TIDMBH29
RNS Number : 6395T
Canadian Imperial Bank of Commerce
08 December 2011
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Consolidated financial statements
Consolidated financial statements
118 Financial reporting responsibility
119 Independent auditors' report of registered public accounting firm to shareholders
121 Consolidated balance sheet
122 Consolidated statement of operations
123 Consolidated statement of comprehensive income
124 Consolidated statement of changes in shareholders' equity
125 Consolidated statement of cash flows
126 Notes to the consolidated financial statements
126 Note 1 - Summary of significant accounting policies
136 Note 2 - Fair value of financial instruments
144 Note 3 - Significant acquisitions and disposition
146 Note 4 - Securities
150 Note 5 - Loans
153 Note 6 - Securitizations and variable interest entities
159 Note 7 - Land, buildings and equipment
160 Note 8 - Goodwill, software and other intangible assets
161 Note 9 - Other assets
162 Note 10 - Deposits
162 Note 11 - Other liabilities
163 Note 12 - Trading activities
164 Note 13 - Financial instruments designated at fair value
165 Note 14 - Derivative instruments
171 Note 15 - Designated accounting hedges
172 Note 16 - Subordinated indebtedness
174 Note 17 - Common and preferred share capital and preferred share liabilities
178 Note 18 - Capital Trust securities
180 Note 19 - Interest rate sensitivity
182 Note 20 - Stock-based compensation
187 Note 21 - Employee future benefits
193 Note 22 - Income taxes
196 Note 23 - Earnings per share
196 Note 24 - Commitments, guarantees, pledged assets and contingent liabilities
201 Note 25 - Concentration of credit risk
202 Note 26 - Related-party transactions
203 Note 27 - Investments in joint ventures and equity-accounted associates
204 Note 28 - Significant subsidiaries
205 Note 29 - Segmented and geographic information
208 Note 30 - Financial instruments - disclosures
210 Note 31 - Reconciliation of Canadian and U.S. generally accepted accounting principles
233 Note 32 - Transition to International Financial Reporting Standards
Consolidated financial statements
Financial reporting responsibility
The management of Canadian Imperial Bank of Commerce (CIBC) is
responsible for the preparation of the Annual Report, which
includes the consolidated financial statements and management's
discussion and analysis (MD&A), and for the timeliness and
reliability of the information disclosed. The consolidated
financial statements have been prepared in accordance with Canadian
generally accepted accounting principles as well as the
requirements of the Bank Act (Canada). The MD&A has been
prepared in accordance with the requirements of applicable
securities laws.
The consolidated financial statements and MD&A, of
necessity, contain items that reflect the best estimates and
judgments of the expected effects of current events and
transactions with appropriate consideration to materiality. All
financial information appearing throughout the Annual Report is
consistent with the consolidated financial statements.
Management has developed and maintains effective systems,
controls and procedures to ensure that information used internally
and disclosed externally is reliable and timely. During the past
year, we have continued to improve, document and test the design
and operating effectiveness of internal control over external
financial reporting. The results of our work have been subjected to
audit by the shareholders' auditors. As at year end, we have
determined that internal control over financial reporting is
effective and CIBC is in compliance with the requirements set by
the U.S. Securities and Exchange Commission (SEC) under the U.S.
Sarbanes-Oxley Act (SOX). CIBC's Chief Executive Officer and Chief
Financial Officer have certified CIBC's annual filings with the SEC
under SOX and with the Canadian Securities Administrators under
Canadian securities laws.
The Chief Auditor and his staff review and report on CIBC's
internal controls, including computerized information system
controls and security, the overall control environment, and
accounting and financial controls. The Chief Auditor has full and
independent access to the Audit Committee.
The Board of Directors oversees management's responsibilities
for financial reporting through the Audit Committee, which is
composed of directors who are not officers or employees of CIBC.
The Audit Committee reviews CIBC's interim and annual consolidated
financial statements and MD&A and recommends them for approval
by the Board of Directors. Other key responsibilities of the Audit
Committee include monitoring CIBC's system of internal control,
monitoring its compliance with legal and regulatory requirements,
and reviewing the qualifications, independence and performance of
the shareholders' auditors and internal auditors.
Ernst & Young LLP, the shareholders' auditors, obtain an
understanding of CIBC's internal controls and procedures for
financial reporting to plan and conduct such tests and other audit
procedures as they consider necessary in the circumstances to
express their opinions in the reports that follow. The
shareholders' auditors have full and independent access to the
Audit Committee to discuss their audit and related matters.
The Office of the Superintendent of Financial Institutions
(OSFI) Canada is mandated to protect the rights and interest of
depositors and creditors of CIBC. Accordingly, OSFI examines and
enquires into the business and affairs of CIBC, as deemed
necessary, to ensure that the provisions of the Bank Act (Canada)
are being complied with and that CIBC is in sound financial
condition.
Gerald T. McCaughey Kevin Glass
President and Chief Executive Officer Chief Financial Officer November 30, 2011
Consolidated financial statements Independent auditors' report
of registered public accounting firm to shareholders
Report on financial statements
We have audited the accompanying consolidated financial
statements of Canadian Imperial Bank of Commerce (CIBC), which
comprise the consolidated balance sheet as at October 31, 2011 and
2010 and the consolidated statements of operations, comprehensive
income, changes in shareholders' equity and cash flows for each of
the years in the three-year period ended October 31, 2011, and a
summary of significant accounting policies and other explanatory
information.
Management's responsibility for the consolidated financial
statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles,
and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or
error.
Auditors' responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors'
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the
circumstances. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements, evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of CIBC as
at October 31, 2011 and 2010, and the results of its operations and
its cash flows for each of the years in the three-year period ended
October 31, 2011, in accordance with Canadian generally accepted
accounting principles.
Other matter
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), CIBC's
internal control over financial reporting as of October 31, 2011,
based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated November 30, 2011
expressed an unqualified opinion on CIBC's internal control over
financial reporting.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
November 30, 2011
Consolidated financial statements
Independent auditors' report of registered public accounting
firm to shareholders Report on internal controls under standards of
the Public Company Accounting Oversight Board (United States)
We have audited Canadian Imperial Bank of Commerce's (CIBC)
internal control over financial reporting as of October 31, 2011,
based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). CIBC's management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying management's annual report on internal control over
financial reporting contained in the accompanying management's
discussion and analysis. Our responsibility is to express an
opinion on CIBC's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, CIBC maintained, in all material respects,
effective internal control over financial reporting as of October
31, 2011, based on the COSO criteria.
We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated
balance sheet of CIBC as at October 31, 2011 and 2010 and the
consolidated statements of operations, comprehensive income,
changes in shareholders' equity and cash flows for each of the
years in the three-year period ended October 31, 2011 of CIBC and
our report dated November 30, 2011 expressed an unqualified opinion
thereon.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
November 30, 2011
Consolidated financial statements
Consolidated balance sheet
$ millions, as at October 31 2011 2010(1)
-------------------------------------------------------------------------- --------------------- -------------------
ASSETS
Cash and non-interest-bearing deposits with
banks.................................................................. $ 1,855 $ 2,190
-------------------------------------------------------------------------- --------------------- -------------------
Interest-bearing deposits with
banks....................................................................
..................... 4,442 9,862
-------------------------------------------------------------------------- --------------------- -------------------
Securities (Note 4)
Trading (Note
12)......................................................................
................................................... 32,797 28,557
Available-for-sale
(AFS)....................................................................
............................................ 29,212 26,621
Designated at fair value (FVO) (Note
13)......................................................................
................ 20,064 22,430
-------------------------------------------------------------------------- --------------------- -------------------
82,073 77,608
-------------------------------------------------------------------------- --------------------- -------------------
Cash collateral on securities
borrowed.................................................................
.................... 1,838 2,401
-------------------------------------------------------------------------- --------------------- -------------------
Securities purchased under resale
agreements...............................................................
......... 26,002 34,941
-------------------------------------------------------------------------- --------------------- -------------------
Loans (Note 5)
Residential
mortgages................................................................
.................................................. 99,603 93,568
Personal.................................................................
...................................................................... 34,842 34,335
Credit
card.....................................................................
............................................................... 10,408 12,127
Business and
government...............................................................
.............................................. 41,812 38,582
Allowance for credit
losses...................................................................
......................................... (1,647 ) (1,720)
-------------------------------------------------------------------------- --------------------- -------------------
185,018 176,892
-------------------------------------------------------------------------- --------------------- -------------------
Other
Derivative instruments (Note
14)......................................................................
............................. 28,259 24,682
Customers' liability under
acceptances..............................................................
........................... 9,361 7,684
Land, buildings and equipment (Note
7).......................................................................
............... 1,676 1,660
Goodwill (Note
8).......................................................................
.................................................. 1,894 1,913
Software and other intangible assets (Note
8).......................................................................
........ 654 609
Investments in equity-accounted
associates...............................................................
................... 1,128 298
Other assets (Note
9).......................................................................
.............................................. 9,499 11,300
-------------------------------------------------------------------------- --------------------- -------------------
52,471 48,146
-------------------------------------------------------------------------- --------------------- -------------------
$ 353,699 $ 352,040
-------------------------------------------------------------------------- --------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 10)
Personal.................................................................
...................................................................... $ 116,592 $ 113,294
Business and
government...............................................................
.............................................. 134,636 127,759
Bank.....................................................................
........................................................................ 4,181 5,618
-------------------------------------------------------------------------- --------------------- -------------------
255,409 246,671
-------------------------------------------------------------------------- --------------------- -------------------
Obligations related to securities sold
short....................................................................
........... 10,316 9,673
-------------------------------------------------------------------------- --------------------- -------------------
Cash collateral on securities
lent.....................................................................
.......................... 2,850 4,306
-------------------------------------------------------------------------- --------------------- -------------------
Obligations related to securities sold under repurchase
agreements...................................... 11,456 23,914
-------------------------------------------------------------------------- --------------------- -------------------
Other
Derivative instruments (Note
14)......................................................................
............................. 29,807 26,489
Acceptances..............................................................
................................................................... 9,396 7,684
Other liabilities (Note
11)......................................................................
....................................... 11,823 12,572
-------------------------------------------------------------------------- --------------------- -------------------
51,026 46,745
-------------------------------------------------------------------------- --------------------- -------------------
Subordinated indebtedness (Note
16)......................................................................
................... 5,138 4,773
-------------------------------------------------------------------------- --------------------- -------------------
Non-controlling
interests................................................................
............................................. 164 168
-------------------------------------------------------------------------- --------------------- -------------------
Shareholders' equity
Preferred shares (Note
17)......................................................................
...................................... 2,756 3,156
Common shares (Note
17)......................................................................
...................................... 7,376 6,804
Contributed
surplus..................................................................
..................................................... 90 96
Retained
earnings.................................................................
....................................................... 7,605 6,095
Accumulated other comprehensive income
(AOCI)...................................................................
... (487 ) (361)
-------------------------------------------------------------------------- --------------------- -------------------
17,340 15,790
-------------------------------------------------------------------------- --------------------- -------------------
$ 353,699 $ 352,040
-------------------------------------------------------------------------- --------------------- -------------------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
The accompanying notes and shaded sections in "MD&A -
Management of risk" are an integral part of these consolidated
financial statements.
Gerald T. McCaughey Ronald W. Tysoe
President and Chief Executive Officer Director
Consolidated financial statements
Consolidated statement of operations
$ millions, except as noted, for the year ended
October 31 2011 2010 2009
--------------------------------------------------- ---------------------- --------------------- --------------------
Interest income
Loans.............................................
..................................................
................................................. $ 7,708 $ 7,288 $ 7,183
Securities........................................
..................................................
................................................ 1,963 1,562 1,705
Securities borrowed or purchased under resale
agreements........................................
...................... 365 193 324
Deposits with
banks.............................................
..................................................
............................ 63 52 85
--------------------------------------------------- ---------------------- --------------------- --------------------
10,099 9,095 9,297
--------------------------------------------------- ---------------------- --------------------- --------------------
Interest expense
Deposits..........................................
..................................................
................................................ 2,787 2,192 2,879
Other
liabilities.......................................
..................................................
........................................ 747 476 785
Subordinated
indebtedness......................................
..................................................
...................... 215 188 208
Preferred share liabilities (Note
17)...............................................
..................................................
.. - 35 31
--------------------------------------------------- ---------------------- --------------------- --------------------
3,749 2,891 3,903
--------------------------------------------------- ---------------------- --------------------- --------------------
Net interest
income............................................
..................................................
........................... 6,350 6,204 5,394
--------------------------------------------------- ---------------------- --------------------- --------------------
Non-interest income
Underwriting and advisory
fees..............................................
..................................................
......... 514 426 478
Deposit and payment
fees..............................................
..................................................
................ 756 756 773
Credit
fees..............................................
..................................................
........................................ 381 341 304
Card
fees..............................................
..................................................
.......................................... 99 304 328
Investment management and custodial
fees..............................................
....................................... 486 459 419
Mutual fund
fees..............................................
..................................................
............................... 849 751 658
Insurance fees, net of
claims............................................
..................................................
............... 320 277 258
Commissions on securities
transactions......................................
..................................................
..... 496 474 472
Trading (loss) income (Note
12)...............................................
..................................................
....... (74 ) 603 (531)
AFS securities gains, net (Note
4)................................................
..................................................
... 407 400 275
FVO losses, net (Note
13)...............................................
..................................................
................. (134 ) (623 ) (33)
Income from securitized
assets............................................
..................................................
............ 1,063 631 518
Foreign exchange other than
trading...........................................
..................................................
... 237 683 496
Other.............................................
..................................................
................................................. 499 399 119
--------------------------------------------------- ---------------------- --------------------- --------------------
5,899 5,881 4,534
--------------------------------------------------- ---------------------- --------------------- --------------------
Total
revenue...........................................
..................................................
...................................... 12,249 12,085 9,928
--------------------------------------------------- ---------------------- --------------------- --------------------
Provision for credit losses (Note
5)................................................
................................................ 841 1,046 1,649
--------------------------------------------------- ---------------------- --------------------- --------------------
Non-interest expenses
Employee compensation and
benefits..........................................
..................................................
.. 4,163 3,871 3,610
Occupancy
costs.............................................
..................................................
................................ 664 648 597
Computer, software and office
equipment.........................................
............................................... 994 1,003 1,010
Communications....................................
..................................................
......................................... 297 290 288
Advertising and business
development.......................................
..................................................
.... 214 197 173
Professional
fees..............................................
..................................................
............................... 179 210 189
Business and capital
taxes.............................................
..................................................
................. 38 88 117
Other.............................................
..................................................
................................................. 801 720 676
--------------------------------------------------- ---------------------- --------------------- --------------------
7,350 7,027 6,660
--------------------------------------------------- ---------------------- --------------------- --------------------
Income before income taxes and non-controlling
interests.........................................
.................. 4,058 4,012 1,619
Income tax expense (Note
22)...............................................
..................................................
........ 969 1,533 424
--------------------------------------------------- ---------------------- --------------------- --------------------
3,089 2,479 1,195
Non-controlling
interests.........................................
..................................................
...................... 10 27 21
--------------------------------------------------- ---------------------- --------------------- --------------------
Net
income............................................
..................................................
......................................... $ 3,079 $ 2,452 $ 1,174
Preferred share dividends and premiums (Note
17)...............................................
....................... (177 ) (169 ) (162)
--------------------------------------------------- ---------------------- --------------------- --------------------
Net income applicable to common
shares............................................
......................................... $ 2,902 $ 2,283 $ 1,012
--------------------------------------------------- ---------------------- --------------------- --------------------
Weighted-average common shares outstanding
(thousands)
* Basic...
..............
..............
..............
...
........
..............
..............
......... 396,233 387,802 381,677
* Diluted.
..............
..............
..............
...
........
..............
..............
........ 397,097 388,807 382,442
Earnings per share (in dollars) (Note 23)
* Basic...
..............
..............
..............
...
........
..............
..............
......... $ 7.32 $ 5.89 $ 2.65
* Diluted.
..............
..............
..............
...
........
..............
..............
........ $ 7.31 $ 5.87 $ 2.65
Dividends per common share (in dollars) (Note
17)...............................................
......................... $ 3.51 $ 3.48 $ 3.48
--------------------------------------------------- ---------------------- --------------------- --------------------
The accompanying notes and shaded sections in "MD&A -
Management of risk" are an integral part of these consolidated
financial statements.
Consolidated financial statements
Consolidated statement of comprehensive income
$ millions, for the year ended October 31 2011 2010 2009
--------------------------------------------------------- ------------------- ------------------- -----------------
Net
income..................................................
........................................................
..................................... $ 3,079 $ 2,452 $ 1,174
--------------------------------------------------------- ------------------- ------------------- -----------------
Other comprehensive income (OCI), net of
tax......................................................
...................................
Net foreign currency translation
adjustments..........................................
.........................................
Net gains (losses) on investment in self-sustaining
foreign
operations..........................................
........ (92 ) (290 ) (523)
Net (gains) losses on investment in self-sustaining
foreign operations reclassified to net
income......... 41 1,079 135
Net gains (losses) on hedges of investment in
self-sustaining foreign
operations................................. 13 88 392
Net (gains) losses on hedges of investment in
self-sustaining foreign operations reclassified
to net
income..............................................
....................................................
......................................... (37 ) (957 ) (142)
--------------------------------------------------------- ------------------- ------------------- -----------------
(75 ) (80 ) (138)
--------------------------------------------------------- ------------------- ------------------- -----------------
Net change in AFS
securities...........................................
.....................................................
............
Net unrealized gains (losses) on AFS
securities..........................................
......................................... 110 303 462
Net (gains) losses on AFS securities reclassified to
net
income..............................................
.............. (140 ) (230 ) (236)
--------------------------------------------------------- ------------------- ------------------- -----------------
(30 ) 73 226
--------------------------------------------------------- ------------------- ------------------- -----------------
Net change in cash flow
hedges...............................................
.....................................................
...
Net gains (losses) on derivatives designated as cash
flow
hedges..............................................
.......... (37 ) (9 ) (26)
Net (gains) losses on derivatives designated as cash
flow hedges reclassified to net
income............... 16 25 10
--------------------------------------------------------- ------------------- ------------------- -----------------
(21 ) 16 (16)
--------------------------------------------------------- ------------------- ------------------- -----------------
Total
OCI.....................................................
........................................................
..................................... (126 ) 9 72
--------------------------------------------------------- ------------------- ------------------- -----------------
Comprehensive
income..................................................
........................................................
................ $ 2,953 $ 2,461 $ 1,246
--------------------------------------------------------- ------------------- ------------------- -----------------
$ millions, for the year ended October 31 2011 2010 2009
--------------------------------------------------------- ------------------- ------------------- -----------------
Income tax (expense)
benefit..................................................
.........................................................
.........
Net foreign currency translation
adjustments..........................................
.........................................
Net gains (losses) on investment in self-sustaining
foreign
operations..........................................
........ $ (1 ) $ (1 ) $ 34
Net (gains) losses on hedges of investment in
self-sustaining foreign
operations................................. (2 ) (18 ) (120)
Net (gains) losses on hedges of investment in
self-sustaining foreign operations reclassified
to net
income..............................................
....................................................
......................................... 21 536 104
Net change in AFS
securities...........................................
.....................................................
............
Net unrealized gains (losses) on AFS
securities..........................................
......................................... (29 ) (100 ) (151)
Net (gains) losses on AFS securities reclassified to
net
income..............................................
.............. 30 68 111
Net change in cash flow
hedges...............................................
.....................................................
...
Net gains (losses) on derivatives designated as cash
flow
hedges..............................................
.......... 13 3 13
Net (gains) losses on derivatives designated as cash
flow hedges reclassified to net
income............... (4 ) (3 ) (9)
--------------------------------------------------------- ------------------- ------------------- -----------------
$ 28 $ 485 $ (18)
--------------------------------------------------------- ------------------- ------------------- -----------------
The accompanying notes and shaded sections in "MD&A -
Management of risk" are an integral part of these consolidated
financial statements.
Consolidated financial statements
Consolidated statement of changes in shareholders' equity
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------ --------------------- ----------------------- --------------------------
Preferred shares (Note 17)
Balance at beginning of
year.....................................
.........................................
................................ $ 3,156 $ 3,156 $ 2,631
Issue of preferred
shares...................................
.........................................
.........................................
. - - 525
Redemption of preferred
shares....................................
..........................................
............................ (400 ) - -
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ 2,756 $ 3,156 $ 3,156
------------------------------------------ --------------------- ----------------------- --------------------------
Common shares (Note 17)
Balance at beginning of
year.....................................
.........................................
................................ $ 6,804 $ 6,241 $ 6,063
Issue of common
shares...................................
.........................................
.........................................
. 575 563 178
Treasury
shares....................................
..........................................
..........................................
........... (3 ) - -
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ 7,376 $ 6,804 $ 6,241
------------------------------------------ --------------------- ----------------------- --------------------------
Contributed surplus
Balance at beginning of
year.....................................
.........................................
................................ $ 96 $ 92 $ 96
Stock option
expense..................................
.........................................
.........................................
...... 7 11 12
Stock options
exercised................................
.........................................
.........................................
..... (12 ) (4 ) (1)
Other....................................
.........................................
.........................................
............................. (1 ) (3 ) (15)
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ 90 $ 96 $ 92
------------------------------------------ --------------------- ----------------------- --------------------------
Retained earnings
Balance at beginning of year, as
previously
reported.................................
......................................... $ 6,095 $ 5,156 $ 5,483
Adjustment for change in accounting
policies.................................
.........................................
........... - - (6)(1)
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at beginning of year, as restated 6,095 5,156 5,477
Net
income...................................
.........................................
.........................................
.................... 3,079 2,452 1,174
Dividends (Note
17).......................................
..........................................
..........................................
..
Common...............................
.....................................
.....................................
............................... (1,391 ) (1,350 ) (1,328)
Preferred............................
.....................................
.....................................
.................................. (165 ) (169 ) (162)
Premium on redemption of preferred
shares....................................
..........................................
......... (12 ) - -
Other....................................
.........................................
.........................................
............................. (1 ) 6 (5)
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ 7,605 $ 6,095 $ 5,156
------------------------------------------ --------------------- ----------------------- --------------------------
AOCI, net of tax
Net foreign currency translation
adjustments
Balance at beginning of
year.....................................
.........................................
................................ $ (575 ) $ (495 ) $ (357)
Net change in foreign currency translation
adjustments..............................
........................................ (75 ) (80 ) (138)
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ (650 ) $ (575 ) $ (495)
------------------------------------------ --------------------- ----------------------- --------------------------
Net unrealized gains (losses) on AFS
securities
Balance at beginning of
year.....................................
.........................................
................................ $ 197 $ 124 $ (102)
Net change in AFS
securities...............................
.........................................
...................................... (30 ) 73 226
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of year(2)
.........................................
.........................................
................................... $ 167 $ 197 $ 124
------------------------------------------ --------------------- ----------------------- --------------------------
Net gains (losses) on cash flow hedges
Balance at beginning of
year.....................................
.........................................
................................ $ 17 $ 1 $ 17
Net change in cash flow
hedges...................................
.........................................
.............................. (21 ) 16 (16)
------------------------------------------ --------------------- ----------------------- --------------------------
Balance at end of
year.....................................
.........................................
.........................................
. $ (4 ) $ 17 $ 1
------------------------------------------ --------------------- ----------------------- --------------------------
Total AOCI, net of tax(3)
.........................................
.........................................
.................................... $ (487 ) $ (361 ) $ (370)
------------------------------------------ --------------------- ----------------------- --------------------------
Retained earnings and
AOCI.....................................
.........................................
............................... $ 7,118 $ 5,734 $ 4,786
------------------------------------------ --------------------- ----------------------- --------------------------
Shareholders' equity at end of
year.....................................
.........................................
..................... $ 17,340 $ 15,790 $ 14,275
------------------------------------------ --------------------- ----------------------- --------------------------
(1) Represents the impact of changing the measurement date for
employee future benefits. See Note 21 for additional details.
(2) Includes $42 million (2010: $53 million; 2009: $101 million)
of cumulative loss related to AFS securities measured at fair
value.
(3) A loss of $1 million (2010: $8 million gain; 2009: $3
million gain) deferred in AOCI is expected to be reclassified to
net income during the next 12 months. Remaining amounts will be
reclassified to net income over periods up to nine years (2010:
eight years; 2009: four years) thereafter.
The accompanying notes and shaded sections in "MD&A -
Management of risk" are an integral part of these consolidated
financial statements.
Consolidated financial statements
Consolidated statement of cash flows
$ millions, for the year ended October 31 2011 2010(1) 2009(1)
----------------------------------------------------- -------------------- ------------------ ---------------------
Cash flows provided by (used in) operating activities
Net
income..............................................
....................................................
....................................... $ 3,079 $ 2,452 $ 1,174
Adjustments to reconcile net income to cash flows
provided by (used in) operating
activities:............
Provision for credit
losses..........................................
................................................
..................... 841 1,046 1,649
Amortization....................................
................................................
.............................................. 356 375 403
Stock option
expense.........................................
................................................
............................ 7 11 12
Future income
taxes...........................................
................................................
........................... 533 800 38
AFS securities gains,
net.............................................
................................................
................... (407 ) (400) (275)
Net (gains) losses on disposal of land, buildings
and
equipment.......................................
............ (5 ) 1 2
Other non-cash items,
net.............................................
................................................
................. 205 (520) (297)
Changes in operating assets and
liabilities......................................
..............................................
Accrued interest
receivable..................................
............................................
........................ 96 (108) 266
Accrued interest
payable.....................................
............................................
......................... (203 ) 42 (339)
Amounts receivable on derivative
contracts...................................
........................................... (2,561 ) (292) 4,270
Amounts payable on derivative
contracts...................................
............................................
.. 2,066 (574) (6,063)
Net change in trading
securities..................................
............................................
................. (4,240 ) (13,447) 22,278(2)
Net change in FVO
securities..................................
............................................
..................... 2,366 (124) (445)
Net change in other FVO assets and
liabilities.................................
........................................ (3,604 ) 118 100
Current income
taxes.......................................
............................................
............................. 191 466 2,162
Other, net(3)
............................................
............................................
....................................... (172 ) 2,178 -
----------------------------------------------------- -------------------- ------------------ ---------------------
(1,452 ) (7,976) 24,935
----------------------------------------------------- -------------------- ------------------ ---------------------
Cash flows provided by (used in) financing activities
Deposits, net of
withdrawals.........................................
....................................................
................... 10,471 24,588 (7,569)(4)
Obligations related to securities sold
short...............................................
........................................... 2,487 3,094 (2,082)
Net securities
lent................................................
....................................................
............................ (1,456 ) (981) (800)
Net obligations related to securities sold under
repurchase
agreements..........................................
.... (12,458 ) (8,252) 230
Issue of subordinated
indebtedness........................................
....................................................
......... 1,500 1,100 -
Redemption/repurchase of subordinated
indebtedness........................................
............................... (1,099 ) (1,395) (1,419)
Issue of preferred
shares..............................................
....................................................
.................... - - 525
Redemption of preferred
shares...............................................
.....................................................
...... (1,016 ) - -
Issue of common shares,
net.................................................
....................................................
.......... 575 563 178
Net proceeds from treasury
shares...............................................
.....................................................
... (3 ) - -
Dividends
paid................................................
....................................................
................................ (1,556 ) (1,519) (1,490)
Other,
net.................................................
....................................................
....................................... 252 (2,051) 596
----------------------------------------------------- -------------------- ------------------ ---------------------
(2,303 ) 15,147 (11,831)
----------------------------------------------------- -------------------- ------------------ ---------------------
Cash flows provided by (used in) investing activities
Interest-bearing deposits with
banks...............................................
....................................................
. 5,420 (4,667) 2,206
Loans, net of
repayments..........................................
....................................................
...................... (22,586 ) (24,509) (12,496)
Net proceeds from
securitizations.....................................
....................................................
............... 13,923 14,192 20,744
Purchase of AFS
securities..........................................
....................................................
.................... (35,674 ) (55,392) (91,663)
Proceeds from sale of AFS
securities..........................................
....................................................
..... 14,796 41,144 30,205
Proceeds from maturity of AFS
securities..........................................
.................................................. 18,237 27,585 35,628
Net securities
borrowed............................................
....................................................
....................... 563 1,582 1,935
Net securities purchased under resale
agreements..........................................
.................................... 8,939 (6,173) 910
Net cash provided by dispositions (used in
acquisitions).......................................
............................... 54 (297) -
Net purchase of land, buildings and
equipment...........................................
....................................... (235 ) (220) (272)
----------------------------------------------------- -------------------- ------------------ ---------------------
3,437 (6,755) (12,803)
----------------------------------------------------- -------------------- ------------------ ---------------------
Effect of exchange rate changes on cash and
non-interest-bearing deposits with
banks...................... (17 ) (38) (47)
----------------------------------------------------- -------------------- ------------------ ---------------------
Net (decrease) increase in cash and
non-interest-bearing deposits with banks during
year......... (335 ) 378 254
Cash and non-interest-bearing deposits with banks at
beginning of
year............................................. 2,190 1,812 1,558
----------------------------------------------------- -------------------- ------------------ ---------------------
Cash and non-interest-bearing deposits with banks at
end of year(5)
.............................................. $ 1,855 $ 2,190(6) $ 1,812
----------------------------------------------------- -------------------- ------------------ ---------------------
Cash interest
paid................................................
....................................................
........................... $ 3,952 $ 2,849 $ 4,242
Cash income taxes paid
(recovered).........................................
....................................................
....... $ 245 $ 267 $ (1,775)
----------------------------------------------------- -------------------- ------------------ ---------------------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
(2) Includes securities initially bought as trading securities
and subsequently reclassified to loans and AFS securities as noted
in Note 4.
(3) Includes cash used to invest in our equity-accounted
investments including $831 million relating to American Century
Investments in 2011 and $130 million relating to The Bank of N.T.
Butterfield & Son Limited in 2010.
(4) Includes $1.6 billion of Notes purchased by CIBC Capital Trust (Note 18).
(5) Includes restricted cash balance of $257 million (2010: $246 million; 2009: $268 million).
(6) Includes cash reserved for payment on redemption of
non-cumulative preferred shares (Note 17).
The accompanying notes and shaded sections in "MD&A -
Management of risk" are an integral part of these consolidated
financial statements.
Consolidated financial statements
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies
====== ==========================================
The consolidated financial statements of Canadian Imperial Bank
of Commerce (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
Canadian generally accepted accounting principles (GAAP). The
significant accounting policies used in the preparation of these
consolidated financial statements, including the accounting
requirements of OSFI, conform in all material respects to Canadian
GAAP. Unless otherwise indicated, all amounts are expressed in
Canadian dollars.
A reconciliation of the impact on assets, liabilities,
shareholders' equity, net income, and comprehensive income arising
from differences between Canadian and U.S. GAAP is provided in Note
31.
The following paragraphs describe our significant accounting
policies. New accounting policies which have been adopted are
described in the "Accounting changes" section of this note.
Basis of consolidation
The consolidated financial statements include the assets,
liabilities, results of operations, and cash flows of CIBC, its
controlled subsidiaries and certain variable interest entities
(VIEs), for which we are considered to be the primary beneficiary,
after the elimination of intercompany transactions and balances. A
primary beneficiary is the enterprise that absorbs a majority of a
VIE's expected losses or receives a majority of a VIE's expected
residual returns, or both. Non-controlling interests in
subsidiaries and consolidated VIEs are included as a separate line
item on the consolidated balance sheet and the consolidated
statement of operations.
An entity is a VIE if it does not have sufficient equity at risk
to permit it to finance its activities without additional
subordinated financial support, or in which equity investors do not
have the characteristics of a controlling financial interest. The
VIE guidelines exempt certain entities from their scope, including
qualified special purpose entities (QSPE).
Investments in companies over which we have significant
influence are accounted for by the equity method, and are included
in Investments in equity-accounted associates. Our share of income
from these investments is included in Non-interest income - Other.
Investments over which we exercise joint control are accounted for
using the proportionate consolidation method, with CIBC's pro-rata
share of assets, liabilities, income, and expenses being
consolidated.
Use of estimates and assumptions
The preparation of the consolidated financial statements in
accordance with Canadian GAAP requires management to make estimates
and assumptions that affect the recognized and measured amounts of
assets, liabilities, net income, comprehensive income, and related
disclosures. Estimates and assumptions are made in the areas of
determining the fair value of financial instruments, accounting for
allowance for credit losses, securitizations and VIEs, asset
impairment, income taxes, contingent liabilities, and employee
future benefits. Actual results could differ from these estimates
and assumptions.
Foreign currency translation
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currencies of
operations at prevailing exchange rates at the date of the
consolidated balance sheet. Non-monetary assets and liabilities are
translated into functional currencies at historical rates. Revenue
and expenses are translated using average monthly exchange rates.
Realized and unrealized gains and losses arising from translation
into functional currencies are included in the consolidated
statement of operations.
Assets and liabilities of self-sustaining foreign operations
with a functional currency other than the Canadian dollar are
translated into Canadian dollars at the exchange rates prevailing
at the balance sheet dates, while revenue and expenses of these
foreign operations are translated into Canadian dollars at the
average monthly exchange rates. Exchange gains and losses arising
from the translation of these foreign operations and from the
results of hedging the net investment in these foreign operations,
net of applicable taxes, are reported in Net foreign currency
translation adjustments, which is included in OCI.
A future income tax asset or liability is not recognized in
respect of a translation gain or loss arising from an investment in
a self-sustaining foreign subsidiary, when the gain or loss is not
expected to be realized for tax purposes in the foreseeable
future.
Consolidated financial statements
An appropriate portion of the accumulated exchange gains and
losses and any applicable taxes in AOCI are recognized in the
consolidated statement of operations when there is a reduction in
the net investment in a self-sustaining foreign operation.
Classification and measurement of financial assets and
liabilities
All financial assets must be classified at initial recognition
as trading, available for sale (AFS), designated at fair value
(FVO), held-to-maturity (HTM), or loans and receivables based on
the purpose for which the instrument was acquired and its
characteristics. All financial assets and derivatives are required
to be measured at fair value with the exception of loans and
receivables, debt securities classified as HTM, and AFS equities
that do not have quoted market values in an active market.
Reclassification of non-derivative financial assets from trading to
AFS or HTM is allowed under rare circumstances. Such
reclassifications are only permitted when there has been a change
in management intent with respect to a particular non-derivative
financial asset. Financial liabilities other than derivatives,
obligations related to securities sold short, and FVO liabilities
are carried at amortized cost. Derivatives, obligations related to
securities sold short and FVO liabilities are carried at fair
value. Interest expense is recognized on an accrual basis using the
effective interest method.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are generally recorded at amortized
cost, net of an allowance for credit losses. Interest income is
recognized on an accrual basis using the effective interest method.
See "Impairment of financial assets" section of this note for our
accounting for impaired loans.
Trading financial instruments
Trading financial instruments are assets and liabilities held
for trading activities or that are part of a managed portfolio with
a pattern of short-term profit taking. These are measured at fair
value as at the consolidated balance sheet date. Loans that we
intend to sell immediately or in the near term are classified as
trading financial instruments.
Gains and losses realized on disposition and unrealized gains
and losses from changes in fair value are reported in Non-interest
income as Trading income (loss) except to the extent that they are
used as an economic hedge of a financial instrument designated
under the FVO in which case the gains or losses are recorded in FVO
gains (losses). Dividends and interest income earned and interest
expense incurred are included in Interest income and Interest
expense, respectively.
AFS securities
AFS financial assets are those non-derivative financial assets
that are not classified as trading, FVO or loans and
receivables.
AFS securities are carried at fair value (other than equities
that do not have quoted market values in an active market) with
unrealized gains and losses being reported in OCI until sale, or if
an other-than-temporary impairment (OTTI) is recognized, at which
point cumulative unrealized gains or losses are transferred from
AOCI to the consolidated statement of operations. Equities that do
not have quoted market values in an active market are carried at
cost. Realized gains and losses on sale, determined on an average
cost basis, and write-downs to reflect OTTI are included in AFS
securities gains (losses), net, except for retained interests on
interest-only strips arising from our securitization activities,
which are included in Income from securitized assets. Dividends and
interest income from AFS securities, other than interest-only
strips, are included in Interest income.
FVO financial instruments
FVO financial instruments are those that we designate on initial
recognition as financial instruments we will measure at fair value
on the consolidated balance sheet. In addition to the requirement
that reliable fair values are available, there are regulatory
restrictions imposed by OSFI on the use of this designation. The
criteria for applying the fair value option are met when (i) the
application of the fair value option eliminates or significantly
reduces the measurement inconsistency that would arise from
measuring assets or liabilities on a different basis, or (ii) the
financial instruments are part of a portfolio which is managed on a
fair value basis, in accordance with our investment strategy and is
reported internally on that basis.
Gains and losses realized on dispositions, unrealized gains and
losses from changes in fair value of FVO financial instruments,
gains and losses arising from changes in fair value of derivatives
and obligations related to securities sold short that are managed
in conjunction with FVO financial instruments, are included in FVO
income (loss). Dividends and interest earned and interest expense
incurred on FVO assets and liabilities are included in Interest
income and Interest expense, respectively.
Consolidated financial statements
Transaction costs
Transaction costs relating to trading and FVO financial
instruments are expensed as incurred. Transaction costs for all
other financial instruments are generally capitalized. For debt
instruments, transaction costs are then amortized over the expected
life of the instrument using the effective interest method. For
equity instruments, transaction costs are added to the carrying
value.
Date of recognition of securities
We account for all securities transactions using settlement date
accounting for the consolidated balance sheet.
Effective interest rate
Interest income and expense for all financial instruments
measured at amortized cost and for AFS debt securities is
recognized in Interest income and Interest expense using the
effective interest method.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the expected
life of the financial instrument to the net carrying amount of the
financial asset or liability upon initial recognition.
Fees related to loan origination, including commitment,
restructuring, and renegotiation fees, are considered an integral
part of the yield earned on the loan and are accounted for using
the effective interest method. Fees received for commitments that
are not expected to result in a loan are included in Non-interest
income over the commitment period. Loan syndication fees are
included in Non-interest income on completion of the syndication
arrangement, provided that the yield on the portion of the loan we
retain is at least equal to the average yield earned by the other
lenders involved in the financing; otherwise, an appropriate
portion of the fee is deferred as unearned income and amortized to
interest income using the effective interest method.
Securities purchased under resale agreements and obligations
related to securities sold under repurchase agreements
Securities purchased under resale agreements are treated as
collateralized lending as they represent the purchase of securities
effected with a simultaneous agreement to sell them back at a
future date, which is generally in the near term. Interest income
is accrued and separately disclosed in the consolidated statement
of operations. Similarly, securities sold under repurchase
agreements are treated as collateralized borrowing with interest
expense accrued and reflected in Interest expense - Other
liabilities.
Cash collateral on securities borrowed and securities lent
The right to receive back cash collateral paid and the
obligation to return cash collateral received on borrowing and
lending of securities is recorded as cash collateral on securities
borrowed and securities lent, respectively. Interest on cash
collateral paid and received is recorded in Interest income -
Securities borrowed or purchased under resale agreements and
Interest expense - Other liabilities, respectively.
Impairment of financial assets
Impaired loans and allowance for credit losses
We classify a loan as impaired when, in our opinion, there is
objective evidence of impairment as a result of one or more events
that have occurred with a negative impact on the estimated future
cash flows of the loan. Evidence of impairment includes indications
that the borrower is experiencing significant financial
difficulties or a default or delinquency has occurred. Generally,
loans on which repayment of principal or payment of interest is
contractually 90 days in arrears are automatically considered
impaired unless they are fully secured and in the process of
collection. Notwithstanding management's assessment of
collectibility, such loans are considered impaired if payments are
180 days in arrears. Exceptions are as follows:
-- Credit card loans are not classified as impaired and are
fully written-off when payments are contractually 180 days in
arrears or upon customer bankruptcy.
-- Loans guaranteed or insured by the Canadian government, the
provinces, or a Canadian government agency are classified as
impaired only when payments are contractually 365 days in
arrears.
When a loan is classified as impaired, accrual of interest
ceases. All uncollected interest is recorded as part of the loan's
carrying value for the purpose of determining the loan's estimated
realizable value and establishing allowances for credit losses. A
loan is returned to performing status when all past due amounts,
including interest, have been recovered, and it is determined that
the principal and interest are fully collectible in accordance with
the original contractual terms of the loan. No portion of cash
received on any impaired loan is recorded as income until the loan
is returned to performing status.
For credit card loans, interest is accrued only to the extent
that there is an expectation of receipt.
An impaired loan is carried at its estimated realizable value
determined by discounting the expected future cash flows at the
interest rate inherent in the loan, or its net recoverable
value.
Consolidated financial statements
We establish and maintain an allowance for credit losses that we
consider the best estimate of probable credit-related losses
existing in our portfolio of on- and off-balance sheet financial
instruments, having due regard to current conditions. The allowance
for credit losses consists of specific and general components. The
allowance on undrawn credit facilities including letters of credit
is reported in Other liabilities.
Loans are written off, in whole or in part, against the related
allowance for credit losses upon settlement (realization) of
collateral or in advance of settlement, when the determination of
recoverable value is completed and there is no realistic prospect
of future recovery above the recoverable value. In subsequent
periods, any recoveries of amounts previously written off are
credited to provision for credit losses.
Specific allowance
We conduct ongoing credit assessments of the business and
government loan portfolios on an account-by-account basis and
establish specific allowances when impaired loans are identified.
Residential mortgages, personal loans, and certain small business
loan portfolios consist of large numbers of homogeneous balances of
relatively small amounts, for which specific allowances are
established by reference to historical ratios of write-offs to
balances in arrears and to balances outstanding. The allowance is
provided for on- and off-balance sheet credit exposures that are
not carried at fair value. Credit card loans are not classified as
impaired and a specific allowance is not established. The specific
allowance previously established for credit card loans was
retroactively reclassified to the general allowance during
2009.
General allowance
A general allowance is provided for losses which we estimate are
inherent in the portfolio at the balance sheet date, but not yet
specifically identified and, therefore, not yet captured in the
determination of specific allowances. The allowance is provided for
on- and off-balance sheet credit exposures that are not carried at
fair value.
The general allowance is established with reference to expected
loss rates associated with different credit portfolios at different
risk levels and the estimated time period for losses that are
present but yet to be specifically identified, adjusting for our
view of the current and ongoing economic and portfolio trends. The
parameters that affect the general allowance calculation are
updated regularly, based on our experience and that of the market
in general.
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, as well as estimates of loss given
default
(LGD) associated with each risk rating. The PD factors reflect
our historical experience over an economic cycle, and are
supplemented by data derived from defaults in the public debt
markets. LGD estimates are based on our experience over the past
years. For consumer loan portfolios, expected losses are based on
our historical loss rates and aggregate balances, adjusted for
recent loss trends and performance within the retail
portfolios.
Impairment of AFS securities
We assess whether an AFS investment is impaired at each
consolidated balance sheet date.
AFS debt securities
An AFS debt security is identified as impaired when there is
objective observable evidence that comes to the attention of the
holder about the ability to collect the contractual principal or
interest.
We assess OTTI for investment grade perpetual preferred shares
using this debt security model rather than an equity model.
Impairment is recognized through income to reduce the carrying
value to its current fair value. Impairment losses previously
recorded through income are to be reversed through income if the
fair value subsequently increases and the increase can be
objectively related to an event occurring after the impairment loss
was recognized.
AFS equity instruments
Objective evidence of impairment for an investment in an AFS
equity instrument exists if there has been a significant or
prolonged decline in the fair value of the investment below its
cost, or if there is significant adverse change in the
technological, market, economic, or legal environment in which the
issuer operates, or if the issuer is experiencing significant
financial difficulty. In assessing OTTI, we also consider our
intent to hold the investment for a period of time sufficient to
allow for any anticipated recovery.
The accounting for an identified impairment is the same as
described for AFS debt securities above, with the exception that
impairment losses previously recognized in income cannot be
subsequently reversed.
Derivatives held for trading purposes
Our derivative trading activities are primarily driven by client
trading activities. We may also take proprietary trading positions
in the interest rate, foreign exchange, debt, equity and commodity
markets, with the objective of earning income.
Consolidated financial statements
All financial and commodity derivatives held for trading
purposes are stated at fair value at the consolidated balance sheet
date.
Realized and unrealized trading gains and losses are included in
Trading income (loss). Derivatives with positive fair value are
reported as assets, while derivatives with negative fair value are
reported as liabilities, in both cases as Derivative
instruments.
Derivatives held for asset/liability management (ALM)
purposes
We use derivative instruments for ALM purposes to manage
financial risks, such as movements in interest and foreign exchange
rates. Derivatives are carried at fair value at the consolidated
balance sheet date, and are reported as assets where they have a
positive fair value, and as liabilities where they have a negative
fair value, in both cases as Derivative instruments.
Derivatives that qualify for hedge accounting
We apply hedge accounting for derivatives held for ALM purposes
that meet the criteria specified in the Canadian Institute of
Chartered Accountants (CICA) handbook section 3865 "Hedges." There
are three types of hedges: fair value, cash flow and hedges of net
investments in self-sustaining foreign operations (NIFO). When
hedge accounting is not applied, the change in the fair value of
the derivative is recognized in income. This includes derivatives
used for economic hedging purposes, such as swap contracts relating
to mortgage securitization that do not meet the requirements for
hedge accounting.
In order for derivatives to qualify for hedge accounting, the
hedge relationship must be designated and formally documented at
its inception in accordance with the CICA handbook section 3865.
The particular risk management objective and strategy, the specific
asset, liability or cash flow being hedged, as well as how hedge
effectiveness is assessed, is documented. Hedge effectiveness
requires a high correlation of changes in fair values or cash flows
between the hedged and hedging items.
We assess the effectiveness of derivatives in hedging
relationships, both at inception and on an ongoing basis.
Ineffectiveness results to the extent that the changes in the fair
value of the hedging derivative differ from changes in the fair
value of the hedged risk in the hedged item; or the cumulative
change in the fair value of the hedging derivative exceeds the
cumulative change in the fair value of expected future cash flows
of the hedged item. The amount of ineffectiveness of hedging
instruments is recorded immediately in income.
Derivatives that do not qualify for hedge accounting are carried
at fair value through income. See "Derivatives that do not qualify
for hedge accounting" below.
Fair value hedges
We designate fair value hedges primarily as part of interest
rate risk management strategies that use derivatives to hedge
changes in the fair value of financial instruments with fixed
interest rates. Changes in fair value attributed to the hedged
interest rate risk are accounted for as basis adjustments to the
hedged financial instruments and are recognized in Net interest
income. Changes in fair value from the hedging derivatives are also
recognized in Net interest income. Accordingly, any hedge
ineffectiveness, representing the difference between changes in
fair value of the hedging derivative and changes in the basis
adjustment to the hedged item, is also recognized in Net interest
income.
Similarly, for hedges of foreign exchange risk, changes in the
fair value from the hedging derivatives and non-derivatives are
recognized in Foreign exchange other than trading (FXOTT). Changes
in the fair value of the hedged item from the hedged foreign
exchange risk are accounted for as basis adjustments and are also
recognized in FXOTT. Any difference between the two represents
hedge ineffectiveness.
If the hedging instrument expires or is sold, terminated or
exercised, or where the hedge no longer meets the criteria for
hedge accounting, the hedge relationship is terminated and the
basis adjustment applied to the hedged item is then amortized over
the remaining term of the hedged item. If the hedged item is
derecognized, the unamortized basis adjustment is recognized
immediately in income.
Cash flow hedges
We designate cash flow hedges primarily as part of interest rate
risk management strategies that use derivatives and other financial
instruments to mitigate our risk from variable cash flows by
effectively converting certain variable-rate financial instruments
to fixed-rate financial instruments, for hedging forecasted foreign
currency denominated cash flows and hedging certain share-based
compensation awards.
The effective portion of the change in fair value of the
derivative instrument is offset through OCI until the variability
in cash flows being hedged is recognized in income in future
accounting periods, at which time an appropriate portion of the
amount that was in AOCI is reclassified into income. The
ineffective portion of the change in fair value of the hedging
derivative is recognized in Net interest income, FXOTT, or
Non-interest expenses immediately as it arises. If the hedging
instrument expires or is sold, terminated or exercised, or where
the hedge no longer meets the criteria for hedge
Consolidated financial statements
accounting, the hedge relationship is terminated and any
remaining amount in AOCI remains therein until it is recognized in
income when the variability in cash flows hedged or the hedged
forecast transaction is ultimately recognized in income. When the
forecasted transaction is no longer expected to occur, the related
cumulative gain or loss in AOCI is immediately recognized in
income.
Hedges of net investments in self-sustaining foreign
operations
We designate NIFO hedges to mitigate the foreign exchange risk
on our net investment in self-sustaining operations.
These hedges are accounted for in a similar manner to cash flow
hedges. The effective portion of the changes in fair value of the
hedging instruments relating to the changes in foreign currency
spot rates is included in OCI (after taxes) until a reduction in
the net investment occurs, at which time an appropriate portion of
the accumulated foreign exchange gains and losses and any
applicable taxes in AOCI are recognized in FXOTT and in income
taxes, respectively. Changes in the fair value of the hedging
derivatives attributable to the forward points are excluded from
the assessment of hedge effectiveness and are included immediately
in FXOTT along with any ineffectiveness.
Derivatives that do not qualify for hedge accounting
The change in fair value of the derivatives not designated as
accounting hedges but used to economically hedge FVO assets or
liabilities is included in FVO income (loss). The change in fair
value of other derivatives not designated as accounting hedges but
used for other economic hedging purposes is included in FXOTT,
Non-interest income - Other, or compensation expense, as
appropriate.
Embedded derivatives
All derivatives embedded in other financial instruments are
valued as separate derivatives when their economic characteristics
and risks are not clearly and closely related to those of the host
contract; the terms of the embedded derivative are the same as
those of a freestanding derivative; and the combined contract is
not held for trading or FVO. These embedded derivatives (which are
classified together with the host instrument on the consolidated
balance sheet) are measured at fair value with changes therein
recognized in Non-interest income - Other. The host instrument
asset and liability are accreted to their maturity value through
interest expense and interest income, respectively, using the
effective interest method.
Gains at inception on derivatives embedded in financial
instruments bifurcated for accounting purposes are not recognized
at inception; instead they are recognized over the life of the
instrument.
Where an embedded derivative is separable from the host contract
but the fair value, as at the acquisition or reporting date, cannot
be reliably measured separately or is otherwise not bifurcated, the
entire combined contract is carried at fair value.
Securitizations
Securitization of our own assets provides us with an additional
source of liquidity. It may also reduce our risk exposure and
provide regulatory capital relief. Our securitizations are
accounted for as sales where we surrender control of the
transferred assets and receive consideration other than beneficial
interests in the transferred assets. When such sales occur, we may
retain interest-only strips, one or more subordinated tranches and,
in some cases, a cash reserve account, all of which are considered
retained interests in the securitized assets.
Gains or losses on securitizations accounted for as sales are
recognized in Income from securitized assets. The amount of the
gain or loss recognized depends on the previous carrying values of
the receivables involved in the transfer, allocated between the
assets sold and retained interests based on their relative fair
values at the date of transfer. As market prices are not available
for interest-only strips, we estimate fair value based on the
present value of expected future cash flows. This requires us to
estimate credit losses, rate of prepayments, discount rates and
other factors that influence the value of interest-only strips.
Retained interests in securitized assets are classified as
trading securities, AFS securities or loans, as appropriate, and
are reviewed for impairment on a quarterly basis. Assets
securitized and not sold are generally reported as FVO securities
on the consolidated balance sheet and are stated at fair value.
Income from securitized assets comprises income from retained
interests and servicing income, and is reported separately in the
consolidated statement of operations.
We also recognize a servicing liability where we have retained
the servicing obligation but do not receive adequate compensation
for that servicing. The servicing liability is amortized over the
life of the serviced assets and reported in Other liabilities.
Consolidated financial statements
Mortgage commitments
Mortgage interest rate commitments are extended to our retail
clients at no charge in contemplation of borrowing to finance the
purchase of homes under mortgages to be funded by CIBC in the
future. These commitments are usually for periods of up to 90 days
and generally entitle the borrower to receive funding at the lower
of the interest rate at the time of the commitment and the rate
applicable at funding date. We use financial instruments, such as
interest rate derivatives, to economically hedge our exposure to an
increase in interest rates. We carry our commitments to the retail
clients (based on an estimate of the commitments expected to be
exercised) and the associated economic hedges at fair value on the
consolidated balance sheet. Changes in fair value are recorded in
Non-interest income - Other. In addition, as the commitments are an
integral part of the mortgage, their initial fair value is
recognized in interest income on an effective yield basis over the
life of the resulting mortgages.
The fair value of the mortgage commitment upon funding, if any,
is released into income to offset the difference between the
mortgage amount advanced and its fair value, which is also
recognized in income.
Guarantees
Guarantees include contracts that contingently require the
guarantor to make payments to a guaranteed party based on (i)
changes in an underlying economic characteristic that is related to
an asset, liability, or an equity security of the guaranteed party;
(ii) failure of another party to perform under an obligating
agreement; or (iii) failure of a third party to pay its
indebtedness when due.
Guarantees are initially recognized at fair value, being the
premium received, on the date the guarantee was given and then
recognized into income over the life of the guarantee. No
subsequent remeasurement of fair value is recorded unless the
guarantee also qualifies as a derivative, in which case it is
remeasured at fair value through income over its life and included
in Derivative instruments in assets or liabilities, as
appropriate.
Accumulated other comprehensive income (AOCI)
AOCI is included on the consolidated balance sheet as a separate
component (net of tax) of shareholders' equity. It includes net
unrealized gains and losses on AFS securities, the effective
portion of gains and losses on derivative instruments designated
within effective cash flow hedges, and unrealized foreign currency
translation gains and losses on self-sustaining foreign operations
net of gains or losses on related hedges.
Liabilities and equity
Preferred shares that are convertible into a variable number of
common shares at the option of the holder
are classified as liabilities on the consolidated balance sheet.
Dividend payments and premiums on redemptions arising from such
preferred shares are reported as Interest expense - Preferred share
liabilities.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are presented net
when we have a legally enforceable right to set off the recognized
amounts and intend to settle on a net basis or to realize the asset
and settle the liability simultaneously.
Acceptances and customers' liability under acceptances
Acceptances constitute a liability of CIBC on negotiable
instruments issued to third parties by our customers. We earn a fee
for guaranteeing and then making the payment to the third parties.
The amounts owed to us by our customers in respect of these
guaranteed amounts are reflected in assets as Customers' liability
under acceptances.
Land, buildings and equipment
Land is reported at cost less any accumulated impairment losses.
Buildings, furniture, equipment and leasehold improvements are
reported at cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation commences when the assets are available for use and
is recognized on a straight-line basis to depreciate the cost of
these assets over their estimated useful lives. The estimated
useful lives are as follows:
* Buildings 40 years
3 to 7
* Computer equipment years
* Office furniture and other equipment 4 to 15
years
* Leasehold improvements Over estimated
useful
life
Gains and losses on disposal are reported in Non-interest income
- Other.
Goodwill and software and other intangible assets
We use the purchase method of accounting for all business
combinations. Identifiable intangible assets are recognized
separately from goodwill and included in Software and other
intangible assets. Goodwill represents the excess of the purchase
price over the fair value of the net tangible and other intangible
assets acquired in business combinations. Goodwill is allocated to
the reporting unit that is expected to benefit from the synergies
of the business combination. Reporting units comprise business
operations with similar economic
Consolidated financial statements
characteristics and strategies. Goodwill and other intangible
assets with an indefinite useful life are not amortized, but are
subjected to an impairment review at least annually and, if
impaired, are written down to fair value.
The impairment test for goodwill is based on a comparison of the
carrying amount of the reporting unit, including the allocated
goodwill, with its fair value. When the carrying amount of a
reporting unit exceeds its fair value, any impairment of goodwill
is measured by comparing the carrying value of the goodwill with
its implied fair value. The implied fair value of goodwill is the
excess of the fair value of the reporting unit over the fair value
of its net tangible and other intangible assets.
The impairment test for other intangible assets with an
indefinite life is based on a comparison of their carrying amount
with their fair value.
Intangible assets with a definite useful life are amortized over
estimated useful lives, generally not exceeding 20 years, and are
also subject to an assessment for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. Software is amortized on a
straight-line basis over 2 to 10 years.
Income taxes
We use the asset and liability method to provide for future
income taxes. The asset and liability method requires that income
taxes reflect the expected future tax effect of temporary
differences between the carrying amounts of assets or liabilities
and their tax bases. Future income tax assets and liabilities are
determined for each temporary difference and for unused losses for
tax purposes, as applicable, at rates expected to be in effect when
the asset is realized or the liability is settled. A valuation
allowance (VA) is established, if necessary, to reduce the future
income tax asset to an amount that is more likely than not to be
realized.
Employee future benefits
We are the sponsor of a number of employee future benefit plans.
These plans include both defined benefit and defined contribution
pension plans, and various other post-retirement and
post-employment benefit plans including post-retirement health and
dental benefits.
Defined benefit plans
We accrue our obligations for defined benefit plans and related
costs, net of plan assets. The cost of pensions and other
post-employment (including post-retirement) benefits earned by
employees is actuarially determined separately for each plan using
the projected benefit method prorated on service and our best
estimate of expected return on plan assets, salary escalation,
retirement ages of employees, mortality and expected health-care
costs. The discount rate used to value the
accrued benefit obligation is based on the yield on a portfolio
of high-quality corporate bonds denominated in the same currency in
which the benefits are expected to be paid and with terms to
maturity that, on average, match the terms of the plan accrued
benefit obligations.
The expected return on plan assets is based on our best estimate
of the long-term expected rate of return on plan assets and a
market-related value of plan assets. The market-related value of
plan assets is determined using a methodology where the difference
between the actual and expected market value of plan assets is
recognized over three years.
Past service costs from plan amendments are amortized on a
straight-line basis over the expected average remaining service
period over which employees become fully eligible for benefits,
since it is expected that we will realize economic benefit from
these plan changes during this period.
Net actuarial gains and losses that arise are recognized based
on a corridor approach. The corridor is 10% of the greater of the
accrued benefit obligation or the market-related value of plan
assets, as determined at the beginning of the annual reporting
period. Actuarial gains and losses that exceed the corridor are
amortized on a straight-line basis over the expected average
remaining service life of covered employees. Experience will often
deviate from the actuarial assumptions, resulting in actuarial
gains or losses.
The expected average remaining service life of employees covered
by our defined benefit pension plans is 10 years (2010: 10 years).
The expected average remaining service life of employees covered by
our other post-employment benefit plans is 12 years (2010: 12
years).
The net accrued benefit asset or liability represents the
cumulative difference between the expense and funding contributions
and is included in Other assets and Other liabilities,
respectively.
A valuation allowance is recognized when the accrued benefit
asset for any plan is greater than the future economic benefit
expected to be realized from sponsoring the plan. A change in the
valuation allowance is recognized in the consolidated statement of
operations for the period in which the change occurs.
When the restructuring of a defined benefit plan gives rise to
both a curtailment and a settlement of obligations, the curtailment
is accounted for prior to the settlement.
Consolidated financial statements
Defined contribution plans
Costs for defined contribution plans are recognized during the
year in which the service is provided.
Stock-based compensation
We provide compensation to directors and certain employees in
the form of stock options and/or share-based awards.
Compensation expense for awards under the Restricted Share Award
(RSA) plan in respect of services already rendered is recognized in
the year for which the grant is made. Compensation expense for
similar awards in respect of future services is recognized over the
applicable vesting period prior to the employee's retirement
eligible date. Settlement of grants made under these programs may
be either in common shares or equivalent cash value in accordance
with the terms of the grant. Forfeitures are recognized as they
arise.
Under our RSA plan, where grants are settled in common shares,
we hold an equivalent number of common shares in a consolidated
compensation trust. Common shares held in the trust and the
obligations to employees are offset in Treasury shares. Any market
gains or losses on the sale of shares arising from the forfeiture
of unvested grants are recorded in Contributed surplus.
Under our RSA plan, where grants are settled in the cash
equivalent of common shares, changes in the obligation which arise
from fluctuations in the market price of common shares are recorded
in the consolidated statement of operations as a compensation
expense in proportion to the percentage of the award recognized. In
the event of forfeiture of unvested grants, the amount previously
recognized as compensation expense is reversed.
Compensation expense in respect of awards under the Performance
Share Unit (PSU) plan in respect of services already rendered is
recognized in the year for which the grant is made. In respect of
awards for future services, compensation expense is recognized over
the applicable vesting period prior to the employee's retirement
eligible date. The amount recognized is based on management's best
estimate of the number of PSUs expected to vest. Changes in the
obligation which arise from fluctuations in the market price of
common shares are recorded in the consolidated statement of
operations as a compensation expense in proportion to the
percentage of the award recognized. In the event of forfeiture of
unvested grants, the amount previously recognized as compensation
expense is reversed.
The impact due to changes in the common share price in respect
of cash-settled share-based compensation
under the RSA and PSU plans is hedged through the use of
derivatives. The gains and losses on these derivatives are
recognized in compensation expense, within the consolidated
statement of
operations, either immediately or over the applicable vesting
period in proportion to the percentage of the award recognized.
Our Book Value Unit (BVU) plan provides compensation related to
the book value of CIBC on a per common share basis. Compensation
expense in respect of this plan is recognized over the applicable
vesting period prior to the employee's retirement eligible date.
The amount recognized is based on the number of BVUs expected to
vest, adjusted for new issues of, repurchase of, or dividends paid
on, common shares. Changes in the obligation which arise from
fluctuations in the book value of common shares are recorded in the
consolidated statement of operations as a compensation expense in
proportion to the percentage of the award recognized. In the event
of forfeiture of unvested grants, the amount previously recognized
as compensation expense is reversed.
We use the fair value-based method to account for stock options
granted to employees. The grant date value is recognized over the
applicable vesting period prior to the employee's retirement
eligible date, as an increase to compensation expense and
contributed surplus. When the options are exercised, the proceeds
we receive, together with the amount in contributed surplus, are
credited to common share capital. No expense was recognized for
stock options granted prior to November 1, 2001. When these options
are exercised, only the proceeds received are credited to common
share capital.
Up to 50% of options relating to the Employee Stock Option Plan
(ESOP) granted prior to 2000 were eligible to be exercised as stock
appreciation rights (SARs). SARs obligations, which arose from
changes in the market price of common shares, were recorded in the
consolidated statement of operations as compensation expense. If
SARs were exercised as purchases of common shares, the exercise
price, together with the relevant amount in other liabilities,
representing the value of common shares at the market price, was
credited to common share capital.
Under our Deferred Share Unit (DSU) plan, where grants are
settled in the cash equivalent of common shares, changes in the
obligation which arise from fluctuations in the market price of
common shares are recorded in the consolidated statement of
operations as a compensation expense in proportion to the
percentage of the award recognized. In the event of forfeiture of
unvested grants, the amount previously recognized as compensation
expense is reversed.
Consolidated financial statements
Amounts paid under the directors' plans are charged to
compensation expense. Obligations relating to DSUs under the
directors' plans change with the common share price, and the change
is recognized in compensation expense.
Our contributions under the Employee Share Purchase Plan (ESPP)
are expensed as incurred.
Fee and commission income
Underwriting and advisory fees and commissions on securities
transactions are recognized as revenue when the related services
are completed. Deposit and payment fees and insurance fees are
recognized over the period that the related services are
provided.
Card fees primarily include interchange income, late fees, cash
advance fees, and annual fees. Card fees are recognized as billed,
except for annual fees, which are recognized over a 12-month
period.
Investment management and custodial fees are primarily
investment, estate and trust management fees and are recorded on an
accrual basis. Prepaid fees are deferred and amortized over the
contract term.
Mutual fund fees are recorded on an accrual basis.
Earnings per share (EPS)
Basic EPS is determined as net income minus dividends and
premiums on preferred shares classified as equity, divided by the
weighted-average number of common shares outstanding for the
period.
Diluted EPS is determined as net income minus dividends and
premiums on preferred shares classified as equity, divided by the
weighted-average number of diluted common shares outstanding for
the period. Diluted common shares reflect the potential dilutive
effect of exercising the stock options based on the treasury stock
method. The treasury stock method determines the number of
incremental common shares by assuming that the outstanding stock
options, whose exercise price is less than the average market price
of common shares during the period, are exercised and then reduced
by the number of common shares assumed to be repurchased with the
exercise proceeds from the assumed exercise of the options. When
there is a loss, diluted EPS equals basic EPS.
Accounting changes
2011 and 2010
There were no changes to significant accounting policies during
2011 and 2010.
2009
Financial instruments - recognition and measurement
On July 29, 2009, the CICA issued amendments to handbook section
3855 "Financial Instruments - Recognition and Measurement," with
effect from November 1, 2008. The revised standard defined loans
and receivables as non-derivative financial assets with fixed or
determinable payments that were not quoted in an active market. As
a result of this change in definition, the following transitional
provisions were applied effective November 1, 2008:
-- HTM debt instruments that met the revised definition of loans
and receivables were required to be reclassified from HTM to loans
and receivables;
-- Loans and receivables that an entity intended to sell
immediately or in the near term were required to be classified as
trading financial instruments; and
-- AFS debt instruments were eligible for reclassification to
loans and receivables if they met the revised definition of loans
and receivables. AFS debt instruments were eligible for
reclassification to HTM if they had fixed and determinable payments
and were quoted in an active market and the entity had the positive
intention and ability to hold to maturity. The reclassification
from AFS to loans and receivables or to HTM was optional and could
be made on an instrument by instrument basis. We did not elect to
reclassify any AFS securities.
Following adoption of the revised standard:
-- Debt securities that meet the definition of loans and
receivables at initial recognition may be classified as loans and
receivables or designated as AFS or held for trading, but are
precluded from being classified as HTM;
-- Impairment charges through income for HTM financial
instruments are to be recognized for credit losses only, rather
than on the basis of a full write-down to fair value; and
-- Previously recognized OTTI losses on AFS debt securities are
to be reversed through income if the increase in their fair value
is related to improvement in credit that occurred subsequent to the
recognition of the OTTI.
The adoption of the revised standard resulted in financial
instruments previously classified as HTM being reclassified to
loans and receivables with no impact to retained earnings or AOCI.
Refer to Note 4 for additional details.
Consolidated financial statements
Financial instruments - disclosures
We adopted the amended CICA handbook section 3862 "Financial
Instruments - Disclosures," which expanded financial instrument
fair value measurement and liquidity risk management disclosures.
See Notes 2, 14 and 30 for further details.
Intangible assets
Effective November 1, 2008, we adopted the CICA handbook section
3064, "Goodwill and Intangible Assets," which replaced CICA
handbook sections 3062, "Goodwill and Other Intangible Assets," and
3450, "Research and Development Costs." The new section established
standards for recognition, measurement, presentation, and
disclosure of goodwill and intangible assets.
The adoption of this guidance did not result in a change in the
recognition of our goodwill and intangible assets. However, we
retroactively reclassified intangible assets relating to
application software with net book value of $385 million as at
October 31, 2008 from Land, buildings and equipment to Software and
other intangible assets on our consolidated balance sheet.
Note 2 Fair value of financial instruments
====== ===================================
This note presents the fair values of on- and off-balance sheet
financial instruments and explains how we determine those values.
Note 1, "Summary of Significant Accounting Policies" sets out the
accounting treatment for each measurement category of financial
instruments.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability at the measurement
date in an orderly arm's length transaction between knowledgeable
and willing market participants motivated by normal business
considerations. Fair value is best evidenced by an independent
quoted market price for the same instrument in an active market. An
active market is one where quoted prices are readily available,
representing regularly occurring transactions. The determination of
fair value requires judgment and is based on market information,
where available and appropriate. Fair value measurements are
categorized into levels within a fair value hierarchy based on the
nature of valuation inputs (Level 1, 2 or 3), as outlined
below.
Where active markets exist, quoted market prices are used to
calculate fair value (Level 1). Bid or ask prices, where available
in an active market, are used to determine the fair value of
security positions, as appropriate.
Quoted market prices are not available for a significant portion
of our on- and off-balance sheet financial instruments because of
the lack of traded markets and, even where such markets do exist,
they may not be considered sufficiently active to be used as a
final determinant of fair value.
Markets are considered inactive when transactions are not
occurring with sufficient regularity. Inactive markets may be
characterized by a significant decline in the volume and level of
observed trading activity or through large or erratic bid/offer
spreads. In those instances where traded markets do not exist
or are not considered sufficiently active, we measure fair value
using valuation models. Valuation models may utilize predominantly
observable market inputs (Level 2) or may utilize predominantly
non-observable market inputs (Level 3). The valuation model and
technique we select maximizes the use of observable market inputs
to the extent possible and appropriate in order to estimate the
price at which an orderly transaction would take place on our
reporting date. In an inactive market, we consider all reasonably
available information including any available pricing for similar
instruments, recent arm's length market transactions, any relevant
observable market inputs, indicative dealer or broker quotations,
and our own internal model-based estimates.
We apply judgment in determining the most appropriate inputs and
the weighting we ascribe to each such input as well as in our
selection of valuation methodologies. Regardless of the valuation
technique we use, we incorporate assumptions that we believe market
participants would make for credit, funding, and liquidity
considerations. When the fair value of a financial instrument is
determined using a valuation technique that incorporates
significant non-observable market inputs, no inception profit or
loss (the difference between the determined fair value and the
transaction price) is recognized at the time the asset or liability
is first recorded. Any gains or losses at inception would be
recognized only in future periods over the term of the instruments
or when market quotes or data become observable.
Valuation adjustments are an integral component of our fair
valuation process. 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,
parameter uncertainty and
Consolidated financial statements
other market risk, model risk, credit risk, and future
administration costs. For derivatives, we also have credit
valuation adjustments (CVA) that factor in counterparty, as well as
our own credit risk, and a valuation adjustment for administration
costs.
Due to the judgment used in applying a wide variety of
acceptable valuation techniques and models, as well as the use of
estimates inherent in this process, estimates of fair value for the
same or similar assets may differ among financial institutions. The
calculation of fair value is based on market conditions as at each
consolidated balance sheet date, and may not be reflective of
ultimate realizable value.
We have an ongoing process for evaluating and enhancing our
valuation techniques and models. Where enhancements are made, they
are applied prospectively, so that fair values reported in prior
periods are not recalculated on the new basis.
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. Key model inputs,
such as yield curves and volatilities, are independently verified.
Valuation models used, including analytics for the construction of
yield curves and volatility surfaces, are vetted and approved,
consistent with our model risk policy.
Methods and assumptions
Financial instruments with fair value equal to book value
Where we consider any difference between fair and book values of
on-balance sheet financial instruments to be insignificant, the
fair values of these on-balance sheet financial instruments are
assumed to equal their book values. These categories are: cash and
non-interest-bearing deposits with banks; short-term
interest-bearing deposits with banks; cash collateral on securities
borrowed and securities lent; customers' liability under
acceptances; acceptances; obligations related to securities
purchased under resale agreements or sold under repurchase
agreements; and other liabilities.
Securities
The fair value of securities and obligations related to
securities sold short are based on quoted bid or ask market prices
where available in an active market.
Securities for which no active market exists are valued using
all reasonably available market information as described below.
Fair value of government- issued or-guaranteed securities that
are not traded in an active market are calculated using implied
yields derived from the prices of actively traded government
securities and the most recently observable spread
differentials.
Fair value of corporate debt securities is determined using the
most recently executed transaction prices, and where appropriate,
adjusted to the price of these securities obtained from independent
dealers, brokers, and third-party multi-contributor consensus
pricing sources. When observable price quotations are not
available, fair value is determined based on discounted cash flow
models using discounting curves and spread differentials observed
through independent dealers, brokers, and third-party
multi-contributor consensus pricing sources.
Asset-backed securities (ABS) and mortgage-backed securities
(MBS) not issued or guaranteed by government are valued using cash
flow models making maximum use of market observable inputs, such as
indicative broker quotes on identical or similar securities and
other pricing information obtained from third-party pricing sources
adjusted for the characteristics and the performance of the
underlying collateral. Other key inputs used include prepayment and
liquidation rates, credit spreads, and discount rates commensurate
with the risks involved. These assumptions factor in information
derived from actual transactions, underlying reference asset
performance, external market research, and market indices, where
appropriate.
Privately issued debt and equity securities are valued using
recent market transactions, where available. Otherwise, fair values
are derived from valuation models using a market or income
approach. These models consider various factors including projected
cash flows, earnings, revenue or other third-party evidence as
available. Private equity securities for which there is no quoted
market price are carried at cost. The fair value of limited
partnership investments is based upon net asset values published by
third-party fund managers and is adjusted for more recent
information, where available and appropriate.
Loans
The fair value of variable-rate mortgages, which are largely
prime rate based, is assumed to equal the book value. The fair
value of fixed-rate mortgages is estimated, using a discounted cash
flow calculation that uses market interest rates currently charged
for mortgages with similar remaining terms. The valuation model
used for mortgages takes into account prepayment optionality,
including consumer behaviour.
Consolidated financial statements
The fair value of variable-rate loans and loans for which
interest rates are repriced or reset frequently are assumed to be
equal to their book value. The fair value for fixed-rate loans is
estimated using a discounted cash flow calculation that uses market
interest rates. Changes in credit and liquidity spreads since the
loan inception date are not observable and are not factored into
our determination of fair value. The fair value of loans is reduced
by specific and general allowances for impaired loans and loans not
yet specifically identified as impaired respectively. The fair
value of loans is not adjusted for the value of any credit
derivatives used to manage the credit risk associated with them.
The fair value of these credit derivatives is disclosed
separately.
In determining the fair value of collateralized loan obligations
(CLOs) and collateralized debt obligations (CDOs) in our structured
credit run-off business, we apply valuation techniques using
non-observable market inputs, including indicative broker quotes,
proxy valuation from comparable financial instruments, and other
internal models using our own assumptions of how market
participants would price a market transaction on the measurement
date.
Fair value option loans are valued using observable market
inputs, wherever possible. In the absence of such pricing, we
consider indicative broker quotes and internal models utilizing
observable market inputs or proxies.
Other assets
Other assets mainly comprise accrued interest receivable,
brokers' client accounts, equity-accounted investments, and
accounts receivable.
Except as noted, the fair value of all other assets is assumed
to be cost or amortized cost because we consider any difference not
to be significant. For equity-accounted investments, we estimate
fair value using quoted market prices or other recent market
transactions, where available. Otherwise, fair value is derived
from valuation models, except for immaterial instances where the
benefits of estimating fair value for unquoted equity-accounted
investments do not outweigh related costs, in which case fair value
is assumed to equal book value.
Deposits
The fair value of floating-rate deposits and demand deposits are
assumed to be equal to their amortized cost. The fair value of
fixed-rate deposits is determined using direct or proxy market
observable quotes where available or by discounting the contractual
cash flows using market interest rates. The fair value of deposit
liabilities with embedded optionality (cashable option) includes
the fair value of those options. The fair value of equity- and
commodity-linked notes includes the fair value of embedded equity
and commodity options.
Certain FVO deposits are structured notes that have coupons or
repayment terms linked to the performance of structured interest
rates, debt and equities. Fair value of these structured notes is
estimated using internally vetted valuation models for the debt and
embedded derivative portions of the notes by incorporating market
observable prices of the referenced identical or comparable
securities, and other inputs such as interest rate yield curves,
option volatility, and foreign exchange rates, where appropriate.
Where observable prices or inputs are not available, management
judgment is required to determine fair values by assessing other
relevant sources of information such as historical data, proxy
information from similar transactions, and through extrapolation
and interpolation techniques. Appropriate market risk valuation
adjustments for such inputs are assessed in all such instances.
Subordinated indebtedness
The fair value is determined by reference to market prices for
the same or similar debt instruments.
Derivative instruments
The fair value of exchange-traded derivatives such as options
and futures is generally based on observable prices.
Over-the-counter (OTC) and clearing house settled derivatives
primarily consist of interest rate swaps, cross-currency swaps,
foreign exchange forwards, equity and commodity derivatives,
interest rate and currency options, and credit derivatives. For
such instruments, where market observable prices or third-party
consensus pricing information are not available, models which are
consistent with industry standards are employed to estimate fair
value. Such vetted models incorporate current market measures for
interest rates, currency exchange rates, equity and commodity
prices and indices, credit spreads, corresponding market volatility
levels, and other market-based pricing factors.
In determining the fair value of complex and customized
derivatives, such as certain equity, credit, and commodity
derivatives written in reference to indices, specific assets or
baskets of assets, we consider all reasonably available information
including indicative dealer and broker quotations, third-party
consensus pricing inputs and any relevant observable market inputs.
We also consider our own internal model-based valuations, which are
vetted, regularly calibrated, and pre-approved in accordance with
our model risk policy. The models calculate fair value based on
inputs specific to the type of contract, which may include stock
prices, reference asset prices, correlation for multiple assets,
interest rates, foreign exchange rates, yield curves, and
volatility surfaces. In an inactive market and where observable
prices or inputs are not available, management judgment is required
to determine fair values by assessing other relevant
Consolidated financial statements
sources of information such as historical data, indicative
broker quotes, proxy information from similar transactions or
instruments, and other internal models using our own assumptions of
how market participants would price a market transaction on
measurement date. Appropriate parameter uncertainty and market risk
valuation adjustments for such inputs and other model risk
valuation adjustments are assessed in all such instances.
After arriving at these valuations, to reflect market risk, we
consider whether a CVA is required to recognize the risk that any
given derivative counterparty may not ultimately be able to fulfill
its obligations. The CVA is driven off market-observed credit
spreads or proxy credit spreads and our assessment of the net
counterparty credit risk exposure. The CVA, net of considering our
own credit risk, could be positive or negative. In assessing this
exposure, we also take into account credit mitigants such as
collateral, master netting arrangements, and settlements through
clearing houses.
For credit derivatives purchased from financial guarantors, our
CVA is generally driven off market-observed credit spreads, where
available. For financial guarantors that do not have observable
credit spreads or where observable credit spreads are available but
do not reflect an orderly market (i.e. not representative of fair
value), a proxy market spread is used. The proxy market credit
spread is based on our internal credit rating for the particular
financial guarantor. Credit spreads contain information on market
(or proxy market) expectations of PD as well as LGD. The credit
spreads are applied in relation to the weighted-average life of our
exposure to the counterparties. For financial guarantor
counterparties where a proxy market spread is used, we also make an
adjustment to reflect additional financial guarantor risk over an
equivalently rated non-financial guarantor counterparty. The amount
of the adjustment is dependent on all available internal and
external market information for financial guarantors. The final CVA
takes into account the expected correlation between the future
performance of the underlying reference assets and that of the
counterparties, except for high-quality reference assets where we
expect no future credit degradation.
Where appropriate for certain financial guarantors, we determine
the CVA based on estimated recoverable amounts.
Mortgage commitments
The fair value of mortgage commitments, included in derivatives
held for ALM, is for fixed-rate residential and commercial mortgage
commitments and is based on changes in market interest rates and
volatilities between the commitment and the consolidated balance
sheet dates. The valuation model takes into account the expected
probability that outstanding commitments will be exercised.
Credit commitments
Other commitments to extend credit are primarily variable rate
and, consequently, do not expose us to interest rate risk, although
they do expose us to credit risk. These commitments generally
contain provisions whereby drawn credit commitments are priced
based on the credit quality of the obligor at the date funds are
drawn. As noted above, the credit exposure on loan commitments is
included in our assessment of the specific and general
allowances.
Consolidated financial statements
Fair value of financial instruments
$ millions, as at October 31
----------------------------------------------------------------------------------------------------------------------------------------------
Carrying value
Fair Fair
value value
through Fair over
statement value (under)
Amortized of through Fair carrying
cost operations OCI Total value value
------ ---------------- ------------------- -------------------- ----------------- ---------------- ---------------- ------------------
2011 Financial
assets(1)
Cash and deposits with
banks.................
..................... $ 6,297 $ - $ - $ 6,297 $ 6,297 $ -
Securities............
......................
......................
............ 469 52,861 28,743 82,073 82,323 250
Cash collateral on
securities
borrowed..............
.......... 1,838 - - 1,838 1,838 -
Securities purchased
under resale
agreements........... 26,002 - - 26,002 26,002 -
Loans...........
................
................
................
...............
Residential
mortgages.........
..................
................ 99,513 44 - 99,557 100,500 943
Personal..........
..................
..................
.................. 34,356 - - 34,356 34,376 20
Credit
card..............
..................
..................
........... 9,997 - - 9,997 9,997 -
Business and
government........
..................
............ 40,841 267 - 41,108 41,058 (50)
Derivative
instruments...........
......................
................ - 28,259 - 28,259 28,259 -
Customers' liability
under
acceptances...........
............. 9,361 - - 9,361 9,361 -
Other
assets................
......................
......................
..... 7,410 - - 7,410 7,457 47
----------------------- ------------------- -------------------- ----------------- ---------------- ---------------- ------------------
Financial
liabilities
Deposits........
................
................
................
..............
Personal..........
..................
..................
.................. 116,592 - - 116,592 116,888 296
Business and
government........
..................
............ 133,113 1,523 - 134,636 135,724 1,088
Bank..............
..................
..................
..................
.. 4,181 - - 4,181 4,181 -
Derivative
instruments...........
......................
................ - 29,807 - 29,807 29,807 -
Acceptances...........
......................
......................
......... 9,396 - - 9,396 9,396 -
Obligations related
to securities sold
short.................
. - 10,316 - 10,316 10,316 -
Cash collateral on
securities
lent..................
............... 2,850 - - 2,850 2,850 -
Obligations related
to securities sold
under repurchase
agreements............
......................
......................
.... 11,456 - - 11,456 11,456 -
Other
liabilities...........
......................
......................
.... 8,550 - - 8,550 8,550 -
Subordinated
indebtedness..........
......................
........ 5,138 - - 5,138 5,533 395
----------------------- ------------------- -------------------- ----------------- ---------------- ---------------- ------------------
2010. Financial
assets(1)
Cash and deposits with
banks.................
..................... $ 12,052 $ - $ - $ 12,052 $ 12,052 $ -
Securities............
......................
......................
............ 582 50,987 26,039 77,608 77,936 328
Cash collateral on
securities
borrowed..............
.......... 2,401 - - 2,401 2,401 -
Securities purchased
under resale
agreements........... 34,941 - - 34,941 34,941 -
Loans...........
................
................
................
...............
Residential
mortgages.........
..................
................ 93,467 62 - 93,529 94,560 1,031
Personal..........
..................
..................
.................. 33,818 - - 33,818 33,846 28
Credit
card..............
..................
..................
........... 11,649 - - 11,649 11,649 -
Business and
government........
..................
............ 36,875 1,021 - 37,896 37,865 (31)
Derivative
instruments...........
......................
................ - 24,682 - 24,682 24,682 -
Customers' liability
under
acceptances...........
............. 7,684 - - 7,684 7,684 -
Other
assets................
......................
......................
..... 7,768 - - 7,768 7,799 31
----------------------- ------------------- -------------------- ----------------- ---------------- ---------------- ------------------
Financial
liabilities
Deposits........
................
................
................
..............
Personal..........
..................
..................
.................. 113,294 - - 113,294 113,685 391
Business and
government........
..................
............ 124,229 3,530 - 127,759 129,352 1,593
Bank..............
..................
..................
..................
.. 5,618 - - 5,618 5,618 -
Derivative
instruments...........
......................
................ - 26,489 - 26,489 26,489 -
Acceptances...........
......................
......................
......... 7,684 - - 7,684 7,684 -
Obligations related
to securities sold
short.................
. - 9,673 - 9,673 9,673 -
Cash collateral on
securities
lent..................
............... 4,306 - - 4,306 4,306 -
Obligations related
to securities sold
under repurchase
agreements............
......................
......................
.... 23,914 - - 23,914 23,914 -
Other
liabilities...........
......................
......................
.... 8,848 - - 8,848 8,848 -
Subordinated
indebtedness..........
......................
........ 4,773 - - 4,773 5,073 300
----------------------- ------------------- -------------------- ----------------- ---------------- ---------------- ------------------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
Consolidated financial statements
Fair value of derivative instruments
$ millions, as at October 31 2011 2010
-------------------------------------------------------------- ------------------ ----------------------------------------- -------------------
Positive Negative Net Positive Negative Net
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Held for
trading(1)
Interest rate
derivatives......
.................
.................
.............
Forward rate
agreements..
............
............
............
....... $ 171 $ 128 $ 43 $ 55 $ 37 $ 18
Swap
contracts(2)
............
............
............
............
.......... 16,475 16,640 (165 ) 13,522 13,759 (237)
Purchased
options.....
............
............
............
............
.. 467 - 467 500 - 500
Written
options.....
............
............
............
............
........ - 514 (514 ) - 538 (538)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total
interest
rate
derivatives.
............
............
............
.. 17,113 17,282 (169 ) 14,077 14,334 (257)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Foreign exchange
derivatives......
.................
.................
...
Forward
contracts...
............
............
............
............
...... 1,654 1,493 161 1,501 1,326 175
Swap
contracts...
............
............
............
............
.......... 3,655 3,527 128 3,662 3,664 (2)
Purchased
options.....
............
............
............
............
.. 97 - 97 227 - 227
Written
options.....
............
............
............
............
........ - 132 (132 ) - 290 (290)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total
foreign
exchange
derivatives.
............
............
..... 5,406 5,152 254 5,390 5,280 110
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Credit
derivatives......
.................
.................
.................
.....
Total return
swap
contracts -
payable.....
............
......... - 137 (137 ) - 156 (156)
Credit
default swap
contracts -
purchased...
............
.... 1,021 7 1,014 1,341 14 1,327
Credit
default swap
contracts -
written.....
............
........ - 1,643 (1,643 ) 1 1,884 (1,883)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total credit
derivatives.....
................
................
................
. 1,021 1,787 (766 ) 1,342 2,054 (712)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Equity
derivatives(3)
................
................
................
........... 413 1,092 (679 ) 671 661 10
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Precious metal
derivatives(3)
................
................
.............. 62 50 12 25 30 (5)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Other commodity
derivatives(3)
................
................
.......... 547 541 6 529 450 79
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total held for
trading 24,562 25,904 (1,342 ) 22,034 22,809 (775)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Held for ALM
Interest rate
derivatives......
.................
.................
.............
Swap
contracts...
............
............
............
............
.......... 3,003 3,520 (517 ) 2,299 3,535 (1,236)
Purchased
options.....
............
............
............
............
.. 10 - 10 27 - 27
Written
options.....
............
............
............
............
........ - 9 (9 ) - 4 (4)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total interest
rate
derivatives.....
................
................
....... 3,013 3,529 (516 ) 2,326 3,539 (1,213)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Foreign exchange
derivatives......
.................
.................
...
Forward
contracts...
............
............
............
............
...... 83 187 (104 ) 23 29 (6)
Swap
contracts...
............
............
............
............
.......... 580 184 396 256 102 154
Written
options.....
............
............
............
............
........ - 1 (1 ) - 1 (1)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total foreign
exchange
derivatives.....
................
.............. 663 372 291 279 132 147
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Credit
derivatives......
.................
.................
.................
.....
Credit
default swap
contracts -
purchased...
............
.... - - - 3 7 (4)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total credit
derivatives.....
................
................
................
. - - - 3 7 (4)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Equity
derivatives(3)
................
................
................
........... 21 2 19 40 2 38
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total held for
ALM 3,697 3,903 (206 ) 2,648 3,680 (1,032)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Total fair
value...........
................
................
................
...... 28,259 29,807 (1,548 ) 24,682 26,489 (1,807)
Less: effect of
master netting
agreements......
................
... (20,728 ) (20,728 ) - (16,967 ) (16,967 ) -
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
$ 7,531 $ 9,079 $ (1,548 ) $ 7,715 $ 9,522 $ (1,807)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
Average fair
value of
derivatives held
for trading(4)
Interest rate
derivatives.....
................
................
................ $ 12,407 $ 12,713 $ (306 ) $ 13,064 $ 13,109 $ (45)
Foreign exchange
derivatives.....
................
................
...... 5,842 5,439 403 5,185 5,035 150
Credit
derivatives.....
................
................
................
......... 1,069 1,781 (712 ) 1,865 3,390 (1,525)
Equity
derivatives.....
................
................
................
......... 669 798 (129 ) 694 760 (66)
Precious metal
derivatives.....
................
................
........... 58 44 14 29 24 5
Other commodity
derivatives.....
................
................
........ 668 502 166 618 547 71
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
$ 20,713 $ 21,277 $ (564 ) $ 21,455 $ 22,865 $ (1,410)
----------------- -------------------- --------------------- ------------------ ------------------- -------------------- -------------------
(1) Includes positive and negative fair values of $331 million
(2010: $279 million) and $232 million (2010: $270 million),
respectively, for exchange-traded options.
(2) Includes positive and negative fair values of $7 million
(2010: nil) and $3 million (2010: nil), respectively, for clearing
house settled instruments.
(3) Comprises forwards, swaps, and options.
(4) Average fair value represents monthly averages.
Consolidated financial statements
The table below presents the level in the fair value hierarchy
into which the fair values of financial instruments that are
carried at fair value on the consolidated balance sheet are
categorized:
Level 1 Level 2 Level 3
Valuation technique - Valuation technique -
Quoted observable non-observable
market price market inputs market inputs Total Total
$ millions, as at
October 31 2011 2010 2011 2010 2011 2010 2011 2010
Assets
Trading
securities............
.....................
Government-issued
or -guaranteed
securities.......
.................
......... $ 3,532 $ 4,158 $ 4,686 $ 8,463 $ - $ - $ 8,218 $ 12,621
Corporate
equity...........
.................
. 19,197 11,818 2,637 1,090 - - 21,834 12,908
Corporate
debt.............
.................
. - - 1,201 1,039 - 20 1,201 1,059
Mortgage- and
asset-backed
securities.......
.................
......... - - 985 342 559 1,627 1,544 1,969
Trading loans(1)
......................
...............
Residential
mortgages........
............. - - 44 62 - - 44 62
Business and
government
loans....... 257 1,000 - - - - 257 1,000
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
22,986 16,976 9,553 10,996 559 1,647 33,098 29,619
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
AFS securities
Government-issued
or -guaranteed
securities.......
.................
......... 5,017 7,398 14,514 9,310 - - 19,531 16,708
Corporate public
equity...........
......... 114 108 - 5 - - 114 113
Corporate
debt.............
.................
. - - 3,817 2,713 9 23 3,826 2,736
Mortgage- and
asset-backed
securities.......
.................
......... - - 2,815 3,656 2,457 2,826 5,272 6,482
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
5,131 7,506 21,146 15,684 2,466 2,849 28,743 26,039
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
FVO securities and
loans - 307 20,064 22,124 10 20 20,074 22,451
Derivative
instruments..........
............... 284 272 26,863 22,949 1,112 1,461 28,259 24,682
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
Total assets $ 28,401 $ 25,061 $ 77,626 $ 71,753 $ 4,147 $ 5,977 $ 110,174 $ 102,791
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
Liabilities
Deposits.............
.....................
........... $ - $ - $ (1,170 ) $ (2,397) $ (583 ) $ (1,428 ) $ (1,753 )(2() $ (3,825 )(2)
Derivative
instruments..........
............... (188 ) (265) (26,669 ) (23,148) (2,950 ) (3,076 ) (29,807 ) (26,489 )
Obligations related to
securities sold
short................
.....................
............... (5,150 ) (3,793) (5,166 ) (5,880) - - (10,316 ) (9,673 )
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
Total liabilities $ (5,338 ) $ (4,058) $ (33,005 ) $ (31,425) $ (3,533 ) $ (4,504 ) $ (41,876 ) $ (39,987 )
---------------------- ---------------------- ------------------- ---------------- --------------------- ----------------- ----------------- ---------------- ----------------
(1) In 2011, we have reported trading loans carried at fair
value separately. Previously these were classified as part of loans
at amortized cost. Prior year information has been reclassified
accordingly.
(2) Comprises FVO deposits of $1,523 million (2010: $3,530
million) and bifurcated embedded derivatives of $230 million (2010:
$295 million).
During 2011, we transferred $12 million of certain bifurcated
embedded derivatives from Level 3 to Level 2 because the inputs
used to determine the fair value of these positions have become
predominately market observable.
The following reclassifications between Levels 1, 2, and 3 were
made during 2010, which are reflected in the table above:
-- We reclassified certain government-issued or-guaranteed
securities from Level 1 to Level 2 as active market quotes were not
available;
-- We reclassified certain corporate debt securities from Level
1 to Level 2 as active market quotes were not available;
-- We reclassified certain asset-backed AFS securities from
Level 2 to Level 3, due to a lack of observable market inputs;
and
-- We reclassified certain trading government securities from
Level 3 to Level 2, due to availability of market observable
inputs.
The table below presents the changes in fair value of Level 3
assets, liabilities, and net derivative assets and liabilities.
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.
The net loss recognized in the consolidated statement of
operations, on the financial instruments for which fair value was
estimated using a valuation technique requiring non-observable
market parameters, was $437 million (2010: $732 million).
Consolidated financial statements
Net gains (losses)
included in income
Net
unrealized
$ millions, gains (losses) Transfer Transfer Purchases
as at or for the year Opening included in to out of and Sales and Closing
ended October 31 balance Realized(1) Unrealized(1)(2) in OCI Level 3 Level 3 issuances settlements balance
--------------------------------- ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Trading
2011 securities $ 1,647 $ (44) $ (21) $ - $ - $ - $ 287 $ (1,310 ) $ 559
AFS
securities 2,849 73 (4) 12 - - 1,151 (1,615 ) 2,466
FVO
securities
and loans 20 - (1) - - - - (9 ) 10
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Total
financial
assets $ 4,516 $ 29 $ (26) $ 12 $ - $ - $ 1,438 $ (2,934 ) $ 3,035
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Deposits(3) $ (1,428 ) $ 2 $ 307 $ - $ - $ 12 $ (150 ) $ 674 $ (583)
Derivative
instruments
(net) (1,615 ) (474) (275) - - - (3 ) 529 (1,838)
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Total
financial
liabilities $ (3,043 ) $ (472) $ 32 $ - $ - $ 12 $ (153 ) $ 1,203 $ (2,421)
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Trading
securities..
2010............... ..... $ 1,360 $ 88 $ 362 $ - $ - $ (138 ) $ 520 $ (545 ) $ 1,647
AFS
securities..
........... 1,297 40 - - 1,537 (13 ) 1,541 (1,553 ) 2,849
FVO
securities
and
loans.......
............
.. 210 (8) 1 - - - - (183 ) 20
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Total
financial
assets.. $ 2,867 $ 120 $ 363 $ - $ 1,537 $ (151 ) $ 2,061 $ (2,281 ) $ 4,516
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Deposits(3)
............
....... $ (689 ) $ (59) $ (502) $ - $ (203) (4) $ - $ (126 ) $ 151 $ (1,428)
Derivative
instruments
(net).......
............
... (2,678 ) (434) (220) - (68) (10 ) (15 ) 1,810 (1,615)
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
Total
financial
liabilities.
............
.. $ (3,367 ) $ (493) $ (722) $ - $ (271) $ (10 ) $ (141 ) $ 1,961 $ (3,043)
------------------- ------------ ---------------------------------- --------------------------- ------------------------ ------------------------------- ------------------------ ----------------------- -------------------------- ---------------------------- -------------------------
(1) Includes foreign exchange gains and losses.
(2) Unrealized gains and losses relating to these assets and
liabilities held at the end of the year.
(3) Comprises FVO deposits of $432 million (2010: $1,188
million) and bifurcated embedded derivatives of $151 million (2010:
$240 million).
(4) Transfer-in pertains to structured deposit notes containing
bifurcatable embedded derivatives carried at fair value.
Sensitivities of Level 3 financial assets and liabilities
Financial instruments carried at fair value include certain
positions that have market values derived from inputs, which we
consider to be non-observable.
Many of these positions are in our structured credit run-off
business ($1,583 million of assets and $2,177 million of
liabilities) and are valued using inputs such as indicative broker
quotations and internal models with estimated market inputs, which
we consider to be non-observable.
Interest-only strips from the sale of securitized assets are
valued using prepayment rates, which we consider to be a
non-observable market input.
Swap arrangements related to the sale of securitized assets are
valued using liquidity rates, which we consider to be a
non-observable market input.
ABS are sensitive to credit and liquidity spreads, which we
consider to be non-observable market inputs.
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 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 $73 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 $20 million,
assuming current CVA ratios remain unchanged. A 10% reduction in
the MTM of our on-balance sheet fair valued exposures and a 10%
increase in
Consolidated financial statements
the MTM of all credit derivatives in our hedged structured
credit positions would result in a net loss of approximately $9
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 not result in a significant net
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
$48 million.
A 10% increase in prepayment rates pertaining to our retained
interests related to the interest-only strips, resulting from the
sale of securitized assets, would result in a loss of approximately
$21 million.
A 20 basis point decrease in liquidity rates used to fair value
our derivatives related to the sale of securitized assets would
result in a loss of approximately $ 102 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 $147 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 and
extrapolated credit spreads, would result in a gain of
approximately $4 million.
A 10% reduction in the MTM of certain bifurcated embedded
derivatives, valued using internally vetted valuation techniques,
would result in a gain of approximately $15 million.
Note 3 Significant acquisitions and disposition
====== ========================================
Investment in American Century Investments
On August 31, 2011, we completed our acquisition of a minority
interest in American Century Investments (ACI), a U.S. asset
management firm, for total cash consideration of $831 million
(US$848 million). As a result of the transaction, we acquired JP
Morgan Chase & Co.'s entire interest in ACI, which represents
approximately 41 % of ACI's equity. In addition, we hold 10.1 % of
ACI's voting rights and have nominated 2 directors to ACI's
10-person board.
Our equity investment in ACI is accounted for using the equity
method and our share in the results of ACI is included in the
Wealth Management strategic business unit (SBU) for the period
subsequent to the acquisition.
Acquisition of Citi Cards Canada Inc.'s Canadian MasterCard
portfolio
On September 1, 2010, we completed the acquisition of Citi Cards
Canada Inc.'s (Citi) rights and obligations in respect of their
Canadian MasterCard (MasterCard) portfolio for cash consideration
of approximately $ 1.2 billion. The total portfolio consisted of
approximately $2.3 billion of directly owned and securitized credit
card receivables to Broadway Trust (Broadway), as well as certain
other related assets. We purchased $811 million of directly owned
credit card receivables. We also purchased $201 million of retained
interests in securitized assets in the form of subordinated notes,
$159 million of cash, and a customer relationship intangible asset
of $46 million. We incurred $45 million of other liabilities as
part of the purchase.
Broadway had $ 1.2 billion of sold receivables and approximately
$ 100 million of cash. These assets were funded by $1.1 billion of
externally issued senior notes and $0.2 billion of subordinated
notes, as mentioned above.
Acquisition of CIT Business Credit Canada Inc.
On April 30, 2010, CIBC acquired from CIT Financial Ltd. (CIT)
the 50% interest in CIT Business Credit Canada Inc. (CITBCC) that
we did not already own. Total cash consideration was initially $306
million. Additional cash consideration of $4 million was later paid
to CIT pursuant to the purchase agreement. The transaction has been
accounted for using the purchase method and as a result, we fully
consolidated CITBCC commencing April 30, 2010. Prior to that date,
we accounted for our 50% interest using the proportionate
consolidation method of accounting.
CITBCC's results are reported within the Retail and Business
Banking SBU.
Consolidated financial statements
Investment in The Bank of N.T. Butterfield & Son Limited
On March 2, 2010, we invested $155 million (US$150 million) for
a direct 22.5% common equity interest in The Bank of N.T.
Butterfield & Son Limited (Butterfield). Pursuant to a rights
offering, which closed on May 11, 2010, our direct investment
decreased to $130 million (US$125 million) or 18.8%. We also
invested $23 million (US$22 million) or 3.3% on March 2, 2010
indirectly through a private equity fund, which was reduced to $19
million (US$18 million) or 2.7% as a result of the rights offering.
Our total ownership in Butterfield may decrease in the future under
certain circumstances.
Our equity investment is accounted for using the equity method
of accounting and our share in the results of Butterfield is
included in the Corporate and Other reporting segment. We also
nominated 2 out of 12 directors on Butterfield's Board of
Directors.
In addition, upon acquisition of our interest in 2010, we
provided Butterfield with a senior secured credit facility for up
to US$500 million. This facility was subsequently reduced to US$300
million at Butterfield's request. The facility was terminated
during the current year.
Sale of CIBC Mellon Trust Company's Issuer Services business
Effective November 1, 2010, CIBC Mellon Trust Company (CMT), a
50/50 joint venture between CIBC and The Bank of New York Mellon,
sold its Issuer Services business (stock transfer and ESPP
services). As a result of the sale, CIBC recorded an after-tax gain
of $37 million in the first quarter of 2011 which is net of
estimated claw-back and post-closing adjustments that will be
settled in the first quarter of 2012. CMT's Issuer Services
business results were reported in CIBC's Corporate and Other
reporting segment and the results of its operations were not
considered significant to CIBC's consolidated results.
Consolidated financial statements
Note 4 Securities
====== ==========
Residual term to contractual maturity
----------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
No specific
Within 1 year 1 to 5 years 5 to 10 years Over 10 years maturity 2011 Total 2010 Total
----------------- -------------------------------- -------------------------- -------------------------- ---------------------------- -------------------------- ------------------------- ------------------------
$ millions, as at Carrying Carrying Carrying Carrying Carrying Carrying Carrying
October 31 value Yield(1) value Yield(1) value Yield(1) value Yield(1) value Yield(1) value Yield(1) value Yield(1)
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
AFS securities
Securities issued
or guaranteed
by:..............
...............
Canadian
federal
government..
............
............
..... $ 1,900 1.0% $ 2,884 2.4% $ 55 3.4% $ 506 5.8% $ - -% $ 5,345 2.2% $ 5,391 1.6%
Other
Canadian
governments.
............
............
....... 210 1.2 4,835 3.7 1,788 4.4 55 3.3 - - 6,888 3.8 4,688 3.2
U.S.
Treasury....
............
............
............
............
..... 3,393 0.1 241 2.1 27 2.9 - - - - 3,661 0.2 3,348 0.3
Other foreign
governments.
............
............
........... 2,514 1.6 774 3.9 163 7.4 186 6.1 - - 3,637 2.6 3,281 3.1
Mortgage-backed
securities(2)
................
................
....... 154 2.4 2,927 2.6 121 3.4 583 0.9 - - 3,785 2.3 4,727 2.6
Asset-backed
securities......
................
................
.......... 114 3.3 1,340 4.4 29 17.8 4 0.8 - - 1,487 4.6 1,755 4.7
Corporate public
debt............
................
................
..... 2,056 0.3 1,633 2.5 20 6.2 92 6.3 - - 3,801 1.5 2,676 1.4
Corporate private
debt............
................
................
.... 8 4.6 14 10.4 3 9.3 - - - - 25 8.4 60 6.2
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total debt
securities......
................
................
.............. 10,349 14,648 2,206 1,426 - 28,629 25,926
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Corporate public
equity..........
................
................
..... - - - - - - - - 114 4.5 114 4.5 113 4.5
Corporate private
equity..........
................
................
.... 5 5.0 - - - - 5 6.0 459 - 469 0.1 582 0.1
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total equity
securities......
................
................
........... 5 - - 5 573 583 695
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total AFS
securities......
................
................
............. $ 10,354 $ 14,648 $ 2,206 $ 1,431 $ 573 $ 29,212 $ 26,621
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Trading
securities
Securities issued
or guaranteed
by:..............
...............
Canadian
federal
government..
............
............
..... $ 1,443 $ 1,461 $ 762 $ 600 $ - $ 4,266 $ 9,316
Other
Canadian
governments.
............
............
....... 480 1,188 807 914 - 3,389 2,646
U.S. Treasury
and
agencies....
............
............
....... 25 188 64 4 - 281 365
Other foreign
governments.
............
............
........... 94 186 1 1 - 282 294
Mortgage-backed
securities(3)
................
................
....... 82 657 5 2 - 746 285
Asset-backed
securities......
................
................
.......... 276 75 72 375 - 798 1,684
Corporate public
debt............
................
................
..... 415 384 214 188 - 1,201 1,059
Corporate public
equity..........
................
................
..... - 3 - - 21,831 21,834 12,908
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total trading
securities......
................
................
........ $ 2,815 $ 4,142 $ 1,925 $ 2,084 $ 21,831 $ 32,797 $ 28,557
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
FVO securities
Securities issued
or guaranteed
by:..............
...............
Canadian
federal
government..
............
............
..... $ - $ - $ - $ - $ - $ - $ 1,502
Other
Canadian
governments.
............
............
....... - - - 46 - 46 46
U.S. Treasury
and
agencies....
............
............
....... 20 - - - - 20 59
Mortgage-backed
securities(4)
................
................
....... 1,384 18,365 49 43 - 19,841 20,404
Asset-backed
securities......
................
................
.......... - - - 73 - 73 205
Corporate public
debt............
................
................
..... - - 84 - - 84 214
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total FVO
securities......
................
................
............ $ 1,404 $ 18,365 $ 133 $ 162 $ - $ 20,064 $ 22,430
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
Total
securities(5) $ 14,573 $ 37,155 $ 4,264 $ 3,677 $ 22,404 $ 82,073 $ 77,608
----------------- -------------------- ---------- -------------- ---------- -------------- ---------- ---------------- ---------- -------------- ---------- ------------- ---------- ------------ ----------
(1) Represents the weighted average yield, which is determined
by applying the weighted average of the yields of individual fixed
income securities and the stated dividend rates of corporate and
private equity securities.
(2) Includes securities backed by mortgages insured by the
Canada Mortgage and Housing Corporation (CMHC) with amortized cost
of $2,887 million (2010: $3,738 million) and fair value of $2,966
million (2010: $3,830 million); securities issued by Federal
National Mortgage Association (Fannie Mae), having amortized cost
of $12 million (2010: $18 million) and fair value of $12 million
(2010: $18 million); and securities issued by Government National
Mortgage Association, a U.S. government corporation (Ginnie Mae),
with amortized cost of $656 million (2010: $711 million) and fair
value of $657 million (2010: $714 million).
(3) Includes securities backed by mortgages insured by the CMHC
of $662 million (2010: $36 million).
(4) Comprises securities backed by mortgages insured by the CMHC
of $19.8 billion (2010: $20.3 billion); securities issued by Fannie
Mae of nil (2010: $25 million); and securities issued by Ginnie Mae
of $43 million (2010: $56 million).
(5) Includes securities denominated in U.S. dollars with
carrying value of $13.9 billion (2010: $14.2 billion) and
securities denominated in other foreign currencies with carrying
value of $672 million (2010: $799 million).
Consolidated financial statements
Reclassification of financial instruments
In October 2008, amendments made to the CICA handbook sections
3855 "Financial Instruments - Recognition and Measurement" and 3862
"Financial Instruments - Disclosures" permitted certain trading
financial assets to be reclassified to HTM and AFS in rare
circumstances. In July 2009, amendments made to section 3855
resulted in the
reclassification of these HTM securities to loans effective
November 1, 2008. In the current year, we have not reclassified any
securities.
The following tables show the carrying values, fair values, and
income or loss impact of the assets reclassified:
$ millions, as at October 31 2011 2010
------------------------------------- ---------------- -------------------- ------------------- ------------------
Fair Carrying Fair Carrying
value value value value
------------------------------------- ---------------- -------------------- ------------------- ------------------
Trading assets previously
reclassified to HTM (currently in
loans).......................... $ 3,961 $ 4,136 $ 5,525 $ 5,699
Trading assets previously
reclassified to
AFS.................................
........................ 33 33 55 55
------------------------------------- ---------------- -------------------- ------------------- ------------------
Total financial assets
reclassified........................
....................................
.............. $ 3,994 $ 4,169 $ 5,580 $ 5,754
------------------------------------- ---------------- -------------------- ------------------- ------------------
$ millions, for the year ended
October 31 2011 2010 2009
------------------------------------- ---------------- -------------------- ------------------- ------------------
Net income (before taxes) recognized
on securities
reclassified.........................
....
Gross income recognized in income
statement.......................
......................... $ 68 $ 158 $ 284
Impairment
write-downs.....................
................................
.............................. - - (100)
Funding related interest
expense.........................
................................
............ (57 ) (77 ) (149)
------------------------------------- ---------------- -------------------- ------------------- ------------------
$ 11 $ 81 $ 35
------------------------------------- ---------------- -------------------- ------------------- ------------------
Increase (decrease) in income (before
taxes) if reclassification had not
been
made.................................
.....................................
.....................................
.............
On trading assets previously
reclassified to HTM (currently
in loans)................ $ (32 ) $ (185 ) $ (269)
On trading assets previously
reclassified to
AFS.............................
.................. 4 (8 ) (25)
------------------------------------- ---------------- -------------------- ------------------- ------------------
$ (28 ) $ (193 ) $ (294)
------------------------------------- ---------------- -------------------- ------------------- ------------------
During 2011 and 2010, there were no reclassifications of
securities. The effective interest rates on trading securities
previously reclassified to AFS ranged from 1 % to 12% in 2009
(2008: 3% to 13%) with expected recoverable cash flows of $145
million (2008: $1.2 billion) as of their reclassification date.
Fair value of AFS securities
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------------------------- ------------------ -------------------- -------------------- ---------------------- ------------------
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..
............
.. $ 5,307 $ 45 $ (7 ) $ 5,345 $ 5,385 $ 8 $ (2 ) $ 5,391
Other
Canadian
governments.
............
. 6,814 77 (3 ) 6,888 4,602 86 - 4,688
U.S.
Treasury. 3,653 8 - 3,661 3,343 5 - 3,348
Other foreign
governments.
............
. 3,607 40 (10 ) 3,637 3,251 47 (17 ) 3,281
Mortgage-backed
securities......
.. 3,700 86 (1 ) 3,785 4,627 103 (3 ) 4,727
Asset-backed
securities......
.. 1,462 25 - 1,487 1,758 34 (37 ) 1,755
Corporate public
debt............
... 3,801 18 (18 ) 3,801 2,659 18 (1 ) 2,676
Corporate public
equity..........
.. 115 8 (9 ) 114 114 8 (9 ) 113
Corporate private
debt............
... 25 - - 25 52 9 (1 ) 60
Corporate private
equity(1)
.......... 469 265 (15 ) 719 582 337 (9 ) 910
----------------- ---------------------- ---------------------- ------------------------ ------------------ -------------------- -------------------- ---------------------- ------------------
$ 28,953 $ 572 $ (63 ) $ 29,462 $ 26,373 $ 655 $ (79 ) $ 26,949
----------------- ---------------------- ---------------------- ------------------------ ------------------ -------------------- -------------------- ---------------------- ------------------
(1) Carried at cost on the consolidated balance sheet as these
do not have quoted market values in an active market.
Consolidated financial statements
For AFS securities where the fair value is less than the
amortized cost, the following table presents current fair value and
associated unrealized losses for periods less than 12 months and 12
months or longer:
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------------------------------------ ------------------- ------------- ------------------ ---------- ------------------ ------------ -----------------
Less than 12 months Less than 12 months
12 months or longer Total 12 months or longer Total
----------------- ------------- -------------------- ---------- -------------------- ------------ ------------------- ------------- ------------------ ---------- ------------------ ------------ -----------------
Gross Gross Gross Gross Gross Gross
Fair unrealized Fair unrealized Fair unrealized Fair unrealized Fair unrealized Fair unrealized
value losses value losses value losses value losses value losses value losses
----------------- ------------- -------------------- ---------- -------------------- ------------ ------------------- ------------- ------------------ ---------- ------------------ ------------ -----------------
Securities issued
or guaranteed
by:..............
Canadian
federal
government..
...... $ 4,255 $ (7 ) $ - $ - $ 4,255 $ (7 ) $ 2,483 $ (2 ) $ - $ - $ 2,483 $ (2)
Other
Canadian
governments.
...... 1,076 (3 ) - - 1,076 (3 ) 758 - - - 758 -
U.S. Treasury 642 - - - 642 - 3,060 - - - 3,060 -
Other foreign
governments.
...... 808 (10 ) 2 - 810 (10 ) 948 (17 ) - - 948 (17)
Mortgage-backed
securities.... 123 (1 ) 158 - 281 (1 ) 588 (3 ) - - 588 (3)
Asset-backed
securities.... - - - - - - 123 (37 ) - - 123 (37)
Corporate public
debt. 1,400 (18 ) 3 - 1,403 (18 ) 881 (1 ) - - 881 (1)
Corporate public
equity......... - - 100 (9 ) 100 (9 ) - - 100 (9 ) 100 (9)
Corporate private
debt - - 8 - 8 - - - 25 (1 ) 25 (1)
Corporate private
equity......... 15 (4 ) 13 (11 ) 28 (15 ) 36 (6 ) 19 (3 ) 55 (9)
----------------- ------------- -------------------- ---------- -------------------- ------------ ------------------- ------------- ------------------ ---------- ------------------ ------------ -----------------
$ 8,319 $ (43 ) $ 284 $ (20 ) $ 8,603 $ (63 ) $ 8,877 $ (66 ) $ 144 $ (13 ) $ 9,021 $ (79)
----------------- ------------- -------------------- ---------- -------------------- ------------ ------------------- ------------- ------------------ ---------- ------------------ ------------ -----------------
As at October 31, 2011, the amortized cost of 179 AFS securities
that are in a gross unrealized loss position (2010: 170 securities)
exceeded their fair value by $63 million (2010: $79 million). The
securities that have been in a gross unrealized loss position for
more than a year include 20 AFS securities (2010: nine securities),
with a gross unrealized loss of $20 million (2010: $13 million). We
have determined that the unrealized losses on these AFS securities
are temporary in nature.
The table below presents realized gains, losses and impairment
write-downs on AFS securities.
$ millions, for the year ended October 31 2011 2010 2009
---------------------------------------------------------------- ---------------- --------------- -----------------
Realized gains(1)
...............................................................
............................................................ $ 484 $ 510 $ 1,224
Realized losses(1)
...............................................................
........................................................... (59 ) (45 ) (736)
Impairment
write-downs.....................................................
...........................................................
Debt
securities.................................................
...........................................................
............. (4 ) (22 ) (122)
Equity
securities.................................................
...........................................................
.......... (14 ) (43 ) (91)
---------------------------------------------------------------- ---------------- --------------- -----------------
$ 407 $ 400 $ 275
---------------------------------------------------------------- ---------------- --------------- -----------------
(1) Corporate private equity securities amounting to $75 million
(2010: $56 million; 2009: $32 million) carried at cost on the
consolidated balance sheet were sold during the year, resulting in
net realized gains of $197 million (2010: $52 million; 2009: $28
million).
Consolidated financial statements
Note
5 Loans(1)(2)
==== ===========
$ millions, as
at October 31 2011 2010
---------------- --------------- ----------------- ----------------- ----------------- --------------- --------------- ---------------- ---------------- ---------------- ---------------
Gross Specific General Total Net Gross Specific General Total Net
amount allowance allowance allowance total amount allowance allowance allowance total
---------------- --------------- ----------------- ----------------- ----------------- --------------- --------------- ---------------- ---------------- ---------------- ---------------
Amortized
cost............
.......
Residential
mortgages. $ 99,559 (3) $ 34 $ 12 $ 46 $ 99,513 $ 93,506 (3) $ 30 $ 9 $ 39 $ 93,467
Personal(4)
........... 34,842 34,335
......... (3) 211 275 486 34,356 (3) 224 293 517 33,818
Credit
card.......
........... 10,408 12,127
. (5) - 411 411 9,997 (5) - 478 478 11,649
Business and
government. 41,545 37,561
........... (6) 384 320 704 40,841 (6) 377 309 686 36,875
---------------- --------------- ----------------- ----------------- ----------------- --------------- --------------- ---------------- ---------------- ---------------- ---------------
186,354 629 1,018 1,647 184,707 177,529 631 1,089 1,720 175,809
Trading(7)
................
...........
Residential
mortgages
(Note
12)........
......... 44 - - - 44 62 - - - 62
Business and
government
(Note
12)........
......... 257 - - - 257 1,000 - - - 1,000
Designated at
fair value....
Business and
government
(Note
13)........
......... 10 - - - 10 21 - - - 21
---------------- --------------- ----------------- ----------------- ----------------- --------------- --------------- ---------------- ---------------- ---------------- ---------------
$ 186,665 $ 629 $ 1,018 $ 1,647 $ 185,018 $ 178,612 $ 631 $ 1,089 $ 1,720 $ 176,892
---------------- --------------- ----------------- ----------------- ----------------- --------------- --------------- ---------------- ---------------- ---------------- ---------------
(1) Loans are net of unearned income of $290 million (2010: $256 million).
(2) Includes gross loans of $18.7 billion (2010: $18.7 billion)
denominated in U.S. dollars and of $2.2 billion (2010: $2.7
billion) denominated in other foreign currencies.
(3) Includes $48 million (2010: $16 million(*) ) of residential
mortgages and $3 million (2010: $2 million(*) ) of personal loans
in the Caribbean classified as performing that were previously
subject to troubled-debt restructurings (TDRs).
(4) Includes $169 million (2010: $210 million), including a
non-recourse portion of nil (2010: $4 million), relating to loans
provided to certain individuals while employed by CIBC to finance a
portion of their participation in funds which make private equity
investments on a side-by-side basis with CIBC and its affiliates.
These loans are secured by the borrowers' interest in the funds. Of
the total amount outstanding, $158 million (2010: $184 million)
relate to individuals who are no longer employed by CIBC.
(5) Includes $5 million (2010: nil) of card balances under a
forbearance program which offers the cardholders a reduced interest
rate that is below market for a limited time period.
(6) Includes $75 million (2010: $46 million(*) ) of performing
business loans pertaining to TDR undertaken.
(7) In 2011, we have reported trading loans carried at fair
value separately. Previously these were classified as part of loans
at amortized cost. Prior year information has been reclassified
accordingly.
(*) Restated.
Loan maturities
Residual term to contractual maturity
------------------------------------------------------------------------------ -----------------
$ millions, as at Within 1 to 5 5 to 10 Over 2011
October 31 1 year years years 10 years Total
------------------- ---------------- ------------------ ------------------- ------------------- -----------------
Residential
mortgages.........
..................
..................
..................
..... $ 10,930 $ 80,213 $ 5,682 $ 2,778 $ 99,603
Personal..........
..................
..................
..................
..................
....... 13,219 20,977 269 377 34,842
Credit
card..............
..................
..................
..................
.................. 2,691 7,717 - - 10,408
Business and
government........
..................
..................
..................
. 18,012 14,624 5,987 3,189 41,812
------------------- ---------------- ------------------ ------------------- ------------------- -----------------
$ 44,852 $ 123,531 $ 11,938 $ 6,344 $ 186,665
------------------- ---------------- ------------------ ------------------- ------------------- -----------------
Sensitivity of
loans due after one
year to changes in
interest rates.
Fixed interest
rates.........
..............
..............
..............
..............
... $ 50,153 $ 5,823 $ 1,098 $ 57,074
Floating
interest
rates.........
..............
..............
..............
............. 73,378 6,115 5,246 84,739
------------------- ---------------- ------------------ ------------------- ------------------- -----------------
$ 123,531 $ 11,938 $ 6,344 $ 141,813
------------------- ---------------- ------------------ ------------------- ------------------- -----------------
Allowance for credit losses
Commencing the fourth quarter of 2009, interest income on credit
card loans is only accrued where there is an expectation of
receipt. Previously, interest income was accrued until the credit
card loans were written off upon being 180 days in arrears or when
notified of customer bankruptcy. This change resulted in a decrease
in interest income and a decrease in provision for credit losses of
approximately $14 million and $18 million, respectively, in
2009.
Consolidated financial statements
Specific allowance
Business and Total specific
Residential mortgages Personal Credit card government allowance
------------------ --------------------------------------------------------- ------------------------------------ --------------------------------- ------------------------------------------ -------------------------------------------
$ millions, as at
or for the
year ended October
31 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Balance at
beginning of
year.............
.................
. $ 30 $ 35 $ 36 $ 224 $ 258 $ 207 $ - $ - $ - $ 377 $ 443 $ 200 $ 631 $ 736 $ 443
Provision for
credit
losses...........
.................
......... 19 10 10 265 309 364 478 624 646 163 258 392 925 1,201 1,412
Write-offs.......
.................
.................
.................
.... (15 ) (12 ) (9 ) (308 ) (372 ) (344 ) (551 ) (708 ) (714 ) (158 )(1) (326 )(1) (156 )(1) (1,032 ) (1,418 ) (1,223)
Recoveries.......
.................
.................
.................
. - - - 27 27 25 73 84 68 12 12 28 112 123 121
Other............
.................
.................
.................
..... - (3 ) (2 ) 3 2 6 - - - (10 ) (10 ) (21 ) (7 ) (11 ) (17)
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Balance at end of
year.............
.................
........... $ 34 $ 30 $ 35 $ 211 $ 224 $ 258 $ - $ - $ - $ 384 $ 377 $ 443 $ 629 $ 631 $ 736
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Comprises:........
..................
..................
...............
Loans........
.............
.............
.............
.............
.. $ 34 $ 30 $ 35 $ 211 $ 224 $ 258 $ - $ - $ - $ 384 $ 377 $ 442 $ 629 $ 631 $ 735
Letters of
credit(2)
.............
.............
.............
...... - - - - - - - - - - - 1 - - 1
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
(1) Includes $7 million (2010: $56 million; 2009: no material write-offs) relating to troubled-debt
restructuring.
(2) Included in Other liabilities.
General allowance
Business and Total general
Residential mortgages Personal Credit card government allowance
------------------ --------------------------------------------------------- ------------------------------------ --------------------------------- ------------------------------------------ -------------------------------------------
$ millions, as at
or for the
year ended October
31 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Balance at
beginning of
year.............
.................
. $ 9 $ 7 $ 10 $ 293 $ 283 $ 286 $ 478 $ 549 $ 349 $ 373 $ 468 $ 435 $ 1,153 $ 1,307 $ 1,080
Provision for
(reversal of)
credit
losses...........
....... 3 2 (3 ) (15 ) 14 7 (67 ) (71 ) 200 (5 ) (100 ) 33 (84 ) (155 ) 237
Other............
.................
.................
.................
..... - - - (3 ) (4 ) (10 ) - - - - 5 - (3 ) 1 (10)
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Balance at end of
year.............
.................
........... $ 12 $ 9 $ 7 $ 275 $ 293 $ 283 $ 411 $ 478 $ 549 $ 368 $ 373 $ 468 $ 1,066 $ 1,153 $ 1,307
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
Comprises:........
..................
..................
...............
Loans........
.............
.............
.............
.............
.. $ 12 $ 9 $ 7 $ 275 $ 293 $ 283 $ 411 $ 478 $ 549 $ 320 $ 309 $ 386 $ 1,018 $ 1,089 $ 1,225
Undrawn credit
facilities(1)
.............
.............
..... - - - - - - - - - 48 64 82 48 64 82
------------------ ----------------- ------------------ ------------------ ----------- ----------- ---------- ---------- ---------- --------- ------------ -------------- ------------ -------------- ------------- ------------
(1) Included in Other liabilities.
Impaired loans
$ millions,
as at
October 31 2011 2010
------------ -------------------------- ---------------------------- ------------------------- ------------------------ --------------------------- ---------------
Gross Specific Net Gross Specific Net
amount allowance total amount allowance total
------------ -------------------------- ---------------------------- ------------------------- ------------------------ --------------------------- ---------------
Residential
mortgages..
...........
...........
...........
...........
.... $ 452 $ 34 $ 418 $ 452 $ 30 $ 422
Personal...
...........
...........
...........
...........
...........
...........
... 291 211 80 304 224 80
Business and
government.
...........
...........
...........
........... 1,102 384 718 1,080 377 703
------------ -------------------------- ---------------------------- ------------------------- ------------------------ --------------------------- ---------------
Total
impaired
loans(1)(2)
...........
...........
...........
...........
.... $ 1,845 $ 629 $ 1,216 $ 1,836 $ 631 $ 1,205
------------ -------------------------- ---------------------------- ------------------------- ------------------------ --------------------------- ---------------
(1) Average balance of gross impaired loans for the year was
$1,792 million (2010: $1,917 million).
(2) Foreclosed assets of $52 million (2010: $63 million) were included in Other assets.
Contractually past due loans but not impaired
Contractually past due loans are loans where repayment of
principal or payment of interest is contractually in arrears. The
following table provides an aging analysis of the contractually
past due loans. Consumer overdraft balances past due less than 31
days have been excluded from the table below as the information is
currently indeterminable.
$ millions,
as at Less than 31 to Over 2011 2010
October 31 31 days 90 days 90 days Total Total
------------ ---------------------------- ------------------------- ------------------------- ------------------------ --------------
Residential
mortgages..
...........
...........
...........
...........
...........
...........
...........
...........
..... $ 1,353 $ 459 $ 171 $ 1,983 $ 2,375
Personal(1)
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
.... 474 115 30 619 659
Credit
card.......
...........
...........
...........
...........
...........
...........
...........
...........
...........
....... 558 155 108 821 1,021
Business and
government.
...........
...........
...........
...........
...........
...........
...........
...........
. 137 92 27 256 555
------------ ---------------------------- ------------------------- ------------------------- ------------------------ --------------
$ 2,522 $ 821 $ 336 $ 3,679 $ 4,610
------------ ---------------------------- ------------------------- ------------------------- ------------------------ --------------
(1) Prior year information has been restated to conform to the
presentation adopted in the current year.
Consolidated financial statements
As at October 31, 2011, the interest entitlements on loans
classified as impaired totalled $122 million (2010: $128 million;
2009: $103 million), of which $36 million (2010: $42 million; 2009:
$40 million) were in Canada and $86 million (2010: $86 million;
2009: $63 million) were outside Canada. During
the year, interest recognized on loans before being classified
as impaired totalled $59 million (2010: $66 million; 2009: $105
million), of which $44 million (2010: $49 million; 2009: $59
million) was in Canada and $15 million (2010: $17 million; 2009:
$46 million) was outside Canada.
Net interest income after provision for credit losses
$ millions, for the year ended October 31 2011 2010 2009
---------------------------------------------------------------------- ---------------- ------------- -------------
Interest
income...............................................................
.............................. $ 10,099 $ 9,095 $ 9,297
Interest
expense..............................................................
.............................. 3,749 2,891 3,903
---------------------------------------------------------------------- ---------------- ------------- -------------
Net interest
income...............................................................
........................ 6,350 6,204 5,394
Provision for credit
losses...............................................................
............... 841 1,046 1,649
---------------------------------------------------------------------- ---------------- ------------- -------------
Net interest income after provision for credit
losses....................................... $ 5,509 $ 5,158 $ 3,745
---------------------------------------------------------------------- ---------------- ------------- -------------
Note 6 Securitizations and variable interest entities
====== ==============================================
Securitization
Residential mortgages
We securitize insured fixed- and variable-rate residential
mortgages through the creation of National Housing Act (NHA) MBS.
Under the Bank Act, where we originate non-conventional mortgages
(loan-to-value ratio greater than 80%) the mortgagors must purchase
mortgage insurance. Where we originate conventional mortgages, for
this program we purchase portfolio mortgage insurance to cover
against losses on default. Mortgage insurance covers incurred
losses, including all reasonable legal and other direct costs
incurred to recover the mortgage balance in the event of
default.
Under the NHA MBS Program, as the issuer and servicer of the
MBS, we are required to make timely payment of principal and
interest regardless of whether we receive payment from the
underlying mortgages. In the event of default on the part of the
mortgagor, we submit an insurance claim to our insurer for the
amount of principal and interest owed after the foreclosure and
sale process of the mortgaged property.
Under the Canada Mortgage Bond program (CMB), sponsored by the
CMHC, we sell MBS to a securitization trust. We have determined
that we are not the primary beneficiary of the securitization trust
and, therefore, do not consolidate the trust. We have also sold MBS
directly to CMHC under the Government of Canada NHA MBS Auction
program. Under the CMB program, the MBS are sold to a
government-sponsored securitization trust that issues
securities to investors. We also act as counterparty in interest
rate swap agreements where we pay the securitization trust or CMHC
the interest due to investors and receive the interest on the
MBS.
We also securitize Canadian insured prime mortgages and
uninsured Near-Prime/Alt-A mortgages to a QSPE. We have retained
interest in those mortgages through the retention of the excess
spread and provide a cash reserve account that is subordinate to
the funding obligations applicable to the investors of the ABS. We
are also the counterparty to interest rate swap agreements where we
pay the QSPE the interest due to investors and receive a rate of
interest derived from the coupon of the underlying mortgages. We
also provide a liquidity facility to the QSPE.
Upon sale of these assets, a net gain or loss is recognized in
Income from securitized assets. We retain responsibility for
servicing the mortgages and recognize revenue as these services are
provided.
Commercial mortgages
We securitize commercial mortgages through a pass-through QSPE
structure that results in ownership certificates held by various
investors. We continue to service the mortgages. There were no
commercial mortgage securitizations during the year.
Consolidated financial statements
Credit card
We securitize credit card receivables to Cards II Trust (Cards
II), a QSPE established to purchase a proportionate share of
designated portfolios with the proceeds received from the
securities issued by the QSPE. We also securitize credit card
receivables to Broadway. Broadway is a QSPE established to purchase
credit card receivables associated with explicitly identified
individual accounts with the proceeds received from the securities
issued by the QSPE. We are one of several underwriters that
distribute the securities issued by the QSPEs.
In connection with the sale of credit card receivables to the
QSPEs, we have retained interest-only strips, and subordinated and
enhancement notes.
Our credit card securitizations are revolving securitizations,
with new credit card receivables sold to the QSPEs each period in
order to replenish receivable amounts as credit card clients repay
their balances. We maintain the credit card client servicing
responsibilities for the securitized receivables and recognize
revenue as services are provided.
The following table summarizes our securitization and sales
activity:
$ millions, for the
year ended October 31 2011 2010 2009
----------------------- ---------------------- --------------- --------------------- -------------------- --------------------- ---------------
Residential Credit Residential Credit Residential Credit
mortgages card(1)(2) mortgages card(1) mortgages card(1)
----------------------- ---------------------- --------------- --------------------- -------------------- --------------------- ---------------
Securitized(3)
......................
...................... $ 16,877 $ 2,313 $ 17,529 $ 1,799 $ 25,568 $ 54
Sold(3)
......................
......................
.......... 13,266 2,313 12,453 1,799 20,780 54
Cash proceeds(4)
......................
................. 13,281 2,313 12,532 1,799 20,744 54
Retained
interests.............
......................
. 529 1,715 505 146 1,073 54
Gain (loss) on sale,
net of transaction
costs.................
......................
............ 286 25 255 4 145 (1)
----------------------- ---------------------- --------------- --------------------- -------------------- --------------------- ---------------
Retained interest
assumptions (%)(5)
.........
Weighted-average
remaining life (in
years)............
..................
.............. 2.8 0.2 3.1 0.2 3.6 0.2
Prepayment/payment
rate..............
.... 15.0-18.0 38.3 15.0-18.0 37.4-37.6 12.0-24.0 37.9
Internal rate of
return............
.............. 1.4-9.3 3.7 1.6-9.3 3.6-3.7 1.5-8.8 2.8
Expected credit
losses............
............ 0.0-0.4 4.9 0.0-0.4 5.2-5.9 0.0-0.2 6.9
----------------------- ---------------------- --------------- --------------------- -------------------- --------------------- ---------------
(1) Reinvestment in revolving securitizations is not included.
(2) During 2011, we sold and securitized $1.7 billion of credit
card receivables and purchased all of the retained interests, in
the form of notes, relating to the securitization.
(3) Includes $309 million (2010: $409 million; 2009: $247
million) of uninsured fixed-rate mortgages securitized to a
QSPE.
(4) Certain prior year information has been restated to conform
to the presentation adopted in the current year.
(5) These retained interest assumptions are applicable only to interest-only strips.
The following table provides further details on our
securitization exposures:
Residential mortgages
CMB/NHA Prime and Near
$ millions, as at auction Prime/Alt-A Credit Commercial
October 31 program(1) program(2) card mortgages
--------------------- ------------------------- --------------------------------- ----------------- ----------------------
Retained
interests in
securitized
assets
2011 sold(3) $ 886 $ 214 $ 2,089 $ 5
Assets securitized
and not sold 19,145 - - -
Liquidity
facilities(4) - 754 - -
-------------------- ------------------------- --------------------------------- ----------------- ----------------------
2010 Retained
interests in
securitized
assets
sold(3)
.............
.............
.............
........... $ 961 $ 331 $ 591 $ 5
Assets securitized
and not
sold...............
. 19,651 - - -
Liquidity
facilities(4) - 772 - -
-------------------- ------------------------- --------------------------------- ----------------- ----------------------
(1) Includes balances related to CMB and Government of Canada
NHA MBS Auction process and other CMHC and MBS programs. Credit
losses are not expected as the mortgages are insured.
(2) The Near-Prime/Alt-A mortgages have an average loss rate
over the past five years of 43 basis points (2010: 37 basis points)
and an average loan-to-value ratio of 74% (2010: 74%). Total assets
in the QSPE were $962 million (2010: $1,019 million), which include
$281 million (2010: $352 million) of Prime mortgages and $597
million (2010: $586 million) of Near-Prime/Alt-A mortgages.
(3) Includes retained interest purchased subsequent to the initial securitization.
(4) Net of investments in our securitization vehicles.
Consolidated financial statements
The following table summarizes the total assets of the QSPEs
involved in the securitization and the classification of assets
recorded on our consolidated balance sheet, relating to
securitization of our own assets to QSPEs and VIEs:
$ millions,
as at October
31 2011 2010
------------- ------------------------------- ------------------- ------------------ ----------------------------- ------------------- -----------------
Residential and Residential and
commercial Credit commercial Credit
mortgages card Total mortgages card Total
------------- ------------------------------- ------------------- ------------------ ----------------------------- ------------------- -----------------
Total assets
of QSPEs(1)
............
............
.. $ 962 $ 5,789 $ 6,751 $ 1,019 $ 4,066 $ 5,085
------------- ------------------------------- ------------------- ------------------ ----------------------------- ------------------- -----------------
On-balance
sheet assets
of QSPEs and
VIEs
Securities...
.............
.............
.............
.....
Trading.
........
........
........
........
........
.... $ 83 $ 12 $ 95 $ 139 $ 25 $ 164
AFS.....
........
........
........
........
........
...... 982 178 1,160 1,074 217 1,291
Loans.......
............
............
............
.......... - 1,899 1,899 - 349 349
Other
assets......
............
............
............
.. 27 - 27 59 - 59
------------- ------------------------------- ------------------- ------------------ ----------------------------- ------------------- -----------------
$ 1,092 $ 2,089 $ 3,181 $ 1,272 $ 591 $ 1,863
------------- ------------------------------- ------------------- ------------------ ----------------------------- ------------------- -----------------
(1) Excludes assets securitized through pass-through QSPE structure.
We also have a servicing liability of $112 million (2010: $126
million) related to residential mortgages securitization and a
servicing liability of $20 million (2010: $12 million) related to
credit card securitization.
The following table summarizes certain cash flows as a result of
securitization activity:
$ millions, for
the year ended
October 31 2011 2010 2009
----------------- ----------------------- ------------------- ------------------------ -------------------- ------------------------ ------------------
Residential Credit Residential Credit Residential Credit
mortgages card mortgages card mortgages card
----------------- ----------------------- ------------------- ------------------------ -------------------- ------------------------ ------------------
Proceeds from
new
securitizations.
......... $ 13,281 $ 2,313 $ 12,532 $ 1,799 $ 20,744 $ 54
Proceeds
reinvested in
revolving
securitizations.
................
................
... - 20,759 - 12,816 - 14,642
Servicing fees
received........
................
... 79 101 74 49 72 64
Cash flows
received on
interest-only
strips and
other...........
................
................ 580 626 494 305 427 260
----------------- ----------------------- ------------------- ------------------------ -------------------- ------------------------ ------------------
Key economic assumptions used in measuring the fair value of
interest-only strips in securitizations and the sensitivity of the
current fair value of residual cash flows to changes in those
assumptions are set out in the table below.
The sensitivities are hypothetical and should be viewed with
caution, as changes in fair value based on variations in
assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair
value may not be linear. Also, the effect of a variation in a
particular assumption on the fair value of the interest-only strips
is calculated without changing any other assumptions. Changes in
one factor may result in changes in another, which might magnify or
counteract the sensitivities.
$ millions, as at
October 31 2011 2010
---------------------- ------------------------ --------------------- ----------------------- --------------------
Residential Credit Residential Credit
mortgages card mortgages card
---------------------- ------------------------ --------------------- ----------------------- --------------------
Amortized cost of
interest-only
strips...............
........... $ 910 $ 34 $ 996 $ 15
Fair value of
interest-only
strips(1)
.....................
.......... 952 34 1,046 15
Weighted-average
remaining life (in
years)............... 2.5 0.2 2.3 0.2
Prepayment/payment
rate.................
.....................
... 7.0-25.0% 18.2-38.9%(2) 7.0-25.0% 37.6%(2)
Impact on fair
value of a 10%
adverse
change..... (18) (3) (23) (1)
Impact on fair
value of a 20%
adverse
change..... (36) (5) (46) (2)
Expected credit
losses...............
.....................
............ 0.0-0.4% 4.4-8.8% 0.0-0.4% 5.2%
Impact on fair
value of a 10%
adverse
change..... (1) (6) (1) (3)
Impact on fair
value of a 20%
adverse
change..... (1) (12) (1) (6)
Residual cash flows
discount rate (annual
rate).......... 1.0-3.2% 3.6% 1.2-3.6% 3.7%
Impact on fair
value of a 10%
adverse
change..... (1) - (2) -
Impact on fair
value of a 20%
adverse
change..... (2) - (4) -
---------------------- ------------------------ --------------------- ----------------------- --------------------
(1) There were no write-downs of interest-only strips.
(2) Monthly payment rate.
Consolidated financial statements
The following table summarizes the loan principal, impaired and
other past due loans, and net write-offs for total loans reported
on our consolidated balance sheet and loans securitized:
$ millions,
as at or for the
year
ended October 31 2011 2010
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Total Impaired Total Impaired
principal and other principal and other
amount of past due Net amount of past due Net
Type of loan loans loans(1) write-offs(2) loans loans(1) write-offs(2)
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Residential
mortgages.... $ 150,210 $ 870 $ 19 $ 143,003 $ 934 $ 15
Personal.........
................ 34,842 321 281 34,335 337 345
Credit
card.............
......... 15,758 179 744 15,924 143 756
Business and
government(3)
............. 42,172 1,129 146 39,019 1,100 314
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Total loans
reported and
securitized(4)
............... 242,982 2,499 1,190 232,281 2,514 1,430
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Less: Loans
securitized...
Residential
mortgages....
.............
........... 50,607 247 4 49,435 268 3
Credit
card.........
........ 5,350 71 266 3,797 29 132
Business and
government(3)
....... 360 - - 437 - -
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Total loans
securitized.... 56,317 318 270 53,669 297 135
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
Total loans
reported on the
consolidated
balance
sheet............ $ 186,665 $ 2,181 $ 920 $ 178,612 $ 2,217 $ 1,295
------------------ ------------------- ------------------------ ------------------------ ----------------------- ------------------------ ---------------------
(1) Other past due loans are loans where repayment of principal
or payment of interest is contractually in arrears between 90 and
180 days.
(2) Represents write-offs in the current year net of recoveries on previously written-off loans.
(3) Includes commercial mortgages and investment-grade loans.
(4) Includes loans outstanding and loans that have been
securitized, which we continue to manage.
Variable interest entities
We consolidate VIEs for which we are considered the primary
beneficiary. During 2011, we determined that we were no longer the
primary beneficiary to certain VIEs subsequent to the sale of our
residual interest in these VIEs.
VIEs that are consolidated
The table below provides further details on the assets that
support the obligations of the consolidated VIEs.
$ millions, as at October 31 2011 2010
----------------------------------------------------------------------------- -------------- -------------
Trading securities...................................................... $ - $ 818
AFS securities............................................................ 66 85
Residential mortgages............................................... 46 62
Other assets............................................................... - 1
----------------------------------------------------------------------------- -------------- -------------
Total assets............................................................... $ 112 $ 966
----------------------------------------------------------------------------- -------------- -------------
Investors in the consolidated VIEs have recourse only to the
assets of the VIEs and do not have recourse to our general credit,
except where we have provided liquidity facilities, credit
enhancements, or are a counterparty to a derivative transaction
involving the VIE.
We are also considered the primary beneficiary of a limited
partnership entity that purchases mortgages and MBS from CIBC
parent bank. The limited partnership entity has assets of
approximately $13.0 billion (2010: $9.8 billion).
In addition, we were considered the primary beneficiary for
certain compensation trusts with assets of approximately $1 million
(2010: $75 million), as represented by a nominal number of our
common shares (2010: 1 million). Consequently, the consolidation of
these trusts did not have a significant impact as both the assets
(our common shares) and the liabilities (the obligation to deliver
our common shares to the participants) of the trusts offset each
other within Shareholders' equity on the consolidated balance
sheet.
VIEs that are not consolidated
As at October 31, 2011, we have interests in VIEs involved in
the securitization of third-party assets, for which we are not
considered the primary beneficiary, and thus, we do not consolidate
these VIEs. These VIEs include several CIBC-sponsored conduits and
CDOs for which we act as structuring and placement agents.
See Note 18 for details on CIBC Capital Trust, a trust wholly
owned by CIBC.
We also have interests in securities issued by entities
established by CMHC, Fannie Mae, Federal Home Loan Mortgage
Corporation (Freddie Mac), Ginnie Mae, Federal Home Loan Banks,
Federal Farm Credit Bank, and Student Loan Marketing Association
(Sallie Mae).
Consolidated financial statements
CIBC-sponsored conduits
We sponsor several non-consolidated multi-seller conduits in
Canada that purchase pools of financial assets from our clients and
finance the purchases by issuing commercial paper to investors.
Total assets of these non-consolidated conduits amounted to $1.3
billion (2010: $2.3 billion). Certain of our conduits hold
commercial paper issued by our other conduits. The underlying
collateral amounts totalled $1.3 billion (2010: $2.1 billion) and
are included in the total assets. The sellers to the conduits may
continue to service the assets and may be exposed to credit losses
realized on these assets, typically through the provision of
overcollateralization or another form of retained interest. The
conduits may obtain credit enhancement from third-party
providers.
We generally provide the conduits with commercial paper backstop
liquidity facilities, securities distribution, accounting, cash
management, and operations services. The liquidity facilities for
our sponsored asset-backed commercial paper (ABCP) programs offered
to external investors require us to provide funding, subject to the
satisfaction of certain limited conditions with respect to the
conduits, to fund non-defaulted assets. We are subject to
maintaining certain short-term and/or long-term debt ratings with
respect to the liquidity facilities provided to our own sponsored
ABCP programs. If we are downgraded below the specified level, and
we fail to make alternative arrangements that meet the requirements
of the rating agencies that rate the ABCP issued by conduits, we
could be required to provide funding into an escrow account in
respect of our liquidity commitments.
We may also act as the counterparty to derivative contracts
entered into by a conduit in order to convert the yield of the
underlying assets to match the needs of the conduit's investors or
to mitigate the interest rate risk within the conduit. All fees
earned in respect of these activities are on a market basis.
We continue to support our sponsored conduits from time to time
through the purchase of commercial paper issued by these conduits.
Our direct investment in commercial paper issued by our sponsored
conduits was $3 million (2010: $110 million). We also sponsor a
single-seller conduit that provides funding to franchises of a
major Canadian retailer. Total assets of this conduit amounted to
$421 million (2010: $403 million). This conduit is financed through
a three-year syndicated commitment facility totalling $475 million.
We participated in the commitment facility for $95 million. As at
October 31, 2011, we funded $77 million (2010: $72 million) through
the issuance of bankers' acceptances.
CIBC structured CDO vehicles
We have curtailed our business activity in structuring CDO
vehicles within our structured credit run-off portfolio. Our
exposures to CDO vehicles mainly arose through our previous
involvement in acting as structuring and placement agent for the
CDO vehicles.
Third-party structured vehicles - run-off
Similar to our structured CDO activities, we also curtailed our
business activities in third-party structured vehicles, within our
structured credit run-off portfolio. These positions were initially
traded as intermediation, correlation, and flow trading which
earned us a spread on matching positions.
Third-party structured vehicles - continuing
We have investments in third-party structured vehicles through
our treasury and trading activities.
Consolidated financial statements
Our on-balance sheet amounts and maximum exposure to loss
relating to VIEs 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 VIE reference
assets. The impact of CVA is not considered in the table below.
Third-party structured
vehicles
CIBC- CIBC-
$ millions, as at October sponsored structured
31 conduits CDO vehicles Run-off Continuing Total
2011 On-balance sheet
assets(1)
Trading
securities..........
....... $ 3 $ - $ 558 $ 719 $ 1,280
AFS
securities..........
............. - 2 2 1,320 1,324
FVO.................
....................
... - - - 73 73
Loans...............
....................
.. 77 290 4,023 34 4,424
Derivatives(2)
....................
..... - - - 68 68
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
$ 80 $ 292 $ 4,583 $ 2,214 $ 7,169
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
On-balance sheet
liabilities
Derivatives(2) $ - $ 37 $ 1,545 $ 44 $ 1,626
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
$ - $ 37 $ 1,545 $ 44 $ 1,626
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
2010 On-balance sheet
assets(1)
Trading
securities..........
......... $ 110 $ - $ 621 $ 32 $ 763
AFS
securities..........
............... - 5 14 1,541 1,560
FVO.................
....................
... - 9 - 205 214
Loans...............
....................
.. 72 434 7,061 - 7,567
Derivatives(2)
....................
....... - - - 184 184
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
$ 182 $ 448 $ 7,696 $ 1,962 $ 10,288
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
On-balance sheet
liabilities........
.
Derivatives(2)
....................
....... $ - $ 36 $ 1,084 $ 2 $ 1,122
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
$ - $ 36 $ 1,084 $ 2 $ 1,122
------------------------- --------------------- -------------------------- ----------------- --------------------- -----------------
$ millions, as at October 31 2011 2010
-------------------------------------------------------------------------------- ----------------- -----------------
Maximum exposure to loss, net of hedges
Maximum exposure to loss before hedge
positions..................................................................... $ 12,379 $ 17,318
Less: Notional of protection purchased or hedges relating to written credit
derivatives, less
gross receivable on those
hedges.........................................................................
.......................... (3,292) (3,824)
Carrying value of hedged securities and
loans.................................................................. (4,614) (7,330)
-------------------------------------------------------------------------------- ----------------- -----------------
$ 4,473 $ 6,164
-------------------------------------------------------------------------------- ----------------- -----------------
(1) Excludes securities issued by, retained interest in, and
derivatives with, entities established by CMHC, Fannie Mae, Freddie
Mac, Ginnie Mae, Federal Home Loan Banks, Federal Farm Credit Bank,
and Sallie Mae.
(2) Comprises credit derivatives (written credit default swaps
and total return swaps) under which we assume exposures and
excludes all other derivatives.
Consolidated financial statements
Note 7 Land, buildings and equipment
====== =============================
Office
furniture
$ millions, as at or for Land and Computer and other Leasehold
the year ended October 31 buildings(1) equipment equipment(2) improvements Total
-------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
2011 Cost
Balance at beginning
of year $ 1,203 $ 1,067 $ 697 $ 647 $ 3,614
Net additions
(disposals) 23 47 (14) 75 131
Adjustments(3) (16) (1) (2) (2) (21)
------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
Balance at end of year $ 1,210 $ 1,113 $ 681 $ 720 $ 3,724
------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
Balance at end of
2010 year $ 1,203 $ 1,067 $ 697 $ 647 $ 3,614
----- ------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
2011 Accumulated
amortization
Balance at beginning
of year $ 349 $ 839 $ 357 $ 409 $ 1,954
Amortization 26 105 32 45 208
Disposals (9) (61) (29) (19) (118)
Adjustments(3) 2 2 - - 4
------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
Balance at end of year $ 368 $ 885 $ 360 $ 435 $ 2,048
------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
Balance at end of
2010 year $ 349 $ 839 $ 357 $ 409 $ 1,954
----- ------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
Net book value
As at October 31,
2011 $ 842 $ 228 $ 321 $ 285 $ 1,676
As at October 31,
2010 $ 854 $ 228 $ 340 $ 238 $ 1,660
------------------------- -------------------- ---------------------- ---------------------- ---------------------------- -----------------
(1) Includes net book value of $162 million (2010: $165 million)
relating to land and $333 million (2010: $351 million) relating to
buildings for which we are deemed to have ownership for accounting
purposes.
(2) Includes $87 million (2010: $132 million) of work-in-progress not subject to amortization.
(3) Includes foreign currency translation adjustments.
Consolidated financial statements
Note 8 Goodwill, software and other intangible assets
====== ==============================================
Goodwill
We performed our annual impairment test on goodwill and other
indefinite-lived intangible assets as at April 30, 2011. Based on
our assessment, we determined that no impairment write-downs were
required.
The changes in the carrying amount of goodwill allocated to each
reporting unit are as follows:
$ millions,
for the year ended October
31
--------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
Wealth Capital CIBC
Reporting units Management markets(1) FirstCaribbean(1) Other Total
--------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
Balance at
2011 beginning of year $ 879 $ 40 $ 927 $ 67 $ 1,913
Acquisitions.........
.....................
. - - - 2 2
Dispositions.........
.....................
. - - - (1) (1)
Adjustments(2)
.....................
....... - - (21) 1 (20)
-------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
Balance at end of year $ 879 $ 40 $ 906 $ 69 $ 1,894
-------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
Balance at
beginning of
2010. year........... $ 879 $ 72 $ 983 $ 63 $ 1,997
Acquisitions.........
.....................
... - - - 5 5
Dispositions.........
.....................
... - (31)(3) - (1) (32)
Adjustments(2)
.....................
......... - (1) (56) - (57)
-------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
Balance at end of
year..................... $ 879 $ 40 $ 927 $ 67 $ 1,913
-------------------------- ------------------------- ------------------------- ------------------------------- -------------------- ----------------------
(1) Capital markets and FirstCaribbean International Bank
Limited (CIBC FirstCaribbean) reporting units are part of Wholesale
Banking and Corporate and Other operating segments,
respectively.
(2) Includes foreign currency translation adjustments.
(3) Includes disposition of a consolidated U.S. investment.
Software and other intangible assets
The changes in the carrying amount of indefinite-lived other
intangible assets are as follows:
$ millions, as at or for the year ended Contract
October 31 based(1) Brandname(2) Total
------------------------------------------- ---------------------- --------------------------- --------------------
2011 Balance at beginning and end of year $ 116 $ 20 $ 136
----- ------------------------------------ ---------------------- --------------------------- --------------------
Balance at beginning of
year...............................
2010 ....................... $ 116 $ 21 $ 137
Adjustments(3) - (1) (1)
------------------------------------------ ---------------------- --------------------------- --------------------
Balance at end of
year.....................................
........................... $ 116 $ 20 $ 136
------------------------------------------ ---------------------- --------------------------- --------------------
(1) Represents a combination of management contracts purchased as part of past acquisitions.
(2) Acquired as part of the CIBC FirstCaribbean acquisition.
(3) Includes foreign currency translation adjustments.
Consolidated financial statements
The components of finite-lived software and other intangible
assets are as follows:
$ millions,
as at or for the year Core deposit Customer
ended October 31 Software(1) intangibles(2) Contract based(3) relationships(4) Total
---------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
2011 Gross carrying amount
Balance at beginning of
year....... $ 1,537 $ 249 $ 50 $ 161 $ 1,997
Net acquisitions
(dispositions).... 171 - - 18 189
Adjustments(5)
............................
.. (2) (6) - - (8)
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
Balance at end of year $ 1,706 $ 243 $ 50 $ 179 $ 2,178
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
2010. Gross carrying
amount....................
....
Balance at beginning of
year........ $ 1,544 $ 264 $ 64 $ 112 $ 1,984
Net acquisitions
(dispositions)........ (1) - (14) 49 34
Adjustments(5)
............................
.... (6) (15) - - (21)
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
Balance at end of
year....................... $ 1,537 $ 249 $ 50 $ 161 $ 1,997
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
2011 Accumulated amortization
Balance at beginning of
year....... $ 1,284 $ 110 $ 40 $ 90 $ 1,524
Amortization................
................. 106 23 2 17 148
Dispositions................
................. (8) - - - (8)
Adjustments(5)
............................
.. (2) (2) - - (4)
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
Balance at end of year $ 1,380 $ 131 $ 42 $ 107 $ 1,660
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
2010. Accumulated
amortization..............
...
Balance at beginning of
year........ $ 1,242 $ 90 $ 40 $ 80 $ 1,452
Amortization................
................. 129 26 3 10 168
Dispositions................
................... (82) - (3) - (85)
Adjustments(5)
............................
.... (5) (6) - - (11)
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
Balance at end of
year....................... $ 1,284 $ 110 $ 40 $ 90 $ 1,524
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
Net book
value.....................
..............
As at October 31,
2011................ $ 326 $ 112 $ 8 $ 72 $ 518
As at October 31,
2010................. $ 253 $ 139 $ 10 $ 71 $ 473
--------------------------------- ------------------ ------------------------- ---------------------------- ----------------------- ------------------
(1) Includes $177 million (2010: $73 million) of work-in-progress not subject to amortization.
(2) Acquired as part of the CIBC FirstCaribbean acquisition.
(3) Represents a combination of management contracts purchased as part of past acquisitions.
(4) Represents customer relationships associated with the
custody business and the intangible asset acquired as part of the
MasterCard portfolio acquisition.
(5) Includes foreign currency translation adjustments.
The total estimated amortization expense relating to
finite-lived software and other intangible assets for each of the
next five years is as follows:
$ millions
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------
2012...................................................................................................................................................................... 108
2013...................................................................................................................................................................... 59
2014...................................................................................................................................................................... 38
2015...................................................................................................................................................................... 26
2016...................................................................................................................................................................... 19
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------
Note 9 Other assets
====== ============
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------- ------------------------ -----------------
Accrued interest
receivable..............................................................
............................................ $ 691 $ 787
Accrued benefit asset (Note
21).....................................................................
............................... 1,445 1,426
Brokers' client
accounts................................................................
................................................. 290 406
Current income tax
receivable..............................................................
........................................ 446 577
Future income tax asset (Note
22).....................................................................
........................... 270 767
Other prepayments and deferred
items...................................................................
...................... 645 656
Cheques and other items in transit,
net.....................................................................
................... 382 674
Derivative collateral
receivable..............................................................
...................................... 4,397 4,912
Accounts
receivable..............................................................
....................................................... 518 687
Other...................................................................
........................................................................
. 415 408
------------------------------------------------------------------------- ------------------------ -----------------
$ 9,499 $ 11,300
------------------------------------------------------------------------- ------------------------ -----------------
Consolidated financial statements
Note 10 Deposits(1)(2)
======= ==============
$ millions, as at October Payable on Payable after Payable on a 2011 2010
31 demand(3) notice(4) fixed date(5) Total Total
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
Personal................
........................
............ $ 8,109 $ 66,149 $ 42,334 $ 116,592 $ 113,294
Business and
government..............
............ 32,171 15,862 86,603(6) 134,636 127,759
Bank....................
........................
.............. 1,297 11 2,873 4,181 5,618
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
$ 41,577 $ 82,022 $ 131,810 $ 255,409 $ 246,671
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
Comprised
of:......................
......................
Held at amortized
cost................
.......... $ 253,886 $ 243,141
Designated at fair
value (Note
13)........ 1,523 3,530
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
Total deposits
include:.................
.............
Non-interest-bearing
deposits.............
..
In domestic
offices.........
................
. $ 28,469 $ 27,675
In foreign
offices.........
................
.... 2,197 2,070
Interest-bearing
deposits.............
..........
In domestic
offices.........
................
. 189,778 177,368
In foreign
offices.........
................
.... 34,388 39,115
U.S. federal funds
purchased...........
..... 577 443
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
$ 255,409 $ 246,671
------------------------- -------------------- ------------------------- -------------------------- ------------------- ------------------
(1) Includes deposits of $56.1 billion (2010: $54.1 billion)
denominated in U.S. dollars and deposits of $6.0 billion (2010:
$5.4 billion) denominated in other foreign currencies.
(2) Net of own deposits purchased by CIBC of $935 million (2010: $648 million).
(3) Includes all deposits for which we do not have the right to
require notice of withdrawal. These deposits are generally chequing
accounts.
(4) Includes all deposits for which we can legally require
notice of withdrawal. These deposits are generally savings
accounts.
(5) Includes all deposits that mature on a specified date. These
deposits are generally term deposits, guaranteed investment
certificates, and similar instruments.
(6) Includes covered bond deposits totalling $12.0 billion
(2010: $6.4 billion) and $1.6 billion (2010: $1.6 billion) of Notes
purchased by CIBC Capital Trust (see Note 18 for additional
details).
Note 11 Other liabilities
======= =================
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------- ------------------- ----------------------
Accrued interest
payable.................................................................
............................................. $ 1,133 $ 1,336
Accrued benefit liability (Note
21).....................................................................
........................... 739 749
Gold and silver
certificates............................................................
............................................... 300 415
Brokers' client
accounts................................................................
................................................. 1,121 898
Derivative collateral
payable.................................................................
....................................... 2,901 3,062
Other deferred
items...................................................................
.................................................. 236 255
Negotiable
instruments.............................................................
.................................................... 1,312 1,194
Current income tax
liability...............................................................
........................................... 45 29
Future income tax liability (Note
22)......................................................................
...................... 51 -
Accounts payable and accrued
expenses................................................................
..................... 1,661 1,832
Other...................................................................
........................................................................
. 2,324 2,802(1)
------------------------------------------------------------------------- ------------------- ----------------------
$ 11,823 $ 12,572
------------------------------------------------------------------------- ------------------- ----------------------
(1) Includes $604 million payable in respect of non-cumulative
preferred shares (Series 19 and 23) redeemed on October 31, 2010.
See Note 17 for additional details.
Consolidated financial statements
Note 12 Trading activities
======= ==================
Trading income comprises net interest income and non-interest
income. Net interest income arises from interest and dividends
related to trading assets and liabilities other than derivatives,
and is reported net of interest expense and income associated with
funding these assets and liabilities. Non-interest income includes
unrealized gains and losses on security positions held, and gains
and losses that are realized from the purchase and sale of
securities. Non-interest income
also includes realized and unrealized gains and losses on
trading derivatives.
Trading income excludes underwriting fees and commissions on
securities transactions, which are shown separately in the
consolidated statement of operations.
The following tables present the assets and liabilities and
income related to trading activities.
Trading assets and liabilities
$ millions, as at October 31 2011 2010
----------------------------------- ------------------------------ ---------------------------- -------------------
Assets.............................
...................................
...................................
........
Debt securities(1)
..............................
..............................
.......................... $ 10,963 $ 15,649
Equity
securities....................
..............................
..............................
..... 21,834 12,908
----------------------------------- ------------------------------ ---------------------------- -------------------
Total securities (Note
4)................................
..................................
............. 32,797 28,557
Residential mortgages (Note 5)(2)
..................................
............................... 44 62
Business and government loans (Note
5)(2)
..................................
................. 257 1,000
Derivative instruments (Note
14)...............................
..................................
. 24,562 22,034
----------------------------------- ------------------------------ ---------------------------- -------------------
$ 57,660 $ 51,653
----------------------------------- ------------------------------ ---------------------------- -------------------
Liabilities........................
...................................
...................................
.......
Obligations related to
securities sold
short.........................
..................... $ 10,274 $ 7,304
Derivative instruments (Note
14)(1)
..............................
............................. 25,904 22,809
----------------------------------- ------------------------------ ---------------------------- -------------------
$ 36,178 $ 30,113
----------------------------------- ------------------------------ ---------------------------- -------------------
Income (loss) from trading
activities
$ millions, for the year ended
October 31 2011 2010 2009
----------------------------------- ------------------------------ ---------------------------- -------------------
Trading income (loss) consists
of:................................
.................................
Interest
income........................
..............................
..............................
... $ 967 $ 495 $ 420
Interest
expense.......................
..............................
..............................
.. 624 277 183
----------------------------------- ------------------------------ ---------------------------- -------------------
Net interest
income........................
..............................
.......................... 343 218 237
Non-interest
income........................
..............................
......................... (74 ) 603 (531)
----------------------------------- ------------------------------ ---------------------------- -------------------
$ 269 $ 821 $ (294)
----------------------------------- ------------------------------ ---------------------------- -------------------
Trading income (loss) by product
line:..............................
...........................
Interest
rates.........................
..............................
..............................
...... $ 156 $ 162 $ 145
Foreign
exchange......................
..............................
.............................. 276 265 291
Equities......................
..............................
..............................
................ 21 94 216
Commodities...................
..............................
..............................
........... 43 33 44
Structured credit(3)
..............................
..............................
....................... (227 ) 140 (1,038)
Other(3)
..............................
..............................
..............................
.......... - 127 48
----------------------------------- ------------------------------ ---------------------------- -------------------
$ 269 $ 821 $ (294)
----------------------------------- ------------------------------ ---------------------------- -------------------
(1) Includes USRMM-related securities of $182 million (2010:
$250 million) and derivative liabilities with notional of $1,223
million and fair value of $1,018 million (2010: notional of $1,445
million and fair value of $1,155 million), which are used to
economically hedge a FVO liability with a fair value of $389
million (2010: $526 million) included in Note 13.
(2) In 2011, we have reported trading loans carried at fair
value separately. Previously these were classified as part of loans
at amortized cost. Prior year information has been restated.
(3) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
Consolidated financial statements
Note 13 Financial instruments designated at fair value
======= ==============================================
FVO financial instruments include the following instruments:
-- Certain securities and deposit liabilities hedged by
derivatives such as interest rate swaps and seller swaps; and
-- Financial liabilities that have one or more embedded
derivatives which significantly modify the cash flows of the host
liability that are not bifurcated from the host instrument.
The following tables present the FVO assets and liabilities and
their hedges, and the related income from these financial
instruments on a portfolio basis. Net interest income arises from
interest and dividends related to the FVO assets and liabilities,
and is reported net of interest expense and income associated with
funding these assets and liabilities. Non-interest income includes
unrealized gains and losses on the FVO assets and liabilities,
related hedging derivatives and securities sold short.
FVO assets and liabilities
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------ ------------------------ ------------------
FVO
assets..................................................................
............................................................
Debt
securities.........................................................
.......................................................... $ 20,064 $ 22,430
Business and government loans(1) (Note
5).................................................................
........ 10 21
------------------------------------------------------------------------ ------------------------ ------------------
$ 20,074 $ 22,451
------------------------------------------------------------------------ ------------------------ ------------------
FVO
liabilities.............................................................
............................................................
Business and government deposits(2)(3)
...................................................................
............ $ 1,523 $ 3,530
------------------------------------------------------------------------ ------------------------ ------------------
$ 1,523 $ 3,530
------------------------------------------------------------------------ ------------------------ ------------------
(1) The undrawn credit exposure related to FVO loans was nil for 2011 and 2010.
(2) Included in business and government deposits is a limited
recourse note of $389 million (2010: $526 million), which is hedged
by USRMM-related securities of $182 million (2010: $250 million)
that are classified as trading, and by derivative liabilities of
$1,018 million (2010: $1,155 million). See Note 12 for additional
details.
(3) The carrying amount of FVO deposits would have been $2
million lower (2010: $6 million higher) had the deposits been
carried on a contractual settlement amount.
Economic hedging assets and liabilities of FVO financial
instruments
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------- ------------------------- ----------------
Assets...................................................................
...................................................................
Derivative instruments (Note
14).................................................................
....................... $ 1,508 $ 492
------------------------------------------------------------------------- ------------------------- ----------------
$ 1,508 $ 492
------------------------------------------------------------------------- ------------------------- ----------------
Liabilities..............................................................
..................................................................
Derivative instruments (Note
14).................................................................
....................... $ 2,821 $ 1,569
Obligations related to securities sold
short...............................................................
.......... - 1,844
------------------------------------------------------------------------- ------------------------- ----------------
$ 2,821 $ 3,413
------------------------------------------------------------------------- ------------------------- ----------------
Consolidated financial statements
FVO and related hedges income (loss)
$ millions, for
the year ended
October 31 2011 2010 2009
Interest
income..........
................
................
. $ 369 $ 335 $ 525
Interest
expense(1)
................
................
....... 154 69 276
Net interest
income..........
................
.......... 215 266 249
Non-interest
income...........
.................
.......
FVO financial
instruments.
............
........ 3 (291 ) 168
Economic
hedges(2)
............
............
....... (137 ) (332 ) (201)
(134 ) (623 ) (33)
$ 81 $ (357 ) $ 216
(1) Includes $28 million (2010: $15 million; 2009: $10 million) on obligations related to
securities sold short hedging the FVO financial instruments.
(2) Comprises derivative instruments held to economically hedge FVO financial instruments.
The changes in the fair value of the FVO loans attributable to changes in credit risk are
calculated by determining the credit spread implicit in the fair value of comparable bonds
issued by the same entity or others with similar characteristics. The change in fair value
attributable to changes in CIBC's credit risk is calculated by reference to the change in
the credit spread implicit in the fair value of CIBC's deposits.
The following table presents the gains (losses) due to changes in the fair value of FVO financial
instruments attributable to changes in the credit risk:
For the year Cumulative for the period
ended October 31 ended October 31(1)
$ millions 2011 2010 2009 2011 2010 2009
FVO
loans...........
................
................
....... $ (1) $ - $ (29) $ (2 ) $ (1 ) $ (27)
FVO loans, net of
related
hedges(2)
............. (1) - (8) (2 ) (1 ) 2
FVO
deposits........
................
................
...... - (1) (5) - (3 ) (6)
(1) Change in the fair value of FVO financial instruments, held
by CIBC at the end of the reporting period, from the date they were
designated as FVO.
(2) Notional amounts of the derivatives hedging the credit risk
on FVO loans was nil (2010: nil; 2009: $242 million).
Note 14 Derivative instruments
======= ======================
As explained in Note 1, in the normal course of business, we use
various derivative instruments for both trading and ALM purposes.
These derivatives limit, modify or give rise to varying degrees and
types of risk.
$ millions, as at October 31 2011 2010
Assets Liabilities Assets Liabilities
Trading (Note
12)..................................
.....................................
. $ 24,562 $ 25,904 $ 22,034 $ 22,809
Designated accounting hedges (Note
15)..................................
.. 1,773 623 1,281 (2) 714
Economic hedges(1)
......................................
................................
Economic hedges of FVO financial
instruments (Note 13)...... 1,508 2,821 492 1,569
Other economic
hedges...........................
.............................. 416 459 875 (2) 1,397
$ 28,259 $ 29,807 $ 24,682 $ 26,489
(1) Comprises derivatives not part of qualifying hedging
relationships for accounting purposes under the CICA handbook
section 3865.
(2) Restated.
Consolidated financial statements
Derivatives used by CIBC
The majority of our derivative contracts are OTC transactions
that are privately negotiated between CIBC and the counterparty to
the contract. The remainder are exchange-traded contracts
transacted through organized and regulated exchanges and consist
primarily of options and futures.
Interest rate derivatives
Forward rate agreements are OTC contracts that effectively fix a
future interest rate for a period of time. A typical forward rate
agreement provides that at a pre-determined future date, a cash
settlement will be made between the counterparties based upon the
difference between a contracted rate and a market rate to be
determined in the future, calculated on a specified notional
principal amount. No exchange of principal amount takes place.
Interest rate swaps are OTC contracts in which two
counterparties agree to exchange cash flows over a period of time
based on rates applied to a specified notional principal amount. A
typical interest rate swap would require one counterparty to pay a
fixed market interest rate in exchange for a variable market
interest rate determined from time to time, with both calculated on
a specified notional principal amount. No exchange of principal
amount takes place. Certain interest rate swaps are transacted and
settled through a clearing house which acts as a central
counterparty.
Interest rate options are contracts in which one party (the
purchaser of an option) acquires from another party (the writer of
an option), in exchange for a premium, the right, but not the
obligation, either to buy or sell, on a specified future date or
within a specified time, a specified financial instrument at a
contracted price. The underlying financial instrument will have a
market price which varies in response to changes in interest rates.
In managing our interest rate exposure, we act both as a writer and
purchaser of these options. Options are transacted in both OTC and
exchange markets.
Interest rate futures are standardized contracts transacted on
an exchange. They are based upon an agreement to buy or sell a
specified quantity of a financial instrument on a specified future
date, at a contracted price. These contracts differ from forward
rate agreements in that they are in standard amounts with standard
settlement dates and are transacted on an exchange.
Foreign exchange derivatives
Foreign exchange forwards are OTC contracts in which one
counterparty contracts with another to exchange a specified amount
of one currency for a specified amount of a second currency, at a
future date or range of dates.
Foreign exchange futures contracts are similar in mechanics to
foreign exchange forward contracts, but differ in that they are in
standard currency amounts with standard settlement dates and are
transacted on an exchange.
Swap contracts comprise foreign exchange swaps and
cross-currency interest rate swaps. Foreign exchange swaps are
transactions in which a foreign currency is simultaneously
purchased in the spot market and sold in the forward market, or
vice versa. Cross-currency interest rate swaps are transactions in
which counterparties exchange principal and interest flows in
different currencies over a period of time. These contracts are
used to manage both currency and interest rate exposures.
Credit derivatives
Credit derivatives are OTC contracts designed to transfer the
credit risk in an underlying financial instrument (usually termed
as a reference asset) from one counterparty to another. The most
common credit derivatives are credit default swaps (CDS) and total
return swaps (TRS).
CDS provide protection against the decline in value of a
reference asset or group of assets as a result of specified credit
events such as default or bankruptcy. CDS are similar in structure
to an option whereby the purchaser pays a premium to the seller of
the CDS in return for payment contingent on a credit event
affecting the reference asset or group of assets. Settlement may be
cash-based or physical, requiring the delivery of the reference
asset or group of assets to the seller of the CDS.
In TRS contracts, one counterparty agrees to pay or receive from
the other cash amounts based on changes in the value of a reference
asset or group of assets, including any returns, such as interest
earned on these assets, in exchange for amounts that are based on
prevailing market funding rates. These cash settlements are made
regardless of whether there is a credit event.
Consolidated financial statements
Within our structured credit run-off portfolio, we hold
purchased and sold protection on both single-name and
index-reference obligations. These reference obligations include
corporate debt, CDOs of residential mortgages, commercial
mortgages, trust preferred securities, and CLOs. For both
single-name and index CDS contracts, upon the occurrence of a
credit event, under the terms of a CDS contract neither party to
the CDS contract has recourse to the reference obligation. The
protection purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and the fair
value of the reference obligation at the time of settling the
credit derivative contract.
In our structured credit run-off portfolio, we also have TRS on
single-name reference obligations that are primarily CLOs. There is
a regular payment calendar for the transfer of net returns. Where
the reference asset is a security with a risk of default, the TRS
agreement normally sets forth various payments and valuation steps
required upon default. The TRS agreement may simply terminate and
the parties exchange cash payments according to the value of the
defaulted assets. There may be an exchange of cash with physical
delivery of the defaulted assets. The total return payer may
substitute another security for the defaulted one and continue the
TRS arrangement. Collateral treatment is typically "full recourse,"
meaning the total return receiver must post additional collateral
if the asset value drops, or may withdraw collateral if the asset
value increases.
Equity derivatives
Equity swaps are OTC contracts in which one counterparty agrees
to pay, or receive from the other, cash amounts based on changes in
the value of a stock index, a basket of stocks or a single stock.
These contracts sometimes include a payment in respect of
dividends.
Equity options give the purchaser of the option, for a premium,
the right, but not the obligation, to buy from or sell to the
writer of an option, an underlying stock index, basket of stocks,
or single stock at a contracted price. Options are transacted in
both OTC and exchange markets.
Equity index futures are standardized contracts transacted on an
exchange. They are based on an agreement to pay or receive a cash
amount based on the difference between the contracted price level
of an underlying stock index and its corresponding market price
level at a specified future date. There is no actual delivery of
stocks that comprise the underlying index. These contracts are in
standard amounts with standard settlement dates.
Precious metal and other commodity derivatives
We also transact in other derivative products, including
commodity forwards, futures, swaps and options, such as precious
metal and energy-related products in both OTC and exchange
markets.
Notional amounts
The notional amounts are not recorded as assets or liabilities,
as they represent the face amount of the contract to which a rate
or price is applied to determine the amount of cash flows to be
exchanged. In most cases, notional amounts do not represent the
potential gain or loss associated with market or credit risk of
such instruments.
The following table presents the notional amounts of derivative
instruments.
Consolidated financial statements
$ millions, as at
October 31 2011 2010
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Residual term to contractual maturity
Total
Less than 1 to Over notional
1 year 5 years 5 years amounts Trading ALM Trading ALM
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Interest rate
derivatives
OTC...............
..................
.
Forward rate
agreements...
......... $ 99,456 $ 21,942 $ 4 $ 121,402 $ 118,477 $ 2,925 $ 68,354 $ 3,471
Swap
contracts....
......... 277,583 589,465 104,162 971,210 670,804 300,406 486,886 270,119
Clearing house
settled swap
contracts....
.... 3,625 13,096 7,241 23,962 23,962 - - -
Purchased
options......
. 1,891 6,852 2,838 11,581 11,496 85 12,452 347
Written
options......
....... 3,141 7,419 2,796 13,356 10,804 2,552 16,682 1,710
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
385,696 638,774 117,641 1,141,511 835,543 305,968 584,374 275,647
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Exchange-traded...
............
Futures
contracts....
...... 34,671 7,994 - 42,665 38,438 4,227 27,427 1,036
Purchased
options......
. 24,233 - - 24,233 24,233 - 26,980 -
Written
options......
....... 29,466 - - 29,466 29,466 - 33,811 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
88,370 7,994 - 96,364 92,137 4,227 88,218 1,036
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total interest rate
derivatives. 474,066 646,768 117,041 1,237,875 927,680 310,195 672,592 276,683
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Foreign exchange
derivatives
OTC...............
..................
.
Forward
contracts....
..... 128,053 7,957 201 136,211 121,300 14,911 107,299 8,450
Swap
contracts....
......... 25,856 74,574 25,525 125,955 114,803 11,152 85,995 7,433
Purchased
options......
. 8,128 1,238 109 9,475 9,450 25 13,566 77
Written
options......
....... 7,784 704 78 8,566 8,470 96 11,880 79
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
169,821 84,473 25,913 280,207 254,023 26,184 218,740 16,039
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Exchange-traded...
............
Futures
contracts....
...... 20 - - 20 20 - 33 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total foreign
exchange
derivatives..........
............... 164,841 84,473 25,913 280,227 254,043 26,184 218,773 16,039
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Credit derivatives
OTC...............
..................
.
Total return
swap
contracts -
payable - 2,612 - 2,612 2,612 - 2,982 -
Credit default
swap
contracts -
purchased....
........... - 10,434 5,306 15,740 15,655 85 22,149 1,206
Credit default
swap
contracts -
written... 104 2,315 5,223 7,642 7,642 - 12,080 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total credit
derivatives..........
. 104 15,361 10,529 25,994 25,909 85 37,211 1,206
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Equity derivatives(1)
OTC..............
.................
... 21,884 2,445 74 24,403 23,739 664 16,057 532
Exchange-traded..
............. 3,431 422 - 3,853 3,853 - 8,699 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total equity
derivatives.......... 25,315 2,867 74 28,256 27,592 664 24,756 532
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Precious metal
derivatives(1)
OTC..............
.................
... 1,906 - - 1,906 1,906 - 513 -
Exchange-traded..
............. 231 26 - 257 257 - 19 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total precious metal
derivatives..........
............... 2,137 26 - 2,163 2,163 - 532 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Other commodity
derivatives(1)
OTC..............
.................
... 3,591 4,583 225 8,399 8,399 - 6,878 -
Exchange-traded..
............. 7,363 3,974 2 11,339 11,339 - 6,303 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
Total other commodity
derivatives..........
............... 10,954 8,557 227 19,738 19,738 - 13,181 -
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
$ 682,417 $ 758,052 $ 153,784 $ 1,594,253 $ 1,257,125 $ 337,128 $ 967,045 $ 294,460
---------------------- ---------------------- --------------------- --------------------- ---------------------- ---------------------- --------------------- --------------------- --------------------
(1) Comprises forwards, futures, swaps, and options.
Consolidated financial statements
The following table provides the fair value of derivative
instruments by term to maturity.
$ millions, as at October 31 2011 2010
---------------------------------------------------------------------------------- -------------------- -------------------
Less than 1 to Over Total Total
1 year 5 years 5 years(1) fair value fair value
------------- ----------------------- -------------------- -------------------- -------------------- -------------------
Derivative
assets......
............
............
.......... $ 4,146 $ 11,569 $ 12,544 $ 28,259 $ 24,682
Derivative
liabilities.
............
............
.......... 4,789 12,798 12,220 29,807 26,489
------------- ----------------------- -------------------- -------------------- -------------------- -------------------
(1) CVA is included in over 5 years maturity.
Risk
In the following sections, we discuss the risks related to the
use of derivatives and how we manage these risks.
Market risk
Derivative instruments, in the absence of any compensating
upfront cash payments, generally have no or small market values at
inception. They obtain value, positive or negative, as relevant
interest rates, foreign exchange rates, equity, commodity, credit
prices or indices change, such that the previously contracted terms
of the derivative transactions have become more or less favourable
than what can be negotiated under current market conditions for
contracts with the same terms and the same remaining period to
expiry. The potential for derivatives to increase or decrease in
value as a result of the foregoing factors is generally referred to
as market risk.
Market risk arising through trading activities is managed in
order to mitigate risk, where appropriate, and with a view to
maximizing trading income. To further manage risks, we may enter
into contracts with other market makers or may undertake cash
market hedges.
Credit risk
Credit risk arises from the potential for a counterparty to
default on its contractual obligations and the risk that prevailing
market conditions are such that we would incur a loss in replacing
the defaulted transaction. We limit the credit risk of OTC
derivatives by actively pursuing risk mitigation opportunities
through the use of multi-product derivative master netting
agreements, central counterparties (clearing houses), collateral
and other credit mitigation techniques.
We negotiate derivative master netting agreements with
counterparties with which we have significant credit risk through
derivative activities. Such agreements provide for the simultaneous
close-out and netting of all transactions with a counterparty in an
event of default. A number of these agreements also provide for the
exchange of collateral between parties in the event that the MTM
value of outstanding transactions between the parties exceeds an
agreed threshold. Such agreements are used to help contain
the build-up of credit exposure resulting from multiple deals
with more active counterparties. Credit risk on exchange-traded
futures and options is limited, as these transactions are
standardized contracts executed on established exchanges, which
assumes the obligations of both counterparties and guarantees their
performance. Similarly, credit risk on clearing house settled swap
contracts is limited as these transactions are novated to the
clearing house, which acts as a central counterparty and assumes
the obligations of the original counterparty. All exchange-traded
and clearing house settled contracts are subject to initial margin
and to daily settlement of variation margins designed to protect
participants from losses incurred due to a counterparty default.
Written CDS in general have no credit risk for the writer if the
counterparty has already performed in accordance with the terms of
the contract through payment of the premium at inception. Written
CDS will, however, have some credit risk to the extent of any
unpaid premiums.
The following table summarizes our credit exposure arising from
derivative instruments, except for those that are traded on an
exchange or are clearing house settled which are subject to daily
margining requirements. The calculation of the risk-weighted amount
is prescribed by OSFI. The current replacement cost is the
estimated cost to replace all contracts which have a positive
market value, representing an unrealized gain to CIBC. The
replacement cost of an instrument is dependent upon its terms
relative to prevailing market prices, and will fluctuate as market
prices change and as the derivative approaches its scheduled
maturity.
The credit equivalent amount is the sum of the current
replacement cost and the potential credit exposure. The potential
credit exposure is an estimate of the amount by which the current
replacement cost could increase over the remaining term of each
transaction, based on a formula prescribed by OSFI. The credit
equivalent amount is then multiplied by counterparty risk variables
that are adjusted for the impact of collateral and guarantees to
arrive at the risk-weighted amount. The risk-weighted amount is
used in determining the regulatory capital requirements for
derivatives.
Consolidated financial statements
$ millions,
as at October 31 2011 2010
Credit Risk- Credit Risk-
Current replacement cost(1) equivalent weighted Current replacement cost(1) equivalent weighted
Trading ALM Total amount(2) amount Trading ALM Total amount(2) amount
Interest rate
derivatives
Forward rate
agreements..
......... $ 171 $ - $ 171 $ 59 $ 7 $ 55 $ - $ 55 $ 49 $ 9
Swap
contracts...
........... 16,468 3,003 19,471 4,664 1,373 13,522 2,299 15,821 4,154 1,120
Purchased
options.....
... 422 10 432 66 20 494 27 521 91 26
17,061 3,013 20,074 4,789 1,400 14,071 2,326 16,397 4,294 1,155
Foreign exchange
derivatives
Forward
contracts...
...... 1,654 83 1,737 1,364 296 1,501 23 1,524 1,291 235
Swap
contracts...
........... 3,655 580 4,235 3,489 770 3,662 256 3,918 2,985 626
Purchased
options.....
... 97 - 97 102 32 227 - 227 113 36
5,406 663 6,069 4,955 1,098 5,390 279 5,669 4,389 897
Credit
derivatives(1)
Total return
swap
contracts -
payable.....
............
............
.. - - - - - - - - 73 49
Credit
default swap
contracts -
purchased...
........... 1,021 - 1,021 1,015 613 1,341 - 1,341 2,215 2,016
Credit
default swap
contracts -
written(3)
............
..... - - - - - - - - 10 4
1,021 - 1,021 1,015 613 1,341 - 1,341 2,298 2,069
Equity
derivatives(4) 280 21 301 629 47 468 40 508 648 250
Precious metal
derivatives(4) 55 - 55 39 13 25 - 25 13 6
Other commodity
derivatives(4)
................
.. 401 - 401 739 242 460 - 460 703 219
24,224 3,697 27,921 12,166 3,413 21,755 2,645 24,400 12,345 4,596
Less: effect of
master netting
agreements......
............. (20,728 ) - (20,728) - - (16,967 ) - (16,967) - -
$ 3,496 $ 3,697 $ 7,193 $ 12,166 $ 3,413 $ 4,788 $ 2,645 $ 7,433 $ 12,345 $ 4,596
(1) Exchange-traded and clearing house settled instruments with
a replacement cost of $338 million (2010: $279 million) are
excluded in accordance with the guidelines of OSFI. Written ALM
credit derivatives are treated as guarantee commitments; bought ALM
credit derivatives meeting the hedge effectiveness criteria under
Basel II are treated as credit risk mitigation with no counterparty
credit risk charge; and bought ALM credit derivatives not meeting
the hedge effectiveness criteria under Basel II receive a
counterparty credit risk charge.
(2) Sum of current replacement cost and potential credit
exposure, adjusted for the impact of collateral amounting to $2,262
million (2010: $2,261 million). The collateral comprises cash of
$1,988 million (2010: $2,136 million) and government securities of
$274 million (2010: $125 million).
(3) The amount represents the fair value of contracts for which
fees are received over the life of the contracts.
(4) Comprises forwards, swaps, and options.
CVA
A CVA is determined using the fair value-based exposure we have
on derivative contracts. We believe that we have made appropriate
fair value adjustments to date. The establishment of fair value
adjustments involves estimates that are based on accounting
processes and judgments by management. We evaluate the adequacy of
the fair value adjustments on an ongoing basis. Market and economic
conditions relating to derivative counterparties may change in the
future, which could result in significant future losses.
Financial guarantors
Contracts we have with financial guarantors are primarily credit
derivatives. Fair value-based exposure for credit derivatives is
determined using the market value of the underlying reference
assets. Our counterparty credit charge is a function of the fair
value-based exposure and our assessment of the counterparty credit
risk. Counterparty credit risk is calculated using market-observed
credit spreads, where available and appropriate, or through the use
of
equivalent credit proxies, or through an assessment of net
recoverable value. During the year, we recorded a loss of $3
million (2010: gain of $703 million; 2009: loss of $1.1 billion)
against our receivables from financial guarantors. Separately, we
recorded a net loss of $100 million (2010: net loss of $341
million; 2009: net gain of $163 million) on terminations and
maturity of contracts with financial guarantors during the year.
The fair value of derivative contracts with financial guarantors,
net of CVA, was $477 million (2010: $734 million).
Non-financial guarantors
Our methodology in establishing CVA against other derivative
counterparties is also calculated using a fair value-based exposure
measure. We use market-observed credit spreads or proxies, as
appropriate. During the year, we recorded a gain of $3 million
(2010: gain of $27 million; 2009: a loss of $49 million) on our
receivables from non-financial guarantors derivative
counterparties.
Consolidated financial statements
Note 15 Designated accounting hedges
======= ============================
The following table presents the hedge ineffectiveness gains
(losses) recognized in the consolidated statement of
operations:
$ millions,
for the
year ended
October
31 2011 2010 2009
--------------------------------------- --------------- -------------- --------------
Fair value
hedges(1)
..................................... $ 15 $ 20 $ 85
Cash flow
hedges(2)(3)
................................... (1) (11) (5)
--------------------------------------- --------------- -------------- --------------
(1) Recognized in Net interest income.
(2) Recognized in Non-interest income - Other and Non-interest expenses - Other.
(3) Includes NIFO hedges.
Portions of derivative gains (losses) that by designation were
excluded from the assessment of hedge effectiveness for fair value,
cash flow, and NIFO hedging activities are included in the
consolidated statement of operations, and are not significant for
the years ended October 31, 2011, 2010, and 2009.
The following table presents the notional amounts and carrying
value of our hedging-related derivative instruments:
$ millions, as at October 31 2011 2010
Derivatives Derivatives
notional notional
Carrying value Carrying value
amount Positive Negative amount Positive Negative
Fair
value
hedges.
.......
.......
.......
. $ 95,221 $ 1,696 $ 602 $ 84,298 $ 1,240 $ 696
Cash
flow
hedges.
.......
.......
....... 8,267 36
.. 2,948 33 21 (1) (1) 18
NIFO
hedges.
.......
.......
.......
....... 1,367
.. 1,022 44 - (1) 5 -
$ 99,191 $ 1,773 $ 623 $ 93,932 $ 1,281 $ 714
(1) Restated.
In addition, foreign currency denominated deposit liabilities of
$54 million (2010: $62 million) and $2.3 billion (2010: $659
million) have been designated as fair value hedges of foreign
exchange risk and NIFO hedges, respectively.
Consolidated financial statements
Note 16 Subordinated indebtedness
======= =========================
The debt issues included in the table below are outstanding
unsecured obligations of CIBC and its subsidiaries and are
subordinated to the claims of depositors and other creditors as set
out in their terms. Foreign currency denominated indebtedness
either funds foreign currency denominated
assets (including our net investment in foreign operations) or
is combined with cross-currency swaps to provide funding on a
cost-effective basis and to manage currency risk. All redemptions
are subject to regulatory approval.
Terms of subordinated indebtedness
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------- -------------------------- -----------------------------
Earliest date redeemable
-----------------------------------------------------------------------------------
Interest rate Contractual At greater of Canada Denominated Par Carrying Par Carrying
% maturity date yield Price(1) and par At par in foreign currency value value(2) value value(2)
------------------------- ----------------------------------- ----------------------------------------- ---------------------------------------- ---------------------------------------------- -------------------------- ------------------------------- -------------------------- -----------------------------
October 31,
9.65 2014 November 1, 1999 $ 250 $ 311 $ 250 $ 325
4.55 March 28, March 28, March 28,
(3) 2016 2006 2011 (4) - - 1,080 1,093
Fixed September 23,
(5) March 23, 2017 2012 TT$195 million 30 30 32 32
June
22, EUR200
Floating (6) June 22, 2017 2012 million 276 276 284 284
5.15 June June June
(7) 6, 6, 6,
2018 2008 2013 550 554 550 557
4.11 April
(8) April April 30,
30, 30, 2015
2020 2010 (9) 1,100 1,100 1,100 1,100
3.15 November 2, November 2,
(10) 2020 2015 1,500 1,500 - -
6.00 June June June
(11) 6, 6, 6,
2023 2008 2018 600 600 600 600
8.70 May
25,
2029
(12) 25 43 25 42
11.60 January 7, January 7,
2031 1996 200 200 200 200
10.80 May May
15, 15,
2031 2021 150 150 150 150
8.70 May
25,
2032
(12) 25 44 25 43
8.70 May
25,
2033
(12) 25 45 25 43
8.70 May
25,
2035
(12) 25 46 25 44
July
Floating 27,
(13) July 31, 2084 1990 US$169 million(14) 168 168 202 202
Floating August 20,
(15) August 31, 2085 1991 US$67 million 66 66 68 68
------------------------- ------------------------------------------------------------------------------ --------------------------------------- ---------------------------------------------- -------------------------- ------------------------------- -------------------------- -----------------------------
4,990 5,133 4,616 4,783
Subordinated debt sold short (held) for trading purposes 5 5 (10 ) (10)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------------------- ------------------------------- -------------------------- -----------------------------
$ 4,995 $ 5,138 $ 4,606 $ 4,773
------------------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------------------- ------------------------------- -------------------------- -----------------------------
(1) Canada Yield Price: a price calculated at the time of
redemption to provide a yield to maturity equal to the yield of a
Government of Canada bond of appropriate maturity plus a
pre-determined spread.
(2) Carrying values of fixed-rate subordinated indebtedness
notes reflect the impact of interest rate hedges in an effective
hedge relationship.
(3) Interest rate is fixed at the indicated rate until the
earliest date redeemable at par by CIBC and, thereafter, at a rate
of 1.00% above the three-month Canadian dollar bankers' acceptance
rate.
(4) On this date, we redeemed the outstanding principal amount
plus interest accrued to the redemption date.
(5) Guaranteed Subordinated Term Notes in Trinidad and Tobago
dollars issued on March 23, 2007 by FirstCaribbean International
Bank (Trinidad & Tobago) Limited, a subsidiary of
FirstCaribbean International Bank Limited, and guaranteed on a
subordinated basis by FirstCaribbean International Bank Limited.
Interest rate is fixed for the first two years at 7.90%; then fixed
for the next three years at 8.15%; thereafter fixed at 8.75% for
the remaining tenor. FirstCaribbean International Bank (Trinidad
& Tobago) Limited may redeem all or a portion of the notes on,
but not after September 23, 2012 by repaying the principal amount
plus a penalty of 0.50% of the principal amount of the notes being
redeemed.
(6) Issued by CIBC World Markets plc and guaranteed by CIBC on a
subordinated basis. Interest rate is based on the three-month
Euribor plus 0.20% until the earliest date redeemable by CIBC World
Markets plc and, thereafter, on the three-month Euribor plus
0.70%.
(7) Interest rate is fixed at the indicated rate until the
earliest date redeemable at par by CIBC and, thereafter, at a rate
of 2.30% above the three-month Canadian dollar bankers' acceptance
rate.
(8) Interest rate is fixed at the indicated rate until the
earliest date redeemable at par by CIBC and, thereafter, at a rate
of 1.90% above the three-month Canadian dollar bankers' acceptance
rate.
(9) CIBC's ability to redeem prior to this date is subject to
our receipt of notice or advice from OSFI that the Debentures no
longer qualify as Tier 2 capital.
(10) Interest rate is fixed at the indicated rate until the
earliest date redeemable at par by CIBC and, thereafter, at a rate
of 1.27% above the three-month Canadian dollar bankers' acceptance
rate.
(11) Interest rate is fixed at the indicated rate until the
earliest date redeemable at par by CIBC and, thereafter, at a rate
of 2.50% above the three-month Canadian dollar bankers' acceptance
rate.
(12) Not redeemable prior to maturity date.
(13) Interest rate is based on the six-month US$ LIBOR plus
0.25%.
(14) US$30 million ($29 million) of this issue was repurchased
and cancelled during the year.
(15) Interest rate is based on the six-month US$ LIBOR plus
0.125%.
Consolidated financial statements
Note 17 Common and preferred share capital and preferred share liabilities
======= ==================================================================
Common shares
CIBC is authorized to issue an unlimited number of common shares
without nominal or par value, provided that, the maximum aggregate
consideration for all outstanding common shares at any time does
not exceed $15 billion.
Preferred shares
CIBC is authorized to issue an unlimited number of Class A
Preferred Shares and Class B Preferred Shares without nominal or
par value issuable in series, provided that, for each class of
preferred shares, the maximum aggregate consideration for all
outstanding shares at any time does not exceed $10 billion. There
are no Class B Preferred Shares currently outstanding.
Outstanding shares and dividends and interest paid
$ millions, except number of shares
and per share amounts, as at or
for the year ended October 31 2011 2010 2009
Shares outstanding Dividends paid Shares outstanding Dividends paid Shares outstanding Dividends paid
Number $ per Number $ per Number $ per
of shares Amount Amount share of shares Amount Amount share of shares Amount Amount share
Common
shares(1)
....... 400,534,211 $ 7,376 $ 1,391 $ 3.51 392,738,700 $ 6,804 $ 1,350 $ 3.48 383,981,867 $ 6,241 $ 1,328 $ 3.48
Class A Preferred Shares
Classified as equity.............................................................................................................
Series
18............ 12,000,000 $ 300 $ 16 $ 1.38 12,000,000 $ 300 $ 16 $ 1.38 12,000,000 $ 300 $ 16 $ 1.38
Series
26............ 10,000,000 250 14 1.44 10,000,000 250 14 1.44 10,000,000 250 14 1.44
Series
27............ 12,000,000 300 17 1.40 12,000,000 300 17 1.40 12,000,000 300 17 1.40
Series 28(2) - - - - - -
......... - (3) (3() 0.04 2,000 (3) (3) 0.08 2,000 (3) (3) 0.08
Series
29............ 13,232,342 331 18 1.35 13,232,342 331 18 1.35 13,232,342 331 18 1.35
Series 30(4)
......... - - 15 0.90 16,000,000 400 19 1.20 16,000,000 400 19 1.20
Series
31............ 18,000,000 450 21 1.18 18,000,000 450 21 1.18 18,000,000 450 21 1.18
Series
32............ 12,000,000 300 14 1.13 12,000,000 300 14 1.13 12,000,000 300 14 1.13
Series
33............ 12,000,000 300 16 1.34 12,000,000 300 16 1.34 12,000,000 300 18 1.53
Series
35............ 13,000,000 325 21 1.63 13,000,000 325 21 1.63 13,000,000 325 16 1.19
Series
37............ 8,000,000 200 13 1.63 8,000,000 200 13 1.63 8,000,000 200 9 1.06
$ 2,756 $ 165 $ 3,156 $ 169 $ 3,156 $ 162
Shares outstanding Interest paid Shares outstanding Interest paid Shares outstanding Interest paid
Number $ per Number $ per Number $ per
of shares Amount Amount share of shares Amount Amount share of shares Amount Amount share
Class A Preferred Shares.................................................
Classified as liabilities........................................................
Series 19(5)
......... - $ - $ - $ - - $ - $ 10 $ 1.24 8,000,000 $ 200 $ 10 $ 1.24
Series 23(5)
......... - - - - - - 21 1.33 16,000,000 400 21 1.33
$ - $ - $ - $ 31 $ 600 $ 31
Total preferred shares $ 2,756 $ 165 $ 3,156 $ 200 $ 3,756 $ 193
(1) Includes treasury shares.
(2) On April 28, 2011, we redeemed all 2,000 of the remaining
outstanding Non-cumulative Class A Series 28 Preferred Shares with
a par value of $10 each at a redemption price of $10.00 per share
for cash.
(3) Due to rounding.
(4) On July 31, 2011, we redeemed all of our 16 million
Non-cumulative Class A Series 30 Preferred Shares with a par value
of $25 each at a redemption price of $25.75 per share.
(5) On October 31, 2010, we redeemed and legally extinguished
these non-cumulative preferred shares. Other liabilities (Note 11)
included $604 million in respect of principal and premium amounts
payable to holders. The payment was made on November 1, 2010.
Consolidated financial statements
Preferred share rights and privileges
Class A Preferred Shares
Each series of Class A Preferred Shares bears quarterly
non-cumulative dividends. Class A Preferred Shares Series 18, and
26 through 32, are redeemable, subject to regulatory approval if
required, for cash by CIBC on or after the specified redemption
dates at the cash redemption prices indicated in the following
table.
Class A Preferred Shares Series 26, 27 and 29 provide CIBC with
the right to convert the shares to common shares. We have
irrevocably renounced by way of a deed poll, our right to convert
these shares into common shares except in circumstances that would
be a "Trigger Event" as described in the August 2011 non-viability
contingent capital Advisory issued by OSFI. We have provided an
undertaking to OSFI that we will immediately exercise our right to
convert these shares into common shares upon the occurrence of a
Trigger Event. Each such share is convertible into a number of
common shares, determined by dividing the then applicable cash
redemption price by 95% of the average common share price (as
defined in the relevant short form prospectus or prospectus
supplement), subject to a minimum price of $2.00 per share. All
other Class A Preferred Shares are not convertible into common
shares.
Non-cumulative Rate Reset Class A Preferred Shares Series 33
(Series 33 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 34
(Series 34 shares) at the holder's option on July 31, 2014.
Thereafter, Series 33 shares and Series 34 shares are convertible,
one to the other, at every fifth anniversary of July 31, 2014.
Series 33 shares pay an initial dividend yield of 5.35% per
annum, payable quarterly, as and when declared by the Board of
Directors, until July 31, 2014. At such time and every five years
thereafter, the dividend rate will reset to the then current
five-year Government of Canada bond yield plus 2.18%.
Series 34 shares will pay a floating rate dividend, determined
and paid quarterly, as and when declared by the Board of Directors,
to yield a rate per annum equal to the three-month Government of
Canada Treasury Bill yield at the beginning of the relevant
quarterly period plus 2.18%.
Series 33 shares may be redeemed on July 31, 2014 and every five
years thereafter. Series 34 shares may be redeemed on or after July
31, 2019. All redemptions are subject to regulatory approval as
required.
Non-cumulative Rate Reset Class A Preferred Shares Series 35
(Series 35 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 36
(Series 36 shares) at the holder's option on April 30, 2014.
Thereafter, Series 35 shares and Series 36 shares are convertible,
one to the other, at every fifth anniversary of April 30, 2014.
Series 35 shares pay an initial dividend yield of 6.5% per
annum, payable quarterly, as and when declared by the Board of
Directors, until April 30, 2014. At such time and every five years
thereafter, the dividend rate will reset to the then current
five-year Government of Canada bond yield plus 4.47%.
Series 36 shares will pay a floating rate dividend, determined
and paid quarterly, as and when declared by the Board of Directors,
to yield a rate per annum equal to the three-month Government of
Canada Treasury Bill yield at the beginning of the relevant
quarterly period plus 4.47%.
Series 35 shares may be redeemed on April 30, 2014 and every
five years thereafter. Series 36 shares may be redeemed on or after
April 30, 2019. All redemptions are subject to regulatory approval
as required.
Non-cumulative Rate Reset Class A Preferred Shares Series 37
(Series 37 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 38
(Series 38 shares) at the holder's option on July 31, 2014.
Thereafter, Series 37 shares and Series 38 shares are convertible,
one to the other, at every fifth anniversary of July 31, 2014.
Series 37 shares pay an initial dividend yield of 6.5% per
annum, payable quarterly, as and when declared by the Board of
Directors, until July 31, 2014. At such time and every five years
thereafter, the dividend rate will reset to the then current
five-year Government of Canada bond yield plus 4.33%.
Series 38 shares will pay a floating rate dividend, determined
and paid quarterly, as and when declared by the Board of Directors,
to yield a rate per annum equal to the three-month Government of
Canada Treasury Bill yield at the beginning of the relevant
quarterly period plus 4.33%.
Series 37 shares may be redeemed on July 31, 2014 and every five
years thereafter. Series 38 shares may be redeemed on or after July
31, 2014. All redemptions are subject to regulatory approval as
required.
Consolidated financial statements
Terms of Class A Preferred Shares
Quarterly
dividends per Specified Cash redemption
(Outstanding as at October 31, 2011) share(1) redemption date price per share
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
Series October 29,
18....................................................................... $ 0.343750 2012 $ 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
April
Series 30,
26....................................................................... $ 0.359375 2008 $ 26.00
April
30,
2009 25.75
April
30,
2010 25.50
April
30,
2011 25.25
April
30,
2012 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
Series October 31,
27....................................................................... $ 0.350000 2008 $ 26.00
October 31,
2009 25.75
October 31,
2010 25.50
October 31,
2011 25.25
October 31,
2012 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
May
Series 1,
29....................................................................... $ 0.337500 2010 $ 26.00
May
1,
2011 25.75
May
1,
2012 25.50
May
1,
2013 25.25
May
1,
2014 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
Series January 31,
31....................................................................... $ 0.293750 2012 $ 26.00
January 31,
2013 25.75
January 31,
2014 25.50
January 31,
2015 25.25
January 31,
2016 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
April
Series 30,
32....................................................................... $ 0.281250 2012 $ 26.00
April
30,
2013 25.75
April
30,
2014 25.50
April
30,
2015 25.25
April
30,
2016 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
July
Series 31,
33....................................................................... $ 0.334375 2014 $ 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
April
Series 30,
35....................................................................... $ 0.406250 2014 $ 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
July
Series 31,
37....................................................................... $ 0.406250 2014 $ 25.00
-------------------------------------------------------------------------- --------------------- ----------------- ----------------------------
(1) Quarterly dividends are adjusted for the number of days
during the quarter that the share is outstanding at the time of
issuance and redemption.
Common shares issued
$ millions,
except number of
shares,
as at or for the
year ended
October 31 2011 2010 2009
---------------- ---------------------- ---------------------- ----------------------- -------------------- -------------------------- --------------------
Number Number Number
of shares Amount of shares Amount of shares Amount
---------------- ---------------------- ---------------------- ----------------------- -------------------- -------------------------- --------------------
Balance at
beginning of
year...........
. 392,738,700 $ 6,804 383,981,867 $ 6,241 380,804,829 $ 6,063
Issuance
pursuant
to:.............
............
Stock option
plans......
...........
....... 1,242,462 79 1,943,577 88 983,705 41
Shareholder
Investment
Plan(1)
..... 5,501,553 411 6,036,805 419 2,201,944 137
Employee
Share
Purchase
Plan(2) 1,090,096 85 775,251 56 - -
---------------- ---------------------- ---------------------- ----------------------- -------------------- -------------------------- --------------------
400,572,811 7,379 392,737,500 6,804 383,990,478 6,241
Net treasury
shares.........
...............
..... (38,600 ) (3 ) 1,200 - (8,611 ) -
---------------- ---------------------- ---------------------- ----------------------- -------------------- -------------------------- --------------------
Balance at end
of
year...........
........... 400,534,211 $ 7,376 392,738,700 $ 6,804 383,981,867 $ 6,241
---------------- ---------------------- ---------------------- ----------------------- -------------------- -------------------------- --------------------
(1) Effective July 2009, participants in the Shareholder
Investment Plan (the Plan) receive a 3% discount from the average
market price on the reinvested dividends in additional common
shares. Commencing with dividends paid on April 28, 2011, the
shares were issued at a 2% discount.
(2) Effective February 2010, employee contributions to our
Canadian ESPP have been used to purchase common shares issued from
Treasury.
Common shares reserved for issue
As at October 31, 2011, 10,691,669 common shares (2010:
11,934,131) were reserved for future issue pursuant to stock option
plans.
Restrictions on the payment of dividends
Under Section 79 of the Bank Act (Canada), a bank, including
CIBC, is prohibited from declaring or paying any dividends on its
preferred or common shares if there are reasonable grounds for
believing that the bank is, or the payment would
Consolidated financial statements
cause it to be, in contravention of any capital adequacy or
liquidity regulation or any direction to the bank made by OSFI.
In addition, our ability to pay common share dividends is also
restricted by the terms of the outstanding preferred shares. These
terms provide that we may not pay dividends on our common shares at
any time without the approval of holders of the outstanding
preferred shares, unless all dividends to preferred shareholders
that are then payable have been declared and paid or set apart for
payment.
We have agreed that if CIBC Capital Trust fails to pay any
interest payments on its $1,300 million of CIBC Tier 1 Notes -
Series A, due June 30, 2108, or its $300 million of CIBC Tier 1
Notes - Series B, due June 30, 2108, we will not declare dividends
of any kind on any of our preferred or common shares for a
specified period of time. For additional details see Note 18.
Currently, these limitations do not restrict the payment of
dividends on our preferred or common shares.
Capital
Objectives, policies, and procedures
Our objective is to employ a strong and efficient capital base.
We manage capital in accordance with policies established by the
Board of Directors. These policies relate to capital strength,
capital mix, dividends, return on capital, and the unconsolidated
capital adequacy of regulated entities. Each policy has associated
guidelines, and capital is monitored continuously for
compliance.
Each year, a capital plan and three-year outlook are
established, which encompass all the associated elements of
capital: forecasts of sources and uses, maturities, redemptions,
new issuance, corporate initiatives, and business growth. The
capital plan is stress-tested in various ways to ensure that it is
sufficiently robust under all reasonable scenarios. All of the
elements of capital are monitored throughout the year, and the
capital plan is adjusted as appropriate.
There were no significant changes made in the objectives,
policies, and procedures during the year.
Regulatory requirements
Our minimum regulatory capital requirements are determined in
accordance with guidelines issued by OSFI. The OSFI guidelines
evolved from the Basel II framework of risk-based capital standards
developed by the Bank for International Settlements (BIS).
Current Basel II standards require that banks maintain minimum
Tier 1 and Total capital ratios of 4% and 8%, respectively. OSFI
has established that Canadian deposit-taking financial institutions
maintain Tier 1 and Total capital ratios of at least 7% and 10%,
respectively. During the year, we have complied in full with all of
our regulatory capital requirements.
The regulatory capital framework will be revised in the coming
years. Effective the first quarter of fiscal 2012, banks are
required to implement the series of guidelines issued by the BIS in
July 2009 related to market risk and the areas of securitization
and resecuritization. Effective January 1, 2013, banks will
commence implementing the Basel III regulatory framework developed
by the BIS to strengthen the resilience of the banking sector.
Regulatory capital and ratios
Regulatory capital consists of Tier 1 and Tier 2 capital.
Tier 1 capital comprises common shares excluding short trading
positions in our own shares, retained earnings, preferred shares,
innovative capital instruments, non-controlling interests,
contributed surplus, and foreign currency translation adjustments.
Goodwill and gains on sale of applicable securitized assets are
deducted from Tier 1 capital. Tier 2 capital comprises subordinated
debt and eligible general allowance. Both Tier 1 and Tier 2 capital
are subject to certain deductions on a 50/50 basis, including
substantial investments. Investment in insurance activities
continues to be deducted 100% from Tier 2 capital in accordance
with OSFI's transition rules.
Our capital ratios and assets-to-capital multiple are as
follows:
$ millions, as at October 31 2011 2010
-------------------------------------------------------------------- --------------------- ---------------------
Capital
Tier 1 capital.................................................. $ 16,208 $ 14,851
Total regulatory capital................................... 20,287 18,966
-------------------------------------------------------------------- --------------------- ---------------------
Risk-weighted assets
Credit risk........................................................ $ 90,110 $ 86,782
Market risk....................................................... 1,646 1,625
Operational risk............................................... 18,212 18,256
-------------------------------------------------------------------- --------------------- ---------------------
Total risk-weighted assets................................ $ 109,968 $ 106,663
-------------------------------------------------------------------- --------------------- ---------------------
Capital ratios
Tier 1 capital ratio.......................................... 14.7 % 13.9 %
Total capital ratio........................................... 18.4 % 17.8 %
Assets-to-capital multiple................................ 16.0 x 17.0 x
-------------------------------------------------------------------- --------------------- ---------------------
Consolidated financial statements
Note 18 Capital Trust securities
======= ========================
On March 13, 2009, CIBC Capital Trust (the Trust), a trust
wholly owned by CIBC and established under the laws of the Province
of Ontario, issued $1,300 million of CIBC Tier 1 Notes - Series A,
due June 30, 2108, and $300 million of CIBC Tier 1 Notes - Series
B, due June 30, 2108 (collectively, the Notes). The proceeds were
used by the Trust to purchase senior deposit notes from CIBC. The
Trust is a VIE not consolidated by CIBC; the Notes issued by the
Trust are therefore not reported on the consolidated balance sheet.
The senior deposit notes issued to the Trust are reported as
Deposits - business and government on the consolidated balance
sheet.
The Notes are structured to achieve Tier 1 regulatory capital
treatment and, as such, have features of equity capital, including
the deferral of cash interest under certain circumstances (Deferral
Events). In the case of a Deferral Event, holders of the Notes will
be required to invest interest paid on the Notes in our perpetual
preferred shares. Should the Trust fail to pay the semi-annual
interest payments on the Notes in full, we will not declare
dividends of any kind on any of our preferred or common shares for
a specified period of time.
In addition, the Notes will be automatically exchanged for our
perpetual preferred shares upon the occurrence of any one of the
following events: (i) proceedings are commenced for our winding-up;
(ii) OSFI takes control of us or our assets; (iii) we or OSFI are
of the opinion that our Tier 1 capital ratio is less than 5% or our
Total capital ratio is less than 8%; or (iv) OSFI directs us
pursuant to the Bank Act to increase our capital or provide
additional liquidity and we elect such automatic exchange or we
fail to comply with such direction. Upon such automatic exchange,
holders of the Notes will cease to have any claim or entitlement to
interest or principal against the Trust.
CIBC Tier 1 Notes - Series A will pay interest, at a rate of
9.976%, semi-annually until June 30, 2019. On June 30, 2019, and on
each five-year anniversary thereafter, the interest rate on the
CIBC Tier 1 Notes - Series A will reset to the five-year Government
of Canada bond yield at such time plus 10.425%. CIBC Tier 1 Notes -
Series B will pay interest, at a rate of 10.25%, semi-annually
until June 30, 2039. On June 30, 2039, and on each five-year
anniversary thereafter, the interest rate on the CIBC Tier 1 Notes
- Series B will reset to the five-year Government of Canada bond
yield at such time plus 9.878%.
According to OSFI guidelines, innovative capital instruments can
comprise up to 15% of net Tier 1 capital with an additional 5%
eligible for Tier 2 capital. Subject to the approval of OSFI, the
Trust may, in whole or in part, on the redemption dates specified
in the table below, and on any date thereafter, redeem the CIBC
Tier 1 Notes - Series A or Series B without the consent of the
holders. Also, subject to the approval of OSFI, the Trust may
redeem all, but not part of, the CIBC Tier 1 Notes - Series A or
Series B prior to the earliest redemption date specified in the
table below without the consent of the holders, upon the occurrence
of certain specified tax or regulatory events.
In February 2011, OSFI issued advisories confirming the adoption
of Basel III in Canada and clarifying the treatment of
non-qualifying capital instruments. Non-qualifying capital
instruments are subject to a 10% phase-out per annum commencing
2013. Banks are expected to develop and maintain a redemption
schedule for non-qualifying capital instruments that gives priority
to redeeming instruments at their regular par redemption dates
before exercising any regulatory event redemption rights. With the
adoption of Basel III, innovative capital instruments such as the
CIBC Tier 1 Notes will be viewed as non-qualifying capital
instruments. We expect to exercise our regulatory event redemption
rights in fiscal 2022 in respect of the $300 million CIBC Tier 1
Notes - Series B.
The table below presents the significant terms and conditions of
the Notes. As at October 31, 2011, we held $1 million in short
trading positions (2010: $1 million in long trading positions) of
Tier 1 Notes - Series B:
$ millions, as at October 31
----------------------------------------- ------------ ---------- ------------ ----------------- ----------------
Earliest redemption
dates Principal amount
------------------------ -----------------------------------
At
greater
of
Canada
Yield
Issue Interest Price(1)
Issue date payment dates Yield and par At par 2011 2010
----------- ----------- --------------- ------------ ---------- ------------ ----------------- ----------------
CIBC
Capital
Trust
-......
Tier 1
Notes..
.
March June 30, June June
Series 13, December 30, 30,
A......... 2009 31 9.976 % 2014 2019 $ 1,300 $ 1,300
March June 30, June June
Series 13, December 30, 30,
B......... 2009 31 10.25 % 2014 2039 300 300
----------- ----------- --------------- ------------ ---------- ------------ ----------------- ----------------
(1) Canada Yield Price: a price calculated at the time of
redemption (other than an interest rate reset date applicable to
the series) to provide a yield to maturity equal to the yield on a
Government of Canada bond of appropriate maturity plus (i) for the
CIBC Tier 1 Notes - Series A, (a) 1.735% if the redemption date is
any time prior to June 30, 2019, or (b) 3.475% if the redemption
date is any time on or after June 30, 2019, and (ii) for the CIBC
Tier 1 Notes - Series B, (a) 1.645% if the redemption date is any
time prior to June 30, 2039, or (b) 3.29% if the redemption date is
any time on or after June 30, 2039.
Consolidated financial statements
Note 19 Interest rate sensitivity
======= =========================
The table below details our exposure to interest rate risk
resulting from the mismatch, or gap, between financial assets,
liabilities, and off-balance sheet instruments. On- and off-balance
sheet financial instruments have been reported on the earlier of
their contractual repricing date or maturity date. Certain
contractual repricing dates have been adjusted according to
management's estimates for prepayments and early redemptions.
Weighted-average effective yields are based on the earlier of
contractual repricing date or maturity date of the underlying
instrument.
We manage interest rate gap by imputing a duration to certain
assets and liabilities based on historical and forecasted trends in
core balances. The repricing profile of these assets and
liabilities has been incorporated in the table below under
structural assumptions.
Based on earlier of maturity or repricing date of interest rate sensitive instruments
------ ---------------- ----------------------------------------------------------------------------------------------------------------------------------------------- --------------------
$ millions, as at Immediately Within 3 to 12 1 to 5 Over 5 Not interest
October 31 rate sensitive 3 months months years years rate sensitive Total
------------------------ -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
2011 Assets
Cash and deposits with
banks.................
........... $ - $ 4,144 $ 298 $ - $ - $ 1,855 $ 6,297
Effective
yield.............
. 1.13 % 1.31 %
Trading
securities............
.. - 967 1,936 4,056 4,008 21,830 32,797
Effective
yield.............
. 2.98 % 2.27 % 2.88 % 4.19 %
AFS
securities............
........ - 11,060 4,667 10,373 2,539 573 29,212
Effective
yield.............
. 1.14 % 1.94 % 2.87 % 4.61 %
FVO
securities............
........ - 8,314 1,855 9,702 193 - 20,064
Effective
yield.............
. 1.17 % 2.53 % 1.93 % 6.32 %
Securities borrowed or
purchased under resale
agreements............
...... - 27,840 - - - - 27,840
Effective
yield.......
....... 0.95 % - %
Loans.................
................ 103,419 17,621 18,410 40,704 2,278 2,586 185,018
Effective
yield.............
. 2.87 % 4.46 % 4.16 % 5.03 %
Other.................
................ - 32,799 - - - 19,672 52,471
Structural
assumptions....... (7,139 ) 802 2,756 5,634 - (2,053 ) -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total
assets................
........ $ 96,280 $ 103,547 $ 29,922 $ 70,469 $ 9,018 $ 44,463 $ 353,699
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Liabilities and
shareholders'
equity
Deposits..............
............... $ 92,853 $ 52,770 $ 37,255 $ 37,658 $ 4,039 $ 30,834 $ 255,409
Effective
yield.............
. 1.01 % 1.76 % 2.82 % 5.61 %
Obligations related to
securities sold
short....... - 320 415 3,205 3,099 3,277 10,316
Effective
yield.............
. 0.62 % 0.86 % 1.12 % 1.97 %
Obligations related to
securities lent or
sold under repurchase
agreements............
...... - 14,306 - - - - 14,306
Effective
yield.......
....... 0.76 % -
Subordinated
indebtedness..........
......................
..... - 444 97 3,469 1,128 - 5,138
Effective
yield.............
. 1.33 % 2.98 % 4.36 % 8.06 %
Other.................
................ - 33,571 600 825 621 32,913 68,530
Structural
assumptions....... (20,415 ) 5,249 18,878 23,024 - (26,736 ) -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total liabilities and
shareholders'
equity...... $ 72,438 $ 106,660 $ 57,245 $ 68,181 $ 8,887 $ 40,288 $ 353,699
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
On-balance sheet
gap....... $ 23,842 $ (3,113 ) $ (27,323 ) $ 2,288 $ 131 $ 4,175 $ -
Off-balance sheet
gap(1) ..... - (33,242 ) 26,922 6,384 (64 ) - -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total
gap...................
........ $ 23,842 $ (36,355 ) $ (401 ) $ 8,672 $ 67 $ 4,175 $ -
Total cumulative
gap........ $ 23,842 $ (12,513 ) $ (12,914 ) $ (4,242 ) $ (4,175 ) $ - $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Gap by currency
On-balance sheet
gap.......
Canadian
currency....... $ 25,943 $ (20,489 ) $ (26,764 ) $ 14,529 $ 698 $ 6,083 $ -
Foreign
currencies........ (2,101 ) 17,376 (559 ) (12,241 ) (567 ) (1,908 ) -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total on-balance sheet
gap...................
.................. $ 23,842 $ (3,113 ) $ (27,323 ) $ 2,288 $ 131 $ 4,175 $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Off-balance
sheet gap(1)
.....
Canadian
currency....... $ - $ (14,278 ) $ 22,865 $ (7,204 ) $ (1,383 ) $ - $ -
Foreign
currencies........ - (18,964 ) 4,057 13,588 1,319 - -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total off-balance sheet
gap...................
.................. $ - $ (33,242 ) $ 26,922 $ 6,384 $ (64 ) $ - $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total
gap...................
........ $ 23,842 $ (36,355 ) $ (401 ) $ 8,672 $ 67 $ 4,175 $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
2010. Gap by
currency........
.........
On-balance sheet
gap.......
Canadian
currency....... $ 19,030 $ (15,413 ) $ (13,657 ) $ 10,991 $ (101 ) $ (850 ) $ -
Foreign
currencies........ (2,384 ) 6,855 (420 ) (4,510 ) 191 268 -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total on-balance sheet
gap...................
.................. $ 16,646 $ (8,558 ) $ (14,077 ) $ 6,481 $ 90 $ (582 ) $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Off-balance
sheet gap(1)
.....
Canadian
currency....... $ - $ (4,842 ) $ 12,584 $ (7,253 ) $ (489 ) $ - $ -
Foreign
currencies........ - (4,970 ) (116 ) 4,911 175 - -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total off-balance sheet
gap...................
.................. $ - $ (9,812 ) $ 12,468 $ (2,342 ) $ (314 ) $ - $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
Total
gap...................
........ $ 16,646 $ (18,370 ) $ (1,609 ) $ 4,139 $ (224 ) $ (582 ) $ -
----------------------- -------------------------- --------------------- --------------------- ------------------- -------------------- -------------------------- --------------------
(1) Includes derivative instruments which are reported on the
consolidated balance sheet at fair value.
Consolidated financial statements
Note 20 Stock-based compensation
======= ========================
Restricted share award plan
Under our restricted share award (RSA) plan, which began in
2000, certain key employees are granted annual awards to receive
either common shares or an equivalent cash value in accordance with
the terms of the grant. Additionally, RSAs may be awarded as
special grants. RSAs generally vest at the end of three years or
one-third annually. Awards are generally distributed or settled
within a three-year period, beginning one year after the year of
the grant.
Prior to December 2008, grants were made in the form of
share-settled awards. The funding for these awards was paid into a
trust which purchased common shares in the open market. Grant date
fair value of each share-settled RSA was calculated based on the
weighted-average purchase price of the corresponding common shares
that were purchased by the trust.
Beginning December 2008, RSA grants are made in the form of
cash-settled awards which are funded at the time of payment.
Dividend equivalent payments in respect of cash-settled awards are
recognized in compensation expense as incurred. Grant date fair
value of each cash-settled RSA is calculated based on the average
closing price per common share on the Toronto Stock Exchange (TSX)
for the 10 trading days prior to a fixed date. Fair value for
cash-settled RSAs is remeasured each period for subsequent changes
in the market value of common shares.
Compensation expense in respect of RSAs, before the impact of
hedging, totalled $229 million in 2011 (2010: $290 million; 2009:
$217 million). Liabilities in respect of cash-settled RSAs totalled
$653 million (2010: $521 million; 2009: $298 million).
Performance share unit plan
Under the PSU plan, which was introduced in 2005, certain key
employees are granted awards to receive common shares or an
equivalent cash value. Beginning December 2008, PSU grants are made
only in the form of cash-settled awards, which are funded at the
time of payment. PSUs vest at the end of three years. The final
number of PSUs that vest will range from 75% to 125% of the initial
number awarded based on CIBC's return on equity performance
relative to the average of the other major Canadian banks.
Recognition of compensation expense is based on management's
best estimate of the number of PSUs expected to vest. PSUs are
remeasured for changes in management's best estimate of the number
of PSUs expected to vest and changes in the market value of common
shares. Dividend equivalent amounts are recognized in compensation
expense as incurred.
For PSUs awarded prior to December 2010, dividend equivalent
amounts are determined in accordance with management's best
estimate of the number of PSUs expected to vest. Beginning with
PSUs awarded December 2010, dividend equivalent amounts are
determined in accordance with the original number of PSUs
awarded.
Grant date fair value of each PSU is deemed to be the same as
the grant date fair value of RSAs awarded at the same time.
Compensation expense in respect of PSUs, before the impact of
hedging, totalled $31 million in 2011 (2010: $9 million; 2009: $2
million). Liabilities in respect of PSUs totalled $41 million
(2010: $14 million; 2009: $8 million).
Special incentive program
Special Incentive Program (SIP) award units were granted only
once in 2000.
Certain key employees were granted awards to receive common
shares. The funding for these awards was paid into a trust which
purchased common shares in the open market.
SIP awards relating to some of the key employees vested and were
distributed as at October 31, 2003, the date the plan expired. For
other key employees, the value of awards was converted into
Retirement Special Incentive Program Deferred Share Units (RSIP
DSUs). Each RSIP DSU represents the right to receive one common
share and additional RSIP DSUs in respect of dividends earned by
the common shares held by the trust. RSIP DSUs met time- and
performance-based vesting conditions on October 31, 2003, and will
be distributed in the form of common shares upon the participant's
retirement or termination of employment.
Book value unit plan
Under the BVU plan, which was introduced in 2010, certain key
executives are granted awards denominated in BVUs. Each unit
represents the right to receive a cash payment equal to the vesting
price per unit, the value of which is related to the book value of
CIBC on a per common share basis. BVUs vest at the end of three
years. The final number of BVUs that vest will be adjusted for new
issues of, re-purchases of, or dividends paid on common shares.
Grant date fair value of each BVU is calculated based on the
book value per share of common shares on the last day of the
previous fiscal quarter.
Compensation expense in respect of BVUs totalled $10 million in
2011 (2010: $2 million). Liabilities in respect of BVUs totalled
$12 million (2010: $2 million).
Consolidated financial statements
Deferred share unit plan
Under the DSU plan, which was introduced in 2010, certain
employees are granted awards to receive the equivalent value of
common shares in cash, which are funded upon distribution. The
President and Chief Executive Officer or the Board of Directors has
the discretion to set the vesting period which is generally at the
end of five years to align with the purpose of the award.
Participants of the DSU plan receive dividend equivalent amounts
which are re-invested and credited to the participant's account in
the form of additional DSUs. Dividend equivalent amounts are
expensed as incurred.
Compensation expense and related liabilities were not material
for 2011 and 2010.
Directors' plans
Under the Director DSU/Common Share Election Plan, each director
who is not an officer or employee of CIBC may elect to receive the
annual amount payable by CIBC as either DSUs or common shares. For
purposes of this plan, the annual amount payable is the non-cash
component of the director retainer.
Under the Non-Officer Director Share Plan, each non-officer
director may elect to receive all or a portion of their
cash-eligible remuneration in the form of cash, common shares, or
DSUs. For purposes of this plan, cash-eligible remuneration
includes the cash component of the director retainer and the Chair
of the Board retainer, meeting attendance fees, non-resident
attendance fees, committee chair retainers, and committee member
retainers.
The value of DSUs credited to a director is payable when he or
she is no longer a director or employee of CIBC and, in addition,
for directors subject to section 409A of the U.S. Internal Revenue
Code of 1986, as amended, the director is not providing any
services to CIBC or any member of its controlled group as an
independent contractor. In addition, under the Director DSU/Common
Share Election Plan, the value of DSUs is payable when the director
is no longer related to, or affiliated with, CIBC as defined in the
Income Tax Act (Canada).
Compensation expense in respect of the DSU components of these
plans, before the impact of hedging, totalled $2 million in 2011
(2010: $3 million; 2009: $2 million). Liabilities in respect of
DSUs totalled $9 million (2010: $8 million; 2009: $5 million).
Stock option plans
We have two stock option plans: ESOP and Non-Officer Director
Stock Option Plan (DSOP). A maximum of 42,834,500 common shares may
be issued under these plans.
Under the ESOP, stock options are periodically granted to
selected employees. Options provide the employee with the right to
purchase common shares from CIBC at a fixed price not less than the
closing price of the shares on the trading day immediately
preceding the grant date. In general, the options vest by the end
of the fourth year and expire ten years from the grant date.
Certain options vest on the attainment of specified performance
conditions.
Under the DSOP, each director who was not an officer or employee
of CIBC or any of our subsidiaries was provided with the right to
purchase common shares from CIBC at a fixed price equal to the
five-day average of the closing price per share on the TSX for the
five trading days preceding the date of the grant. The options
vested immediately and expire on the earlier of (i) 60 months after
the date the director ceases to be a member of the Board of
Directors, or (ii) 10 years from the grant date. In January 2003,
the Board of Directors determined that no further options would be
granted under the DSOP.
Fair value of stock options is measured at the grant date using
the Black-Scholes option pricing model. Model assumptions are based
on observable market data for the risk-free interest rate and
dividend yield; contractual terms for the exercise price and
performance conditions; and historical experience for expected
life. Volatility assumptions are best estimates of market implied
volatility matching the exercise price and expected life of the
options.
The weighted-average grant date fair value of options granted
during 2011 has been determined at $12.88 (2010: $11.13; 2009:
$13.60). The following weighted-average assumptions were used to
determine the fair value of options on the date of grant:
For the year ended October 31 2011 2010 2009
---------------------------------------------------------------- -------------- ------------- -------------
Weighted-average assumptions.......................
Risk-free interest rate.................................. 2.79 % 2.88 % 2.85 %
Expected dividend yield............................. 4.89 % 6.57 % 7.00 %
Expected share price volatility.................... 27.56 % 32.20 % 45.00 %
Expected life.............................................. 6 years 6 years 6 years
Share price/exercise price.......................... $ 78.41 $ 70.71 $ 49.75
---------------------------------------------------------------- -------------- ------------- -------------
Up to 50% of options relating to the ESOP granted prior to 2000
were eligible to be exercised as SARs. During 2009, all remaining
SARs either expired or were exercised.
Compensation expense in respect of stock options and SARs,
before the impact of hedging, totalled $7 million in 2011 (2010:
$11 million; 2009: $9 million). We did not have a liability in
respect of SARs as at October 31, 2011, 2010 and 2009.
Consolidated financial statements
Stock option plans
As at or for the year ended October 31 2011 2010 2009
Weighted- Weighted- Weighted-
Number average Number average Number average
of stock exercise of stock exercise of stock exercise
options price options price options price
Outstanding at beginning of year....... 5,641,221 $ 62.88 7,023,502 $ 56.53 7,270,168 $ 55.38
Granted........................................
...... 419,989 78.41 708,434 70.71 1,077,608 49.75
Exercised(1)
......................................... (1,242,462 ) 54.72 (1,943,577 ) 43.28 (983,705 ) 39.10
Forfeited...................................... 68.42
...... (41,580 ) 64.56 (39,318 )(2) (2) (5,035 ) 72.06
52.11
Cancelled/Expired............................. (30,620 ) 68.61 (107,820 )(2) (2) (214,629 ) 73.09
Exercised as SARs.............................. - - - - (120,905 ) 38.44
Outstanding at end of year................. 4,746,548 $ 66.34 5,641,221 $ 62.88 7,023,502 $ 56.53
Exercisable at end of year.................. 3,018,340 $ 66.05 3,560,238 $ 61.79 4,942,948 $ 53.47
Available for
grant............................. 5,945,121 6,292,910 6,854,206
(1) The weighted-average share price at the date of exercise was $79.51 (2010: $69.69; 2009:
$52.20).
(2) Restated.
Stock options outstanding and vested
As at October 31, 2011 Stock options outstanding Stock options vested
Weighted- Weighted- Weighted-
average average average
Number contractual life exercise Number exercise
Range of exercise prices outstanding remaining price outstanding price
$40.00-$49.00.................................. 531,430 1.09 $ 43.10 531,430 $ 43.10
$49.01-$55.00.................................. 852,839 6.40 49.85 351,508 49.99
$55.01-$65.00.................................. 421,461 0.72 55.80 405,577 55.53
$65.01-$75.00.................................. 1,410,192 5.81 70.81 748,368 71.46
$75.01-$85.00.................................. 1,197,036 6.42 78.50 647,867 78.33
$85.01-$105.00................................ 333,590 4.93 96.33 333,590 96.33
4,746,548 5.03 $ 66.34 3,018,340 $ 66.05
Employee share purchase plan
Under our Canadian ESPP, qualifying employees can choose each
year to have up to 10% of their eligible earnings withheld to
purchase common shares. We match 50% of the employee contribution
amount, up to a maximum contribution of 3% of eligible earnings,
depending upon length of service and job level, subject to a
ceiling of $2,250 annually. CIBC contributions vest after employees
have two years of continuous participation in the plan, and all
subsequent contributions vest immediately. Similar programs exist
in other regions globally, where each year qualifying employees can
choose to have a portion of their eligible earnings withheld to
purchase common shares and receive a matching employer contribution
subject to each plan's provisions. All contributions are paid into
a trust and used by the plan trustees to purchase common shares.
All employer contributions are used by the trustee to purchase
shares on the open market. Effective February 2010, for our
Canadian plan, shares purchased by the trustee using employee
contributions are issued as treasury
shares. CIBC FirstCaribbean operates its own ESPP, in which
contributions are used by the plan trustee to purchase CIBC
FirstCaribbean common shares in the open market.
Our contributions are expensed as incurred and totalled $31
million in 2011 (2010: $30 million; 2009: $30 million).
Hedging
The impact due to changes in CIBC's share price in respect of
cash-settled share-based compensation under the RSA, PSU, DSU, and
SAR plans is hedged through the use of derivatives. The gains and
losses on these derivatives are recognized in compensation expense.
In the consolidated statements of operations, compensation expense
included a recovery of $15 million in respect of the derivatives
referenced above (2010: $105 million; 2009: $60 million). AOCI in
respect of certain designated accounting hedges, in respect of
awards that are being expensed over vesting periods, totalled a
credit of $1 million (2010: $24 million; 2009: $14 million).
Consolidated financial statements
Note 21 Employee future benefits
======= ========================
We sponsor pension and other post-employment benefit plans for
eligible employees. Our pension plans include registered funded
defined benefit pension plans, supplemental arrangements, which
provide pension benefits in excess of statutory limits, and defined
contribution plans. The defined benefit pension plans are
predominantly non-contributory, but some participants contribute to
their respective plans so as to receive higher pension benefits.
These benefits are, in general, based on years of service and
compensation near retirement. We also provide certain health-care,
life insurance, and other benefits to eligible employees and
pensioners. In addition, we continue to sponsor a long-term
disability plan which provides benefits to disabled employees who
became disabled prior to June 1, 2004.
Effective November 1, 2008, we elected to change our measurement
date for accrued benefit obligations and the fair value of plan
assets from September 30 to October 31. The change was applied
retroactively without restatement and resulted in an after-tax
charge to opening retained earnings of $6 million ($9 million
pre-tax) as at November 1, 2008. As a result, plan assets and
accrued benefit obligations related to our employee defined benefit
plan are measured for accounting purposes as at October 31.
The following tables present the financial positions of the
employee defined benefit pension and other post-employment benefit
plans for Canada, the U.S., the U.K., and the Caribbean
subsidiaries. Other minor plans operated by some of our
subsidiaries are not considered material and are not included in
these disclosures.
Pension benefit plans Other benefit plans
------------------- --------------------------- ------------------------------------------------------------ ----------------------------- ------------------------------------------------------------
$ millions,
as at or for the
year
ended October 31 2011 2010 2009 2011 2010 2009
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Accrued benefit
obligation
Balance at
beginning of
year..............
..................
.................. $ 4,615 $ 3,942 $ 3,641 $ 769 $ 720 $ 694
Adjustment for
change in
measurement
date..........
....... - - 12 - - 1
Current service
cost..........
..............
..............
..............
.... 150 120 108 14 13 13
Employee
contributions.
..............
..............
..............
........ 6 6 6 - - -
Interest cost
on accrued
benefit
obligation....
..............
.. 260 257 248 40 43 43
Benefits
paid..........
..............
..............
..............
..............
.. (222) (212) (216) (52) (51) (52)
Foreign
exchange rate
changes.......
..............
..............
. (9) (27) (6) - (3) -
Actuarial
losses........
..............
..............
..............
............. 163 528 144 25 55 21
Plan
amendments....
..............
..............
..............
.............. 10 1 5 8 (8) -
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Balance at end of
year..............
..................
..................
........... $ 4,973 $ 4,615 $ 3,942 $ 804 $ 769 $ 720
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Plan assets
Fair value at
beginning of
year..............
..................
............... $ 4,608 $ 4,003 $ 3,794 $ 25 $ 27 $ 40
Adjustment for
change in
measurement
date..........
....... - - (15) - - (4)
Actual positive
return on plan
assets........
..............
........ 232 471 154 1 1 3
Employer
contributions.
..............
..............
..............
......... 281 369 288 48 48 40
Employee
contributions.
..............
..............
..............
........ 6 6 6 - - -
Benefits
paid..........
..............
..............
..............
..............
.. (222) (212) (216) (52) (51) (52)
Foreign
exchange rate
changes.......
..............
..............
. (9) (29) (8) - - -
Net transfer
out............
...............
...............
...............
....... (1) - - - - -
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Fair value at end
of
year..............
..................
..................
........ $ 4,895 $ 4,608 $ 4,003 $ 22 $ 25 $ 27
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Funded status
(deficit)
surplus...........
..................
.................. $ (78) $ (7) $ 61 $ (782) $ (744) $ (693)
Unamortized net
actuarial
losses............
..................
............. 1,505 1,423 1,171 170 151 100
Unamortized past
service costs
(gains)...........
..................
... 15 8 9 (105) (135) (148)
Unamortized
transitional
asset.............
..................
................ - - - - - 1
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Accrued benefit
asset
(liability).......
..................
..................
... $ 1,442 $ 1,424 $ 1,241 $ (717) $ (728) $ (740)
Valuation
allowance.........
..................
..................
..................
.. (19) (19) (18) - - -
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Accrued benefit
asset (liability),
net of valuation
allowance.. $ 1,423 $ 1,405 $ 1,223 $ (717) $ (728) $ (740)
------------------- --------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- -----------------------------
Consolidated financial statements
The accrued benefit asset (liability), net of valuation
allowance, included in other assets and liabilities is as
follows:
Pension benefit plans Other benefit plans
--------------- ---------------------- ---------------------------------------------------------- --------------------- --------------------------------------------
$ millions, as
at October 31 2011 2010 2009 2011 2010 2009
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Accrued benefit
asset
(liability),
net of
valuation
allowance,
recorded
in:...........
Other assets
(Note
9)............
..............
........... $ 1,445 $ 1,426 $ 1,243 $ - $ - $ -
Other
liabilities
(Note
11)...........
..............
..... (22 ) (21 ) (20 ) (717 ) (728 ) (740)
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
$ 1,423 $ 1,405 $ 1,223 $ (717 ) $ (728 ) $ (740)
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Included in the accrued benefit obligation and fair value of the plan assets at year-end are
the following amounts in respect of plans with accrued benefit obligations in excess of fair
value of assets:
Pension benefit plans Other benefit plans
--------------- ---------------------- ---------------------------------------------------------- --------------------- --------------------------------------------
$ millions, as
at October 31 2011 2010 2009 2011 2010 2009
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Accrued benefit
obligation.....
...............
.......
Unfunded
plans.....
..........
..........
..........
.... $ 47 $ 43 $ 38 $ 686 $ 638 $ 582
Funded
plans.....
..........
..........
..........
....... 4,490 4,149 217 118 131 138
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
4,537 4,192 255 804 769 720
Fair value of
plan
assets........
..............
......... 4,346 4,094 202 22 25 27
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Funded status
deficit.......
..............
..............
.. $ (191 ) $ (98 ) $ (53 ) $ (782 ) $ (744 ) $ (693)
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
The net defined benefit plan expense is
as follows:
Pension benefit plans Other benefit plans
--------------- ---------------------- ---------------------------------------------------------- --------------------- --------------------------------------------
$ millions, for
the year ended
October 31 2011 2010 2009 2011 2010 2009
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Current
service
cost..........
..............
..............
. $ 150 $ 120 $ 108 $ 14 $ 13 $ 13
Interest cost
on accrued
benefit
obligation... 260 257 248 40 43 43
Actual positive
return on plan
assets........
..... (232 ) (471 ) (154 ) (1 ) (1 ) (3)
Plan
amendments....
..............
..............
........ 10 1 5 8 (8 ) -
Actuarial
losses........
..............
..............
......... 163 528 144 25 55 21
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Benefit plan
expense,
before
adjustments to
recognize the
long-term
nature of
employee
future
benefit
costs.........
......... $ 351 $ 435 $ 351 $ 86 $ 102 $ 74
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Adjustments to
recognize the
long-term
nature of
employee future
benefit
costs...
Difference
between
actual and
expected
return on
plan
assets....
..........
..........
.. $ (48 )(1) $ 204 (1) $ (141 )(1) $ - (2) $ - (2) $ 1(2)
Difference
between
actuarial
(gains)
losses
arising
and
actuarial
(gains)
losses
amortized.
..........
..........
..........
.. (36 )(3) (462 )(3) (133 )(3) (18 )(4) (51 )(4) (20)(4)
Difference
between
plan
amendment
costs
arising
and plan
amendment
costs
amortized.
..........
..........
.......... 1
... (7 )(5) (5) (3 )(5) (30 )(6) (13 )(6) (20)(6)
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
(91 ) (257 ) (277 ) (48 ) (64 ) (39)
Change in
valuation
allowance.....
..............
. - 1 (1 ) - - -
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
Defined
benefit plan
expense
recognized.... $ 260 $ 179 $ 73 $ 38 $ 38 $ 35
--------------- ---------------------- --------------------------- ----------------------------- --------------------- --------------------- ---------------------
(1) Expected return on plan assets of $280 million (2010: $267
million; 2009: $295 million), subtracted from actual return on plan
assets of $232 million (2010: $471 million; 2009: $154
million).
(2) Expected return on plan assets of $1 million (2010: $1
million; 2009: $2 million), subtracted from actual return on plan
assets of $1 million (2010: $1 million; 2009: $3 million).
(3) Actuarial losses amortized of $127 million (2010: $66
million; 2009: $11 million), less actual actuarial losses incurred
of $163 million (2010: $528 million; 2009: $144 million).
(4) Actuarial losses amortized of $7 million (2010: $4 million;
2009: $1 million), less actual actuarial losses incurred of $25
million (2010: $55 million; 2009: $21 million).
(5) Amortization of plan amendments of $3 million (2010: $2
million; 2009: $2 million), less actual plan amendments of $10
million (2010: $1 million; 2009: $5 million).
(6) Amortization of plan amendments of $(22) million (2010:
$(21) million; 2009: $(20) million), less actual plan amendments of
$8 million (2010: $(8) million; 2009: nil).
Consolidated financial statements
Benefit and plan changes
There were no material changes to the terms of our defined
benefit pension plans or other benefit plans in 2011, 2010 or
2009.
Investment policy
CIBC's Board of Directors has delegated the responsibility for
establishing pension fund investment objectives and policies and
monitoring pension investment policy to the Board's Management
Resources and Compensation Committee (MRCC). The MRCC is
responsible for establishing investment policies such as asset mix,
permitted investments, and use of derivatives.
While specific investment policies are determined at a plan
level to reflect the unique characteristics of each plan, common
investment policies for all plans include the optimization of the
risk-return relationship using a portfolio of various asset classes
diversified by market segment, economic sector, and issuer. The
objectives are to secure the obligations of our funded plans, to
maximize investment returns while not compromising the security of
the respective plans, and to manage the level of funding
contributions.
To reduce investment-specific risk and to enhance expected
returns, investments are allocated among multiple asset classes,
with publicly traded fixed income and equities in active markets,
representing the most significant asset allocations. Use of
derivative financial instruments is limited to generating the
synthetic return of debt or equity instruments or to provide
currency hedging for foreign equity holdings. Investments in
specific asset classes are further diversified across funds,
managers, strategies, sectors and geographies, depending on the
specific characteristics of each asset class.
The exposure to any one of these asset classes will be
determined by our assessment of the needs of the plan assets and
economic and financial market conditions. Factors evaluated before
adopting the asset mix include demographics, cash-flow payout
requirements, liquidity requirements, actuarial assumptions,
expected benefit increases, and corporate cash flows.
Management of the assets of the various Canadian plans has been
delegated primarily to the Pension and Benefits Investment
Committee (PBIC), which is a committee composed of CIBC management.
The PBIC has appointed investment managers, including CIBC Global
Asset Management Inc., a wholly owned subsidiary of CIBC. These
managers have investment discretion within established target asset
mix ranges as set by the MRCC. Should the actual mix fall outside
specified ranges, the assets are rebalanced as required to be
within the target asset mix ranges. Similar committees exist for
the management of our non-Canadian plans.
Risk management oversight as performed by PBIC and other
committees includes but is not limited to the following
activities:
-- Periodic asset/liability management and strategic asset
allocation studies;
-- Monitoring of funding levels and funding ratios;
-- Monitoring compliance with asset allocation guidelines and
investment management agreements;
-- Monitoring asset class performance against asset class
benchmarks; and
-- Monitoring investment manager performance against
benchmarks.
Benefit plan assets
The weighted-average asset allocation and target allocation by
asset category of our defined benefit pension plans and other
funded benefit plans are as follows:
Pension benefit plans Other benefit plans
------------ ----------------- ----------------- -------------------------------------- ------------------ ------------------ ------------------------------------
Target Actual Target Actual Target Actual Target Actual
Asset allocation allocation allocation allocation allocation allocation allocation allocation
category(1) 2011 2011 2010 2010 2011 2011 2010 2010
------------ ----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ----------------- -----------------
Equity(2)
...........
...........
...........
...........
........... 52 % 53 % 49 % 49 % - % - % - % - %
Debt(2)
...........
...........
...........
...........
...........
... 44 43 42 45 100 100 100 100
Real
estate.....
...........
...........
...........
...........
. - 1 5 4 - - - -
Other(3)
...........
...........
...........
...........
...........
.. 4 3 4 2 - - - -
------------ ----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ----------------- -----------------
100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
------------ ----------------- ----------------- ------------------ ------------------ ------------------ ------------------ ----------------- -----------------
(1) Categories are based upon risk classification.
(2) Pension benefit plans include CIBC or CIBC FirstCaribbean
issued securities and deposits of $21 million (2010: $39 million),
representing 0.4% of total plan assets (2010: 0.8%). Other benefit
plans do not include any CIBC or CIBC FirstCaribbean securities or
deposits.
(3) Investments in essential public assets, including
transportation, communication, energy, education, and health-care
projects.
Consolidated financial statements
Plan assumptions
The discount rate assumption used in determining pension and
other post-employment benefit obligations and net benefit expense
reflects the market yields, as of the measurement date, on
high-quality corporate bonds with cash flows that match expected
benefit payments.
For the Canadian plans, the expected rate of return on plan
assets assumption is reviewed annually by management, in
conjunction with our actuaries. The assumption is based on expected
returns for the various asset classes, weighted by the portfolio
allocation. Anticipated future long-term
performance of individual asset categories is considered,
reflecting expected future inflation and real yields on fixed
income securities and equities.
In the U.S., U.K., and Caribbean regions, procedures similar to
those in Canada are used to develop the expected long-term rate of
return on plan assets, taking into consideration local market
conditions and the specific allocation of plan assets.
The weighted-average assumptions used to determine the accrued
benefit obligation and the benefit plan expenses are as
follows:
Pension benefit plans Other benefit plans
------------------------------------------- ----------- -------------------------------------------- ----------------- -----------------------------------------
For the year ended October 31 2011 2010 2009 2011 2010 2009
------------------------------------------- ----------- -------------------------- ---------------- ----------------- ---------------------- -----------------
Accrued benefit obligation as at October
31........................................
Discount rate at end of the period..... 5.5% 5.6 % 6.5% 5.2% 5.3 % 6.0%
Rate of compensation increase......... 3.6% 3.6 % 3.7% 3.5% 3.5 % 3.5%
Net benefit plan expense for the year ended
October 31.............................
Discount rate at beginning of the
period................................
.......... 5.6% 6.5 % 6.8% 5.3% 6.0 % 6.6%
Expected long-term rate of return on
plan
assets................................
... 6.4% 6.4 % 6.9% 3.8% 4.0 % 5.0%
Rate of compensation increase......... 3.6% 3.7 % 3.7% 3.5% 3.5 % 3.5%
------------------------------------------- ----------- -------------------------- ---------------- ----------------- ---------------------- -----------------
The assumed health-care cost trend rates of the principal
Canadian plan providing medical, dental, and life insurance
benefits are as follows:
For the year ended October 31 2011 2010 2009
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Health-care cost trend rates assumed for next year..................................... 6.9 % 7.0 % 7.1 %
Rate to which the cost trend rate is assumed to decline............................. 4.5 % 4.5 % 4.5 %
Year that the rate reaches the ultimate trend rate...................................... 2029 2029 2029
---------------------------------------------------------------------------------------------------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
A one percentage-point change in assumed health-care cost trend rates would have the following
effects:
One percentage-point increase One percentage-point decrease
------------------------------------------------------------- ------------- ------------- ------------- -------------------------------------------- -----------------------------------------------------
$ millions, for the year ended October
31.......................................................... 2011 2010 2009 2011 2010 2009
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Effect on aggregate of service and interest
costs...................................... $ 4 $ 4 $ 4 $ (3 ) $ (3 ) $ (3)
Effect on accrued benefit obligation....... 67 54 49 (56 ) (45 ) (40)
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Defined contribution and other plans
We also maintain defined contribution plans for certain employees and make contributions to
government pension plans. The expense recognized for these benefit plans is as follows:
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Defined contribution pension plans........ $ 11 $ 11 $ 13
Government pension plans(1) ................... 78 75 73
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
$ 89 $ 86 $ 86
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal Insurance Contributions
Act.
Expenses if recognized as they arose
The total expense arising for the defined benefit pension plans, defined contribution pension
plans, government pension plans, and other post-employment benefit plans if we had recognized
all costs and expenses as they arose is as follows:
Pension benefit plans Other benefit plans Total
------------------------------------------------------------- ------------- ---------------------------- ------------- ----------------------------- ---------------- ---------------- -----------------
$ millions, for the year ended October
31.......................................................... 2011 2010 2009 2011 2010 2009 2011 2010 2009
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Defined benefit plans............................. $ 351 $ 435 $ 351 $ 86 $ 102 $ 74 $ 437 $ 537 $ 425
Defined contribution and other plans...... 89 86 86 - - - 89 86 86
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
$ 440 $ 521 $ 437 $ 86 $ 102 $ 74 $ 526 $ 623 $ 511
------------------------------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- ---------------- ---------------- -----------------
Consolidated financial statements
Cash flows
Cash contributions
The most recently completed actuarial valuation of the principal
defined benefit pension plan for funding purposes was as at October
31, 2010. The next required actuarial valuation of this plan for
funding purposes will be effective as of October 31, 2011. For the
long-term disability plan, the most recent actuarial valuation was
performed as of October 31, 2009. Total cash contributions for
employee future benefit plans consist of:
Pension benefit plans Other benefit plans
-------------- ---------------- ---------------------------------- -------------- ---------------------------------
$ millions,
for the year
ended October
31 2011 2010 2009 2011 2010 2009
-------------- ---------------- ---------------- ---------------- -------------- ---------------- ---------------
Funded
plans........
.............
.............
.............
.............
.......... $ 278 $ 366 $ 230 $ 15 $ 15 $ -
Beneficiaries
of unfunded
plans........
.............
.............
........ 3 3 3 33 33 37
Defined
contribution
pension
plans........
.............
.............
... 11 11 13 - - -
-------------- ---------------- ---------------- ---------------- -------------- ---------------- ---------------
$ 292 $ 380 $ 246 $ 48 $ 48 $ 37
-------------- ---------------- ---------------- ---------------- -------------- ---------------- ---------------
The minimum contributions for 2012 are anticipated to be $177
million for defined benefit pension plans and $53 million for other
benefit plans. These estimates are subject to change since
contributions are affected by various factors, such as market
performance, regulatory requirements, and management's ability to
change funding policy.
Benefit payments
The following benefit payments, which reflect expected future
services, as appropriate, are expected to be paid either by CIBC or
from the trust funds:
$ millions, as at October 31, 2011 Pension benefit plans Other benefit plans
------------------------------------------------------------------------------------------------------------------ ------------------------------- ----------------------------
2012............................................................................................................. $ 230 $ 53
2013............................................................................................................. 232 53
2014............................................................................................................. 236 54
2015............................................................................................................. 241 54
2016............................................................................................................. 247 55
2017-2021................................................................................................... 1,357 285
------------------------------------------------------------------------------------------------------------------ ------------------------------- ----------------------------
Note 22 Income taxes
======= ============
Total income taxes
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
Consolidated statement of
operations............................................
Income tax expense (benefit) -
current..................................... $ 436 $ 733 $ 386
* future.
.............
.............
......... 533 800 38
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
969 1,533 424
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
Consolidated statement of changes in shareholders'
equity............
OCI...........................................................
................................ (28) (485) 18
Accounting policy
changes....................................................... - - (3)(1)
Other.........................................................
................................ - (7) (6)
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
(28) (492) 9
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
$ 941 $ 1,041 $ 433
------------------------------------------------------------------- ------------------------------- ----------- ----------------------------------
(1) Represents the impact of changing the measurement date for
employee future benefits. See Note 21 for additional details.
Consolidated financial statements
Components of income tax
$ millions, for the year ended October 31 2011 2010 2009
-------------------------------------------------------------------- -------------- ----------------- -------------
Current income
taxes...............................................................
.........................................
Federal........................................................
...............................................................
. $ 233 $ 80 $ 133
Provincial.....................................................
............................................................... 151 63 84
Foreign........................................................
...............................................................
. 15 44 65
-------------------------------------------------------------------- -------------- ----------------- -------------
399 187 282
-------------------------------------------------------------------- -------------- ----------------- -------------
Future income
taxes...............................................................
...........................................
Federal........................................................
...............................................................
. 250 491 172
Provincial.....................................................
............................................................... 150 292 94
Foreign........................................................
...............................................................
. 142 71 (115)
-------------------------------------------------------------------- -------------- ----------------- -------------
542 854 151
-------------------------------------------------------------------- -------------- ----------------- -------------
$ 941 $ 1,041 $ 433
-------------------------------------------------------------------- -------------- ----------------- -------------
Future income tax balances are included in other assets (Note 9)
and other liabilities (Note 11) and result from temporary
differences between the tax basis of assets and liabilities and
their carrying amounts on the consolidated balance sheet.
The combined Canadian federal and provincial income tax rates
vary each year according to changes in the statutory rates imposed
by each of these jurisdictions, and according to changes in the
proportion of our business carried out in each province. We are
also subject to Canadian taxation on income of foreign
branches.
Earnings of foreign subsidiaries would generally only be subject
to Canadian tax when distributed to Canada. Additional Canadian
taxes that would be payable if all foreign subsidiaries' retained
earnings were distributed to the Canadian parent as dividends are
estimated at nil (2010: $231 million; 2009: $500 million).
The effective rates of income tax in the consolidated statement
of operations are different from the combined Canadian federal and
provincial income tax rate of 28.2% (2010: 30.6%; 2009: 31.8%) as
set out in the following table:
Reconciliation of income taxes
$ millions, for
the year ended
October 31 2011 2010 2009
------------------ -------------------- ------------- ------------------- ------------- ----------------- -------------
Combined Canadian
federal and
provincial income
tax rates applied
to income before
income
taxes... $ 1,144 28.2 % $ 1,228 30.6 % $ 515 31.8 %
Income taxes
adjusted for the
effect of:
Earnings of
foreign
subsidiaries.
.............
.......... (64 ) (1.6 ) (96 ) (2.4 ) (118 ) (7.3 )
Tax-exempt
income.......
.............
.............
........ (136 ) (3.4 ) (36 ) (0.9 ) (29 ) (1.8 )
Tax-exempt
gains........
.............
.............
.......... (3 ) (0.1 ) - - (4 ) (0.2 )
Net realized
foreign
exchange
gains on
investments
in foreign
operations...
.............
.............
...... 16 0.4 409 10.2 69 4.3
Future tax
rate
decrease.....
.............
.............
.... 20 0.5 27 0.7 - -
Other........
.............
.............
.............
.............
.... (8 ) (0.1 ) 1 - (9 ) (0.6 )
------------------ -------------------- ------------- ------------------- ------------- ----------------- -------------
Income taxes in
the consolidated
statement of
operations.......
.................
.................
............... $ 969 23.9 % $ 1,533 38.2 % $ 424 26.2 %
------------------ -------------------- ------------- ------------------- ------------- ----------------- -------------
During the year, capital repatriation activities resulted in a
$21 million (2010: $536 million; 2009: $104 million) increase in
income tax expense in the consolidated statement of operations,
arising from the transfer of related accumulated balances in the
net foreign currency translation adjustments component of AOCI.
Future income tax asset
At October 31, 2011, our net future income tax asset was $219
million (net of a $32 million VA) including $114 million related to
our U.S. operations. Accounting standards require a
VA when it is more likely than not that all or a portion of a
future income tax asset will not be realized prior to its
expiration. Although realization is not assured, we believe that,
based on all available evidence, it is more likely than not that
all of the future income tax asset, net of the VA, will be
realized.
Consolidated financial statements
The following table presents sources of the future income tax
assets and liabilities, net of the VA:
Sources of future income tax balances
$ millions, as at October 31 2011 2010
--------------------------------------------------------------------------- ----------------- ---------------
Future income tax assets.........................................
Tax loss carryforwards........................................ $ 96 $ 665
Provisions.......................................................... 47 37
Allowance for credit losses................................. 301 346
Unearned income.............................................. 104 88
Buildings and equipment.................................. 53 62
Pension and employee benefits........................ 176 90
Securities revaluation........................................ 34 35
Other................................................................. 14 106
--------------------------------------------------------------------------- ----------------- ---------------
825 1,429
VA (32 ) (66)
--------------------------------------------------------------------------- ----------------- ---------------
793 1,363
--------------------------------------------------------------------------- ----------------- ---------------
Future income tax liabilities....................................
Lease receivables.............................................. 67 87
Pension and employee benefits........................ 221 152
Buildings and equipment.................................. 64 80
Goodwill............................................................ 66 69
Securities revaluation........................................ 83 91
Foreign currency................................................ 34 62
Other................................................................. 39 55
--------------------------------------------------------------------------- ----------------- ---------------
574 596
--------------------------------------------------------------------------- ----------------- ---------------
Net future income tax asset, net of the VA.............. $ 219 $ 767
--------------------------------------------------------------------------- ----------------- ---------------
Recorded in:...........................................................
Other assets (Note 9).......................................... 270 767
Other liabilities (Note 11)................................... (51 ) -
--------------------------------------------------------------------------- ----------------- ---------------
$ 219 $ 767
--------------------------------------------------------------------------- ----------------- ---------------
Enron
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. We believe that we will be successful in
sustaining at least the amount of the accounting tax benefit
recognized to date.
Should we successfully defend our tax filing position in its
entirety, we would be able to recognize an additional accounting
tax benefit of $214 million and taxable refund interest of
approximately $175 million. Should we fail to defend our position
in its entirety, additional tax expense of approximately $862
million and non-deductible interest of approximately $123 million
would be incurred.
Leveraged leases
Final closing agreements for leveraged leases were executed with
the Internal Revenue Service (IRS) in 2009. During 2010, final
taxable amounts and interest charges thereon were agreed with the
IRS and payments applied to the various affected taxation
years.
Ontario tax rate reductions
The Ontario Government will reduce Ontario corporate tax rates
to 10% by 2013. The rate reductions were substantively enacted as
at November 16, 2009. As a result, we wrote down our future income
tax assets by approximately $25 million in 2010.
The following table presents a reconciliation of the beginning
and ending amount of unrecognized tax benefits:
Unrecognized tax benefits
$ millions, for the year ended October 31 2011 2010
------------------------------------------------------------------ ------------------ -------------
Balance at beginning of year................................... $ 474 $ 456
Increases based on tax positions related to the current year 38 39
Decreases based on tax positions related to prior years (4 ) (21)
------------------------------------------------------------------ ------------------ -------------
Balance at the end of year....................................... $ 508 $ 474
------------------------------------------------------------------ ------------------ -------------
The entire amount of remaining unrecognized tax benefits of $508
million (2010: $474 million), if recognized, would affect the
effective tax rate.
We do not expect any other significant changes in the total
amount of unrecognized benefits to occur within the next 12
months.
CIBC operates in Canada, the U.S., the U.K., and other tax
jurisdictions. The earliest tax years subject to investigation (for
federal purposes) are as follows:
Jurisdiction:
Canada 2005
U.S. 2008
U.K. 2008
CIBC accounts for interest arrears and penalties in Income tax
expense, except where the interest is deductible for income tax
purposes, in which case it is recognized as Interest expense in the
consolidated statement of operations. We do not have any interest
and penalties payable on the consolidated balance sheet as at
October 31, 2011 and 2010.
Consolidated financial statements
Note 23 Earnings per share
======= ==================
$ millions, except per share amounts, for the year
ended October 31 2011 2010 2009
--------------------------------------------------- --------------------- --------------------- -------------------
Basic EPS
Net
income............................................
..................................................
..................... $ 3,079 $ 2,452 $ 1,174
Preferred share dividends and
premiums..........................................
............................ (177 ) (169 ) (162)
--------------------------------------------------- --------------------- --------------------- -------------------
Net income applicable to common
shares............................................
........................ $ 2,902 $ 2,283 $ 1,012
--------------------------------------------------- --------------------- --------------------- -------------------
Weighted-average common shares outstanding
(thousands).......................................
.. 396,233 387,802 381,677
--------------------------------------------------- --------------------- --------------------- -------------------
Basic
EPS...............................................
..................................................
.................... $ 7.32 $ 5.89 $ 2.65
--------------------------------------------------- --------------------- --------------------- -------------------
Diluted EPS
Net income applicable to common
shares............................................
........................ $ 2,902 $ 2,283 $ 1,012
--------------------------------------------------- --------------------- --------------------- -------------------
Weighted-average common shares outstanding
(thousands).......................................
.. 396,233 387,802 381,677
Add: stock options potentially exercisable(1)
(thousands).......................................
......... 864 1,005 765
--------------------------------------------------- --------------------- --------------------- -------------------
Weighted-average diluted common shares
outstanding(2)
(thousands)........................... 397,097 388,807 382,442
--------------------------------------------------- --------------------- --------------------- -------------------
Diluted
EPS...............................................
..................................................
................. $ 7.31 $ 5.87 $ 2.65
--------------------------------------------------- --------------------- --------------------- -------------------
(1) Excludes average options outstanding of 1,084,331 with a
weighted-average exercise price of $84.36; average options
outstanding of 1,954,098 with a weighted-average exercise price of
$78.99; and average options outstanding of 3,444,668 with a
weighted-average exercise price of $69.37 for the years ended
October 31, 2011, 2010, and 2009, respectively, as the options'
exercise prices were greater than the average market price of
common shares.
(2) Convertible preferred shares and preferred share liabilities
have not been included in the calculation because either we have
settled preferred shares for cash in the past or we have not
exercised our conversion right in the past.
Note 24 Commitments, guarantees, pledged assets and contingent liabilities
======= ==================================================================
Commitments
Credit-related arrangements
Credit-related arrangements are generally off-balance sheet
instruments and are typically entered into to meet the financing
needs of clients. In addition, there are certain exposures for
which we could be obligated to extend credit that are not recorded
on the consolidated balance sheet. Our policy of requiring
collateral or other security to support credit-related arrangements
and the types of security held is generally the same as for loans.
The contract amounts shown below for credit-related arrangements
represent the maximum amount of additional credit that we could be
obligated to extend. The contract amounts also represent the credit
risk amounts should the contracts be fully drawn, the
counterparties default and any collateral held proves to be of no
value. As many of these arrangements will expire or terminate
without being drawn upon, the contract amounts are not necessarily
indicative of future cash requirements or actual risk of loss.
Contract amounts
------------------------------------------------------------------------------------------------------------
$ millions, as at October 31 2011 2010
----------------------------------------------------------------------- ------------------- --------------
Securities lending(1)(2) ......................................... $ 57,286 $ 57,325
Unutilized credit commitments(3)(4) ...................... 140,348 132,261
Backstop liquidity facilities................................. 3,176 4,403
Standby and performance letters of credit......... 6,323 5,721
Documentary and commercial letters of credit... 312 290
Other................................................................. 412 381
----------------------------------------------------------------------- ------------------- --------------
$ 207,857 $ 200,381
----------------------------------------------------------------------- ------------------- --------------
(1) Includes the full contract amount of custodial client
securities totalling $46.3 billion (2010: $45.0 billion) lent by
CIBC Mellon Global Securities Services Company (GSS).
(2) Excludes securities lending of $2.8 billion (2010: $4.3
billion) for cash because it is reported on the consolidated
balance sheet.
(3) Starting 2011, includes personal, home equity and credit
card lines of credit. Prior year information was restated
accordingly.
(4) Includes irrevocable lines of credit totalling $32.2 billion (2010: $34.9 billion).
Securities lending
Securities lending represents our credit exposure when we lend
our own or our clients' securities to a borrower and the borrower
defaults on the redelivery obligation. The borrower must fully
collateralize the security lent at all times.
Unutilized credit commitments
Unutilized credit commitments are the undrawn portion of lending
facilities that we have approved to meet the requirements of
clients. These arrangements may incorporate various conditions that
must be satisfied prior to the drawdown.
Consolidated financial statements
The reported amounts include facilities extended in connection
with contingent acquisition financing. The credit risk associated
with these lines arises from the possibility that a commitment will
be drawn down as a loan at some point in the future, prior to the
expiry of the commitment. The amount of collateral obtained, if
deemed necessary, is based on our credit evaluation of the borrower
and may include a charge over the present and future assets of the
borrower.
Backstop liquidity facilities
We provide irrevocable backstop liquidity facilities primarily
to ABCP conduits. We are the administrators for some of these
conduits, while other conduits are administered by third parties.
The liquidity facilities for our sponsored ABCP programs for Crisp
Trust, Safe Trust, Smart Trust and Sound Trust require us to
provide funding, subject to the satisfaction of certain limited
conditions with respect to these conduits to fund non-defaulted
assets.
Standby and performance letters of credit
These represent an irrevocable obligation to make payments to
third parties in the event that clients are unable to meet their
contractual (financial or performance) obligations. The credit risk
associated with these instruments is essentially the same as that
involved in extending irrevocable loan commitments to clients. The
amount of collateral obtained, if deemed necessary, is based on our
credit evaluation of the borrower and may include a charge over
present and future assets of the borrower.
Documentary and commercial letters of credit
Documentary and commercial letters of credit are short-term
instruments issued on behalf of a client, authorizing a
third-party, such as an exporter, to draw drafts on CIBC up to a
specified amount, subject to specific terms and conditions. We are
at risk for any drafts drawn that are not ultimately settled by the
client; however, the amounts drawn are collateralized by the
related goods.
Lease commitments(1)(2)(3)
CIBC has obligations under non-cancellable leases for buildings
and equipment.
Future minimum lease payments for all lease commitments for each
of the five succeeding years and thereafter are as follows:
$ millions, as at October 31, 2011
------------------------------------------------------------------------------------------------------------
2012...................................................................................... $ 351
2013...................................................................................... 338
2014...................................................................................... 298
2015...................................................................................... 266
2016...................................................................................... 240
2017 and thereafter............................................................... 1,385
------------------------------------------------------------------------------------------- ---------------
(1) Total rental expense (excluding servicing agreements) in
respect of buildings and equipment charged to the consolidated
statement of operations was $384 million (2010: $373 million; 2009:
$334 million).
(2) We have sublet some of our premises and received $18 million
(2010: $26 million; 2009: $43 million) from third-party tenants on
the sub-leases. Our lease commitments in the table above are gross
of the sub-lease income.
(3) Includes $11 million (2010: $16 million) of assigned lease
commitments in connection with our sale of the U.S. private client
and asset management division to Oppenheimer Holdings Inc. in 2003.
We remain contingently liable under the terms of the leases that
have been assigned to Oppenheimer in the event of an Oppenheimer
default.
Other commitments
As an investor in merchant banking activities, we enter into
commitments to fund external private equity funds and investments
in equity and debt securities at market value at the time the
commitments are drawn. In connection with these activities, we had
commitments to invest up to $354 million (2010: $294 million).
In addition, we act as underwriter for certain new issuances
under which we alone or together with a syndicate of financial
institutions purchase these new issuances for resale to investors.
As at October 31, 2011, the related underwriting commitments were
$333 million (2010: $183 million).
Consolidated financial statements
Guarantees
Guarantees include contracts that contingently require the
guarantor to make payments to a guaranteed party based on (i)
changes in an underlying economic characteristic that is related to
an asset, liability, or an equity security of the guaranteed party;
(ii) failure of another party to perform under an obligating
agreement; or (iii) failure of a third party to pay its
indebtedness when due.
The following table summarizes significant guarantees issued and
outstanding:
$ millions, as at
October 31 2011 2010
---------------------- --------------------------- ------------------- ------------------------- -----------------
Maximum Maximum
potential potential Carrying
future payment Carrying future
(1) amount payment (1) amount
---------------------- --------------------------- ------------------- ------------------------- -----------------
Securities lending
with
indemnification(2)
............ $ 44,485 $ - $ 42,527 $ -
Standby and
performance letters
of credit(3)
......... 6,323 23 5,721 25
Credit derivatives(4)
......................
......................
...
Credit default
swap contracts -
written..........
.. 7,642 1,643 12,080 1,884
Total return swap
contracts -
payable..........
.. 2,612 137 2,982 156
Other derivative
written options(4)
.....................
.... See narrative 1,455 See narrative 1,593
Other indemnification
agreements...........
........... See narrative - See narrative -
---------------------- --------------------------- ------------------- ------------------------- -----------------
(1) The total collateral available relating to these guarantees
was $47.3 billion (2010: $45.5 billion).
(2) Securities lending with indemnification is the full contract
amount of custodial client securities lent by CIBC Mellon GSS,
which is a 50/50 joint venture between CIBC and The Bank of New
York Mellon.
(3) The carrying amount is included in Other liabilities on the consolidated balance sheet.
(4) The carrying amount is included in Derivative instruments on the consolidated balance sheet.
As many of these guarantees will expire or terminate without
being drawn upon, and do not take into consideration the
possibility of recovery by means of recourse provisions or from
collateral held or pledged, the maximum potential future payment
amounts are not indicative of future cash requirements or credit
risk, and bear no relationship to our expected losses from these
arrangements.
Securities lending with indemnification
As part of our custodial business, indemnifications may be
provided to security lending clients to ensure that the fair value
of securities lent will be returned in the event that the borrower
fails to return the indemnified securities and collateral held is
insufficient to cover the fair value of those securities. The term
of these indemnifications varies, as the securities lent are
recallable on demand.
Standby and performance letters of credit
Standby and performance letters of credit represent written
undertakings that back financial and performance obligations of the
client. These guarantees convey similar credit risk characteristics
as loans. We may collateralize standby and performance letters of
credit in various forms, including cash, securities, and other
assets pledged. The terms of these guarantees vary, with the
majority of them expiring within one year.
Written credit derivatives
Written credit derivatives represent an indirect guarantee of
indebtedness of another party or the market value of a reference
asset as they require us to transfer funds to a counterparty upon
the occurrence of specified events related to the creditworthiness
of a reference obligor or the market value of a reference asset.
For these types of derivatives, determination of our
counterparties' underlying exposure related to the obligor or
reference asset (outside of the derivative contract) is not
required in order to classify the derivative as a guarantee. The
terms of these contracts vary, with the majority of them expiring
over five years.
Other derivative written options
Derivative contracts include written options on interest rate,
foreign exchange, equity, commodity, and other underlyings, which
provide the holder the right to purchase or sell the underlying
item for a pre-determined price. The derivative would be considered
a guarantee if the counterparty held an asset, liability, or equity
security related to the underlying in the derivative contract. We
do not track the intention or holdings of a given counterparty when
writing an option, and as a result, the maximum potential liability
for derivative contracts that may meet the definition of a
guarantee is unavailable. We generally hedge our exposure to these
contracts by entering into a variety of offsetting derivative
contracts and security positions. The terms of these contracts are
generally from one to five years.
Consolidated financial statements
Other indemnification agreements
In the ordinary course of operations, we enter into contractual
arrangements under which we may agree to indemnify the counterparty
to such arrangement from any losses relating to a breach of
representations and warranties, a failure to perform certain
covenants, or for claims or losses arising from certain external
events as outlined within the particular contract. This may
include, for example, losses arising from changes in tax
legislation, litigation, or claims relating to past performance.
In addition, we have entered into indemnification agreements with
each of our directors and officers to indemnify those individuals,
to the extent permitted by law, against any and all claims or
losses (including any amounts paid in settlement of any such
claims) incurred as a result of their service to CIBC. In most
indemnities, maximum loss clauses are generally not provided for,
and as a result, no defined limit of the maximum potential
liability exists. We believe that the likelihood of the conditions
arising to trigger obligations under these contract arrangements is
remote. Historically, any payments made in respect of these
contracts have not been significant. No amounts related to these
indemnifications, representations, and warranties are reflected
within the consolidated financial statements as at October 31, 2011
and 2010.
Pledged assets
In the ordinary course of business, we pledge our own assets, or
may sell or re-pledge third-party assets against liabilities, or to
facilitate certain activities. CIBC or the counterparty is allowed
to sell or re-pledge these pledged assets and collateral. The
following table presents the sources and uses of pledged assets and
collateral:
$ millions, as at October 31 2011 2010
----------------------------------------------------------------------------- ------------------- ------------------
Sources of pledged assets and collateral
CIBC
assets.......................................................................
..........................................................
Deposits with
banks...................................................................
............................................. $ 27 $ 41
Securities..............................................................
................................................................ 12,310 22,187
Mortgages...............................................................
.............................................................. 12,001 6,409
Other
assets..................................................................
......................................................... 4,397 4,912
----------------------------------------------------------------------------- ------------------- ------------------
28,735 33,549
----------------------------------------------------------------------------- ------------------- ------------------
Client
assets.......................................................................
.........................................................
Collateral received and available for sale or re-pledging(1)
.................................................... 88,322 97,707
Less: not sold or
re-pledged..............................................................
..................................... 16,593 22,106
----------------------------------------------------------------------------- ------------------- ------------------
71,729 75,601
----------------------------------------------------------------------------- ------------------- ------------------
$ 100,464 $ 109,150
----------------------------------------------------------------------------- ------------------- ------------------
Uses of pledged assets and collateral
Securities lent(2)
........................................................................
............................................. $ 57,286 $ 57,325
Obligations related to securities lent or sold under repurchase
agreements(3) ........................ 14,306 28,220
Obligations related to securities sold short(3)
........................................................................
.. 10,316 9,673
Covered bonds(3)
........................................................................
............................................ 12,001 6,409
Derivative transactions(4)
........................................................................
................................ 5,383 6,204
Foreign governments and central banks(5)
........................................................................
...... 513 419
Clearing systems, payment systems, and depositories(5)
......................................................... 659 900
----------------------------------------------------------------------------- ------------------- ------------------
$ 100,464 $ 109,150
----------------------------------------------------------------------------- ------------------- ------------------
(1) Includes the full contract amount totalling $48.9 billion
(2010: $47.8 billion) of collateral received for custodial client
securities lent by CIBC Mellon GSS.
(2) Includes the full contract amount of custodial client
securities totalling $46.3 billion (2010: $45.0 billion) lent by
CIBC Mellon GSS.
(3) Does not include over-collateralization of assets pledged.
(4) Comprises margins for exchange-traded futures and options,
clearing house settled swap contracts, and collateralized
derivative transactions.
(5) Includes assets pledged in order to participate in clearing
and payment systems and depositories, or to have access to the
facilities of central banks in foreign jurisdictions. Excludes
intraday pledges to the Bank of Canada related to the Large Value
Transfer System.
Consolidated financial statements
Securities collateral
Client securities collateral available for sale or re-pledge is
received in connection with securities lending, securities borrowed
or purchased under resale agreements, margin loans, and to
collateralize derivative contracts. Client securities collateral
may be sold or re-pledged by CIBC in connection with securities
borrowed, lent or sold under repurchase agreements, for margin
loans, as collateral for derivative transactions, or delivered to
cover securities sold short.
Contingent liabilities
CIBC is a party to a number of legal proceedings, including
regulatory investigations, in the ordinary course of its business.
While it is inherently difficult to predict the outcome of such
matters, based on current knowledge and consultation with legal
counsel, we do not expect that the outcome of any of these matters,
individually or in aggregate, would have a material adverse effect
on our consolidated financial position. However, the outcome of any
such matters, individually or in aggregate, may be material to our
operating results for a particular period.
In the fourth quarter of 2008, we recognized a gain of $895
million (US$841 million), resulting from the reduction to zero of
our unfunded commitment on a variable funding note (VFN) issued by
a CDO. This reduction followed certain actions of the indenture
trustee for the CDO following the September 15, 2008 bankruptcy
filing of Lehman Brothers Holdings, Inc. (Lehman), the guarantor of
a related CDS agreement with the CDO.
In September 2010, just prior to the expiration of a statute of
limitations, the Lehman Estate instituted an adversary proceeding
against numerous financial institutions, indenture trustees and
note holders, including CIBC, related to this and more than 40
other CDOs. The Lehman Estate seeks a declaration that the
indenture trustee's actions were improper and that CIBC remains
obligated to fund the VFN. At the request of the Lehman Estate, the
bankruptcy court issued an order staying all proceedings in the
action until January 20, 2012. Although there can be no certainty
regarding any eventual outcome, we believe that the CDO indenture
trustee's actions in reducing the unfunded commitment on our VFN to
zero, were fully supported by the terms of the governing contracts
and the relevant legal standards and CIBC intends to vigorously
contest the adversary proceeding.
The following table presents the changes in the provision
related to contingent liabilities:
$ millions, for the year ended October 31 2011
-------------------------------------------------------------------------------------------- ---------------
Balance at beginning of year.................................................. $ 43
Additional new provisions recognized................................ 14
Less:..................................................................................
Amounts incurred and charged against existing provisions (10)
Unused amounts reversed............................................. (14)
-------------------------------------------------------------------------------------------- ---------------
Balance at end of year............................................................ $ 33
-------------------------------------------------------------------------------------------- ---------------
Consolidated financial statements
Note 25 Concentration of credit risk
======= ============================
Concentration of credit exposure may arise with a group of
counterparties that have similar economic characteristics or are
located in the same geographic region. The ability of such
counterparties to meet contractual obligations would be similarly
affected by changing economic, political, or other conditions.
The amounts of credit exposure associated with our on- and
off-balance sheet financial instruments are summarized in the
following table:
Credit exposure by country of ultimate risk
$ millions, as at
October 31 2011 2010
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
Other Other
Canada U.S. countries Total Canada U.S. countries Total
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
On-balance sheet
Major
assets(1)(2)(3)
........... $ 279,040 $ 29,242 $ 30,566 $ 338,848 $ 262,043 $ 29,283 $ 44,934 $ 336,260
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
Off-balance sheet
Credit-related
arrangements...........
.......................
...
Lines of credit(4)
.............
Financial
institutions..
..............
.......... $ 6,401 $ 1,385 $ 255 $ 8,041 $ 6,692 $ 1,136 $ 655 $ 8,483
Governments...
........ 3,971 12 - 3,983 4,281 3 - 4,284
Retail........
.............. 96,041 - 65 96,106 92,601 - - 92,601
Other.........
.............. 30,026 4,123 1,245 35,394 25,232 3,026 3,038 31,296
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
136,439 5,520 1,565 143,524 128,806 4,165 3,693 136,664
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
Other
credit-related
arrangements(5)(6)
......
Financial
institutions..
..............
.......... 40,676 4,852 12,812 58,340 40,909 7,301 10,542 58,752
Governments...
........ 656 24 159 839 125 - 5 130
Other.........
.............. 4,650 271 233 5,154 4,155 215 465 4,835
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
45,982 5,147 13,204 64,333 45,189 7,516 11,012 63,717
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
$ 182,421 $ 10,667 $ 14,769 $ 207,857 $ 173,995 $ 11,681 $ 14,705 $ 200,381
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
Derivative
instruments(7)
By counterparty
type..........
Financial
institutions(8) .. $ 7,442 $ 9,770 $ 5,842 $ 23,054 $ 5,858 $ 5,523 $ 9,000 $ 20,381
Governments.......
......... 3,568 - - 3,568 2,662 - - 2,662
Other.............
............... 1,062 37 200 1,299 1,116 197 44 1,357
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
12,072 9,807 6,042 27,921 9,636 5,720 9,044 24,400
Less: effect of master
netting
agreements....... (9,513 ) (6,784 ) (4,431 ) (20,728 ) (7,008 ) (4,066 ) (5,893 ) (16,967)
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
Total derivative
instruments...........
......................
.... $ 2,559 $ 3,023 $ 1,611 $ 7,193 $ 2,628 $ 1,654 $ 3,151 $ 7,433
----------------------- ------------------- ------------------- -------------------- ------------------ ------------------- ------------------- ------------------- ------------------
(1) Major assets consist of cash and deposits with banks, loans
and acceptances net of allowance for credit losses, securities,
securities borrowed or purchased under resale agreements, and
derivative instruments.
(2) Includes Canadian currency of $283.1 billion (2010: $272.7
billion) and foreign currencies of $55.7 billion (2010: $63.6
billion).
(3) Includes loans and acceptances, net of allowance for credit
losses, totalling $194.4 billion (2010: $184.6 billion). No
industry or foreign jurisdiction accounts for more than 10% of this
amount, either in 2011 or 2010.
(4) Starting 2011, includes personal, home equity and credit
card lines of credit. Prior year information was restated
accordingly.
(5) Includes the full contract amount of custodial client
securities totalling $46.3 billion (2010: $45.0 billion) lent by
CIBC Mellon GSS.
(6) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
(7) Also included in the on-balance sheet major assets in the table above.
(8) Includes positive fair value (net of CVA) of $477 million
(2010: $732 million) on notional amounts of $7.2 billion (2010:
$13.4 billion) with financial guarantors.
Consolidated financial statements
Note 26 Related-party transactions
======= ==========================
In the ordinary course of business, we provide banking services
to and enter into transactions with related parties on terms
similar to those offered to non-related parties. Related parties
include directors, senior officers and their affiliates(1) , joint
ventures, and investments accounted for under the equity method.
Loans to these related parties are based on market terms and
conditions. We offer a subsidy on annual fees and preferential
interest rates on credit card balances to senior officers which is
the same offer extended to all employees of the bank.
Directors, senior officers and their affiliates(1)
As at October 31, 2011, loans(2) to directors and their
affiliates(1) totalled $64 million (2010: $23 million), letters of
credit and guarantees totalled $5 million (2010: $8 million), and
the unutilized credit commitments(3) totalled $462 million (2010:
$392 million).
As at October 31, 2011, loans to senior officers and their
affiliates(1) totalled $41 million (2010: $10 million), letters of
credit and guarantees totalled $148 million (2010: $75 million),
and the unutilized credit commitments totalled $240 million (2010:
$69 million).
We offer various stock-based compensation plans to senior
officers and directors. See Note 20 for additional details.
Outstanding balances at year-end are unsecured and there have
been no guarantees provided or receivable for any related-party
receivables or payables. We do not have any provision for credit
losses relating to amounts receivable from related parties for the
year ended October 31, 2011 and 2010.
Joint ventures and equity-accounted associates
See Note 27 for details on our joint ventures and
equity-accounted associates.
Significant subsidiaries
See Note 28 for details on our significant subsidiaries
(1) Affiliates include spouses, children under 18, and supported
family members (dependants) of directors and senior officers. The
term also includes entities over which directors, senior officers,
and their dependants have significant influence. Significant
influence can be exerted by one or more of these factors: greater
than 10% voting interest; entities in which they have a management
contract; entities in which they have positions of management
authority/senior positions; entities in which they are a general
partner; trusts in which they are trustees or substantial
beneficiaries.
(2) Comprises $1 million (2010: $1 million) relating to
directors and their dependents and $63 million (2010: $22 million)
relating to entities over which directors and their dependants have
significant influence.
(3) Comprises $1 million (2010: $1 million) relating to
directors and their dependents and $461 million (2010: $391
million) relating to entities over which directors and their
dependants have significant influence.
Consolidated financial statements
Note 27 Investments in joint ventures and equity-accounted associates
======= =============================================================
Joint ventures
CIBC is a 50/50 joint venture partner with The Bank of New York
Mellon in two joint ventures: CMT, which provides trust services;
and CIBC Mellon GSS, which provides asset servicing, both in
Canada. As at October 31, 2011, our common share investments in the
joint ventures totalled $105 million (2010: $105 million(*) ),
which were eliminated upon proportionate consolidation. These joint
ventures were included in Corporate and Other.
As at October 31, 2011 and 2010, loans to joint ventures were
nil and the undrawn credit commitments totalled $100 million (2010:
$100 million). CIBC, The Bank of New York Mellon and CIBC Mellon
have, jointly and severally, provided indemnity to CIBC Mellon
customers in respect of securities lending transactions. See Note
24 for additional details on securities lending transactions.
The following table provides summarized aggregate financial
information related to our proportionate interest in the joint
ventures:
$ millions, as at or for the year ended October 31 2011 2010
--------------------------------------------------------------------------- ---------------- ----------------
Assets.................................................................... $ 2,903 $ 2,368
Liabilities.............................................................. 2,642 2,175
Revenue................................................................ 211 180
Net income............................................................ 85 56
--------------------------------------------------------------------------- ---------------- ----------------
Equity-accounted associates
As at October 31, 2011, the total carrying value of our
investments was $1,128 million (2010: $298 million). These
comprised of investments in listed associates with a carrying value
of $135 million and a fair value of $131 million (2010: carrying
value of $133 million and fair value of $148 million) and unlisted
associates with a carrying value of $993 million (2010: $165
million). Of our total investment in associates, $851 million
(2010: nil) was included in Wealth Management, $137 million (2010:
$165 million) in Wholesale Banking, and $140 million (2010: $133
million) in Corporate and Other.
As at October 31, 2011, loans to associates totalled $573
million (2010: $159 million) and unutilized credit commitments
totalled $248 million (2010: $332 million). We also had commitments
to invest up to $196 million (2010: $8 million) in our
associates.
We have applied the equity method of accounting to partnerships
where we have less than 20% of the voting or potential voting
power, directly or indirectly, to the extent we have determined
that we have significant influence as a result of being either on
their board or as a co-general partner. There was no unrecognized
share of losses of any associate, either for the year or
cumulatively. In 2011 and 2010, none of our associates experienced
any significant restrictions to transfer funds in the form of cash
dividends, or repayment of loans or advances.
The following table provides the summarized aggregate financial
information related to our proportionate interest in the
significant equity-accounted associates:
$ millions, as at or for the year ended October 31 2011 2010
--------------------------------------------------------------------------- ---------------- ----------------
Assets.................................................................... $ 3,963 $ 3,631
Liabilities.............................................................. 3,508 3,297
Revenue................................................................ 139 60
Net income............................................................ 27 11
--------------------------------------------------------------------------- ---------------- ----------------
(*) Restated.
Consolidated financial statements
Note 28 Significant subsidiaries
======= ========================
The following is a list of the directly and indirectly held
significant subsidiaries of CIBC. CIBC, either directly or
indirectly through its subsidiaries, owns 100% of the voting shares
of each of these entities, except as otherwise noted.
$ millions, as at October 31,
2011 Book value of
shares owned by
CIBC and other
Address of head subsidiaries
Subsidiary name(1) or principal office of CIBC(2)
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Asset Management
Holdings
Inc.........................
........... Toronto, Ontario, Canada 286
CIBC Asset Management
Inc......................
....................... Toronto, Ontario, Canada
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC BA
Limited.....................
............................
................... Toronto, Ontario, Canada -(3)
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Global Asset Management
Inc.........................
.............. Montreal, Quebec, Canada 301
CIBC Private Investment
Counsel
Inc......................
.......... Toronto, Ontario, Canada
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Investor Services
Inc.........................
............................
. Toronto, Ontario, Canada 25
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Life Insurance Company
Limited.....................
.............. Mississauga, Ontario, Canada 23
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Mortgages
Inc.........................
............................
........... Toronto, Ontario, Canada 230
3877337 Canada Inc. (Home
Loans
Canada)..................
.. Toronto, Ontario, Canada
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Securities
Inc.........................
............................
............ Toronto, Ontario, Canada 2
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Trust
Corporation.................
............................
.............. Toronto, Ontario, Canada 411
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC World Markets
Inc.........................
............................
...... Toronto, Ontario, Canada 343
CIBC WM Real Estate
Ltd......................
.........................
... Toronto, Ontario, Canada
CIBC WM Real Estate
(Quebec)
Ltd......................
............ Montreal, Quebec, Canada
CIBC Wood Gundy Financial
Services
Inc......................
... Toronto, Ontario, Canada
CIBC Wood Gundy Financial
Services (Quebec)
Inc.......... Montreal, Quebec, Canada
CIBC Delaware Holdings
Inc...................... New York, NY,
........................ U.S.
CIBC World Markets
Holdings
Inc.................. New York, NY,
............... U.S.
CIBC World
Markets
Corp.............
................. New York, NY,
.......... U.S.
Canadian Imperial
Holdings
Inc.................. New York, NY,
................. U.S.
CIBC
Inc..............
.................
................. New York, NY,
................. U.S.
CIBC Capital
Corporation..
.............
............. New York, NY,
...... U.S.
----------------------------- ------------------------------------------------------------ ----------------------------------
INTRIA Items
Inc.........................
............................
................ Mississauga, Ontario, Canada 100
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Capital Funding IV,
L.P......................... New York, NY,
........................ U.S. 50
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Holdings (Cayman)
Limited.....................
...................... George Town, Grand Cayman, Cayman Islands 3,822
CIBC Investments (Cayman)
Limited..................
............... George Town, Grand Cayman, Cayman Islands
FirstCaribbean
International Bank
Limited (91.7%)...... Warrens, St. Michael, Barbados
CIBC Bank and
Trust Company
(Cayman) Limited
(91.7%)..........
.................
.................
.................
. George Town, Grand Cayman, Cayman Islands
CIBC Trust
Company (Bahamas)
Limited
(91.7%)... Nassau, The Bahamas
FirstCaribbean
International
Bank (Bahamas)
Limited
(87.3%)..........
.................
.................
..... Nassau, The Bahamas
FirstCaribbean
International
Bank (Barbados)
Limited
(91.7%)..........
.................
.................
..... Warrens, St. Michael, Barbados
FirstCaribbean
International
Bank (Cayman)
Limited
(91.7%)..........
.................
.................
..... George Town, Grand Cayman, Cayman Islands
FirstCaribbean
International
Bank (Jamaica)
Limited
(88.3%)..........
.................
................. Kingston,
..... Jamaica
FirstCaribbean
International
Bank (Trinidad
and Tobago)
Limited
(91.7%)..........
.................
....... Maraval, Port of Spain, Trinidad & Tobago
FirstCaribbean
International
Wealth Management
Bank (Barbados)
Limited
(91.7%)..........
............ Warrens, St. Michael, Barbados
CIBC International
(Barbados)
Inc......................
............... Warrens, St. Michael, Barbados
CIBC Offshore Banking
Services
Corporation..............
....... Warrens, St. Michael, Barbados
CIBC Reinsurance Company
Limited..................
.............. Warrens, St. Michael, Barbados
CIBC World Markets
Securities Ireland Co. Meath,
Limited.................. Ireland
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC World Markets
plc.........................
............................
...... London, England, U.K. 387
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC World Markets (Japan)
Inc......................... Tokyo,
..................... Japan 52
----------------------------- ------------------------------------------------------------ ----------------------------------
CIBC Australia
Ltd.........................
............................
............. Sydney, New South Wales, Australia 23
----------------------------- ------------------------------------------------------------ ----------------------------------
(1) Each subsidiary is incorporated or organized under the laws
of the state or country in which the principal office is situated,
except for CIBC World Markets (Japan) Inc., which was incorporated
in Barbados; CIBC Capital Funding IV, L.P., CIBC Delaware Holdings
Inc., CIBC World Markets Holdings Inc., CIBC World Markets Corp.,
Canadian Imperial Holdings Inc., CIBC Inc. and CIBC Capital
Corporation, which were incorporated or organized under the laws of
the State of Delaware, U.S.
(2) The book value of shares of subsidiaries is shown at cost
and may include non-voting common and preferred shares.
(3) The book value of shares owned by CIBC is less than $1 million.
Consolidated financial statements
Note 29 Segmented and geographic information
======= ====================================
We have three SBUs: Retail and Business Banking, Wealth
Management and Wholesale Banking. These SBUs are supported by
Corporate and Other.
Retail and Business Banking provides clients across Canada with
financial advice, products and services through a strong team of
advisors and nearly 1,100 branches, as well as our ABMs, mobile
sales force, telephone banking, online and mobile banking.
Wealth Management comprises asset management, retail brokerage
and private wealth management businesses. Combined, these
businesses offer an extensive suite of leading investment and
relationship-based advisory services to meet the needs of
institutional, retail, and high net worth clients.
Wholesale Banking provides a wide range of credit, capital
markets, investment banking, merchant banking and research products
and services to government, institutional, corporate and retail
clients in Canada and in key markets around the world.
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. It 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 impact of securitization is also retained within
Corporate and Other.
Business unit allocations
Treasury activities impact the reported financial results of the
SBUs. Each line of business within our SBUs is charged or credited
with a market-based cost of funds on assets and liabilities,
respectively, which impacts the revenue performance of the SBUs.
Once the interest and liquidity risk inherent in our
customer-driven assets and liabilities is transfer priced into
Treasury, it is managed within CIBC's risk framework and limits.
The majority of the revenue from these Treasury activities is then
allocated to the Other line of business within relevant SBUs.
Treasury also allocates capital to the SBUs in a manner that is
intended to consistently measure and align economic costs with the
underlying benefits and risks associated with SBU activities.
Earnings on unallocated capital remain in Corporate and Other. We
review our transfer pricing and treasury allocation methodologies
on an ongoing basis to ensure they reflect changing market
environments and industry practices. The nature of transfer pricing
and treasury allocation methodologies is such that the presentation
of certain line items in segmented results is different compared to
consolidated CIBC results.
To measure and report the results of operations of the lines of
business within our Retail and Business Banking and Wealth
Management SBUs, we use a Manufacturer/Customer Segment/Distributor
Management Model. The model uses certain estimates and allocation
methodologies in the preparation of segmented financial
information. Under this model, internal payments for sales and
trailer commissions and distribution service fees are made among
the lines of business and SBUs. Periodically, the sales and trailer
commission rates paid to customer segments for certain products are
revised and applied prospectively.
Non-interest expenses are attributed to the SBUs to which they
relate based on appropriate criteria. Specific allowances for
credit losses and related provisions are reported in the respective
business segments, while the general allowance and related
provision is reported only in Corporate and Other.
Revenue, expenses, and balance sheet resources relating to
certain activities are fully allocated to the lines of business
within SBUs. The impact of the securitization activities on the net
income including provision for credit losses is reported in
Corporate and Other.
Changes made to our business segments
2011
On March 28, 2011, we announced a new organizational structure
to build on the progress of implementing our business strategy and
delivering strong financial performance. Accordingly, wealth
management and international banking operations (including CIBC
FirstCaribbean) have been reported separately from CIBC Retail
Markets and included in the newly created Wealth Management SBU and
Corporate and Other, respectively. Following these changes, CIBC
Retail Markets, which includes the remaining businesses, was
renamed Retail and Business Banking.
Consolidated financial statements
In the third quarter, we realigned certain items from Other to
Capital markets and Corporate and investment banking business lines
within Wholesale Banking to better reflect the nature and
management of the activities. Prior period information has been
restated.
Beginning in the first quarter, general allowance for credit
losses related to CIBC FirstCaribbean has been included within
Corporate and Other. This allowance was previously reported within
CIBC Retail Markets. Prior period information has been
restated.
2010
The global repurchase agreement (repo) business that was
previously part of Treasury in Corporate and Other was
retroactively transferred to Capital markets within Wholesale
Banking. The results of this repo business were previously
allocated substantially to Other within CIBC Retail Markets. Also
during the year, large corporate cash management revenue previously
reported in Business banking within CIBC Retail Markets, was
retroactively transferred to Corporate and investment banking
within Wholesale Banking. Prior period information was
restated.
2009
We moved the impact of securitization for CIBC Retail Markets to
Corporate and Other. In addition, the provision for credit losses
related to general allowance (excluding FirstCaribbean) was moved
to Corporate and Other. We also reclassified the specific allowance
related to credit card loans to general allowance. As a
consequence, all changes in credit allowance related to credit card
loans were reflected in Corporate and Other. Prior period
information was restated to reflect these changes.
In the first quarter, we moved sublease income and related
operating costs of our New York premises from Wholesale Banking to
Corporate and Other. In the third quarter, we made certain
modifications to our transfer pricing and treasury allocations
methodologies to more appropriately reflect funding costs and
observed client behaviour in our SBUs in the current environment.
The modifications resulted in an increase in the revenue of CIBC
Retail Markets with a corresponding decrease in the revenue of
Wholesale Banking and Corporate and Other. These changes and
modifications were applied prospectively and prior period
information was not restated.
Consolidated financial statements
Results by business segments and geographic distribution
Retail and CIBC Other
$ millions, Business Wealth Wholesale Corporate U.S. countries
for the year ended October 31 Banking Management Banking and Other Total Canada (1) (1) Caribbean (1) (1)
------------------------------ ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net interest
income.........
...............
2011....... ... $ 5,882 $ 179 $ 732 $ (443 ) $ 6,350 $ 5,672 $ 198 $ 423 $ 57
Non-interest
income......................
... 1,800 1,740 1,143 1,216 5,899 4,681 461 560 197
Intersegment revenue(2)
................... 283 (283) - - - n/a n/a n/a n/a
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Total
revenue.....................
................. 7,965 1,636 1,875 773 12,249 10,353 659 983 254
Provision for credit
losses............... 1,072 4 32 (267 ) 841 735 10 77 19
Amortization(3)
............................
........ 83 7 3 263 356 290 15 43 8
Other non-interest
expenses........... 3,979 1,234 1,195 586 6,994 6,237 263 345 149
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Income before income taxes
and non-controlling
interests......... 2,831 391 645 191 4,058 3,091 371 518 78
Income tax
expense.....................
...... 706 112 79 72 969 756 150 44 19
Non-controlling
interests................ - - 1 9 10 - 1 9 -
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net
income......................
.................... $ 2,125 $ 279 $ 565 $ 110 $ 3,079 $ 2,335 $ 220 $ 465 $ 59
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Average assets(4)
............................
.... $ 254,998 $ 3,356 $ 112,253 $ (5,634 ) $ 364,973 $ 308,707 $ 23,645 $ 19,394 $ 13,227
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net interest
income.........
...............
2010(5) ... ....... $ 5,475 $ 160 $ 651 $ (82 ) $ 6,204 $ 5,285 $ 364 $ 475 $ 80
Non-interest
income......................
....... 1,829 1,588 1,063 1,401 5,881 5,073 224 516 68
Intersegment revenue(2)
........................ 269 (269) - - - n/a n/a n/a n/a
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Total
revenue.....................
.................... 7,573 1,479 1,714 1,319 12,085 10,358 588 991 148
Provision for credit
losses.................... 1,186 1 88 (229 ) 1,046 890 81 65 10
Amortization(3)
............................
........... 64 7 3 301 375 306 16 47 6
Other non-interest
expenses................ 3,778 1,156 1,144 574 6,652 5,922 266 347 117
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Income before income taxes
and non-controlling
interests...................
... 2,545 315 479 673 4,012 3,240 225 532 15
Income tax
expense.....................
.......... 702 90 125 616 1,533 1,386 95 50 2
Non-controlling
interests...................
.. - - 12 15 27 - 11 16 -
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net
income......................
...................... $ 1,843 $ 225 $ 342 $ 42 $ 2,452 $ 1,854 $ 119 $ 466 $ 13
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Average assets(4)
............................
...... $ 253,452 $ 3,028 $ 105,142 $ (15,679 ) $ 345,943 $ 276,930 $ 18,820 $ 24,052 $ 26,141
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net interest
income.........
...............
2009(5) ... ....... $ 4,669 $ 174 $ 430 $ 121 $ 5,394 $ 4,321 $ 300 $ 581 $ 192
Non-interest
income......................
....... 2,224 1,438 82 790 4,534 5,228 99 441 (1,234 )
Intersegment revenue(2)
........................ 230 (228) - (2 ) - n/a n/a n/a n/a
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Total
revenue.....................
.................... 7,123 1,384 512 909 9,928 9,549 399 1,022 (1,042 )
Provision for credit
losses.................... 1,329 3 218 99 1,649 1,365 155 51 78
Amortization(3)
............................
........... 61 7 7 328 403 322 21 54 6
Other non-interest
expenses................ 3,609 1,090 1,053 505 6,257 5,450 293 385 129
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Income (loss) before income
taxes and non-controlling
interests.............. 2,124 284 (766 ) (23 ) 1,619 2,412 (70 ) 532 (1,255 )
Income tax expense
(benefit)................ 607 95 (294 ) 16 424 813 (51 ) 66 (404 )
Non-controlling
interests...................
.. - - - 21 21 - - 21 -
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Net income
(loss)......................
........... $ 1,517 $ 189 $ (472 ) $ (60 ) $ 1,174 $ 1,599 $ (19 ) $ 445 $ (851 )
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
Average assets(4)
............................
...... $ 248,390 $ 2,929 $ 110,832 $ (11,445 ) $ 350,706 $ 265,670 $ 19,828 $ 27,373 $ 37,835
----------------------------- ------------------------ ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ---------------------- ------------------------ -----------------------
(1) Net income (loss) and average assets are allocated based on
the geographic location where they are recorded.
(2) Intersegment revenue represents internal sales commissions and revenue allocations under the Manufacturer/Customer Segment/Distributor Management Model.
(3) Includes 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 prior year information has been restated to conform
to the presentation adopted in the current year.
n/a Not applicable.
Consolidated financial statements
The following table provides a breakdown of revenue from our
segments:
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------------------------ ----------------- ------------------- ----------------
Retail and Business
Banking.....................................................
......................................
Personal banking $ 6,463 $ 6,260 $ 5,753
Business banking 1,403 1,370 1,299
Other..................................................
.......................................................
................ 99 (57 ) 71
------------------------------------------------------------ ----------------- ------------------- ----------------
$ 7,965 $ 7,573 $ 7,123
------------------------------------------------------------ ----------------- ------------------- ----------------
Wealth
Management..................................................
....................................................
Retail
brokerage..............................................
.......................................................
... $ 1,082 $ 987 $ 919
Asset
management.............................................
....................................................... 456 392 366
Private wealth
management.............................................
......................................... 98 100 99
------------------------------------------------------------ ----------------- ------------------- ----------------
$ 1,636 $ 1,479 $ 1,384
------------------------------------------------------------ ----------------- ------------------- ----------------
Wholesale
Banking.....................................................
....................................................
Capital
markets................................................
.......................................................
... $ 924 $ 1,002 $ 1,251
Corporate and investment
banking................................................
............................ 950 714 690
Other..................................................
.......................................................
................ 1 (2 ) (1,429 )
------------------------------------------------------------ ----------------- ------------------- ----------------
$ 1,875 $ 1,714 $ 512
------------------------------------------------------------ ----------------- ------------------- ----------------
Corporate and
Other.......................................................
................................................
International
banking................................................
................................................. $ 549 $ 636 $ 765
Other..................................................
.......................................................
................ 224 683 144
------------------------------------------------------------ ----------------- ------------------- ----------------
$ 773 $ 1,319 $ 909
------------------------------------------------------------ ----------------- ------------------- ----------------
Note 30 Financial instruments - disclosures
======= ===================================
Certain disclosures required by the CICA handbook section 3862
are provided in the shaded sections of the "MD&A - Management
of risk", as permitted by the handbook section. The following table
provides a cross referencing of those disclosures to the
MD&A.
Description Section
Risk overview
For each type of risk arising from financial instruments, an entity shall disclose: the Credit risk
exposure Market risk
to risks and how they arise; objectives, policies and processes used for managing the Liquidity risk
risks; Operational risk
methods used to measure the risk; and description of collateral. Reputation and legal risk
Regulatory risk
Credit risk - gross exposure to credit risk, credit quality and concentration of Credit risk
exposures.
------------------------------------------------------------------------------------------ --------------------------
Market risk - trading portfolios - Value-at-Risk (VaR); non-trading portfolios - interest Market risk
rate risk, foreign exchange risk and equity risk.
------------------------------------------------------------------------------------------ --------------------------
Liquidity risk - liquid assets, maturity of financial liabilities, and credit and Liquidity risk
liquidity
commitments.
------------------------------------------------------------------------------------------ --------------------------
We have provided quantitative disclosures related to credit risk
consistent with Basel II guidelines, which require entities to
disclose their exposures based on how they manage their business
and risks. The table below sets out the categories of the drawn
exposure to credit risk under advanced internal ratings-based
(AIRB) and standardized approaches, displayed in both accounting
categories and Basel II portfolios.
Consolidated financial statements
$ millions as at October 31
----------------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
Accounting
categories Basel II portfolios
------ --------------------- ---------------- ---------------- --------------------------------------------------- -------------- -----------------
Real estate
secured Qualifying
personal revolving Other
Corporate Sovereign Bank lending retail retail Securitization
------ --------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
Non-interest-bearing
deposits with
banks...............
....................
2011. ..... $ 3 $ - $ 418 $ - $ - $ - $ -
Interest-bearing deposits
with
banks......................
.................. - 559 3,604 - - - -
Securities...........
.....................
.......
Trading................
...................... 65 143 - - - - 561
AFS....................
....................... 2,885 17,792 5,490 - - - 2,101
FVO....................
....................... 157 19,907 - - - - -
Loans and
acceptances..........
......
Residential
mortgages............. 582 1,514 - 96,595 - - -
Personal...............
.................... 214 - - 20,640 7,242 6,756 -
Credit card(1)
.......................
....... - - - - 14,052 1,751 -
Business and
government....... 38,888 3,137 693 - - 1,984 4,422
Other
assets.....................
............. 274 456 4,609 7 44 13 36
---------------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
Total credit
exposure...................
.. $ 43,068 $ 43,508 $ 14,814 $ 117,242 $ 21,338 $ 10,504 $ 7,120
---------------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
Non-interest-bearing
deposits with
banks...............
....................
2010. ...... $ - $ 231 $ 632 $ - $ - $ - $ -
Interest-bearing deposits
with banks 10 2,688 6,833 - - - -
Securities...........
.....................
........
Trading................
...................... 2 260 - - - - 760
AFS....................
....................... 1,354 18,047 3,692 - - - 2,413
FVO....................
....................... 105 22,191 133 - - - -
Loans and
acceptances..........
.........
Residential
mortgages..............
. 543 1,382 - 90,732 - - -
Personal...............
..................... 210 - 6 20,292 6,757 7,036 -
Credit card(1)
.......................
........ - - - - 13,948 1,969 -
Business and
government.......... 33,523 2,206 807 - - 1,961 7,428
Other
assets.....................
................ 270 568 5,233 10 38 26 71
---------------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
Total credit
exposure...................
... $ 36,017 $ 47,573 $ 17,336 $ 111,034 $ 20,743 $ 10,992 $ 10,672
---------------------------- ---------------- ---------------- ------------- ------------------ ---------------- -------------- -----------------
(1) Credit card loans included for Basel II purposes is higher
than the amount recorded on the consolidated balance sheet as we
are required to hold regulatory capital for the underlying
securitized credit card receivables (both for Cards II and Broadway
trusts) as if they had remained on our consolidated balance
sheet.
Consolidated financial statements
Note 31 Reconciliation of Canadian and U.S. generally
accepted accounting principles
======= =============================================
CIBC's consolidated financial statements have been prepared in
accordance with Canadian GAAP. The following table summarizes the
more significant differences that would result if U.S. GAAP was
applied in the preparation of the consolidated financial
statements. We have not included a consolidated statement of cash
flows prepared under U.S. GAAP because the differences from the
consolidated statement of cash flows prepared under Canadian GAAP
are not material.
Condensed consolidated balance sheet
$ millions, as at
October 31........ 2011 2010(1)
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
Canadian Canadian
GAAP Adjustments U.S. GAAP GAAP Adjustments U.S. GAAP
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
ASSETS
Cash and
non-interest-bearing
deposits with banks $ 1,855 $ - $ 1,855 $ 2,190 $ - $ 2,190
Interest-bearing
deposits with banks 4,442 (781 ) 3,661 9,862 (956 ) 8,906
Securities
Trading 32,797 (66 ) 32,731 28,557 (414 ) 28,143
AFS 29,212 2,164 31,376 26,621 5,906 32,527
FVO 20,064 (11,023 ) 9,041 22,430 - 22,430
Cash collateral on
securities borrowed 1,838 - 1,838 2,401 - 2,401
Securities borrowed or
purchased under resale
agreements 26,002 (362 ) 25,640 34,941 (219 ) 34,722
Loans 185,018 9,528 194,546 176,892 (8,820 ) 168,072
Other
Derivative
instruments 28,259 29 28,288 (2) 24,682 - 24,682(2)
Customers' liability
under acceptances 9,361 - 9,361 7,684 - 7,684
Land, buildings and
equipment 1,676 (2 ) 1,674 1,660 (4 ) 1,656
Goodwill 1,894 (2 ) 1,892 1,913 3 1,916
Software and other
intangible assets 654 (21 ) 633 609 - 609
Equity-accounted
investments in
associates 1,128 15 1,143 298 10 308
Other assets 9,499 393 9,892 11,300 245 11,545
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
$ 353,699 $ (128 ) $ 353,571 $ 352,040 $ (4,249 ) $ 347,791
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits $ 255,409 $ (280 ) $ 255,129 $ 246,671 $ (4,896 ) $ 241,775
Obligations related to
securities sold short 10,316 611 10,927 9,673 (522 ) 9,151
Cash collateral on
securities lent 2,850 - 2,850 4,306 - 4,306
Obligations related to
securities lent or sold
under repurchase
agreements 11,456 - 11,456 23,914 - 23,914
Other
Derivative
instruments 29,807 (40 ) 29,767 (2) 26,489 (4 ) 26,485(2)
Acceptances 9,396 - 9,396 7,684 - 7,684
Other liabilities 11,823 998 12,821 12,572 2,517 15,089
Subordinated
indebtedness 5,138 - 5,138 4,773 - 4,773
Shareholders' equity
Preferred shares 2,756 - 2,756 3,156 - 3,156
Common shares 7,376 (83 ) 7,293 6,804 (86 ) 6,718
Non-controlling
interests 164 - 164 168 - 168
Contributed surplus 90 (3 ) 87 96 3 99
Retained earnings 7,605 13 7,618 6,095 208 6,303
AOCI
Net foreign
currency
translation
adjustments (650 ) (330 ) (980 ) (575 ) (326 ) (901)
Net unrealized
gains (losses)
on AFS
securities 167 31 198 197 (176 ) 21
Net gains
(losses) on
cash flow
hedges (4 ) - (4 ) 17 (17 ) -
Net unrecognized
post-retirement
obligations - (1,045 ) (1,045 ) - (950 ) (950)
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
$ 353,699 $ (128 ) $ 353,571 $ 352,040 $ (4,249 ) $ 347,791
------------------------ ----------------------- ---------------------------- ------------------------ --------------------- ------------------------------ ----------------------
(1) Certain prior year balances have been restated to conform to
the presentation adopted in the current year.
(2) The positive and negative fair values of the derivative
contracts are stated before the effect of master netting agreements
of $20,728 million (2010: $16,967 million). If we had adopted the
offsetting provisions of FASB Staff Position ASC 815-10-45 (FIN
39-1), Amendment of FASB Interpretation 39, the net derivative fair
value assets and liabilities would be $10,432 million (2010:
$10,777 million) and $13,413 million (2010: $14,408 million),
respectively.
Consolidated financial statements
Condensed consolidated statement of operations
$ millions, except share and per share amounts,
for the year ended October 31................ 2011 2010 (1) 2009 (1)
------------------------------------------------ ------------------- ----------------------- ----------------------
Net income as reported, based on Canadian
GAAP...........................................
................ $ 3,079 $ 2,452 $ 1,174
------------------------------------------------ ------------------- ----------------------- ----------------------
Net interest income
Reclassification of certain financial
assets.....................................
................................ $ 42 $ 81 $ 127
Joint
ventures...................................
...........................................
.................................. (40 ) (31 ) (39 )
Preferred share
liabilities................................
...........................................
.................... - 35 31
Variable interest
entities....................................
............................................
................ 559 - -
Non-interest income
Leveraged loans held for
sale.......................................
...........................................
..... 41 36 124
Joint
ventures...................................
...........................................
.................................. (83 ) (93 ) (100 )
Reclassification of certain financial assets
and
OTTI.......................................
.............. (369 ) 562 (32 )
Capital
repatriation...............................
...........................................
............................. (17 ) (411 ) 49
Derivative instruments and hedging
activities.................................
............................... 328 (422 ) 25
Day 1 P&L
reversal...................................
...........................................
.......................... - (1 ) (4 )
Business
combination.................................
............................................
....................... - (2 ) -
Equity
accounting.................................
...........................................
............................. 5 (4 ) 3
Insurance reserves and deferred acquisition
costs......................................
.................... (10 ) (8 ) (13 )
Variable interest
entities....................................
............................................
................ (385 ) - -
Non-interest expenses
Joint
ventures...................................
...........................................
.................................. 96 98 111
Contingent
liabilities.................................
............................................
........................ (10 ) - -
Employee future
benefits...................................
...........................................
................ (3 ) 16 (18 )
Stock-based
compensation...............................
...........................................
.................. (23 ) - (29 )
Variable interest
entities....................................
............................................
................ (279 ) - -
Non-controlling
interests..................................
...........................................
................... 10 27 21
Net change in income taxes due to the above
noted
items..........................................
...... 80 465 (65 )
------------------------------------------------ ------------------- ----------------------- ----------------------
(58 ) 348 191
------------------------------------------------ ------------------- ----------------------- ----------------------
Net income based on U.S.
GAAP...........................................
........................................... 3,021 2,800 1,365
Net income attributable to non-controlling
interests based on U.S.
GAAP...................... 10 27 21
------------------------------------------------ ------------------- ----------------------- ----------------------
Net income attributable to shareholders based on
U.S.
GAAP........................................ 3,011 2,773 1,344
Preferred share dividends and
premiums.......................................
................................. (177 ) (205 ) (193 )
------------------------------------------------ ------------------- ----------------------- ----------------------
Net income attributable to common
shareholders...................................
......................... $ 2,834 $ 2,568 $ 1,151
------------------------------------------------ ------------------- ----------------------- ----------------------
Weighted-average basic shares outstanding
(thousands)
...............................................
......... 396,233 387,802 381,677
Add: stock options potentially
exercisable....................................
................................... 864 1,005 777
------------------------------------------------ ------------------- ----------------------- ----------------------
Weighted-average diluted shares outstanding
(thousands)
...............................................
....... 397,097 388,807 382,454
------------------------------------------------ ------------------- ----------------------- ----------------------
Basic
EPS............................................
...............................................
............................... $ 7.15 $ 6.62 $ 3.02
Diluted
EPS............................................
...............................................
............................. $ 7.14 $ 6.60 $ 3.01
------------------------------------------------ ------------------- ----------------------- ----------------------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
Condensed consolidated statement of comprehensive income
(loss)
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------------------ ------------------- ------------------- --------------------
Net income attributable to shareholders based on U.S.
GAAP................................................ $ 3,011 $ 2,773 $ 1,344
------------------------------------------------------ ------------------- ------------------- --------------------
Other comprehensive income (OCI), net of
tax...................................................
....................
Net foreign currency translation
adjustments......................................
............................... (79 ) (195 ) (138 )
Net change in AFS securities(1)
.................................................
......................................... 190 (252 ) 372
Net change in cash flow
hedges...........................................
............................................. (4 ) 9 (26 )
Change in unrecognized pension and post-retirement
obligations.................................... (95 ) (246 ) (236 )
------------------------------------------------------ ------------------- ------------------- --------------------
Total
OCI..................................................
.....................................................
......................... 12 (684 ) (28 )
------------------------------------------------------ ------------------- ------------------- --------------------
Comprehensive
income...............................................
.....................................................
...... $ 3,023 $ 2,089 $ 1,316
------------------------------------------------------ ------------------- ------------------- --------------------
(1) Net of reclassification adjustments for net realized gains
(losses) (including OTTI) included in net income of ($191) million
(2010: $230 million; 2009: $236 million).
The income tax (expense) benefit allocated to each component of
OCI is presented in the table below.
$ millions, for the year ended October 31 2011 2010 2009
--------------------------------------------------------- ----------------- ------------------- -------------------
Net foreign currency translation
adjustments.........................................
............................ $ (3 ) $ (11 ) $ (35 )
Net change in AFS
securities..........................................
................................................... (84 ) 98 (99 )
Net change in cash flow
hedges..............................................
.......................................... 3 - 4
Net change in unrecognized pension and
post-retirement
obligations.............................. 35 85 85
--------------------------------------------------------- ----------------- ------------------- -------------------
$ (49 ) $ 172 $ (45 )
--------------------------------------------------------- ----------------- ------------------- -------------------
Consolidated financial statements
Financial Accounting Standards Board (FASB) Codification
FASB Accounting Standards Codification (ASC) 105 (Statements of
Financial Accounting Standards (SFAS 168)), "The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162 (The
FASB Codification)" identifies the sources of accounting principles
and the framework for selecting the principles used in the
preparation of financial statements of non-governmental entities
that are presented in conformity with generally accepted accounting
principles in the U.S. The FASB codification was effective for us
beginning May 1, 2009.
Equity accounting adjustments
Both Canadian and U.S. GAAP require the use of the equity method
to account for such investments when the investor exerts
significant influence. Under Canadian GAAP, certain of our
investments in limited partnerships are accounted for on a cost
basis, whereas U.S. GAAP requires the use of the equity method to
account for such limited partnership investments when the equity
interest is more than minor.
Employee future benefits
As a result of the difference in the timing and the method of
adoption of the accounting requirements for employee future
benefits under Canadian and U.S. GAAP, there will continue to be an
adjustment to U.S. GAAP earnings until the respective transition
date unamortized balances are fully amortized under both Canadian
and U.S. GAAP.
In addition, actuarial gains and losses relating to
post-employment benefits are not permitted to be deferred under
U.S. GAAP.
Furthermore, under Canadian GAAP, an entity's accrued benefit
asset is limited to the amount it can realize in the future by
applying any surplus to reduce an entity's contributions. The
valuation allowance is not included under U.S. GAAP, resulting in
an adjustment to U.S. GAAP income.
FASB ASC 715 (SFAS 158), "Employers' Accounting for Defined
Benefit Pension Plan and Other Post-Retirement Plans - an amendment
of FASB Statements No. 87, 88, 106 and 132(R)" also requires the
recognition of the funded status of a defined benefit
post-retirement plan as an asset or liability on its consolidated
balance sheet. As a result, the unamortized balances are reported
as a component of AOCI. The net periodic benefit expense expected
to be reclassified to income from OCI for 2012 is $105 million.
FASB ASC 715 (SFAS 158) requires the date at which the benefit
obligation and plan assets are measured to be the fiscal year end
date. Effective the year beginning November 1, 2008, we changed our
measurement date for accrued benefit obligations and the fair value
of plan assets related to our employee defined benefit plans from
September 30 to October 31.
Stock-based compensation
FASB ASC 718 (SFAS 123(R)) "Share-based Payment" requires
companies to measure and record compensation expense for stock
options and other equity settled share-based payments based on the
instruments' fair value on the grant date. The standard requires
the cost of awards to be recognized in the consolidated statement
of operations over the vesting period. Under Canadian GAAP we
recognize compensation expense in the year of grant for past
service awards regardless of the vesting provisions. In addition,
forfeitures are required to be estimated upfront under U.S. GAAP,
whereas under Canadian GAAP forfeitures are recognized as
incurred.
Under Canadian GAAP, the cost of SARs is measured assuming that
all options eligible for SARs are exercised for cash. Under U.S.
GAAP, for SARs granted prior to the date of adoption of FASB ASC
718 (SFAS 123(R)), FASB Interpretation No. (FIN) 28, "Accounting
for SARs and Other Variable Stock Option or Award Plans" continues
to apply, under which the accrual is determined as an estimate
(based on past experience) of the proportion of stock options
expected to be exercised for cash.
Liabilities and equity
Under Canadian GAAP, preferred shares that are convertible into
a variable number of common shares at the option of the holder are
presented as liabilities rather than as equity, and dividend
payments and premiums on redemption arising from such preferred
shares are treated as interest expense within the consolidated
statement of operations rather than as dividends within the
consolidated statement of changes in shareholders' equity.
Consolidated financial statements
As described in Note 17 to the consolidated financial
statements, we redeemed all of our outstanding preferred share
liabilities (non-cumulative Class A Preferred Shares Series 19 and
Series 23) on October 31, 2010. As a result, the balance sheet
reclassification from liabilities to shareholders' equity under
U.S. GAAP is no longer required. The related dividend payments and
redemption loss of these preferred shares had no impact on U.S.
GAAP earnings.
Capital repatriation
Certain of our self-sustaining foreign subsidiaries have
repatriated capital by returning capital and distributing dividends
to the domestic parent entity. Canadian GAAP requires that a
proportionate amount of gains and losses accumulated in the net
foreign currency translation adjustments component within AOCI be
recognized in earnings when there has been a reduction in the net
investment of a self-sustaining foreign operation. U.S. GAAP
prohibits such recognition except where the foreign operation has
either been sold or has been completely or substantially
liquidated. Accordingly, during the year, we adjusted the Canadian
GAAP results by decreasing non-interest income by $17 million
(2010: decreased non-interest income by $411 million) and
decreasing tax expense by $21 million (2010: decreased tax expense
by $528 million). This also increased the foreign currency
translation adjustment component within OCI by $4 million (2010:
increased by $117 million).
Income taxes
Under Canadian GAAP, tax rate changes are reflected in the
measurement of the future income tax balances when they are
considered substantively enacted. Under U.S. GAAP, only enacted tax
rates under current legislation are required to be used.
Accounting for uncertainty in income taxes
FASB ASC 740 (FIN 48) "Accounting for Uncertainty in Income
Taxes" clarifies the accounting for income taxes by prescribing a
"more likely than not" recognition threshold that a tax position is
required to meet before being recognized in the financial
statements. FASB ASC 740 (FIN 48) also provides guidance on the
measurement of uncertain tax positions, classification of interest
and penalties, and requires additional disclosures on tax reserves.
We have assessed that the application of FASB ASC 740 (FIN 48) does
not result in any adjustment to our Canadian GAAP consolidated
financial statements.
Credit derivatives and standby and performance letters of
credit
Credit derivatives
Credit derivatives are OTC contracts designed to transfer the
credit risk in an underlying financial instrument (usually termed a
reference asset) from one counterparty to another.
The following table presents a summary of the notional and fair
value amounts of credit derivatives that we sold and the purchased
credit derivatives with identical underlyings:
Protection purchased with
Protection sold identical underlyings
Maximum Maximum Fair Net
$ millions, as at payout/ Fair payout/ value protection
October 31 notional value notional (net of CVA) sold
---------------- ---------------------
2011 Credit
derivatives
Credit default
swaps -
written.......
.... $ 7,642 $ (1,643 ) $ 6,124 $ 398 $ 1,518
Total return
swaps -
payable.......
...... 2,612 (137 ) 2,430 87 182
------------------- ------------------ ---------------- -------------------- ---------------- ---------------------
$ 10,254 $ (1,780 ) $ 8,554 $ 485 $ 1,700
------------------- ------------------ ---------------- -------------------- ---------------- ---------------------
2010 Credit
derivatives..
.............
.............
...........
Credit default
swaps -
written.......
........ $ 12,080 $ (1,883 ) $ 9,981 $ 651 $ 2,099
Total return
swaps -
payable.......
........ 2,982 (156 ) 2,982 107 -
------------------- ------------------ ---------------- -------------------- ---------------- ---------------------
$ 15,062 $ (2,039 ) $ 12,963 $ 758 $ 2,099
------------------- ------------------ ---------------- -------------------- ---------------- ---------------------
Consolidated financial statements
The following table summarizes the maturity and ratings profile
of credit protection sold. The maturity profile is based on the
remaining contractual maturity of the credit derivative contracts.
The ratings profile is based on the external rating of the assets
underlying the tranches referenced by the contracts. A tranche is a
portion of a security offered as part of the same transaction where
the underlying may be an asset, pool of assets, index or another
tranche. The value of the tranche depends on the value of the
assets, subordination (i.e. the attachment point), and
deal-specific structures such as tests/triggers.
Notional amount Fair
$ millions, as at October
31 Less than 1 year 1-5 years Over 5 years Total value
-------------------------- ------------------------------- ------------------ ---------------------- ---------------- -------------------
2011 Risk rating of
underlying assets
Investment
grade...............
....................
....... $ 104 $ 231 $ 3,684 $ 4,019 $ (186)
Non-investment
grade...............
.................... - 3,762 747 4,509 (1,502)
Unrated.............
....................
....................
..... - 934 792 1,726 (92)
------------------------- ------------------------------- ------------------ ---------------------- ---------------- -------------------
$ 104 $ 4,927 $ 5,223 $ 10,254 $ (1,780)
------------------------- ------------------------------- ------------------ ---------------------- ---------------- -------------------
2010 Risk rating of
underlying assets
Investment
grade...............
....................
......... $ 67 $ 2,512 $ 4,027 $ 6,606 $ (204)
Non-investment
grade...............
....................
. 5 728 5,694 6,427 (1,733)
Unrated.............
....................
....................
..... 4 682 1,343 2,029 (102)
------------------------- ------------------------------- ------------------ ---------------------- ---------------- -------------------
$ 76 $ 3,922 $ 11,064 $ 15,062 $ (2,039)
------------------------- ------------------------------- ------------------ ---------------------- ---------------- -------------------
Standby and performance letters of credit
The following table summarizes the maximum possible future
payout on standby and performance letters of credit, based on
notional amounts, by the ratings profiles of our customers. The
rating scale is representative of the payment or performance risk
to us under the guarantee and is based on our internal risk
ratings, which generally correspond to ratings defined by Standard
& Poor's (S&P) and Moody's Investors Service (Moody's).
$ millions, as at October 31 2011 2010
--------------------------------------------------------------------------------- ----------------- ----------------
Risk rating of
customers........................................................................
................................................
Investment
grade.......................................................................
..................................................... $ 4,563 $ 3,954
Non-investment
grade.......................................................................
.............................................. 1,603 1,572
Unrated.....................................................................
...................................................................... 157 195
--------------------------------------------------------------------------------- ----------------- ----------------
$ 6,323 $ 5,721
--------------------------------------------------------------------------------- ----------------- ----------------
Derivative instruments and hedging activities
Canadian GAAP derivative and hedge accounting is substantially
harmonized with U.S. GAAP. However, U.S. GAAP reported earnings may
exhibit significant volatility in any given period relative to
Canadian GAAP because:
-- We elect not to designate certain derivatives as hedges for
U.S. GAAP accounting purposes;
-- Canadian GAAP permits the use of cash instruments for certain
foreign currency hedges, which is disallowed under U.S. GAAP;
and
-- Our residential mortgage commitments are treated as
derivatives carried at fair value only under Canadian GAAP.
FASB ASC 815 (SFAS 161), "Disclosures about Derivative
Instruments and Hedging Activities," an amendment of FASB ASC 815
(SFAS 133) "Accounting for Derivative Instruments and Hedging
Activities," requires an entity to disclose the objectives for
using derivative instruments in terms of underlying risk and
accounting designation; the fair values, gains and losses on
derivatives; as well as credit-risk-related contingent features in
derivative agreements. Most of this disclosure is presented in Note
14 to the consolidated financial statements with the incremental
requirements under FASB ASC 815 (SFAS 161) presented below.
Consolidated financial statements
The following tables provide the derivatives-related gains
(losses), before taxes, recognized in the U.S. GAAP consolidated
statement of operations and OCI. Net gains of $12 million on items
hedged under fair value hedges are included in net interest income
for the year ended October 31, 2011 (2010: $44 million).
Gains (losses) recognized in the consolidated statement of operations
Net interest income Non-interest income
Recognized Recognized Recognized Recognized Gains/(losses)
Directly as hedge on transfer Directly as hedge on transfer recognized
$ millions,
for the year ended
October 31 recognized ineffectiveness from AOCI recognized ineffectiveness from AOCI in OCI
------------------------- ----------------------- ------------------------------ ----------------------- ----------------------- ------------------------------ ------------------------ ---------------------------
2011 Derivatives held
for ALM
Interest rate
derivatives...
...
Cash flow
hedges....
... $ - $ - $ 16 $ - $ - $ - $ -
Fair value
hedges....... (16 ) (3 ) n/a - - n/a n/a
Economic
hedges(1)
..... - n/a n/a (107 ) n/a n/a n/a
Foreign
exchange
derivatives...
...
Cash flow
hedges....... - - - - (1 ) (17 ) (9)
NIFO hedges.... n/a n/a n/a 10 - - (23)
Credit and
equity
derivatives...
...
Economic
hedges....
... - n/a n/a (52 ) n/a n/a n/a
----- ------------------ ----------------------- ------------------------------ ----------------------- ----------------------- ------------------------------ ------------------------ ---------------------------
$ (16 ) $ (3 ) $ 16 $ (149 ) $ (1 ) $ (17 ) $ (32)
------------------------ ----------------------- ------------------------------ ----------------------- ----------------------- ------------------------------ ------------------------ ---------------------------
2010 Derivatives held
for
ALM...............
...............
Interest rate
derivatives...
.....
Cash flow
hedges....
..........
..... $ - $ - $ 18 $ - $ - $ - $ -
Fair value
hedges.........
.......... (35 ) 8 n/a - - n/a n/a
Economic
hedges(1)
...... - n/a n/a (854 ) n/a n/a n/a
Foreign
exchange
derivatives...
.....
Cash flow
hedges.........
.......... - - - - (11 ) (27 ) (5)
NIFO hedges.... n/a n/a n/a 1 - 25 41
Credit and
equity
derivatives...
.....
Economic
hedges....
..........
..... - n/a n/a (25 ) n/a n/a n/a
----- ------------------ ----------------------- ------------------------------ ----------------------- ----------------------- ------------------------------ ------------------------ ---------------------------
$ (35 ) $ 8 $ 18 $ (878 ) $ (11 ) $ (2 ) $ 36
------------------------ ----------------------- ------------------------------ ----------------------- ----------------------- ------------------------------ ------------------------ ---------------------------
(1) Includes derivative instruments held to economically hedge FVO financial instruments.
n/a Not applicable.
$ millions, for the year ended October 31 2011 2010
--------------------------------------------------------------------------------------- ------------- --------------
Derivatives held for trading
Interest
rate..............................................................................
.............................................................. $ 60 $ 26
Foreign
exchange..........................................................................
........................................................ 313 301
Equity............................................................................
......................................................................... (352 ) (90)
Commodities.......................................................................
................................................................... 116 85
Structured credit and
others............................................................................
........................................ (121 ) 100
--------------------------------------------------------------------------------------- ------------- --------------
$ 16 $ 422
--------------------------------------------------------------------------------------- ------------- --------------
Contingent features
Certain derivative instruments contain provisions that require
our debt to maintain an investment grade credit rating from each of
the major credit rating agencies. If our debt were to fall below
investment grade, it would be in violation of these provisions, and
the counterparties to the derivative instruments could request
immediate payments or demand immediate and ongoing full overnight
collateralization on derivative instruments in net liability
positions. The aggregate fair value of all derivative instruments
with credit-risk-related contingent features that are in a
liability position on October 31, 2011, was $5.4 billion (2010:
$6.0 billion), for which we have posted collateral of $4.8 billion
(2010: $5.5 billion) in the normal course of business. If the
credit-
risk-related contingent features underlying these agreements
were triggered on October 31, 2011, we would be required to post an
additional $89 million (2010: $95 million) of collateral to our
counterparties.
Insurance accounting
Policy benefit liabilities and policy acquisition costs
Under U.S. GAAP, the liabilities for traditional term and
accidental death insurance contracts are determined using the net
level premium method, which includes assumptions for mortality,
morbidity, policy lapses, surrenders, investment yields, policy
dividends and direct operating expenses. These assumptions are not
revised unless it is determined that existing deferred acquisition
costs cannot be recovered. Under
Consolidated financial statements
Canadian GAAP, the liabilities for insurance contracts are
determined using the Canadian asset liability method, which
incorporates assumptions for mortality, morbidity, policy lapses
and surrenders, investment yields, policy dividends, operating and
policy maintenance expenses. To recognize the uncertainty in the
assumptions underlying the calculation of the liabilities, a margin
(provision for adverse deviations) is added to each assumption.
These assumptions are reviewed at least annually and updated in
response to actual experience and market conditions.
Under U.S. GAAP, the policy acquisition costs, which vary with
and are primarily related to the production of new business, are
deferred and amortized in proportion to the premium revenue. Under
Canadian GAAP, the costs of acquiring new life insurance and
annuity business are implicitly recognized as a reduction in
insurance claims and policy benefit liabilities.
Trade date accounting
For securities transactions, the trade date basis of accounting
is used under U.S. GAAP. Under Canadian GAAP, the settlement date
basis of accounting is used.
Joint ventures
Our investments in joint ventures other than VIEs are accounted
for using proportionate consolidation under Canadian GAAP and
accounted for using the equity method under U.S. GAAP.
Leveraged loans held for sale
Leveraged loans held for sale are accounted for at lower of cost
or market value under U.S. GAAP, while under Canadian GAAP they are
carried at amortized cost subject to impairment. Leveraged loans
held for sale are valued using valuation techniques based on
non-market observable inputs (Level 3) that are primarily derived
based on market observable indices of the European leveraged loan
market.
Reclassification of certain financial assets
On August 1, 2008, certain trading financial assets, for which
no active trading market existed and which management intended to
hold to maturity or for the foreseeable future, were reclassified
as HTM and AFS under Canadian GAAP. Subsequently as a result of
amendments to CICA handbook section 3855 "Financial Instruments -
Recognition and Measurement," with effect from November 1, 2008, we
were required to reclassify all of our HTM securities to loans and
receivables. The loans and receivables category does not contain a
requirement to hold these securities to maturity.
Under U.S. GAAP, we also reclassified certain trading financial
assets to HTM and AFS, but did so on October 31, 2008. On October
31, 2009, we evaluated the appropriateness of the classification of
our HTM securities. Due to the change in the requirements of our
primary GAAP, we could no longer demonstrate the positive intent to
hold these securities to maturity. Therefore we reclassified these
securities to AFS effective October 31, 2009. Since the
reclassification does not qualify under the exemption provisions
for the sale or transfer of HTM securities under FASB ASC 320 (SFAS
115), the reclassification decision is deemed to have "tainted" the
HTM category and, accordingly, we are not permitted to
prospectively classify any securities as HTM for a period of two
years from the time of tainting.
Due to the difference in the timing of the reclassification
under U.S. GAAP, additional unrealized pre-tax MTM losses on the
reclassified trading assets of $612 million were included in the
U.S. GAAP net loss for 2008. Additional pretax interest income of
$40 million (2010: $81 million) is included in U.S. GAAP earnings
in the current year. The securities that were originally
reclassified from HTM to AFS had a carrying value of $4,083 million
and a fair value of $3,974 million as at October 31, 2011 (2010:
$5,486 million and $5,674 million, respectively). The realized and
unrealized gain (loss) related to these securities was $(313)
million and $37 million, respectively for 2011 (2010: $293 million
and $(371) million).
Fair value measurement
FASB ASC 820 (SFAS 157) "Fair Value Measurements and
Disclosures" establishes a framework for measuring fair value and
prescribes a three-level fair value hierarchy for disclosure
purposes based on the transparency of the inputs used to measure
the fair value of assets and liabilities. Note 2 of the
consolidated financial statements provides additional disclosure as
to the classification of financial instruments into Levels 1, 2 and
3 of the fair value hierarchy.
FASB ASC 820 (SFAS 157) defines fair value as the exchange price
that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market
participants at the measurement date. It requires an entity to
maximize the use of observable inputs and requires consideration of
the entity's own credit risk when measuring the fair value of
liabilities.
While FASB ASC 820 (SFAS 157) is largely consistent with the
fair value measurement guidance contained in CICA handbook section
3855 and section 3862, the following key differences do exist:
Consolidated financial statements
-- Under FASB ASC 820 (SFAS 157), the transaction to sell the
asset or transfer the liability takes place in the principal
market, whereas Canadian GAAP assumes the transaction to take place
in the most advantageous market. In practice, the most advantageous
market is generally the principal market.
-- Under FASB ASC 820 (SFAS 157), recognition of inception
gains/losses for derivatives is permitted if the determination of
fair value includes the use of non-observable market inputs whereas
Canadian GAAP requires deferral of inception gains/losses in such
cases.
Fair value measurement - financial assets and liabilities
FASB Accounting Standards Update (ASU) 2009-05 "Fair Value
Measurements and Disclosure (FASB ASC 820) - Measuring Liabilities
at Fair Value" provides clarification as to how to value a
liability where a quoted price in an active market for an identical
liability is not available. The update also specifies that the fair
value of the liability can be measured in relation to the quoted
price of the identical or similar liability when it is traded as an
asset in an active market. In addition, it clarifies that when
estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the
transfer of a liability.
In January 2010, the FASB issued FASB ASU 2010-06 "Fair Value
Measurement and Disclosure (FASB ASC 820): Improving Disclosures
about Fair Value Measurements." This update requires new disclosure
of transfers in and out of Level 1 and 2 and separate disclosures
about purchases, sales, issuances and settlements relating to Level
3 financial instruments. It also clarifies existing fair value
disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. The update was
effective for us on October 31, 2010 except that separate
disclosures about purchases, sales, issuances and settlements
relating to Level 3 financial instruments were effective for our
fiscal year beginning on November 1, 2010. Note 2 of the
consolidated financial statements provides the disclosure of inputs
and valuation techniques used to measure fair value.
Fair value measurement for financial assets and liabilities
measured at fair value on a non-recurring basis
In addition to the fair value measurement disclosures for
financial instruments that are carried at fair value, FASB ASC 820
(SFAS 157) also requires disclosure for financial instruments
measured at fair value on a non-recurring basis. For the year ended
October 31, 2011, we have certain equity securities and leveraged
loans that are measured at fair value on a non-recurring basis
using non-observable market inputs (Level 3). The equity securities
have been written down to their fair value of $17 million (2010:
$79 million) to reflect an other-than-temporary impairment of $13
million (2010: $48 million). The carrying value of leveraged loans
held for sale has been reduced by $92 million (2010: $112 million)
to reflect their current market value of $311 million (2010: $550
million).
Fair value measurement - non-financial assets and
liabilities
Non-financial assets and liabilities are normally carried at
cost and fair value measurements would only be applicable on a
non-recurring basis; that is, the assets and liabilities are not
measured at fair value on an ongoing basis but are subject to fair
value adjustments in certain circumstances.
For the year ended October 31, 2011, certain foreclosed assets
were classified as held for sale. The carrying value for these
assets is at the lower of cost or fair value less cost to sell.
Fair value for these assets is determined using valuation
techniques. As at October 31, 2011, the fair value of these assets
was approximately $53 million (2010: $63 million) and they were
classified as Level 3 in the fair value hierarchy.
Additional guidance and disclosures on fair value measurement
and other-than-temporary impairment of securities
The following FASB Staff Positions (FSPs) provide additional
application guidance and require enhancements to disclosures
regarding fair value measurements and OTTI of securities.
-- FASB ASC 820-10-65 (FSP FAS 157-4), "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are
Not Orderly," provides additional factors to consider when
measuring the fair value of an asset or liability when there has
been a significant decrease in the level of market activity for the
instrument and quoted prices are associated with transactions that
are not considered to be orderly. It also expands the disclosure
requirements for the fair value of financial instruments.
-- FASB ASC 320-10-65-1 (FSP FAS 115-2 and FAS 124-2),
"Recognition and Presentation of Other-than-Temporary Impairments,"
amends the impairment assessment guidance and recognition
principles of OTTI for debt securities and enhances the
presentation and disclosure requirements for debt and equity
securities. The FSP requires an entity to recognize an OTTI when
the entity intends to sell the security, it is more likely than not
that it will be required to sell the security before recovery, or
when the entire amortized cost basis of the security will not be
recovered. When an entity intends to sell the
Consolidated financial statements
security, or more likely than not will be required to sell the
security, before recovery of its amortized cost basis less any
current-period credit loss, the OTTI is recognized in earnings
equal to the difference between fair value and amortized cost at
the balance sheet date. In all other situations, the impairment is
separated into an amount representing credit loss and amount
relating to all other factors. The impairment related to credit
loss is recognized in earnings and impairment related to other
factors is recognized in OCI.
Offsetting of amounts related to certain contracts
FASB ASC 815-10-45 (FSP FIN 39-1), "Amendment of FASB FIN 39,"
permits an entity to offset fair value amounts recognized for the
right to reclaim cash collateral or the obligation to return cash
collateral against fair value amounts recognized for derivative
instruments executed with the same counterparty under the same
master netting arrangement. We elected not to apply the offsetting
provisions.
Investments in certain entities that calculate net asset value
per share
FASB ASU 2009-12 "Fair Value Measurements and Disclosure (FASB
ASC 820) - Investments in Certain Entities that Calculate Net Asset
Value Per Share (or its Equivalent)" provides guidance on measuring
the fair value of an investment in an investment company that does
not have a readily determinable fair value. It permits entities to
use net asset value as a practical expedient to measure the fair
value of the investments. Additional disclosures are also required
regarding the nature and risk of the investments. Our investments
include certain limited partnerships held in our merchant banking
portfolio where we are a limited partner. Fair value of these
investments is based on the net asset value provided by third-party
fund managers and is adjusted for more recent information where
available and appropriate. As at October 31, 2011, the fair value
of these investments in limited partnerships was $497 million
(2010: $475 million) and our unfunded commitment was $157 million
(2010: $152 million). These limited partnerships typically have a
10-year commitment period with varying extension terms.
Business combinations
FASB ASC 805 (SFAS 141(R)), which replaces SFAS 141, "Business
Combinations" improves the relevance, representational
faithfulness, and comparability of the information that an entity
provides in its financial reports about a business combination and
its effects. FASB ASC 805 (SFAS 141(R)) retains the fundamental
concepts of SFAS 141 and requires the acquisition method of
accounting and the identification of an acquirer for all business
combinations.
Upon the adoption of FASB ASC 805 the following differences
exist:
-- An acquirer should recognize the identifiable assets,
liabilities, and non-controlling interests in the acquiree at the
full amounts of their fair value in a step acquisition;
-- An acquirer should measure assets or liabilities arising from
a contingency at their acquisition date fair value. Subsequently,
the acquirer should evaluate new information and measure a
liability at the higher of its acquisition date fair value or the
amount that would be recognized if applying FASB ASC 450 (SFAS 5),
"Contingencies," and measure an asset at the lower of its
acquisition date fair value or the best estimate of its future
settlement amount;
-- An acquirer must expense acquisition-related and
restructuring costs; and
-- Non-controlling interests in subsidiaries are initially
measured at fair value and classified as a separate component of
equity.
Note 3 of the consolidated financial statements provides
disclosure of the acquisitions made during the year. With the
adoption of FASB ASC 805 during the year ended October 31, 2010, we
recognized a contingent consideration agreement with a fair value
of $5 million on the acquisition date, related to the CIT
transaction. We also expensed acquisition-related costs of nil
(2010: $2 million) relating to the acquisitions made during the
year.
Accounting for non-controlling interests
FASB ASC 810 (SFAS 160), "Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51"
requires the following retroactive changes in presentation:
-- Non-controlling interests will be separately presented in
equity, rather than in the mezzanine section of the balance sheet;
and
Consolidated financial statements
-- Consolidated net income will no longer be adjusted for the
non-controlling interests, although the amount of consolidated net
income attributable to the parent and to non-controlling interests
must be clearly identified and presented on the consolidated
statement of operations and the consolidated net income will be
required to be adjusted by the portion attributable to the
non-controlling interests for the purposes of calculating EPS.
In addition, this standard requires the following prospective
changes in measurement:
-- A loss of control of an entity that results in a
deconsolidation will require a remeasurement of the fair value of
the retained ownership interest in the entity with the offset
recognized in the consolidated statement of operations; and
-- A change in the ownership interest in an entity that is
controlled both before and after the change will be treated as an
equity transaction.
Under this standard, $164 million of non-controlling interests
as at October 31, 2011 (2010: $168 million) have been reclassified
from liabilities to shareholders' equity.
Disclosure about post-retirement benefit plan assets
In December 2008, the FASB issued FASB ASC 715-20 (FAS
132(R)-1), "Employer's Disclosures about Postretirement Benefit
Plan Assets." This guidance requires an employer to disclose the
following:
-- How investment allocation decisions are made, including the
factors that are pertinent to an understanding of investment
policies and strategies;
-- The major categories of plan assets;
-- The inputs and valuation techniques used to measure the fair
value of plan assets;
-- The effect of fair value measurements using significant
unobservable inputs (Level 3) on changes in plan assets for the
period;
-- Significant concentration of risk within plan assets; and
-- A description of the basis used to determine the overall
expected long-term rate of return on assets assumption.
The majority of this disclosure is presented in Note 21 to the
consolidated financial statements, with the incremental disclosures
provided below.
The inputs and valuation techniques used to measure the fair
value of plan assets is included below:
-- Short-term investments, including Government of Canada
treasury bills, overnight deposits and foreign currency denominated
short-term investments, including any related foreign exchange gain
or loss, are recorded at cost and valued at cost plus accrued
interest, which approximates fair value;
-- Bond prices are provided by independent pricing services that
calculate bond prices based on price quotations from recognized
securities dealers;
-- Equities listed on a public stock exchange are valued at
their closing sale price at the date of the consolidated statement
of net assets available for benefits. Equities not traded on that
date are valued at the most recent traded prices. Where equities
are not listed on a public stock exchange, the quoted market prices
for similar securities or other third-party evidence are used to
determine fair value;
-- Pooled fund investments are valued at the unit values
supplied by the pooled fund administrators, which represent the
underlying net assets at fair values determined using closing
market prices;
-- Income producing real estate is carried at appraised values
determined at least bi-annually by professionally qualified
independent appraisers. For those appraisals not performed near the
date of the consolidated statement of net assets available for
benefits by independent appraisers, the appraisals are updated
internally at that date. At the date of the consolidated statement
of net assets available for benefits, approximately one quarter of
the properties were appraised by independent appraisers. The
appraisals are in accordance with generally accepted appraisal
practices and procedures, based mainly on discounted cash
flows;
-- The fair value of a private equity investment is based on the
net asset value provided by the partnership's general partner,
unless there is a specific and objectively verifiable reason to
vary from the value provided by the general partner;
-- Exchange-traded futures contracts are valued at quoted market
prices; and
-- Fair value of OTC currency forward contracts is based on the
market price of the underlying currency at the reporting date.
The remaining incremental disclosure is presented in the table
below that presents the level in the fair value hierarchy into
which the defined benefit pension plans and other funded benefit
plan assets and liabilities are categorized.
Consolidated financial statements
Pension benefit plans Other benefit plans
----- ----------------- ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
----- ----------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Valuation Valuation Valuation Valuation
Quoted technique - technique - Quoted technique - technique -
$ millions, as at market observable non-observable market observable non-observable
October 31 price market inputs market inputs price market inputs market inputs
------------------------ ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
2011 Assets(1)
Equity
securities.......
........
Canadian
equity......... $ 809 $ 30 $ - $ - $ - $ -
Non-Canadian
equity. 412 1,172 - - - -
Debt
securities.......
.......... - - -
Short-term
investments.......
..................
.... 126 42 - - - -
Canadian
bonds......... 192 1,533 - - 24 -
Non-Canadian
bonds.. - 266 - - - -
Real estate
investments... - - 30 - - -
Derivative
instruments...... 7 2 - - - -
Other - - 153 - - -
----- ----------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Total assets $ 1,546 $ 3,045 $ 183 $ - $ 24 $ -
----------------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Liabilities(1)
Derivative
instruments $ - $ - $ - $ - $ - $ -
----- ----------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Total liabilities $ - $ - $ - $ - $ - $ -
----- ----------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
2010 Assets(1)(2)
Equity
securities.......
........
Canadian
equity......... $ 582 $ 32 $ - $ - $ - $ -
Non-Canadian
equity. 755 638 - - - -
Debt
securities.......
..........
Short-term
investments.......
..................
.... 310 168 - - - -
Canadian
bonds......... 251 1,402 - - 26 -
Non-Canadian
bonds.. - 213 - - - -
Real estate
investments... - - 172 - - -
Derivative
instruments...... 15 - - - - -
Other - - 114 - - -
----- ----------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Total assets $ 1,913 $ 2,453 $ 286 $ - $ 26 $ -
----------------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Liabilities(1)
Derivative instruments $ - $ (4 ) $ - $ - $ - $ -
----------------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
Total liabilities $ - $ (4 ) $ - $ - $ - $ -
----------------------- ------------------ ------------------------- ----------------------------- ----------------------- ------------------------- ------------------------------
(1) Excludes assets and liabilities of these plans not measured at fair value.
(2) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
There were no transfers between levels during the year.
The changes in fair value of Level 3 assets are summarized as
follows:
Net gains (losses) Purchases,
Opening included in income (sales) and Closing
-------------------------------------------
$ millions, as at or for
the year ended October 31 balance Realized Unrealized (settlements) balance
------------------------- ---------------- ------------------ ----------------------- ------------------------ ---------------
Real estate
2011 investment $ 172 $ 68 $ (43 ) $ (167) $ 30
Infrastructure 114 - 13 26 153
------------------------ ---------------- ------------------ ----------------------- ------------------------ ---------------
$ 286 $ 68 $ (30 ) $ (141) $ 183
------------------------ ---------------- ------------------ ----------------------- ------------------------ ---------------
Real estate
investment....
..............
..............
2010(1) ... $ 152 $ 11 $ 14 $ (5) $ 172
Infrastructure 120 - (2 ) (4) 114
------------------------ ---------------- ------------------ ----------------------- ------------------------ ---------------
$ 272 $ 11 $ 12 $ (9) $ 286
------------------------ ---------------- ------------------ ----------------------- ------------------------ ---------------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
Consolidated financial statements
Contingent liabilities
FASB ASC 450 (SFAS 5), "Contingencies" governs the disclosure
and recognition of loss contingencies, including potential losses
from litigation and regulatory matters. FASB ASC 450 requires
accrual for a loss contingency when it is probable that one or more
future events will occur confirming the fact of loss and the amount
of the loss can be reasonably estimated. FASB ASC 450 also requires
disclosure of a loss contingency if there is at least a reasonable
possibility that a loss or an additional loss may have been
incurred and there is no accrual for the loss because the
conditions described above are not met. The majority of this
disclosure is presented in Note 24 to the consolidated financial
statements with the incremental requirements under FASB ASC 450
presented below.
In view of the inherent unpredictability of outcomes in
litigation and regulatory matters, particularly where: (i) the
damages sought are substantial or indeterminate; (ii) the
proceedings are in the early stages; or (iii) the matters involve
novel legal theories or a large number of parties, there is
considerable uncertainty concerning possible eventual loss, if any,
associated with each such matter. In accordance with applicable
accounting guidance, CIBC establishes reserves for litigation and
regulatory matters when those matters proceed to a stage where they
present loss contingencies that are both probable and reasonably
estimable. In such cases, there may be a possible exposure to loss
in excess of any amounts accrued. CIBC will continue to monitor
such matters for developments that could affect the amount of the
reserve, and will adjust the reserve amount as appropriate. If the
loss contingency in question is not both probable and reasonably
estimable, CIBC does not establish a reserve and the matter will
continue to be monitored for any developments that would make the
loss contingency both probable and reasonably estimable. CIBC
believes that its total accruals for legal proceedings are
appropriate and, in the aggregate, are not material to the
consolidated financial position of CIBC, although future accruals
could have a material effect on net income in a given period. For
certain of those matters described herein for which a loss
contingency may, in the future, be reasonably possible (whether in
excess of a related accrued liability or where there is no accrued
liability), CIBC is currently unable to estimate a range of
reasonably possible loss.
The actual cost of resolving legal claims may be substantially
higher or lower than the amounts reserved for those claims.
Although there can be no assurance as to the ultimate outcome, CIBC
has generally denied, or believes we have a meritorious defence and
will deny, liability in all significant litigation pending against
us, including the matters described below, which we intend to
defend vigorously:
Green v. Canadian Imperial Bank of Commerce, et al.
In July 2008, a shareholder plaintiff commenced this proposed
class action in the Ontario Superior Court of Justice against CIBC
and several former and current CIBC officers and directors. It
alleges that CIBC and the individual officers and directors
violated the Ontario Securities Act through material
misrepresentations and non-disclosures relating to CIBC's exposure
to the U.S. sub-prime mortgage market. The plaintiffs instituted
this action on behalf of all CIBC shareholders in Canada who
purchased shares between May 31, 2007 and February 28, 2008. The
action seeks damages of $10 billion under the Ontario Securities
Act claim. The plaintiffs' motions for leave to file the statement
of claim and for class certification are scheduled to be heard in
February 2012.
Fresco v. Canadian Imperial Bank of Commerce
Gaudet v. Canadian Imperial Bank of Commerce
In June 2007, two proposed class actions were filed against CIBC
in the Ontario Superior Court of Justice (Fresco v. CIBC) and in
the Quebec Superior Court (Gaudet v. CIBC). Each makes identical
claims for unpaid overtime for full-time, part-time, and retail
frontline non-management employees. The Ontario action seeks $500
million in damages plus $100 million in punitive damages for all
employees in Canada, while the Quebec action is limited to
employees in Quebec and has been stayed pending the outcome of the
Ontario action. In June 2009, in the Ontario action, the motion
judge denied certification of the matter as a class action. In
February 2010, the motion judge awarded CIBC $525,000 for its costs
in defending the certification motion. In September 2010, the
Ontario Divisional Court upheld the motion judge's denial of the
plaintiff's certification motion and the award of costs to CIBC by
a two to one majority. In January 2011, the Court of Appeal granted
the plaintiff leave to appeal the decision denying certification.
The appeal was scheduled to be heard November 30 and December 1,
2011.
Brown v. Canadian Imperial Bank of Commerce and CIBC World
Markets Inc.
In 2008, this proposed class action was filed in the Ontario
Superior Court of Justice against CIBC World Markets Inc. claiming
$350 million for unpaid overtime on behalf of investment bankers,
investment advisors, traders, analysts, and others and an
additional $10 million in punitive damages. In 2009, the plaintiff
amended the statement of claim adding CIBC as a co-defendant and
adding a new plaintiff. The proposed amended class includes all
analysts and investment advisors level 6 and above in Ontario who
were not paid overtime or treated as eligible for overtime. The
class certification motion is scheduled to be heard in January
2012.
Consolidated financial statements
VISA credit card class actions:
Marcotte v. Bank of Montreal, et al.
Corriveau v. Amex Bank of Canada, et al.
Lamoureux v. Bank of Montreal, et al.
St. Pierre v. Bank of Montreal, et al.
Marcotte v. Bank of Montreal, et al. (II)
Giroux v. Royal Bank of Canada, et al.
Since 2004, a number of proposed class actions have been filed
in the Quebec Superior Court against CIBC and numerous other
financial institutions. The actions, brought on behalf of
cardholders, allege that the financial institutions are in breach
of certain provisions of the Quebec Consumer Protection Act (CPA).
The alleged violations include charging fees on foreign currency
transactions, charging fees on cash advances, increasing credit
limits without the cardholder's express consent, and failing to
allow a 21-day grace period before posting charges to balances upon
which interest is calculated. CIBC and the other defendant banks
are jointly raising a constitutional challenge to the CPA on the
basis that banks are not required to comply with provincial
legislation because banking and cost of borrowing disclosure is a
matter of exclusive federal jurisdiction.
The first of these class actions (Marcotte v. Bank of Montreal,
et al.), which alleges that charging cardholders fees on foreign
currency transactions violates the CPA, went to trial in 2008. In a
decision released in June 2009, the trial judge found in favour of
the plaintiffs concluding that the CPA is constitutionally
applicable to federally regulated financial institutions and
awarding damages against all the defendants. The court awarded
compensatory damages against CIBC in the amount of $38 million plus
an additional sum to be determined at a future date. The court
awarded punitive damages against a number of the other defendants,
but not against CIBC. CIBC and the other financial institutions
appealed this decision. The appeal was heard by the Quebec Court of
Appeal in September 2011, and the court reserved decision. Trial
dates have not been scheduled for any of the other VISA credit card
class actions.
Sino-Forest class actions:
Smith v. Sino-Forest Corporation, et al.
Trustees of the Labourers' Pension Fund of Central and Eastern
Canada v. Sino-Forest Corporation, et al.
Northwest & Ethical Investments L.P. v. Sino-Forest
Corporation, et al.
In 2011, three proposed class actions were filed in the Ontario
Superior Court of Justice on behalf of purchasers of shares in
Sino-Forest Corporation (Sino-Forest) against Sino-Forest, its
directors and officers, its auditors and the underwriting syndicate
for three public offerings from 2007
to 2009. CIBC World Markets Inc. was part of the underwriting
syndicate for two of the offerings (underwriting 20% of a $200
million June 2007 offering and 5% of a $367 million December 2009
offering). The proposed class actions allege various
misrepresentations on the part of Sino-Forest and the other
defendants regarding Sino-Forest's revenue and ownership of
timberlands in China, including representations made in the
prospectus for the public offerings.
Mortgage prepayment class actions:
Jordan v. CIBC Mortgages Inc.
Lamarre v. CIBC Mortgages Inc.
Sherry v. CIBC Mortgages Inc.
In 2011, three proposed class actions were filed in the Superior
Courts of Ontario, Quebec and British Columbia against CIBC
Mortgages Inc. The representative plaintiffs allege that since 2005
CIBC Mortgages Inc. wrongfully charged or overcharged mortgage
prepayment penalties and that the calculation clauses in the
mortgage contract that provide for discretion in applying the
prepayment penalties are void and unenforceable at law.
Changes in significant accounting policies affecting Canadian
and U.S. GAAP differences
Accounting for transfers of financial assets and repurchase
financing transactions
In June 2009, the FASB issued FASB ASC 860(SFAS 166),
"Accounting for Transfers of Financial Assets an amendment of FASB
Statement No. 140" and FASB ASC 810(SFAS 167), "Amendments to FASB
Interpretation 46(R)." These standards became effective for us on
November 1, 2010.
FASB ASC 860 (SFAS 166) eliminates the ability to reclassify
mortgage loans to securities when a transfer does not meet the sale
accounting requirements. It also eliminates the concept of a QSPE
making it no longer relevant for accounting purposes. Therefore,
former QSPEs (as defined under previous accounting standards) would
be evaluated for consolidation on and after the effective date in
accordance with the applicable consolidation guidance.
In addition, FASB ASC 860 (SFAS 166) states that the transfer of
a portion of financial assets may be accounted for as a sale only
if it meets the definition of a participating interest. A
participating interest represents a proportionate ownership
interest in an entire financial asset where cash flows are divided
proportionally, have equal priority of payment and none is
subordinated, and the right to pledge or exchange the entire
financial asset is subject to the approval of all participating
interest holders. Otherwise, the transfer is accounted for as a
secured borrowing.
Consolidated financial statements
Furthermore, the disclosure provisions of FASB ASC 860 (SFAS
166) will be applied to transfers that occurred both before and
after the effective date. The impact of adopting this standard was
to reclassify approximately $11 billion of MBS out of fair value
option securities to loans as at October 31, 2011 on the condensed
consolidated balance sheet.
FASB ASC 810 (SFAS 167) requires retrospective application and
states that an enterprise must perform an analysis to determine
whether the enterprise's variable interests in a VIE gives it a
controlling financial interest in a VIE. This analysis identifies
the primary beneficiary of a VIE as the enterprise that has both of
the following characteristics: (a) the power to direct the
activities of a VIE that most significantly impact the entity's
economic performance and (b) the obligation to absorb losses of the
entity that could potentially be significant to the VIE or the
right to receive benefits from the entity that could potentially be
significant to the VIE. Additionally, an enterprise is required to
assess whether it has an implicit financial responsibility to
ensure that a VIE operates as designed when determining whether it
has the power to direct the activities of the VIE that most
significantly impact the entity's economic performance. In contrast
to FIN 46(R), FASB ASC 810 (SFAS 167) also requires ongoing
reassessments of whether an enterprise is the primary beneficiary
of a VIE. It also amends the events that trigger a reassessment of
whether an entity is a VIE and requires enhanced disclosures with
more transparent information about an enterprise's involvement in a
VIE.
Upon the adoption of FASB ASC 810 (SFAS 167) we consolidated
certain VIEs at the carrying values of their assets and liabilities
as at November 1, 2010 and deconsolidated certain VIEs. The
consolidation of these VIEs resulted in an increase in our total
assets of approximately $3.8 billion and total liabilities of
approximately $3.9 billion as at November 1, 2010. It also reduced
our opening retained earnings by $127 million, net of taxes, to
reflect the cumulative transition impact related to prior periods
and decreased our AOCI by $13 million, net of taxes. The
deconsolidation of VIEs resulted in a reduction in assets and
liabilities of approximately $800 million with no retained earnings
impact as at November 1, 2010.
The FASB also issued ASU 2010-10 "Consolidation: Amendments for
Certain Investment Funds". This update defers the application of
FASB ASC 810 (SFAS 167) for a reporting enterprise's interest in
mutual funds, money market mutual funds, hedge funds, private
equity funds and venture capital funds if certain conditions are
met. As a result, we continue to assess our mutual funds and
investment funds that we manage under the requirements of FASB ASC
810-10 (FIN 46(R)).
In the normal course of business, VIEs are used for
securitization, investment, funding and other purposes. Refer to
Note 6 of the consolidated financial statements for information on
VIEs and the nature of our involvement in them.
The following describes our consolidation assessments by type of
VIE.
Credit cards
We securitize credit card receivables to Cards II and Broadway
(collectively, the credit card trusts). We continue to have
involvement in the credit card trusts through the retention of
subordinated notes and enhancement notes, as well as interest-only
strips.
Effective November 1, 2010, we consolidated the credit card
trusts pursuant to FASB ASC 810 (SFAS 167) as we are considered to
have both the power to direct the activities that most
significantly impact the credit card trusts' economic performance
and have a potentially significant economic interest in the credit
card trusts. We direct the activities that most significantly
impact the economic performance of the credit card trusts through
our role as the administrative agent and servicer of the credit
card accounts. In these roles, we make ongoing decisions regarding
the acquisition, management, and credit monitoring of credit card
receivables. Our interests that could be potentially significant to
the credit card trusts include our interest in interest-only
strips, subordinated notes and enhancement notes.
Our retained interests in credit cards receivables, in the form
of notes, which were classified within business and government
loans under Canadian GAAP, are eliminated under U.S. GAAP as we
consolidate the trusts pursuant to FASB ASC 810.
Prior to November 1, 2010, our credit card trusts met the
requirements of a QSPE under SFAS 140 and were exempted from the
scope of FIN 46(R). Under Canadian GAAP, which is substantially the
same FAS 140, our credit card trusts meet the requirements of a
QSPE and are exempted from the scope of VIE consolidation.
Residential mortgages
We securitize insured prime mortgages and uninsured
Near-Prime/Alt-A mortgages to a residential mortgage trust. We
continue to have involvement in these mortgage securitizations
through interest-only strips, being a TRS counterparty and cash
reserve accounts.
Effective November 1, 2010, we consolidated this residential
mortgage trust pursuant to FASB ASC 810 (SFAS 167) as we are
considered to have both the power to direct the activities that
most significantly impact the residential mortgage trust's
Consolidated financial statements
economic performance and have a potentially significant economic
interest in the residential mortgage trust. We direct the
activities that most significantly impact the economic performance
of the residential mortgage trust through our role as the
administrative agent and servicer of the mortgages. In these roles,
we make ongoing decisions regarding the acquisition, management,
and credit monitoring of mortgages. Our interests that could be
potentially significant to the residential mortgage trust include
our interest in interest-only strips, TRS, and cash reserves.
Prior to November 1, 2010, this residential mortgage trust met
the requirements of a QSPE under SFAS 140 and was exempted from the
scope of FIN 46(R). Under Canadian GAAP, which is substantially the
same as SFAS 140, our residential mortgage trust meets the
requirements of a QSPE and is exempted from the scope of VIE
consolidation.
We also securitize qualifying insured fixed and variable-rate
residential mortgages through the creation of NHA MBS. Under the
CMB program, sponsored by the CMHC and the Government of Canada NHA
MBS Auction program, we sell NHA MBS to a securitization trust or
directly to the CMHC, respectively. Under the CMB program, the NHA
MBS are sold to a government-sponsored securitization trust that
issues securities to investors. We also act as counterparty in
interest rate swap agreements where we pay the trust the interest
due to investors and receive the interest on the MBS.
Under FASB ASC 810-10-15 (SFAS 167) the NHA MBS custodial pool
is defined as an entity. The activities that most significantly
impact the economic performance of the NHA MBS custodial pool
entity are: a) management of delinquencies/defaults, and b)
management of prepayments. As we must manage the activities within
guidelines established by the MBS insurers, we do not consolidate
the NHA MBS custodial pool entities once we have sold a significant
portion of the securities attached to these pools. However, prior
to the sale of a significant portion of the securities attached to
the pool, we consolidated these pools. As a consequence of
consolidating the residential mortgage trust and certain MBS pools,
we have recognized approximately $20 billion of MBS securities on
the U.S. GAAP condensed consolidated balance sheet as at October
31, 2011. As previously mentioned, pursuant to the adoption of FASB
ASC 860 (SFAS 166), approximately $11 billion of these MBS
securities were subsequently reclassified to mortgages under U.S.
GAAP as at October 31, 2011.
Commercial mortgages
We have securitized commercial mortgages to a pass-through
trust. Subsequent to the sale of commercial mortgages to the
pass-through trust, we have continuing involvement through our role
as special servicer. Under FASB ASC 810-10-15 (SFAS 167), prior
U.S. GAAP and Canadian GAAP, we do not consolidate the pass-through
trust since we do not have variable interests in the structure that
could be potentially significant.
CIBC sponsored multi-seller and single-seller conduits
We sponsor several multi-seller conduits and one single-seller
conduit (collectively, the conduits) in Canada. Our multi-seller
conduits purchase pools of financial assets from our clients and
finance the purchases by issuing commercial paper to investors. Our
single-seller conduit purchases pools of financial assets from our
client and finances these purchases by bankers' acceptances.
Under FASB ASC 810-10-15 (SFAS 167) we do not consolidate the
conduits with the exception of one multi-seller conduit where we
hold all of the commercial paper funding. In our role as the
administrative agent of the conduits, we receive fees to perform
ongoing decisions regarding the type and credit quality of asset
purchases and manage the issuance of commercial paper funding or
bankers' acceptances. The fees we receive to perform these services
are not considered variable interests, and accordingly, we are not
considered to have the power to direct the activities that most
significantly impact the conduits' economic performance.
Structured vehicles
We hold exposures to structured CDO and CLO vehicles (structured
vehicles) through investments in, or written credit derivatives
referencing, these structured vehicles. We may also provide
liquidity facilities or other credit facilities. The structured
vehicles are funded through the issuance of senior and subordinated
tranches. We may hold a portion of those senior and/or subordinated
tranches.
Effective November 1, 2010, we deconsolidated certain structured
vehicles that were previously consolidated in accordance with
Canadian GAAP, which is substantially the same as previous U.S.
GAAP under FIN 46(R). Under FASB ASC 810-10-15 (SFAS 167) we do not
consolidate the structured vehicles as we do not have the power to
direct any of the activities that most significantly impact the
economic performance of the entity.
Consolidated financial statements
At the inception of our initial exposure to these VIEs, we
simultaneously entered into hedging transactions to pass the risk
and returns of the underlying VIE exposure to third parties. These
third parties were considered to have the implicit variable
interests of the VIE exposure and, as a result, we were not
considered to be the primary beneficiary. Upon the subsequent
elimination of the hedges, which were considered to be
reconsideration events, we were considered to be the primary
beneficiary as we absorbed the majority of the conduits' remaining
expected losses. Accordingly, under Canadian GAAP, which is
substantially the same as FIN 46(R), these structured vehicles were
consolidated.
Pass-through investment structures
We enter into equity derivative transactions with third-party
investment funds. These transactions provide their investors with
the desired exposure to reference funds, and we hedge our exposure
from these derivatives by investing in units or equity-linked notes
referencing the third-party managed referenced funds. Under FASB
ASC 810-10-15 (SFAS 167), we do not consolidate the pass-through
investment structures that qualify as VIEs as we do not have the
power to direct any of the activities that most significantly
impact the economic performance of the entity.
Capital Trust securities
We have issued senior deposit notes to CIBC Capital Trust
(Capital Trust). The Capital Trust funded the purchase through the
issuance of CIBC Tier 1 Notes (Notes) that match the term of the
senior deposit notes. The Notes are structured to provide Tier 1
regulatory capital treatment.
Effective November 1, 2010, we consolidated the Capital Trust
under FASB ASC 810-10-15 (SFAS 167) as we are considered to have
both the power to direct the activities that most significantly
impact the Capital Trust's economic performance and have a
potentially significant economic interest in the Capital Trust. We
direct the activities that most significantly impact the economic
performance of the Capital Trust through our 100% ownership
interest of voting equity units. We make ongoing decisions
regarding the acquisition of the senior deposit notes and the
issuance of the Notes. Our interests that could be potentially
significant to the Capital Trust include the Tier 1 regulatory
capital benefits. Consolidation had no impact on total assets,
total liabilities, or equity.
Prior to November 1, 2010, we did not consolidate the Capital
Trust in accordance with FIN 46(R). Under these rules, we were not
considered to be the primary beneficiary as we did not absorb the
majority of the Capital Trust's expected losses. Under Canadian
GAAP which is substantially the same as FIN 46(R), the Capital
Trust is not consolidated.
Covered bond guarantors
Under the covered bond program, we provide funding to a limited
partnership entity (Guarantor LP) to purchase mortgages and MBS
from CIBC. Concurrently, we enter into TRS arrangements with the
Guarantor LP to receive the contractual interest received on those
mortgages and NHA MBS. Under FASB ASC 810-10-15 (SFAS 167), we
continue to consolidate the Guarantor LP as we are considered to
have both the power to direct the activities that most
significantly impact the Guarantor LP's economic performance and
have a potentially significant economic interest in the Guarantor
LP. We also consolidate the Guarantor LP under Canadian GAAP and
prior U.S. GAAP (FIN 46(R)).
We perform qualitative analyses to determine whether we are the
primary beneficiary of a VIE based on the facts and circumstances
and our interests in the VIE. The following table presents assets
and liabilities arising from our transactions and involvement with
non-consolidated VIEs as at October 31, 2011, where: (i) we may
hold significant variable interests; (ii) we transferred assets to
a VIE and have continuing involvements that are deemed to be a
variable interest; and (iii) we are the sponsor of the VIE or the
VIE previously qualified as a QSPE and we hold a variable interest
in it, even if not significant. In determining whether we are a
primary beneficiary of a VIE, we consider both qualitative and
quantitative factors, including the purpose and nature of the VIE,
our continuing involvement in the VIE and whether we hold
subordinated interests in the VIE.
Consolidated financial statements
Residential Pass- Commercial
CIBC mortgage CIBC Third-party structured through mortgages
sponsored securitization structured vehicles investment securitization
$ millions, as
at October 31,
2011 conduits vehicle(1) vehicles Run-off Continuing structures vehicle
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
On-balance sheet
assets(2)
Trading
securities.....
...............
... $ 3 $ - $ - $ 558 $ 199 $ 520 $ -
AFS
securities.....
...............
......... - 873 2 2 1,320 - 5
FVO.............
................
............... - - - - 73 - -
Loans..........
...............
...............
.. 77 - 290 4,023 34 - -
Derivatives(3)
................
................ - - - - - 68 -
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
Total
assets.........
...............
......... $ 80 $ 873 $ 292 $ 4,583 $ 1,626 $ 588 $ 5
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
On-balance sheet
liabilities((2)
Derivatives(3)
...............
...............
.. $ - $ - $ 37 $ 1,545 $ - $ 44 $ -
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
Total
liabilities....
...............
........ $ - $ - $ 37 $ 1,545 $ - $ 44 $ -
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
Maximum exposure
to loss, net of
hedges
Investments and
loans..........
...... $ 80 $ 873 $ 292 $ 4,583 $ 1,626 $ 520 $ 5
Notional of
written
derivatives,
net of fair
value
losses.........
.. - - 247 3,285 - 24 -
Liquidity and
credit
facilities.....
.. 1,297 - 42 391 16 - -
Less: hedges of
investment,
loans and
written
derivatives
exposures......
...............
......... - - (459 ) (6,854 ) (73 ) (544 ) -
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
Maximum exposure
to
loss.......... $ 1,377 $ 873 $ 122 $ 1,405 $ 1,569 $ - $ 5
---------------- --------------------- ------------------------- -------------------- ------------------- ----------------------- --------------------- ------------------------
(1) Excludes interest rate swaps with Canada Housing Trust, a VIE sponsored by the CMHC.
(2) Excludes VIEs containing third-party originated assets
established by CMHC, Freddie Mac, Fannie Mae, Ginnie Mae, Federal
Home Loan Banks, Federal Farm Credit Bank, and Sallie Mae.
(3) Comprises written CDS and TRS under which we assume
exposures and excludes all other derivatives.
The following table presents the assets and liabilities of
consolidated VIEs recorded on the condensed consolidated balance
sheet as at October 31, 2011:
Residential
CIBC Credit card mortgage Capital Trust
$ millions, as at sponsored securitization securitization securities Covered bond
October 31, 2011 conduit vehicles vehicles(1) vehicle guarantor
----------------- --------------------- ------------------------- ------------------------- ------------------------ --------------------------
Assets(2)
Cash and
non-interest
bearing deposits
with banks $ - $ - $ 27 $ 2 $ -
Interest-bearing
deposits with
banks............
........... - 373 - - -
Securities.......
.................
.................
.................
....
FVO..........
.............
.............
.............
.............
... - - 8,781 - -
Trading......
.............
.............
.............
.............
.. - - - - -
AFS.........
............
............
............
............
......... 2 - 66 1,057
Loans...........
................
................
................
......... - 5,350 11,883(3) 1,600 11,869
Other............
.................
.................
.................
......
Derivative
instruments.
............
............
............
. - 29 32 - -
Customers'
liability
under
acceptances..
........... - - - - -
Other
assets......
............
............
............
............ - 37 1 55 48
----------------- --------------------- ------------------------- ------------------------- ------------------------ --------------------------
$ 2 $ 5,789 $ 20,790 $ 1,657 $ 12,974
----------------- --------------------- ------------------------- ------------------------- ------------------------ --------------------------
Liabilities(2)
Deposits........
................
................
................
......... $ 2 $ 5,744 $ 20,621 $ 1,594 $ 12,627
Other............
.................
.................
.................
......
Derivative
instruments..
.............
.............
.......... - - - - -
Acceptances..
.............
.............
.............
............ - - - - -
Other
liabilities.
............
............
............
........... - 40 134 66 -
----------------- --------------------- ------------------------- ------------------------- ------------------------ --------------------------
$ 2 $ 5,784 $ 20,755 $ 1,660 $ 12,627
----------------- --------------------- ------------------------- ------------------------- ------------------------ --------------------------
(1) Includes approximately $20 billion of MBS in NHA MBS
custodial pools that were consolidated pursuant to the retroactive
application of FASB ASC 810 (SFAS 167).
(2) Consolidated assets and liabilities of VIEs are presented
without the effect of any intercompany eliminations upon
consolidation or other consolidation adjustments.
(3) Includes approximately $11 billion of MBS reclassified from
FVO under Canadian GAAP to loans under U.S. GAAP pursuant to the
prospective application of FASB ASC 860 (SFAS 166).
Consolidated financial statements
Disclosures about the credit quality of financing receivables
and the allowance for credit losses
In July 2010, the FASB issued ASU 2010-20, "Disclosure about the
Credit Quality of Financing Receivables and the Allowance for
Credit Losses", which became effective for us on November 1, 2010
with prospective application. The amendments in this update require
an entity to provide additional disclosures about its loans on a
disaggregated basis and disclosures about the credit quality of
loans and the allowance for credit losses disaggregated on the
basis of the entity's impairment method. The amendments also
require additional TDR disclosure. In April 2011, the FASB issued
ASU 2011-02, "A Creditor's Determination of Whether a Restructuring
is a Troubled Debt Restructuring", which amends FASB ASC 310
"Receivables". The update clarifies the criteria which are used to
determine if a restructuring would constitute a TDR as: (1) whether
the restructuring constitutes a concession; and (2) whether the
debtor is experiencing financial difficulties. The amendments
became effective for us on August 1, 2011 and were applied
retrospectively to November 1, 2010 for identifying TDRs and were
applied prospectively beginning August 1, 2011 for the purpose of
measuring impairment of TDRs.
Additional information about loans and the related allowances
for credit losses disaggregated by impairment methodology
Our loan portfolios are managed and reported in the following
four portfolio segments: (i) residential mortgages; (ii) personal;
(iii) credit card; and (iv) business and government. For the first
three portfolio segments, which are retail in nature, the class of
financing receivables is the same as the portfolio segment as the
underlying receivables share common risk characteristics. The
business and government loans portfolio segment is comprised of
different classes of financing receivables, mainly based on the
industry group of the customer.
We conduct ongoing credit assessments of loans that are
considered individually significant on an account-by-account basis
to assess whether there is objective evidence of impairment. For
groups of loans that are considered to be not individually
significant and for groups of individually assessed loans for which
no objective evidence of impairment has been identified on an
individual basis, impairment is further determined on a
"collective" basis. Refer to the "Credit risk" section of the
MD&A for more details on the credit risk assessment process.
The resulting allowance for credit losses consists of general and
specific components.
For our business and government loans portfolio, a general
allowance is collectively provided for performing loans that have
not been specifically identified as impaired, whereas a specific
allowance is provided for those loans that have been specifically
identified as being impaired, except for certain scored small
business loans which are also included within the specific
allowance even though they are collectively assessed for
impairment. To the extent performing loans become non-performing
due to delinquency or other impairment events, a specific allowance
is provided on the loan on an individual basis and the loan would
no longer be collectively assessed for the general allowance. The
loan would be written off in accordance with our write-off policy
only in the event it is already impaired, at which time there would
be only a specific allowance. Therefore, loans are written off only
to specific allowances.
For our residential mortgages and personal loans portfolios we
provide specific and general allowances for the loans based on
their state of delinquency. General allowances are established only
for loans that are current or in the early stages of delinquency,
while specific allowances are established only for loans that are
in the later stages of delinquency. Therefore, as the delinquency
status of a loan worsens, the loan would no longer be provided for
through the general allowance and instead would be provided for
through the specific allowance. When there is no realistic prospect
of future recovery above the recoverable value, the loan would be
written off in accordance with our write-off policy.
For our credit card loans, as stated in Note 1 to the
consolidated financial statements, the loans are not classified as
impaired and are fully written off when payments are contractually
180 days in arrears or upon customer bankruptcy. Credit card loans
only have a general allowance until such time the card balances are
180 days in arrears or upon customer bankruptcy, upon which the
general allowance is reduced and the credit card balance is written
off as a specific provision for credit losses.
Consolidated financial statements
Loans
The following tables present loan information based upon
Canadian GAAP as that is the basis on which we manage our
portfolios.
$ millions, as at
October 31 2011 2010
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Gross Specific General Net Gross Specific General Net
amount allowance allowance loans amount allowance allowance loans
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Residential
mortgages..........
............ $ 99,603 $ 34 $ 12 $ 99,557 $ 93,568 $ 30 $ 9 $ 93,529
Personal...........
...................
............. 34,842 211 275 34,356 34,335 224 293 33,818
Credit card(1)
...................
.................. 10,408 - 411 9,997 12,127 - 478 11,649
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Total retail loans
portfolios.........
...... 144,853 245 698 143,910 140,030 254 780 138,996
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Non-residential
mortgages..........
...... 7,377 29 - 7,348 6,749 16 - 6,733
Financial
institutions.......
................. 2,543 2 - 2,541 2,304 2 - 2,302
Retail, wholesale
and business
services 6,109 116 - 5,993 6,146 108 - 6,038
Manufacturing -
consumer and
capital
goods..............
...................
.................. 2,713 49 - 2,664 2,346 47 - 2,294
Real estate and
construction.......
..... 6,727 123 - 6,604 4,586 127 - 4,459
Agriculture........
...................
............. 3,225 17 - 3,208 2,921 14 - 2,907
Resource-based
industries.........
....... 2,276 4 - 2,272 1,546 19 - 1,527
Telecommunications,
media and
technology.........
...................
...................
.... 682 27 - 655 801 20 - 781
Transportation.....
...................
.......... 1,157 15 - 1,142 970 23 - 947
Utilities..........
...................
................ 663 - - 663 594 - - 594
Other..............
...................
............... 8,340 2 - 8,338 9,619 1 - 9,618
General allowance
allocated to
business and
government loans(2) - - 320 (320) - - 309 (309)
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Total business and
government loans
portfolio(3)
...................
................. 41,812 384 320 41,108 38,582 377 309 37,896
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
Total
loans..............
...................
...... $ 186,665 $ 629 $ 1,018 $ 185,018 $ 178,612 $ 631 $ 1,089 $ 176,892
-------------------- ----------------------- --------------------- --------------------- ---------------------- ------------------------ -------------------- ---------------------- ----------------------
(1) When a loan is classified as impaired, accrual of interest
ceases. Credit card loans are never impaired and are written off at
180 days past due and interest income is only accrued where there
is an expectation of receipt. We ceased accruing interest on $311
million of credit card loans as at October 31, 2011.
(2) Under U.S. GAAP, as a result of adopting FASB ASC 860 (SFAS
166) and FASB ASC 810 (SFAS 167) the incremental general allowance
related to residential mortgages and credit card loans now
recognized on the condensed consolidated balance sheet is $4
million and $147 million respectively, as at October 31, 2011.
(3) $1,899 million of our retained interests in credit card
receivables as at October 31, 2011 (2010: $250 million), in the
form of notes, which were classified within business and government
loans under Canadian GAAP, are eliminated under U.S. GAAP as we
consolidate the trusts pursuant to FASB ASC 810.
Impaired loans(1)
$ millions, as at
October 31 Gross impaired(2) Specific allowance 2011 2010
-------------------- --------------- ------------------- ------------------------------------ ------------------- --------------------------------------- --------------- ------------- ------------- ---------------- -------------
Total Total
Average Individually Collectively gross Individually Collectively specific Net Average Gross Specific Net
impaired assessed assessed impaired assessed assessed allowance impaired impaired impaired allowance impaired
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
Residential
mortgages..........
. $ 431 $ - $ 452 $ 452 $ - $ 34 $ 34 $ 418 $ 439 $ 452 $ 30 $ 422
Personal...........
........ 282 - 291 291 - 211 211 80 322 304 224 80
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
Total retail loans
portfolios.........
.... 713 - 743 743 - 245 245 498 761 756 254 502
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
Non-residential
mortgages..........
. 73 75 - 75 29 - 29 46 76 75 16 59
Financial
institutions 5 4 - 4 2 - 2 2 5 5 2 3
Retail, wholesale
and business
services. 293 289 22 311 97 19 116 195 272 280 108 172
Manufacturing -
consumer and
capital goods...... 92 74 3 77 46 3 49 28 115 113 47 66
Real estate and
construction.......
.. 483 500 4 504 119 4 123 381 510 465 127 338
Agriculture........
........ 45 37 1 38 16 1 17 21 29 26 14 12
Resource-based
industries.........
.... 16 5 2 7 2 2 4 3 42 26 19 7
Telecommunications,
media and
technology.........
. 32 47 1 48 26 1 27 21 58 42 20 22
Transportation.....
..... 37 34 2 36 13 2 15 21 45 45 23 22
Utilities..........
........... - - - - - - - - 1 1 - 1
Other..............
.......... 3 1 1 2 1 1 2 - 3 2 1 1
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
Total business and
government loans
portfolios.........
.... 1,079 1,066 36 1,102 351 33 384 718 1,156 1,080 377 703
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
Total
loans..............
. $ 1,792 $ 1,066 $ 779 $ 1,845 $ 351 $ 278 $ 629 $ 1,216 $ 1,917 $ 1,836 $ 631 $ 1,205
-------------------- --------------- ------------------- -------------------- -------------- ------------------- -------------------- ----------------- --------------- ------------- ------------- ---------------- -------------
(1) During 2011, we recognized a credit of $40 million to our
provision for credit losses due to the increase in present value
attributable to the passage of time on our impaired loans.
(2) Represents unpaid principal balance of impaired loans, net
of partial write-offs recognized during the year.
Consolidated financial statements
Troubled debt restructuring
In certain circumstances, we may modify a loan for economic or
legal reasons related to a borrower's financial difficulties and we
may grant a concession in the form of below-market rates or terms
that we would not otherwise consider for the purpose of maximizing
recovery of our exposure in the loan. We strive to identify early,
and work with borrowers in financial difficulty and, where
circumstances warrant, to modify their loans to more affordable
terms, which may include rate reductions, principal forgiveness,
term extension and/or payment forbearance. In those circumstances
where the concession is considered below market terms, the
modification is reported as a TDR.
Loans, including loans that have been classified as TDRs, are
subject to our normal quarterly impairment review. We consider
factors such as a breach of financial covenants and/or payment
delinquency in our impairment assessment, which in many cases would
have a negative impact on our expectation of the full collection of
future cash flows on these loans. As a result of our normal
quarterly impairment review, an appropriate level of specific or
general loan loss provision by portfolio segment would be
established. As at October 31, 2011, we had mortgage loans of $58
million, personal loans of $4 million, credit card loans of $5
million and business and government loans of $226 million, of which
$120 million were in the real estate and construction sectors, that
were subject to TDR during 2010 or 2011. Included in these amounts
are loans of $39 million that experienced a delinquency during 2011
subsequent to a TDR in 2011.
Information about credit quality of loans
We measure our exposure to credit risk under the AIRB approach
and under the standardized approach in accordance with the Basel II
guidelines. The AIRB approach relies on internal risk rating
systems based on historical experience of key risk assumptions that
are used to compute the capital requirements and the standardized
approach uses a standardized set of risk weight, as prescribed by
the regulator based on external credit assessments and other risk
related factors, including exposure asset class and collateral.
Refer to the "Credit risk" section of the MD&A for more
information about how we assess the credit quality of our loan
portfolios.
Consolidated financial statements
Exposure subject to AIRB approach
Credit quality of the business and government loans
portfolio
The following table provides the credit quality of the
on-balance sheet business and government loans portfolio. Amounts
provided are before allowance for credit losses.
Gross amount
$ millions, as at
October 31, 2011 Corporate Sovereign Banks Total
-------------------- --------------------------- --------------------- -------------------- ----------------------
Investment
grade..............
...................
...................
...................
.......... $ 14,020 $ 716 $ 458 $ 15,194
Non-investment
grade..............
...................
...................
...................
... 12,998 83 48 13,129
Watchlist..........
...................
...................
...................
...................
........ 714 - - 714
Default............
...................
...................
...................
...................
......... 865 - - 865
-------------------- --------------------------- --------------------- -------------------- ----------------------
$ 28,597 $ 799 $ 506 $ 29,902
-------------------- --------------------------- --------------------- -------------------- ----------------------
Strong.............
...................
...................
...................
...................
......... $ 6,527 $ - $ 4 $ 6,531
Good...............
...................
...................
...................
...................
......... 210 - - 210
Satisfactory.......
...................
...................
...................
...................
....... 31 - - 31
Weak...............
...................
...................
...................
...................
......... 60 - - 60
Default............
...................
...................
...................
...................
......... 4 - - 4
-------------------- --------------------------- --------------------- -------------------- ----------------------
Total slotted
exposure...........
...................
...................
...................
...... $ 6,832 $ - $ 4 $ 6,836
-------------------- --------------------------- --------------------- -------------------- ----------------------
Standardized
exposure...........
...................
...................
...................
.... $ 4,172 $ 902 $ - $ 5,074
-------------------- --------------------------- --------------------- -------------------- ----------------------
Total business and
government loans
portfolio..........
...................
....... $ 39,601 $ 1,701 $ 510 $ 41,812
-------------------- --------------------------- --------------------- -------------------- ----------------------
Credit quality of the retail loans portfolios
The following table presents the credit quality of the on-balance sheet retail loans portfolios.
Amounts provided are before allowance for credit losses.
$ millions, as at
October 31, 2011
-------------------- --------------------------- --------------------- -------------------- ----------------------
Gross amount
Residential
Risk level mortgages Personal Cards Total
-------------------- --------------------------- --------------------- -------------------- ----------------------
Exceptionally
low................
...................
...................
...................
........ $ 78,928 $ 18,718 $ 3,052 $ 100,698
Very
low................
...................
...................
...................
...................
... 10,688 323 1,441 12,452
Low................
...................
...................
...................
...................
.......... 6,307 10,638 2,382 19,327
Medium.............
...................
...................
...................
...................
...... 648 3,728 1,894 6,270
High...............
...................
...................
...................
...................
.......... 141 448 618 1,207
Default............
...................
...................
...................
...................
......... 90 287 - 377
-------------------- --------------------------- --------------------- -------------------- ----------------------
$ 96,802 $ 34,142 $ 9,387 $ 140,331
-------------------- --------------------------- --------------------- -------------------- ----------------------
Strong.............
...................
...................
...................
...................
......... $ 561 $ - $ - $ 561
Good...............
...................
...................
...................
...................
......... 9 - - 9
Satisfactory.......
...................
...................
...................
...................
....... 9 - - 9
Weak...............
...................
...................
...................
...................
......... 5 - - 5
Default.............
....................
....................
....................
....................
.... - - - -
-------------------- --------------------------- --------------------- -------------------- ----------------------
Total slotted
exposure...........
...................
...................
...................
...... $ 584 $ - $ - $ 584
-------------------- --------------------------- --------------------- -------------------- ----------------------
Standardized
exposure...........
...................
...................
...................
.... $ 2,217 $ 700 $ 1,021 $ 3,938
-------------------- --------------------------- --------------------- -------------------- ----------------------
Total retail loans
portfolios.........
...................
...................
................... $ 99,603 $ 34,842 $ 10,408 $ 144,853
-------------------- --------------------------- --------------------- -------------------- ----------------------
Future accounting changes
We are currently evaluating the impact of adopting the standards
listed below:
Consolidated financial statements
Disclosure of supplementary pro forma information for business
combinations
In December 2010, the FASB issued guidance ASU 2010-29,
"Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations (a consensus of the
FASB Emerging Issues Task Force)." This update clarifies the
acquisition date that should be used for reporting the pro forma
financial information disclosures in FASB ASC 805 when comparative
financial statements are presented and requires additional
quantitative information about the pro forma adjustments. This
update is effective for us prospectively on November 1, 2012.
Repurchase agreements
In April 2011, the FASB issued guidance ASU 2011-03, "Transfers
and Servicing (Topic 860): Reconsideration of Effective Control for
Repurchase Agreements." This update states that the accounting for
a repurchase agreement depends in part on whether the transferor
maintains effective control over the transferred financial assets.
If the transferor maintains effective control, the transferor is
required to account for its repurchase agreement as a secured
borrowing rather than a sale. The FASB concluded that the
assessment of effective control depends on the transferor's
contractual rights and obligations with respect to transferred
financial assets. It does not depend on the transferor's ability,
by way of collateral maintenance agreement, to exercise those
rights or honour those obligations. This update is effective for us
prospectively on February 1, 2012.
Consolidated financial statements
Note 32 Transition to International Financial Reporting Standards
======= =========================================================
Publicly accountable enterprises are required to adopt IFRS for
annual periods beginning on or after January 1, 2011. As a result,
our audited consolidated financial statements for the year ending
October 31, 2012 will be the first annual financial statements that
comply with IFRS, including the application of IFRS 1 "First-time
Adoption of International Financial Reporting Standards". IFRS 1
requires an entity to adopt IFRS in its first annual financial
statements prepared under IFRS by making an explicit and unreserved
statement of compliance with IFRS in those financial statements. We
will make this statement of compliance when we issue our 2012
annual consolidated financial statements.
IFRS 1 also requires that comparative financial information be
provided. As a result, the first day at which we applied IFRS was
as at November 1, 2010 (the Transition Date), and our consolidated
opening IFRS balance sheet was prepared as at this date. The
opening IFRS balance sheet represents our starting point for
financial reporting under IFRS.
In accordance with IFRS 1, we have retrospectively applied our
IFRS accounting policies in the preparation of our opening IFRS
balance sheet as at November 1, 2010. These IFRS accounting
policies are those that we expect to apply in our first annual IFRS
financial statements for the year ending October 31, 2012, although
IFRS 1 provides certain optional exemptions and mandatory
exceptions from retrospective application of IFRS, as described in
Section A, Exemptions and exceptions from retrospective application
of IFRS.
The following information is provided to allow users of the
financial statements to obtain a better understanding of the effect
of the adoption of IFRS on our consolidated financial statements.
The information below includes our opening IFRS balance sheet as at
November 1, 2010, based on the IFRS optional exemptions and
accounting policies that we expect to apply in our first annual
IFRS financial statements. A description of the differences in
accounting policies under IFRS and Canadian GAAP that resulted in
transition adjustments as at November 1, 2010 is provided in
Section B, Differences in accounting policies.
Consolidated financial statements
Opening IFRS consolidated balance sheet and reconciliation to
previously reported Canadian GAAP amounts, as at November 1, 2010
(Transition Date to IFRS)
$ millions, as at Canadian IFRS
November 1, 2010 GAAP adjustments IFRS Note
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
ASSETS
Cash and
non-interest-bearing
deposits with
banks............ $ 2,190 $ (373 ) $ 1,817 C.2
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Interest-bearing
deposits with
banks...............
.................... 9,862 (857 ) 9,005 B.3, B.6
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Securities
Trading.............
....................
....................
....................
.......... 28,557 517 29,074 B.3
Available-for-sale
(AFS)...............
....................
....................
... 26,621 (2,252 ) 24,369 A.5, A.8, B.2-B.4, B.6
Designated at fair
value
(FVO)...............
....................
............. 22,430 (21,555 ) 875 A.5, A.8, B.2, B.4
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
77,608 (23,290 ) 54,318
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Cash collateral on
securities
borrowed............
................... 2,401 - 2,401
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Securities purchased
under resale
agreements..........
........ 34,941 (219 ) 34,722 B.6
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Loans
Residential
mortgages...........
....................
....................
......... 93,568 49,716 143,284 A.8, B.2, B.3
Personal............
....................
....................
....................
......... 34,335 - 34,335
Credit
card................
....................
....................
....................
.. 12,127 3,787 15,914 A.8, B.2, B.9
Business and
government..........
....................
....................
..... 38,582 (636 ) 37,946 A.8, B.2-B.4, B.6, B.8
Allowance for credit
losses..............
....................
.................... (1,720 ) (166 ) (1,886 ) A.8, B.3
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
176,892 52,701 229,593
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Other
Derivative
instruments.........
....................
....................
............ 24,682 18 24,700 B.2, B.3
Customers' liability
under
acceptances.........
....................
...... 7,684 (51 ) 7,633
Land, buildings and
equipment...........
....................
............... 1,660 (92 ) 1,568 B.6, B.7
Goodwill............
....................
....................
....................
......... 1,913 (6 ) 1,907 B.6
Software and other
intangible
assets..............
....................
.... 609 (30 ) 579
Investments in
equity-accounted
associates and joint
ventures 298 168 466 B.6
Other
assets..............
....................
....................
....................
.. 11,300 (701 ) 10,599 Various
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
48,146 (694 ) 47,452
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
$ 352,040 $ 27,268 $ 379,308
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
LIABILITIES AND TOTAL
EQUITY
Deposits
Personal............
....................
....................
....................
......... $ 113,294 $ - $ 113,294
Business and
government..........
....................
....................
..... 127,759 (11,918 ) 115,841 A.8, B.2, B.3, B.6, C.3
Bank................
....................
....................
....................
........... 5,618 - 5,618
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
246,671 (11,918 ) 234,753
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Obligations related
to securities sold
short...............
.......... 9,673 - 9,673 A.8, B.2, B.3
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Cash collateral on
securities
lent................
....................
..... 4,306 - 4,306
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Secured
borrowings..........
....................
....................
............ - 43,814 43,814 A.8, B.2, B.3, C.3
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Capital Trust
securities..........
....................
....................
....... - 1,600 1,600 A.8, B.3
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Obligations related
to securities sold
under repurchase
agreements 23,914 (3,263 ) 20,651 B.2
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Other
Derivative
instruments.........
....................
....................
............ 26,489 (1,126 ) 25,363 A.8, B.2, B.3
Acceptances.........
....................
....................
....................
...... 7,684 (51 ) 7,633
Other
liabilities.........
....................
....................
....................
.. 12,572 (629 ) 11,943 Various
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
46,745 (1,806 ) 44,939
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Subordinated
indebtedness........
....................
....................
.. 4,773 - 4,773
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Non-controlling
interests...........
....................
....................
.... 168 (168 ) - C.1
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Equity(1)
Preferred
shares..............
....................
....................
................ 3,156 - 3,156
Common
shares..............
....................
....................
................ 6,804 - 6,804
Contributed
surplus.............
....................
....................
............ 96 2 98 B.5
Retained
earnings............
....................
....................
.............. 6,095 (1,938 ) 4,157
Accumulated other
comprehensive income
(AOCI)..............
... (361 ) 777 416
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Total shareholders'
equity..............
....................
................... 15,790 (1,159 ) 14,631
Non-controlling
interests...........
....................
....................
...... - 168 168 C.1
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
Total
equity..............
....................
....................
....................
... 15,790 (991 ) 14,799
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
$ 352,040 $ 27,268 $ 379,308
--------------------- ----------------------- -------------------------- ----------------------- ------------------------------------
(1) See Section D - Reconciliation of equity from Canadian GAAP
to IFRS as at the Transition Date.
Consolidated financial statements
Notes to the opening IFRS consolidated balance sheet
A. Exemptions and exceptions from retrospective application of
IFRS
Set forth below are the applicable IFRS 1 optional exemptions
and mandatory exceptions from retrospective application of IFRS
accounting policies that have been applied in the preparation of
the opening IFRS balance sheet.
IFRS optional exemptions
1. Actuarial gains and losses for post-employment defined
benefit plans - Retrospective application of the corridor approach'
under IAS 19 "Employee Benefits" would require us to restate the
accounting for our post-employment defined benefit plans, including
unamortized actuarial gains and losses, from the inception or
acquisition of the plans until the Transition Date as if IAS 19 had
always been applied. However, IFRS 1 permits entities to instead
recognize all unamortized actuarial gains and losses as at the
Transition Date in opening retained earnings, except those related
to subsidiaries that have applied IFRS in their own financial
statements prior to their parent. We elected to apply this
'fresh-start' election, which resulted in the recognition of $1,150
million of after-tax unamortized net actuarial losses on our
defined benefit plans that existed under Canadian GAAP as at
November 1, 2010 through retained earnings. This amount excludes
the unamortized actuarial losses related to CIBC FirstCaribbean
which adopted IFRS prior to CIBC. This transition adjustment,
together with the other employee benefits IFRS adjustments (see
Section B.1), resulted in a decrease in after-tax retained earnings
of $1,080 million.
2. Business combinations - IFRS 3 "Business Combinations"
requires a greater use of fair value measurement in the accounting
for business combinations, including the measurement of
non-controlling interests and contingent consideration. IFRS 3 also
requires the use of the closing date, rather than the announcement
date, to measure share consideration. In addition, transaction
costs and certain restructuring costs that were included in the
purchase price and in the allocation of the purchase price,
respectively, under Canadian GAAP, are required to be expensed
under IFRS. If IFRS 3 was applied retrospectively, these
differences would impact prior purchase price allocations and the
amount of goodwill recognized on the balance sheet. However, IFRS 1
provides the option to (i) apply IFRS 3 prospectively from the
Transition Date, or (ii) apply IFRS 3 prospectively from a date
earlier than the Transition Date, provided that IFRS 3 is applied
consistently to all business combinations occurring between that
date and the Transition Date. We elected to apply IFRS 3
prospectively from the Transition Date, and therefore business
combinations that occurred prior to the Transition Date have not
been restated under IFRS. Accordingly, any goodwill arising on such
business combinations has not been adjusted from the carrying
amount previously determined under Canadian GAAP. Notwithstanding
this exemption, we were required at the Transition Date to evaluate
whether the assets acquired and liabilities assumed in the
pre-Transition Date business combinations met the recognition
criteria in the relevant IFRS, and whether there were any assets
acquired or liabilities assumed in these business combinations that
were not recognized under Canadian GAAP but for which recognition
was required under IFRS. The requirements of IFRS were then applied
to the assets acquired and liabilities assumed from the date of
acquisition to the Transition Date. We applied these requirements,
which resulted in no change to the carrying amount of goodwill
recognized in respect of business combinations that occurred prior
to the Transition Date. In addition, under the 'business
combinations' exemption, we tested the carrying amount of goodwill
and indefinite-lived intangible assets for impairment as at the
Transition Date and determined that there was no impairment at that
date (see Section B.11 for further details).
3. Cumulative foreign currency translation differences -
Retrospective application of IAS 21 "The Effects of Changes in
Foreign Exchange Rates" would require us to determine cumulative
foreign currency translation gains and losses from the date that a
subsidiary or equity-accounted investee was formed or acquired.
However, IFRS 1 permits entities to elect to recognize the
cumulative foreign currency translation adjustments account
included in AOCI for foreign operations with a different functional
currency from that of the parent, including accumulated gains or
losses on hedges of net investments in such foreign operations, in
retained earnings as at the Transition Date. We elected to apply
this 'fresh-start' election, which resulted in an after-tax
decrease in retained earnings of $575 million as at the Transition
Date, with an offsetting increase in AOCI.
4. Borrowing costs - IAS 23 "Borrowing Costs" requires the
capitalization of borrowing costs that are directly attributable to
the acquisition, construction or production of a qualifying asset.
A qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale. We define
"substantial period of time" as greater than one year. However,
IFRS 1
Consolidated financial statements
provides the option to apply IAS 23 prospectively from the
Transition Date, rather than apply it retrospectively.
We elected to apply IAS 23 prospectively and will capitalize
borrowing costs relating to qualifying assets for which the
commencement date of the project is on or after the Transition
Date.
5. Classification of previously recognized financial instruments
- Under certain circumstances, IFRS 1 permits an entity to
designate at the Transition Date a previously recognized financial
asset or financial liability as FVO, or a previously recognized
financial asset as AFS.
We elected to designate previously recognized loans and
receivables with a Canadian GAAP carrying amount of $350 million as
FVO upon transition to IFRS, which resulted in an after-tax
decrease in retained earnings of $58 million as at the Transition
Date. See Section B.4 for further details.
IFRS mandatory exceptions
IFRS 1 prohibits the retrospective application of some
requirements of IFRS. Set forth below are the applicable mandatory
exceptions under IFRS 1 that have been applied in the preparation
of the opening IFRS balance sheet.
6. Hedge accounting - In the opening IFRS balance sheet, only
those hedging relationships that satisfy the hedge accounting
criteria in IAS 39 "Financial Instruments: Recognition and
Measurement" are reflected. Hedging relationships have not been
designated retrospectively and hedge documentation has not been
created retrospectively. Since the hedge accounting relationships
that were effective under Canadian GAAP were also effective under
IAS 39 as at the Transition Date, they are reflected as effective
hedges in the opening IFRS balance sheet. The opening IFRS balance
sheet also reflects cash flow hedges relating to hedges of
share-based payments that are recognized over the performance and
vesting period under IFRS but which are expensed in the performance
period prior to grant under Canadian GAAP (see Section B.5).
7. Estimates - Our estimates in accordance with IFRS as at the
Transition Date are consistent with estimates made at that date in
accordance with Canadian GAAP, with adjustments made only to
reflect any differences in accounting policies. Additional
estimates made under IFRS, that were not required under Canadian
GAAP, were based on the information and conditions that existed as
at the Transition Date. Hindsight was not used to create or revise
estimates.
8. Application of the de-recognition requirements in IAS 39 -
This mandatory exception permits transfers of financial assets that
occurred before the Transition Date to be exempted from the
de-recognition requirements of IAS 39; however, it also provides an
entity with the ability to apply the rules retrospectively to a
date of the entity's choosing. However, OSFI requires that all
regulated financial institutions apply the de-recognition
requirements retrospectively to transfers that occurred on or after
January 1, 2004, with all transfers that occurred before that date
being 'grandfathered'.
B. Differences in accounting policies
In addition to the exemptions and exceptions discussed above,
the following narratives explain the significant differences
between the Canadian GAAP accounting policies and the IFRS policies
applied in preparing the opening IFRS balance sheet, and the impact
thereof.
1. Employee benefits
Asset ceiling
Canadian GAAP - When plan assets exceed the accrued benefit
obligation of a defined benefit plan giving rise to a plan surplus,
a valuation allowance is recognized for any excess of the surplus
over the expected future economic benefit arising from the asset.
The accrued benefit asset is presented net of the valuation
allowance.
IFRS - Similar to Canadian GAAP, IAS 19 limits the recognition
of a surplus to the expected future economic benefit arising from
the asset (the 'asset ceiling'). However, the IAS 19 methodology
for calculating the expected future economic benefit differs from
that under Canadian GAAP.
As a result of the more specific guidance under IAS 19, a lower
valuation allowance was recognized for two pension plans as at the
Transition Date, with a corresponding increase in retained
earnings.
Past service costs
Canadian GAAP - Past service costs from plan amendments are
amortized on a straight-line basis over the expected average
remaining service period over which employees become fully eligible
for benefits.
IFRS - Past service costs from plan amendments are amortized on
a straight-line basis over the vesting period or, if the amended
benefits vest immediately, the expense is recognized immediately in
net income.
Consolidated financial statements
For unrecognized past service costs as at the Transition Date
that related to vested benefits, an adjustment was recorded to
recognize this amount with a corresponding adjustment in retained
earnings.
For unrecognized past service costs as at the Transition Date
that related to unvested benefits, an adjustment was recorded to
decrease the unrecognized amount to the amount that would have
existed as at the Transition Date had the IFRS policy always been
applied.
Attribution of cost for other post-employment benefits
Canadian GAAP - The attribution period for post-employment
medical and dental benefits that vest upon age and consecutive
years of service is the employee's service life from the date of
hire up to the date of full eligibility.
IFRS - The attribution period for such post-employment medical
and dental benefits that do not accrue with service (i.e., that
vest upon age and consecutive years of service) is from the date
that service first leads to benefits under the plan up to the date
of full eligibility. The date when service first leads to benefits
may be later than the date of hire, resulting in recognition of the
obligation at a later date under IFRS and recognition of the
obligation and expense over a shorter period. The difference in
attribution of other post-employment benefits resulted in a
decrease in the defined benefit obligation as at the Transition
Date, with a corresponding increase in retained earnings.
As a result of the differences noted above and our 'fresh-start'
election discussed in Section A.1, the net impact was an increase
in our net defined benefit liability and an after-tax decrease in
retained earnings of $1,080 million as at the Transition Date.
2. Securitized mortgages
Canadian GAAP - Securitizations, including transfers of
financial assets to QSPEs, are accounted for as sales when we
surrender control of the transferred financial assets and receive
consideration other than beneficial interests in the transferred
financial assets. The amount of the gain or loss recognized depends
on the previous carrying amounts of the financial assets involved
in the transfer, allocated between the assets sold and retained
interests based on their relative fair values at the date of
transfer. Government-guaranteed mortgage securitizations in which
we retain all of the beneficial interests of the securitization are
reclassified from Loans - residential mortgages to MBS accounted
for as FVO securities.
IFRS - Under IAS 39, the determination of whether a financial
asset can be de-recognized under a sale transaction is based on
both the transfer of risks and rewards and control rather than just
on whether the transferor has surrendered control. As a result,
securitization transactions are more likely to be accounted for as
secured borrowings than as sales. Additionally, a transferor is not
permitted to reclassify financial instruments under
government-guaranteed mortgage securitizations from loans to
securities.
As discussed in Section A.8, we have applied the de-recognition
requirements of IAS 39 retrospectively to transfers that occurred
on or after January 1, 2004. As at the Transition Date, this change
in accounting for sold MBS and for MBS inventory resulted in an
increase to consolidated assets of $27.4 billion, mainly to
recognize residential mortgages, net of the elimination of the
retained interest, and an increase of $27.5 billion to consolidated
liabilities to recognize the associated funding liabilities in
Secured borrowings in respect of MBS sold. In addition, since the
creation of MBS held as inventory is not considered to be an
accounting event under IFRS, MBS inventory previously accounted for
as FVO securities is now accounted for as Loans - residential
mortgages measured at amortized cost of $20.1 billion.
As a result, an after-tax decrease of $131 million was
recognized in retained earnings and an after-tax decrease of $34
million was recognized in AOCI as at the Transition Date in respect
of the recognition of the mortgages and secured borrowings at
amortized cost (including the re-establishment of related
origination and other amortized cost adjustments), and the
elimination of Canadian GAAP accounting for retained interests,
service liabilities, mark-to-market gains and losses on seller
swaps with a government sponsored securitization trust, and the
elimination of mark-to-market gains and losses on the MBS inventory
in respect of residential mortgages securitized through the
creation of MBS under the NHA MBS program.
3. Consolidation
Canadian GAAP - We determine whether we should consolidate an
entity using one of two different frameworks: the voting interest
model or, when the entity is a VIE, the variable interest model. If
an entity is not a VIE, then the analysis of consolidation is based
on whether we have control over the entity, being the continuing
power to govern the financial and operating policies of the entity
so as to obtain benefits from its activities and be exposed to
related risks. Control is presumed to exist when we own, directly
or indirectly through subsidiaries, greater than 50% of the voting
interests.
Consolidated financial statements
Under the variable interest model, consolidation is based on an
analysis of whether we are the primary beneficiary. The primary
beneficiary is the enterprise that absorbs a majority of the VIE's
expected losses or receives a majority of the VIE's expected
residual returns, or both. QSPEs are excluded from the scope of the
variable interest model and are exempted from consolidation under
the voting interest model.
IFRS - Under IFRS, the requirements for consolidation are based
on control under the voting interest model as set out in IAS27
"Consolidated and Separate Financial Statements." Control is
defined as the power to govern the financial and operating policies
of an entity so as to obtain benefit from its activities. Control
is presumed to exist when we own, directly or indirectly through
subsidiaries, greater than 50% of an entity's voting interests, but
also exists when we own 50% or less of the voting interests but
have legal or contractual rights that give rise to control, or de
facto control.
IFRS does not have the concept of a VIE. However, IFRS has the
concept of an SPE, which is an entity created to accomplish a
narrow and well-defined objective. As many of the traditional
indicators of control, as set out in IAS 27, are not present in an
SPE, additional guidance is provided in SIC-12 "Consolidation -
Special Purpose Entities" and the SPE is consolidated when the
criteria in SIC-12 are met. Those criteria require that the SPE be
consolidated when we have control in the form of decision-making
powers over the SPE and have the rights to obtain the majority of
the benefits of the SPE or are exposed to the majority of the
residual or ownership risks related to the SPE.
Based on the SIC-12 criteria, we consolidated CIBC Capital Trust
which resulted in the de-recognition of the senior deposit notes
issued to the Trust, reported as Deposits - business and
government, and the recognition of the Capital Trust securities
issued by CIBC Capital Trust as a liability, with no impact to
retained earnings. Additionally, we de-consolidated certain other
SPEs where the criteria of SIC-12 were not met.
Furthermore, IFRS does not have the concept of a QSPE which are
considered to be SPEs under IFRS and are analyzed for consolidation
under SIC-12. Under the SIC-12 criteria, entities that previously
were QSPEs under Canadian GAAP have been consolidated under IFRS,
including CARDS II Trust, Broadway Trust and Crisp Trust.
As at the Transition Date, the impact of the consolidation of
additional entities was an increase in consolidated assets of $3.8
billion and an increase in consolidated liabilities of $3.9
billion, mainly associated with the commercial paper funding
liabilities in Secured borrowings, and an after-tax
decrease in retained earnings of $128 million and an $8 million
after-tax decrease in AOCI. The impact of de-consolidation of SPEs
was a decrease to consolidated assets and liabilities of $827
million, with no retained earnings impact.
4. Financial instruments: recognition and measurement
Measurement of private AFS equity instruments
Canadian GAAP - AFS equity instruments that are not quoted in an
active market (e.g., investments in private companies) are measured
at cost less accumulated impairment losses.
IFRS - Under IAS 39, AFS financial assets that are not quoted in
an active market are measured at fair value, unless fair value
cannot be reliably measured.
A $328 million adjustment was made to increase the carrying
amount of AFS equity instruments to fair value as at the Transition
Date, with a corresponding after-tax increase of $201 million in
AOCI.
Foreign exchange gains and losses on AFS debt instruments
Canadian GAAP - Foreign exchange gains and losses attributable
to AFS debt instruments are recognized in OCI.
IFRS - Foreign exchange gains and losses attributable to AFS
debt instruments are recognized in net income under IAS 39.
This difference resulted in a transfer of the related after-tax
foreign exchange gains on these assets of $5 million from AOCI to
retained earnings as at the Transition Date.
Impairment of AFS equity instruments
Canadian GAAP - We hold AFS equity investments that are subject
to impairment assessments subsequent to initial recognition.
Expected future recovery is a consideration in our assessment of an
"other-than-temporary" impairment in the context of whether the
decline in fair value of the investment is "significant or
prolonged". In addition, when an investment is determined to be
impaired and its carrying amount has been written down to its then
fair value, it becomes its new cost base and measurement basis for
subsequent impairment assessments.
We also hold certain investment grade perpetual preferred shares
that are classified as AFS equity instruments, for which the
impairment assessment is conducted under a debt impairment model in
accordance with the SEC guidance for perpetual preferred shares
that are investment grade. We did not recognize any impairment on
our perpetual preferred shares.
Consolidated financial statements
IFRS - IAS 39 does not permit consideration of expected future
recovery for the purpose of assessing impairment for AFS equity
investments in the context of determining whether a decline in fair
value is significant or prolonged. In addition, IAS 39 requires
that, once an AFS equity instrument is impaired, any future decline
in fair value is recognized in net income. This resulted in
incremental impairment charges of $14 million in retained earnings
and an after-tax increase of $10 million in AOCI as at the
Transition Date.
Under IFRS, an entity has an accounting policy choice to use
either the "equity" or "debt" impairment model for assessing
impairment for investment grade perpetual preferred shares
classified as AFS. Once a policy choice is made, it should be
followed consistently for all such investment grade perpetual
preferred shares. We elected to follow the equity impairment model
for these shares. By applying the equity impairment model
retrospectively, the "significant or prolonged" threshold was
breached for certain AFS investment grade perpetual preferred
shares prior to the Transition Date, which resulted in an after-tax
impairment charge of $36 million under IFRS that was recognized as
a decrease in retained earnings as at the Transition Date, with a
corresponding increase in AOCI.
Reclassification of financial instruments
Canadian GAAP - Prior to the amendments to CICA handbook section
3855 issued in July 2009, Canadian GAAP required all loans to be
measured at amortized cost and explicitly precluded loans from
being measured at fair value through profit or loss unless the
loans were designated as FVO. As a result, we had classified
certain leveraged loans
that were originated prior to 2009 as loans and receivables
measured at amortized cost even though we had the near-term
intention to sell them at initial recognition.
IFRS - Under IAS 39, loans that an entity has an intention to
sell in the near term at initial recognition are required to be
classified as held-for-trading and measured at fair value through
profit or loss. In addition, IAS 39 was amended in 2008 to allow
reclassification of financial assets that were classified as
trading into loans and receivables if certain criteria were met or,
under "rare circumstances", into AFS. As a result of applying IAS
39 retrospectively to the leveraged loans and applying the
reclassification provisions in IAS 39, the leveraged loans continue
to be classified as loans and receivables under IFRS. However, a
transitional adjustment was required in respect of the period from
initial recognition to July 1, 2008 when the loans would have been
classified as trading under IFRS but were classified as loans and
receivables and measured at amortized cost under Canadian GAAP.
This adjustment, including the accretion that would have occurred
prior to the Transition Date, resulted in a reduction of $38
million to the carrying amount of these loans with an after-tax
decrease in retained earnings of $27 million as at the Transition
Date.
Furthermore, as discussed in Section A.5, in applying the IFRS 1
requirements and optional exemptions for previously recognized
financial instruments, entities are required to apply the IAS 39
criteria for financial instruments classification in preparing the
opening IFRS balance sheet. As a result, we reclassified certain
financial instruments as at the Transition Date as follows:
$ millions Canadian GAAP IFRS
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
After-tax
Carrying Carrying retained earnings
value as at value as at decrease as at
Classification October 31, 2010 Classification November 1, 2010 November 1, 2010
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
FVO loans at Trading
fair loans
value.........
.............. at fair
......... $ 11 value $ 11 Nil
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
FVO loans at
fair
value.........
.............. Loans and receivables
......... 9 at amortized cost 9 Nil
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
FVO
Loans and securities
receivables at
amortized at fair
cost..... 350 value 270 $ 58
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
AFS securities
at fair
value......... Loans and receivables
..............
... 8 at amortized cost 8 Nil
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
Trading AFS
securities at securities
fair
value......... at fair
............ 1 value 1 Nil
--------------- -------------------------------- ----------------------------- --------------------------------- ---------------------------------
Consolidated financial statements
5. Share-based payments
Period of recognition of expense
Canadian GAAP - The estimated grant-date fair value of
share-based payments are recognized in their entirety in the year
preceding the grant date if the award is for performance during
that year.
IFRS - Under IFRS 2 "Share-based Payment", for awards for which
the service commencement date precedes the grant date (e.g., the
award includes a performance year preceding the grant date), the
grant date fair value is recognized over the period from the
service commencement date (i.e., the beginning of the performance
year preceding the grant date) to the vesting date. For such
awards, the share-based payment expense is recognized over a longer
period under IFRS. Retention awards are recognized over the vesting
period, consistent with the treatment under Canadian GAAP.
Forfeitures
Canadian GAAP - Forfeitures of awards due to the failure to
satisfy service or non-market vesting conditions are recognized as
incurred.
IFRS - The impact of such forfeitures is estimated initially at
the grant date of the award (or at the service commencement date if
earlier), and the forfeiture estimate is adjusted if subsequent
information indicates that actual forfeitures are likely to differ
from the initial estimate. As a result, the carrying amount of the
liability for cash-settled awards is lower under IFRS as it
reflects an estimate of forfeitures at the reporting date.
As a result of the differences noted above, the net impact was a
pre-tax decrease of $150 million in liabilities, with an offsetting
after-tax increase of $103 million and $2 million in retained
earnings and AOCI, respectively, and an after-tax increase in
contributed surplus of $2 million as at the Transition Date.
6. Joint venture accounting
Canadian GAAP - Interests in jointly controlled entities are
proportionately consolidated. Additionally, previous versions of
Canadian GAAP required the amortization of goodwill including that
recognized under joint venture agreements.
IFRS - Under IAS 31 "Interests in Joint Ventures," interests in
jointly-controlled entities may be accounted for using either
proportionate consolidation or the equity method of accounting. We
elected to apply the equity method for our jointly controlled
investments. The transition to the equity method had no impact on
retained earnings as at the Transition Date, but resulted in a
decrease in consolidated assets and liabilities of $2.2 billion.
Furthermore, due to our
transition to the equity method under IFRS, amortization of
goodwill previously recognized under proportionate consolidation
was reversed, resulting in an after-tax increase of $6 million in
retained earnings as at the Transition Date.
7. Finance leases
Canadian GAAP - Under Canadian GAAP, we were deemed to be the
owner of land and building for a certain property, as well as the
holder of the associated debt. We initially recognized the land and
building at cost and recognized the initial carrying amount of the
debt at the same amount as the land and building. In addition, as
deemed owner, we depreciated the building over a period of 40
years, and no depreciation was recognized in respect of the
land.
IFRS - Under IAS 17 "Leases", we are required to recognize an
asset and liability underlying a finance lease for the above noted
property. The land and building and the corresponding liability are
measured at the present value of the minimum lease payments, which
is lower than the carrying amount of the land and building. This is
because both the land and building are depreciated over the 30 year
term of the lease. This resulted in an after-tax decrease in
retained earnings of $17 million as at the Transition Date,
reflecting higher cumulative IFRS depreciation expense up to the
Transition Date, which was partially offset by lower cumulative
IFRS interest expense.
8. Leveraged leases
Canadian GAAP - Under Canadian GAAP, a change in the estimated
timing of cash flows relating to income taxes results in a
recalculation of the timing of income recognition from leveraged
leases in accordance with the guidance set out in EIC-46 "Leveraged
Leases".
IFRS - Our investments in leveraged leases are classified as
loans and are measured at amortized cost using the effective
interest method. Income is measured on a constant yield basis using
the effective interest rate determined at the inception of the
lease. This resulted in an increase in Loans - business and
government of $37 million along with an after-tax increase in
retained earnings of $20 million as at the Transition Date.
9. Customer loyalty awards
Canadian GAAP - At the time customer loyalty awards under
self-managed credit card reward programs are granted, the expected
cost to fulfill award obligations are recognized as a liability and
a reduction in related revenue. When the customer redeems the
award, the liability is reduced by the actual cost of the
award.
Consolidated financial statements
For some of our credit cards, we provide our customers with
loyalty awards at the time that they activate a new card. The cost
of these awards are deferred and amortized.
IFRS - At the time that customer loyalty awards are granted
under self-managed credit card reward programs, the estimated fair
value of the awards expected to be redeemed is recognized as a
liability and a reduction in related revenue. When we have
satisfied our obligation related to the awards, the liability is
recognized as an expense in net income.
Loyalty awards granted at the time customers activate a new card
are expensed under IFRS rather than being deferred and
amortized.
The differences relating to loyalty awards resulted in an
after-tax decrease in retained earnings of $6 million as at the
Transition Date.
10. Loan loss accounting
Canadian GAAP - An impaired loan is measured at its estimated
realizable value determined by discounting the expected future cash
flows at the loan's effective interest rate. The unwinding of the
time value of money (discounting of future cash flows) can be
recognized as either a credit to the provision or as interest
income. We elected to recognize the unwinding of the time value of
money as a credit to the provision.
In addition, allowances for credit losses are classified as
either specific allowances or as general allowances. Specific
allowances are recognized when impairment has been identified for
loans that are either assessed individually or assessed
collectively. General allowances are established for groups of
loans where impairment is inherent but not specifically
identified.
IFRS - Under IAS 39, an impaired loan is also measured at its
estimated realizable value determined by discounting the expected
future cash flows at the loan's effective interest rate. However,
under IFRS the unwinding of the time value of money is recognized
as interest income. This difference did not impact the opening IFRS
balance sheet.
Under IFRS, allowances for credit losses are classified as
either individual allowances or collective allowances. For loans
that are considered individually significant, the assessment of
impairment is performed on an account-by-account basis and the
resulting allowances, if any, are classified as individual
allowances. Impairment is collectively assessed in two
circumstances:
-- For groups of individually assessed loans for which no
objective evidence of impairment has been identified on an
individual basis; and
-- For groups of loans that are considered to be not
individually significant.
The difference in classification did not result in a
transitional adjustment. However, the Canadian GAAP category of
general allowance for all loans has been re-characterized as
collective allowance under IFRS, and the specific allowance for
collectively assessed loans also has been re-characterized as
collective allowance under IFRS. The specific allowance for
individually assessed loans has been re-characterized as individual
allowance.
11. Impairment of goodwill and other intangible assets
Canadian GAAP - For the purpose of impairment testing, goodwill
is allocated to reporting units which are defined as an operating
segment or one level below an operating segment.
The impairment test for goodwill is based on a comparison of the
carrying amount of the reporting unit, including the allocated
goodwill, with its fair value. When the carrying amount of a
reporting unit exceeds its fair value, any impairment of goodwill
is measured by comparing the carrying amount of the goodwill with
its implied fair value. The implied fair value of goodwill is the
excess of the fair value of the reporting unit over the fair value
of the net tangible and other intangible assets of the reporting
unit.
The impairment test for other intangible assets is based on
comparison of the carrying amount of the intangible asset with its
fair value. An impairment loss is recognized in net income for the
excess of the carrying amount of the intangible asset over its fair
value.
IFRS - As discussed in Section A.2, the carrying amount of
goodwill arising on business combinations occurring before the
Transition Date has not been adjusted.
Under IAS 36 "Impairment of Assets", goodwill is allocated to
cash-generating units (CGUs) or groups of CGUs that are expected to
benefit from the synergies of the business combination. CGUs are
defined as the smallest group of assets that generate cash inflows
from continuing use that are largely independent of the cash
inflows of other assets or groups thereof. The allocation of
goodwill as at the Transition Date to CGUs or groups of CGUs under
IFRS is broadly similar to the allocation of goodwill to reporting
units under Canadian GAAP.
The impairment test for goodwill is based on a comparison of the
carrying amount of the CGU or groups of CGUs, including the
allocated goodwill, with the recoverable amount of the CGU or
groups of CGUs. The recoverable amount is the greater of fair value
less cost to sell and value in use.
Consolidated financial statements
Value in use is the present value of the future cash flows
expected to be derived from the CGU or groups of CGUs. The
impairment loss is calculated as the excess of the carrying amount
over the recoverable amount.
The impairment test for other intangible assets is also based on
a comparison of the carrying amount with the recoverable amount
related to that asset. If the recoverable amount is lower than
carrying amount, then the excess of the carrying amount over the
recoverable amount is recognized as an impairment loss.
Under IFRS 1, the carrying amount of indefinite-lived intangible
assets and goodwill were tested for impairment as at the Transition
Date (see Section A.2), and no impairment loss was recognized.
In addition, the carrying amount of CGUs to which goodwill has
been allocated and other indefinite-lived intangible assets is
required to be tested for impairment annually, or at each reporting
date when there is an indication of a possible impairment. The
carrying amount of goodwill arising on the acquisition of CIBC
FirstCaribbean was allocated to the consolidated CIBC
FirstCaribbean CGU under IFRS, which is consistent with the
allocation of goodwill to the CIBC FirstCaribbean reporting unit
under Canadian GAAP. In the third quarter of 2011 impairment
testing was performed under both Canadian GAAP and IFRS. Under
Canadian GAAP, the implied fair value of CIBC FirstCaribbean's
goodwill was greater than its carrying amount and no impairment
loss was recognized.
Under IFRS, the estimated recoverable amount of the CIBC
FirstCaribbean CGU was determined to be lower than the carrying
amount, and as a result an impairment loss of approximately $200
million was recognized in the third quarter of 2011under IFRS.
The estimated recoverable amount of the CIBC FirstCaribbean CGU
was based on its value in use, which was estimated using an
internally developed discounted future cash flow valuation model
taking into account entity specific cash flows. This test is
similar to the step 1 fair value test under Canadian GAAP.
C. Other presentation reclassifications
1. Non-controlling interests
Under Canadian GAAP, minority interests in subsidiaries are
classified outside of shareholders' equity. Under IFRS, minority
interests are referred to as non-controlling interests, and
non-controlling interests are classified as equity, and are
presented separately within total equity.
2. Precious metals
Under Canadian GAAP, we included precious metals in the balance
sheet under Cash and non-interest-bearing deposits with banks,
whereas under IFRS, we have included precious metals in Other
assets. As a result, $373 million of precious metals were
reclassified from Cash and non-interest-bearing deposits with banks
to Other assets as at the Transition Date.
3. Covered bond liabilities
Under Canadian GAAP, we included covered bond liabilities in the
balance sheet under Deposits - business and government, whereas
under IFRS, we have included the covered bond liabilities in
Secured borrowings. As a result, $6.4 billion of covered bond
liabilities were reclassified from Deposits - business and
government to Secured borrowings as at the Transition Date.
D. Reconciliation of equity from Canadian GAAP to IFRS as at the
Transition Date
Total Non-
$ millions, as at Retained Other shareholders' controlling Total
November 1, 2010 earnings AOCI equity equity interest equity Note
----------------- --------------------- ----------------- ------------------- ---------------------------- -------------------- --------------------- --------------
As reported
under Canadian
GAAP......... $ 6,095 $ (361 ) $ 10,056 $ 15,790 $ - $ 15,790
Employee
benefits........
................
............ (1,080 ) - - (1,080 ) - (1,080 ) A.1, B.1
Securitized
mortgages.......
................
....... (131 ) (34 ) - (165 ) - (165 ) A.8, B.2
Consolidation...
................
................
......... (128 ) (8 ) - (136 ) - (136 ) A.8, B.3
Measurement of
private AFS
equity
investments.....
................
................
..... - 201 - 201 - 201 B.4
Foreign exchange
gains and losses
on AFS debt
instruments.....
................
...... 5 (5 ) - - - - B.4
Impairment of AFS
equity
investments.....
. (50 ) 46 - (4 ) - (4 ) B.4
Reclassification
of financial
instruments.... (85 ) - - (85 ) - (85 ) A.5, B.4
Share-based
payments........
................
...... 103 2 2 107 - 107 B.5
Joint venture
accounting......
................
..... 6 - - 6 - 6 B.6
Foreign currency
translation
adjustments.. (575 ) 575 - - - - A.3
Finance leases
and leveraged
leases........ 3 - - 3 - 3 B.7, B.8
Customer loyalty
points..........
................
... (6 ) - - (6 ) - (6 ) B.9
Presentation of
non-controlling
interest as
equity..........
................
................
........ - - - - 168 168 C.1
----------------- --------------------- ----------------- ------------------- ---------------------------- -------------------- --------------------- --------------
$ (1,938 ) $ 777 $ 2 $ (1,159 ) $ 168 $ (991 )
----------------- --------------------- ----------------- ------------------- ---------------------------- -------------------- --------------------- --------------
As reported under
IFRS $ 4,157 $ 416 $ 10,058 $ 14,631 $ 168 $ 14,799
----------------- --------------------- ----------------- ------------------- ---------------------------- -------------------- --------------------- --------------
Quarterly review
Condensed consolidated statement of operations
Unaudited, $ millions, 2011 2010
for the quarter Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Net interest
income................
................ $ 1,605 $ 1,607 $ 1,528 $ 1,610 $ 1,645 $ 1,548 $ 1,497 $ 1,514
Non-interest
income................
............... 1,597 1,450 1,361 1,491 1,609 1,301 1,424 1,547
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Total
revenue...............
......................
... 3,202 3,057 2,889 3,101 3,254 2,849 2,921 3,061
Provision for credit
losses................
....... 243 195 194 209 150 221 316 359
Non-interest
expenses..............
.............. 1,914 1,820 1,794 1,822 1,860 1,741 1,678 1,748
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Income before income
taxes and
non-controlling
interests.............
............. 1,045 1,042 901 1,070 1,244 887 927 954
Income tax
expense...............
................ 249 231 221 268 742 244 261 286
Non-controlling
interests.............
........... 2 3 2 3 2 3 6 16
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Net
income................
......................
...... 794 808 678 799 500 640 660 652
Preferred share
dividends and
premiums..............
......................
..................... 38 55 42 42 42 42 43 42
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Net income applicable
to common
shares................
......................
......... $ 756 $ 753 $ 636 $ 757 $ 458 $ 598 $ 617 $ 610
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Condensed consolidated balance sheet
Unaudited, $ millions, 2011 2010
as at quarter end Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Assets
Cash and deposits with
banks................. $ 6,297 $ 21,524 $ 37,405 $ 20,915 $ 12,052 $ 14,413 $ 7,936 $ 8,290
Securities............
......................
............. 82,073 74,039 84,081 82,075 77,608 77,636 66,994 76,044
Securities borrowed or
purchased under resale
agreements............
................ 27,840 35,394 38,853 41,011 37,342 32,084 39,466 32,497
Residential
mortgages..
...........
...........
Loans... .... 99,603 101,293 97,123 94,045 93,568 96,049 93,942 89,605
Personal and credit
card.................
..... 45,250 44,554 44,771 44,790 46,462 45,601 46,556 46,181
Business and
government.......... 41,812 40,431 39,596 40,221 38,582 38,001 38,239 39,296
Allowance for credit
losses...............
.... (1,647 ) (1,650 ) (1,686 ) (1,700 ) (1,720 ) (1,973 ) (2,002 ) (1,964 )
Derivative
instruments...........
................. 28,259 24,176 21,248 19,526 24,682 23,886 21,830 23,563
Customers' liability
under acceptances.. 9,361 8,964 8,365 7,905 7,684 7,309 7,001 6,997
Other
assets................
......................
..... 14,851 13,854 14,350 14,431 15,780 16,594 16,039 16,730
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
$ 353,699 $ 362,579 $ 384,106 $ 363,219 $ 352,040 $ 349,600 $ 336,001 $ 337,239
---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Liabilities and
shareholders' equity
Personal...
...........
Deposits ...... $ 116,592 $ 115,063 $ 114,282 $ 113,400 $ 113,294 $ 113,059 $ 111,865 $ 111,237
Business and
government.......... 134,636 139,308 153,548 137,523 127,759 118,207 108,469 105,920
Bank.................
......... 4,181 6,956 10,772 8,060 5,618 6,836 6,459 7,112
Derivative
instruments...........
................. 29,807 24,059 22,446 20,686 26,489 26,287 24,060 25,686
Acceptances...........
......................
......... 9,396 8,964 8,365 7,905 7,684 7,309 7,001 6,997
Obligations related to
securities lent or
sold short or under
repurchase
agreements............
......................
.... 24,622 34,151 40,569 41,639 37,893 43,646 45,899 49,242
Other
liabilities...........
......................
..... 11,823 12,051 12,376 11,441 12,572 12,012 10,607 10,441
Subordinated
indebtedness..........
......... 5,138 5,153 5,150 6,225 4,773 6,067 6,063 5,119
Preferred share
liabilities...........
............ - - - - - 600 600 600
Non-controlling
interests.............
........... 164 156 156 163 168 165 168 171
Shareholders'
equity................
.............. 17,340 16,718 16,442 16,177 15,790 15,412 14,810 14,714
----------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
$ 353,699 $ 362,579 $ 384,106 $ 363,219 $ 352,040 $ 349,600 $ 336,001 $ 337,239
---------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------
Select financial measures
Unaudited, as at or for the 2011 2010
quarter Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
--------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Return on
equity..........................
..... 20.6 % 21.5 % 19.9 % 23.3 % 14.6 % 19.8 % 22.2 % 21.5 %
Return on average
assets.................. 0.86 % 0.86 % 0.76 % 0.89 % 0.56 % 0.72 % 0.81 % 0.76 %
Average common shareholders'
equity ($
millions).......................
. $ 14,586 $ 13,891 $ 13,102 $ 12,870 $ 12,400 $ 11,994 $ 11,415 $ 11,269
Average assets ($
millions)................ $ 366,236 $ 371,433 $ 368,058 $ 354,267 $ 355,868 $ 353,092 $ 333,589 $ 340,822
Average assets to average common
equity..........................
................ 25.1 26.7 28.1 27.5 28.7 29.4 29.2 30.2
Tier 1 capital
ratio...........................
. 14.7 % 14.6 % 14.7 % 14.3 % 13.9 % 14.2 % 13.7 % 13.0 %
Total capital
ratio...........................
.. 18.4 % 18.7 % 18.9 % 18.4 % 17.8 % 18.1 % 18.8 % 17.1 %
Net interest
margin..........................
. 1.74 % 1.72 % 1.70 % 1.80 % 1.83 % 1.74 % 1.84 % 1.76 %
Efficiency
ratio...........................
....... 59.8 % 59.6 % 62.1 % 58.8 % 57.2 % 61.1 % 57.5 % 57.1 %
--------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Common share information
Unaudited, as at or for the 2011 2010
quarter Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
--------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Average shares outstanding
(thousands).....................
............. 399,105 397,232 395,373 393,193 391,055 388,815 386,865 384,442
Per
share...
.. * basic earnings $ 1.90 $ 1.90 $ 1.61 $ 1.92 $ 1.17 $ 1.54 $ 1.60 $ 1.59
- diluted earnings 1.89 1.89 1.60 1.92 1.17 1.53 1.59 1.58
* dividends....... 0.90 0.87 0.87 0.87 0.87 0.87 0.87 0.87
* book value(1) ... 36.41 35.01 33.47 32.98 32.17 31.36 30.00 29.91
Share * high...........
price(2) .... 76.50 84.45 85.49 81.05 79.50 75.40 77.19 70.66
* low................. 67.84 72.75 76.75 75.12 66.81 65.91 63.16 61.96
* close.............. 75.10 72.98 81.91 76.27 78.23 70.60 74.56 63.90
Dividend payout
ratio....................... 47.5 % 45.9 % 54.1 % 45.2 % 74.3 % 56.7 % 54.5 % 54.8 %
--------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
(1) Common shareholders' equity divided by the number of common
shares issued and outstanding at end of quarter.
(2) The high and low price during the period, and closing price
on the last trading day of the period, on the TSX.
Ten-year statistical review
Condensed consolidated statement of operations
Unaudited, $
millions, for
the year ended
October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Net interest
income.........
....... $ 6,350 $ 6,204 $ 5,394 $ 5,207 $ 4,558 $ 4,435 $ 4,937 $ 5,258 $ 5,517 $ 5,389
Non-interest
income.........
...... 5,899 5,881 4,534 (1,493 ) 7,508 6,916 7,561 6,573 5,924 5,541
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Total
revenue........
...............
. 12,249 12,085 9,928 3,714 12,066 11,351 12,498 11,831 11,441 10,930
Provision for
credit
losses....... 841 1,046 1,649 773 603 548 706 628 1,143 1,500
Non-interest
expenses.......
..... 7,350 7,027 6,660 7,201 7,612 7,488 10,865 8,307 8,106 9,129
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Income (loss)
before income
taxes and
non-controlling
interests......
...............
....... 4,058 4,012 1,619 (4,260 ) 3,851 3,315 927 2,896 2,192 301
Income tax
expense
(benefit). 969 1,533 424 (2,218 ) 524 640 789 790 239 (279 )
Non-controlling
interests......
.. 10 27 21 18 31 29 170 15 3 38
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Net income
(loss).........
.......... $ 3,079 $ 2,452 $ 1,174 $ (2,060 ) $ 3,296 $ 2,646 $ (32 ) $ 2,091 $ 1,950 $ 542
Preferred share
dividends and
premiums.......
...............
... 177 169 162 119 171 132 125 100 75 50
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Net income
(loss)
applicable to
common
shares.........
... $ 2,902 $ 2,283 $ 1,012 $ (2,179 ) $ 3,125 $ 2,514 $ (157 ) $ 1,991 $ 1,875 $ 492
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Condensed consolidated balance sheet
Unaudited, $
millions, as at
October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Assets
Cash and
deposits with
banks. $ 6,297 $ 12,052 $ 7,007 $ 8,959 $ 13,747 $ 11,853 $ 11,852 $ 12,203 $ 10,454 $ 9,512
Securities.....
...............
........... 82,073 77,608 77,576 79,171 86,500 83,498 67,764 67,316 69,628 64,273
Securities
borrowed or
purchased under
resale
agreements.....
...............
.. 27,840 37,342 32,751 35,596 34,020 25,432 18,514 18,165 19,829 16,020
Loans...........
................
..........
Residential
mortgages..
.... 99,603 93,568 86,152 90,695 91,664 81,358 77,216 72,592 70,014 66,612
Personal and
credit
card... 45,250 46,462 45,677 42,953 38,334 35,305 34,853 35,000 32,695 30,784
Business and
government. 41,812 38,582 37,343 39,273 34,099 30,404 31,350 31,737 33,177 41,961
Allowance
for credit
losses (1,647 ) (1,720 ) (1,960 ) (1,446 ) (1,443 ) (1,442 ) (1,636 ) (1,825 ) (1,952 ) (2,288 )
Derivative
instruments....
........ 28,259 24,682 24,696 28,644 24,075 17,122 20,309 23,710 22,796 24,717
Customers'
liability under
acceptances....
...............
.. 9,361 7,684 8,397 8,848 8,024 6,291 5,119 4,778 5,139 6,848
Other
assets.........
...............
... 14,851 15,780 18,305 21,237 13,158 14,163 15,029 15,088 15,367 14,854
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
$ 353,699 $ 352,040 $ 335,944 $ 353,930 $ 342,178 $ 303,984 $ 280,370 $ 278,764 $ 277,147 $ 273,293
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Liabilities and
shareholders'
equity
Deposits........
................
.........
Personal...
...........
...........
.. $ 116,592 $ 113,294 $ 108,324 $ 99,477 $ 91,772 $ 81,829 $ 75,973 $ 73,392 $ 70,085 $ 68,297
Business and
government. 134,636 127,759 107,209 117,772 125,878 107,468 106,226 105,362 105,885 117,664
Bank.......
...........
...........
.... 4,181 5,618 7,584 15,703 14,022 13,594 10,535 11,823 12,160 10,669
Derivative
instruments....
........ 29,807 26,489 27,162 32,742 26,688 17,330 20,128 23,990 21,945 24,794
Acceptances....
...............
....... 9,396 7,684 8,397 8,848 8,249 6,297 5,119 4,778 5,147 6,878
Obligations
related to
securities lent
or sold short
or under
repurchase
agreements.....
...............
.. 24,622 37,893 43,369 44,947 42,081 44,221 29,208 29,010 30,952 18,051
Other
liabilities....
...............
... 11,823 12,572 13,693 13,167 13,728 14,716 16,002 13,258 13,976 10,869
Subordinated
indebtedness... 5,138 4,773 5,157 6,658 5,526 5,595 5,102 3,889 3,197 3,627
Preferred share
liabilities....
... - - 600 600 600 600 600 1,043 1,707 1,988
Non-controlling
interests......
.. 164 168 174 185 145 12 746 39 22 111
Shareholders'
equity.........
..... 17,340 15,790 14,275 13,831 13,489 12,322 10,731 12,180 12,071 10,345
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
$ 353,699 $ 352,040 $ 335,944 $ 353,930 $ 342,178 $ 303,984 $ 280,370 $ 278,764 $ 277,147 $ 273,293
---------------- ---------------- ---------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------- ----------------
Select financial measures
Unaudited, as at or for
the year ended October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
------------------------- ------------------------- ------------------------ ---------------------------- --------------------------- --------------------------- ------------------------ ------------------------- -------------------------- ------------------------ ---------------------------
Return on
equity..................
........................
.. 21.3 % 19.4 % 9.4 % (19.4 )% 28.7 % 27.9 % (1.6 )% 18.7 % 19.2 % 5.1 %
Return on average
assets..................
.......... 0.84 % 0.71 % 0.33 % (0.60 )% 1.00 % 0.91 % (0.01 )% 0.74 % 0.68 % 0.19 %
Average common
shareholders' equity ($
millions)...............
........................
.......... $ 13,617 $ 11,772 $ 10,731 $ 11,261 $ 10,905 $ 9,016 $ 9,804 $ 10,633 $ 9,764 $ 9,566
Average assets ($
millions)...............
.......... $ 364,973 $ 345,943 $ 350,706 $ 344,865 $ 328,520 $ 291,277 $ 288,845 $ 280,810 $ 284,739 $ 292,510
Average assets to average
common equity. 26.8 29.4 32.7 30.6 30.1 32.3 29.5 26.4 29.2 30.6
Tier 1 capital
ratio...................
...................... 14.7 % 13.9 % 12.1 % 10.5 % 9.7 % 10.4 % 8.5 % 10.5 % 10.8 % 8.7 %
Total capital
ratio...................
....................... 18.4 % 17.8 % 16.1 % 15.4 % 13.9 % 14.5 % 12.7 % 12.8 % 13.0 % 11.3 %
Net interest
margin..................
..................... 1.74 % 1.79 % 1.54 % 1.51 % 1.39 % 1.52 % 1.71 % 1.87 % 1.94 % 1.84 %
Efficiency
ratio...................
........................
.... 60.0 % 58.1 % 67.1 % n/m 63.1 % 66.0 % 86.9 % 70.2 % 70.9 % 83.5 %
------------------------- ------------------------- ------------------------ ---------------------------- --------------------------- --------------------------- ------------------------ ------------------------- -------------------------- ------------------------ ---------------------------
Condensed consolidated statement of changes in shareholder's equity
Unaudited, as at or for
the year ended October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
------------------------- ------------------------- ------------------------ ---------------------------- --------------------------- --------------------------- ------------------------ ------------------------- -------------------------- ------------------------ ---------------------------
Balance at beginning of
year........ $ 15,790 $ 14,275 $ 13,831 $ 13,489 $ 12,322 $ 10,731 $ 12,180 $ 12,071 $ 10,345 $ 9,901
Adjustment for change in
accounting 10 6
policy.................. - - (6 )(1) (66 )(2) (50 )(3) - (4) (5) - (42 )(6)
Premium on repurchase of
common
shares..................
... - - - - (277 ) - (1,035 ) (1,084 ) - (269 )
Premium on redemption of
preferred
shares..................
. (12 ) - - - (32 ) - - - - -
Changes in
share
capital.... Preferred.
......... ...... (400 ) - 525 300 (50 ) - 598 133 550 800
Common....... 572 563 178 2,926 92 93 (17 ) 19 108 15
Changes in contributed
surplus... (6 ) 4 (4 ) - 26 12 (1 ) 9 24 26
Changes in
OCI.....................
....... (126 ) 9 72 650 (650 ) (115 ) 49 (196 ) (222 ) 2
Net income
(loss)..................
....... 3,079 2,452 1,174 (2,060 ) 3,296 2,646 (32 ) 2,091 1,950 542
Dividends..
...........
...........
........... Preferred.
.... ...... (165 ) (169 ) (162 ) (119 ) (139 ) (132 ) (125 ) (100 ) (75 ) (50 )
Common....... (1,391 ) (1,350 ) (1,328 ) (1,285 ) (1,044 ) (924 ) (902 ) (781 ) (591 ) (577 )
Other...................
........................
... (1 ) 6 (5 ) (4 ) (5 ) 11 6 12 (18 ) (3 )
------------------------- ------------------------- ------------------------ ---------------------------- --------------------------- --------------------------- ------------------------ ------------------------- -------------------------- ------------------------ ---------------------------
Balance at end of
year................... $ 17,340 $ 15,790 $ 14,275 $ 13,831 $ 13,489 $ 12,322 $ 10,731 $ 12,180 $ 12,071 $ 10,345
------------------------- ------------------------- ------------------------ ---------------------------- --------------------------- --------------------------- ------------------------ ------------------------- -------------------------- ------------------------ ---------------------------
(1) Represents the impact of changing the measurement date for
employee future benefits.
(2) Represents the impact of adopting the amended CICA Emerging
Issues Committee Abstract 46, "Leveraged Leases."
(3) Represents the effect of implementing the CICA financial
instruments standards, which provides guidance on recognition and
measurement of financial instruments.
(4) Represents the effect of implementing CICA AcG-15,
"Consolidation of Variable Interest Entities," which provides a
framework for identifying a VIE and requires a primary beneficiary
to consolidate a VIE.
(5) Represents the effect of implementing CICA AcG-17,
"Equity-Linked Deposit Contracts," which introduced the
requirements to bifurcate the equity-linked contracts and measure
the derivative at fair value.
(6) Represents the effect of implementing the CICA handbook
section 3870, "Stock-based Compensation and Other Stock-based
Payments," which introduced the requirement to account for SARs
based on quoted market price on an ongoing basis. Additionally,
CIBC adopted the fair value-based method to account for stock
transactions with employees and non-officer directors, as
encouraged by section 3870.
Common share information
Unaudited, as at or for the
year ended October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
------------------------------ --------------- --------------- --------------- ---------------- --------------- --------------- ---------------- --------------- --------------- ---------------
Average number outstanding
(thousands)..................
............ 396,233 387,802 381,677 370,229 336,092 335,135 339,263 355,735 360,048 360,553
Per
share... - basic earnings
.. (loss) $ 7.32 $ 5.89 $ 2.65 $ (5.89 ) $ 9.30 $ 7.50 $ (0.46 ) $ 5.60 $ 5.21 $ 1.37
- diluted earnings (loss)(1) 7.31 5.87 2.65 (5.89 ) 9.21 7.43 (0.46 ) 5.53 5.18 1.35
- dividends 3.51 3.48 3.48 3.48 3.11 2.76 2.66 2.20 1.64 1.60
- book value(2) 36.41 32.17 28.96 29.40 33.31 29.59 25.00 29.92 28.78 25.75
Share
price(3) - high 85.49 79.50 69.30 99.81 106.75 87.87 80.80 73.90 60.95 57.70
- low 67.84 61.96 37.10 49.00 87.00 72.90 67.95 59.35 39.50 34.26
- close 75.10 78.23 62.00 54.66 102.00 87.60 72.20 73.90 59.21 38.75
Dividend payout
ratio.................... 47.9 % 59.1 % >100 % n/m 33.4 % 36.8 % n/m 39.2 % 31.5 % >100 %
------------------------------ --------------- --------------- --------------- ---------------- --------------- --------------- ---------------- --------------- --------------- ---------------
(1) In case of a loss, the effect of stock options potentially exercisable on diluted earnings
(loss) per share will be anti-dilutive; therefore, basic and diluted
earnings (loss) per share will be the same.
(2) Common shareholders' equity divided by the number of common shares issued and outstanding
at end of year.
(3) The high and low price during the year, and closing price on the last trading day of the
year, on the TSX.
n/m Not meaningful.
Dividends on preferred shares(1)
Unaudited, as at or for the
year ended October 31 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
------------------------------ --------------- --------------- --------------- ---------------- --------------- --------------- ---------------- --------------- --------------- ---------------
Class
A....... Series
.. 14................ $ - $ - $ - $ - $ - $ - $ - $ - $ 1.1156 $ 1.4875
Series 15................ - - - - - - - 1.0709 1.4125 1.4125
Series 16................ - - - - - - - 1.8456 2.0025 2.2244
Series 17................ - - - - - - - 1.3551 1.3625 1.3625
Series 18................ 1.3750 1.3750 1.3750 1.3750 1.3750 1.3750 1.3750 1.3750 1.3750 1.3750
Series 19................ - 1.2375 1.2375 1.2375 1.2375 1.2375 1.2375 1.2375 1.2375 1.2375
Series 20................ - - - - - - 1.5780 1.6908 1.8253 2.0276
Series 21................ - - - - - - 1.5095 1.5000 1.5000 1.5000
Series 22................ - - - - - - 1.9518 2.0520 2.2152 2.4606
Series 23................ - 1.3250 1.3250 1.3250 1.3250 1.3250 1.3250 1.3250 1.3250 1.3250
Series 24................ - - - - 0.3750 1.5000 1.5000 1.5000 1.5000 1.2962
Series 25................ - - - - 1.1250 1.5000 1.5000 1.5000 1.5000 0.8048
Series 26................ 1.4375 1.4375 1.4375 1.4375 1.4375 1.4375 1.4375 1.4375 1.0859 -
Series 27................ 1.4000 1.4000 1.4000 1.4000 1.4000 1.4000 1.4000 1.5484 - -
Series 28................ 0.0400 0.0800 0.0800 0.0800 0.0800 0.0800 0.0799 0.1996 - -
Series 29................ 1.3500 1.3500 1.3500 1.3500 1.3500 1.3500 1.3500 - - -
Series 30................ 0.9000 1.2000 1.2000 1.2000 1.2000 1.2000 1.1938 - - -
Series 31................ 1.1750 1.1750 1.1750 1.1750 1.1298 - - - - -
Series 32................ 1.1250 1.1250 1.1250 1.1250 0.7995 - - - - -
Series 33................ 1.3375 1.3375 1.5271 - - - - - - -
Series 35................ 1.6250 1.6250 1.1909 - - - - - - -
Series 37 1.6250 1.6250 1.0607 - - - - - - -
----------------------------- --------------- --------------- --------------- ---------------- --------------- --------------- ---------------- --------------- --------------- ---------------
(1) The dividends are adjusted for the number of days during the
year that the share is outstanding at the time of issuance and
redemption.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EVLFBFLFEFBE
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