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CIBC Announces First Quarter 2007 Results
HIGHLIGHTS
- Cash diluted EPS(1) of $2.12
- Return on equity of 27.1%
- Cash efficiency ratio (TEB)(1) of 61.5%
- Tier 1 capital ratio of 9.6%
- Common share dividend increase of 7 cents to 77 cents per quarter
TORONTO, March 1 /CNW/ - CIBC (CM: TSX; NYSE) announced net income of
$770 million for the first quarter ended January 31, 2007, up from
$580 million for the same period last year. Diluted earnings per share (EPS)
were $2.11, up from $1.62 a year ago. Cash diluted EPS(1) were $2.12, up from
$1.63 a year ago.
Return on equity for the first quarter was 27.1%, up from 25.6% for the
same period last year.
CIBC's Tier 1 capital ratio at January 31, 2007 was 9.6%, up from 9.0% a
year ago.
Diluted EPS of $2.11 and cash diluted EPS(1) of $2.12 for the first
quarter of 2007 were decreased by:
- $16 million ($16 million after-tax) premium paid on preferred share
redemptions ($0.05 per share).
- $6 million ($4 million after-tax, or $0.01 per share) due to the
impact of changes in credit spreads on the mark-to-market of
corporate loan credit derivatives.
CIBC's net income, diluted EPS and cash diluted EPS(1) for the first
quarter of 2007 were down from $819 million, $2.32 and $2.34, respectively,
for the prior quarter, which included items of note aggregating to earnings of
$0.32 per share.
Update on business priorities
"Our first quarter results were strong, and reflect continued progress
against our priorities and objective of consistent and sustainable
performance," says Gerald T. McCaughey, President and Chief Executive Officer.
Business strength
CIBC's first priority is to sustain and enhance the strength of its core
businesses.
CIBC Retail Markets reported revenue of $2,151 million, up from
$2,046 million for the prior quarter and $2,068 million for the same period
last year. Net income for the first quarter was $530 million, up 21% from a
year ago. Volume growth, as well as improvements in loan losses and taxes,
contributed to this result.
While the environment in Canada remains competitive, CIBC's retail
businesses continue to perform well overall and remain strongly positioned in
the market. Retail brokerage had a strong quarter, with revenue of
$314 million. CIBC Wood Gundy's assets under administration grew to
$117.6 billion. CIBC's cards portfolio continues to grow in line with
expectations and with stable and predictable loss rates. Cards loans
administered were up 10.6% from the first quarter of last year. CIBC had
market share increases during the quarter in key areas such as deposits and
fixed term investments.
In the area of personal lending, CIBC's focus on credit quality has been
reflected in improving loan loss performance over the past year, but lower
revenue growth than the market. As the actions CIBC has taken to improve its
risk profile run their course, CIBC expects its personal lending business to
resume overall revenue growth converging on industry levels.
CIBC's retail strategy in Canada is to become the primary financial
institution for more of its clients. During the quarter, CIBC continued to
invest in the areas of advice, access and financial solutions to further its
relationships with clients:
- The cards business launched a new no-annual-fee CIBC Platinum Visa
card and a new advertising campaign in support of enhancements to the
CIBC Aerogold Visa card, the leading premium travel rewards credit
card in Canada.
- CIBC Investor's Edge announced the most flexible and competitive
pricing offer available to Canadian online investors with the
introduction of Edge Advantage™.
CIBC Retail Markets' results for the first quarter of 2007 include the
results of FirstCaribbean International Bank ("FirstCaribbean") from
December 22, 2006. On December 22, 2006 CIBC announced the purchase of
599.4 million shares of FirstCaribbean from Barclays Bank PLC for
US$988.7 million. On February 2, 2007 CIBC announced the subsequent purchase
of 129.8 million shares of FirstCaribbean under its tender offer to all
shareholders that closed on January 30, 2007. Together, these purchases
increase CIBC's ownership of FirstCaribbean to approximately 91.5%.
CIBC World Markets reported another strong quarter. Revenue of
$784 million was up from $697 million in the prior quarter and $679 million
for the same period last year. Net income for the first quarter was
$210 million, up 64% from a year ago.
Capital markets revenue was up from the prior quarter, while investment
banking and credit products revenue was lower. Merchant banking revenue was up
slightly from the fourth quarter and up significantly from the same period
last year.
CIBC's wholesale business continues to demonstrate strength and market
leadership in Canada. During the quarter, CIBC World Markets was named
Canada's top equity underwriter and M&A advisor for 2006 in The Globe and
Mail's annual Top Deal Makers report. This is the sixth consecutive year CIBC
World Markets has been named top equity underwriter in Canada.
Throughout the remainder of 2007, CIBC World Markets will maintain its
focus on balanced growth in its core markets, while identifying opportunities
in areas such as electronic trading, prime brokerage and structured products.
Productivity
CIBC's second priority is to improve productivity.
CIBC's target in 2007 is to hold expenses flat, excluding the
FirstCaribbean acquisition, by absorbing normal inflationary increases to its
cost base. Expenses for the first quarter were $1,943 million, up from
$1,892 million in the prior quarter due to the FirstCaribbean acquisition and
higher performance-related compensation.
CIBC's efficiency ratio for the first quarter improved to 62.9% from
65.7% for the same period last year. CIBC's cash efficiency ratio (TEB)(1) for
the first quarter improved to 61.5% from 64.4% a year ago.
"Our first quarter results reflect the balance we are seeking between
expense constraint and revenue growth," says McCaughey. "We believe that the
impact of improved revenue through consistent investment in our core
businesses and continued expense discipline is the most balanced way to
achieve further productivity improvements."
Balance sheet strength and capital usage
CIBC's third priority is balance sheet strength and capital usage.
CIBC's Tier 1 ratio of 9.6% remains above its medium term target of 8.5%.
CIBC's capital usage plans are first to invest in core businesses, then
balance remaining deployment opportunities.
With the FirstCaribbean acquisition now complete, CIBC will consider
further opportunities for international growth, both through organic expansion
at FirstCaribbean and additional strategic acquisitions. CIBC will balance
these opportunities with capital returns to shareholders.
Dividends are an important part of CIBC's capital management plan.
CIBC's dividend payout ratio for the quarter was 32.9%, below its medium
term objective of 40% to 50%. Today, CIBC announced an increase to its second
quarter common share dividend of 10% or 7 cents per share (to 77 cents per
share).
Making a difference in communities
CIBC remains committed to maintaining a meaningful presence in its
communities.
On December 6, 2006, CIBC World Markets and CIBC Wood Gundy employees
world-wide raised $12.7 million in support of CIBC World Markets Children's
Foundation Miracle Day to benefit children's charities in CIBC's communities
around the world. In addition, over 9,000 CIBC employees in Canada and the
United States raised over $8 million in support of CIBC's 2006 United Way
campaign.
"I would like to thank our employees who have contributed their energy,
time and generous support to these campaigns," says McCaughey.
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(1)For additional information, see the "Non-GAAP measures" section
The information on the following pages forms a part of this press
release.
(The board of directors of CIBC reviewed this press release prior to it
being issued. CIBC's controls and procedures support the ability of the
President and Chief Executive Officer and the Chief Financial Officer of CIBC
to certify CIBC's first quarter financial report and controls and procedures.
CIBC's CEO and CFO will voluntarily provide to the Securities and Exchange
Commission a certification relating to CIBC's first quarter financial
information, including the attached unaudited interim consolidated financial
statements, and will provide the same certification to the Canadian Securities
Administrators.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's discussion and analysis (MD&A) should be read in conjunction
with the unaudited interim consolidated financial statements included in this
report and with the MD&A contained in our 2006 Annual Accountability Report.
The unaudited interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
are expressed in Canadian dollars. This MD&A is current as of March 1, 2007.
Additional information relating to CIBC is available on SEDAR at www.sedar.com
and on the U.S. Securities and Exchange Commission's (SEC) website at
www.sec.gov. No information on CIBC's website (www.cibc.com) should be
considered incorporated herein by reference. Certain comparative amounts have
been reclassified to conform with the presentation adopted in the current
period. A glossary of terms used throughout this quarterly report can be found
on pages 142 and 143 of our 2006 Annual Accountability Report.
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
From time to time, we make written or oral forward-looking statements
within the meaning of certain securities laws, including in this report, in
other filings with Canadian securities regulators or the U.S. Securities and
Exchange Commission and in other communications. These statements include, but
are not limited to, statements we make in the "Update on business priorities,"
"Outlook" and "Review of consolidated statement of operations - Income taxes"
sections of this report and other statements about our operations, business
lines, financial condition, risk management, priorities, targets, ongoing
objectives, strategies and outlook for 2007 and subsequent periods. Forward-
looking statements are typically identified by the words "believe," "expect,"
"anticipate," "intend," "estimate" and other similar expressions or future or
conditional verbs such as "will," "should," "would" and "could." By their
nature, these statements require us to make assumptions including the economic
assumptions set out in the "Outlook" section of this report, and are subject
to inherent risks and uncertainties that may be general or specific. A variety
of factors, many of which are beyond our control, affect our operations,
performance and results and could cause actual results to differ materially
from the expectations expressed in any of our forward-looking statements.
These factors include: legislative or regulatory developments in the
jurisdictions where we operate; amendments to, and interpretations of, risk-
based capital guidelines and reporting instructions; the resolution of legal
proceedings and related matters; the effect of applying future accounting
changes; changes in our estimates of reserves and allowances; changes in tax
laws; that our estimate of our sustainable effective tax rate will not be
achieved; political conditions and developments; the possible effect on our
business of international conflicts and the war on terror; natural disasters,
public health emergencies and other catastrophic events; reliance on third
parties to provide components of our business infrastructure; the accuracy and
completeness of information provided to us by clients and counterparties;
intensifying competition from established competitors and new entrants in the
financial services industry; technological change; global capital market
activity; interest rate and currency value fluctuations; general economic
conditions worldwide, as well as in Canada, the U.S. and other countries where
we have operations; changes in market rates and prices which may adversely
affect the value of financial products; our success in developing and
introducing new products and services, expanding existing distribution
channels, developing new distribution channels and realizing increased revenue
from these channels; changes in client spending and saving habits; and our
ability to anticipate and manage the risks associated with these factors. This
list is not exhaustive of the factors that may affect any of our forward-
looking statements. These and other factors should be considered carefully and
readers should not place undue reliance on our forward-looking statements. We
do not undertake to update any forward-looking statement that is contained in
this report or other communications.First Quarter Financial Highlights
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Unaudited, as at or for the 2007 2006 2006
three months ended Jan. 31 Oct. 31 Jan. 31
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Common share information
Per share - basic earnings $ 2.13 $ 2.34 $ 1.64
- basic earnings (cash basis)(1) 2.14 2.36 1.65
- diluted earnings 2.11 2.32 1.62
- diluted earnings (cash basis)(1) 2.12 2.34 1.63
- dividends 0.70 0.70 0.68
- book value 31.85 29.59 25.85
Share price - high 102.00 87.87 81.00
- low 88.96 77.95 72.90
- closing 100.88 87.60 79.90
Shares outstanding (thousands)
- average basic 336,486 335,522 334,357
- average diluted 339,942 338,737 337,704
- end of period 337,139 335,977 334,786
Market capitalization ($ millions) $ 34,011 $ 29,432 $ 26,749
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Value measures
Price to earnings multiple
(12 month trailing) 12.7 11.8 n/m
Dividend yield (based on closing
share price) 2.8% 3.2% 3.4%
Dividend payout ratio 32.9% 29.9% 41.6%
Market value to book value ratio 3.17 2.96 3.09
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Financial results ($ millions)
Total revenue $ 3,091 $ 2,890 $ 2,858
Provision for credit losses 143 92 166
Non-interest expenses 1,943 1,892 1,877
Net income 770 819 580
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Financial measures
Efficiency ratio 62.9% 65.5% 65.7%
Efficiency ratio cash basis, taxable
equivalent basis (TEB)(1) 61.5% 63.5% 64.4%
Return on equity 27.1% 32.5% 25.6%
Net interest margin 1.33% 1.50% 1.59%
Net interest margin on average
interest-earning assets 1.52% 1.72% 1.86%
Return on average assets 0.97% 1.08% 0.81%
Return on average interest-earning
assets 1.10% 1.25% 0.94%
Total shareholder return 16.0% 14.3% 11.6%
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On- and off-balance sheet
information ($ millions)
Cash, deposits with banks and
securities $ 108,482 $ 95,351 $ 89,253
Loans and acceptances 159,530 151,916 144,779
Total assets 322,608 303,984 288,906
Deposits 223,625 202,891 193,666
Common shareholders' equity 10,736 9,941 8,655
Average assets 316,122 299,513 285,679
Average interest-earning assets 276,799 260,569 245,269
Average common shareholders' equity 10,474 9,601 8,484
Assets under administration 1,122,184 1,068,600 1,030,357
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Balance sheet quality measures
Common equity to risk-weighted
assets 8.7% 8.7% 7.6%
Risk-weighted assets ($ billions) $ 124.1 $ 114.8 $ 113.3
Tier 1 capital ratio 9.6% 10.4% 9.0%
Total capital ratio 14.1% 14.5% 13.1%
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Other information
Retail / wholesale ratio(2) 74%/26% 72%/28% 74%/26%
Regular workforce headcount 40,559 37,016 36,971
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(1) For additional information, see the "Non-GAAP measures" section.
(2) Retail includes CIBC Retail Markets and commercial banking
(reported as part of CIBC World Markets). Wholesale reflects CIBC
World Markets, excluding commercial banking. The ratio represents
the amount of capital attributed to the business lines as at the
end of the period. For further details, see the "Non-GAAP measures"
section.
n/m - not meaningful due to the net loss over the 12 month trailing
period.
Overview
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CIBC is a leading North American financial institution. Through our two
distinct business lines, CIBC Retail Markets and CIBC World Markets, we
provide a full range of products and services to over 11 million individual
and small business clients, and meet the financial needs of corporate and
institutional clients.
Economic and market environment
Economic growth reports in Canada diverged from the U.S. towards the end
of calendar 2006. American consumer spending and gross domestic product (GDP)
were reinvigorated by cheaper fuel prices. Conversely Canadian household
spending slowed, contributing to a poor performance for quarterly GDP and to
some deceleration in consumer credit growth. Housing activity and prices held
up better in Canada, but mortgage demand also appeared to be decelerating
somewhat. The yield curve remained flat by historic standards, with core
inflation looking unthreatening in both countries. These factors contributed
to retail volume growth. Despite new rules for income trusts and softer energy
prices, Canadian equities as a whole showed strong gains in the three months
to January 2007, boosted by solid earnings growth, leading to strong retail
brokerage and equities revenue.
Financial performance
Net income for the quarter was $770 million, compared with $580 million
from the same quarter last year and $819 million from the prior quarter.
Diluted earnings per share (EPS) and return on equity (ROE) were $2.11 and
27.1%, respectively, compared with $1.62 and 25.6% for the same quarter last
year and $2.32 and 32.5% for the prior quarter. Net income before the
amortization of other intangible assets(1) was $774 million, compared with
$585 million for the same quarter last year and $824 million for the prior
quarter. Diluted EPS(1) before the amortization of other intangible assets
were $2.12, compared with $1.63 for the same quarter last year and $2.34 for
the prior quarter. Our current and prior quarter's results were affected by
the following items:
Q1, 2007
- $6 million ($4 million after-tax) negative impact of changes in
credit spreads on the mark-to-market of our corporate loan credit
derivatives.
Q4, 2006
- $90 million of favourable significant tax-related adjustments;
- $39 million ($25 million after-tax) reversal of the general allowance
for credit losses; and
- $13 million ($8 million after-tax) negative impact of changes in
credit spreads on the mark-to-market of our corporate loan credit
derivatives.
Compared with Q1, 2006
Net income was up $190 million or 33%, primarily due to higher capital
markets and merchant banking revenue, volume growth in cards, deposits and
mortgages, higher treasury revenue, and lower provision for credit losses. The
current quarter also benefited from the impact of the FirstCaribbean
acquisition (discussed on page 7). These factors were partially offset by
spread compression on retail lending products and higher performance-related
compensation.
Compared with Q4, 2006
Net income was down $49 million or 6%, primarily due to the tax
recoveries and the reversal of general allowance noted above in the prior
quarter. Higher performance-related compensation and lower investment banking
and credit products revenue also contributed to the decline. These factors
were partially offset by higher capital markets revenue and the impact of the
FirstCaribbean acquisition.
Outlook
The economic outlook remains positive for the coming quarters as interest
and employment rates are expected to remain relatively steady; nonetheless,
some softening in the housing activity and only moderate growth in consumer
spending is anticipated. Product spreads are expected to remain stable.
Mortgage and lending growth rates may moderate while card balances are
expected to continue at approximately the recent growth rate.
While investment banking activities and capital markets are difficult to
predict, market liquidity remains robust and we expect steady mergers and
acquisition (M&A) activity will continue. The high level of equity new issue
activity in the current quarter may have been representative of the unique
circumstances surrounding the income trust announcement and it is not certain
whether this level of activity will continue. The credit cycle should remain
favourable in the near term, but we expect the current low level of corporate
defaults rates is likely not sustainable over the longer term.
Review of results of operations and financial position
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Review of consolidated statement of operations
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For the three months ended
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2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
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Net interest income $ 1,059 $ 1,130 $ 1,148
Non-interest income 2,032 1,760 1,710
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Total revenue 3,091 2,890 2,858
Provision for credit losses 143 92 166
Non-interest expenses 1,943 1,892 1,877
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Income before taxes and
non-controlling interests 1,005 906 815
Income taxes 231 87 238
Non-controlling interests 4 - (3)
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Net income $ 770 $ 819 $ 580
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Effective income tax rate 23.0% 9.6% 29.2%
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Net interest income
Net interest income was down $89 million or 8% from the same quarter last
year, largely due to increased trading-related funding costs and spread
compression in retail lending products. During the quarter, we de-designated
certain fair value hedges under the new financial instruments standards. Since
the net unrealized gains on those derivative instruments are recorded in other
income, net interest income declined accordingly. These factors were partially
offset by higher dividends and interest on trading securities, volume growth
in cards, deposits and mortgages and the impact of the FirstCaribbean
acquisition.
Net interest income was down $71 million or 6% from the prior quarter,
largely due to increased trading-related funding costs and the de-designation
of fair value hedges noted above. These factors were partially offset by the
impact of the FirstCaribbean acquisition and higher treasury revenue.
Non-interest income
Non-interest income was up $322 million or 19% from the same quarter last
year, largely as a result of higher trading activities. Gains net of write-
downs on available-for-sale (AFS) securities (previously classified as
investment securities and limited partnership investments) were higher during
the quarter. The net unrealized gains on the de-designation of certain fair
value hedges noted above also contributed to the increase.
Non-interest income was up $272 million or 15% from the prior quarter,
largely due to the reasons noted above.
Provision for credit losses
Provision for credit losses was down $23 million or 14% from the same
quarter last year, primarily due to improvements in the unsecured personal
lending portfolio, partially offset by higher losses in the cards portfolio.
Provision for credit losses was up $51 million or 55% from the prior
quarter. The increase was a combination of the $39 million reversal of general
allowance in the prior quarter, increased losses in the cards portfolio,
partially offset by higher recoveries net of losses in the corporate lending
portfolio.
Non-interest expenses
Non-interest expenses were up $66 million or 4% from the same quarter
last year, primarily due to higher performance-related compensation and the
impact of the FirstCaribbean acquisition.
Non-interest expenses were up $51 million or 3% from the prior quarter,
primarily due to higher performance-related compensation and the impact of the
FirstCaribbean acquisition, partially offset by lower computer and advertising
expenses.
Income taxes
Despite higher income, income taxes were down $7 million or 3% from the
same quarter last year, primarily due to higher income from lower tax
jurisdictions.
Income taxes were up $144 million from the prior quarter, primarily due
to the income tax recoveries included in the prior quarter and higher income
in the current quarter.
The effective tax rate and taxable equivalent rate (TEB) for the quarter
ended January 31, 2007, were 23.0% and 27.5%(1), respectively. While rates
will vary from quarter to quarter, our current estimate is that the adjusted
sustainable effective tax rate will be in the 21-24% range and the adjusted
sustainable TEB tax rate will be in the 25-28% range.
Non-controlling interests
Non-controlling interests were up $7 million from the same quarter last
year and up $4 million from the prior quarter, primarily due to the minority
interest resulting from our acquisition of FirstCaribbean.
Review of consolidated balance sheet
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CONDENSED CONSOLIDATED BALANCE SHEET
2007 2006
$ millions, as at Jan. 31 Oct. 31
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Assets
Cash and deposits with banks $ 17,692 $ 11,853
Securities 90,790 83,498
Securities borrowed or purchased under resale
agreements 23,968 25,432
Loans 152,546 145,625
Derivative instruments market valuation 17,665 17,122
Other assets 19,947 20,454
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Total assets $ 322,608 $ 303,984
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Liabilities and shareholders' equity
Deposits $ 223,625 $ 202,891
Derivative instruments market valuation 16,694 17,330
Obligations related to securities lent or sold
short or under repurchase agreements 42,974 44,221
Other liabilities and acceptances 19,279 21,013
Subordinated indebtedness 5,991 5,595
Preferred share liabilities 600 600
Non-controlling interests 278 12
Shareholders' equity 13,167 12,322
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Total liabilities and shareholders' equity $ 322,608 $ 303,984
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Assets
Total assets as at January 31, 2007 were up $18.6 billion or 6% from
October 31, 2006.
Cash and deposits with banks increased mainly due to normal treasury
funding requirements and the FirstCaribbean acquisition.
The growth in securities was mainly driven by an increase in trading
securities in our wholesale banking reflecting normal trading activities and
the FirstCaribbean acquisition.
The decrease in securities borrowed or purchased under resale agreements
was primarily due to normal client-driven business activity.
Loans increased largely due to the FirstCaribbean acquisition, slightly
offset by volume declines in personal loans and residential mortgages (net of
securitizations).
Derivative instruments market valuation increased primarily due to the
reclassification of hedging derivative instruments from other assets under the
financial instruments standards, partially offset by a decrease in trading
derivatives due to the strengthening of the U.S. dollar and the increasing
interest rate environment.
Other assets decreased primarily due to the reclassification of hedging
derivative instruments to derivative instruments market valuation and the
investment in limited partnerships to AFS securities, both under the financial
instruments standards. As a result of obtaining majority control, our
investment in FirstCaribbean is no longer included in other assets. These
factors were partially offset by the goodwill and other intangible assets
acquired resulting from the FirstCaribbean acquisition and an increase in
acceptances.
Liabilities
Total liabilities as at January 31, 2007 were up $17.8 billion or 6% from
October 31, 2006.
Deposits increased primarily due to the FirstCaribbean acquisition,
higher business and government and bank deposits largely due to funding
requirements and client-driven activities, and retail volume growth.
The decrease in obligations related to securities lent or sold short or
under repurchase agreements represents normal client-driven and treasury
funding activities, partially offset by the FirstCaribbean acquisition.
Derivative instruments market valuation decreased primarily due to the
strengthening of the U.S. dollar and the increasing interest rate environment.
This was partially offset by the reclassification of hedging derivative
instruments from other liabilities under the financial instruments standards.
Other liabilities and acceptances decreased primarily due to the
reclassification noted above.
Subordinated indebtedness increased primarily due to the FirstCaribbean
acquisition and change in the fair value of hedged debentures as a result of
the implementation of the financial instruments standards.
The increase in non-controlling interests represents the minority
interest in FirstCaribbean.
Shareholders' equity
Shareholders' equity as at January 31, 2007 was up $845 million or 7%
from October 31, 2006, primarily due to an increase in retained earnings and
translation gains on net investments in foreign operations net of the impact
of hedging.
FirstCaribbean International Bank
On December 22, 2006, we obtained control of FirstCaribbean International
Bank (FirstCaribbean) by acquiring a further 39.3% ownership interest from
Barclays Bank PLC (Barclays) (FirstCaribbean acquisition). After completing
the transaction, we owned approximately 83.0% of the common shares of
FirstCaribbean with the remaining common shares held by both Barclays and
other minority shareholders. The transaction took place at a share price of
US$1.62 plus accrued dividends with a total transaction value of
US$989 million (C$1,153 million), which we paid in cash to Barclays. In
addition, we incurred transaction costs, net of tax, of US$7 million
(C$8 million).
On February 2, 2007, subsequent to the quarter end, pursuant to a tender
offer at the same price for the remaining common shares held by Barclays and
the other minority shareholders, we acquired an additional 8.5% interest in
FirstCaribbean in exchange for additional cash consideration of US$212 million
(C$250 million), bringing our total ownership to 91.5%.
For additional details, see Note 2 to the interim consolidated financial
statements.
Contingent liabilities
CIBC is a party to a number of legal proceedings, including regulatory
investigations, in the ordinary course of its business. While there exists an
inherent difficulty in predicting the outcome of any such matters, based on
current knowledge and consultation with legal counsel, we do not expect that
the outcome of any of these matters, individually or in aggregate, would have
a material adverse effect on our consolidated financial position. However, the
outcome of any such matters, individually or in aggregate, may be material to
our operating results for a particular period.
Review of quarterly financial information
2007 2006
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$ millions, except per
share amounts, for the
three months ended Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31
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Revenue
CIBC Retail Markets $ 2,151 $ 2,046 $ 2,038 $ 1,975 $ 2,068
CIBC World Markets 784 697 677 607 679
Corporate and Other 156 147 111 195 111
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Total revenue 3,091 2,890 2,826 2,777 2,858
Provision for credit
losses 143 92 152 138 166
Non-interest expenses 1,943 1,892 1,883 1,836 1,877
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Income (loss) before
taxes and
non-controlling
interests 1,005 906 791 803 815
Income taxes 231 87 125 190 238
Non-controlling
interests 4 - 4 28 (3)
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Net income (loss) $ 770 $ 819 $ 662 $ 585 $ 580
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Per share - basic
earnings (loss) $ 2.13 $ 2.34 $ 1.88 $ 1.65 $ 1.64
- diluted earnings
(loss)(1) $ 2.11 $ 2.32 $ 1.86 $ 1.63 $ 1.62
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2005
$ millions, except per
share amounts, for th
three months ended Oct. 31 Jul. 31 Apr. 30
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Revenue
three months ended
CIBC Retail Markets $ 2,063 $ 2,025 $ 1,982
CIBC World Markets 964 929 742
Corporate and Other 399 201 107
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Total revenue 3,426 3,155 2,831
Provision for credit
losses 170 199 159
Non-interest expenses 2,060 4,854 2,043
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Income (loss) before
taxes and
non-controlling
interests 1,196 (1,898) 629
Income taxes 436 (106) 176
Non-controlling
interests 32 115 13
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Net income (loss) $ 728 $ (1,907) $ 440
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Per share - basic
earnings (loss) $ 2.08 $ (5.77) $ 1.21
- diluted earnings
(loss)(1) $ 2.06 $ (5.77) $ 1.20
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(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.
Our quarterly results are modestly affected by seasonal factors. The
first quarter is normally characterized by increased credit card purchases
over the holiday period. The second quarter has fewer days as compared with
the other quarters, generally leading to lower earnings. The summer months
(July - third quarter and August - fourth quarter) typically experience lower
levels of capital markets activity, which affects our brokerage, investment
management and wholesale activities.
Revenue
CIBC Retail Markets revenue increased in the current quarter as a result
of the FirstCaribbean acquisition and strength in retail brokerage and
investment product sales in Imperial Service. Revenue was lower in the past
few quarters as a result of higher levels of cards securitization and
declining spreads in the mortgage and personal lending businesses. Revenue was
lower in the second quarters of 2006 and 2005 primarily due to three fewer
days.
CIBC World Markets revenue is influenced to a large extent by capital
markets conditions and the opportunity for merchant banking divestitures.
Increased capital markets volumes led to higher revenue in the current
quarter. Increased merchant banking gains net of write-downs contributed to
higher revenue in the third and fourth quarters of 2005.
Corporate and Other revenue is affected by the impact of significant
items not included in the other business lines. Revenue in the third quarter
of 2006 was lower due to the deconsolidation of a variable interest entity
(VIE). Foreign exchange revenue on the repatriation of capital and retained
earnings from our foreign operations led to an increase in revenue in the
second quarter of 2006 and the fourth quarter of 2005. Revenue was higher in
the third quarter of 2005 due to higher revenue in a consolidated VIE.
Provision for credit losses
The provision for credit losses is dependent upon the credit cycle in
general and on the credit performance of the loan portfolio. Retail lending
provisions increased from the previous quarter largely due to higher losses in
the cards portfolio. However, provisions are lower than the previous quarters
of 2005 reflecting a shift to a higher proportion of secured personal lending
products. The level of recoveries and reversals in the large corporate lending
portfolio is not expected to continue. Reversals of the general allowance were
included in both the fourth quarters of 2006 and 2005 and in the second
quarter of 2006.
Non-interest expenses
Non-interest expenses have declined in recent quarters as a result of our
productivity initiative. The FirstCaribbean acquisition and higher performance-
related compensation contributed to an increase in expenses in the current
quarter. Severance costs were higher in the fourth quarter of 2005. The third
quarter of 2005 included the Enron-related litigation provision. The second
and third quarters of 2005 included the provision for hedge funds settlements.
Income taxes
Income taxes vary with changes in income and can also be affected by the
impact of significant items. The last three quarters of 2006 and the fourth
quarter of 2005 included recoveries related to the favourable resolution of
various income tax audits and reduced tax contingencies. The increase in the
fourth quarter of 2005 was due primarily to the income tax expense on the
repatriation of capital and retained earnings from our foreign operations. The
Enron-related litigation provision led to an income tax benefit in the third
quarter of 2005.
Non-controlling interests
Non-controlling interests were higher in the current quarter resulting
from the acquisition of the controlling interest in FirstCaribbean. During the
first three quarters of 2006, we deconsolidated certain VIEs which resulted in
a decrease in non-controlling interests. In the first quarter of 2006, we
acquired the remaining non-controlling interest in INTRIA Items Inc. The third
quarter of 2005 included higher revenue in consolidated VIEs.
CIBC Retail Markets
-------------------------------------------------------------------------
CIBC Retail Markets comprises CIBC's retail and wealth management
businesses. The results of FirstCaribbean are included in the Other line of
business within CIBC Retail Markets since December 22, 2006. We provide a full
range of financial products and services to individual and small business
clients, as well as investment management services globally to retail and
institutional clients.
Results(1)
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Revenue
Personal and small business
banking $ 517 $ 522 $ 510
Imperial Service 237 230 230
Retail brokerage 314 292 297
Cards 371 380 347
Mortgages and personal lending 389 354 413
Other 323 268 271
-------------------------------------------------------------------------
Total revenue 2,151 2,046 2,068
Provision for credit losses 153 132 180
Non-interest expenses 1,288 1,255 1,245
-------------------------------------------------------------------------
Income before taxes 710 659 643
Income taxes 176 158 205
Non-controlling interests 4 - -
-------------------------------------------------------------------------
Net income $ 530 $ 501 $ 438
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 59.9% 61.4% 60.2%
Efficiency ratio cash basis (TEB)(2) 59.7% 61.3% 60.2%
ROE(2) 55.0% 55.0% 45.7%
Economic profit(2) $ 405 $ 384 $ 312
Regular workforce headcount 27,254 23,396 23,002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.
Financial overview
Net income was up $92 million or 21% from the same quarter last year.
Revenue increased due to the FirstCaribbean acquisition, volume growth in
cards, deposits and mortgages, and higher mortgage securitization and retail
brokerage revenue, partially offset by spread compression in lending products.
The current quarter also benefited from a lower provision for credit losses
and a lower effective tax rate. These factors were partially offset by higher
non-interest expenses mainly due to the FirstCaribbean acquisition.
Net income was up $29 million or 6% from the prior quarter. Revenue was
up due to the FirstCaribbean acquisition, and higher retail brokerage and
mortgage securitization revenue. Non-interest expenses were higher during the
quarter mainly due to the FirstCaribbean acquisition. The prior quarter
benefited from income tax recoveries.
Revenue
Revenue was up $83 million or 4% from the same quarter last year.
Personal and small business banking revenue was up $7 million, largely
due to volume growth and improved deposit spreads, partially offset by lower
internal sales commissions received from mortgages and personal lending.
Imperial Service revenue was up $7 million, mainly due to higher revenue
from investment product sales.
Retail brokerage revenue was up $17 million, primarily due to higher fee-
based revenue from net sales and increased asset values, and new issue
activity, partially offset by lower trading activity.
Cards revenue was up $24 million, primarily due to volume growth and
higher fee income, partially offset by spread compression.
Mortgages and personal lending revenue was down $24 million, primarily
due to spread compression and lower personal lending volume. These decreases
were partially offset by higher securitization revenue, volume growth in
mortgages and lower internal commissions paid to personal and small business
banking.
Other revenue was up $52 million due to the FirstCaribbean acquisition.
Revenue was up $105 million or 5% from the prior quarter.
Personal and small business banking revenue was down $5 million,
primarily due to lower internal sales commissions received and lower fee
income, partially offset by volume growth and improved deposit spreads.
Imperial Service revenue was up $7 million, primarily due to higher
revenue from investment product sales, partially offset by lower internal
commissions received.
Retail brokerage revenue was up $22 million, primarily due to higher
trading and new issue activity.
Cards revenue was down $9 million, primarily due to lower fee income and
higher credit losses relating to securitized assets, partially offset by
volume growth.
Mortgages and personal lending revenue was up $35 million, primarily due
to higher securitization revenue and lower internal sales commissions paid to
personal and small business banking and Imperial Service.
Other revenue was up $55 million, primarily due to the FirstCaribbean
acquisition, partially offset by lower treasury revenue allocations.
Provision for credit losses
Provision for credit losses was down $27 million or 15% from the same
quarter last year, primarily due to improvements in the unsecured personal
lending portfolio, partially offset by increased losses in the cards
portfolio.
Provision for credit losses was up $21 million or 16% from the prior
quarter, primarily due to increased losses in the cards portfolio.
Non-interest expenses
Non-interest expenses were up $43 million or 3% from the same quarter
last year, primarily due to the FirstCaribbean acquisition, and higher
corporate support costs and performance-related compensation.
Non-interest expenses were up $33 million or 3% from the prior quarter,
primarily due to the FirstCaribbean acquisition and higher corporate support
costs, partially offset by lower advertising expenses and operational losses.
The regular workforce headcount was up 4,252 from the same quarter last
year, primarily due to the FirstCaribbean acquisition, the realignment of
staff from Administration, Technology and Operations, and an increase in
customer-facing staff. The regular workforce headcount was up 3,858 from the
prior quarter, primarily due to the FirstCaribbean acquisition and the
realignment of staff from Administration, Technology and Operations.
Income taxes
Income taxes were down $29 million or 14% from the same quarter last
year, primarily due to a lower effective tax rate resulting from higher income
in lower tax jurisdictions.
Income taxes were up $18 million or 11% from the prior quarter, which
included income tax recoveries.
CIBC World Markets
-------------------------------------------------------------------------
CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets products,
investment banking, and merchant banking to clients in key financial markets
in North America and around the world. We provide capital solutions and
advisory expertise across a wide range of industries as well as research for
our corporate, government and institutional clients.
Results(1)
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Revenue (TEB)(2)
Capital markets $ 449 $ 351 $ 371
Investment banking and credit
products(3) 204 242 237
Commercial banking(3) 121 125 124
Merchant banking 77 61 12
Other (5) (5) (19)
-------------------------------------------------------------------------
Total revenue (TEB)(2) 846 774 725
TEB adjustment 62 77 46
-------------------------------------------------------------------------
Total revenue 784 697 679
Recovery of credit losses (10) (1) (15)
Non-interest expenses 551 485 533
-------------------------------------------------------------------------
Income before taxes and
non-controlling interests 243 213 161
Income taxes 33 (5) 32
Non-controlling interests - - 1
-------------------------------------------------------------------------
Net income $ 210 $ 218 $ 128
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 70.3% 69.6% 78.3%
Efficiency ratio cash basis (TEB)(2) 65.2% 62.6% 73.4%
ROE(2) 41.6% 44.2% 25.6%
Economic profit(2) $ 146 $ 154 $ 64
Regular workforce headcount 2,384 2,291 2,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.
(3) Effective November 1, 2006, all cash management revenue previously
allocated to investment banking and credit products was transferred
to commercial banking on a retroactive basis.
Financial overview
Net income was up $82 million or 64% from the same quarter last year,
primarily due to higher revenue from capital markets and merchant banking.
These increases were partially offset by lower investment banking and credit
products revenue, higher non-interest expenses and lower recovery of credit
losses.
Net income was down $8 million or 4% from the prior quarter, as higher
revenue in capital markets was offset by an increase in non-interest expenses
and lower investment banking and credit products revenue. The prior quarter
benefited from income tax recoveries.
Revenue
Revenue was up $105 million or 15% from the same quarter last year.
Capital markets revenue was up $78 million, primarily due to higher
revenue in equity and commodity structured products, Canadian equities and
debt capital markets, partially offset by lower revenue in U.S. equities.
Investment banking and credit products revenue was down $33 million,
primarily due to lower revenue in Canadian and European investment banking.
Merchant banking revenue was up $65 million, primarily due to higher
gains net of write-downs.
Revenue was up $87 million or 12% from the prior quarter.
Capital markets revenue was up $98 million, primarily due to higher
revenue in Canadian equities, debt capital markets, equity and commodity
structured products and U.S. equities.
Investment banking and credit products revenue was down $38 million,
primarily due to lower revenue in Canadian and European investment banking,
partially offset by higher revenue in U.S. investment banking.
Merchant banking revenue was up $16 million, primarily due to higher
gains net of write-downs.
Recovery of credit losses
Recovery of credit losses was down $5 million or 33% from the same
quarter last year, primarily due to higher losses net of recoveries in the
U.S., partially offset by higher recoveries in Europe and commercial banking.
Recovery of credit losses was up $9 million from the prior quarter due to
higher recoveries in Europe.
Non-interest expenses
Non-interest expenses were up $18 million or 3% from the same quarter
last year, primarily due to higher performance-related compensation, partially
offset by lower litigation provisions and corporate support costs.
Non-interest expenses were up $66 million or 14% from the prior quarter,
primarily due to higher performance-related compensation, litigation
provisions, and occupancy costs.
The regular workforce headcount was up 91 from the same quarter last year
and up 93 from the prior quarter, primarily due to realignment of staff from
Administration, Technology and Operations.
Income taxes
Despite higher income, income tax expense was up only $1 million from the
same quarter last year, largely due to an increase in tax exempt income and
higher income from lower tax jurisdictions.
Income taxes were up to $38 million from the prior quarter, primarily due
to higher income. The prior quarter benefited from income tax recoveries.
Corporate and Other
-------------------------------------------------------------------------
Corporate and Other comprises the five functional groups -
Administration, Technology and Operations; Corporate Development; Finance;
Legal and Regulatory Compliance; and Treasury and Risk Management - that
support CIBC's business lines, as well as CIBC Mellon joint ventures,
Oppenheimer Holdings Inc. debentures (sold during 2006), and other income
statement and balance sheet items, including the general allowance, not
directly attributable to the business lines. The general allowance applicable
to FirstCaribbean is determined locally and is included in CIBC Retail
Markets. The revenue and expenses of the functional groups are generally
allocated to the business lines.
Results(1)
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Total revenue $ 156 $ 147 $ 111
(Recovery of) provision for credit
losses - (39) 1
Non-interest expenses 104 152 99
-------------------------------------------------------------------------
Income before taxes and
non-controlling interests 52 34 11
Income taxes 22 (66) 1
Non-controlling interests - - (4)
-------------------------------------------------------------------------
Net income $ 30 $ 100 $ 14
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Regular workforce headcount 10,921 11,329 11,676
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.
Financial overview
Net income was up $16 million from the same quarter last year, primarily
due to higher revenue.
Net income was down $70 million or 70% from the prior quarter, primarily
due to the income tax recoveries and the reversal of the general allowance for
credit losses in the prior quarter, partially offset by lower unallocated
corporate support costs.
Revenue
Revenue was up $45 million or 41% from the same quarter last year,
primarily due to higher revenue from treasury, CIBC Mellon joint ventures and
hedging of stock appreciation rights (SARs).
Revenue was up $9 million or 6% from the prior quarter, primarily due to
higher revenue from treasury and CIBC Mellon joint ventures.
(Recovery of) provision for credit losses
Recovery of credit losses was nil, compared with $39 million in the prior
quarter, which included the $39 million reversal of the general allowance.
Non-interest expenses
Non-interest expenses were up $5 million or 5% from the same quarter last
year, primarily due to higher expenses related to SARs.
Non-interest expenses were down $48 million or 32% from the prior
quarter, primarily due to lower unallocated support costs.
The regular workforce headcount was down 755 from the same quarter last
year, primarily due to reduction of back office functions and the realignment
of staff to business groups. These decreases were partially offset by the
transfer of staff from an external service provider relating to the
repatriation of desktop support and related network management services to
CIBC. The regular workforce headcount was down 408 from the prior quarter,
primarily due to realignment of staff to business groups and completion of
certain projects, partially offset by the transfer of staff noted above.
Income taxes
Income taxes were up $21 million from the same quarter last year,
primarily due to higher income.
Income taxes were up $88 million from the prior quarter, which included
income tax recoveries.
Management of risk
-------------------------------------------------------------------------
Our approach to the management of risk and capital resources has not
changed significantly from that described on pages 53 to 66 of the 2006 Annual
Accountability Report.
Management of credit risk
-------------------------------------------------------------------------
CREDIT QUALITY PERFORMANCE
2007 2006
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 547 $ 386
Business and government 444 244
-------------------------------------------------------------------------
Total gross impaired loans $ 991 $ 630
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 389 $ 363
Business and government 247 181
-------------------------------------------------------------------------
Specific allowance 636 544
General allowance 920 900
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,556 $ 1,444
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross impaired loans were up $361 million or 57% from October 31, 2006.
Consumer gross impaired loans were up $161 million or 42%. Business and
government gross impaired loans were up $200 million or 82%. The overall
increase in gross impaired loans was largely due to the FirstCaribbean
acquisition. During the three months ended January 31, 2007, gross impaired
loans increased $4 million in Canada, $23 million in the U.S. and $334 million
in other countries.
Allowance for credit losses was up $112 million or 8% from October 31,
2006. Specific allowance was up $92 million or 17% from year-end, primarily
due to the FirstCaribbean acquisition. This increase was partially offset by a
reduction in the specific allowance of the personal loans portfolio in Canada.
The general allowance totalled $920 million, up $20 million from the year-end,
due to the FirstCaribbean acquisition.
For details on the provision for credit losses, see "Review of
consolidated statement of operations" section.
Management of market risk
Trading activities
------------------
The following table shows Value-at-Risk (VaR) by risk-type for CIBC's
trading activities. Total average risk was up from the same quarter last year
primarily due to higher levels of interest rate risk, partially offset by
lower levels of credit spread risk. Total average risk was down from the prior
quarter primarily due to lower levels of credit spread risk. Trading revenue
(TEB)(A) was positive for 91% of the days in the quarter and trading losses
did not exceed VaR for any day.
-------------------------------------------------------------------------
VaR BY RISK TYPE - TRADING PORTFOLIO
Jan. 31, 2007
------------------------------------------
$ millions, as at or for
the three months ended High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 10.3 $ 4.6 $ 8.6 $ 7.0
Credit spread risk 4.1 3.0 3.2 3.5
Equity risk 7.6 5.4 5.8 6.4
Foreign exchange risk 1.0 0.2 0.6 0.4
Commodity risk 3.5 0.8 1.5 1.6
Diversification effect(1) n/m(2) n/m(2) (10.2) (9.9)
------------------------------ ---------------------
Total risk $ 11.0 $ 7.3 $ 9.5 $ 9.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
VaR BY RISK TYPE - TRADING PORTFOLIO
Oct. 31, 2006 Jan. 31, 2006
------------------------------------------
$ millions, as at or for
the three months ended As at Average As at Average
-------------------------------------------------------------------------
Interest rate risk $ 6.1 $ 6.2 $ 7.1 $ 3.8
Credit spread risk 5.7 5.8 4.4 4.4
Equity risk 6.1 5.5 6.0 5.9
Foreign exchange risk 0.4 0.4 0.3 0.3
Commodity risk 1.2 1.9 1.4 1.4
Diversification effect(1) (10.3) (10.4) (9.7) (7.6)
-------------------------------------------------------------------------
Total risk $ 9.2 $ 9.4 $ 9.5 $ 8.2
-------------------------------------------------------------------------
(1) Aggregate VaR is less than the sum of the VaR of the different market
risk types due to risk offsets resulting from portfolio
diversification effect.
(2) Not meaningful. It is not meaningful to compute a diversification
effect because the high and low may occur on different days for
different risk types.
Non-trading activities
----------------------
The following table shows the potential impact of an immediate 100 basis
points increase and decrease in interest rates over the next 12 months, as
adjusted for estimated prepayments.
-------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
- NON TRADING (AFTER-TAX) 2007 2006 2006
$ millions, as at Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
100 basis points increase in
interest rates
Impact on net interest income $ 12 $ 35 $ 78
Impact on shareholders' equity(1) 183 203 179
100 basis points decrease in
interest rates
Impact on net interest income $ (72) $ (111) $ (110)
Impact on shareholders' equity(1) (239) (274) (179)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Measured on a present value basis.
(A) For additional information, see the "Non-GAAP measures" section.
Management of liquidity risk
Consistent with our liquidity risk mitigation strategies, we continue to
source term funding in the wholesale markets from a variety of clients and
geographic locations, borrowing across a range of maturities using a mix of
funding instruments. Core personal deposits remain a prime source of
dependable retail funding. As at January 31, 2007, Canadian dollar deposits
from individuals totalled $80.0 billion (October 31, 2006: $77.4 billion).
Strategies for managing liquidity risk include maintaining diversified
sources of wholesale term funding, asset securitization initiatives, capital
and subordinated debt issuance, and maintenance of segregated pools of high-
quality liquid assets that can be sold or pledged as security to provide a
ready source of cash.
The following table summarizes our liquid assets:
-------------------------------------------------------------------------
2007 2006
$ billions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.2 $ 0.9
Deposits with banks 16.5 10.9
Securities(1) 71.5 66.8
Securities borrowed or purchased under resale
agreements 24.0 25.4
-------------------------------------------------------------------------
Total $ 113.2 $ 104.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes available-for-sale securities (2006: investment securities)
and securities designated at fair value with residual term to
contractual maturity within one year, and trading securities.
In the course of our regular business activities, certain assets are
pledged as part of collateral management, including those necessary for
day-to-day clearing and settlement of payments and securities. Pledged assets
as at January 31, 2007 totalled $27.1 billion (October 31, 2006: $25.5
billion).
Management of capital resources
Regulatory capital
------------------
Regulatory capital is determined in accordance with guidelines issued by
the Office of the Superintendent of Financial Institutions (OSFI).
-------------------------------------------------------------------------
2007 2006
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 11,932 $ 11,935
Total regulatory capital 17,499 16,583
Risk-weighted assets 124,118 114,780
Tier 1 capital ratio 9.6% 10.4%
Total capital ratio 14.1% 14.5%
Assets-to-capital multiple 18.1x 18.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Tier 1 ratio was down 80 basis points from the year-end, largely due to
an increase in risk-weighted assets and goodwill, both arising from the
purchase of the controlling interest in FirstCaribbean. These factors were
partially offset by the minority interest in FirstCaribbean, the increase in
retained earnings and foreign currency translation adjustments.
Total capital ratio was down 40 basis points from year-end, largely due
to the factors noted above. The total capital ratio benefited from the
reduction in equity-accounted investments as a result of our FirstCaribbean
acquisition.
On February 2, 2007, subsequent to the quarter-end, we acquired an
additional 8.5% interest in FirstCaribbean pursuant to our tender offer. As a
result, our capital ratios will be affected by an increase in the goodwill
deduction and a decrease in the minority interest. However, the effect is not
expected to be significant.
Significant capital management activities
-----------------------------------------
The following table summarizes our significant capital management
activities:
-------------------------------------------------------------------------
2007
$ millions, for the three months ended Jan. 31
-------------------------------------------------------------------------
Issue of Class A Preferred Shares Series 31 $ 450
Redemption of Class A Preferred Shares Series 24 (416)(1)
Issue of common shares (options exercised) 50
Dividends
Preferred shares - classified as equity (38)
Preferred shares - classified as liabilities (8)
Common shares (235)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $16 million premium on redemption.
Subsequent to the quarter-end, on February 14, 2007, we issued 12 million
Non-cumulative Class A Series 32 Preferred Shares for an aggregate amount of
$300 million.
For additional details, see Note 5 to the interim consolidated financial
statements.
Regulatory approval to pay dividends
------------------------------------
We have obtained the approval of OSFI under section 79 of the Bank Act
(Canada) to pay dividends on our common shares and Class A Preferred Shares
for the quarter ended January 31, 2007.
Subsequent to the quarter-end, we obtained the approval of OSFI to pay
dividends on our common shares and Class A Preferred Shares for the quarter
ending April 30, 2007.
Off-balance sheet arrangements and contractual obligations
-------------------------------------------------------------------------
Off-balance sheet arrangements
We enter into several types of off-balance sheet arrangements in the
normal course of our business. These include transactions with VIEs,
derivatives, credit-related arrangements and guarantees. Details on our off-
balance sheet arrangements are provided on pages 67 to 69 of the 2006 Annual
Accountability Report. For additional details on securitizations and
guarantees, see the notes to the interim consolidated financial statements.
There were no other significant changes to off-balance sheet arrangements
during the quarter.
Contractual obligations
Details on our contractual obligations are provided on page 69 of the
2006 Annual Accountability Report.
On November 1, 2006, we amended a contract to extend an existing three
year commitment to seven years, and thereby increased the purchase obligation
by approximately $600 million through 2013. There were no significant changes
to contractual obligations that were not in the ordinary course of our
business.
Critical accounting policies and estimates
-------------------------------------------------------------------------
A summary of significant accounting policies is presented in Note 1 to
the 2006 consolidated financial statements.
Certain accounting policies of CIBC are critical to understanding the
results of operations and financial condition of CIBC. These critical
accounting policies require management to make certain judgments and
estimates, some of which may relate to matters that are uncertain. Significant
changes in accounting policies were adopted on November 1, 2006 related to the
financial instruments standards noted below. For a description of the
judgments and estimates involved in the application of critical accounting
policies and assumptions made for pension and other benefit plans, see pages
70 to 73 of the 2006 Annual Accountability Report.
Changes in accounting policy
------------------------------------------------------------------------
Financial instruments
On November 1, 2006, we adopted the Canadian Institute of Chartered
Accountants (CICA) handbook sections 3855 "Financial Instruments - Recognition
and Measurement," 3865 "Hedges" (including the amendments to the transitional
provisions finalized by the CICA on December 15, 2006 by way of a Board
Notice), 1530 "Comprehensive Income," and 3251 "Equity."
The standards require that all financial assets be classified as trading,
designated at fair value, available for sale, held to maturity, or loans and
receivables. In addition, the standards require that all financial assets,
including all derivatives, be measured at fair value with the exception of
loans and receivables, debt securities classified as held-to-maturity, and
available-for-sale equities that do not have quoted market values in another
active market. As required, these standards have been applied as an adjustment
to opening retained earnings and accumulated other comprehensive income
(AOCI). As a result, retained earnings decreased by $50 million; and AOCI
increased by $123 million, excluding the impact of the reclassification of the
foreign currency translation adjustments opening balance to AOCI. Prior period
balances have not been restated.
For further details, see Note 1 to the interim consolidated financial
statements.
Future accounting changes
-------------------------------------------------------------------------
Leveraged leases
In July 2006, the Financial Accounting Standards Board (FASB) issued a
FASB Staff Position (FSP) FAS 13-2, "Accounting for a Change or Projected
Change in the Timing of Cash Flows Relating to Income Taxes Generated by a
Leveraged Lease Transaction," which amends Statement of Financial Accounting
Standard 13, certain aspects of which are incorporated in the CICA Emerging
Issues Abstract (EIC) 46, "Leveraged Leases." The FSP is effective beginning
November 1, 2007.
For additional details, see page 130 of our 2006 Annual Accountability
Report.
Controls and procedures
-------------------------------------------------------------------------
Disclosure controls and procedures
CIBC's management, with the participation of the Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness, as at
January 31, 2007, of CIBC's disclosure controls and procedures (as defined in
the rules of the SEC and the Canadian Securities Administrators) and has
concluded that such disclosure controls and procedures are effective.
Changes in internal control over financial reporting
There have been no changes in CIBC's internal control over financial
reporting during the quarter ended January 31, 2007, that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.
Non-GAAP measures
-------------------------------------------------------------------------
We use a number of financial measures to assess the performance of our
business lines. Some measures are calculated in accordance with GAAP, while
other measures do not have a standardized meaning under GAAP, and,
accordingly, these measures may not be comparable to similar measures used by
other companies. Investors may find these non-GAAP financial measures useful
in analyzing financial performance. For a more detailed discussion on our non-
GAAP measures, see page 37 of the 2006 Annual Accountability Report.
The following tables provide a reconciliation of our non-GAAP to GAAP
measures:
Statement of operations measures
-------------------------------------------------------------------------
CIBC CIBC
$ millions, for the Retail World Corporate CIBC
three months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Jan. 31, 2007
Total revenue $ 2,151 $ 784 $ 156 $ 3,091
Add: adjustment for TEB - 62 - 62
-------------------------------------------------------------------------
Revenue (TEB) $ 2,151 $ 846 $ 156 $ 3,153
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 530 $ 210 $ 30 $ 770
Less: charge for economic
capital 125 64 4 193
-------------------------------------------------------------------------
Economic profit $ 405 $ 146 $ 26 $ 577
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 59.9% 70.3% n/m 62.9%
Less: adjustment for
impact of TEB - 5.1 n/m 1.3
amortization of other
intangible assets 0.2 - n/m 0.1
-------------------------------------------------------------------------
Efficiency ratio cash
basis (TEB) 59.7% 65.2% n/m 61.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2006
Total revenue $ 2,046 $ 697 $ 147 $ 2,890
Add: adjustment for TEB - 77 - 77
-------------------------------------------------------------------------
Revenue (TEB) $ 2,046 $ 774 $ 147 $ 2,967
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 501 $ 218 $ 100 $ 819
Less: charge for economic
capital 117 64 5 186
-------------------------------------------------------------------------
Economic profit $ 384 $ 154 $ 95 $ 633
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 61.4% 69.6% n/m 65.5%
Less: adjustment for
impact of TEB - 7.0 n/m 1.7
amortization of other
intangible assets 0.1 - n/m 0.3
-------------------------------------------------------------------------
Efficiency ratio cash
basis (TEB) 61.3% 62.6% n/m 63.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2006
Total revenue $ 2,068 $ 679 $ 111 $ 2,858
Add: adjustment for TEB - 46 - 46
-------------------------------------------------------------------------
Revenue (TEB) $ 2,068 $ 725 $ 111 $ 2,904
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 438 $ 128 $ 14 $ 580
Less: charge for economic
capital 126 64 5 195
-------------------------------------------------------------------------
Economic profit $ 312 $ 64 $ 9 $ 385
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 60.2% 78.3% n/m 65.7%
Less: adjustment for
impact of TEB - 4.9 n/m 1.1
amortization of other
intangible assets - - n/m 0.2
-------------------------------------------------------------------------
Efficiency ratio cash
basis (TEB) 60.2% 73.4% n/m 64.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
n/m - not meaningful
Adjusted income taxes
Adjusted effective tax rate is calculated by adjusting the tax expense
for significant tax recoveries and tax rate changes. The adjusted effective
tax rate (TEB) is calculated by also grossing up income and income taxes with
the tax-exempt income to an equivalent before-tax basis.
-------------------------------------------------------------------------
For the three months ended
--------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan.31
-------------------------------------------------------------------------
Income before taxes and
non-controlling interests A $ 1,005 $ 906 $ 815
TEB adjustment B 62 77 46
-------------------------------------------------------------------------
Income before taxes and
non-controlling interests (TEB) C $ 1,067 $ 983 $ 861
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Reported income taxes per
financial statements D $ 231 $ 87 $ 238
TEB adjustment B 62 77 46
Income tax recoveries E - 90 -
-------------------------------------------------------------------------
Adjusted income taxes F $ 293 $ 254 $ 284
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Reported effective income
tax rate (TEB) (D+B)/C 27.5% 16.7% 33.0%
Adjusted effective income
tax rate (D+E)/A 23.0% 19.5% 29.2%
Adjusted effective income
tax rate (TEB) F/C 27.5% 25.8% 33.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash basis measures
Cash basis measures are calculated by adjusting the amortization of other
intangible assets to net income and non-interest expenses. Management believes
these measures permit uniform measurement, which enables users of our
financial information to make comparisons more readily.
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Net income $ 770 $ 819 $ 580
Add: after-tax effect of
amortization of other intangible
assets 4 5 5
-------------------------------------------------------------------------
Cash basis - net income $ 774 $ 824 $ 585
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-interest expenses $ 1,943 $ 1,892 $ 1,877
Less: amortization of other
intangible assets (5) (8) (7)
-------------------------------------------------------------------------
Cash basis - non-interest expenses $ 1,938 $ 1,884 $ 1,870
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash basis - Basic EPS $ 2.14 $ 2.36 $ 1.65
Cash basis - Diluted EPS $ 2.12 $ 2.34 $ 1.63
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended
-------------------------------------
2007 2006 2006
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Interest income
Loans $ 2,304 $ 2,279 $ 2,033
Securities borrowed or purchased
under resale agreements 472 467 333
Securities 762 778 620
Deposits with banks 173 130 87
-------------------------------------------------------------------------
3,711 3,654 3,073
-------------------------------------------------------------------------
Interest expense
Deposits 1,903 1,742 1,328
Other liabilities 665 696 517
Subordinated indebtedness 76 78 72
Preferred share liabilities 8 8 8
-------------------------------------------------------------------------
2,652 2,524 1,925
-------------------------------------------------------------------------
Net interest income 1,059 1,130 1,148
-------------------------------------------------------------------------
Non-interest income
Underwriting and advisory fees 185 165 180
Deposit and payment fees 193 195 195
Credit fees 69 107 88
Card fees 70 74 64
Investment management and
custodial fees 130 127 114
Mutual fund fees 212 203 194
Insurance fees, net of claims 58 57 58
Commissions on securities
transactions 229 206 229
Trading revenue (Note 8) 375 285 262
Investment securities gains
(losses), net n/a 27 (2)
Realized net gains on available for
sale securities 132 n/a n/a
Revenue on financial instruments
designated at fair value and
related economic hedges (Note 9) 43 n/a n/a
Income from securitized assets 129 126 116
Foreign exchange other than trading 84 62 64
Other 123 126 148
-------------------------------------------------------------------------
2,032 1,760 1,710
-------------------------------------------------------------------------
Total revenue 3,091 2,890 2,858
-------------------------------------------------------------------------
Provision for credit losses (Note 3) 143 92 166
-------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 1,160 1,064 1,080
Occupancy costs 150 136 146
Computer and office equipment 263 286 273
Communications 71 73 75
Advertising and business development 50 68 47
Professional fees 39 43 44
Business and capital taxes 35 36 31
Other 175 186 181
-------------------------------------------------------------------------
1,943 1,892 1,877
-------------------------------------------------------------------------
Income before income taxes and
non-controlling interests 1,005 906 815
Income tax expense 231 87 238
-------------------------------------------------------------------------
774 819 577
Non-controlling interests 4 - (3)
-------------------------------------------------------------------------
Net income $ 770 $ 819 $ 580
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share
(in dollars) (Note 11) - Basic $ 2.13 $ 2.34 $ 1.64
- Diluted $ 2.11 $ 2.32 $ 1.62
Dividends per common
share (in dollars) $ 0.70 $ 0.70 $ 0.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
n/a not applicable. Beginning November 1, 2006, certain new accounting
categories have been created pursuant to adoption of the Canadian
Institute of Chartered Accountants (CICA) handbook sections 3855,
3865, 1530 and 3251. These sections were adopted on a prospective
basis with no restatement of prior period information. See Note 1
for additional details.
The accompanying notes are an integral part of these interim consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
2007 2006
Unaudited, $ millions, as at Jan. 31 Oct. 31
------------------------------------------------------------ -----------
ASSETS
Cash and non-interest-bearing deposits
with banks $ 1,938 $ 1,317
------------------------------------------------------------ -----------
Interest-bearing deposits with banks 15,754 10,536
------------------------------------------------------------ -----------
Securities
Trading (Note 8) 68,113 62,331
Available for sale 15,708 n/a
Designated at fair value (Note 9) 6,969 n/a
Investment n/a 21,167
------------------------------------------------------------ -----------
90,790 83,498
------------------------------------------------------------ -----------
Securities borrowed or purchased under
resale agreements 23,968 25,432
------------------------------------------------------------ -----------
Loans
Residential mortgages 83,338 81,358
Personal 28,622 28,052
Credit card 7,612 7,253
Business and government (Notes 8 and 9) 34,528 30,404
Allowance for credit losses (Note 3) (1,554) (1,442)
------------------------------------------------------------ -----------
152,546 145,625
------------------------------------------------------------ -----------
Other
Derivative instruments market valuation (Note 7) 17,665 17,122
Customers' liability under acceptances 6,984 6,291
Land, buildings and equipment 2,212 2,032
Goodwill 1,951 982
Other intangible assets 456 192
Other assets 8,344 10,957
------------------------------------------------------------ -----------
37,612 37,576
------------------------------------------------------------ -----------
$ 322,608 $ 303,984
------------------------------------------------------------ -----------
------------------------------------------------------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 88,954 $ 81,829
Business and government (Note 9) 118,955 107,468
Bank 15,716 13,594
------------------------------------------------------------ -----------
223,625 202,891
------------------------------------------------------------ -----------
Other
Derivative instruments market valuation (Note 7) 16,694 17,330
Acceptances 6,984 6,297
Obligations related to securities sold short 13,719 13,788
Obligations related to securities lent or sold
under repurchase agreements 29,255 30,433
Other liabilities 12,295 14,716
------------------------------------------------------------ -----------
78,947 82,564
------------------------------------------------------------ -----------
Subordinated indebtedness 5,991 5,595
------------------------------------------------------------ -----------
Preferred share liabilities 600 600
------------------------------------------------------------ -----------
Non-controlling interests 278 12
------------------------------------------------------------ -----------
Shareholders' equity
Preferred shares 2,431 2,381
Common shares 3,114 3,064
Treasury shares (1) (19)
Contributed surplus 74 70
Foreign currency translation adjustments n/a (442)
Retained earnings 7,693 7,268
Accumulated other comprehensive income (Note 6) (144) n/a
------------------------------------------------------------ -----------
13,167 12,322
------------------------------------------------------------ -----------
$ 322,608 $ 303,984
------------------------------------------------------------ -----------
------------------------------------------------------------ -----------
n/a not applicable. See the "Consolidated statement of operations" for
additional details.
The accompanying notes are an integral part of these interim consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended
-------------------------------------
2007 2006 2006
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Preferred shares
Balance at beginning of period $ 2,381 $ 2,381 $ 2,381
Issue of preferred shares 450 - -
Redemption of preferred shares (400) - -
-------------------------------------------------------------------------
Balance at end of period $ 2,431 $ 2,381 $ 2,381
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
Balance at beginning of period $ 3,064 $ 3,037 $ 2,952
Issue of common shares 50 27 40
-------------------------------------------------------------------------
Balance at end of period $ 3,114 $ 3,064 $ 2,992
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Treasury shares
Balance at beginning of period $ (19) $ (24) $ -
Purchases (1,356) (771) (1,406)
Sales 1,374 776 1,401
-------------------------------------------------------------------------
Balance at end of period $ (1) $ (19) $ (5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contributed surplus
Balance at beginning of period $ 70 $ 67 $ 58
Stock option expense 2 2 1
Stock options exercised (4) (1) (3)
Net premium on treasury shares 6 2 -
-------------------------------------------------------------------------
Balance at end of period $ 74 $ 70 $ 56
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign currency translation
adjustments
Balance at beginning of period $ (442) $ (415) $ (327)
Transitional adjustment on adoption
of new accounting policies(1) 442 - -
Foreign exchange losses from
investment in subsidiaries and
other items n/a (114) (546)
Foreign exchange gains from hedging
activities n/a 131 746
Income tax expense n/a (44) (248)
-------------------------------------------------------------------------
Balance at end of period $ - $ (442) $ (375)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of period,
as previously reported $ 7,268 $ 6,712 $ 5,667
Transitional adjustment on adoption
of new accounting policies(1) (50) - -
-------------------------------------------------------------------------
Balance at beginning of period,
as restated 7,218 6,712 5,667
Net income 770 819 580
Dividends
Preferred (38) (33) (33)
Common (235) (234) (227)
Premium on redemption of preferred
shares (classified as equity) (16) - -
Other (6) 4 -
-------------------------------------------------------------------------
Balance at end of period $ 7,693 $ 7,268 $ 5,987
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive
income (AOCI), net of tax (Note 6)
Transitional adjustment on adoption
of new accounting policies(1) $ (319) n/a n/a
Other comprehensive income 175 n/a n/a
-------------------------------------------------------------------------
Balance at end of period $ (144) n/a n/a
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings and AOCI $ 7,549 $ 7,268 $ 5,987
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shareholders' equity at end
of period $ 13,167 $ 12,322 $ 11,036
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Represents the transitional adjustment on adoption of the CICA
handbook sections 3855, 3865, 1530 and 3251. See Note 1 for
additional details.
n/a not applicable. See the "Consolidated statement of operations" for
additional details.
The accompanying notes are an integral part of these interim consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2007
Unaudited, $ millions, for the three months ended Jan. 31
-------------------------------------------------------------------------
Net income $ 770
-------------------------------------------------------------------------
Other comprehensive income, net of tax
Foreign currency translation adjustments
Net gains on investment in self-sustaining foreign
operations(1) 805
Net losses on hedges of foreign currency translation
adjustments(2) (603)
-------------------------------------------------------------------------
202
-------------------------------------------------------------------------
Unrealized gains (losses) on available for sale securities
Net unrealized losses on securities available for sale(3) (43)
Transfer of net gains to net income(4) (28)
-------------------------------------------------------------------------
(71)
-------------------------------------------------------------------------
Gains (losses) on cash flow hedges
Net gains on derivatives designated as cash flow hedges(5) 73
Net gains on derivatives designated as cash flow hedges
transferred to net income(6) (29)
-------------------------------------------------------------------------
44
-------------------------------------------------------------------------
Total other comprehensive income(7) 175
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive income $ 945
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net of income tax expense of $(10) million.
(2) Net of income tax benefit of $313 million.
(3) Net of income tax benefit of $29 million.
(4) Net of income tax benefit of $16 million.
(5) Net of income tax expense of $(39) million.
(6) Net of income tax benefit of $15 million.
(7) Includes non-controlling interest of $1 million.
The accompanying notes are an integral part of these interim consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended
-------------------------------------
2007 2006 2006
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Cash flows provided by (used in)
operating activities
Net income $ 770 $ 819 $ 580
Adjustments to reconcile net income
to cash flows provided by (used
in) operating activities:
Provision for credit losses 143 92 166
Amortization of buildings,
furniture, equipment and
leasehold improvements 53 51 54
Amortization of other intangible
assets 5 8 7
Stock-based compensation 18 15 15
Future income taxes 63 163 77
Investment securities (gains)
losses realized, net n/a (27) 2
Realized net gains on available
for sale securities (132) n/a n/a
Losses on disposal of land,
buildings and equipment - 1 -
Other non-cash items, net 50 - -
Changes in operating assets and
liabilities
Accrued interest receivable (106) (92) 17
Accrued interest payable (474) 309 13
Amounts receivable on
derivative contracts (404) 275 931
Amounts payable on derivative
contracts (958) 85 (58)
Net change in trading securities (4,238) (2,093) (7,117)
Net change in securities
designated at fair value (629) n/a n/a
Net change in other assets and
liabilities designated at fair
value 187 n/a n/a
Current income taxes (377) (116) 53
Other, net (1,742) 166 (1,890)
-------------------------------------------------------------------------
(7,771) (344) (7,150)
-------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities
Deposits, net of withdrawals 5,554 2,876 932
Obligations related to securities
sold short (69) (348) 328
Net obligations related to
securities lent or sold under
repurchase agreements (1,178) 5,541 9,634
Issue of subordinated indebtedness 234 - -
Redemption of subordinated
indebtedness - (250) (250)
Redemption of preferred shares (416) - -
Issue of preferred shares 450 - -
Issue of common shares 50 27 40
Net proceeds from treasury shares
sold (purchased) 18 5 (5)
Dividends (273) (267) (260)
Other, net 353 249 150
-------------------------------------------------------------------------
4,489 7,833 10,569
-------------------------------------------------------------------------
Cash flows provided by (used in)
investing activities
Interest-bearing deposits with banks (2,494) (411) 1,479
Loans, net of repayments 1,295 (5,521) 355
Proceeds from securitizations 2,537 1,950 2,026
Investment securities
Purchase of securities n/a (2,504) (6,011)
Proceeds from sale of securities n/a 2,325 1,294
Proceeds from maturity of
securities n/a 435 641
Available for sale securities
Purchase of securities (1,787) n/a n/a
Proceeds from sale of securities 1,462 n/a n/a
Proceeds from maturity of
securities 2,396 n/a n/a
Net securities borrowed or purchased
under resale agreements 1,464 (3,792) (3,185)
Net cash used in acquisition(1) (778) - (75)
Purchase of land, buildings
and equipment (233) (51) (6)
Proceeds from disposal of land,
buildings and equipment - 1 -
-------------------------------------------------------------------------
3,862 (7,568) (3,482)
-------------------------------------------------------------------------
Effect of exchange rate changes on
cash and non-interest-bearing
deposits with banks 41 (8) (12)
-------------------------------------------------------------------------
Net increase (decrease) in cash and
non-interest-bearing deposits with
banks during period 621 (87) (75)
Cash and non-interest-bearing
deposits with banks at beginning
of period 1,317 1,404 1,310
-------------------------------------------------------------------------
Cash and non-interest-bearing
deposits with banks at end
of period $ 1,938 $ 1,317 $ 1,235
-------------------------------------------------------------------------
Cash interest paid $ 3,126 $ 2,215 $ 1,912
Cash income taxes paid $ 545 $ 41 $ 108
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) On December 22, 2006, we acquired a controlling interest in
FirstCaribbean International Bank. On November 1, 2005, we purchased
the remaining non-controlling interest in INTRIA Items Inc.
n/a not applicable. See the "Consolidated statement of operations" for
additional details.
The accompanying notes are an integral part of these interim consolidated
financial statements.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The interim consolidated financial statements of Canadian Imperial Bank
of Commerce and its subsidiaries (CIBC) have been prepared in accordance
with Canadian generally accepted accounting principles (GAAP). These
financial statements follow the same accounting policies and their
methods of application as CIBC's consolidated financial statements for
the year ended October 31, 2006, except as noted below. CIBC's interim
consolidated financial statements do not include all disclosures required
by Canadian GAAP for annual financial statements and, accordingly, should
be read in conjunction with the consolidated financial statements for the
year ended October 31, 2006, as set out on pages 80 to 130 of the 2006
Annual Accountability Report.
During the quarter, we revisited our presentation of certain revenue and
expense items for prior periods to better reflect the nature of these
items. Accordingly, certain comparative amounts have been reclassified to
conform with the presentation adopted in the current period.
1. Change in accounting policy
On November 1, 2006, we adopted the CICA handbook sections 3855
"Financial Instruments - Recognition and Measurement," 3865 "Hedges"
(including the amendments to the transitional provisions finalized by the
CICA on December 15, 2006 by way of a Board Notice), 1530 "Comprehensive
Income," and 3251 "Equity."
The standards require that all financial assets be classified as trading,
designated at fair value (FVO), available for sale (AFS), held to
maturity (HTM), or loans and receivables. The investment securities
classification is no longer applicable under the new rules. In addition,
the standards require that all financial assets, including all
derivatives, 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.
Fair values are based on quoted market prices where available from active
markets, otherwise fair values are estimated using a variety of valuation
techniques and models.
Transaction costs related to trading securities are expensed as incurred.
Transaction costs related to AFS and HTM securities and loans and
receivables are generally capitalized and are then amortized over the
expected life of the instrument using the effective yield method.
Settlement date accounting continues to be used for all securities,
except changes in fair value between the trade date and settlement date
are reflected in income for trading and FVO securities, while changes in
fair value between trade date and settlement date are reflected in other
comprehensive income (OCI) for AFS securities.
Classification of financial instruments
Trading financial assets are securities purchased for resale, generally
within a short period of time. Trading financial liabilities are
obligations related to securities sold short. They are measured at fair
value at the balance sheet date. Gains and losses realized on disposal
and unrealized gains and losses from market fluctuations continue to be
reported in income as trading revenue. Dividends and interest earned and
interest incurred are included in interest income and expense,
respectively.
Designated at fair value (FVO) financial assets and financial liabilities
are those that an entity designates on initial recognition as instruments
that it will measure at fair value through the consolidated statement of
operations. These are accounted for in the same manner as trading
financial assets and financial liabilities. There are regulatory
restrictions imposed by the Office of the Superintendent of Financial
Institutions (OSFI) on the use of this designation including that retail
asset exposures are precluded from being designated and that the fair
value designated financial instruments are managed on a fair value basis.
Reliable fair values are required.
Held-to-maturity financial assets are non-derivative financial assets
with fixed or determinable payments and a fixed maturity, other than
loans and receivables, that an entity has the positive intention and
ability to hold to maturity. These financial assets are accounted for at
amortized cost. We have not designated any financial assets as HTM.
Available-for-sale financial assets are those non-derivative financial
assets that are designated as AFS, or that are not classified as loans
and receivables, HTM investments, trading or designated at fair value.
Securities included in this category comprise debt and equity securities,
including investments over which we have no significant influence. Except
for equities that do not have quoted market values in an active market,
AFS securities are carried at fair value whereby the unrealized gains and
losses are included in accumulated other comprehensive income (AOCI)
until sale or other-than-temporary impairment when the cumulative gain or
loss is transferred 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 other-than-temporary impairments in
value are included in non-interest income. Dividends and interest income
from these securities are included in interest income.
Loans and receivables continue to be accounted for at amortized cost.
Financial liabilities are recorded at amortized cost and include all
liabilities, other than derivatives, obligations related to securities
sold short, or liabilities to which the fair value option has been
applied.
Derivatives are always carried at fair value and are reported as assets
where they have a positive fair value and as liabilities where they have
a negative fair value, in both cases as derivative instruments market
valuation. Derivatives may be embedded in other financial instruments.
Under the new standards, 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 free standing derivative; and the combined contract is not
held for trading or designated at fair value. These embedded derivatives
are classified as part of the host instrument and measured at fair value
with changes therein recognized in the consolidated statement of
operations. We elected to apply this accounting treatment to all host
contracts at November 1, 2006.
Equity
Accumulated other comprehensive income is included on the consolidated
balance sheet as a separate component of shareholders' equity (net of
tax), and includes net unrealized gains and losses on AFS securities,
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 the gains or losses
on related hedges.
Hedge accounting
Where derivatives are held for risk management purposes, and when
transactions meet the criteria specified in the CICA handbook section
3865, we apply fair value hedge accounting, cash flow hedge accounting,
or accounting for hedges of net investments in self-sustaining foreign
operations, as appropriate, to the risks being hedged. When hedge
accounting is not applied the change in the fair value of the derivative
is always recognized in income, including for instruments used for
economic hedging purposes such as seller swaps 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, outlining the
particular risk management objective and strategy, the specific asset,
liability or cash flow being hedged, as well as how effectiveness is
assessed.
We document our assessment of the effectiveness of the derivatives that
are used in hedging transactions in offsetting changes in fair values or
cash flows of the hedged items both at the hedge 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 differs from the cumulative
change in the fair value of expected future cash flows of the hedged
item. Effectiveness requires a high correlation of changes in fair values
or cash flows. The amount of ineffectiveness, provided that it is not to
the extent as to disqualify the entire hedge for hedge accounting, is
recorded in income.
The change in fair value of derivatives not designated as accounting
hedges but used to economically hedge financial asset or liabilities
designated at fair value is included in revenue on financial instruments
designated at fair value and related economic hedges. The change in fair
value of other derivatives not designated as accounting hedges but used
for other economic hedging purposes is included in either foreign
exchange other than trading (FXOTT) or other non-interest income. The
change in fair value of all other trading derivatives is included in
trading revenue.
Fair value hedges
-----------------
We designate fair value hedges 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. These hedges minimize
fluctuations in income that are caused by interest rate volatility
through the creation of basis adjustments to the hedged financial
instruments that are recognized in net interest income against the change
in fair value recognized in net interest income from the hedging
derivatives. Accordingly, any hedge ineffectiveness, representing the
difference between change in fair value of the hedging derivative and the
change in the basis adjustment to the hedged item, is also recognized in
net interest income.
We also designate fair value hedges as part of foreign exchange risk
management strategies that use derivatives and other financial
instruments to hedge changes in the fair value of financial instruments
denominated in a currency other than the functional currency. These
hedges minimize fluctuations in income that are caused by foreign
exchange volatility through the creation of basis adjustments to the
hedged financial instruments that are recognized in FXOTT against the
change in fair value recognized in FXOTT from the hedging financial
instruments. Accordingly, any hedge ineffectiveness is also recognized in
FXOTT.
In the absence of the basis adjustments created by these hedges, only the
change in fair value of the hedging instruments would be recognized in
income.
The basis adjustment included in income is equal to the gain or loss on
the hedged item attributed to the risk being hedged. 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 to the hedged item is
amortized over the remaining term of the original hedge. If the hedged
item is derecognized, the unamortized basis adjustment is recognized
immediately in income.
Upon the adoption of the new standards we re-established various fair
value hedging relationships pursuant to which certain deferred hedge
balances have been included as a basis adjustment to the hedged item. The
accumulated ineffectiveness related to these hedges has been recognized
in retained earnings together with deferred hedge balances related to
current and past hedging relationships that have not been continued or
would not qualify for hedge effectiveness under the new rules.
Cash flow hedges
----------------
We designate cash flows hedges as part of risk management strategies that
use derivatives and other financial instruments to mitigate our risk from
variable cash flows by hedging forecasted foreign currency denominated
cash flows and by converting certain variable rate financial instruments
to fixed rate financial instruments.
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 earnings in future accounting periods at
which time the amount that was in the AOCI is reclassified into income.
The ineffective portion of the change in fair value of the hedging
derivative is recognized either in FXOTT or net interest income. 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 any remaining amount in AOCI remains
therein and is recognized in income when the hedged forecast transaction
is ultimately recognized in income. When the forecasted transaction is no
longer expected to occur, the cumulative gain or loss that was reported
in the AOCI is immediately recognized in income.
Upon the adoption of the new standards we re-established various cash
flow hedging relationships pursuant to which certain deferred hedge
balances have been included as an adjustment to the AOCI. The accumulated
ineffectiveness related to these hedges has been recognized in retained
earnings together with deferred hedge balances related to current and
past hedging relationships that have not been continued or would not
qualify for hedge effectiveness under the new rules.
Hedges of net investments in self-sustaining foreign operations
---------------------------------------------------------------
We designate net investment in foreign operation hedges to protect our
investment in self sustaining operations against adverse movement in
foreign exchange rates.
These hedges are accounted for in a similar manner to cash flow hedges as
the effective portion of the changes in fair value of the hedging
derivative instruments is included in OCI until the reduction of the net
investment at which time any gains or losses in the AOCI are recognized
in FXOTT. The ineffective portion of the change in fair value of the
hedging derivative is recognized in FXOTT.
Transitional adjustment
As required, these standards have been applied as an adjustment to
opening retained earnings and accumulated other comprehensive income.
Prior period balances have not been restated. The impact of adopting
these standards as at November 1, 2006 was as follows:
-------------------------------------------------------------------------
Adjustment
upon
As at adoption As at
Oct. 31, of new Nov. 1,
$ millions 2006 standards 2006
-------------------------------------------------------------------------
ASSETS
Securities
Investment $ 21,167 $ (21,167) $ -
Available for sale - 16,006 16,006
Trading 62,331 (552) 61,779
Designated at fair value - 6,340 6,340
-------------------------------------------------------------------------
83,498 627 84,125
-------------------------------------------------------------------------
Loans 145,625 136 145,761
Derivative instruments market
valuation 17,122 1,585 18,707
Other assets 10,957 (1,701) 10,215
-------------------------------------------------------------------------
Impact on total assets $ 257,202 $ 647 $ 257,849
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits $ 202,891 $ (44) $ 202,847
Derivative instruments market
valuation 17,330 1,565 18,895
Other liabilities 14,716 (947) 13,769
-------------------------------------------------------------------------
Impact on total liabilities 234,937 574 235,511
-------------------------------------------------------------------------
Shareholders' equity
Foreign currency translation
adjustments (442) 442 -
Retained earnings 7,268 (50) 7,218
Accumulated other comprehensive
income
Foreign currency translation
adjustments - (442) (442)
Unrealized gains (losses) on
AFS securities - (29) (29)
Gains (losses) on cash flow
hedges - 152 152
-------------------------------------------------------------------------
Impact on shareholders' equity 6,826 73 6,899
-------------------------------------------------------------------------
Impact on liabilities and
shareholders' equity $ 241,763 $ 647 $ 242,410
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The $16,006 million of financial assets classified as AFS included
$15,429 million (fair value $15,391 million) and $615 million (fair value
$615 million) of financial assets previously classified as investment
securities and other assets, respectively. The $6,340 million of
financial assets classified as designated at fair value securities
included $5,738 million (fair value $5,799 million) and $541 million
(fair value $541 million) of financial assets previously classified as
investment securities and trading securities, respectively.
2. Acquisition
On December 22, 2006, we obtained control of FirstCaribbean International
Bank (FirstCaribbean) by acquiring 90% of Barclay's Bank PLC's (Barclays)
interest in FirstCarribean which represents a further 39.3% ownership
interest. As a result of this transaction, as at January 31, 2007, we
owned approximately 83.0% of the common shares of FirstCaribbean with the
remaining common shares held by both Barclays and other minority
shareholders. The common shares were acquired at US$1.62 each plus
accrued dividends for total cash consideration of US$989 million
(C$1,153 million) paid to Barclays. In addition, we incurred transaction
costs, net of tax, of US$7 million (C$8 million). On February 2, 2007,
subsequent to the quarter end, pursuant to a tender offer at the same
price for the remaining common shares held by Barclays and the other
minority shareholders, we acquired an additional 8.5% interest in
FirstCaribbean in exchange for additional cash consideration of
US$212 million (C$250 million), bringing our total ownership to 91.5%.
The transaction has been accounted for using the purchase method. The
results of FirstCaribbean's operations have been included within CIBC
Retail Markets strategic business line in the consolidated financial
statements since December 22, 2006. Prior to that date, we accounted for
our 43.7% interest in FirstCaribbean using the equity method of
accounting.
Details of the aggregate consideration given and the fair value of net
assets acquired in respect of the initial 39.3% acquisition are as
follows:
-------------------------------------------------------------------------
$ millions
-------------------------------------------------------------------------
Aggregate consideration
Purchase consideration (paid in cash) $ 1,153
Transaction costs, net of tax 8
Carrying value of equity investment in FirstCaribbean
prior to acquisition 840
-------------------------------------------------------------------------
$ 2,001
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fair value of net assets acquired
Cash and deposits with banks $ 3,107
Securities 3,934
Loans 6,667
Goodwill 958
Other intangible assets 267
Other assets 876
-------------------------------------------------------------------------
Total assets acquired 15,809
-------------------------------------------------------------------------
Deposits 10,921
Other liabilities 2,386
Subordinated indebtedness 232
Non-controlling interest 269
-------------------------------------------------------------------------
Total liabilities assumed 13,808
-------------------------------------------------------------------------
Net assets acquired $ 2,001
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The goodwill may be adjusted throughout 2007 as part of the finalization
of the allocation of the purchase price to the assets acquired and
liabilities assumed from FirstCaribbean.
The acquired intangible assets include a core deposit intangible of
$248 million and the FirstCaribbean brand name of $19 million. The core
deposit intangible will be amortized at 12% per annum using the declining
balance method, while the brand has an indefinite life and is not
amortized.
3. Allowance for credit losses
-------------------------------------------------------------------------
$ millions, for the three
months ended January 31, 2007
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 544 $ 900 $ 1,444
Provision for (recovery of)
credit losses 143 - 143
Write-offs (224) - (224)
Recoveries 53 - 53
Transfer from general to specific(1) 3 (3) -
Other(2) 117 23 140
-------------------------------------------------------------------------
Balance at end of period $ 636 $ 920 $ 1,556
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 634 $ 920 $ 1,554
Letters of credit(3) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the three
months ended October 31, 2006
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 632 $ 950 $ 1,582
Provision for (recovery of)
credit losses 131 (39) 92
Write-offs (252) - (252)
Recoveries 22 - 22
Transfer from general to specific(1) 11 (11) -
Other(2) - - -
-------------------------------------------------------------------------
Balance at end of period $ 544 $ 900 $ 1,444
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 542 $ 900 $ 1,442
Letters of credit(3) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the three
months ended January 31, 2006
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 663 $ 975 $ 1,638
Provision for (recovery of)
credit losses 166 - 166
Write-offs (208) - (208)
Recoveries 23 - 23
Transfer from general to specific(1) - - -
Other(2) 3 - 3
-------------------------------------------------------------------------
Balance at end of period $ 647 $ 975 $ 1,622
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 645 $ 975 $ 1,620
Letters of credit(3) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Related to student loan portfolio.
(2) Includes $117 million in specific allowance and $23 million in
general allowance related to the FirstCaribbean acquisition in the
current quarter.
(3) Included in other liabilities.
4. Securitizations
-------------------------------------------------------------------------
$ millions, for the Jan. 31, Oct. 31,
three months ended 2007 2006 Jan. 31, 2006
-------------------------------------------------------------------------
Residen- Residen- Residen-
tial tial tial
mortgages mortgages mortgages Cards
-------------------------------------------------------------------------
Securitized $ 3,850 $ 1,906(1) $ 2,785 $ 272
Sold(2) 2,549 1,965(1) 1,765 272
Net cash proceeds 2,537 1,953 1,754 272
Retained interests(3) 33 33 31 23
Gain on sale, net of
transaction costs 10 6 8 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest assumptions:
Prepayment/payment rate(4) 11.0 - 11.0 - 12.0 - 43.5%
39.0% 39.0% 39.0%
Discount rate 4.1 - 4.1 - 3.5 - 9.0%
4.3% 4.6% 4.2%
Expected credit losses 0.0 - 0.0 - -% 3.6%
0.1% 0.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $92 million of uninsured fixed-rate mortgages securitized to
a qualifying special purpose entity.
(2) Assets securitized and not sold are reported as FVO securities
(2006: investment securities) on the consolidated balance sheet.
(3) Retained interests arising from securitization are reported as AFS
securities (2006: investment securities) on the consolidated balance
sheet.
(4) Annual prepayment rate for residential mortgages and monthly payment
rate for cards.
5. Significant capital transactions
On November 15, 2006, we issued 18 million Non-cumulative Class A Series
31 Preferred Shares with a par value of $25.00 each for an aggregate
amount of $450 million.
On January 31, 2007, we redeemed all 16 million outstanding
Non-cumulative Class A Series 24 Preferred Shares at a price of $26.00
per shares for an aggregate consideration of $416 million.
During the quarter, we issued 0.9 million common shares for $50 million,
pursuant to stock option plans.
Subsequent to the quarter-end, on February 14, 2007, we issued 12 million
Non-cumulative Class A Series 32 Preferred Shares with a par value of
$25.00 each for an aggregate amount of $300 million.
Regulatory approval to pay dividends
------------------------------------
We have obtained the approval of the OSFI under section 79 of the Bank
Act (Canada) to pay dividends on our common shares and Class A Preferred
Shares for the quarter ended January 31, 2007.
Subsequent to the quarter-end, we obtained the approval of OSFI to pay
dividends on our common shares and Class A Preferred Shares for the
quarter ending April 30, 2007.
6. Accumulated other comprehensive income (net of tax)
-------------------------------------------------------------------------
2007
$ millions, as at Jan. 31
-------------------------------------------------------------------------
Foreign currency translation adjustments $ (240)
Net unrealized losses on AFS securities (100)(1)
Net gains on cash flow hedges 196(2)
-------------------------------------------------------------------------
Total $ (144)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $239 million of cumulative loss related to AFS securities
measured at fair value.
(2) A net gain of $32 million, deferred in AOCI, as at January 31, 2007,
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 13 years thereafter.
7. Derivative instruments market valuation
-------------------------------------------------------------------------
2007
$ millions, as at Jan. 31
-------------------------------------------------------------------------
Assets Liabilities
-------------------------------------------------------------------------
Trading $ 16,282 $ 15,815
Designated accounting hedges (Note 12) 687 245
Economic hedges(1)
Economic hedges of FVO financial
assets and liabilities 139 322
Other economic hedges 557 312
-------------------------------------------------------------------------
$ 17,665 $ 16,694
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises derivatives not part of qualifying hedging relationships
for accounting purposes under the CICA handbook section 3865.
8. Trading financial instruments
The following tables present the assets and liabilities and income
related to trading financial instruments. 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 sales of
securities. Non-interest income also includes all income from trading
derivative instruments.
-------------------------------------------------------------------------
2007 2006
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Trading assets
Securities
Debt $ 33,269 $ 28,493
Equity 34,844 33,838
Loans
Business and government n/a 3,641
Derivative instruments 16,282 16,805
-------------------------------------------------------------------------
$ 84,395 $ 82,777
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Trading liabilities
Obligations related to securities sold short $ 13,491 $ 12,716
Derivative instruments 15,815 16,891
-------------------------------------------------------------------------
$ 29,306 $ 29,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------
n/a not applicable
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Trading income consists of:
Interest income $ 729 $ 740 $ 576
Interest expense 920 861 640
-------------------------------------------------------------------------
Net interest expense (191) (121) (64)
Non-interest income 375 285 262
-------------------------------------------------------------------------
$ 184 $ 164 $ 198
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income by product line:
Interest rates $ 65 $ 34 $ 66
Foreign exchange 44 39 39
Equities 43 17 23
Commodities 6 10 7
Other 26 64(1) 63(1)
-------------------------------------------------------------------------
$ 184 $ 164 $ 198
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises primarily loan trading activities.
9. Financial instruments designated at fair value
Financial instruments designated at fair value include the following:
- Certain commercial real estate fixed rate loans, real estate related
securities and loans held to hedge structured total return swap
transactions, and certain loans hedged through credit derivatives are
designated at fair value to significantly reduce measurement
inconsistencies that would arise if the related derivatives were
treated as trading and marked-to-market and the underlying financial
instruments were carried at amortized cost.
- Secondary traded loans are designated at fair value to match both the
accounting and the economics of the portfolio. These financial
instruments are managed as trading loans with a documented trading
strategy pursuant to which the positions are intended to be sold
within six months.
- Certain financial assets, such as mortgage-backed securities,
Government of Canada bonds and treasury bills, debt securities, and
certain fixed rate deposit liabilities are designated at fair value
to significantly reduce measurement inconsistencies that would arise
if the related hedging derivatives, such as interest rate swaps,
seller swaps and other asset swaps, were treated as trading and
marked-to-market and the underlying financial asset accounted for at
amortized cost.
The following tables present the FVO assets and liabilities, the income
earned from these financial instruments and the income and losses on
derivatives used to economically hedge these financial instruments. 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 and all income from the derivative instruments held to
economically hedge these financial instruments.
-------------------------------------------------------------------------
2007
$ millions, as at Jan. 31
-------------------------------------------------------------------------
FVO assets
Securities
Debt $ 6,969
Loans
Business and government 4,347
-------------------------------------------------------------------------
$ 11,316
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FVO liabilities
Deposits
Business and government 4,318
-------------------------------------------------------------------------
$ 4,318
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
$ millions, for the three months ended Jan. 31
-------------------------------------------------------------------------
Interest income $ 153
Interest expense 150
-------------------------------------------------------------------------
Net interest income 3
-------------------------------------------------------------------------
Non-interest income
FVO financial instruments (11)
Economic hedges(1) 54
-------------------------------------------------------------------------
43
-------------------------------------------------------------------------
Total $ 46
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises derivative instruments held to economically hedge FVO
financial instruments.
Deposits designated at fair value
As at January 31, 2007, the carrying amount of FVO deposits was
$3 million lower than the amount if the deposits were carried on an
amortized cost basis.
For the three months ended January 31, 2007, the cumulative net loss
attributable to changes in CIBC's credit risk for FVO deposits was not
significant.
10. Employee future benefit expenses
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Defined benefit plan expense
Pension benefit plans $ 48 $ 59 $ 50
Other benefit plans 8 28 19
-------------------------------------------------------------------------
$ 56 $ 87 $ 69
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Defined contribution plan expense
CIBC's pension plans $ 4 $ 3 $ 3
Government pension plans(1) 22 13 21
-------------------------------------------------------------------------
$ 26 $ 16 $ 24
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal
Insurance Contributions Act.
11. Earnings per share
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2007 2006 2006
$ millions, except per share amounts Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Basic EPS
Net income $ 770 $ 819 $ 580
Preferred share dividends
and premium (54) (33) (33)
-------------------------------------------------------------------------
Net income applicable to common
shares $ 716 $ 786 $ 547
-------------------------------------------------------------------------
Weighted-average common shares
outstanding (thousands) 336,486 335,522 334,357
-------------------------------------------------------------------------
Basic EPS $ 2.13 $ 2.34 $ 1.64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted EPS
Net income applicable to common
shares $ 716 $ 786 $ 547
-------------------------------------------------------------------------
Weighted-average common shares
outstanding (thousands) 336,486 335,522 334,357
Add: stock options potentially
exercisable(1) (thousands) 3,456 3,215 3,347
-------------------------------------------------------------------------
Weighted-average diluted common
shares outstanding(2) (thousands) 339,942 338,737 337,704
-------------------------------------------------------------------------
Diluted EPS $ 2.11 $ 2.32 $ 1.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes average options outstanding of 3,249 with a weighted-average
exercise price of $98.30; and average options outstanding of 14,610
with a weighted-average exercise price of $84.69 for the three months
ended January 31, 2007 and October 31, 2006, respectively, as the
options' exercise prices were greater than the average market price
of CIBC's common shares.
(2) Convertible preferred shares and preferred share liabilities have not
been included in the calculation since we have the right to redeem
them for cash prior to the conversion date.
12. Designated accounting hedges
For fair value, cash flow and net investment in foreign operations
hedging activities, a loss of approximately $2 million relating to net
ineffectiveness was included in the consolidated statement of operations
for the quarter. Portions of derivative gains (losses) that were excluded
from the assessment of hedge effectiveness for fair value and cash flow
hedging activities are included in the consolidated statement of
operations and are not significant for the quarter.
The following table presents notional amounts and carrying value of our
hedging-related derivative instruments:
-------------------------------------------------------------------------
2007
$ millions, as at Jan. 31
-------------------------------------------------------------------------
Derivatives Carrying value
notional ------------------------
amount Positive Negative
-------------------------------------------------------------------------
Fair value hedges $ 66,371 $ 317 $ 228
Cash flow hedges 5,142 370 11
Net investment in foreign
operations hedges 5,046 - 6
-------------------------------------------------------------------------
$ 76,559 $ 687 $ 245
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition, foreign currency denominated deposit liabilities of
$432 million and $17,067 million have been designated as fair value
hedges of foreign exchange risk and net investment in self-sustaining
foreign operations hedges, respectively.
13. Guarantees
-------------------------------------------------------------------------
2007 2006
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
potential potential
future future
payment payment
-------------------------------------------------------------------------
Securities lending with indemnification(1) $ 37,885 $ 37,921
Standby and performance letters of credit 6,660 6,094
Credit derivatives written options 75,353 59,769
Other derivative contracts (2) (2)
Other indemnification agreements (2) (2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises the full contract amount of custodial client securities
lent by CIBC Mellon Global Securities Services (GSS), which is a
50/50 joint venture between CIBC and Mellon Financial Corporation.
(2) See page 120 of the 2006 Annual Accountability Report for further
details.
As at January 31, 2007, we had a liability of $59 million (October 31,
2006: $43 million) on our consolidated balance sheet related to the
guarantees noted above (excluding other derivative contracts). For other
derivative contracts, as at January 31, 2007, we had a liability of
$3.6 billion (October 31, 2006: $5.4 billion) on our consolidated balance
sheet. The total collateral available relating to these guarantees was
$48.9 billion (October 31, 2006: $48.9 billion).
14. Segmented information
CIBC has two strategic business lines: CIBC Retail Markets and CIBC World
Markets. These business lines are supported by five functional groups -
Administration, Technology and Operations; Corporate Development;
Finance; Legal and Regulatory Compliance; and Treasury and Risk
Management. The activities of these functional groups are included within
Corporate and Other, with their revenue, expenses and balance sheet
resources generally being allocated to the business lines.
As discussed in Note 2, the results of FirstCaribbean are included in the
CIBC Retail Markets strategic business line since December 22, 2006.
-------------------------------------------------------------------------
CIBC CIBC
$ millions, Retail World Corporate CIBC
for the three months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Jan. 31,2007
Net interest income $ 1,101 $ (124) $ 82 $ 1,059
Non-interest income 1,105 851 76 2,032
Intersegment revenue(1) (55) 57 (2) -
-------------------------------------------------------------------------
Total revenue 2,151 784 156 3,091
Provision for (recovery of)
credit losses 153 (10) - 143
Amortization(2) 20 5 33 58
Other non-interest expenses 1,268 546 71 1,885
-------------------------------------------------------------------------
Income before income taxes
and non-controlling
interests 710 243 52 1,005
Income tax expense 176 33 22 231
Non-controlling interests 4 - - 4
-------------------------------------------------------------------------
Net income $ 530 $ 210 $ 30 $ 770
-------------------------------------------------------------------------
Average assets(3) $ 204,984 $ 110,594 $ 544 $ 316,122
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2006
Net interest income $ 1,109 $ (54) $ 75 $ 1,130
Non-interest income 990 697 73 1,760
Intersegment revenue(1) (53) 54 (1) -
-------------------------------------------------------------------------
Total revenue 2,046 697 147 2,890
Provision for (recovery of)
credit losses 132 (1) (39) 92
Amortization(2) 19 5 35 59
Other non-interest expenses 1,236 480 117 1,833
-------------------------------------------------------------------------
Income before income taxes
and non-controlling
interests 659 213 34 906
Income tax expense (benefit) 158 (5) (66) 87
-------------------------------------------------------------------------
Net income $ 501 $ 218 $ 100 $ 819
-------------------------------------------------------------------------
Average assets(3) $ 193,189 $ 106,020 $ 304 $ 299,513
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2006
Net interest income $ 1,124 $ (24) $ 48 $ 1,148
Non-interest income 1,000 646 64 1,710
Intersegment revenue(1) (56) 57 (1) -
-------------------------------------------------------------------------
Total revenue 2,068 679 111 2,858
Provision for (recovery of)
credit losses 180 (15) 1 166
Amortization(2) 22 5 34 61
Other non-interest expenses 1,223 528 65 1,816
-------------------------------------------------------------------------
Income before income taxes
and non-controlling
interests 643 161 11 815
Income tax expense 205 32 1 238
Non-controlling interests - 1 (4) (3)
-------------------------------------------------------------------------
Net income $ 438 $ 128 $ 14 $ 580
-------------------------------------------------------------------------
Average assets(3) $ 184,548 $ 100,490 $ 641 $ 285,679
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Intersegment revenue represents internal sales commissions and
revenue allocations under the Manufacturer / Customer Segment /
Distributor Management Model.
(2) Includes amortization of buildings, furniture, equipment, leasehold
improvements and finite-lived other intangible assets.
(3) Assets are disclosed on an average basis as this measure is most
relevant to a financial institution and is the measure reviewed by
management.
15. Future accounting changes
Leveraged leases
In July 2006, the Financial Accounting Standards Board (FASB) issued a
FASB Staff Position (FSP) FAS 13-2, "Accounting for a Change or Projected
Change in the Timing of Cash Flows Relating to Income Taxes Generated by
a Leveraged Lease Transaction," which amends Statement of Financial
Accounting Standard 13, certain aspects of which are incorporated in the
CICA Emerging Issues Abstract (EIC) 46, "Leveraged Leases." The FSP is
effective beginning November 1, 2007.
For additional details, see page 130 of our 2006 Annual Accountability
Report.%SEDAR: 00002543EF
For further information:
For further information: Investor and analyst inquiries should be directed to John Ferren, Vice-President, Investor Relations, at (416) 980-2088; Media inquiries should be directed to Rob McLeod, Senior Director, Communications and Public Affairs, at (416) 980-3714, or to Mary Lou Frazer, Senior Director, Investor & Financial Communications, at (416) 980-4111; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on Tools for Investors.
