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CIBC announces second quarter 2007 results
HIGHLIGHTS
- Cash diluted EPS(1) of $2.29
- Return on equity of 28.9%
- Cash efficiency ratio (TEB)(1) of 63.2%
- Tier 1 capital ratio of 9.5%
TORONTO, May 31 /CNW/ - CIBC (CM: TSX; NYSE) announced net income of
$807 million for the second quarter ended April 30, 2007, up from $585 million
for the same period last year. Diluted earnings per share (EPS) were $2.27, up
from $1.63 a year ago. Cash diluted EPS(1) were $2.29, up from $1.65 a year
ago.
Return on equity for the second quarter was 28.9%, up from 25.7% for the
same period last year.
CIBC's Tier 1 capital ratio at April 30, 2007 was 9.5%, up from 9.2% a
year ago.
Diluted EPS of $2.27 and cash diluted EPS(1) of $2.29 for the second
quarter of 2007 were increased by:- $80 million ($0.24 per share) tax recovery related to the favourable
resolution of an income tax audit in CIBC Retail Markets.
- $24 million ($17 million after-tax, or $0.05 per share) reversal of
the general allowance for credit losses.
- $11 million ($0.03 per share) reversal of a portion of the valuation
allowance related to a future tax asset from CIBC's U.S. operations.
- $10 million ($7 million after-tax, or $0.02 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 second
quarter of 2007 were up from net income of $770 million, diluted EPS of $2.11
and cash diluted EPS(1) of $2.12 for the prior quarter, which included items
of note aggregating to a decrease in earnings of $0.06 per share.
Update on business priorities
"Our second 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 $2,189 million, up from
$2,151 million for the prior quarter and $1,975 million for the same period
last year. Net income for the second quarter was $583 million, up 35% from a
year ago. Volume growth, lower taxes and the acquisition of a controlling
interest in FirstCaribbean International Bank (FirstCaribbean) contributed to
this result.
CIBC Retail Markets' results for the second quarter of 2007 include the
consolidated second quarter results of FirstCaribbean. On February 2, 2007
CIBC announced the purchase of an additional 8.5% interest in FirstCaribbean,
increasing CIBC's ownership to approximately 91.5%.
While the environment in Canada remains competitive, CIBC's retail
businesses continue to perform well overall and remain strongly positioned in
the market. CIBC's credit cards business is the market leader in Canada and
continues to grow in line with expectations. Card loans administered were up
10.6% from the second quarter of last year. CIBC Wood Gundy's assets under
administration surpassed $120 billion in the quarter. Mutual funds and managed
accounts assets under management grew to $61.1 billion in the quarter, up 9.7%
from a year ago. CIBC had market share increases during the quarter in key
areas such as mortgages, deposits and fixed term investments.
In the area of personal lending, CIBC's focus on credit quality has been
reflected in improved 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:
- CIBC announced the completion of a major multi-year $90 million
investment to upgrade CIBC's 3,800 bank machine network across
Canada, offering better access for persons with disabilities,
enhanced security and new transaction features.
- CIBC announced a limited-time, high interest rate offer on the
CIBC Bonus Savings Account for new accounts and balances above
$5,000 for existing accounts.
- Building on the success of the CIBC Financial HealthCheck™
service, CIBC launched the CIBC Financial HealthCheck Tips to
provide clients with information on how to achieve their financial
goals, as well as select and use CIBC's financial services to
their maximum advantage.
CIBC World Markets reported another strong quarter. Revenue of
$726 million was down from $784 million in the prior quarter, but up from
$607 million for the same period last year. Net income for the second quarter
was $194 million, up 76% from a year ago.
CIBC World Markets' solid performance reflects the strength of its client
relationships combined with continued balance and discipline in the area of
risk. In Canada, CIBC World Markets was the lead advisor, underwriter and
issuer to Fortis Inc. on its $3.7 billion purchase of Terasen Inc.'s gas
distribution business from Kinder Morgan, the largest domestic utility
distribution transaction in Canadian history. CIBC opened an investment
banking office in Winnipeg, making it the first major Canadian bank to offer a
full suite of personal, commercial and corporate banking services in the
Manitoba capital. In the U.S., CIBC World Markets' real estate finance
business completed its largest commercial mortgage-backed securities offering
ever, acting as co-lead manager with J.P. Morgan Securities Inc. on the
US$3.9 billion transaction.
CIBC's target business mix is to invest 25% to 35% of the bank's economic
capital(1) in its wholesale business. Based on a second quarter business mix
of 27% wholesale, CIBC has capacity to allocate additional financial resources
to CIBC World Markets.
Productivity
CIBC's second priority is to improve productivity.
CIBC's target in 2007 is to hold expenses flat to Q4 2006 levels,
excluding the FirstCaribbean acquisition, by absorbing normal inflationary
increases to its cost base. Expenses for the second quarter of $1,976 million
were up from $1,943 million in the prior quarter, primarily due to the impact
of a full quarter of consolidation of FirstCaribbean's results. CIBC's second
quarter expenses included $99 million related to FirstCaribbean, compared with
$33 million in the prior quarter. The higher FirstCaribbean expenses were
partially offset by the impact of three fewer days in the second quarter.
CIBC's efficiency ratio for the second quarter improved to 64.8% from
66.1% for the same period last year. CIBC's cash efficiency ratio (TEB)(1) for
the second quarter improved to 63.2% from 64.9% a year ago.
"Our second 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 9.5% 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," says McCaughey.
"CIBC will balance these opportunities with capital returns to shareholders."
During the quarter, CIBC announced its intention to repurchase up to
10 million common shares under a normal course issuer bid which expires
October 31, 2007.
Dividends are also an important part of CIBC's capital management plan.
CIBC's dividend payout ratio for the quarter was 33.7%, up from 32.9% for the
prior quarter, but still below its medium term objective of 40% to 50%.
Making a difference in communities
CIBC remains committed to making a difference in the communities in which
we live and work.
In February, a team of 22 CIBC employees, family members and friends
participated in the 2007 CIBC Wood Gundy Climb for the Cure. The team scaled
Africa's tallest peak, Mount Kilimanjaro, to raise over $520,000 for the
Canadian Breast Cancer Foundation (CBCF).
In March, CIBC was the lead sponsor of the National Aboriginal
Achievement Awards held in Edmonton. CIBC invested more than $900,000 in 2006
in national and local programs supporting the Aboriginal community.
In April, CIBC and the CBCF received the Sustained Success Award from the
Sponsorship Marketing Council of Canada in recognition of sponsorship
marketing programs that demonstrated the highest levels of accountability,
effectiveness and return on investment over a period of three years or longer.
"I would like to thank our employees who have contributed their energy,
time and generous support to these campaigns," says McCaughey.
--------------------------------
(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 second 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 second 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 May 31, 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.
SECOND QUARTER FINANCIAL HIGHLIGHTS
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As at or for the As at or for the
three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
Unaudited Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Common share information
Per share
- basic earnings $ 2.29 $ 2.13 $ 1.65 $ 4.42 $ 3.28
- cash basic
earnings(1) 2.32 2.14 1.66 4.46 3.31
- diluted earnings 2.27 2.11 1.63 4.37 3.25
- cash diluted
earnings(1) 2.29 2.12 1.65 4.41 3.28
- dividends 0.77 0.70 0.68 1.47 1.36
- book value 32.67 31.85 26.61 32.67 26.61
Share price
- high 104.00 102.00 86.00 104.00 86.00
- low 97.70 88.96 77.95 88.96 72.90
- closing 97.70 100.88 82.75 97.70 82.75
Shares outstanding
(thousands)
- average basic 337,320 336,486 335,147 336,896 334,745
- average diluted 340,613 339,942 338,544 340,272 338,117
- end of period 337,487 337,139 335,519 337,487 335,519
Market capitalization
($ millions) $ 32,972 $ 34,011 $ 27,764 $ 32,972 $ 27,764
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Value measures
Price to earnings
multiple (12 month
trailing) 11.4 12.7 n/m 11.4 n/m
Dividend yield (based
on closing share price) 3.2% 2.8% 3.4% 3.0% 3.3%
Dividend payout ratio 33.7% 32.9% 41.4% 33.3% 41.5%
Market value to book
value ratio 2.99 3.17 3.11 2.99 3.11
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Financial results ($ millions)
Total revenue $ 3,050 $ 3,091 $ 2,777 $ 6,141 $ 5,635
Provision for credit
losses 166 143 138 309 304
Non-interest expenses 1,976 1,943 1,836 3,919 3,713
Net income 807 770 585 1,577 1,165
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Financial measures
Efficiency ratio 64.8% 62.9% 66.1% 63.8% 65.9%
Cash efficiency ratio,
taxable equivalent
basis (TEB)(1) 63.2% 61.5% 64.9% 62.3% 64.6%
Return on equity 28.9% 27.1% 25.7% 28.0% 25.6%
Net interest margin 1.36% 1.33% 1.47% 1.34% 1.53%
Net interest margin on
average interest-earning
assets 1.55% 1.52% 1.71% 1.54% 1.79%
Return on average assets 1.02% 0.97% 0.83% 0.99% 0.82%
Return on average
interest-earning assets 1.16% 1.10% 0.97% 1.13% 0.95%
Total shareholder return (2.4)% 16.0% 4.4% 13.2% 16.5%
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On- and off-balance sheet
information ($ millions)
Cash, deposits with
banks and securities $100,204 $108,482 $ 90,295 $100,204 $ 90,295
Loans and acceptances 164,797 159,530 145,826 164,797 145,826
Total assets 326,580 322,608 290,721 326,580 290,721
Deposits 221,169 223,625 193,503 221,169 193,503
Common shareholders'
equity 11,025 10,736 8,929 11,025 8,929
Average assets 326,088 316,122 288,428 321,023 287,030
Average interest-earning
assets 285,127 276,799 248,198 280,895 246,709
Average common
shareholders' equity 10,964 10,474 8,803 10,715 8,641
Assets under
administration 1,165,585 1,122,184 1,027,927 1,165,585 1,027,927
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Balance sheet quality
measures
Common equity to
risk-weighted assets 8.7% 8.7% 7.8% 8.7% 7.8%
Risk-weighted assets
($ billions) $ 127.2 $ 124.1 $ 115.1 $ 127.2 $ 115.1
Tier 1 capital ratio 9.5% 9.6% 9.2% 9.5% 9.2%
Total capital ratio 14.1% 14.1% 13.7% 14.1% 13.7%
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Other information
Retail/wholesale
ratio(2) 73%/27% 74%/26% 74%/26% 73%/27% 74%/26%
Regular workforce
headcount 40,488 40,559 36,741 40,488 36,741
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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
on page 37 of the 2006 Annual Accountability Report.
n/m - not meaningful due to the net loss over the 12 month trailing
period.
Overview
CIBC is a leading North American financial institution. Through our two
distinct strategic 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 was stronger in Canada than in the U.S. in the first
calendar quarter of 2007. U.S. consumer spending remained solid, but exports,
capital spending and homebuilding were weak. Canada benefited from gains in
the mining and energy sectors, and housing starts were stable. These factors
contributed to a strong job market which supported retail lending volumes.
Canadian equity markets remained healthy, lifted by strong earnings growth and
continued merger activity, leading to strong equities revenue. The yield curve
remained flat by historic standards, even with somewhat higher core inflation
in Canada. Some corporate bond spreads widened on increased prospects for
leveraged buyouts, negatively affecting our fixed income trading.
Financial performance
Net income for the quarter was $807 million, compared with $585 million
from the same quarter last year and $770 million from the prior quarter. Net
income for the six months ended April 30, 2007 was $1,577 million, compared
with $1,165 million for the same period in 2006.
Diluted earnings per share (EPS) and return on equity (ROE) were $2.27
and 28.9%, respectively, compared with $1.63 and 25.7% for the same quarter
last year and $2.11 and 27.1% for the prior quarter. Diluted EPS and ROE for
the six months ended April 30, 2007 were $4.37 and 28.0%, respectively,
compared with $3.25 and 25.6% for the same period in 2006.
Cash diluted EPS(1) were $2.29, compared with $1.65 for the same quarter
last year and $2.12 for the prior quarter. Cash diluted EPS(1) for the
six months ended April 30, 2007 were $4.41, compared with $3.28 for the same
period in 2006.
Our results for the reported periods were affected by the following
items:
Q2, 2007
- $91 million of favourable tax recoveries and reversals;
- $24 million ($17 million after-tax) reversal of the general allowance
for credit losses; and
- $10 million ($7 million after-tax) positive impact of changes in
credit spreads on the mark-to-market of our corporate loan credit
derivatives.
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.
Q2, 2006
- $35 million of a favourable tax recovery;
- $25 million ($16 million after-tax) reversal of the general allowance
for credit losses;
- $14 million ($9 million after-tax) negative impact of changes in
credit spreads on the mark-to-market of our corporate loan credit
derivatives; and
- $11 million ($7 million after-tax) negative impact due to a one-time
accounting adjustment for mortgage loan prepayment fees.
Compared with Q2, 2006
Net income was up $222 million or 38%. Higher revenue from investment
banking and credit products and treasury, volume growth in cards, deposits and
mortgages and the impact of the FirstCaribbean acquisition (discussed on page
8), all contributed to the increase. Partially offsetting these were higher
performance-related compensation, spread compression in retail lending
products and higher provision for credit losses. In addition, the current
quarter benefited from the higher tax recoveries and reversals noted above.
Taxes were also lower as a result of an increase in the relative proportion of
earnings subject to lower rates of tax.
Compared with Q1, 2007
Net income was up $37 million or 5% largely driven by the tax recoveries
and reversals noted above. Income before taxes and non-controlling interests
was down $97 million or 10% mainly due to lower capital markets revenue and
the impact of three fewer days in the quarter. These were partially offset by
higher revenue from investment banking and credit products and treasury and
the impact of the FirstCaribbean acquisition. Higher specific provision for
credit losses was partially offset by the reversal of the general allowance
noted above.
Compared with the six months ended April 30, 2006
Net income was up $412 million or 35%. Revenue increases across most
business lines in CIBC World Markets and higher treasury revenue contributed
to the increase. The volume growth in cards, deposits and mortgages was offset
by spread compression in the retail lending products. The impact of the
FirstCaribbean acquisition also led to higher income. Performance-related
compensation was higher, driven by the increase in revenue. The current period
benefited from the higher tax recoveries and reversals noted above. Taxes were
also lower as a result of an increase in the relative proportion of earnings
subject to lower rates of tax.
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(1) Based upon net income available to common shareholders before
amortization of other intangible assets. For additional information,
see the "Non-GAAP measures" section.
Outlook
The economic outlook continues to point to moderate growth for the coming
quarters as interest rates are expected to remain relatively steady; however,
some softening in Canadian housing activity and only moderate growth in
consumer spending is anticipated. Product spreads are expected to remain
stable. Mortgage, lending and card balances are expected to continue
increasing at approximately the recent growth rates.
While investment banking activities and capital markets are difficult to
predict, market liquidity and mergers and acquisition (M&A) activity should
remain robust. We expect the record level of equity new issue activity in the
current quarter will not likely continue into the third or fourth quarters.
The credit cycle should remain generally favourable in the near term, but the
current low level of corporate default rates is likely not sustainable over
the longer term, particularly given increased leveraged buyout activity
globally.
Review of results of operations and financial position
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Review of consolidated statement of operations
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For the
For the three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net interest income $ 1,079 $ 1,059 $ 1,036 $ 2,138 $ 2,184
Non-interest income 1,971 2,032 1,741 4,003 3,451
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Total revenue 3,050 3,091 2,777 6,141 5,635
Provision for credit
losses 166 143 138 309 304
Non-interest expenses 1,976 1,943 1,836 3,919 3,713
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Income before taxes
and non-controlling
interests 908 1,005 803 1,913 1,618
Income taxes 91 231 190 322 428
Non-controlling
interests 10 4 28 14 25
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Net income $ 807 $ 770 $ 585 $ 1,577 $ 1,165
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Net interest income
Net interest income was up $43 million or 4% from the same quarter last
year, primarily due to the impact of the FirstCaribbean acquisition and volume
growth in cards, deposits and mortgages. These factors were partially offset
by increased trading-related funding costs and spread compression in retail
lending products.
Net interest income was up $20 million or 2% from the prior quarter, as a
result of the FirstCaribbean acquisition, offset in part by the impact of
three fewer days in the quarter.
Net interest income for the six months ended April 30, 2007 was down
$46 million or 2% from the same period in 2006, largely due to increased
trading-related funding costs and spread compression in retail lending
products. These were partially offset by the impact of the FirstCaribbean
acquisition and volume growth in cards, deposits and mortgages.
Non-interest income
Non-interest income was up $230 million or 13% from the same quarter last
year, mainly due to higher gains net of write-downs on available-for-sale
(AFS) securities (classified in 2006 as investment securities and limited
partnership investments). Revenue on financial instruments designated at fair
value (FVO) (the majority of which was classified as trading in 2006) and
higher underwriting, advisory and credit fees also contributed to the
increase. In addition, losses associated with corporate loan hedging programs
were lower. Foreign exchange revenue of $47 million on the repatriation of
capital and retained earnings from our non-U.S. foreign operations was
included in the second quarter of 2006.
Non-interest income was down $61 million or 3% from the prior quarter,
largely due to lower trading activities and lower revenue related to hedging
of stock appreciation rights (SARs). These were partially offset by lower
losses associated with corporate loan hedging programs.
Non-interest income for the six months ended April 30, 2007 was up $552
million or 16% from the same period in 2006, mainly due to higher gains net of
write-downs on AFS securities and higher trading activities. Revenue on FVO
financial instruments and higher underwriting, advisory and mutual funds fees
also contributed to the increase. The prior period included foreign exchange
revenue of $47 million on the repatriation noted above.
Provision for credit losses
Provision for credit losses was up $28 million or 20% from the same
quarter last year, mainly driven by lower recoveries offset in part by lower
losses in the corporate lending portfolio. Increased losses on the cards
portfolio were largely offset by improvements in the unsecured personal
lending portfolio.
Provision for credit losses was up $23 million or 16% from the prior
quarter, largely due to lower recoveries offset in part by lower losses in the
corporate lending portfolio. Losses in the cards and the small business
portfolios were higher. The current quarter benefited from the $24 million
reversal of the general allowance.
Provision for credit losses for the six months ended April 30, 2007 was
up $5 million or 2% from the same period in 2006. The corporate lending
portfolio had lower reversals and recoveries. Improvements in the unsecured
personal lending portfolio were offset in part by higher losses in the cards
portfolio.
Non-interest expenses
Non-interest expenses were up $140 million or 8% from the same quarter
last year and up $206 million or 6% for the six months ended April 30, 2007
from the same period in 2006. The increase was mainly due to the impact of the
FirstCaribbean acquisition and higher performance-related compensation.
Non-interest expenses were up $33 million or 2% from the prior quarter
resulting from the impact of the FirstCaribbean acquisition, offset in part by
lower expenses related to SARs and the impact of three fewer days in the
quarter. The current quarter's expenses included $99 million related to
FirstCaribbean, compared with $33 million in the prior quarter.
Income taxes
Income taxes were down $99 million or 52% from the same quarter last year
and down $106 million or 25% for the six months ended April 30, 2007 from the
same period in 2006. The current quarter benefited from an $80 million tax
recovery related to the favourable resolution of an income tax audit in CIBC
Retail Markets and an $11 million reversal of a portion of the valuation
allowance related to a future income tax asset from our U.S operations. The
increase in the relative proportion of earnings subject to lower rates of tax
also contributed to the decrease. The second quarter of 2006 included a tax
expense of $47 million on the repatriation of capital and retained earnings
from our non-U.S. foreign operations and the $35 million tax recovery related
to the favourable resolution of an income tax audit in CIBC Retail Markets.
Income taxes were down $140 million or 61% from the prior quarter, mainly
due to the income tax recovery and the reversal of the valuation allowance
noted above, and lower income.
The effective tax rate was 10.0% for the quarter, compared with 23.7% for
the same quarter last year and 23.0% for the prior quarter. The effective tax
rate for the six months ended April 30, 2007 was 16.8% compared with 26.5% for
the same period in 2006.
The adjusted effective tax and taxable equivalent (TEB) rates for the
quarter ended April 30, 2007 (excluding the income tax recovery of $80 million
and the reversal of the valuation allowance of $11 million) were 20.0%(1) and
24.5%(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 20-23% range
and the adjusted sustainable TEB tax rate will be in the 24-27% range. These
rates are determined based on the estimated earnings in various jurisdictions
over the near term and the expected enacted tax rates in these jurisdictions.
The impact of one-time items is excluded.
Non-controlling interests
Non-controlling interests were down $18 million or 64% from the same
quarter last year and down $11 million or 44% for the six months ended
April 30, 2007 from the same period in 2006. The decrease resulted from the
deconsolidation of a variable interest entity (VIE) in the third quarter of
2006, offset in part by the acquisition of a controlling interest in
FirstCaribbean.
Non-controlling interests were up $6 million from the prior quarter,
largely due to the impact of the full three months of consolidation of
FirstCaribbean. This increase was partially offset by the purchase of an
additional 8.5% interest in FirstCaribbean on February 2, 2007.
------------------------------
(1) For additional information, see the "Non-GAAP measures" section.
Review of consolidated balance sheet
-------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
2007 2006
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Assets
Cash and deposits with banks $ 16,441 $ 11,853
Securities 83,763 83,498
Securities borrowed or purchased under resale
agreements 30,916 25,432
Loans 156,520 145,625
Derivative instruments market valuation 17,233 17,122
Other assets 21,707 20,454
-------------------------------------------------------------------------
Total assets $326,580 $303,984
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits $221,169 $202,891
Derivative instruments market valuation 17,224 17,330
Obligations related to securities lent or sold
short or under repurchase agreements 45,515 44,221
Other liabilities 22,144 21,013
Subordinated indebtedness 6,011 5,595
Preferred share liabilities 600 600
Non-controlling interests 161 12
Shareholders' equity 13,756 12,322
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $326,580 $303,984
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets
Total assets as at April 30, 2007 were up $22.6 billion or 7% from
October 31, 2006.
Cash and deposits with banks increased as a result of the FirstCaribbean
acquisition and normal treasury funding requirements.
The increase in securities driven by the FirstCaribbean acquisition was
largely offset by a decrease in trading securities in our wholesale banking
reflecting normal trading activities.
The increase in securities borrowed or purchased under resale agreements
was primarily due to normal client-driven business activities.
Loans increased largely due to the FirstCaribbean acquisition. There was
also volume growth in residential mortgages (net of securitizations) and
cards.
Derivative instruments market valuation increased primarily due to the
reclassification of hedging derivative instruments from other assets under the
new financial instruments accounting standards (see Note 1 to the interim
consolidated financial statements for more details), partially offset by a
decrease in the market value of trading derivatives due to the weakening of
the U.S. dollar.
Other assets increased mainly due to an increase in acceptances, and
goodwill and other intangible assets acquired resulting from the
FirstCaribbean acquisition. These increases were partially offset by the
reclassification of hedging derivative instruments to derivative instruments
market valuation and the investment in limited partnerships to AFS securities,
both under the new financial instruments accounting standards. In addition, as
a result of acquiring control, our investment in FirstCaribbean is no longer
included in other assets.
Liabilities
Total liabilities as at April 30, 2007 were up $21.2 billion or 7% from
October 31, 2006.
Deposits increased mainly due to the FirstCaribbean acquisition and
volume growth in deposits attributed to funding requirements and client-driven
activities.
Derivative instruments market valuation decreased primarily due to a
decrease in the market value of trading derivatives resulting from a weakening
of the U.S. dollar, partially offset by the reclassification of hedging
derivative instruments from other liabilities under the new financial
instruments accounting standards.
The increase in obligations related to securities lent or sold short or
under repurchase agreements is largely as a result of the FirstCaribbean
acquisition and normal increases from client-driven and treasury funding
activities.
Other liabilities increased primarily due to an increase in acceptances,
offset in part by the reclassification noted above for hedging derivative
instruments.
Subordinated indebtedness increased primarily due to the FirstCaribbean
acquisition and a change in the fair value of hedged debentures as a result of
the implementation of the new financial instruments accounting standards.
The increase in non-controlling interests mainly represents the minority
interest in FirstCaribbean.
Shareholders' equity
Shareholders' equity as at April 30, 2007 was up $1.4 billion or 12% from
October 31, 2006, primarily due to an increase in retained earnings and
preferred shares.
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 ($1,153 million), which we paid in cash to Barclays. In
addition, we incurred transaction costs, net of tax, of US$7 million
($8 million).
On February 2, 2007, 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 ($250 million), bringing our
total ownership to 91.5%. In addition, we incurred additional transaction
costs, net of tax, of US$2 million ($2 million).
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
-------------------------------------------------------------------------
$ millions,
except per
share amounts,
for the three
months ended Apr. 30 Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31
-------------------------------------------------------------------------
Revenue
CIBC Retail
Markets $2,189 $2,151 $2,046 $2,038 $1,975 $2,068
CIBC World
Markets 726 784 697 677 607 679
Corporate and
Other 135 156 147 111 195 111
-------------------------------------------------------------------------
Total revenue 3,050 3,091 2,890 2,826 2,777 2,858
Provision for
credit losses 166 143 92 152 138 166
Non-interest
expenses 1,976 1,943 1,892 1,883 1,836 1,877
-------------------------------------------------------------------------
Income (loss)
before taxes
and non-
controlling
interests 908 1,005 906 791 803 815
Income taxes 91 231 87 125 190 238
Non-controlling
interests 10 4 - 4 28 (3)
-------------------------------------------------------------------------
Net income
(loss) $ 807 $ 770 $ 819 $ 662 $ 585 $ 580
-------------------------------------------------------------------------
Per share
- basic
earnings
(loss) $ 2.29 $ 2.13 $ 2.34 $ 1.88 $ 1.65 $ 1.64
- diluted
earnings
(loss)(1) $ 2.27 $ 2.11 $ 2.32 $ 1.86 $ 1.63 $ 1.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2005
---------------------------------
$ millions,
except per
share amounts,
for the three
months ended Oct. 31 Jul. 31
---------------------------------
Revenue
CIBC Retail
Markets $2,063 $2,025
CIBC World
Markets 964 929
Corporate and
Other 399 201
---------------------------------
Total revenue 3,426 3,155
Provision for
credit losses 170 199
Non-interest
expenses 2,060 4,854
---------------------------------
Income (loss)
before taxes
and non-
controlling
interests 1,196 (1,898)
Income taxes 436 (106)
Non-controlling
interests 32 115
---------------------------------
Net income
(loss) $ 728 $(1,907)
---------------------------------
---------------------------------
Per share
- basic
earnings
(loss) $ 2.08 $ (5.77)
- diluted
earnings
(loss)(1) $ 2.06 $ (5.77)
---------------------------------
---------------------------------
(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 first and second quarters of
2007 as a result of the FirstCaribbean acquisition. Continued strength in
cards and deposits also contributed to revenue growth in the past few
quarters. Three fewer days contributed to lower revenue in the second quarters
of 2007 and 2006.
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 first quarter
of 2007. 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 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 in the first and second quarters of 2007 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. Corporate lending recoveries have decreased
in the current quarter. The high level of recoveries and reversals in the
large corporate lending portfolio in the past is not expected to continue.
Reversals of the general allowance were included in the current quarter, 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 first and
second quarters of 2007. Severance costs were higher in the fourth quarter of
2005. The third quarter of 2005 included the Enron-related litigation and
hedge funds settlement provisions.
Income taxes
Income taxes vary with changes in income subject to tax and the
jurisdictions in which the income is earned. It can also be affected by the
impact of significant items. Income tax recoveries related to the favourable
resolution of various income tax audits and reduced tax contingencies were
included in the current quarter, the last three quarters of 2006 and the
fourth quarter of 2005. Income tax expense on the repatriation of capital and
retained earnings from our foreign operations was also included in the second
quarter of 2006 and the fourth quarter of 2005. 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 quarter due to the full
three months of consolidation of 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. 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
For the three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue
Personal and small
business banking $ 501 $ 517 $ 490 $ 1,018 $ 1,000
Imperial Service 232 237 227 469 457
Retail brokerage 306 314 319 620 616
Cards 360 371 337 731 684
Mortgages and personal
lending 361 389 357 750 770
Asset management 112 111 108 223 215
FirstCaribbean(2) 150 50 - 200 -
Other 167 162 137 329 301
----------------------------------------------------- -------------------
Total revenue 2,189 2,151 1,975 4,340 4,043
Provision for credit
losses 182 153 180 335 360
Non-interest expenses 1,353 1,288 1,237 2,641 2,482
----------------------------------------------------- -------------------
Income before taxes 654 710 558 1,364 1,201
Income taxes 64 176 126 240 331
Non-controlling
interests 7 4 - 11 -
----------------------------------------------------- -------------------
Net income $ 583 $ 530 $ 432 $ 1,113 $ 870
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio 61.8% 59.9% 62.6% 60.8% 61.4%
Cash efficiency ratio
(TEB)(3) 61.3% 59.7% 62.6% 60.6% 61.4%
ROE(3) 52.9% 55.0% 47.0% 53.9% 46.4%
Economic profit(3) $ 442 $ 405 $ 312 $ 847 $ 624
Regular workforce
headcount 27,266 27,254 23,108 27,266 23,108
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) Consistent with other businesses, revenue includes earnings on
capital and internal funding charges.
(3) For additional information, see the "Non-GAAP measures" section.
Financial overview
Net income was up $151 million or 35% from the same quarter last year.
Revenue increased as a result of the FirstCaribbean acquisition, volume growth
in cards, deposits and mortgages, and higher treasury revenue allocations,
partially offset by spread compression in lending products. Non-interest
expenses were higher resulting from the FirstCaribbean acquisition. The
current quarter benefited from a tax recovery of $80 million as compared with
$35 million in the prior year quarter, both related to the favourable
resolution of income tax audits.
Net income was up $53 million or 10% from the prior quarter. Revenue was
up due to the FirstCaribbean acquisition, offset in part by the impact of
three fewer days in the quarter. Non-interest expenses were higher mainly due
to the FirstCaribbean acquisition. The current quarter benefited from the tax
recovery noted above.
Net income for the six months ended April 30, 2007 was up $243 million or
28% from the same period in 2006. The increase in revenue was due mainly to
the FirstCaribbean acquisition, volume growth in cards, deposits and
mortgages, and higher treasury revenue allocations, offset in part by spread
compression in lending products. Non-interest expenses were up largely as a
result of the FirstCaribbean acquisition. Both the current and prior periods
benefited from the tax recoveries noted above.
Revenue
FirstCaribbean revenue is included from the date of acquisition on
December 22, 2006. Prior to December 22, 2006, FirstCaribbean was equity-
accounted and the revenue was included in "Other".
Revenue was up $214 million or 11% from the same quarter last year.
Personal and small business banking revenue was up $11 million, mainly
due to volume growth. Spread compression in fixed-term investments was largely
offset by improved spreads in deposits.
Retail brokerage revenue was down $13 million, due to lower trading
commissions and new issue activity, partially offset by higher fee-based
revenue.
Cards revenue was up $23 million, primarily due to volume growth,
partially offset by spread compression.
Mortgages and personal lending revenue was up $4 million with higher fee
income and volume growth in mortgages largely offset by spread compression.
Other revenue was up $30 million due mainly to higher treasury revenue
allocations.
Revenue was up $38 million or 2% from the prior quarter.
Personal and small business banking, Imperial Service and Mortgages and
personal lending revenue were down as a result of three fewer days in the
quarter and spread compression.
Retail brokerage revenue was down $8 million, primarily due to lower new
issue activity and trading commissions.
Cards revenue was down $11 million, largely due to lower fee income and
three fewer days in the quarter, partially offset by improved spreads.
Revenue for the six months ended April 30, 2007 was up $297 million or 7%
from the same period in 2006.
Personal and small business banking revenue was up $18 million led by
volume growth. Improved spreads in deposits were largely offset by spread
compression in fixed-term investments.
Imperial Service revenue was up $12 million, mainly due to higher revenue
from investment product sales.
Retail brokerage revenue was up $4 million as higher fee income resulting
from growth in asset values was largely offset by lower trading commissions.
Cards revenue was up $47 million, primarily due to volume growth and
higher fee income, partially offset by spread compression.
Mortgages and personal lending revenue was down $20 million, primarily
due to spread compression, partially offset by higher securitization revenue
and volume growth in mortgages.
Asset management revenue was up $8 million with higher fee income driven
by growth in average funds managed largely offset by higher internal
commissions paid to Imperial Service.
Other revenue was up $28 million resulting mainly from higher treasury
revenue allocations.
Provision for credit losses
Provision for credit losses was comparable with the same quarter last
year as improvements in the unsecured personal lending portfolio were offset
by increased losses in the cards portfolio.
Provision for credit losses was up $29 million or 19% from the prior
quarter, mainly due to higher losses in the cards and small business
portfolios.
Provision for credit losses for the six months ended April 30, 2007 was
down $25 million or 7% from the same period in 2006, primarily due to
improvements in the unsecured personal lending portfolio, partially offset by
increased losses in the cards portfolio.
Non-interest expenses
Non-interest expenses were up $116 million or 9% from the same quarter
last year and up $65 million or 5% from the prior quarter largely as a result
of the FirstCaribbean acquisition.
Non-interest expenses for the six months ended April 30, 2007 were up
$159 million or 6% from the same period in 2006, primarily due to the
FirstCaribbean acquisition and higher corporate support costs.
Income taxes
Income taxes were down $62 million or 49% from the same quarter last year
and down $91 million or 27% for the six months ended April 30, 2007 from the
same period in 2006. A higher tax recovery and lower taxes attributable to an
increase in the relative proportion of earnings subject to lower rates of tax
contributed to the decrease.
Income taxes were down $112 million or 64% from the prior quarter,
primarily due to the tax recovery noted above.
Non-controlling interests
Non-controlling interests represents the minority interest in
FirstCaribbean.
Regular workforce headcount
The regular workforce headcount was up 4,158 from the same quarter last
year, largely due to the FirstCaribbean acquisition and a realignment of staff
from Administration, Technology and Operations.
CIBC World Markets
CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets, investment
banking, and merchant banking products and services 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
For the three months ended six months ended
------------------------------ -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue (TEB)(2)
Capital markets $ 351 $ 449 $ 354 $ 800 $ 725
Investment banking
and credit
products(3) 247 204 119 451 356
Commercial banking(3) 121 121 119 242 243
Merchant banking 85 77 69 162 81
Other (24) (5) (12) (29) (31)
----------------------------------------------------- -------------------
Total revenue (TEB)(2) 780 846 649 1,626 1,374
TEB adjustment 54 62 42 116 88
----------------------------------------------------- -------------------
Total revenue 726 784 607 1,510 1,286
Provision for (recovery
of) credit losses 4 (10) (16) (6) (31)
Non-interest expenses 524 551 505 1,075 1,038
----------------------------------------------------- -------------------
Income before taxes and
non-controlling
interests 198 243 118 441 279
Income taxes 1 33 7 34 39
Non-controlling
interests 3 - 1 3 2
----------------------------------------------------- -------------------
Net income $ 194 $ 210 $ 110 $ 404 $ 238
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio 72.2% 70.3% 83.4% 71.2% 80.7%
Cash efficiency ratio
(TEB)(2) 67.1% 65.2% 77.9% 66.1% 75.5%
ROE(2) 36.8% 41.6% 23.5% 39.2% 24.6%
Economic profit(2) $ 127 $ 146 $ 50 $ 273 $ 114
Regular workforce
headcount 2,353 2,384 2,222 2,353 2,222
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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 $84 million or 76% from the same quarter last year,
largely as a result of higher revenue in U.S. real estate finance which
completed its largest commercial mortgage-backed securities offering, and
Canadian investment banking. Taxes were lower driven by an increase in the
relative proportion of earnings subject to lower rates. These were partially
offset by higher non-interest expenses and provision for credit losses.
Net income was down $16 million or 8% from the prior quarter, primarily
due to lower capital markets revenue, partially offset by higher investment
banking and credit products revenue and lower non-interest expenses.
Net income for the six months ended April 30, 2007 was up $166 million or
70% from the same period in 2006, mainly due to higher revenue across most
business lines and lower taxes resulting from an increase in the relative
proportion of earnings subject to lower rates. These were partially offset by
higher non-interest expenses and a lower recovery of credit losses.
Revenue
Revenue was up $119 million or 20% from the same quarter last year.
Investment banking and credit products revenue was up $128 million.
Higher revenue in U.S. real estate finance and Canadian investment banking
accounted for almost half of the increase. In addition, losses associated with
corporate loan hedging programs were lower.
Merchant banking revenue was up $16 million, resulting from higher gains
and lower write-downs.
Revenue was down $58 million or 7% from the prior quarter.
Capital markets revenue was down $98 million. Lower revenue in debt
capital markets, equity and commodity structured products and Canadian
equities contributed to the decrease.
Investment banking and credit products revenue was up $43 million,
primarily due to higher revenue in U.S. real estate finance and lower losses
associated with corporate loan hedging programs, partially offset by lower
revenue in investment banking.
Revenue for the six months ended April 30, 2007 was up $224 million or
17% from the same period in 2006.
Capital markets revenue was up $75 million, driven by higher revenue in
equity and commodities structured products.
Investment banking and credit products revenue was up $95 million,
primarily due to higher revenue in U.S. real estate finance and lower losses
associated with corporate loan hedging programs, partially offset by lower
revenue in European investment banking.
Merchant banking revenue was up $81 million, resulting from higher gains
and lower write-downs.
Provision for (recovery of) credit losses
Provision for credit losses was $4 million, compared with a recovery of
$16 million for the same quarter last year. Lower recoveries in the U.S. were
partially offset by lower losses net of recoveries in commercial banking.
Provision for credit losses was $4 million, compared with a recovery of
$10 million for the prior quarter. Lower recoveries in Europe and higher
losses net of recoveries in commercial banking were partially offset by lower
losses net of recoveries in the U.S.
Recovery of credit losses for the six months ended April 30, 2007 was
down $25 million or 81% from the same period in 2006, primarily due to higher
losses and lower recoveries in the U.S., partially offset by higher recoveries
in Europe and lower losses in commercial banking.
Non-interest expenses
Non-interest expenses were up $19 million or 4% from the same quarter
last year, primarily due to higher performance-related compensation, partially
offset by lower litigation provisions.
Non-interest expenses were down $27 million or 5% from the prior quarter,
mainly due to lower litigation provisions.
Non-interest expenses for the six months ended April 30, 2007 were up
$37 million or 4% from the same period in 2006, primarily due to higher
performance-related compensation, partially offset by lower litigation
provisions and corporate support costs.
Income taxes
Despite higher income, income taxes were down $6 million or 86% from the
same quarter last year and down $5 million or 13% for the six months ended
April 30, 2007 from the same period in 2006. The increase in the relative
proportion of earnings subject to lower rates of tax, including tax-exempt
income, contributed to the decrease. The current quarter benefited from the
$11 million reversal of a portion of the valuation allowance related to a
future tax asset from our U.S. operations.
Income taxes were down $32 million or 97% from the prior quarter,
resulting from lower income and the valuation allowance reversal noted above.
Regular workforce headcount
The regular workforce headcount was up 131 from the same quarter last
year, primarily due to a realignment of staff from Administration, Technology
and Operations.
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, 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
For the three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Total revenue $ 135 $ 156 $ 195 $ 291 $ 306
Recovery of credit
losses (20) - (26) (20) (25)
Non-interest expenses 99 104 94 203 193
----------------------------------------------------- -------------------
Income before taxes and
non-controlling
interests 56 52 127 108 138
Income taxes 26 22 57 48 58
Non-controlling interests - - 27 - 23
----------------------------------------------------- -------------------
Net income $ 30 $ 30 $ 43 $ 60 $ 57
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Regular workforce
headcount 10,869 10,921 11,411 10,869 11,411
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
Financial overview
Net income was down $13 million or 30% from the same quarter last year,
mainly due to higher unallocated corporate support costs. The second quarter
of 2006 included foreign exchange revenue of $47 million and the related tax
expense of the same amount on the repatriation of capital and retained
earnings from our non-U.S. foreign operations.
Net income was unchanged from the prior quarter, as the reversal of the
$20 million of general allowance for credit losses was offset by higher
unallocated corporate support costs.
Net income for the six months ended April 30, 2007 was up $3 million or
5% from the same period in 2006. Higher revenue from treasury and the CIBC
Mellon joint ventures and lower project costs contributed to the increase.
These were partially offset by higher unallocated corporate support costs.
Revenue
Revenue was down $60 million or 31% from the same quarter last year and
down $15 million or 5% for the six months ended April 30, 2007 from the same
period in 2006. Foreign exchange revenue of $47 million on the repatriation
noted above was included in the second quarter of 2006. The deconsolidation of
a VIE in the third quarter of 2006 offset in part by higher revenue from
treasury and CIBC Mellon joint ventures also contributed to the decline.
Revenue was down $21 million or 13% from the prior quarter, mainly due to
lower revenue related to the hedging of SARs.
Recovery of credit losses
The current quarter included the $20 million reversal of the general
allowance compared with $25 million in the same quarter last year.
Non-interest expenses
Non-interest expenses were up $5 million or 5% from the same quarter last
year and up $10 million or 5% for the six months ended April 30, 2007 from the
same period in 2006. The increase was mainly due to higher unallocated
corporate support costs, partially offset by lower project costs.
Non-interest expenses were down $5 million or 5% from the prior quarter,
primarily due to lower expenses related to SARs, partially offset by higher
unallocated corporate support costs.
Income taxes
Income taxes were down $31 million or 54% from the same quarter last
year. An income tax expense of $47 million on the repatriation noted above was
included in the second quarter of 2006.
Income taxes for the six months ended April 30, 2007 were down
$10 million or 17% from the same period in 2006, mainly due to the income tax
expense of $47 million on the repatriation noted above, partially offset by
the impact of higher income subject to tax.
Non-controlling interests
Non-controlling interests in the second quarter of 2006 and the six
months ended April 30, 2006 represents the minority interest in a consolidated
VIE. The VIE was deconsolidated in the third quarter of 2006.
Regular workforce headcount
The regular workforce headcount was down 542 from the same quarter last
year, primarily due to the reduction of back office functions and the
realignment of staff to the 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.
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 Apr. 30 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 555 $ 386
Business and government 426 244
-------------------------------------------------------------------------
Total gross impaired loans $ 981 $ 630
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 374 $ 363
Business and government 248 181
-------------------------------------------------------------------------
Specific allowance 622 544
General allowance 894 900
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,516 $ 1,444
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross impaired loans were up $351 million or 56% from October 31, 2006.
Consumer gross impaired loans were up $169 million or 44%. Business and
government gross impaired loans were up $182 million or 75%. The overall
increase in gross impaired loans was largely due to the FirstCaribbean
acquisition. During the six months ended April 30, 2007, gross impaired loans
increased $22 million in Canada, $22 million in the U.S. and $307 million in
other countries.
Allowance for credit losses was up $72 million or 5% from October 31,
2006. Specific allowance was up $78 million or 14% 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 $894 million, down $6 million from the year-
end. The reversal of $24 million of general allowance, and a transfer of
$5 million to specific allowance related to the student loans portfolio were
largely offset by the FirstCaribbean acquisition.
For details on the provision for credit losses, see the "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 down from the same quarter last
year primarily due to lower levels of credit spread risk, partially offset by
higher levels of interest rate risk. Risk changes have not been significant
and do not reflect any material change in business activity.
Trading revenue (TEB)(A) was positive for 79% of the days in the quarter
and 86% of the days for the six months ended April 30, 2007 and trading losses
did not exceed VaR for any day during the three and six months ended April 30,
2007.
--------------
(A) For additional information, see the "Non-GAAP measures" section on
page 37 of our 2006 Annual Accountability Report.
-------------------------------------------------------------------------
VaR BY RISK TYPE - TRADING PORTFOLIO
As at or for the three months ended
--------------------------------------
Apr. 30, 2007
--------------------------------------
$ millions High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 8.8 $ 4.9 $ 7.5 $ 7.0
Credit spread risk 4.8 3.0 4.7 3.9
Equity risk 7.4 5.2 5.8 5.9
Foreign exchange risk 1.1 0.1 0.4 0.5
Commodity risk 1.9 0.9 1.0 1.4
Diversification effect(1) n/m(2) n/m(2) (9.7) (9.5)
---------------------------- ------------------
Total risk $ 10.3 $ 8.0 $ 9.7 $ 9.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at or for the three months ended
--------------------------------------
Jan. 31, 2007 Apr. 30, 2006
--------------------------------------
$ millions As at Average As at Average
-------------------------------------------------------------------------
Interest rate risk $ 8.6 $ 7.0 $ 6.1 $ 6.3
Credit spread risk 3.2 3.5 4.8 5.0
Equity risk 5.8 6.4 6.5 6.4
Foreign exchange risk 0.6 0.4 0.5 0.2
Commodity risk 1.5 1.6 2.1 1.7
Diversification effect(1) (10.2) (9.9) (10.2) (10.0)
---------------------------- --------------------------------------
Total risk $ 9.5 $ 9.0 $ 9.8 $ 9.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the
six months ended
------------------
Apr. 30, Apr. 30,
2007 2006
------------------
$ millions Average Average
-----------------------------------------------------
Interest rate risk $ 7.0 $ 5.0
Credit spread risk 3.7 4.7
Equity risk 6.1 6.1
Foreign exchange risk 0.4 0.2
Commodity risk 1.5 1.6
Diversification effect(1) (9.6) (8.7)
---------------------------- ------------------
Total risk $ 9.1 $ 8.9
-----------------------------------------------------
-----------------------------------------------------
(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 2007 2006
$ millions, as at Apr. 30 Jan. 31 Apr. 30
-------------------------------------------------------------------------
100 basis points increase in interest rates
Impact on net interest income $ 22 $ 12 $ 79
Impact on shareholders' equity(1) 292 183 260
100 basis points decrease in interest rates
Impact on net interest income $ (95) $ (72) $ (149)
Impact on shareholders' equity(1) (326) (239) (260)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Measured on a present value basis.
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 April 30, 2007, Canadian dollar deposits from individuals
totalled $82.0 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.
One factor that can affect our access to wholesale markets and funding
costs in those markets is our credit ratings. Over the course of the quarter,
DBRS Limited upgraded our senior and subordinated debt ratings from AA(low) to
AA and from A(high) to AA(low), respectively. Moody's Investors Service
implemented a new bank rating methodology, the final outcome of which was a
revision of our senior debt rating from Aa3 to Aa2 and our subordinated debt
rating from A1 to Aa3. These changes have resulted in minimal impact to our
access and cost of wholesale funding.
The following table summarizes our liquid assets:
-------------------------------------------------------------------------
2007 2006
$ billions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.0 $ 0.9
Deposits with banks 15.4 10.9
Securities(1) 66.1 66.8
Securities borrowed or purchased under resale
agreements 30.9 25.4
-------------------------------------------------------------------------
$ 113.4 $ 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
April 30, 2007 totalled $22.3 billion (October 31, 2006: $25.5 billion).
Management of capital resources
Regulatory capital
------------------
We manage capital in accordance with policies established by the Board
and a Board-approved annual capital plan.
Regulatory capital is determined in accordance with guidelines issued by
the Office of the Superintendent of Financial Institutions (OSFI).
-------------------------------------------------------------------------
2007 2006
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 12,111 $ 11,935
Total regulatory capital 17,954 16,583
Risk-weighted assets 127,186 114,780
Tier 1 capital ratio 9.5% 10.4%
Total capital ratio 14.1% 14.5%
Assets-to-capital multiple 17.9x 18.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Our Tier 1 ratio was down 90 basis points from the year-end, largely due
to an increase in risk-weighted assets and goodwill, both arising from the
acquisition of FirstCaribbean. These factors were partially offset by the
increase in retained earnings, the minority interest in FirstCaribbean, and
the issue of common shares from the exercise of options.
Our 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.
Significant capital management activities
-----------------------------------------
The following table summarizes our significant capital management
activities:
-------------------------------------------------------------------------
For the For the
three six
months months
ended ended
April 30, April 30,
$ millions 2007 2007
-------------------------------------------------------------------------
Issue of Class A Preferred Shares $ 300 $ 750
Redemption of Class A Preferred Shares - 416(1)
Issue of common shares (options exercised) 21 71
Dividends
Preferred shares - classified as equity 35 73
Preferred shares - classified as liabilities 8 16
Common shares 259 494
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $16 million premium on redemption.
For additional details, see Note 5 to the interim consolidated financial
statements.
Normal course issuer bid
------------------------
On April 30, 2007, the Toronto Stock Exchange accepted our notice of
intention to commence a normal course issuer bid. Purchases under this bid
commenced on May 2, 2007 and will conclude on the earlier of the termination
of the bid, the date on which purchases under the bid have been completed, or
October 31, 2007. Under this bid, from time to time we may purchase for
cancellation up to 10 million common shares. Between the commencement of the
bid and May 30, 2007, we repurchased and cancelled approximately 1.3 million
shares at an average price of $102.13 for a total amount of $130 million.
Dividends
---------
During the quarter, we increased our quarterly common share dividend from
$0.70 per share to $0.77 per share.
Regulatory approval to pay dividends
------------------------------------
We obtained the approval of OSFI under section 79(5) of the Bank Act to
pay dividends on our common shares and Class A Preferred Shares for the
quarters ended January 31, 2007 and April 30, 2007.
On April 20, 2007, section 79(5) of the Bank Act was repealed and further
OSFI approvals will not be required.
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 for
the three and six months ended April 30, 2007.
Contractual obligations
Details on our contractual obligations are provided on page 69 of the
2006 Annual Accountability Report.
On November 1, 2006, we amended an information technology services
contract with an external service provider 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 an 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, "Accounting for Leases," certain aspects of which are
incorporated in the CICA Emerging Issues Abstract (EIC) 46, "Leveraged
Leases." The FSP is effective for CIBC beginning November 1, 2007.
For additional details, see page 130 of our 2006 Annual Accountability
Report.
Capital disclosures
In December 2006, the CICA issued a new handbook section 1535, "Capital
Disclosures," which requires an entity to disclose its objectives, policies
and processes for managing capital. This new standard is effective for CIBC
beginning November 1, 2007.
Financial instruments
In December 2006, the CICA issued two new handbook sections, 3862
"Financial Instruments - Disclosures" and 3863 "Financial Instruments -
Presentation." These new standards are effective for CIBC beginning
November 1, 2007.
These sections replace CICA handbook section 3861, "Financial Instruments
- Disclosure and Presentation." These new sections enhance disclosure
requirements on the nature and extent of risks arising from financial
instruments and how the entity manages those risks.
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 April 30,
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 April 30, 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
-------------------------------------------------------------------------
Apr. 30, 2007
Total revenue $ 2,189 $ 726 $ 135 $ 3,050
Add: adjustment for TEB - 54 - 54
-------------------------------------------------------------------------
Revenue (TEB) $ 2,189 $ 780 $ 135 $ 3,104
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 583 $ 194 $ 30 $ 807
Less: charge for economic
capital 141 67 1 209
-------------------------------------------------------------------------
Economic profit $ 442 $ 127 $ 29 $ 598
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 61.8% 72.2% n/m 64.8%
Less: adjustment for
impact of TEB - 5.1 n/m 1.1
amortization of other
intangible assets 0.5 - n/m 0.5
-------------------------------------------------------------------------
Cash efficiency ratio (TEB) 61.3% 67.1% n/m 63.2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
Cash efficiency ratio (TEB) 59.7% 65.2% n/m 61.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2006
Total revenue $ 1,975 $ 607 $ 195 $ 2,777
Add: adjustment for TEB - 42 - 42
-------------------------------------------------------------------------
Revenue (TEB) $ 1,975 $ 649 $ 195 $ 2,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 432 $ 110 $ 43 $ 585
Less: charge for economic
capital 120 60 4 184
-------------------------------------------------------------------------
Economic profit $ 312 $ 50 $ 39 $ 401
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 62.6% 83.4% n/m 66.1%
Less: adjustment for
impact of TEB - 5.5 n/m 1.0
amortization of other
intangible assets - - n/m 0.2
-------------------------------------------------------------------------
Cash efficiency ratio (TEB) 62.6% 77.9% n/m 64.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
n/m - not meaningful
-------------------------------------------------------------------------
CIBC CIBC
$ millions, for the Retail World Corporate CIBC
six months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Apr. 30, 2007
Total revenue $ 4,340 $ 1,510 $ 291 $ 6,141
Add: adjustment for TEB - 116 - 116
-------------------------------------------------------------------------
Revenue (TEB) $ 4,340 $ 1,626 $ 291 $ 6,257
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 1,113 $ 404 $ 60 $ 1,577
Less: charge for economic
capital 266 131 5 402
-------------------------------------------------------------------------
Economic profit $ 847 $ 273 $ 55 $ 1,175
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 60.8% 71.2% n/m 63.8%
Less: adjustment for
impact of TEB - 5.1 n/m 1.2
amortization of other
intangible assets 0.2 - n/m 0.3
-------------------------------------------------------------------------
Cash efficiency ratio (TEB) 60.6% 66.1% n/m 62.3%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2006
Total revenue $ 4,043 $ 1,286 $ 306 $ 5,635
Add: adjustment for TEB - 88 - 88
-------------------------------------------------------------------------
Revenue (TEB) $ 4,043 $ 1,374 $ 306 $ 5,723
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 870 $ 238 $ 57 $ 1,165
Less: charge for economic
capital 246 124 9 379
-------------------------------------------------------------------------
Economic profit $ 624 $ 114 $ 48 $ 786
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio 61.4% 80.7% n/m 65.9%
Less: adjustment for
impact of TEB - 5.2 n/m 1.0
amortization of other
intangible assets - - n/m 0.3
-------------------------------------------------------------------------
Cash efficiency ratio (TEB) 61.4% 75.5% n/m 64.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
n/m - not meaningful
Adjusted income taxes
Adjusted effective tax rate is calculated by adjusting the tax expense
for significant tax recoveries and other tax adjustments. 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
For the three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Income before
taxes and
non-controlling
interests A $ 908 $ 1,005 $ 803 $ 1,913 $ 1,618
TEB adjustment B 54 62 42 116 88
----------------------------------------------------- -------------------
Income before
taxes and
non-controlling
interests (TEB) C $ 962 $ 1,067 $ 845 $ 2,029 $ 1,706
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Reported income
taxes per
financial
statements D $ 91 $ 231 $ 190 $ 322 $ 428
TEB adjustment B 54 62 42 116 88
Income tax
recoveries E 80 - 35 80 35
Reversal of
valuation
allowance F 11 - - 11 -
----------------------------------------------------- -------------------
Adjusted income
taxes G $ 236 $ 293 $ 267 $ 529 $ 551
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Reported
effective
income
tax rate
(TEB) (D+B)/C 15.1% 27.5% 27.5% 21.6% 30.2%
Adjusted
effective
income
tax rate (D+E+F)/A 20.0% 23.0% 28.0% 21.6% 28.6%
Adjusted
effective
income
tax rate
(TEB) G/C 24.5% 27.5% 31.6% 26.1% 32.3%
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
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 may enable users of our
financial information to make comparisons more readily.
-------------------------------------------------------------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net income $ 807 $ 770 $ 585 $ 1,577 $ 1,165
Add: after-tax effect
of amortization of
other intangible assets 9 4 5 13 10
----------------------------------------------------- -------------------
Cash net income $ 816 $ 774 $ 590 $ 1,590 $ 1,175
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Non-interest expenses $ 1,976 $ 1,943 $ 1,836 $ 3,919 $ 3,713
Less: amortization of
other intangible
assets 12 5 7 17 14
----------------------------------------------------- -------------------
Cash non-interest
expenses $ 1,964 $ 1,938 $ 1,829 $ 3,902 $ 3,699
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash basic EPS $ 2.32 $ 2.14 $ 1.66 $ 4.46 $ 3.31
Cash diluted EPS $ 2.29 $ 2.12 $ 1.65 $ 4.41 $ 3.28
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the
For the three months ended six months ended
----------------------------------------------------- -------------------
2007 2007 2006 2007 2006
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Interest income
Loans $ 2,350 $ 2,304 $ 2,008 $ 4,654 $ 4,041
Securities borrowed or
purchased under resale
agreements 499 472 366 971 699
Securities 719 762 640 1,481 1,260
Deposits with banks 200 173 98 373 185
----------------------------------------------------- -------------------
3,768 3,711 3,112 7,479 6,185
----------------------------------------------------- -------------------
Interest expense
Deposits 1,928 1,903 1,444 3,831 2,772
Other liabilities 678 665 552 1,343 1,069
Subordinated
indebtedness 75 76 72 151 144
Preferred share
liabilities 8 8 8 16 16
----------------------------------------------------- -------------------
2,689 2,652 2,076 5,341 4,001
----------------------------------------------------- -------------------
Net interest income 1,079 1,059 1,036 2,138 2,184
----------------------------------------------------- -------------------
Non-interest income
Underwriting and
advisory fees 178 185 137 363 317
Deposit and payment fees 193 193 187 386 382
Credit fees 82 69 62 151 150
Card fees 60 70 52 130 116
Investment management
and custodial fees 130 130 118 260 232
Mutual fund fees 216 212 201 428 395
Insurance fees, net
of claims 62 58 46 120 104
Commissions on
securities transactions 226 229 230 455 459
Trading revenue (Note 8) 296 375 307 671 569
Investment securities
losses, net n/a n/a (5) n/a (7)
Realized net gains on
available for sale
securities 119 132 n/a 251 n/a
Revenue on financial
instruments designated
at fair value and
related economic
hedges (Note 9) 59 43 n/a 102 n/a
Income from
securitized assets 136 129 129 265 245
Foreign exchange
other than trading 101 84 104 185 168
Other 113 123 173 236 321
----------------------------------------------------- -------------------
1,971 2,032 1,741 4,003 3,451
----------------------------------------------------- -------------------
Total revenue 3,050 3,091 2,777 6,141 5,635
----------------------------------------------------- -------------------
Provision for credit
losses (Note 3) 166 143 138 309 304
----------------------------------------------------- -------------------
Non-interest expenses
Employee compensation
and benefits 1,126 1,160 1,054 2,286 2,134
Occupancy costs 152 150 144 302 290
Computer and office
equipment 279 263 274 542 547
Communications 88 71 75 159 150
Advertising and
business development 66 50 54 116 101
Professional fees 43 39 41 82 85
Business and
capital taxes 34 35 35 69 66
Other 188 175 159 363 340
----------------------------------------------------- -------------------
1,976 1,943 1,836 3,919 3,713
----------------------------------------------------- -------------------
Income before income
taxes and
non-controlling
interests 908 1,005 803 1,913 1,618
Income tax expense 91 231 190 322 428
----------------------------------------------------- -------------------
817 774 613 1,591 1,190
Non-controlling
interests 10 4 28 14 25
----------------------------------------------------- -------------------
Net income $ 807 $ 770 $ 585 $ 1,577 $ 1,165
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Earnings per share
(in dollars)
(Note 11) - Basic $ 2.29 $ 2.13 $ 1.65 $ 4.42 $ 3.28
- Diluted $ 2.27 $ 2.11 $ 1.63 $ 4.37 $ 3.25
Dividends per common
share (in dollars) $ 0.77 $ 0.70 $ 0.68 $ 1.47 $ 1.36
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
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 Apr. 30 Oct. 31
--------------------------------------------------------------- ---------
ASSETS
Cash and non-interest-bearing deposits with banks $ 1,707 $ 1,317
--------------------------------------------------------------- ---------
Interest-bearing deposits with banks 14,734 10,536
--------------------------------------------------------------- ---------
Securities
Trading (Note 8) 63,404 62,331
Available for sale 14,227 n/a
Designated at fair value (Note 9) 6,132 n/a
Investment n/a 21,167
--------------------------------------------------------------- ---------
83,763 83,498
--------------------------------------------------------------- ---------
Securities borrowed or purchased under
resale agreements 30,916 25,432
--------------------------------------------------------------- ---------
Loans
Residential mortgages 87,075 81,358
Personal 28,970 28,052
Credit card 7,998 7,253
Business and government (Notes 8 and 9) 33,992 30,404
Allowance for credit losses (Note 3) (1,515) (1,442)
--------------------------------------------------------------- ---------
156,520 145,625
--------------------------------------------------------------- ---------
Other
Derivative instruments market valuation (Note 7) 17,233 17,122
Customers' liability under acceptances 8,277 6,291
Land, buildings and equipment 2,142 2,032
Goodwill 1,983 982
Other intangible assets 475 192
Other assets 8,830 10,957
--------------------------------------------------------------- ---------
38,940 37,576
--------------------------------------------------------------- ---------
$326,580 $303,984
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 90,490 $ 81,829
Business and government (Note 9) 116,338 107,468
Bank 14,341 13,594
--------------------------------------------------------------- ---------
221,169 202,891
--------------------------------------------------------------- ---------
Other
Derivative instruments market valuation (Note 7) 17,224 17,330
Acceptances 8,277 6,297
Obligations related to securities sold short 13,743 13,788
Obligations related to securities lent
or sold under repurchase agreements 31,772 30,433
Other liabilities 13,867 14,716
--------------------------------------------------------------- ---------
84,883 82,564
--------------------------------------------------------------- ---------
Subordinated indebtedness 6,011 5,595
--------------------------------------------------------------- ---------
Preferred share liabilities 600 600
--------------------------------------------------------------- ---------
Non-controlling interests 161 12
--------------------------------------------------------------- ---------
Shareholders' equity
Preferred shares 2,731 2,381
Common shares 3,135 3,064
Treasury shares (4) (19)
Contributed surplus 76 70
Foreign currency translation adjustments n/a (442)
Retained earnings 8,200 7,268
Accumulated other comprehensive income
(AOCI) (Note 6) (382) n/a
--------------------------------------------------------------- ---------
13,756 12,322
--------------------------------------------------------------- ---------
$326,580 $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
For the three months ended six months ended
----------------------------------------------------- -------------------
2007 2007 2006 2007 2006
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Preferred shares
Balance at beginning
of period $ 2,431 $ 2,381 $ 2,381 $ 2,381 $ 2,381
Issue of preferred
shares 300 450 - 750 -
Redemption of
preferred shares - (400) - (400) -
----------------------------------------------------- -------------------
Balance at end of
period $ 2,731 $ 2,431 $ 2,381 $ 2,731 $ 2,381
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Common shares
Balance at beginning
of period $ 3,114 $ 3,064 $ 2,992 $ 3,064 $ 2,952
Issue of common shares 21 50 39 71 79
----------------------------------------------------- -------------------
Balance at end of
period $ 3,135 $ 3,114 $ 3,031 $ 3,135 $ 3,031
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Treasury shares
Balance at beginning
of period $ (1) $ (19) $ (5) $ (19) $ -
Purchases (1,213) (1,356) (664) (2,569) (2,069)
Sales 1,210 1,374 665 2,584 2,065
----------------------------------------------------- -------------------
Balance at end of
period $ (4) $ (1) $ (4) $ (4) $ (4)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Contributed surplus
Balance at beginning
of period $ 74 $ 70 $ 56 $ 70 $ 58
Stock option expense 1 2 2 3 3
Stock options exercised (1) (4) (5) (5) (8)
Net premium on treasury
shares 2 6 - 8 -
----------------------------------------------------- -------------------
Balance at end of
period $ 76 $ 74 $ 53 $ 76 $ 53
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Foreign currency
translation adjustments
Balance at beginning of
period $ - $ (442) $ (375) $ (442) $ (327)
Transitional adjustment
on adoption of new
accounting policies(1) - 442 - 442 -
Foreign exchange losses
from investment in
subsidiaries and other
items n/a n/a (208) n/a (754)
Foreign exchange gains
from hedging activities n/a n/a 161 n/a 907
Income tax expense n/a n/a (44) n/a (292)
----------------------------------------------------- -------------------
Balance at end of
period $ - $ - $ (466) $ - $ (466)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
Balance at beginning
of period, as
previously reported $ 7,693 $ 7,268 $ 5,987 $ 7,268 $ 5,667
Transitional adjustment
on adoption of new
accounting policies(1) - (50) - (50) -
----------------------------------------------------- -------------------
Balance at beginning of
period, as restated 7,693 7,218 5,987 7,218 5,667
Net income 807 770 585 1,577 1,165
Dividends
Preferred (35) (38) (33) (73) (66)
Common (259) (235) (229) (494) (456)
Premium on redemption
of preferred shares
(classified as equity) - (16) - (16) -
Other (6) (6) 5 (12) 5
----------------------------------------------------- -------------------
Balance at end of
period $ 8,200 $ 7,693 $ 6,315 $ 8,200 $ 6,315
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Accumulated other
comprehensive income,
net of tax (Note 6)
Balance at beginning of
period $ (144) n/a n/a n/a n/a
Transitional adjustment
on adoption of new
accounting policies(1) - (319) n/a (319) n/a
Other comprehensive
income (238) 175 n/a (63) n/a
----------------------------------------------------- -------------------
Balance at end of
period $ (382) $ (144) n/a $ (382) n/a
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings and
AOCI $ 7,818 $ 7,549 $ 6,315 $ 7,818 $ 6,315
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Shareholders' equity at
end of period $ 13,756 $ 13,167 $ 11,310 $ 13,756 $ 11,310
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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
For
the six
For the three months
months ended ended
--------------------------------------------------------------- ---------
2007 2007 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30
--------------------------------------------------------------- ---------
Net income $ 807 $ 770 $ 1,577
--------------------------------------------------------------- ---------
Other comprehensive income, net of tax
Foreign currency translation adjustments
Net (losses) gains on investment in
self-sustaining foreign operations(1) (1,089) 805 (284)
Net gains (losses) on hedges of foreign
currency translation adjustments(2) 840 (603) 237
--------------------------------------------------------------- ---------
(249) 202 (47)
--------------------------------------------------------------- ---------
Unrealized gains (losses) on available
for sale securities
Net unrealized gains (losses) on
securities available for sale(3) 74 (43) 31
Transfer of net losses (gains) to net
income(4) 1 (28) (27)
--------------------------------------------------------------- ---------
75 (71) 4
--------------------------------------------------------------- ---------
Gains (losses) on cash flow hedges
Net (losses) gains on derivatives
designated as cash flow hedges(5) (55) 73 18
Net gains on derivatives designated as
cash flow hedges transferred to net
income(6) (9) (29) (38)
--------------------------------------------------------------- ---------
(64) 44 (20)
--------------------------------------------------------------- ---------
Total other comprehensive (loss) income(7) (238) 175 (63)
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
Comprehensive income $ 569 $ 945 $ 1,514
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
(1) Net of income tax benefit (expense) of $10 million (Jan. 31, 2007:
$(10) million).
(2) Net of income tax (expense) benefit of $(425) million (Jan. 31, 2007:
$313 million).
(3) Net of income tax (expense) benefit of $(52) million (Jan. 31, 2007:
$29 million).
(4) Net of income tax (expense) benefit of $(1) million (Jan. 31, 2007:
$16 million).
(5) Net of income tax benefit (expense) of $29 million (Jan. 31, 2007:
$(39) million).
(6) Net of income tax benefit of $5 million (Jan. 31, 2007: $15 million).
(7) Includes non-controlling interest of nil (Jan. 31, 2007: $1 million).
The accompanying notes are an integral part of these interim consolidated
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the For the
three months ended six months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Cash flows provided by
(used in) operating
activities
Net income $ 807 $ 770 $ 585 $ 1,577 $ 1,165
Adjustments to
reconcile net income
to cash flows provided
by (used in) operating
activities:
Provision for credit
losses 166 143 138 309 304
Amortization of
buildings, furniture,
equipment and
leasehold
improvements 59 53 51 112 105
Amortization of other
intangible assets 12 5 7 17 14
Stock-based
compensation (2) 18 6 16 21
Future income taxes 51 63 93 114 170
Investment securities
losses realized, net n/a n/a 5 n/a 7
Realized net gains on
available for sale
securities (119) (132) n/a (251) -
Gains on disposal of
land, buildings and
equipment - - (1) - (1)
Other non-cash items,
net (11) 50 - 39 -
Changes in operating
assets and
liabilities
Accrued interest
receivable 74 (106) (122) (32) (105)
Accrued interest
payable 29 (474) 200 (445) 213
Amounts receivable
on derivative
contracts 450 (404) 790 46 1,721
Amounts payable on
derivative
contracts 629 (958) (1,379) (329) (1,437)
Net change in
trading securities 4,709 (4,238) 1,797 471 (5,320)
Net change in
securities
designated at fair
value 837 (629) n/a 208 n/a
Net change in other
assets and
liabilities
designated at fair
value 1,194 187 n/a 1,381 n/a
Current income taxes (457) (377) 220 (834) 273
Other, net 1,325 (1,742) 35 (417) (1,855)
----------------------------------------------------- -------------------
9,753 (7,771) 2,425 1,982 (4,725)
----------------------------------------------------- -------------------
Cash flows provided by
(used in) financing
activities
Deposits, net of
withdrawals (3,619) 5,554 (163) 1,935 769
Obligations related to
securities sold short (14) (69) 2,785 (83) 3,113
Net obligations related
to securities lent or
sold under repurchase
agreements 2,517 (1,178) (2,277) 1,339 7,357
Issue of subordinated
indebtedness 59 - 1,300 59 1,300
Redemption of
subordinated
indebtedness - - (250) - (500)
Redemption of preferred
shares - (416) - (416) -
Issue of preferred
shares 300 450 - 750 -
Issue of common shares 21 50 39 71 79
Net proceeds from
treasury shares
(purchased) sold (3) 18 1 15 (4)
Dividends (294) (273) (262) (567) (522)
Other, net (154) 353 (295) 199 (145)
----------------------------------------------------- -------------------
(1,187) 4,489 878 3,302 11,447
----------------------------------------------------- -------------------
Cash flows provided by
(used in) investing
activities
Interest-bearing
deposits with banks 1,020 (2,494) (765) (1,474) 714
Loans, net of repayments (5,976) 1,295 (2,301) (4,681) (1,946)
Proceeds from
securitizations 1,698 2,537 1,868 4,235 3,894
Investment securities
Purchase of securities n/a n/a (3,384) n/a (9,395)
Proceeds from sale of
securities n/a n/a 1,247 n/a 2,541
Proceeds from maturity
of securities n/a n/a 896 n/a 1,537
Available for sale
securities
Purchase of securities (2,618) (1,787) n/a (4,405) n/a
Proceeds from sale of
securities 3,353 1,462 n/a 4,815 n/a
Proceeds from maturity
of securities 986 2,396 n/a 3,382 n/a
Net securities borrowed
or purchased under
resale agreements (6,948) 1,464 (23) (5,484) (3,208)
Net cash used in
acquisition(1) (262) (778) - (1,040) (75)
Purchase of land,
buildings and equipment - (233) - (233) (6)
Proceeds from disposal
of land, buildings and
equipment - - 7 - 7
----------------------------------------------------- -------------------
(8,747) 3,862 (2,455) (4,885) (5,937)
----------------------------------------------------- -------------------
Effect of exchange rate
changes on cash and
non-interest-bearing
deposits with banks (50) 41 (10) (9) (22)
----------------------------------------------------- -------------------
Net increase (decrease)
in cash and non-
interest-bearing
deposits with banks
during period (231) 621 838 390 763
Cash and non-interest-
bearing deposits with
banks at beginning of
period 1,938 1,317 1,235 1,317 1,310
----------------------------------------------------- -------------------
Cash and non-interest-
bearing deposits with
banks at end of period $ 1,707 $ 1,938 $ 2,073 $ 1,707 $ 2,073
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash interest paid $ 2,660 $ 3,126 $ 1,876 $ 5,786 $ 3,788
Cash income taxes paid
(recovered) $ 496 $ 545 $ (123) $ 1,041 $ (15)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Primarily relates to acquisition of FirstCaribbean International
Bank and acquisition of 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 first quarter of 2007, 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 first
quarter of 2007.
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. Commencing November 1, 2006, quoted market values
of financial assets and liabilities classified as trading or FVO are in
reference to bid or asking prices where available, as appropriate,
instead of closing prices. Where bid and asking prices are unavailable,
we continue to use the closing price.
Transaction costs related to trading and FVO securities are expensed as
incurred. Transaction costs related to AFS and HTM securities and fees
and costs relating to 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 that 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 include
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. Obligations related to securities sold short that are held
as economic hedges rather than trading and FVO are also measured at fair
value with the realized and unrealized gains and losses reported in other
non-interest income.
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. In addition to the
requirement that reliable fair values are available, 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.
Held-to-maturity (HTM) 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 currently designated any financial assets as
HTM.
Available-for-sale (AFS) 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 recorded at amortized cost include all liabilities,
other than derivatives, obligations related to securities sold short, or
liabilities to which the FVO 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 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
together with 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
containing such embedded derivatives 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, the
effective portion of gains and losses on derivative instruments
designated within effective cash flow hedges, and unrealized foreign
currency translation gains and losses on self-sustaining foreign
operations net of gains or losses on related hedges.
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 (NIFO), as appropriate, to account for 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 hedge 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 from hedge accounting, is
recorded immediately in income.
The change in fair value of derivatives and non-derivatives not
designated as accounting hedges but used to economically hedge FVO
financial assets or liabilities 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 rate changes 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 reflected in
FXOTT.
The basis adjustment included in income is equal to the change in fair
value of 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
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 converting certain variable rate financial
instruments to fixed rate financial instruments and by hedging forecasted
foreign currency denominated cash flows.
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
immediately as it arises. If the hedging instrument expires or is sold,
terminated or exercised, or where the hedge no longer meets the criteria
for hedge accounting, the hedge relationship is terminated and any
remaining amount in AOCI remains therein until it is recognized in income
when the variability in cash flows hedged or the hedged forecast
transaction is ultimately recognized in income. When the forecasted
transaction is no longer expected to occur, the related cumulative gain
or loss 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 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 NIFO 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 reduction in 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 AOCI as at November 1, 2006. Prior period
balances have not been restated. The impact of adopting these standards
was as follows:
-------------------------------------------------------------------------
Adjustment
upon
As at adoption As at
$ millions Oct. 31, of new Nov. 1,
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) 9,256
-------------------------------------------------------------------------
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 losses on AFS securities - (29) (29)
Gains 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
Step 1 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 FirstCaribbean, which represents a further 39.3% ownership
interest. As a result of this transaction ("the Step 1 Acquisition"), 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 ($1,153 million) paid to Barclays. In addition, we
incurred transaction costs, net of tax, of US$7 million ($8 million).
Step 2 Acquisition
On February 2, 2007, 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
("the Step 2 Acquisition) in exchange for additional cash consideration
of US$212 million ($250 million), bringing our total ownership to 91.5%.
In addition, we incurred additional transaction costs, net of tax, of
US$2 million ($2 million).
The Step 1 Acquisition and the Step 2 Acquisition transactions have 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 interim 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 Step 1 Acquisition and the Step 2
Acquisition are as follows:
-------------------------------------------------------------------------
Step 1 Step 2
$ millions Acquisition Acquisition Total
-------------------------------------------------------------------------
Aggregate consideration
Purchase consideration (paid in cash) $ 1,153 $ 250 $ 1,403
Transaction costs, net of tax 8 2 10
Carrying value of equity investment in
FirstCaribbean prior to acquisition 840 - 840
-------------------------------------------------------------------------
$ 2,001 $ 252 $ 2,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fair value of net assets acquired
Cash and deposits with banks $ 3,107 $ - $ 3,107
Securities 3,934 - 3,934
Loans 6,667 - 6,667
Goodwill 958 84 1,042
Other intangible assets 267 45 312
Other assets 876 8 884
-------------------------------------------------------------------------
Total assets acquired 15,809 137 15,946
-------------------------------------------------------------------------
Deposits 10,921 - 10,921
Other liabilities 2,386 4 2,390
Subordinated indebtedness 232 - 232
Non-controlling interest 269 (119) 150
-------------------------------------------------------------------------
Total liabilities assumed 13,808 (115) 13,693
-------------------------------------------------------------------------
Net assets acquired $ 2,001 $ 252 $ 2,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 in respect of the Step 1
Acquisition and the Step 2 Acquisition.
Subsequent to the Step 2 Acquisition transaction, the total acquired
intangible assets include a core deposit intangible of $288 million and
the FirstCaribbean brand name of $24 million. The core deposit intangible
is amortized at 12% per annum using the declining balance method, while
the brand has an indefinite life and is not amortized.
Goodwill recognized as a result of the Step 1 Acquisition and the Step 2
Acquisition is not deductible for tax purposes.
3. Allowance for credit losses
-------------------------------------------------------------------------
$ millions, for the three months ended April 30, 2007
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 636 $ 920 $ 1,556
Provision for (recovery of) credit losses 190 (24) 166
Write-offs (220) - (220)
Recoveries 22 - 22
Transfer from general to specific(1) 2 (2) -
Other(2) (8) - (8)
-------------------------------------------------------------------------
Balance at end of period $ 622 $ 894 $ 1,516
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 621 $ 894 $ 1,515
Letters of credit(3) 1 - 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ 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 April 30, 2006
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 647 $ 975 $ 1,622
Provision for (recovery of) credit losses 163 (25) 138
Write-offs (208) - (208)
Recoveries 50 - 50
Transfer from general to specific(1) - - -
Other(2) 2 - 2
-------------------------------------------------------------------------
Balance at end of period $ 654 $ 950 $ 1,604
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 652 $ 950 $ 1,602
Letters of credit(3) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the six months ended April 30, 2007
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 544 $ 900 $ 1,444
Provision for (recovery of) credit losses 333 (24) 309
Write-offs (444) - (444)
Recoveries 75 - 75
Transfer from general to specific(1) 5 (5) -
Other(2) 109 23 132
-------------------------------------------------------------------------
Balance at end of period $ 622 $ 894 $ 1,516
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 621 $ 894 $ 1,515
Letters of credit(3) 1 - 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the six months ended April 30, 2006
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 663 $ 975 $ 1,638
Provision for (recovery of) credit losses 329 (25) 304
Write-offs (416) - (416)
Recoveries 73 - 73
Transfer from general to specific(1) - - -
Other(2) 5 - 5
-------------------------------------------------------------------------
Balance at end of period $ 654 $ 950 $ 1,604
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 652 $ 950 $ 1,602
Letters of credit(3) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Related to student loan portfolio.
(2) First quarter of 2007 includes $117 million in specific allowance and
$23 million in general allowance related to the FirstCaribbean
acquisition.
(3) Included in other liabilities.
4. Securitizations
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
Apr. 30, Jan. 31, Apr. 30,
$ millions 2007 2007 2006
-------------------------------------------------------------------------
Residential Residential Residential
mortgages mortgages mortgages Cards
-------------------------------------------------------------------------
Securitized $ 1,356 $ 3,850 $ 2,246 $ 109
Sold(1) 1,707 2,549 1,768 109
Net cash proceeds 1,698 2,537 1,759 109
Retained interests(2) 34 33 27 9
Gain on sale, net of
transaction costs 16 10 9 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest
assumptions:
Prepayment/payment
rate(3) 11.0-39.0% 11.0-39.0% 11.0-39.0% 43.8%
Discount rate 4.1-4.4% 4.1-4.3% 4.1-4.6% 9.0%
Expected credit
losses 0.0-0.1% 0.0-0.1% 0.0-0.1% 3.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six months ended
---------------------------------------
Apr. 30, Apr. 30,
$ millions 2007 2006
-------------------------------------------------------------------------
Residential Residential
mortgages mortgages Cards
-------------------------------------------------------------------------
Securitized $ 5,206 $ 5,031 $ 381
Sold(1) 4,256 3,533 381
Net cash proceeds 4,235 3,513 381
Retained interests(2) 67 58 32
Gain on sale, net of
transaction costs 26 17 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest
assumptions:
Prepayment/payment
rate(3) 11.0-39.0% 11.0-39.0% 43.5-43.8%
Discount rate 4.1-4.4% 3.5-4.6% 9.0%
Expected credit
losses 0.0-0.1% 0.0-0.1% 3.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Assets securitized and not sold are reported as FVO securities (2006:
investment securities) on the consolidated balance sheet.
(2) Retained interests arising from securitization are reported as AFS
securities (2006: investment securities) on the consolidated balance
sheet.
(3) 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
share for an aggregate consideration of $416 million.
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.
During the quarter, we issued 0.4 million common shares for $21 million
(for the six months ended April 30, 2007: 1.3 million common shares for
$71 million), pursuant to stock option plans.
On April 30, 2007, the Toronto Stock Exchange accepted our notice of
intention to commence a normal course issuer bid. Purchases under this
bid commenced on May 2, 2007 and will conclude on the earlier of the
termination of the bid, the date on which purchases under the bid have
been completed, or October 31, 2007. Under this bid, from time to time we
may purchase for cancellation up to 10 million common shares. Between the
commencement of the bid and May 30, 2007, we repurchased and cancelled
approximately 1.3 million shares at an average price of $102.13 for a
total amount of $130 million.
Regulatory approval to pay dividends
------------------------------------
We obtained the approval of the OSFI under section 79(5) of the Bank Act
to pay dividends on our common shares and Class A Preferred Shares for
the quarters ended January 31, 2007 and April 30, 2007.
On April 20, 2007, section 79(5) of the Bank Act was repealed and further
OSFI approvals will not be required.
6. Accumulated other comprehensive income (net of tax)
-------------------------------------------------------------------------
2007
$ millions, as at Apr. 30
-------------------------------------------------------------------------
Foreign currency translation adjustments $ (489)
Net unrealized losses on AFS securities (25)(1)
Net gains on cash flow hedges 132(2)
-------------------------------------------------------------------------
$ (382)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $186 million of cumulative loss related to AFS securities
measured at fair value.
(2) A net gain of $22 million, deferred in AOCI, as at April 30, 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 Apr. 30
-------------------------------------------------------------------------
Assets Liabilities
-------------------------------------------------------------------------
Trading (Note 8) $ 15,970 $ 15,993
Designated accounting hedges (Note 12) 731 291
Economic hedges(1)
Economic hedges of FVO financial assets and
liabilities 157 223
Other economic hedges 375 717
-------------------------------------------------------------------------
$ 17,233 $ 17,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 Apr. 30 Oct. 31
-------------------------------------------------------------------------
Securities
Debt $ 33,161 $ 28,493
Equity 30,243 33,838
-------------------------------------------------------------------------
63,404 62,331
-------------------------------------------------------------------------
Loans
Business and government - 3,641
Derivative instruments 15,970 16,805
-------------------------------------------------------------------------
$ 79,374 $ 82,777
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Obligations related to securities sold short $ 13,651 $ 12,716
Derivative instruments 15,993 16,891
-------------------------------------------------------------------------
$ 29,644 $ 29,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Trading income consists
of:
Interest income $ 669 $ 729 $ 561 $ 1,398 $ 1,137
Interest expense 842 920 697 1,762 1,337
----------------------------------------------------- -------------------
Net interest expense (173) (191) (136) (364) (200)
Non-interest income 296 375 307 671 569
----------------------------------------------------- -------------------
$ 123 $ 184 $ 171 $ 307 $ 369
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Income by product line:
Interest rates $ 50 $ 65 $ 26 $ 115 $ 92
Foreign exchange 48 44 41 92 80
Equities 22 43 43 65 66
Commodities 2 6 8 8 15
Other 1 26 53(1) 27 116(1)
----------------------------------------------------- -------------------
$ 123 $ 184 $ 171 $ 307 $ 369
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Comprises primarily loan trading activities.
9. Financial instruments designated at fair value (FVO)
FVO financial instruments 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 Apr. 30
-------------------------------------------------------------------------
FVO assets
Securities
Debt $ 6,132
Loans
Business and government 4,225
-------------------------------------------------------------------------
$ 10,357
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FVO liabilities
Deposits
Business and government $ 5,502
Obligations related to securities sold short 38
-------------------------------------------------------------------------
$ 5,540
-------------------------------------------------------------------------
-------------------------------------------------------------------------
------------------------------------------------------------ ------------
For the For the
three months six months
ended ended
----------------------- ------------
2007 2007 2007
$ millions Apr. 30 Jan. 31 Apr. 30
------------------------------------------------------------ ------------
Interest income $ 143 $ 153 $ 296
Interest expense 127 150 277
------------------------------------------------------------ ------------
Net interest income 16 3 19
------------------------------------------------------------ ------------
Non-interest income
FVO financial instruments 80 (11) 69
Economic hedges(1) (21) 54 33
------------------------------------------------------------ ------------
59 43 102
------------------------------------------------------------ ------------
$ 75 $ 46 $ 121
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
(1) Comprises derivative instruments held to economically hedge FVO
financial instruments.
Deposits designated at fair value
As at April 30, 2007, the carrying amount of FVO deposits was $2 million
lower than the amount if the deposits were carried on an amortized cost
basis.
For the three and six months ended April 30, 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 For the six
months ended months ended
----------------------------- -------------------
2007 2007 2006 2007 2006
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Defined benefit plan
Pension benefit plans $ 47 $ 48 $ 52 $ 95 $ 102
Other benefit plans 11 8 18 19 37
----------------------------------------------------- -------------------
$ 58 $ 56 $ 70 $ 114 $ 139
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Defined contribution
plan
CIBC's pension plans $ 5 $ 4 $ 4 $ 9 $ 7
Government pension
plans(1) 22 22 22 44 43
----------------------------------------------------- -------------------
$ 27 $ 26 $ 26 $ 53 $ 50
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal
Insurance Contributions Act.
11. Earnings per share
----------------------------------------------------- -------------------
For the three For the six
months ended months ended
----------------------------- -------------------
$ millions, except 2007 2007 2006 2007 2006
per share amounts Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Basic EPS
Net income $ 807 $ 770 $ 585 $ 1,577 $ 1,165
Preferred share
dividends and
premium (35) (54) (33) (89) (66)
----------------------------------------------------- -------------------
Net income applicable
to common shares $ 772 $ 716 $ 552 $ 1,488 $ 1,099
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 337,320 336,486 335,147 336,896 334,745
----------------------------------------------------- -------------------
Basic EPS $ 2.29 $ 2.13 $ 1.65 $ 4.42 $ 3.28
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Diluted EPS
Net income applicable
to common shares $ 772 $ 716 $ 552 $ 1,488 $ 1,099
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 337,320 336,486 335,147 336,896 334,745
Add: stock options
potentially
exercisable(1)
(thousands) 3,293 3,456 3,397 3,376 3,372
----------------------------------------------------- -------------------
Weighted-average diluted
common shares
outstanding(2)
(thousands) 340,613 339,942 338,544 340,272 338,117
----------------------------------------------------- -------------------
Diluted EPS $ 2.27 $ 2.11 $ 1.63 $ 4.37 $ 3.25
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Excludes average options outstanding of 1,698 with a weighted-
average exercise price of $102.07; average options outstanding of
3,249 with a weighted-average exercise price of $98.30; and average
options outstanding of 10,151 with a weighted-average exercise price
of $84.69 for the three months ended April 30, 2007, January 31, 2007
and April 30, 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 NIFO hedging activities, a gain relating to
net ineffectiveness of approximately $3 million for the quarter (for the
three months ended January 31, 2007: loss of approximately $2 million)
was included in the consolidated statement of operations. 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 three and six months ended April 30, 2007.
The following table presents notional amounts and carrying value of our
hedging-related derivative instruments:
-------------------------------------------------------------------------
2007
$ millions, as at Apr. 30
-------------------------------------------------------------------------
Derivatives Carrying value
notional -------------------
amount Positive Negative
-------------------------------------------------------------------------
Fair value hedges $ 70,742 $ 395 $ 285
Cash flow hedges 5,081 239 6
NIFO hedges 6,154 97 -
-------------------------------------------------------------------------
$ 81,977 $ 731 $ 291
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition, foreign currency denominated deposit liabilities of
$197 million and $16.3 billion have been designated as fair value hedges
of foreign exchange risk and NIFO hedges, respectively.
13. Guarantees
-------------------------------------------------------------------------
2007 2006
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
potential potential
future future
payment payment
-------------------------------------------------------------------------
Securities lending with indemnification(1) $ 45,517 $ 37,921
Standby and performance letters of credit 6,754 6,094
Credit enhancement facilities 22 -
Credit derivatives written options 82,110 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 April 30, 2007, we had a liability of $221 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 April 30, 2007, we had a liability of
$3.3 billion (October 31, 2006: $5.4 billion) on our consolidated balance
sheet. As at April 30, 2007, the total collateral available relating to
these guarantees was $63.2 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, for the Retail World Corporate CIBC
three months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Apr. 30, 2007
Net interest income
(expense) $ 1,134 $ (140) $ 85 $ 1,079
Non-interest income 1,107 812 52 1,971
Intersegment revenue(1) (52) 54 (2) -
-------------------------------------------------------------------------
Total revenue 2,189 726 135 3,050
Provision for
(recovery of) credit
losses 182 4 (20) 166
Amortization(2) 31 5 35 71
Other non-interest
expenses 1,322 519 64 1,905
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 654 198 56 908
Income tax expense 64 1 26 91
Non-controlling
interests 7 3 - 10
-------------------------------------------------------------------------
Net income $ 583 $ 194 $ 30 $ 807
-------------------------------------------------------------------------
Average assets(3) $213,981 $111,404 $ 703 $326,088
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2007
Net interest income
(expense) $ 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2006
Net interest income
(expense) $ 1,058 $ (83) $ 61 $ 1,036
Non-interest income 970 636 135 1,741
Intersegment revenue(1) (53) 54 (1) -
-------------------------------------------------------------------------
Total revenue 1,975 607 195 2,777
Provision for
(recovery of) credit
losses 180 (16) (26) 138
Amortization(2) 20 5 34 59
Other non-interest
expenses 1,217 500 60 1,777
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 558 118 127 803
Income tax expense 126 7 57 190
Non-controlling
interests - 1 27 28
-------------------------------------------------------------------------
Net income $ 432 $ 110 $ 43 $ 585
-------------------------------------------------------------------------
Average assets(3) $186,162 $101,663 $ 603 $288,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CIBC CIBC
$ millions, for the Retail World Corporate CIBC
six months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Apr. 30, 2007
Net interest income
(expense) $ 2,235 $ (264) $ 167 $ 2,138
Non-interest income 2,212 1,663 128 4,003
Intersegment revenue(1) (107) 111 (4) -
-------------------------------------------------------------------------
Total revenue 4,340 1,510 291 6,141
Provision for
(recovery of) credit
losses 335 (6) (20) 309
Amortization(2) 51 10 68 129
Other non-interest
expenses 2,590 1,065 135 3,790
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 1,364 441 108 1,913
Income tax expense 240 34 48 322
Non-controlling
interests 11 3 - 14
-------------------------------------------------------------------------
Net income $ 1,113 $ 404 $ 60 $ 1,577
-------------------------------------------------------------------------
Average assets(3) $209,400 $111,000 $ 623 $321,023
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2006
Net interest income
(expense) $ 2,182 $ (107) $ 109 $ 2,184
Non-interest income 1,970 1,282 199 3,451
Intersegment revenue(1) (109) 111 (2) -
-------------------------------------------------------------------------
Total revenue 4,043 1,286 306 5,635
Provision for
(recovery of) credit
losses 360 (31) (25) 304
Amortization(2) 42 11 66 119
Other non-interest
expenses 2,440 1,027 127 3,594
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 1,201 279 138 1,618
Income tax expense 331 39 58 428
Non-controlling
interests - 2 23 25
-------------------------------------------------------------------------
Net income $ 870 $ 238 $ 57 $ 1,165
-------------------------------------------------------------------------
Average assets(3) $185,341 $101,067 $ 622 $287,030
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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, "Accounting for Leases," certain aspects of which
are incorporated in the CICA Emerging Issues Abstract (EIC) 46,
"Leveraged Leases." The FSP is effective for CIBC beginning November 1,
2007.
For additional details, see page 130 of our 2006 Annual Accountability
Report.
Capital disclosures
In December 2006, the CICA issued a new handbook section 1535, "Capital
Disclosures," which requires an entity to disclose its objectives,
policies and processes for managing capital. This new standard is
effective for CIBC beginning November 1, 2007.
Financial instruments
In December 2006, the CICA issued two new handbook sections, 3862
"Financial Instruments - Disclosures" and 3863 "Financial Instruments -
Presentation." These new standards are effective for CIBC beginning
November 1, 2007.
These sections replace CICA handbook section 3861, "Financial Instruments
- Disclosure and Presentation." These new sections enhance disclosure
requirements on the nature and extent of risks arising from financial
instruments and how the entity manages those risks.%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
