personal volume growth.

Obligations related to securities lent or sold short or under repurchase agreements decreased by $3.0 billion or 14%, primarily due to client-driven activities.

Derivative instruments decreased by $2.5 billion or 9% due to the valuation of interest rate derivatives.

Other liabilities decreased by $1.1 billion or 5%, mainly due to lower acceptances and accrued liabilities.

Equity
As at January 31, 2013, equity increased by $137 million or 1%, primarily 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 common shares purchased for cancellation, as explained in the "Significant capital management activity" section below.

Capital resources

We actively manage our capital to maintain a strong and efficient capital base, to maximize risk-adjusted returns to shareholders, and to meet regulatory requirements. For additional details on capital resources, see pages 35 to 39 of the 2012 Annual Report.

Basel III and revisions to regulatory capital requirements
Our regulatory capital requirements are determined in accordance with guidelines issued by OSFI.

On December 10, 2012, OSFI issued the final version of revisions to its guidelines for capital adequacy in Canada which incorporate the adoption of the significant capital reforms, referred to as Basel III, issued by the BCBS. The most significant aspects of the reforms are measures to improve the quality of capital and increase capital requirements for the global financial system. These measures are discussed further on page 37 of the 2012 Annual Report.

OSFI expects all institutions to establish target capital ratios that meet or exceed the 2019 all-in (i) minimum ratios plus conservation buffer early in the transition period. For the Common Equity Tier 1 ratio, the target is 7% by the first quarter of 2013. The targets for the Tier 1 capital ratio and Total capital ratio are 8.5% and 10.5%, respectively, to be established by the first quarter of 2014. These targets may be higher for certain institutions or groups of institutions if OSFI feels the circumstances warrant it.

OSFI's capital adequacy guidelines provide for a deferral of the additional capital charge to cover credit valuation charges for bilateral OTC derivatives to January 1, 2014.  The delay provides for a coordinated start on the implementation of this new requirement with other significant jurisdictions

Regulatory capital

Our capital ratios and assets-to-capital multiple (ACM) are presented in the following table:

                          2013       2012  
$ millions, as at                       Jan. 31 (1)     Oct. 31 (1)
Basel III- Transitional basis                                  
Common Equity Tier 1 capital                     $ 15,556        n/a  
Tier 1 capital                       16,718        n/a  
Total capital                       20,689        n/a  
RWA                       134,821        n/a  
Common Equity Tier 1 ratio                       11.5  %     n/a  
Tier 1 capital ratio                       12.4  %     n/a  
Total capital ratio                       15.3  %     n/a  
ACM                       17.9  x     n/a  
Basel III- All-in basis                                  
Common Equity Tier 1 capital                     $ 12,077        n/a  
Tier 1 capital                       15,179        n/a  
Total capital                       19,352        n/a  
RWA                       126,366        n/a  
Common Equity Tier 1 ratio                       9.6  %     n/a  
Tier 1 capital ratio                       12.0  %     n/a  
Total capital ratio                       15.3  %     n/a  
Basel II                                  
Tier 1 capital                       n/a     $ 15,940  (2)
Total capital                       n/a       19,924  (2)
RWA                       n/a       115,229   
Tier 1 capital ratio                       n/a       13.8  %
Total capital ratio                       n/a       17.3  %
ACM                       n/a       17.4  x
(1)   Capital measures for fiscal year 2013 are based on Basel III whereas prior period measures are based on Basel II.
(2)   Incorporates OSFI's IFRS transitional relief election.  
n/a   Not applicable.   
     

Effective in the first quarter of 2013, regulatory capital requirements are based on the Basel III methodology, while requirements for the fourth quarter of 2012 were determined on a Basel II basis. As a result of the change in methodology, the regulatory capital information at October 31, 2012 and January 31, 2013 is not comparable.

All-in basis(i)
On an all-in basis(i) under Basel III, regulatory adjustments are deducted from common equity for the purpose of calculating the new Common Equity Tier 1 ratio. The regulatory adjustments include a broad range of items, such as goodwill, intangible assets, pension assets, deferred tax assets and equity investments in financial entities subject to investment thresholds and limits.

RWAs increased from October 31, 2012. This is largely attributable to the implementation of the following Basel III changes:

  • A 1.25 multiplier is applied to the correlation parameter for exposures to financial institutions under the internal ratings based approach subject to certain criteria;
  • Items that were previously deducted from capital under Basel II (such as significant investments in commercial entities and exposures relating to securitization that were deducted from capital) are now risk-weighted at 1,250%;
  • Significant investments in the equity of financial entities and deferred tax assets arising from temporary differences are only deducted if they exceed certain thresholds; the amounts not deducted are risk weighted at 250%; and
  • Higher capital requirements for exposures that give rise to greater degrees of wrong-way risk.

Transitional basis
Under Basel III, transitional RWAs differ from RWAs on an all-in basis. On a transitional basis certain deductions from capital will be phased in at 20% per year starting in 2014.  The amount not yet deducted from capital is risk-weighted accordingly.

(i) "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.

Significant capital management activity
Normal course issuer bid
During the quarter, we purchased and cancelled 3,337,300 common shares under the normal course issuer bid at an average price of $80.69 for a total amount of $269 million.

Off-balance sheet arrangements

We enter into off-balance sheet arrangements in the normal course of our business. We consolidate all of our sponsored trusts that securitize our own assets with the exception of the commercial mortgage securitization trust.

CIBC-sponsored conduits
We sponsor a single-seller conduit and several multi-seller conduits (collectively, the conduits) in Canada.

As at January 31, 2013, the underlying collateral for various asset types in our multi-seller conduits amounted to $1.5 billion (October 31, 2012: $1.6 billion). The estimated weighted-average life of these assets was 1.3 years (October 31, 2012: 9 months). Our holdings of commercial paper issued by our non-consolidated sponsored multi-seller conduits that offer commercial paper to external investors were $15 million (October 31, 2012: $23 million). Our committed backstop liquidity facilities to these conduits were $2.2 billion (October 31, 2012: $2.2 billion). We also provided credit facilities of $30 million (October 31, 2012: $30 million) to these conduits as at January 31, 2013.

We participated in a syndicated facility for a 3-year commitment of $575 million to our single-seller conduit that provides funding to franchisees of a major Canadian retailer. Our portion of the commitment was $110 million (October 31, 2012: $110 million). As at January 31, 2013, we funded $81 million (October 31, 2012: $80 million) through the issuance of bankers' acceptances.

                          2013                       2012  
$ millions, as at                       Jan. 31                     Oct. 31  
                  Undrawn                     Undrawn          
          Investment       liquidity     Written       Investment       liquidity     Written    
          and       and credit     credit       and       and credit     credit    
          loans (1)     facilities     derivatives (2)     loans (1)     facilities     derivatives (2)
CIBC sponsored conduits       $ 96      $ 1,464  $       $ 103      $ 1,554    $  
CIBC structured CDO vehicles         229        42      210        232        40      207   
Third-party structured vehicles                                                
  Structured credit run-off         4,449        370      3,509        4,313        333      4,382   
  Continuing         765        25            1,004        23       
Pass-through investment structures         2,716                  2,182             
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). $3.8 billion (October 31, 2012: $3.7 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 interim consolidated balance sheet was $486 million (October 31, 2012: $1.2 billion). Notional of $3.3 billion (October 31, 2012: $3.3 billion) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was $277 million (October 31, 2012: $307 million). An additional notional of $198 million (October 31, 2012: $1.0 billion) was hedged through a limited recourse note. Accumulated fair value losses were $24 million (October 31, 2012: $26 million) on unhedged written credit derivatives.  
       

Additional details of our structured entities are provided in Note 5 to the interim consolidated financial statements. Details of our other off-balance sheet arrangements are provided on pages 39 to 41 of the 2012 Annual Report. 

Management of risk

Our approach to management of risk has not changed significantly from that described on pages 42 to 68 of the 2012 Annual Report. Certain disclosures in this section have been shaded as they are required under IFRS 7 "Financial Instruments - Disclosures" and form an integral part of the interim consolidated financial statements.

Risk overview
We manage risk and related balance sheet resources within tolerance levels established by our management committees and approved by the Board of Directors and its committees. Key risk management policies are reviewed and approved by the applicable Board and management committees annually. Further details on the Board and management committees, as applicable to the management of risk, are provided on pages 42 and 43 of the 2012 Annual Report.

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 CIBC's 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 and policies, and CIBC's 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 Asset Liability Committee (ALCO).

Credit risk

Credit risk primarily arises from our direct lending, 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.

Exposure to credit risk                  
          2013       2012
$ millions, as at         Jan. 31       Oct. 31
Business and government portfolios-advanced internal ratings-based (AIRB) approach                  
Drawn       $ 78,123      $ 75,666 
Undrawn commitments         33,251        33,208 
Repo-style transactions         47,119        56,938 
Other off-balance sheet         54,115        52,322 
Over-the-counter (OTC) derivatives         14,398        14,426 
Gross exposure at default (EAD) on business and government portfolios         227,006        232,560 
Less: repo collateral         37,381        48,152 
Net EAD on business and government portfolios         189,625        184,408 
Retail portfolios-AIRB approach                  
Drawn         193,113        194,586 
Undrawn commitments         60,219        69,778 
Other off-balance sheet         345        370 
Gross EAD on retail portfolios         253,677        264,734 
Standardized portfolios         11,667        11,808 
Securitization exposures         18,872        19,003 
Gross EAD       $ 511,222      $ 528,105 
Net EAD       $ 473,841      $ 479,953 
                   

Real estate secured personal lending
Real estate secured personal lending comprises residential mortgages and personal loans and lines secured by residential property (HELOC). 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 lending criteria in the adjudication of both first lien and second lien loans.

Under the Bank Act, banks are limited to providing residential real estate loans of no more than 80% of the collateral value. An exception is made for loans with a higher loan-to-value (LTV) ratio if they are insured by either Canada Mortgage and Housing Corporation (CMHC) or a private mortgage insurer. Mortgage insurance protects banks from the risk of default by the borrower, over the term of the coverage. Private mortgage insurers are subject to regulatory capital requirements, which aim to ensure that they are well capitalized.  If a private mortgage insurer becomes insolvent, the Government of Canada has, provided certain conditions are met, obligations in respect of policies underwritten by certain insolvent private mortgage insurers as more fully described in the recently enacted Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA).  There is a possibility that losses could be incurred in respect of insured mortgages if, among other things, CMHC or the applicable private mortgage insurer denies a claim, or further, if a private mortgage insurer becomes insolvent and either the conditions under the PRMHIA are not met or the Government of Canada denies the claim.  No material losses are expected in the mortgage portfolio.

The following table provides details on our Canadian residential mortgage and HELOC portfolios:

          Residential mortgages   HELOC (1)   Total
$ billions, as at January 31, 2013           Insured (2)     Uninsured       Uninsured         Insured (2)     Uninsured  
Ontario       $ 49.0      74  %   $ 16.8      26  %   $ 9.5      100  %   $ 49.0      65  %   $ 26.3      35  %
British Columbia         20.8      73        7.7      27        4.0      100        20.8      64        11.7      36   
Alberta         18.1      77        5.3      23        3.0      100        18.1      69        8.3      31   
Quebec         8.4      81        2.0      19        1.5      100        8.4      71        3.5      29   
Other         12.6      82        2.8      18        1.9      100        12.6      73        4.7      27   
Total Canadian portfolio         108.9      76        34.6      24        19.9      100        108.9      67        54.5      33   
October 31, 2012       $ 109.5      76  %   $ 34.8      24  %   $ 20.1      100  %   $ 109.5      67  %   $ 54.9      33  %
(1)   We did not have any insured HELOCs as at January 31, 2013 and October 31, 2012.  
(2)   93% (October 31, 2012: 93%) is insured by CMHC and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS.  
       

The average LTV ratio(1) for our Canadian uninsured residential mortgages and HELOCs portfolios originated during the quarter are provided in the following table. We did not acquire uninsured residential mortgages and HELOCs from a third party for the periods presented in the table below.

 

For the three months ended January 31, 2013   Residential mortgages     HELOC  
Ontario   67  %   66  %
British Columbia   63      60   
Alberta   68      66   
Quebec   69      67   
Other   70      66   
Total Canadian portfolio   67  %   64  %
October 31, 2012   64  %   61  %
January 31, 2012   62  %   59  %
(1) Based on house price at origination.

 

The following table provides details on the average LTV ratio on our total Canadian residential mortgage portfolio:

    Insured   Uninsured  
January 31, 2013 (1) 48  % 51  %
October 31, 2012 (2) 48  % 50  %
(1) Based on latest available industry house price estimates from Teranet (December 31, 2012). 
(2) Based on industry house price estimates from Teranet (September 30, 2012).

The tables below summarize the remaining amortization profile of our Canadian residential mortgages. The first table provides the remaining amortization periods based on the minimum contractual payment amounts. The second table provides the remaining amortization periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual amount and/or higher frequency of payments. 

Contractual payment basis

    Less than                           35 years  
  5 years   5-10 years   10-15 years   15-20 years   20-25 years   25-30 years   30-35 years   and above  
January 31, 2013 % % % 13  % 20  % 29  % 30  % %
October 31, 2012 % % % 13  % 21  % 27  % 31  % %

Current customer payment basis

  Less than                           35 years  
  5 years   5-10 years   10-15 years   15-20 years   20-25 years   25-30 years   30-35 years   and above  
January 31, 2013 % % 12  % 16  % 20  % 25  % 15  % %
October 31, 2012 % % 12  % 16  % 20  % 26  % 14  % %

 

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 January 31, 2013, our Canadian condominium mortgages were $16.8 billion (October 31, 2012: $17.0 billion) of which 77% (October 31, 2012: 77%) were insured. Our drawn developer loans were $789 million (October 31, 2012: $701 million) or 1% of our business and government portfolio and our related undrawn exposure was $2.0 billion (October 31, 2012: $2.0 billion). The condominium developer exposure is diversified across 73 projects.

We stress test our mortgage and HELOC portfolio to determine the potential impact of different economic events. Our stress tests can use variables such as GDP, unemployment, bankruptcy rates, debt service ratios and delinquency trends, which are reflective of potential ranges of housing price declines, to model potential outcomes for a given set of circumstances. The stress testing involves variables that could behave differently in certain situations. Our main tests use economic variables in a similar range to the early 1980s and early 1990s when Canada experienced economic downturns. Our results show that in an economic downturn, our strong capital position should be sufficient to absorb mortgage and HELOC losses.

Counterparty credit exposure

We have counterparty credit exposure that arises from our interest rate, foreign exchange, equity, commodity, and credit derivatives trading, hedging, and portfolio management activities, as explained in Note 12 to the consolidated financial statements in our 2012 Annual Report.

We establish a CVA for expected future credit losses from each of our derivative counterparties. As at January 31, 2013, the CVA for all derivative counterparties was $97 million (October 31, 2012: $137 million).

The following table shows the rating profile of OTC derivative MTM receivables (after CVA and derivative master netting agreements but before any collateral).

          2013         2012  
$ billions, as at       Jan. 31         Oct. 31  
S&P rating equivalent   Exposure
  AAA to BBB- $ 4.21    83.6  % $ 5.46    81.4  %
  BB+ to B-   0.82    16.3      1.22    18.2   
  CCC+ to CCC-         0.02    0.2   
  Below CCC-         0.01    0.1   
  Unrated   0.01    0.1      0.01    0.1   
    $ 5.04    100.0  % $ 6.72    100.0  %
                       

The following table provides the details of our impaired loans and allowances for credit losses:

 
      2013   2012
$ millions, as at   Jan. 31   Oct. 31
Gross impaired loans        
Consumer $ 757  $ 739 
Business and government   992    1,128 
Total gross impaired loans $ 1,749  $ 1,867 
Allowance for credit losses        
Consumer $ 1,121  $ 1,121 
Business and government   699    739 
Total allowance for credit losses $ 1,820  $ 1,860 
Comprises:        
Individual allowance for loans $ 446  $ 475 
Collective allowance for loans (1)   1,374    1,385 
Total allowance for credit losses $ 1,820  $ 1,860 
 
(1) Excludes allowance on undrawn credit facilities of $61 million (October 31, 2012: $56 million).      

Gross impaired loans (GIL) were down $118 million or 6% from October 31, 2012. Consumer GIL was up $18 million or 2%, mainly driven by residential mortgages and personal lending. Business and government GIL was down $136 million or 12%, attributable to decreases in the publishing, printing and broadcasting, and oil and gas sectors.

The total allowance for credit losses was down $40 million or 2% from October 31, 2012. Canadian and U.S. allowances for credit losses comprise 71% and 12%, respectively, of the total allowance. The individually assessed allowance was down $29 million or 6% from October 31, 2012, mainly driven by the oil and gas sector. The collectively assessed allowance was down $11 million or 1% from October 31, 2012, largely driven by an improvement in the cards portfolio.

For details on the provision for credit losses, see the "Overview" section.

Exposure to certain countries and regions

Several European countries, especially Greece, Ireland, Italy, Portugal, and Spain, have continued to experience credit concerns. The following tables provide our exposure to these and other European countries, both within and outside the Eurozone. Except as noted in our indirect exposures section below, we do not have any other exposure through our special purpose entities (SPEs) to the countries included in the tables below.

We do not have a material exposure to the countries in the Middle East and North Africa that have either experienced or may be at risk of unrest. These countries include Algeria, Bahrain, Egypt, Jordan, Lebanon, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia, and Yemen.

Direct exposures to certain countries and regions

Our direct exposures presented in the tables below comprise (A) funded - on-balance sheet loans (stated at amortized cost net of allowances, if any), deposits with banks (stated at amortized cost net of allowances, if any) and securities (stated at fair value); (B) unfunded - unutilized credit commitments, letters of credit, and guarantees (stated at notional amount net of allowances, if any) and sold credit default swap (CDS) contracts where we do not benefit from subordination (stated at notional amount less fair value); and (C) derivative MTM receivables (stated at fair value) and repo-style transactions (1) (stated at fair value). Of our total direct exposures to Europe, approximately 97% (October 31, 2012: 98%) is to entities in countries with Aaa/AAA ratings from at least one of Moody's or S&P.

The following tables provide a summary of our positions in this business:

    Direct exposures 
    Funded    Unfunded 
                  Total               Total
              funded           unfunded
$ millions, as at January 31, 2013 Corporate   Sovereign     Bank   (A)   Corporate       Bank   (B)
Austria $ $ 75  $ $ 75    $   $ $
Belgium       30    34           
Finland                  
France   48        53      11        17 
Germany   220    42    12    274      69        69 
Greece                  
Ireland                  
Italy                  
Luxembourg       51    52           
Malta                  
Netherlands     219    65    293          10    10 
Portugal                  
Spain                  
Total Eurozone $ 285  $ 336  $ 166  $ 787    $ 80    $ 17  $ 97 
Denmark       26    29          13    13 
Guernsey                  
Norway     96    116    212           
Russia                  
Sweden   160    93    259    512      43        43 
Switzerland   248      124    372      303        303 
Turkey       15    15           
United Kingdom   617    269    645    1,531      1,202  (2)   65    1,267 
Total non-Eurozone $ 1,025  $ 461  $ 1,185  $ 2,671    $ 1,548    $ 80  $ 1,628 
Total Europe $ 1,310  $ 797  $ 1,351  $ 3,458    $ 1,628    $ 97  $ 1,725 
October 31, 2012 $ 1,141  $ 863  $ 1,287  $ 3,291    $ 1,397    $ 190  $ 1,587 
(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 $181 million and fair value of $37 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 failure of the financial guarantor to meet its obligation under the guarantee.


  Direct exposures (continued)
  Derivative MTM receivables and repo-style transactions    Total
                            Net   direct
                Gross     Collateral     exposure   exposure
$ millions, as at January 31, 2013   Corporate   Sovereign   Bank   exposure (1)   held (2)   (C)   (A)+(B)+(C)
Austria $ $ $ 32  $ 32    $ 32    $ $ 75 
Belgium       43    44      43        35 
Finland                   10 
France     298    641    939      931        78 
Germany       1,384    1,384      1,179      205    548 
Greece                  
Ireland       231    231      221      10    10 
Italy       28    28      24       
Luxembourg                   53 
Malta                  
Netherlands       227    227      213      14    317 
Portugal                  
Spain                  
Total Eurozone $ $ 299  $ 2,599  $ 2,898    $ 2,647    $ 251  $ 1,135 
Denmark       17    17      14        45 
Guernsey                  
Norway     591      591      591        212 
Russia                  
Sweden                   556 
Switzerland       1,127    1,127      1,118        684 
Turkey                   17 
United Kingdom   96      3,234    3,330      3,222      108    2,906 
Total non-Eurozone $ 97  $ 591  $ 4,385  $ 5,073    $ 4,946    $ 127  $ 4,426 
Total Europe $ 97  $ 890  $ 6,984  $ 7,971    $ 7,593    $ 378  $ 5,561 
October 31, 2012 $ 73  $ $ 6,078  $ 6,151    $ 5,790    $ 361  $ 5,239 
(1) The amounts are shown net of CVA. 
(2) Collateral on derivative MTM receivables was $2.3 billion (October 31, 2012: $2.3 billion), and was all in the form of cash. Collateral on repo-style transactions was $5.3 billion (October 31, 2012: $3.5 billion), and is comprised of cash and investment-grade debt securities.

 

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, and Russia.

      Total
      indirect
$ millions, as at January 31, 2013     exposure
Austria   $
Belgium     40 
Finland     13 
France     551 
Germany     402 
Greece     10 
Ireland     50 
Italy     68 
Luxembourg     52 
Netherlands     301 
Spain     153 
Total Eurozone   $ 1,641 
Denmark   $ 38 
Norway     14 
Sweden     78 
Switzerland    
United Kingdom     624 
Total non-Eurozone   $ 758 
Total exposure   $ 2,399 
October 31, 2012   $ 2,452 
     

In addition to the indirect exposures above, we have indirect exposures 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 $407 million (October 31, 2012: $846 million).

Selected exposures in certain selected activities

In response to the recommendations of the Financial Stability Board, this section provides information on our other selected activities within our continuing and exited businesses that may be of particular interest to investors based on their risk characteristics and the current market environment. For additional information on these selected exposures, refer to pages 56 to 57 of the 2012 Annual Report.

U.S. real estate finance

The following table provides a summary of our positions in this business:
 

$ millions, as at January 31, 2013 Drawn   Undrawn 
Construction program $ 162  $ 89 
Interim program   3,804    304 
Permanent program   106   
Exposure, net of allowance $ 4,072  $ 393 
Of the above:        
  Net impaired $ 109  $
  On credit watch list   260   
Exposure, net of allowance, as at October 31, 2012 $ 4,177  $ 445 

As at January 31, 2013, the allowance for credit losses for this portfolio was $109 million (October 31, 2012: $118 million). During the quarter ended January 31, 2013, we recorded provision for credit losses of $9 million ($26 million for the quarter ended January 31, 2012).

The business also maintains commercial mortgage-backed securities (CMBS) trading and distribution capabilities. As at January 31, 2013, we had CMBS inventory with a notional amount of $9 million and a fair value of less than $1 million (October 31, 2012: notional of $9 million and fair value of less than $1 million).

Leveraged finance

The exposures in our leveraged finance activities in Europe and U.S. are discussed below.

European leveraged finance

The following table provides a summary of our positions in this exited business:

$ millions, as at January 31, 2013 Drawn Undrawn 
Manufacturing $ 334  $ 62 
Publishing and printing   40   
Utilities    
Business services    
Transportation     10 
Exposure, net of allowance $ 396  $ 73 
Of the above:        
  Net impaired $ $
  On credit watch list   199   
Exposure, net of allowance, as at October 31, 2012 $ 404  $ 60 

As at January 31, 2013, the allowance for credit losses for this portfolio was $41 million (October 31, 2012: $41 million). The net provision for credit losses was nil for the quarters ended January 31, 2013 and January 31, 2012.

U.S. leveraged finance

The following table provides a summary of our positions in this business:

$ millions, as at January 31, 2013 Drawn Undrawn 
Transportation $ 65  $ 16 
Media and advertising    
Manufacturing    
Exposure, net of allowance $ 77  $ 19 
Of the above:        
  Net impaired $ 36  $
  On credit watch list   38    13 
Exposure, net of allowance, as at October 31, 2012 $ 91  $ 19 

As at January 31, 2013, the allowance for credit losses for this portfolio was $65 million (October 31, 2012: $67 million). During the quarter, the net reversal of credit losses was $1 million (nil for the quarter ended January 31, 2012).

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.

Trading activities

The following three tables show VaR, stressed VaR and Incremental risk charge for our trading activities based on risk type under an internal models-based approach.

Trading revenue (TEB) comprises both trading net interest income and non-interest income and excludes underwriting fees and commissions. Trading revenue (TEB) for the purposes of these tables excludes positions described in the "Structured credit run-off business" section of the MD&A and certain other exited portfolios.

Total average VaR for the three months ended January 31, 2013 was down 9% from the last quarter, driven mainly by a decrease in our equity risk, offset by an increase in interest rate risk.

Average stressed VaR for the three months ended January 31, 2013 was up 71% from the last quarter. During the current stressed VaR period from March 6, 2008 to March 5, 2009, the market exhibited increased interest rate volatility combined with a reduction in the level of interest rates, and an increase in credit spreads.

Average incremental risk charge for the three months ended January 31, 2013 was up 35% from the last quarter, mainly due to increased trading inventory in the high-yield fixed income business.

VaR by risk type - trading portfolio

                2013       2012         2012
$ millions, as at or for the three months ended               Jan. 31       Oct. 31       Jan. 31
    High   Low   As at   Average     As at   Average     As at   Average  
Interest rate risk $ 5.2  $ 1.0  $ 3.7  $ 3.0  $ 2.1  $ 1.8  $ 1.9  $ 1.9 
Credit spread risk   2.6    1.2    1.8    1.7    1.4    1.6    0.9    1.1 
Equity risk   2.4    2.0    2.2    2.2    2.0    3.8    1.8    1.8 
Foreign exchange risk   1.3    0.2    1.3    0.5    0.7    0.6    0.5    0.7 
Commodity risk   1.5    0.7    0.8    1.0    1.0    1.1    1.4    1.0 
Debt specific risk   3.6    1.9    2.4    2.6    2.1    2.6    2.0    2.5 
Diversification effect (1)   n/m   n/m   (7.3)   (6.0)   (5.2)   (6.0)   (5.0)   (5.0)
Total VaR (one-day measure) $ 6.1  $ 4.0  $ 4.9  $ 5.0  $ 4.1  $ 5.5  $ 3.5  $ 4.0
(1) 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.

 

Stressed VaR by risk type - trading portfolio

                2013       2012       2012
$ millions, as at or for the three months ended                Jan. 31       Oct. 31       Jan. 31
    High   Low   As at   Average     As at   Average     As at   Average  
Interest rate risk $ 21.1  $ 4.9  $ 8.9  $ 9.5  $ 8.3  $ 7.2  $ 4.7  $ 6.8 
Credit spread risk   6.3    3.9    6.0    5.1    3.8    3.4    1.7    2.5 
Equity risk   12.7    1.0    1.3    3.1    1.2    2.5    1.4    1.9 
Foreign exchange risk   5.6    0.3    1.9    1.7    0.6    1.5    2.1    1.8 
Commodity risk   4.0    0.4    0.4    1.3    1.3    0.8    0.9    1.1 
Debt specific risk   2.1    0.7    1.4    1.5    0.9    1.0    1.0    1.1 
Diversification effect (1)   n/m   n/m   (9.4)   (10.4)   (6.5)   (9.5)   (7.7)   (9.1)
Total stressed VaR (one-day measure) $ 21.3  $ 6.3  $ 10.5  $ 11.8  $ 9.6  $ 6.9  $ 4.1  $ 6.1
(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.

Incremental risk charge - trading portfolio

                2013       2012       2012
$ millions, as at or for the three months ended               Jan. 31       Oct. 31       Jan. 31
    High   Low   As at   Average     As at   Average   As at   Average
Default risk $ 77.8  $ 33.7  $ 36.0  $ 51.7  $ 28.8  $ 31.6  $ 28.6  $ 27.8 
Migration risk   51.6    35.6    40.4    41.9    42.1    37.8    26.9    44.4 
Incremental risk charge (one-year measure) $ 115.2  $ 76.3  $ 76.4  $ 93.6  $ 70.9  $ 69.4  $ 55.5  $ 72.2 

 

Trading revenue

The trading revenue (TEB) and VaR graph below compares the current quarter and the three previous quarters' actual daily trading revenue (TEB) with the previous day's VaR measures.

During the quarter, trading revenue (TEB) was positive each day. The largest gain of $14.6 million occurred on January 22, 2013. It was attributable to the normal course of business within our capital markets group, notably in the equity derivatives business. Average daily trading revenue (TEB) was $3.4 million during the quarter and the average daily TEB was $1.5 million.

Trading revenue (TEB) versus VaR

http://files.newswire.ca/256/TEBvVarCIBC2013.JPG

Non-trading activities

Interest rate risk

Non-trading interest rate risk consists primarily of risk inherent in asset/liability management 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.

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. analysis uses the floor to stop interest rates from going into a negative position in the lower rate scenarios).

Interest rate sensitivity - non-trading (after-tax)

            2013           2012           2012  
$ millions, as at           Jan. 31           Oct. 31           Jan. 31  
      C$   US$   Other     C$   US$   Other     C$   US$   Other  
100 basis points increase in interest rates                                    
Increase (decrease) in net income
attributable to equity shareholders
$ 109  $ (14) $ $ 101  $ (21) $ $ 145  $ (11) $
Decrease in present value of shareholders' equity   (35)   (145)   (42)   (99)   (170)   (43)   (47)   (63)   (38)
100 basis points decrease in interest rates                                    
Increase (decrease) in net income attributable to equity shareholders   (169)     (2)   (180)       (209)     (2)
Decrease (increase) in present value of shareholders' equity   (58)   110    43      115    44    (53)   41    38 
200 basis points increase in interest rates                                    
Increase (decrease) in net income attributable to equity shareholders $ 202  $ (28) $ $ 206  $ (43) $ $ 308  $ (22) $
Decrease in present value of shareholders' equity   (122)   (290)   (84)   (252)   (339)   (85)   (132)   (127)   (75)
200 basis points decrease in interest rates                                    
Increase (decrease) in net income attributable to equity shareholders   (330)     (5)   (358)   (1)   (1)   (324)     (5)
Decrease (increase) in present value of shareholders' equity   (268)   137    68    (181)   127    69    (213)   38    56 

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.

Liquidity risk governance and management

The liquidity risk governance and management structure at CIBC comprises the Risk Management Committee of the Board (RMC), ALCO and the Office of the Treasurer.

The ongoing management of liquidity risk is the responsibility of the Treasurer, supported by guidance from ALCO. The RMC provides governance through approval of CIBC's liquidity risk framework that includes the policies, procedures, limits and independent monitoring structures. RMC's responsibilities include:

  • Defining CIBC's liquidity risk tolerance through the Risk Appetite Statement;
  • Establishing limits for the primary liquidity risk metric, the Liquidity Horizon, and unsecured wholesale funding;
  • Reviewing and approving the Liquidity Policy and the Contingency Funding Plan (CFP);
  • Reviewing and approving CIBC's liquidity profile; and
  • Reviewing and approving the liquidity stress scenario.

ALCO's responsibilities include:

  • Ensuring that CIBC's liquidity profile is managed consistent with the strategic, stated risk appetite and regulatory requirements;
  • Monitoring reporting and metrics relating to liquidity risk exposure, such as, Liquidity Horizon, funding profile and liquid asset portfolio;
  • Reviewing and setting the Liquidity Horizon management limit;
  • Reviewing, on a periodic basis, the liquidity stress scenario used to measure liquidity risk exposure; and
  • Reviewing and approving the funding plan.

The Treasurer is responsible for managing the activities and processes required for measurement, reporting and monitoring of CIBC's liquidity risk position and ensuring compliance within RMC, ALCO and regulatory constraints.

Policies

CIBC's liquidity policy and framework ensures a sufficient amount of unencumbered liquid assets are available to meet anticipated liquidity needs in both stable and stressed conditions for a minimum period of time as determined by the RMC.

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.

CIBC maintains and periodically updates a detailed CFP for responding to liquidity stress events. The plan is presented annually to the RMC.

Process and control

CIBC manages liquidity risk in a manner that enables it to withstand a liquidity crisis without an adverse impact on the viability of its operations. Actual and anticipated inflows and outflows of funds generated from on- and off-balance sheet exposures are measured and monitored on a daily basis to ensure compliance with the established limits. Short-term asset and liability mismatch limits are set by geographic location and consolidated for overall global exposure. Contractual and behavioural on-balance sheet and off-balance sheet cash flows under normal and stressed conditions are modeled and used to determine liquidity levels to be maintained for a minimum time horizon.

The RMC is regularly informed of current and prospective liquidity conditions, ongoing monitoring measures and the implementation of enhanced measurement tools.

Risk measurement

CIBC's policy is to maintain a sound and prudent approach to managing its potential exposure to liquidity risk. CIBC's liquidity risk tolerance is defined by its Risk Appetite Statement, approved annually by the Board of Directors, which forms the basis for the delegation of liquidity risk authority to senior management. The primary liquidity risk metric used to measure and monitor CIBC's 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, without any reliance on the CFP. Our liquidity measurement system provides daily liquidity risk exposure reports that include the calculation of the Liquidity Horizon against the prescribed management target for review by senior management.  CIBC's liquidity risk framework also incorporates the monitoring of the unsecured wholesale funding position and funding capacity, as well as regulatory mandated metrics such as the Liquidity Coverage Ratio (LCR) and the Net Cumulative Cash Flow (NCCF). ALCO monitors CIBC's current and prospective liquidity position in relation to risk appetite and limits.

A key component of the liquidity risk framework at CIBC is the liquidity risk stress testing regime. Liquidity risk stress testing is conducted daily and involves the application of a severe, name-specific and market-wide stress scenario to determine the amount of liquidity required to satisfy anticipated obligations as they come due. The scenario models potential liquidity and funding requirements in the event of unsecured wholesale funding and deposit runoff, expected contingent liquidity utilization, as well as liquid asset marketability. In addition to this CIBC-specific event, the stress scenario incorporates the impact of market-wide liquidity stress that results in significant reduction in access to both short and long-term funding and a decrease in marketability and price of assets.

Stress scenario assumptions are subject to periodic review and approval, at least annually, by the RMC.

Liquid assets

CIBC's policy is to hold a pool of high quality unencumbered liquid assets that will be immediately available to meet outflows determined under the stress scenario. Liquid assets are cash, short-term bank deposits and high-quality marketable securities that can be readily pledged at central banks and in repo markets or converted into cash in a timely fashion. Encumbered assets include those liquid assets that have been pledged for collateral management purposes as well as restricted cash and deposits with banks.

Liquid assets net of encumbrances constitute our unencumbered pool of liquid assets, and are summarized in the following table:

    Jan. 31   Oct. 31  
$ millions, as at   2013   2012 (1)
Cash and deposits with banks (2) $ 1,631  $ 1,507   
Securities (3)   65,351    63,882   
NHA mortgage-backed securities (4)   20,583    19,187   
Securities purchased under resale agreements   25,581    25,163   
Cash collateral on securities borrowed   3,477    3,311   
Total liquid assets   116,623    113,050   
Encumbered liquid assets(5)   20,515    22,977   
Unencumbered liquid assets $ 96,108  $ 90,073   
(1) Certain information has been reclassified to conform to the presentation adopted in the current period. 
(2) Includes cash, non-interest bearing deposits and interest-bearing deposits with contractual maturities of less than 30 days. 
(3) Includes all trading, AFS and FVO securities other than the securities in our structured credit run-off business and private equity securities. 
(4) Reported in loans on our interim consolidated balance sheet. 
(5) Excludes interday pledges to the Bank of Canada related to the Large Value Transfer System as these are normally released to us at the end of the settlement cycle each day.

CIBC's unencumbered liquid asset position increased by $6.0 billion or 7% from October 31, 2012. The change was primarily due to increases in AFS, trading and NHA mortgage-backed securities, and a decrease in our obligations related to securities sold under repurchase agreements (included in encumbered liquid assets).

CIBC's total pledged assets, which include encumbered liquid assets presented in the table above, totalled $66.6 billion as at January 31, 2013 (October 31, 2012: $64.9 billion). These pledged assets are used primarily for securities lending and borrowing activities, secured borrowings, derivative transactions, and other clearing and settlement of payments and securities.

The following table summarizes unencumbered liquid assets held by CIBC parent bank and significant subsidiaries:

    Jan. 31   Oct. 31
$ millions, as at   2013   2012
CIBC parent bank $ 67,788  $ 63,800 
Broker/dealer   18,561    15,940 
Other significant subsidiaries   9,759    10,333 
  $ 96,108  $ 90,073 

Restrictions on the flow of funds

CIBC has certain subsidiaries that have separate regulatory capital and liquidity requirements, as established by banking and securities regulators. Requirements of these entities are subject to regulatory change and can fluctuate depending on activity.

CIBC monitors and manages its capital and liquidity requirements across these entities to ensure that capital is used efficiently and that each entity is in compliance with local regulations.

Funding

CIBC manages liquidity to meet both short and long-term cash requirements. Reliance on short-term wholesale funding is maintained at prudent levels, consistent with CIBC's desired liquidity profile.

CIBC's funding strategy includes access to funding through retail deposits and wholesale funding and deposits.  Personal deposits are a significant source of funding and totalled $119.1 billion as at January 31, 2013 (October 31, 2012: $118.2 billion). Our liquidity management framework applies deposit run-off assumptions, under a severe combined stress scenario, to determine core deposits.

CIBC's wholesale funding strategy is to develop and maintain a sustainable funding base through which CIBC can access funding across many different depositors and investors, geographies, maturities, and funding instruments.  The diversity of our funding profile across all of these variables is an important part of our funding strategy.  CIBC maintains access to term wholesale funding through many channels such as wholesale deposits in Canada and the U.S., medium-term note programs in Canada, the U.S. and Europe, through our covered bond programme, through credit card securitization in Canada and the U.S., and through a number of mortgage securitization programs, as outlined in the tables below.

The following table provides the contractual maturities at carrying values of funding sourced by CIBC from the wholesale market:

       Less than   1 - 3   3 - 6   6 - 12   1 - 2   Over    
$ millions, as at January 31, 2013   1 month   months   months   months   years   2 years   Total
Deposits from banks $ 1,568  $ 1,243  $ 271  $ $ $ $ 3,082 
Bearer deposit notes, certificates of deposit and bankers' acceptances   4,520    3,099    1,663    956    833    5,566    16,637 
Deposit and medium-term notes   680    3,835    4,878    12,095    6,319    15,227    43,034 
Subordinated indebtedness           285    4,506    4,791 
Mortgage securitization       1,620    8,739    5,947    16,828    33,134 
Covered bonds   2,453        754    5,154    5,467    13,828 
Cards securitization     103    926    837    1,491    2,597    5,954 
      $ 9,221  $ 8,280  $ 9,358  $ 23,381  $ 20,029  $ 50,191  $ 120,460 
  Comprises:                              
    Unsecured $ 6,768  $ 8,177  $ 6,812  $ 13,051  $ 7,437  $ 25,299  $ 67,544 
    Secured   2,453    103    2,546    10,330    12,592    24,892    52,916 
      $ 9,221  $ 8,280  $ 9,358  $ 23,381  $ 20,029  $ 50,191  $ 120,460 
October 31, 2012(1) $ 6,608  $ 8,117  $ 10,346  $ 17,121  $ 22,182  $ 51,526  $ 115,900 
(1) Certain information has been reclassified to conform to the presentation adopted in the current period.

 

The following table provides a currency breakdown, in Canadian dollar equivalent, of funding sourced by CIBC in the wholesale market:

      Jan. 31       Oct. 31  
$ billions, as at     2013       2012  
CAD $ 69.0  57  % $ 67.3  58  %
USD   45.8  38      41.2  36   
EUR   0.1  -     0.1  -  
Other   5.6      7.3   
  $ 120.5  100  % $ 115.9  100  %

Funding plan

CIBC's funding plan horizon is three years and is updated at least quarterly, or in response to material changes in underlying assumptions. The plan incorporates projected assets and liability growth from CIBC's planning process, as well as expected funding maturities and inputs from the liquidity stress testing model. The funding plan is reviewed and approved by the ALCO.

Credit ratings

Access to wholesale funding sources and the cost of funds are dependent on various factors including credit ratings. On October 26, 2012, Moody's placed on review for downgrade the long-term debt and deposit ratings of six Canadian financial institutions including CIBC. Moody's cited as their principal concerns: (i) high consumer debt levels and elevated housing prices; (ii) system-wide downside risks to the economic environment; and (iii) their assessment of the risks inherent in the banks' capital markets activities. Subsequently, on January 28, 2013, Moody's downgraded the long-term credit ratings of six Canadian financial institutions, including CIBC, by one notch. CIBC's long-term rating was adjusted from Aa2 to Aa3 and has had no material impact on funding costs or our ability to access funding.

CIBC's funding and liquidity levels remained stable and sound over the quarter and we do not anticipate any events, commitments or demands which will materially impact our liquidity risk position.

Impact on collateral if there is a downgrade of CIBC's credit rating

We are required to deliver collateral to certain derivative counterparties in the event 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. The following table presents the additional collateral requirements (cumulative) for rating downgrades:

      Jan. 31   Oct. 31
$ billions, as at   2013   2012
One-notch downgrade $ 0.1  $ 0.1 
Two-notch downgrade   1.2    1.5 
Three-notch downgrade   2.3    2.6 

Regulatory developments

There is ongoing cooperation between banks and regulators to implement BCBS liquidity standards, i.e., the 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.  In January 2013, BCBS released revisions to the LCR metric. 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 the NCCF test, and report compliance with NCCF requirements to our regulator.

Contractual obligations

Contractual obligations give rise to commitments of future payments affecting our short- and long-term liquidity and capital resource needs. These obligations include financial liabilities, credit and liquidity commitments, and other contractual obligations.

Assets and liabilities

The following table provides the contractual maturity profile of our on-balance sheet assets and liabilities at their carrying values. CIBC models the behaviour of both assets and liabilities on a net cash flow basis by applying recommended regulatory stress assumptions against contractual maturities and contingent liability utilization, supplemented by business experience, to construct its behavioural balance sheet, which constitutes a key component of CIBC's liquidity risk management framework.

    Less than   1 - 3   3 - 5   Over   No specified      
$ millions, as at January 31, 2013   1 year   years   years   5 years   maturity   Total  
Assets                          
Cash and non-interest bearing deposits with banks $ 2,302  $ $ $ $ $ 2,302 
Interest bearing deposits with banks   3,334            3,334 
Securities   5,586    9,164    8,955    13,802    29,513    67,020 
Cash collateral on securities borrowed   3,477            3,477 
Securities purchased under resale agreements   25,581            25,581 
Loans                        
  Residential mortgages    21,029    55,219    63,413    9,347      149,008 
  Personal    4,886    258      708    28,933    34,785 
  Credit card    3,826    7,652    3,320        14,798 
  Business and government    10,377    14,201    4,815    15,226      44,619 
  Allowance for credit losses           (1,820)   (1,820)
Derivative instruments    4,021    4,878    3,580    12,606      25,085 
Customers' liability under acceptances    9,749            9,749 
Other assets             14,845    14,845 
   $ 94,168  $ 91,372  $ 84,083  $ 51,689  $ 71,471  $ 392,783 
October 31, 2012 $ 89,615  $ 89,763  $ 91,134  $ 52,405  $ 70,468  $ 393,385 
Liabilities                         
Deposits (1)(2) $ 94,222  $ 52,960  $ 19,346  $ 12,885  $ 126,891  $ 306,304 
Obligations related to securities sold short    12,313            12,313 
Cash collateral on securities lent    1,460            1,460 
Capital Trust securities           1,669      1,669 
Obligations related to securities sold under repurchase agreements    4,516            4,516 
Derivative instruments    4,198    5,008    3,423    11,922      24,551 
Acceptances    9,797            9,797 
Other liabilities             10,207    10,207 
Subordinated indebtedness       285      4,506      4,791 
  $ 126,506  $ 58,253  $ 22,769  $ 30,982  $ 137,098  $ 375,608 
October 31, 2012(3) $ 120,621  $ 61,823  $ 26,898  $ 32,189  $ 134,816  $ 376,347 
(1) Deposits less than one year comprise: $24.0 billion (October 31, 2012: 22.4 billion) with contractual maturities less than three months; $24.7 billion (October 31, 2012: $18.7 billion) with contractual maturities within three to six months; and $45.5 billion (October 31, 2012: $43.7 billion) with contractual maturities within six to twelve months.
(2) Comprises $119.1 billion (October 31, 2012: $118.2 billion) of personal deposits of which $114.9 billion (October 31, 2012: $113.6 billion)  are in Canada and $4.2 billion (October 31, 2012: $4.6 billion) in other countries; $182.0 billion (October 31, 2012: $177.4 billion) of business and government deposits of which $147.2 billion (October 31, 2012: $143.4 billion) are in Canada and $34.8 billion (October 31, 2012: $34.0 billion) in other countries; and $5.2 billion (October 31, 2012: $4.7 billion) of bank deposits of which $1.8 billion (October 31, 2012: $1.5 billion) are in Canada and $3.4 billion (October 31, 2012: $3.2 billion) in other countries.
(3) Certain information has been reclassified to conform to the presentation adopted in the current period.

CIBC's net asset position remained unchanged relative to October 31, 2012. The changes in the contractual maturity profile were primarily due to the natural migration of maturities and also reflect the impact of our regular business activities.

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.

   Less than 1 - 3 3 - 5 Over     
$ millions, as at January 31, 2013 1 year years years 5 years   Total
Unutilized credit commitments $ 125,932  $ 6,814  $ 16,484  $ 441  $ 149,671 
Backstop liquidity facilities   3,207          3,207 
Standby and performance letters of credit   6,342    679    602    381    8,004 
Documentary and commercial letters of credit   300          300 
  $ 135,781  $ 7,493  $ 17,086  $ 822  $ 161,182 
October 31, 2012 $ 129,991  $ 10,988  $ 17,640  $ 1,480  $ 160,099 

Other contractual obligations

The following table provides the contractual maturities of other contractual obligations affecting our funding needs:

                     
    Less than   1 - 3   3 - 5   Over      
$ millions, as at January 31, 2013   1 year   years   years   5 years   Total  
Operating leases $ 375  $ 677  $ 566  $ 1,370  $ 2,988 
Purchase obligations (1)   631    813    490    203    2,137 
Investment commitments (2)   159          159 
Pension contributions (3)   182          182 
Underwriting commitments   200          200 
  $ 1,547  $ 1,490  $ 1,056  $ 1,573  $ 5,666 
October 31, 2012 $ 1,626  $ 1,518  $ 1,051  $ 1,646  $ 5,841
(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 management's 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 CIBC's strategic planning process and CIBC's annual strategic business plan to the Board for review and approval. The Board reviews the plan in light of management's 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.

Insurance risk

Insurance risk is the risk of a potential loss due to actual experience being different from that assumed in the design and pricing of an insurance product. Unfavourable actual experience could emerge due to adverse fluctuations in timing, size and frequency of actual claims (e.g. mortality, morbidity), policyholder behaviour (e.g. cancellation of coverage), or associated expenses.

Insurance contracts provide financial compensation to the beneficiary in the event of insured risk in exchange for premiums. We are exposed to insurance risk in our life insurance business and in our life reinsurance business within the respective subsidiaries.

Senior management of the insurance and reinsurance subsidiaries has primary responsibility for managing insurance risk with oversight by Risk Management. The insurance and reinsurance subsidiaries also have their own boards of directors, as well as independent Appointed Actuaries who provide additional input to risk management oversight. Processes and oversight are in place to manage the risk to our insurance business. Underwriting risk on business assumed is managed through risk policies that limit exposure to an individual life, to certain types of business and to countries.

CIBC's risk governance practices ensure strong independent oversight and control of risk within the insurance businesses. The subsidiaries' boards outline the internal risk and control structure to manage insurance risk which includes risk, capital and control policies, processes as well as limits and governance. Senior management of the insurance and reinsurance subsidiaries and Risk Management attend the subsidiaries' board meetings.

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 Governance and Control Committee (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.

Operational risk management approach

We have developed a comprehensive framework supporting and governing the processes of identifying, assessing, managing, measuring, monitoring and reporting operational risks. Our approach to operational risk management focuses on mitigating operational losses by consistently applying and utilizing control-based approaches as well as risk-specific assessment tools. The transparency of information, timely escalation of key risk issues and clear accountability for issue resolution are major pillars of our approach. We also regularly review our risk governance structure to ensure that there is clarity and ownership of key risk areas.

We use a three lines of defence model to manage operational risk. Business lines are our first line of defence and have primary responsibility for the day-to-day management of operational risk inherent in their products and activities. Functionally independent governance groups, representing our second line of defence, are responsible for maintaining a robust operational risk management framework and providing operational risk oversight. Our third line of defence is Internal Audit who independently opines on the design and operating effectiveness of the controls that support our operational risk management program.

Managing operational risk

To identify and assess our operational risk exposures, we utilize numerous risk assessment tools, including risk and control self-assessments, scenario analyses, audit findings, internal and external loss event analyses, key risk indicators, change management approval processes (including approval of new initiatives and products) as well as comparative analyses.

In conducting risk assessments, we bring together subject matter experts from across the organization to share expertise and to identify improvements to risk identification, measurement, and control processes. Our operational risk management framework also requires risk assessments to undergo rigorous independent reviews and challenges from governance groups in their respective areas of expertise.

We continuously monitor our operational risk profile to ensure that any adverse changes are addressed in a timely manner. Tools such as key risk indicators are used to identify changes in our risk profile before the risks become acute. Our risk monitoring processes support a comprehensive risk reporting program to both senior management and the Board.

Our primary tool for mitigating our operational risk exposure is a robust internal control environment. Our internal control framework highlights critical internal controls across the bank which are subjected to ongoing testing and review to ensure that they are effective in mitigating our operational risk exposures. In addition, we maintain a corporate insurance program to provide additional protection from loss and a global business continuity management program to mitigate business continuity risks in the event of a disaster.

Risk measurement

We use the Advanced Measurement Approach (AMA), a risk-sensitive method prescribed by BCBS, 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.

Reputation and legal risk

Our reputation and financial soundness are of fundamental importance to us and to our customers, shareholders and employees.

Reputation risk is the potential for negative publicity regarding our business conduct or practices which, whether true or not, could significantly harm our reputation as a leading financial institution, or could materially and adversely affect our business, operations or financial condition.

Legal risk is the potential for civil litigation or criminal or regulatory proceedings being commenced against CIBC that, once decided, could materially and adversely affect our business, operations or financial condition.

The RMC provides oversight of the management of reputation and legal risks. The identification, consideration and prudent, proactive management of potential reputation and legal risks is a key responsibility of CIBC and all of our employees.

Our Global Reputation and Legal Risks Policy sets standards for safeguarding our reputation and minimizing exposure to reputation and legal risks. The policy is supplemented by business procedures for identifying and escalating transactions to the Reputation and Legal Risk Committee that could pose material reputation risk and/or legal risk.

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 department's 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.

Accounting and control matters

Critical accounting policies and estimates

A summary of significant accounting policies is presented in Note 1 to the consolidated financial statements of the 2012 Annual Report. Certain accounting policies require us to make judgments and estimates, some of which may relate to matters that are uncertain. The key management judgments and estimates remain substantially unchanged from those described on pages 69 to 74 of the 2012 Annual Report.

Valuation of financial instruments

Debt and equity trading securities, trading business and government loans, obligations related to securities sold short, derivative contracts, AFS securities and FVO financial instruments are carried at fair value. FVO financial instruments include certain debt securities, structured retail deposits and business and government deposits. Retail mortgage interest rate commitments are also designated as FVO 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 in an orderly arm's length transaction between knowledgeable and willing market participants motivated by normal business considerations. Fair value measurements are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Level 1, 2 or 3). We have an established and well-documented process for determining fair value. Fair value is based on unadjusted quoted prices in an active market, where available (Level 1). If active market prices or quotes are not available for an instrument, fair value is then based on valuation models that utilize predominantly observable market inputs (Level 2) or one or more significant non-observable market inputs (Level 3). Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available. For instruments valued using internally developed models that use significant non-observable market inputs and are therefore classified within Level 3 of the hierarchy, the judgment used to estimate fair value is more significant than when estimating the fair value of instruments classified within Levels 1 and 2. To ensure that valuations are appropriate, a number of policies and controls are put in place. Independent validation of fair value is performed at least on a monthly basis. Valuations are verified to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources.

The following table presents amounts, in each category of financial instruments, which are fair valued using valuation techniques based on predominantly non-observable market inputs (Level 3), for the structured credit run-off business and total consolidated CIBC. For further details of the valuation of and sensitivity associated with Level 3 financial assets and liabilities, see Note 1 to the interim consolidated financial statements.

            2013                 2012  
            Jan. 31                 Oct. 31  
  Structured credit   Total   Total     Structured credit     Total   Total  
$ millions, as at run-off business   CIBC   CIBC (1)   run-off business     CIBC   CIBC (1)
Financial assets                                
Trading securities and loans $ 838  $ 846    2.0  %   $ 628    $ 640    1.6  %
AFS securities   22    1,225    4.7        22  (2)   1,370    5.5   
FVO securities   167    167    55.1        170      170    55.9   
Derivative instruments   514    585    2.3        591      683    2.5   
  $ 1,541  $ 2,823    3.0  %     1,411      2,863    3.1  %
Financial liabilities                                
Deposits and other liabilities (3) $ 485  $ 656    30.0  %   $ 428    $ 597    28.7  %
Derivative instruments   568    648    2.6        1,315      1,402    5.2   
  $ 1,053  $ 1,304    3.3  %     1,743      1,999    4.7  %
(1) Represents percentage of Level 3 financial assets and liabilities to the total financial assets and liabilities in each reported category in Note 1 of our interim consolidated financial statements.
(2) Restated.
(3) Includes FVO deposits and bifurcated embedded derivatives.

 

Fair value adjustments

We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation. Such factors include, but are not limited to, the bid-offer spread, illiquidity due to lack of market depth and other market risks, parameter uncertainty, model risk, credit risk, and future administration costs. During the fourth quarter of 2012, in order to reflect the observed market practice of pricing collateralized derivatives using the OIS curve, we amended our valuation approach to use OIS curves as the discount rate in place of LIBOR. Market practices continue to evolve concerning the use and construction of OIS curves that best reflect the nature of the underlying collateral.

The establishment of fair value adjustments and the determination of the amount of write-downs involve estimates that are based on accounting processes and judgments by management. We evaluate the adequacy of the fair value adjustments and the amount of write-downs on an ongoing basis. The levels of fair value adjustments and the amount of the write-downs could be changed as events warrant and may not reflect ultimate realizable amounts.

The following table summarizes our valuation adjustments:

    2013   2012  
$ millions, as at   Jan. 31   Oct. 31  
Securities        
Market risk $ $
Derivatives        
Market risk   54    53 
Credit risk   97    137 
Administration costs    
Total valuation adjustments $ 158  $ 198 


Allowance for credit losses

We establish and maintain an allowance for credit losses that is considered the best estimate of probable credit-related losses existing in our portfolio of on- and off-balance sheet financial instruments, giving due regard to current conditions.

The allowance for credit losses consists of individual and collective components.

Individual allowances

The majority of our business and government loan portfolios are assessed on an individual loan basis. Individual allowances are established when impaired loans are identified within the individually assessed portfolios. A loan is classified as impaired when we are of the opinion that there is no longer a reasonable assurance of the full and timely collection of principal and interest. The individual allowance is the amount required to reduce the carrying value of an impaired loan to its estimated realizable amount. This is determined by discounting the expected future cash flows at the effective interest rate inherent in the loan.

Individual allowances are not established for portfolios that are collectively assessed, including most retail portfolios.

Collective allowances

Consumer and certain small business allowances

Residential mortgages, credit card loans, personal loans, and certain small business loan portfolios consist of large numbers of homogeneous balances of relatively small amounts, for which we take a portfolio approach to establish the collective allowance. As it is not practical to review each individual loan, we utilize a formula basis, by reference to historical ratios of write-offs to current accounts and balances in arrears. We also consider estimates of the time periods over which losses that are present would be identified and a provision taken, our view of current economic and portfolio trends, and evidence of credit quality improvements or deterioration. On a regular basis, the parameters that affect the allowance calculation are updated, based on our experience and the economic environment.

Business and government allowances

For groups of individually assessed loans for which no objective evidence of impairment has been identified on an individual basis, a collective allowance is provided for losses which we estimate are inherent in the portfolio at the reporting date, but not yet specifically identified from an individual assessment of the loan.

The methodology for determining the appropriate level of the collective allowance incorporates a number of factors, including the size of the portfolios, expected loss rates, and relative risk profiles. We also consider estimates of the time periods over which losses that are present would be identified and a provision taken, our view of current economic and portfolio trends, and evidence of credit quality improvements or deterioration. On a regular basis, the parameters that affect the collective allowance calculation are updated, based on our experience and the economic environment. Expected loss rates for business loan portfolios are based on the risk rating of each credit facility and on the probability of default (PD) factors associated with each risk rating, as well as estimates of loss given default (LGD). The PD factors reflect our historical loss experience and are supplemented by data derived from defaults in the public debt markets. Historical loss experience is adjusted based on current observable data to reflect the effects of current conditions. LGD estimates are based on our experience over past years.

For further details on allowance for credit losses, see Note 4 to the interim consolidated financial statements.

Contingent liabilities and provision

In the ordinary course of its business, CIBC is a party to a number of legal proceedings, including regulatory investigations, in which claims for substantial monetary damages are asserted against CIBC and its subsidiaries. While there is inherent difficulty in predicting the outcome of legal proceedings, based on current knowledge and in consultation with legal counsel, we do not expect that the outcome of these matters, individually or in aggregate, to have a material adverse effect on our consolidated financial statements. However, the outcome of these matters, individually or in aggregate, may be material to our operating results for a particular reporting period.

Amounts are accrued if, in the opinion of management, it is both probable that an outflow of economic benefits will be required to resolve the matter, and a reliable estimate can be made of the amount of the obligation. If the reliable estimate of probable loss involves a range of potential outcomes within which a specific amount within the range appears to be a better estimate, that amount is accrued. If no specific amount within the range of potential outcomes appears to be a better estimate than any other amount, the mid-point in the range is accrued. In some instances, however, it is not possible either to determine whether an obligation is probable or to reliably estimate the amount of loss, in which case no accrual can be made.

We regularly assess the adequacy of CIBC's litigation accruals and make the necessary adjustments to incorporate new information as it becomes available.

The following developments occurred during the quarter:

  • We recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note.
  • In Green v. Canadian Imperial Bank of Commerce, et al., the plaintiffs filed an appeal to the Ontario Court of Appeal which will be heard in May 2013.
  • In Brown v. Canadian Imperial Bank of Commerce and CIBC World Markets Inc., the plaintiffs filed an appeal to the Ontario Divisional Court, which will be heard in February 2013.
  • In the mortgage prepayment class actions, the motion for class certification in Sherry v. CIBC Mortgages Inc. is scheduled to be heard in August 2013.
  • Four additional proposed class actions (Fuze Salon v. BofA Canada Bank, et al., 1023926 Alberta Ltd. v. Bank of America Corporation, et al., The Crown & Hand Pub Ltd. v. Bank of America Corporation, et al., Hello Baby Equipment Inc. v. BofA Canada Bank, et al.) were commenced in western Canada against VISA Canada Corporation (Visa), MasterCard International Incorporated (MasterCard), CIBC and numerous other financial institutions. The actions, brought on behalf of merchants who accepted payment by Visa or MasterCard from 2001 to present, allege two "separate, but interrelated" conspiracies; one in respect of Visa and one in respect of MasterCard. The claims allege that Visa and MasterCard conspired with their issuing banks to set default interchange rate and merchant discount fees and that certain rules (Honour All Cards and No Surcharge) have the effect of increasing the merchant discount fees. The claims allege civil conspiracy, violation of the Competition Act, interference with economic interests and unjust enrichment. The claims seek unspecified general and punitive damages. These matters are similar to previously filed and disclosed proposed class actions relating to default interchange rates and merchant discount fees.

Other than the items described above, there are no significant developments in the matters identified in Note 23 to our 2012 annual consolidated financial statements, and no significant new matters have arisen during the quarter ended January 31, 2013.

Asset impairment

As at January 31, 2013, we had goodwill of $1,700 million (October 31, 2012: $1,701 million) and other intangible assets with an indefinite life of $136 million (October 31, 2012: $136 million). Goodwill is not amortized, but is assessed, at least annually and when there are events or changes in circumstances to indicate that the carrying amount may not be recoverable, 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.

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.

Long-lived assets and other identifiable intangibles with a definite life are amortized over their estimated useful lives. These assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount is higher than the recoverable amount. The recoverable amount is defined as the higher of its estimated fair value less cost to sell or value in use. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition.

We performed our annual impairment testing in the fourth quarter of 2012 and did not record any impairment at that time. During the quarter, there were no events or changes in circumstances to indicate that the carrying amounts may not be recoverable and hence no further testing was conducted.

Income taxes

We are subject to income tax laws in the various jurisdictions where we operate, and the tax laws in those jurisdictions are potentially subject to different interpretations by us and the relevant taxation authority. We use judgment in the estimation of income taxes and deferred income tax assets and liabilities.  As a result, management judgment is applied in the interpretation of the relevant tax laws and in estimating the provision for current and deferred income taxes. A deferred tax asset or liability is determined for each temporary difference based on the tax rates that are expected to be in effect in the period that the asset is realized or the liability is settled. Where the temporary differences will not reverse in the foreseeable future, no deferred tax amount is recognized.

As at January 31, 2013, we had a deferred income tax asset of $467 million (October 31, 2012: $457 million) and a deferred income tax liability of $36 million (October 31, 2012: $37 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.

For further details on our income taxes, see Note 9 to the interim consolidated financial statements.

Post-employment and other long-term benefit plans

We sponsor a number of benefit plans to eligible employees, including registered pension plans, supplemental pension plans, and health, dental, disability and life insurance plans. The pension plans provide benefits based on years of service, contributions and average earnings at retirement.

The calculation of net defined benefit plan expense and obligations depends on various actuarial assumptions such as discount rates, expected rates of
return on assets, health-care cost trend rates, turnover of employees, projected salary increases, retirement age, and mortality rates. These assumptions are reviewed annually in accordance with accepted actuarial practice and are approved by management.  The actuarial assumptions used for determining net defined benefit expense for a fiscal year are set at the beginning of the annual reporting period.

The discount rate assumption used in determining net defined benefit expense reflects market yields, as of the measurement date, on high-quality debt instruments with a currency and term to maturity that match the currency and expected timing of benefit payments. Our discount rate is estimated by developing a yield curve based on high-quality corporate bonds. While there is a deep market of high-quality corporate bonds denominated in Canadian dollars with short and medium terms to maturity, there is not a deep market in bonds with terms to maturity that match the timing of all the expected benefit payments for all of our Canadian plans. As a result, for our Canadian post-employment and other long-term benefit plans, we estimate the yields of high-quality corporate bonds with longer term maturities by extrapolating current yields on bonds with short and medium-term durations along the yield curve. Judgment is required in constructing the yield curve, and, as a result, different methodologies applied in constructing the yield curve can give rise to different discount rates.

For further details on post-employment benefit plan expense, see Note 8 to the interim consolidated financial statements.

Controls and procedures

Disclosure controls and procedures

CIBC's management, with the participation of the President and Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness, as at January 31, 2013, of CIBC's disclosure controls and procedures (as defined in the rules of the SEC and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There have been no changes in CIBC's internal control over financial reporting during the quarter ended January 31, 2013, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.


Interim consolidated financial statements
(Unaudited)

Consolidated balance sheet

    2013     2012
Unaudited, $ millions, as at   Jan. 31     Oct. 31
ASSETS          
Cash and non-interest-bearing deposits with banks $ 2,302    $ 2,613 
Interest-bearing deposits with banks   3,334      2,114 
Securities          
Trading   40,839      40,330 
Available-for-sale (AFS) (Note 3)   25,878      24,700 
Designated at fair value (FVO)   303      304 
    67,020      65,334 
Cash collateral on securities borrowed   3,477      3,311 
Securities purchased under resale agreements   25,581      25,163 
Loans          
Residential mortgages   149,008      150,056 
Personal   34,785      35,323 
Credit card   14,798      15,153 
Business and government   44,619      43,624 
Allowance for credit losses (Note 4)   (1,820)     (1,860)
    241,390      242,296 
Other          
Derivative instruments   25,085      27,039 
Customers' liability under acceptances   9,749      10,436 
Land, buildings and equipment   1,665      1,683 
Goodwill   1,700      1,701 
Software and other intangible assets   673      656 
Investments in equity-accounted associates and joint ventures   1,589      1,635 
Other assets   9,218      9,404 
    49,679      52,554 
  $ 392,783    $ 393,385 
LIABILITIES AND EQUITY          
Deposits (Note 6)          
Personal $ 119,148    $ 118,153 
Business and government   129,022      125,055 
Bank   5,218      4,723 
Secured borrowings   52,916      52,413 
    306,304      300,344 
Obligations related to securities sold short   12,313      13,035 
Cash collateral on securities lent   1,460      1,593 
Capital Trust securities   1,669      1,678 
Obligations related to securities sold under repurchase agreements   4,516      6,631 
Other          
Derivative instruments   24,551      27,091 
Acceptances   9,797      10,481 
Other liabilities   10,207      10,671 
    44,555      48,243 
Subordinated indebtedness   4,791      4,823 
Equity          
Preferred shares   1,706      1,706 
Common shares (Note 7)   7,765      7,769 
Contributed surplus   79      85 
Retained earnings   7,229      7,042 
Accumulated other comprehensive income (AOCI)   230      264 
Total shareholders' equity   17,009      16,866 
Non-controlling interests   166      172 
Total equity   17,175      17,038 
  $ 392,783    $ 393,385

The accompanying notes and shaded sections in "MD&A - Management of risk" are an integral part of these interim consolidated financial statements.

Consolidated statement of income

    2013   2012 (1)   2012
Unaudited, $ millions, except as noted, for the three months ended   Jan. 31   Oct. 31     Jan. 31
Interest income              
Loans $ 2,474  $ 2,494    $ 2,540 
Securities   403    377      388 
Securities borrowed or purchased under resale agreements   88    87      76 
Deposits with banks   11    11      11 
    2,976    2,969      3,015 
Interest expense              
Deposits   904    895      915 
Securities sold short   83    84      87 
Securities lent or sold under repurchase agreements   30    30      52 
Subordinated indebtedness   52    52      52 
Capital Trust securities   34    36      36 
Other   18    24      31 
    1,121    1,121      1,173 
Net interest income   1,855    1,848      1,842 
Non-interest income              
Underwriting and advisory fees   106    118      107 
Deposit and payment fees   191    194      190 
Credit fees   118    111      97 
Card fees   156    152      164 
Investment management and custodial fees   112    110      102 
Mutual fund fees   240    230      212 
Insurance fees, net of claims   85    92      82 
Commissions on securities transactions   101    98      101 
Trading income (loss)   14    (17)     45 
AFS securities gains, net   72    61      52 
FVO losses, net   (3)   (4)     (8)
Foreign exchange other than trading         30 
Income from equity-accounted associates and joint ventures   25    44      62 
Other   105    113      79 
    1,326    1,311      1,315 
Total revenue   3,181    3,159      3,157 
Provision for credit losses (Note 4)   265    328      338 
Non-interest expenses              
Employee compensation and benefits   1,082    1,001      1,013 
Occupancy costs   168    182      173 
Computer, software and office equipment   247    266      241 
Communications   77    74      79 
Advertising and business development   47    69      49 
Professional fees   36    45      39 
Business and capital taxes   17    12      13 
Other   313    180      184 
    1,987    1,829      1,791 
Income before income taxes   929    1,002      1,028 
Income taxes   131    150      193 
Net income $ 798  $ 852    $ 835 
Net income attributable to non-controlling interests $ $   $
  Preferred shareholders $ 25  $ 29    $ 56 
  Common shareholders   771    821      776 
Net income attributable to equity shareholders $ 796  $ 850    $ 832 
Earnings per share (in dollars) (Note 10)              
  - Basic $ 1.91  $ 2.02    $ 1.94 
  - Diluted   1.91    2.02      1.93 
Dividends per common share (in dollars)   0.94    0.94      0.90
(1) Certain amounts have been reclassified to conform to the presentation adopted in the current period.

 

The accompanying notes and shaded sections in "MD&A - Management of risk" are an integral part of these interim consolidated financial statements.

Consolidated statement of comprehensive income

    2013   2012   2012
Unaudited, $ millions, for the three months ended   Jan. 31   Oct. 31   Jan. 31
Net income $ 798  $ 852  $ 835 
Other comprehensive income (OCI), net of tax, that may be recycled to profit or loss            
  Net foreign currency translation adjustments            
  Net gains (losses) on investments in foreign operations   (21)   36    41 
  Net (gains) losses on investments in foreign operations reclassified to net income      
  Net gains (losses) on hedges of investments in foreign operations   11    (50)   (19)
  Net (gains) losses on hedges of investments in foreign operations reclassified to net income       (1)
    (10)   (14)   22 
  Net change in AFS securities            
  Net gains (losses) on AFS securities   20    36    85 
  Net (gains) losses on AFS securities reclassified to net income   (52)   (48)   (40)
    (32)   (12)   45 
  Net change in cash flow hedges            
  Net gains (losses) on derivatives designated as cash flow hedges   28    21   
  Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income   (20)   (15)  
       
Total OCI (1)   (34)   (20)   75 
Comprehensive income $ 764  $ 832  $ 910 
Comprehensive income attributable to non-controlling interests $ $ $
  Preferred shareholders $ 25  $ 29  $ 56 
  Common shareholders   737    801    851 
Comprehensive income attributable to equity shareholders $ 762  $ 830  $ 907 
(1) Includes $1 million of gains for the quarter ended January 31, 2013 (October 31, 2012: $5 million of gains; January 31, 2012: $3 million of gains) relating to our investments in equity-accounted associates and joint ventures.
             
    2013   2012   2012  
Unaudited, $ millions, for the three months ended   Jan. 31   Oct. 31   Jan. 31  
Income tax (expense) benefit            
  Net foreign currency translation adjustments            
  Net gains (losses) on investments in foreign operations $ $ (9) $ (1)
  Net gains (losses) on hedges of investments in foreign operations    (2)    
      (1)   (2)  
  Net change in AFS securities             
  Net gains (losses) on AFS securities    (12)   (7)   (34)
  Net (gains) losses on AFS securities reclassified to net income    20    18    15 
        11    (19)
  Net change in cash flow hedges             
  Net gains (losses) on derivatives designated as cash flow hedges    (10)   (4)   (2)
  Net (gains) losses on derivatives designated as cash flow hedges reclassified to net income         (1)
    (3)     (3)
  $ $ 10  $ (18)

The accompanying notes and shaded sections in "MD&A - Management of risk" are an integral part of these interim consolidated financial statements.

Consolidated statement of changes in equity

    2013   2012   2012
Unaudited, $ millions, for the three months ended   Jan. 31   Oct. 31   Jan. 31
Preferred shares            
Balance at beginning of period $ 1,706  $ 2,006  $ 2,756 
Redemption of preferred shares     (300)   (450)
Balance at end of period $ 1,706  $ 1,706  $ 2,306 
Common shares            
Balance at beginning of period $ 7,769  $ 7,744  $ 7,376 
Issue of common shares   59    64    161 
Purchase of common shares for cancellation   (64)   (39)  
Treasury shares      
Balance at end of period $ 7,765  $ 7,769  $ 7,537 
Contributed surplus            
Balance at beginning of period $ 85  $ 87  $ 93 
Stock option expense      
Stock options exercised   (6)   (3)   (9)
Other   (1)    
Balance at end of period $ 79  $ 85  $ 87 
Retained earnings            
Balance at beginning of period $ 7,042  $ 6,719  $ 5,457 
Net income attributable to equity shareholders   796    850    832 
Dividends            
  Preferred   (25)   (29)   (38)
  Common   (379)   (381)   (360)
Premium on redemption of preferred shares       (18)
Premium on purchase of common shares for cancellation   (205)   (118)  
Other      
Balance at end of period $ 7,229  $ 7,042  $ 5,873 
AOCI, net of tax            
  Net foreign currency translation adjustments            
  Balance at beginning of period $ (88) $ (74) $ (88)
  Net change in foreign currency translation adjustments   (10)   (14)   22 
  Balance at end of period $ (98) $ (88) $ (66)
  Net gains (losses) on AFS securities            
  Balance at beginning of period $ 350  $ 362  $ 338 
  Net change in AFS securities   (32)   (12)   45 
  Balance at end of period $ 318  $ 350  $ 383 
  Net gains (losses) on cash flow hedges            
  Balance at beginning of period $ $ (4) $ (5)
  Net change in cash flow hedges      
  Balance at end of period $ 10  $ $
Total AOCI, net of tax $ 230  $ 264  $ 320 
Non-controlling interests            
Balance at beginning of period $ 172  $ 167  $ 164 
Net income attributable to non-controlling interests      
Dividends   (2)     (2)
Other   (6)     (2)
Balance at end of period $ 166  $ 172  $ 163 
Equity at end of period $ 17,175  $ 17,038  $ 16,286

The accompanying notes and shaded sections in "MD&A - Management of risk" are an integral part of these interim consolidated financial statements.

Consolidated statement of cash flows

    2013   2012   2012
Unaudited, $ millions, for the three months ended   Jan. 31   Oct. 31   Jan. 31
Cash flows provided by (used in) operating activities            
Net income $ 798  $ 852  $ 835 
Adjustments to reconcile net income to cash flows provided by (used in) operating activities:            
  Provision for credit losses   265    328    338 
  Amortization (1)   82    83    91 
  Stock option expense      
  Deferred income taxes   (14)   15    15 
  AFS securities gains, net   (72)   (61)   (52)
  Net gains on disposal of land, buildings and equipment   (2)   (14)  
  Other non-cash items, net   (71)   (102)   131 
  Net changes in operating assets and liabilities             
    Interest-bearing deposits with banks   (1,220)   4,366    (1,084)
    Loans, net of repayments   446    854    (2,951)
    Deposits, net of withdrawals   6,189    (4,592)   6,036 
    Obligations related to securities sold short   (722)   1,091    (1,957)
    Accrued interest receivable   67    (81)  
    Accrued interest payable   (296)   279    (368)
    Derivative assets   1,927    1,721    (3,095)
    Derivative liabilities   (2,536)   (1,986)   3,616 
    Trading securities   (509)   (1,183)   (2,869)
    FVO securities     20    67 
    Other FVO assets and liabilities   54    (95)   125 
    Current income taxes   (415)   (22)   (555)
    Cash collateral on securities lent   (133)   (691)   (649)
    Obligations related to securities sold under repurchase agreements   (2,115)   (1,896)   2,282 
    Cash collateral on securities borrowed   (166)   679    (28)
    Securities purchased under resale agreements   (418)   3,842    2,806 
    Other, net     314    (263)   (354)
    1,455    3,145    2,388 
Cash flows provided by (used in) financing activities            
Redemption of preferred shares     (300)   (468)
Issue of common shares for cash   53    61    152 
Purchase of common shares for cancellation   (269)   (157)  
Net proceeds from treasury shares      
Dividends paid   (404)   (410)   (398)
    (619)   (806)   (714)
Cash flows provided by (used in) investing activities            
Purchase of AFS securities   (6,642)   (7,691)   (14,408)
Proceeds from sale of AFS securities   2,702    3,608    6,727 
Proceeds from maturity of AFS securities   2,793    2,147    6,087 
Net cash used in acquisitions     (30)   (3)
Net cash provided by dispositions   41    42   
Net purchase of land, buildings and equipment   (39)   (117)   (45)
    (1,145)   (2,041)   (1,642)
Effect of exchange rate changes on cash and non-interest-bearing deposits with banks   (2)   (4)  
Net increase (decrease) in cash and non-interest-bearing deposits with banks during period   (311)   294    34 
Cash and non-interest-bearing deposits with banks at beginning of period   2,613    2,319    1,481 
Cash and non-interest-bearing deposits with banks at end of period (2) $ 2,302  $ 2,613  $ 1,515 
Cash interest paid $ 1,417  $ 842  $ 1,541 
Cash income taxes paid   560    157    733 
Cash interest and dividends received   3,043    3,056    3,020
(1) Comprises amortization of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets. 
(2) Includes restricted balance of $269 million (October 31, 2012: $270 million; January 31, 2012: $252 million).

The accompanying notes and shaded sections in "MD&A - Management of risk" are an integral part of these interim consolidated financial statements.

Notes to the interim consolidated financial statements
(Unaudited)

The interim consolidated financial statements of CIBC are prepared in accordance with Section 308(4) of the Bank Act which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (OSFI), the financial statements are to be prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. There are no accounting requirements of OSFI that are exceptions to IFRS. These interim consolidated financial statements have been prepared in accordance with IAS 34 "Interim Financial Statements". These interim consolidated financial statements do not include all of the information required for full annual consolidated financial statements and, accordingly, should be read in conjunction with the consolidated financial statements for the year ended October 31, 2012, as set out on pages 84 to 176 of the 2012 Annual Report. All amounts in these interim consolidated financial statements are presented in Canadian dollars, unless otherwise indicated. These interim consolidated financial statements were authorized for issue by the Board of Directors on February 27, 2013.

1. Fair value of financial instruments

The tables below present the level in the fair value hierarchy into which the fair values of financial instruments that are carried at fair value on the interim consolidated balance sheet are categorized:

   Level 1    Level 2    Level 3          
  Quoted market price   Valuation technique -
observable market inputs
  Valuation technique -
non-observable market inputs
  Total Total
    2013   2012     2013   2012     2013   2012     2013   2012
$ millions, as at   Jan. 31   Oct. 31     Jan. 31   Oct. 31     Jan. 31   Oct. 31     Jan. 31   Oct. 31
Financial assets                                      
Trading securities                                      
Government issued or guaranteed $ 1,662  $ 2,052    $ 7,291  $ 8,468    $ $   $ 8,953  $ 10,520 
Corporate equity   24,660    23,693      4,182    3,600            28,842    27,293 
Corporate debt         1,670    1,351            1,670    1,351 
Mortgage- and asset-backed         536    538      838    628      1,374    1,166 
    26,322    25,745      13,679    13,957      838    628      40,839    40,330 
Trading loans                                      
Business and government $ 1,409  $ 866    $ 103  $ 27    $ $ 12    $ 1,520  $ 905 
   
AFS securities                                      
Government issued or guaranteed $ 1,357  $ 1,889    $ 16,908  $ 15,389    $ $   $ 18,265  $ 17,278 
Corporate equity   21    14            650    639      671    654 
Corporate debt         5,218    4,977      21    21      5,239    4,998 
Mortgage- and asset-backed         1,149    1,060      554    710      1,703    1,770 
  $ 1,378  $ 1,903    $ 23,275  $ 21,427    $ 1,225  $ 1,370    $ 25,878  $ 24,700 
FVO securities                                      
Government issued or guaranteed $ $   $ 46  $ 47    $ $   $ 46  $ 47 
Corporate debt         90    87            90    87 
Asset-backed               167    170      167    170 
          136    134      167    170      303    304 
FVO securities purchased under resale agreements $ $   $ 38  $ 38    $ $   $ 38  $ 38 
Derivative instruments                                      
Interest rate $ $ 12    $ 17,781  $ 20,166    $ 71  $ 80    $ 17,855  $ 20,258 
Foreign exchange         5,850    5,386            5,850    5,386 
Credit               514    591      514    591 
Equity   39    33      278    209        12      317    254 
Precious metal         11    15            17    22 
Other commodity   89    193      443    335            532    528 
  $ 137  $ 245    $ 24,363  $ 26,111    $ 585  $ 683    $ 25,085  $ 27,039 
Total financial assets $ 29,246  $ 28,759    $ 61,594  $ 61,694    $ 2,823  $ 2,863    $ 93,663  $ 93,316 
Financial liabilities                                      
Deposits and other liabilities (1) $ $   $ (1,533) $ (1,483)   $ (656) $ (597)   $ (2,189) $ (2,080)
Obligations related to securities sold short   (7,668)   (6,805)     (4,645)   (6,230)           (12,313)   (13,035)
  $ (7,668) $ (6,805)   $ (6,178) $ (7,713)   $ (656) $ (597)   $ (14,502) $ (15,115)
Derivative instruments                                     
Interest rate $ (2) $   $ (17,068) $ (19,540)   $ (76) $ (85)   $ (17,146) $ (19,625)
Foreign exchange         (5,182)   (4,556)           (5,182)   (4,556)
Credit               (568)   (1,315)     (568)   (1,315)
Equity   (41)   (18)     (1,109)   (936)     (4)   (2)     (1,154)   (956)
Precious metal   (9)   (18)     (6)   (13)           (15)   (31)
Other commodity   (112)   (101)     (374)   (507)           (486)   (608)
  $ (164) $ (137)   $ (23,739) $ (25,552)   $ (648) $ (1,402)   $ (24,551) $ (27,091)
Total financial liabilities $ (7,832) $ (6,942)   $ (29,917) $ (33,265)   $ (1,304) $ (1,999)   $ (39,053) $ (42,206)
(1) Comprises FVO deposits of $1,518 million (October 31, 2012: $1,488 million), FVO secured borrowings of $362 million (October 31, 2012: $365 million), bifurcated embedded derivatives of $252 million (October 31, 2012: $184 million), FVO other liabilities of $7 million (October 31, 2012: $3 million), and other financial liabilities measured at fair value of $50 million (October 31, 2012: $40 million).

 

During the quarter, we transferred $12 million of certain bifurcated embedded derivatives from Level 3 to Level 2 due to availability of market observable inputs.

The net gain recognized in the interim consolidated statement of income on the financial instruments, for which fair value was estimated using valuation techniques requiring non-observable market parameters, for the quarter ended January 31, 2013 was $47 million (a net gain of $74 million and $23 million for the quarters ended October 31, 2012 and January 31, 2012, respectively.)

The following table presents the changes in fair value of financial assets and liabilities in Level 3. These instruments are measured at fair value utilizing non-observable market inputs. We often hedge positions with offsetting positions that may be classified in a different level. As a result, the gains and losses for assets and liabilities in the Level 3 category presented in the table below do not reflect the effect of offsetting gains and losses on the related hedging instruments that are classified in Level 1 and Level 2.

 

      Net gains (losses)
included in income
                                 
$ millions, for the three months ended   Opening
balance
  Realized (1)   Unrealized   (1)(2)     Net unrealized
gains (losses)
included
in OCI
Transfer
in to
Level 3
  Transfer
out of
Level 3
  Purchases   Issuances   Sales   Settlements   Closing balance 
Jan. 31, 2013                                                 
Trading securities                                                
Mortgage- and asset-backed $ 628  $ 47    $ 87    $ $ $ $ 162  $ $ $ (86) $ 838 
Trading loans                                                
Business and government   12                      (4)    
AFS securities                                                
Corporate equity   639    14                24      (31)     650 
Corporate debt   21                          21 
Mortgage- and asset-backed   710              (3)             (157)   554 
FVO securities                                                
Asset-backed   170        10                  (17)   167 
Derivative instruments                                                
Interest rate   80        (9)                 (5)   71 
Credit   591    (6)     (49)                 (22)   514 
Equity   12                        (12)  
Total assets $ 2,863  $ 68    $ 39    $ $ $ $ 186  $ $ (35) $ (299) $ 2,823 
Deposits and other liabilities (3) $ (597) $ (12)   $ (108)   $ $ $ 12  $ $ (32) $ $ 81  $ (656)
Derivative instruments                                                
Interest rate   (85)   (5)                       (76)
Credit   (1,315)   22      36                  689    (568)
Equity   (2)       (2)                   (4)
Total liabilities $ (1,999) $   $ (65)   $ $ $ 12  $ $ (32) $ $ 775  $ (1,304)
Oct. 31, 2012                                                
Trading securities                                                
Mortgage- and asset-backed $ 611  $ 11    $ 25    $ $ $ $ $ $ $ (20) $ 628 
Trading loans                                                
Business and government   16        (4)                   12 
AFS securities                                                
Corporate equity   668    14      (10)     (17)           (24)     639 
Corporate debt   65    44      (2)     (31)           (51)   (4)   21 
Mortgage- and asset-backed   863                        (157)   710 
FVO securities                                                
Asset-backed   195    16      18                (18)   (41)   170 
Derivative instruments                                                
Interest rate   82        (2)                 (2)   80 
Credit   758    (4)     (142)                 (21)   591 
Equity                           12 
Total assets $ 3,267  $ 83    $ (114)   $ (44) $ $ $ $ $ (93) $ (245) $ 2,863 
Deposits and other liabilities (3) $ (582) $ (1)   $ (24)   $ $ $ 27  $ (3) $ (6) $ (20) $ 12  $ (597)
Derivative instruments                                                
Interest rate   (89)   (11)                     13    (85)
Credit   (1,494)   11      126                  42    (1,315)
Equity   (3)                       (1)   (2)
Total liabilities $ (2,168) $   $ 105    $ $ $ 27  $ (3) $ (6) $ (20) $ 66  $ (1,999)
(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 period.  
(3) Includes FVO deposits of $530 million (October 31, 2012: $472 million) and bifurcated embedded derivatives of $123 million (October 31, 2012: $122 million).

Sensitivity of Level 3 financial assets and liabilities

Valuation techniques using predominantly non-observable market inputs are used for a number of financial instruments including our structured credit run-off business.

Asset-backed securities (ABS) are sensitive to credit spreads, which we consider to be a non-observable market input.

AFS privately issued equity and debt securities are sensitive to non-observable assumptions and inputs such as projected cash flow and earnings multiples.

FVO deposits that are not managed as part of our structured credit run-off business are sensitive to non-observable credit spreads, which are derived using extrapolation and correlation assumptions.

Certain bifurcated embedded derivatives, due to the complexity and unique structure of the instruments, require significant assumptions and judgment to be applied to both the inputs and valuation techniques, which we consider to be non-observable.

The effect of changing one or more of the assumptions used to fair value these instruments to reasonably possible alternatives would impact net income or OCI as described below.

Our unhedged non-U.S. residential mortgage market (USRMM) structured credit positions are sensitive to changes in mark-to-market (MTM), generally as derived from indicative broker quotes and internal models. A 10% adverse change in MTM of the underlyings would result in losses of approximately $72 million, excluding unhedged non-USRMM positions classified as loans which are carried at amortized cost.

For our hedged positions, there are two categories of sensitivities; the first relates to our hedged loan portfolio and the second relates to our hedged fair valued exposures. Since on-balance sheet hedged loans are carried at amortized cost whereas the related credit derivatives are fair valued, a 10% increase in the MTM of credit derivatives in our hedged structured credit positions would result in a net gain of approximately $5 million, assuming current credit valuation adjustment (CVA) ratios remain unchanged. A 10% reduction in the MTM of our on-balance sheet fair valued exposures and a 10% increase in the MTM of all credit derivatives in our hedged structured credit positions would result in a net loss of approximately $19 million, assuming current CVA ratios remain unchanged.

The impact of a 10% increase in the MTM of unmatched credit derivatives, where we have purchased protection but do not have exposure to the underlying, would result in no significant gain or loss, assuming current CVA ratios remain unchanged.

The impact of a 10% reduction in receivables, net of CVA from financial guarantors, would result in a net loss of approximately $23 million.

A 10% reduction in the MTM of our on-balance sheet ABS that are valued using non-observable credit and liquidity spreads would result in a decrease in OCI of approximately $55 million.

A 10% reduction in the MTM of our AFS privately issued equity and debt securities that are valued using non-observable inputs such as projected cash flows and earnings multiples, would result in a decrease in OCI of approximately $66 million.

A 10% reduction in the MTM of certain FVO deposits which are not managed as part of our structured credit run-off business and are valued using non-observable inputs, including correlation assumptions and extrapolated credit spreads, would result in a gain of approximately $5 million.

A 10% reduction in the MTM of certain bifurcated embedded derivatives, valued using internally vetted valuation techniques and correlation assumptions, would result in a gain of approximately $12 million.

FVO liabilities

The impacts of changes in CIBC's own credit risk on our outstanding FVO liabilities were gains of $1 million for the quarter ended January 31, 2013 and less than $1 million cumulatively (losses of less than $1 million for the quarter ended January 31, 2012 and cumulatively).

As at January 31, 2013, the total contractual settlement amount of the FVO deposits was $12 million lower (October 31, 2012: $5 million lower) than its fair value.

2. Significant disposition

Private wealth management (Asia)

On January 25, 2013, CIBC sold its stand-alone Hong Kong and Singapore-based private wealth management business. This niche advisory and brokerage business, which was included in International banking within Corporate and Other, provided private banking services to a small number of high-net-worth individuals in the Asia-Pacific region and had assets under management of approximately $2 billion. As a result, CIBC recognized a gain, net of associated expenses, of $16 million ($16 million after-tax) during the quarter. CIBC's other businesses in Asia are unaffected by this transaction.

3. Securities

Fair value of AFS securities

                  2013               2012
$ millions, as at               Jan. 31               Oct. 31
        Gross   Gross            Gross   Gross      
    Amortized   unrealized   unrealized   Fair   Amortized   unrealized   unrealized   Fair  
    cost   gains   losses   value   cost   gains   losses   value  
Securities issued or guaranteed by:                                
  Canadian federal government $ 7,468  $ 45  $ (2) $ 7,511  $ 6,683  $ 84  $ (2) $ 6,765 
  Other Canadian governments   4,595    30      4,625    4,197    28    (2)   4,223 
  U.S. Treasury and agencies   4,070    15    (19)   4,066    4,393    14    (8)   4,399 
  Other foreign governments   2,055    25    (17)   2,063    1,885    24    (18)   1,891 
Mortgage-backed securities   1,117      (1)   1,123    1,004    19      1,023 
Asset-backed securities   572        580    736    11      747 
Corporate public debt   5,167    75    (12)   5,230    4,938    69    (18)   4,989 
Corporate private debt                
Corporate public equity     13      22      11      16 
Corporate private equity   385    264      649    378    260      638 
  $ 25,443  $ 486  $ (51) $ 25,878  $ 24,224  $ 524  $ (48) $ 24,700 

As at January 31, 2013, the amortized cost of 117 AFS securities that are in a gross unrealized loss position (October 31, 2012: 100 securities) exceeded their fair value by $51 million (October 31, 2012: $48 million). The securities that have been in a gross unrealized loss position for more than a year include 3 AFS securities (October 31, 2012: 6 securities), with a gross unrealized loss of less than $1 million (October 31, 2012: less than $1 million).

Reclassification of financial instruments

In October 2008, amendments made to IAS 39 "Financial Instruments - Recognition and Measurement" and IFRS 7 "Financial Instruments - Disclosures" permitted certain trading financial assets to be reclassified to loans and receivables and AFS in rare circumstances. As a result of these amendments, we reclassified certain securities to loans and receivables and AFS with effect from July 1, 2008. During the quarter ended January 31, 2013, we have not reclassified any securities.

The following tables show the carrying values, fair values, and income or loss impact of the assets reclassified:

          2013       2012
$ millions, as at       Jan. 31       Oct. 31
      Fair   Carrying   Fair   Carrying  
      value   value   value   value  
Trading assets previously reclassified to loans and receivables $ 3,812  $ 3,839  $ 3,864  $ 3,940 
Trading assets previously reclassified to AFS   12    12    14    14 
Total financial assets reclassified $ 3,824  $ 3,851  $ 3,878  $ 3,954 
                 
        2013   2012   2012  
$ millions, for the three months ended       Jan. 31   Oct. 31   Jan. 31  
Net income (before taxes) recognized on assets reclassified                  
  Interest income     $ 16  $ 19  $ 27 
  Impairment write-downs         (34)  
        $ 16  $ (15) $ 27 
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     $ 24  $ 22  $ 24 
  On trading assets previously reclassified to AFS          
        $ 24  $ 23  $ 24 

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.

4. Loans

Allowance for credit losses

                     
            2013   2012   2012
$ millions, for the three months ended           Jan. 31   Oct. 31   Jan. 31
       Individual   Collective   Total   Total   Total
      allowance   allowance   allowance   allowance   allowance
Balance at beginning of period $ 475  $ 1,441  $ 1,916  $ 1,936  $ 1,851 
  Provision for credit losses   30    235    265    328    338 
  Write-offs   (54)   (282)   (336)   (380)   (322)
  Recoveries     44    44    43    40 
  Interest income on impaired loans   (6)   (3)   (9)   (10)   (16)
  Other         (1)  
Balance at end of period $ 446  $ 1,435  $ 1,881  $ 1,916  $ 1,895 
Comprises:                    
  Loans $ 446  $ 1,374  $ 1,820  $ 1,860  $ 1,849 
  Undrawn credit facilities (1)     61    61    56    46
(1) Included in Other liabilities on the interim consolidated balance sheet.

 

Impaired loans

                       
                  2013   2012  
$ millions, as at                 Jan. 31   Oct. 31  
    Gross   Individual   Collective     Net   Net  
    impaired   allowance   allowance   (1)   impaired   impaired  
Residential mortgages $ 481  $ $ 50    $ 430  $ 427 
Personal   276      174      94    83 
Business and government   992    437    21      534    636 
Total impaired loans (2) $ 1,749  $ 446  $ 245    $ 1,058  $ 1,146
(1) Includes collective allowance relating to personal, scored small business and mortgage impaired loans that are greater than 90 days delinquent. In addition, we have collective allowance of $1,190 million (October 31, 2012: $1,195 million) on balances which are not impaired.   
(2) Average balance of gross impaired loans for the quarter ended January 31, 2013 totalled $1,794 million (for the quarter ended October 31, 2012: $1,872 million).

 

Contractually past due loans but not impaired

                2013   2012
$ millions, as at               Jan. 31   Oct. 31
    Less than   31 to   Over        
    31 days   90 days   90 days   Total   Total 
Residential mortgages $ 1,801  $ 679  $ 255  $ 2,735  $ 2,732 
Personal   459    107    25    591    564 
Credit card   700    205    133    1,038    1,060 
Business and government   124    99    19    242    284 
    $ 3,084  $ 1,090  $ 432  $ 4,606  $ 4,640 

5. Structured entities and derecognition of financial assets

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 special purpose entities 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.

Details of our consolidated and non-consolidated structured entities are provided on pages 117 and 118 of the 2012 Annual Report.

With respect to our Covered Bond Programme as at January 31, 2013, $14.6 billion of mortgages with a fair value of $14.7 billion (October 31, 2012: $14.6 billion with a fair value of $14.7 billion) supported associated covered bond liabilities of $13.8 billion with a fair value of $13.9 billion (October 31, 2012: $13.9 billion with a fair value of $14.0 billion).

With respect to Cards II Trust and Broadway Trust entities as at January 31, 2013, $6.0 billion of credit card receivable assets with a fair value of $6.0 billion (October 31, 2012:  $5.0 billion with a fair value of $5.0 billion) supported associated funding liabilities of $6.0 billion with a fair value of $6.0 billion (October 31, 2012: $4.9 billion with a fair value of $5.0 billion).

As at January 31, 2013, there were $1.5 billion (October 31, 2012: $1.6 billion) of total assets in our non-consolidated multi-seller conduits. Our on-balance sheet amounts and maximum exposure to loss related to structured entities that are not consolidated are set out in the table below. The maximum exposure comprises the carrying value of unhedged investments, the notional amounts for liquidity and credit facilities, and the notional amounts less accumulated fair value losses for unhedged written credit derivatives on structured entity reference assets. The impact of CVA is not considered in the table below.

              CIBC                
              structured               Commercial
       CIBC   collateralized    Third-party    Pass-through   mortgage
    sponsored   debt obligation    structured vehicles   investment   securitization
$ millions, as at January 31, 2013   conduits   vehicles    Run-off   Continuing   structures   trust 
On-balance sheet assets at carrying value (1)                        
  Trading securities $ 15  $ $ 831  $ 158  $ 2,716  $
  AFS securities         582     
  FVO securities       167       
  Loans   81    222    3,449    25     
  Derivatives (2)           12   
  $ 96  $ 229  $ 4,449  $ 765  $ 2,728  $
October 31, 2012 $ 103  $ 232  $ 4,313  $ 1,004  $ 2,259  $
On-balance sheet liabilities at carrying value (1)                        
  Derivatives (2) $ $ 20  $ 466  $ $ 197  $
October. 31, 2012 $ $ 23  $ 1,198  $ $ 151  $
Maximum exposure to loss, net of hedges                        
  Investment and loans $ 96  $ 229  $ 4,449  $ 765  $ 2,716  $
  Notional of written derivatives, less fair value losses     190    3,043       
  Liquidity and credit facilities   1,464    42    370    25     
  Less: hedges of investments, loans and written
derivatives exposure
    (295)   (6,551)     (2,716)  
  $ 1,560  $ 166  $ 1,311  $ 790  $ $
October 31, 2012 $ 1,657  $ 100  $ 1,360  $ 1,027  $ $
(1) Excludes structured entities established by Canada Mortgage and Housing Corporation (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).  
(2) Comprises written credit default swaps and total return swaps under which we assume exposures and excludes all other derivatives.

Derecognition of financial assets

Details of the financial assets that did not qualify for derecognition are provided on page 120 of the 2012 Annual Report.


The following table provides the carrying amount and fair value of transferred financial assets that did not qualify for derecognition and the associated financial liabilities:
 

        2013       2012
$ millions, as at       Jan. 31       Oct. 31
    Carrying   Fair   Carrying   Fair
    amount   value   amount   value
Residential mortgages securitizations (1) $ 32,373  $ 32,437  $ 32,409  $ 32,528 
Securities held by counterparties as collateral under repurchase agreements (2)(3)   712    712    1,795    1,795 
Securities lent for securities collateral (2)(3)   8,058    8,058    5,324    5,324 
  $ 41,143  $ 41,207  $ 39,528  $ 39,647 
Carrying amount of associated liabilities $ 41,905  $ 41,891  $ 40,762  $ 40,830 
(1) Includes $4.3 billion (October 31, 2012: $4.0 billion) of mortgages underlying mortgage-backed securities held by CMHC counterparties as collateral under repurchase agreements. Certain cash in transit balances related to the securitization process amounting to $976 million (October 31, 2012: $1,196 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 $23.8 billion with a fair value of $23.9 billion (October 31, 2012: $22.7 billion with a fair value of $22.8 billion) of mortgages that were not transferred to external parties. 

6. Deposits (1)(2)

                      2013   2012
$ millions, as at                     Jan. 31   Oct. 31
    Payable on     Payable     Payable on a            
    demand   (3)   after notice   (4)   fixed date   (5)   Total   Total  
Personal $ 8,440    $ 69,105    $ 41,603    $ 119,148  $ 118,153 
Business and government   29,279      18,392      81,351      129,022    125,055 
Bank   1,668          3,543      5,218    4,723 
Secured borrowings (6)           52,916      52,916    52,413 
  $ 39,387    $ 87,504    $ 179,413    $ 306,304  $ 300,344 
Comprised of:                          
  Held at amortized cost                   $ 304,424  $ 298,491 
  Designated at fair value                     1,880    1,853 
                    $ 306,304  $ 300,344 
Total deposits include:                          
  Non-interest-bearing deposits                          
    In domestic offices                   $ 30,248  $ 29,717 
    In foreign offices                     2,476    2,592 
  Interest-bearing deposits                          
    In domestic offices                       233,649    228,790 
    In foreign offices                          
  U.S. federal funds purchased                             499    437 
                    $ 306,304  $ 300,344 
(1) Includes deposits of $67.5 billion (October 31, 2012: $66.8 billion) denominated in U.S. dollars and deposits of $7.7 billion (October 31, 2012: $6.5 billion) denominated in other foreign currencies.
(2) Net of purchased notes of $1,174 million (October 31, 2012: $1,127 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.

7. Share capital

Common shares

 

          2013       2012       2012    
$ millions, except number of shares, for the three months ended       Jan. 31       Oct. 31       Jan. 31    
      Number       Number         Number      
      of shares   Amount   of shares   Amount     of shares   Amount    
Balance at beginning of period   404,484,938  $ 7,769    405,626,082  $ 7,744    400,534,211  $ 7,376   
Issuance pursuant to:                          
  Stock option plans   535,386    38    276,397    17    573,490    39  
  Shareholder investment plan (1)   7,672      291,216    23    1,319,517    99    
  Employee share purchase plan   253,964    20    316,286    24    309,221    23    
      405,281,960  $ 7,828    406,509,981  $ 7,808    402,736,439  $ 7,537   
Purchase of common shares for cancellation   (3,337,300)   (64)   (2,025,000)   (39)      
Treasury shares   15,142      (43)   (2) (8,050)   (2)
Balance at end of period   401,959,802  $ 7,765    404,484,938  $ 7,769    402,728,389  $ 7,537   
               
(1) Commencing with the January 28, 2013 dividend payment, shares distributed under the Shareholder Investment Plan were acquired in the open market.  
(2) Due to rounding.

 

Regulatory capital and ratios
Our capital ratios and assets-to-capital multiple (ACM) are presented in the following table:
                   
        2013 (1)     2012 (1)
$ millions, as at   Jan. 31       Oct. 31  
Basel III - Transitional basis              
Common Equity Tier 1 capital $ 15,556        n/a  
Tier 1 capital   16,718        n/a  
Total capital   20,689        n/a  
Risk-weighted assets (RWA)   134,821        n/a  
Common Equity Tier 1 ratio   11.5  %     n/a  
Tier 1 capital ratio   12.4  %     n/a  
Total capital ratio   15.3  %     n/a  
ACM   17.9  x     n/a  
Basel III - All-in-basis              
Common Equity Tier 1 capital $ 12,077        n/a  
Tier 1 capital   15,179        n/a  
Total capital   19,352        n/a  
RWA   126,366        n/a  
Common Equity Tier 1 ratio   9.6  %     n/a  
Tier 1 capital ratio   12.0  %     n/a  
Total capital ratio   15.3  %     n/a  
Basel II              
Tier 1 capital   n/a     $ 15,940  (2)
Total capital   n/a       19,924  (2)
RWA   n/a       115,229   
Tier 1 capital ratio   n/a       13.8  %
Total capital ratio   n/a       17.3  %
ACM   n/a       17.4  x
 
(1) Capital measures for fiscal year 2013 are based on Basel III and prior period are based on Basel II.                
(2) The Tier 1 capital and Total capital incorporate OSFI's IFRS transitional relief election.               
n/a  Not applicable.

During the quarter we have complied with all of our regulatory capital requirements.

8. Post-employment benefit expense

               
      2013   2012   2012
$ millions, for the three months ended   Jan. 31   Oct. 31   Jan. 31
Defined benefit plans            
  Pension plans $ 35 $ 30 $ 33
  Other post-employment plans   9   9   8
Total net defined benefit expense $ 44 $ 39 $ 41
Defined contribution plans            
  CIBC's pension plans $ 3 $ 2 $ 3
  Government pension plans (1)   21   20   20
Total defined contribution expense $ 24 $ 22 $ 23
             
(1)  Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal Insurance Contributions Act.          

 

9. Income taxes

Deferred income tax assets and liabilities
As at January 31, 2013, we had available gross deferred income tax assets of $467 million (October 31, 2012: $457 million) and gross deferred income tax liabilities of $36 million (October 31, 2012: $37 million).

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 Crown's 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.

Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $187 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.

10. Earnings per share

 
                 
        2013   2012   2012
$ millions, except number of shares and per share amounts, for the three months ended   Jan. 31   Oct. 31   Jan. 31
Basic EPS            
Net income attributable to equity shareholders $ 796  $ 850  $ 832 
Less: Preferred share dividends and premiums   25    29    56 
Net income attributable to common shareholders $ 771  $ 821  $ 776 
Weighted-average common shares outstanding (thousands)   403,332    405,404    401,099 
Basic EPS $ 1.91  $ 2.02  $ 1.94 
Diluted EPS            
Net income attributable to diluted common shareholders $ 771  $ 821  $ 776 
Weighted-average common shares outstanding (thousands)   403,332    405,404    401,099 
Add: Stock options potentially exercisable (1) (thousands)   438    440    514 
Weighted-average diluted common shares outstanding (thousands)   403,770    405,844    401,613 
Diluted EPS $ 1.91  $ 2.02  $ 1.93 
 
(1) Excludes average options outstanding of 346,801 (October 31, 2012: 1,251,523; January 31, 2012: 1,537,948) with a weighted-average exercise price of $95.62 (October 31, 2012: $83.73; January 31, 2012: $82.33) for the quarter ended January 31, 2013, as the options' exercise prices were greater than the average market price of CIBC's common shares.            

 

11. Contingent liabilities and provision

In the ordinary course of its business, CIBC is a party to a number of legal proceedings, including regulatory investigations, in which claims for substantial monetary damages are asserted against CIBC and its subsidiaries. While there is inherent difficulty in predicting the outcome of legal proceedings, based on current knowledge and in consultation with legal counsel, we do not expect that the outcome of these matters, individually or in aggregate, to have a material adverse effect on our consolidated financial statements. However, the outcome of these matters, individually or in aggregate, may be material to our operating results for a particular reporting period.

Amounts are accrued if, in the opinion of management, it is both probable that an outflow of economic benefits will be required to resolve the matter, and a reliable estimate can be made of the amount of the obligation. If the reliable estimate of probable loss involves a range of potential outcomes within which a specific amount within the range appears to be a better estimate, that amount is accrued. If no specific amount within the range of potential outcomes appears to be a better estimate than any other amount, the mid-point in the range is accrued. In some instances, however, it is not possible either to determine whether an obligation is probable or to reliably estimate the amount of loss, in which case no accrual can be made.

We regularly assess the adequacy of CIBC's litigation accruals and make the necessary adjustments to incorporate new information as it becomes available.

The following developments occurred during the quarter:

  • We recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note.
  • In Green v. Canadian Imperial Bank of Commerce, et al., the plaintiffs filed an appeal to the Ontario Court of Appeal which will be heard in May 2013.
  • In Brown v. Canadian Imperial Bank of Commerce and CIBC World Markets Inc., the plaintiffs filed an appeal to the Ontario Divisional Court, which will be heard in February 2013.
  • In the mortgage prepayment class actions, the motion for class certification in Sherry v. CIBC Mortgages Inc. is scheduled to be heard in August 2013.
  • Four additional proposed class actions (Fuze Salon v. BofA Canada Bank, et al., 1023926 Alberta Ltd. v. Bank of America Corporation, et al., The Crown & Hand Pub Ltd. v. Bank of America Corporation, et al., Hello Baby Equipment Inc. v. BofA Canada Bank, et al.) were commenced in western Canada against VISA Canada Corporation (Visa), MasterCard International Incorporated (MasterCard), CIBC and numerous other financial institutions. The actions, brought on behalf of merchants who accepted payment by Visa or MasterCard from 2001 to present, allege two "separate, but interrelated" conspiracies; one in respect of Visa and one in respect of MasterCard. The claims allege that Visa and MasterCard conspired with their issuing banks to set default interchange rate and merchant discount fees and that certain rules (Honour All Cards and No Surcharge) have the effect of increasing the merchant discount fees. The claims allege civil conspiracy, violation of the Competition Act, interference with economic interests and unjust enrichment. The claims seek unspecified general and punitive damages. These matters are similar to previously filed and disclosed proposed class actions relating to default interchange rates and merchant discount fees.

Other than the items described above, there are no significant developments in the matters identified in Note 23 to our 2012 annual consolidated financial statements, and no significant new matters have arisen during the quarter ended January 31, 2013.

12. Segmented information

CIBC has three strategic business units (SBUs) - Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management, which form part of Corporate and Other. 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 FirstCaribbean International Bank Limited, 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.

        Retail and                        
        Business     Wealth     Wholesale     Corporate     CIBC
$ millions, for the three months ended     Banking     Management     Banking     and Other     Total
Jan. 31 Net interest income (1)   $ 1,461   $ 47   $ 343   $ 4   $ 1,855
2013 Non-interest income     525     465     219     117     1,326
  Intersegment revenue (2)     79     (80)     1     -     -
  Total revenue (1)     2,065     432     563     121     3,181
  Provision for credit losses     241     -     10     14     265
  Amortization (3)     22     3     1     56     82
  Other non-interest expenses     999     312     444     150     1,905
  Income (loss) before income taxes     803     117     108     (99)     929
  Income taxes (1)     192     27     17     (105)     131
  Net income   $ 611   $ 90   $ 91   $ 6   $ 798
  Net income attributable to:                              
    Non-controlling interests   $ -   $ -   $ -   $ 2 $   2
    Equity shareholders     611     90     91     4     796
  Average assets (4)   $ 251,786   $ 4,015   $ 125,734   $ 20,778   $ 402,313
Oct. 31(5) Net interest income (1)   $ 1,462   $ 46   $ 321   $ 19   $ 1,848
2012 Non-interest income     498     451     253     109     1,311
  Intersegment revenue (2)     76     (77)     1     -     -
  Total revenue (1)     2,036     420     575     128     3,159
  Provision for credit losses     255     -     66     7     328
  Amortization (3)     22     2     1     58     83
  Other non-interest expenses     1,008     306     262     170     1,746
  Income (loss) before income taxes     751     112     246     (107)     1,002
  Income taxes (1)     182     28     53     (113)     150
  Net income   $ 569   $ 84   $ 193   $ 6   $ 852
  Net income attributable to:                              
    Non-controlling interests   $ -   $ -   $   $ 2   $ 2
    Equity shareholders     569     84     193     4     850
  Average assets (4)   $ 251,939   $ 3,960   $ 125,467   $ 19,726   $ 401,092
Jan. 31 Net interest income (1)   $ 1,445   $ 48   $ 262   $ 87   $ 1,842
2012 Non-interest income     513     458     233     111     1,315
  Intersegment revenue (2)     71     (71)     -     -     -
  Total revenue (1)     2,029     435     495     198     3,157
  Provision for credit losses     281     -     26     31     338
  Amortization (3)     22     2     1     66     91
  Other non-interest expenses     974     310     288     128     1,700
  Income (loss) before income taxes     752     123     180     (27)     1,028
  Income taxes (1)     185     23     47     (62)     193
  Net income   $ 567   $ 100   $ 133   $ 35   $ 835
  Net income attributable to:                              
    Non-controlling interests   $ -   $ -   $ -   $ 3   $ 3
    Equity shareholders     567     100     133     32     832
  Average assets (4)   $ 255,441   $ 4,058   $ 111,209   $ 25,414   $ 396,122

(1) Wholesale Banking net interest income and income tax expense includes a TEB adjustment of $92 million for the three months ended January 31, 2013 ($92 million and $57 million for the three months ended October 31, 2012 and January 31, 2012, respectively) with an equivalent offset in Corporate and Other.
(2) Intersegment revenue represents internal sales commissions and revenue allocations under the Manufacturer / Customer Segment / Distributor Management Model.  
(3) Comprises amortization of buildings, furniture, equipment, leasehold improvements, and software and other intangible assets.  
(4) Assets are disclosed on an average basis as this measure is most relevant to a financial institution and is the measure reviewed by management.
(5) Certain amounts have been reclassified to conform to the presentation adopted in the current period.  

 

 

 

SOURCE CIBC



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